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Do Japanese Firms Fail to Catch up in Localization? An Empirical Analysis Based on Affiliate-level Data of Japanese Firms and a Case Study of Automobile Industry in China

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  • Kyoji Fukao

    (Hitotsubashi University and JCER, Senshu University, JCER, Tokyo Gakugei University, JCER)

  • Keiko Ito
  • Shigesaburo Kabe
  • Deqiang Liu
  • Fumihide Takeuchi

Abstract

This paper analyzed the degree and the current status of localization of Japanese affiliates in China, dealing with the following three major issues- (1) comparison of localization (expatriates, local sales, local procurement, local management) of Japanese and US affiliates in China and in other major regions; (2) Analysis of the impact of localization on profitability of Japanese affiliates in China and in other major regions; and (3) Detailed investigation on inter-firm transaction relationships in China in the case of automobile manufacturers and the parts suppliers. Compared with the U.S. affiliates, Japanese affiliates tended to be less localized. The quantitative analysis based on the comprehensive affiliate-level panel data of Japanese multinational firms for the period from 1989 to 2002, confirmed that in China, Japanese affiliates with higher local procurement ratios, local CEOs, and local procurement managers, had higher profits. The analysis as of factors determining trading relationships between joint-venture assemblers and parts suppliers of different nationalities in China found that even when various variables, including the level of suppliers productivity and the distance between assemblers and suppliers are controlled for, Japanese suppliers transactional relationships are more limited than those of other suppliers. With respect to non-Japanese assemblers, high-productivity suppliers are engaged in significantly more transactional relationships. By contrast, the same was not found for Japanese assemblers. The results indicate that Japanese assemblers may well be choosing business partners which they expect to realize sustainable productivity increases in the future rather than focusing on present productivity levels. This finding provides evidence of business practices based on a long-term perspective characteristic of Japanese businesses.

Suggested Citation

  • Kyoji Fukao & Keiko Ito & Shigesaburo Kabe & Deqiang Liu & Fumihide Takeuchi, 2006. "Do Japanese Firms Fail to Catch up in Localization? An Empirical Analysis Based on Affiliate-level Data of Japanese Firms and a Case Study of Automobile Industry in China," Microeconomics Working Papers 21890, East Asian Bureau of Economic Research.
  • Handle: RePEc:eab:microe:21890
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    1. Fukao, Kyoji & Ito, Keiko & Kwon, Hyeog Ug, 2005. "Do out-in M&As bring higher TFP to Japan? An empirical analysis based on micro-data on Japanese manufacturing firms," Journal of the Japanese and International Economies, Elsevier, vol. 19(2), pages 272-301, June.
    2. Shujiro Urata & Toshiyuki Matsuura & Yuhong Wei, 2006. "International Intrafirm Transfer of Management Technology by Japanese Multinational Corporations," Discussion papers 06006, Research Institute of Economy, Trade and Industry (RIETI).
    3. Fukao, Kyoji, 1997. "Foreign Direct Investment and the Macroeconomics," Economic Review, Hitotsubashi University, vol. 48(3), pages 227-243, July.
    4. Belderbos, Rene & Capannelli, Giovanni & Fukao, Kyoji, 2001. "Backward Vertical Linkages of Foreign Manufacturing Affiliates: Evidence from Japanese Multinationals," World Development, Elsevier, vol. 29(1), pages 189-208, January.
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