The New Power in
by Rob Steven
As Americans react with dismay to what they view as Japan's
efforts to buy the United States, few people are aware that Japanese corporations
are expanding in other areas of the world as well. The highly valued yen
is driving Japanese companies to invest their capital worldwide. The effect
that this is having in Asia is at least as significant as in the United
States. And as currency values fluctuate in Southeast Asia, Japan's transnational
corporations are shifting their investments within the region from the
Newly Industrialized Countries (NlCs) of South Korea, Taiwan, Singapore
and Hong Kong to the countries in the Association of the Southeast Asian
Nations (ASEAN), Thailand, Malaysia, Indonesia and the Philippines.
of the competitive power of Japanese companies has stemmed from the long
tradition of low-cost production in that country. Even today,the average
real wages of Japanese workers are only about 65 percent of U.S. real wages,
and Japanese workers put in many more hours a week and have far fewer paid
holidays a year than North American workers. But with the yen almost doubling
in value versus the dollar from 1985 to 1988, Japanese companies have been
forced to seek other labor pools to maintain their hold on low-cost labor.
Labor costs are now even higher in Japan than in the United States. The
rise of the yen from around 230 per dollar in 1985 to 140 in September
1989, without affecting real wages in Japan, almost doubled money wages.
As a result, Japanese capital in the manufacturing industry, particularly
manufacturers of components for cars and electronics, has been pouring
into Southeast Asia.
At first Japanese corporations were able to find cheap
labor in the Asian NICs. The revaluation of the South Korean won and the
new Taiwan dollar, however, raised money wages in these countries and Japanese
companies are again fleeing rising labor costs. Now they are moving to
the countries in the ASEAN. Since around mid-1987, the companies have made
a clear switch from the NICs, where wages average a fifth of those in Japan,
to ASEAN, where wages are only one-tenth of those in Japan.
are also turning to Southeast Asia as a platform from which they can grapple
with the effects of the United States's huge trade deficit. The rise of
the yen made exports from Japan to the United States very expensive. The
revaluation of the NICs' currencies made export from these countries to
the United States a difficult proposition as well. Japanese companies have
increasingly turned to the ASEAN countries, which offer safer and cheaper
production sites for export to the United States, Europe and Japan.
virtue of their recent investments, Japanese manufacturers have completed
their shift from import substituting investments in ASEAN to ones primarily
intended for export. Japan's first wave of investment in Asia in the 1960s
was spearheaded by textile and electrical companies which were keen to
capture local markets, and their main targets were the countries which
were to become the NICs. The second wave in the 1970s was, by contrast,
for export back to Japan, but the companies were mainly chasing raw materials
and energy, following oil and other commodity price rises worldwide. Their
targets were predominantly ASEAN countries.
The geographic distribution
of the current wave of Japanese direct foreign investment is carefully
tuned to the labor intensity of the projects and to the cost of labor.
The more labor-intensive branches of the machinery industries have found
their way to ASEAN, while the ones involving the highest technology are
located in the technologically advanced European countries and in the United
States. Projects requiring intermediate technology are located in the NICs.
While ventures like NUMMI (between Toyota and GM) consolidate an alliance
between the advanced industrial powers, unequal joint ventures between
Japanese and ASEAN companies serve only to preserve the inequality of the
industrialized nations' technological dominance over the Third World.
Making cars in Southeast Asia
The primary appeal of the ASEAN countries lies in
their ability to provide cheap components and low-cost assembly. Honda
discovered the game of "internationalism" through its motorcycle investments
in the 1960s; Nissan, with its keen eye for human misery, set up major
engine production bases in such places as the Mexican maquiladoras at about
the same time. Nissan is currently establishing a production network among
six affiliates spread out among Thailand, Indonesia, the Philippines and
Malaysia. Mitsubishi is taking full advantage of the global production
process with its "Asian car," which combines cylinder heads and aluminum
parts from Australia with door panels and steering systems from its joint
venture with the Malaysian government (Proton Saga), a variety of relatively
sophisticated parts (including engines and transmission gears) from its
offshoot in South Korea (Hyundai), transmissions from the Philippines,
bumpers from Thailand, engine assembly in Indonesia, car radios in Singapore
and assembly almost everywhere, including Taiwan.
