Multinational Business in Japan and South East Asia - Term Paper Example

Running Head: MNC IN JAPAN AND SOUTH EAST ASIA MNC in Japan and South East Asia [The [The of the MNC in Japan and South East Asia Introduction Japan's extraordinary economic achievements during the post-world war II period inspired awe throughout the world. In the course of three decades, Japan transformed itself from a war-devastated country, whose industrial recovery cantered on the production of "cheap gadget" and light consumer goods, into an affluent and technologically sophisticated global industrial leader. In trade, Japanese export successes have contributed to expanding surpluses in the country's international accounts since the 1970s. These huge surpluses have been invested abroad, creating a huge stock of foreign assets for Japan. By the mid-1980s, Japan had risen to prominence as the world's largest net creditor nation. Japanese economic growth following the American occupation wars remarkable for its magnitude, speed and downright relentlessness. Between 1957 and 1984, Japan's gross national product increased from $3.08 billion to $1.261 billion, a 42-fold jump. Moreover Japan's economy grew at an annual rate of 9 percent per year during the high-growth years of the 1960s. How was this economic miracle achieved Developmental Capitalism Japan has employed a version of "developmental capitalism" that allows for a much greater government role in promoting Japan's international competitiveness than is typical in Anglo-American liberal capitalism. Japanese business and government leaders started to develop and implement policies aimed at promoting national economic growth following the end of the U.S occupation of Japan in 1952. The government has positively influenced economic growth through wise macroeconomic policies. Business in Japan has maintained very close relations with the bureaucracy and politician. Japan's Main Banking Sector: Encouragement to Private Saving And Investment Japan's gross national savings at its zenith reached nearly 40 percent in the post-war period. Between 1960 and 1980, the Japanese saved around 20 percent of their disposable personal income. The high level of savings of households provided banks and other financial institution with ample funds for heavy investment in the private sector. Japan has invested heavily in developing an effective education and training system. Companies are responsible for providing technical training to the persons they hire. Japan's economic success can be explained by largely the Cold War and the relationship between the United States and Japan that it produced. The cold war rivalry between the United States and the Soviet Union led the United States to shelter Japan from the vagaries of international politics, permitting the Japanese to focus their attention and resource on achieving economic growth. Advocates of "free rider" in which the U.S-Japan relationship has supported Japanese economic growth. The United States provided cheap technology transfer to Japan following World War II and promoted the Japanese economic build-up through its international trade policy. The Japanese Economic Recession in the 1990s and Measures for Economic Rebirth From an economic standpoint, the contrast between the 1990s and the cold war years can be seen by looking at Japan's real economic growth rate. In 1992, Japan's economy entered a period of stagnation with economic growth rates much below the previous average. In retrospect it is clear that the Japanese economy became dominated by a financial bubble in the 1980s and early 1990s. In May 1989, the government tightened its monetary policies to suppress the rise in value of assets such as land. By the end of 1990, the Tokyo stock market had fallen 38%, wiping out 300 trillion yen (US $ 2.07 trillion) in value, and land prices dropped steeply from their speculative peak. This plunge into recession is known as the "bubble economy". The post-bubble recession continued through the second half of the 1990s. In spite of the clear tendency that the "bubble" ceased in 1991, the government hesitated to change the policy stance toward the financial and fiscal relaxation and consequently economy went down to early zero grow. In 1980s, US and European countries promoted vigorously the deregulation policy to stimulate competition and challenge for new frontiers. However, in Japan, industries enjoyed the asset inflation and neglected to tackle for competitive capabilities. The market with remaining regulation seemed to be less attractive for international business. Japanese business leaders tend to have the sense of "yokonarabi" (herd instinct) and relatively lack the self-responsibility and self-support. When there had problem, business leaders have strongly asked for the governmental stimulus measures without taking any drastic measure for slimming down and challenging new frontier. The Japanese business leaders are less enthusiastic in applying information system in the 1990s. The instability of finance system has accompanied the credit crunch. Japan's "bubble economy" resulted from the delayed change of economic policy toward tight financial policy. Soon after the authorities took the tight money policy, unfortunately taken very lately, the prices of the land and stock prices dropped dramatically. The Restructuring Of Japanese Economic Model Actually, now, Japan is forced to meet the challenge of a globalised economy by coining up with a new economic model. The Japanese economic model has matured gradually through process of post-war reconstruction and ensuing high economic growth. Transition towards a boardless free market economy. Intervention by the government in the market must by