Introduction

Japan has become the second biggest economic power in the world. Its economic activities have an enormous influence on its major economic partners as well as on the world economy. In spite of Japan’s huge economic power, the internationalization of Japanese corporations does not have a long history. Although Japanese corporations penetrated overseas markets through exports in the 1970s, multinational production on a large scale in manufacturing is a relatively recent development. Some sectors, such as textiles and electronics, commenced overseas production before the 1980s, but full-scale multinational production started in the mid-1980s, triggered by rapid appreciation of the yen, a desire to avoid trade friction with developed countries, and promotion of globalization strategies. Outward foreign direct investment (FDI) by Japanese manufacturing firms expanded sharply from US$2.6 billion in 1983 to US$16.3 billion in 1989 and has maintained a high level through the 1990s (Table 1.1). Expanding multinational operations created a network of trade flows within firms. The share of exports shipped to foreign affiliates in total exports by Japanese manufacturing parent companies grew from 29.9 per cent in 1983 to 49.5 per cent in 1992, while the share of imports shipped by overseas affiliates in total imports to Japanese manufacturing parent companies rose from 20.9 per cent to 37.4 per cent in the same period. Japanese manufacturing firms have also deepened their ties with foreign companies through the creation of various webs of international corporate alliances.