IDEAS home Printed from https://ideas.repec.org/p/hst/hstdps/d06-191.html
   My bibliography  Save this paper

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

Author

Listed:
  • Kyoji Fukao
  • Keiko Ito
  • Shigesaburo Kabe
  • Deqiang Liu
  • Fumihide Takeuchi

Abstract

This paper analyzes the degree and the current status of localization of Japanese affiliates in China. For this purpose, we (1) compare the localization (measured in terms of the number of expatriates, local sales, local procurement, and local management) of Japanese and U.S. affiliates in China and other major regions; (2) analyze the impact of localization on the profitability of Japanese affiliates in China and in other major regions; and (3) conduct a detailed investigation of inter-firm transactional relationships in China between automobile manufacturers and parts suppliers. We find that compared with U.S. affiliates, Japanese affiliates tend to be less localized. Using a comprehensive affiliate-level panel data set on Japanese multinationals and concentrating on China, we then examine the effect of localization quantitatively and find that Japanese affiliates with higher procurement ratios and/or local CEOs and procurement managers enjoyed high profits. Next, turning to the factors determining trading relationships between assemblers and suppliers of different nationalities in China, our analysis suggests that even when taking various control variables into account, such as suppliers' productivity level and the distance between assembler and supplier, the transactional relationships of Japanese suppliers are more limited than those of suppliers of other nationalities. Moreover, Japanese automobile assemblers do not choose suppliers based on their current labor productivity level and transactional relationships between assemblers and suppliers are more closed in the case of Japanese firms than in the case of firms of other nationalities. On the other hand, we find that auto parts suppliers dealing with Japanese assemblers see their productivity grow faster regardless of the supplier's nationality. 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 enterprises.

Suggested Citation

  • Kyoji Fukao & Keiko Ito & Shigesaburo Kabe & Deqiang Liu & Fumihide Takeuchi, 2006. "Are Japanese Firms Failing to Catch up in Localization? An Empirical Analysis Based on Affiliate-level Data of Japanese Firms and a Case Study of the Automobile Industry in China," Hi-Stat Discussion Paper Series d06-191, Institute of Economic Research, Hitotsubashi University.
  • Handle: RePEc:hst:hstdps:d06-191
    as

    Download full text from publisher

    File URL: http://hi-stat.ier.hit-u.ac.jp/research/discussion/2006/pdf/D06-191.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    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. Fukao, Kyoji, 1997. "Foreign Direct Investment and the Macroeconomics," Economic Review, Hitotsubashi University, vol. 48(3), pages 227-243, July.
    3. 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.
    Full references (including those not matched with items on IDEAS)

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Lists

    This item is featured on the following reading lists or Wikipedia pages:
    1. Studies on the automobile industry

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hst:hstdps:d06-191. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tatsuji Makino). General contact details of provider: http://edirc.repec.org/data/iehitjp.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.