minimized to ensure a rational distribution of resources. Deregulation, especially the abolishment of foreign exchange control and the financial big bang (deregulation) is forcing restructuring on financial as well as non-financial corporation. The restructuring including a thorough review of Japanese business and management practices including lifetime employment, "Keiretsu" procurement and distribution and the cross holding of share. The Role of Japan and Relations between Japan and Other South East Asia Countries The Asia-pacific region, the centre of world growth, is experiencing dynamic economic development against a background of political stability as the level of interdependence in the region deepens. The region was being integrated through Japanese efforts in trade, aid, FDI, technology transfer, and as a model of economic development. Many Asian countries were trying to follow in Japan's developmental footstep parts of what they view as " the Japanese model". The rapid growth in Asian economies since the eighties has integrated the Japanese economy deeply into the region, as can been seen from the overseas activities of Japanese companies, the divisions of labour within the Asian region, and the strengthening of relationships in the financial area. Exports have for a long time been major contributors to growth in the region. Japan remains by far the largest export from the region, though its share in total Asian exports is flopping. Japan is an important markets for the rest of South East Asia's exports as well -from a high of 27 percent from Indonesia to a low of 5 percent from Hong Kong. Totally, Japan absorbs a 15-10 percent share of the export from other East Asia country. Japan has contributed to Asia industrial growth by supplying not only capital, but also critically needed production and process technology. The Japanese economy influences trade volumes and prices in selected commodities in APBR. For example, Japanese rice purchase affect Indonesia and Thailand, and Japanese rubber demand affects Malaysia and Thailand. Japanese performance also influences financial market in APBR, even in world. Japan's foreign direct investment (FDI) flow to the region was about US$11 billion in FY 1996, mainly to China, Hong Kong, Singapore and Indonesia. Japan's multinationals, originally led by the general trading houses, are the largest foreign investors in Asia Pacific, supplying most manufactured imports and buying large quantities of good from the region. Japan and other South East Asian Countries Economic Relation Since the mid-1980s, East Asia has been viewed at the "growth centre" for the world economy. Japan has played an important role in Asia economy development. Since the appreciation of the Yen in the middle 1980s following the Plaza Agreement of 1985, Japanese enterprises have been very active in expanding trade and investment in Asian region. For example, the share of export to East Asia out of Japan's total export increased from 23% in 1985 to 43% in 1996. Similarly, the import share from East Asia also increased from 25% in 1986 to 35% in 1996. Foreign direct investment by Japan in Asia increased two-fold between 1992 and 1997 to $12.26 billion. Japan's government-business alliance is pursuing an Asia-wide version of developmentalism. That is, it is exporting to the region a set of pro-growth government policies and cooperative industry practices designed to help heading manufacturing firms achieve efficiencies and market power by adopting successively more advanced technology. Since the mid-1980s, Japanese multinational enterprises (MNEs) have been building vertically integrated production network that they dominate in and across Asian economies. Manufactures of such electrical products as TVs, VCRs, and refrigerators opened assembly plants in China, Thailand, Malaysia, and other countries in Asia where work quality are high and labour inexpensive. On the supply side, Japanese capital continues to follow into South East Asia in impressive amounts ($7.76 billion in manufacturing investment in 1995, - a 57 percent increased over the volume in 1994). More and more Japanese manufactures are moving into the region. On the demand side, Asian countries continue to rely heavily on Japanese technology to fuel their increasingly export-oriented economies. In 1994, 52.3 percent of Malaysia's technology was imported from Japan, compared with 22.7 percent from the United States. In 1995, when Japan undertook FDI, 24 percent of the Japanese affiliates in the Asian newly industrialized economies (NIEs), 33 percent of those in the ASEAN -4 (Malaysia, Indonesia, Thailand, and the Philippines) and 21 percent of these in China. Japan's Contribution to Asia Economy On October 6, 1954, Japan joined the Colombo plan, and this marked a memorable start of Japan's government-to-government economic cooperation with developing countries. It is clear that the Official Development Assistance (ODA) provided to developing countries by Japan has contributed profoundly to their economic development, particularly to that of Asian countries and its characteristics may be summed up in the following points. Approximately 60% of Japan's ODA has been directed to Asian countries and the large part of it was allocated in the field of economic infrastructure, which helped improve the environment for investment by foreign capitals and utilize the vitality of the private sector. These aid projects were well timed to invite foreign direct investment to Asian countries and promote the development of their export industries. Increases in agricultural production have bolstered the economic development of East Asian countries, and Japan has extended large-scale aid projects in various forms for the development of their agriculture. In the area of human resources development, which is one of the key ingredients Underpinning the economic development of East Asia countries, Japan has put emphasis on aid for human resources development since the 1970s. Japan's ODA reached approximately US$14.7 billion in 1995 (net disbursements). Asia holds the largest share, with 54.4% of Japan's total ODA activity. The region is regarded the top priority for Japan's economic cooperation efforts as a whole. For instance, ODA to ASEAN region in 1995 made up 21% of Japan's bilateral ODA programs. For Indonesia, the Philippines, Thailand, Brunei and Singapore, Japan is the largest donor nation. Specifically, cooperation to Vietnam, Indonesia and the Philippines takes the form of improving social infrastructure and human resources through grant aid and technical cooperation, as well as Yen loans to build economic infrastructure. Thailand and Malaysia, which have now achieved economic growth, are no longer grant aid recipients. Singapore and Brunei have received technical cooperation corresponding to the level of technology in the beneficiary nation. (Kosai, 2004). Through faced by its own economic difficulties, Japan provided assistance for the Asian countries when they were in economic crisis. In addition to ordinary Yen loans, it's established the New Miyazawa Initiative and a special Yen loan program. Having announced its assistance measures totalling approximately $80 billion, Japan has been actively assisting the Asian countries. Japan is determined to continue to help the Asian countries in overcoming their economic and other problem. The Asian economy was rapidly recovering from the currency and economic crisis. Currency Stabilization: Efforts To Internationalisation of the Yen, etc. The urgent capital needs of each Asian country have been met through funding visa the New Miyazawa Initiative and other public assistance and the economies of Asia were bottoming out. It was essential to mobilize domestic and foreign private sector funds to achieve a full-scale, vigorous recovery in these economies. Conclusion According to different reforms in economic and government aspects, the world's second-largest economy has shown signs of modest recovery from a decade long slump. Both exports and imports are gradually increasing, reflecting the trends of exports to and imports from Asia. As for the balance of payments, surpluses registered in the trade and service account balance remain almost at the same level. Rapid globalisation is increasing the interdependency of economies in a trend that cannot be turned back. The Asian financial crisis has underscored how deep economic interdependency is in the East Asia region, the recovery of the Japanese economy is extremely important for the recovery of Asian economies. And conversely, the recovery of Asian economies is also important for the recovery of the Japanese economy. Because of recent favourable development, I would like to present more optimists scenarios as to timing of Japan's revivals. Under this scenario Japan will resume a vigorous economic growth between the years 2003 to 2005. Bibliography Bayoumi, Tamim A., and Charles Collyns. 2000. Post-bubble blues : how Japan responded to asset price collapse. International Monetary Fund. Economic relation (2004) New ASEAN-Japan Relations for the 21st Century P1 [on-line] http://www.iie.com/ economic relation.htm Fukukawa Shinji (2005) Economy of Japan P2 [on-line] http://jinjcic.or.jp/today/econo/economy of Japan.htm Gilson, Ronald J., and Mark J. Roe. 2000. "The Political Economy of Japanese Lifetime Employment." Pp. 239-274 in Employees and Corporate Governance, edited by Margaret M. Blair, and Mark J. Roe. Brookings Institution. Gregory Jackson. 2005. "Stakeholders under Pressure: Corporate Governance and Labour Management in Germany and Japan." in Corporate Governance: An International Review. Blackwell Publishing. History of Official Development Assistance (2004) " the Philosophies of Economic Cooperation: Why Official Development Assistance" P3 [on-line] http://www.iie.com/publication/pub.htm Jorgenson, D.W. (2003) "Productivity and Economic Growth in Japan and the United States" P13 , American Economic Review Kanaya, Akihiro, and D. Woo. 2001. The Japanese Banking Crisis of the 1990s : Sources and Lessons. International Economics Section Dept. of Economics Princeton University. Kosai, Y (2004). The Era of High-speed Growth, Tokyo: University of Tokyo Press Milhaupt, Curtis J. 2002. "On the (Fleeting) Existence of the Main Bank System and Other Japanese Economic Institutions." Law and Social Inquiry 27. MITI (Malaysia), Malaysia International Trade and Industry Report, July 2005, P193 NBR Analysis, vol.8, No.1, Essay Szymkowiak, Kenneth. 2002. Sokaiya : extortion, protection, and the Japanese corporation. M.E. Sharpe. The Ministry of Foreign Affairs of Japan (2003) Asian Economic Crisis and Japan's Contribution P4 [on-line] http: //www.feer.com/ current situation of the Asian economic crisis and Japan's response to it.htm Toshiro Kiribuch (2004) Collapse of the Post-war System and a Possible Rebirth of Japan in the Early 21st century P7 http//www.infojapan.org/policy/economy/measure99/measures.htm World Bank (2005) "priorities for a sustainable recovery" The Social Cost of the Economic Crisis P309 Consumer International Yamamura & Hatch (2004) " A Looming Entry Barrier : Japan's Production Networks in Asia" P3 [on-line] http: // www.epa.go.jp/NBR Analysis, vol-8, No-1, Essay.htm Yasuhiro Arikawa, Hideaki Miyajima. 2005. "Relationship Banking and Debt Choice: Evidence from Japan." in Corporate Governance: An International Review. Blackwell Publishing. Read More