Toyota was a late-comer,
but once it started, it set itself up for low cost component-making in
ASEAN with unequalled speed. As of mid-1988, Toyota Motor Company had 52
overseas subsidiaries, 10 in Thailand alone, three in Indonesia and one
each in Malaysia and the Philippines.
According to the Far Eastern Economic
Review, Toyota is currently planning "what looks like the boldest scheme
yet to integrate components manufacture in ASEAN." The ASEAN car parts
complementation agreement of October 1988 slashed tariffs on inter-regional
trade in components between subsidiaries of the same company. Toyota plans
to take advantage of the agreement by substituting shipments from Japan
with regionally made parts as well as by exporting about 20 percent of
ASEAN production back to Japan. Announced in September, 1989, Toyota's
ASEAN car will comprise diesel engines, stamped parts and electrical equipment
from Thailand, petrol engines and stamped parts from Indonesia, transmissions
from the Philippines, and steering gears and electrical equipment from
Malaysia. Toyota is investing 30 billion yen in the ASEAN countries for
the plan, says Hiroshi Hashimoto of Toyota's public affairs division.
addition to expanding their investments in Southeast Asia, the Japanese
auto companies are employing local companies to produce cheap components.
Because the Japanese car makers rely more heavily than U.S. companies on
subcontractors, competitive pressures have been especially strong to cut
costs by using ASEAN's low cost parts manufacturers.
The auto companies'
shift into ASEAN also reflects their collective effort to cement an alliance
between the Japanese and the local business elites. Throughout ASEAN, local
businesses are dominated by a number of conglomerates based either on colonial-style
commodity trade or on favors from the post- colonial state. For example,
Toyota's Thai partners include Bangkok Bank, the country's largest business
group, dominated by the Sophonpanitch family, and Siam Cement, Thailand's
largest manufacturing company, is dominated by the royal family. Nissan's
partner in Thailand is the country's third largest conglomerate, Siam Motors,
the core company of the Phornprapha family empire. The joint venture partners
of Japan's car companies elsewhere in ASEAN are similar, although the strategy
is most fully developed in Thailand, which has been Japan's number one
target for low-cost manufacturing since the rise of the yen.
ASEAN's top tier
By the end of 1989, the number of Japanese manufacturers in Thailand
is expected to top 1,000. Over a quarter of those entering the country
in the past few years have been makers of electrical and electronic appliances
and parts. Some of these companies have relocated the bulk of their production
in ASEAN. Minebeas has made Thailand its world production center, where
it employs 12,000 workers compared to only 3,500 in Japan. A company-owned
Boeing 727 connects Japan, Thailand and Singapore twice a week. Sharp has
even made Thailand its largest offshore production base in the world, with
80 percent of output for export to Europe and the United States.
from a share of the profits for the joint-venture partners, it seems that
the local economies receive few developmental benefits from Japanese investments.
Technology transfer is almost non-existent. Staporn Kavitanon, the deputy
secretary-general of Thailand's Board of Investment, told Japan Economic
Journal that "Local production is impossible unless foreign firms give
Thai workers technological training. But in the case of designing and development
technology, Japanese companies are quite hesitant to transfer such know-how
to Thailand, as Western firms do. The Japanese seem to regard Thailand
as only an export base and not as a development base."
Malaysia is also
very attractive to Japanese electronic companies looking for cheap offshore
production sites. "Malaysia provides an investment environment that is
conducive to the needs of the foreign electronics manufacturers," explains
M. Suppiah, director of the Malaysian Industrial Development Authority
in New York. The key components of this environment are low wages and a
workforce which is only permitted to organize in in-house unions. A few
Japanese electronics manufacturers, like Matsushita with its six large
subsidiaries, have been there for some time. But the more recent investors,
particularly in the Free Trade Zones of Kuala Lumpur and Penang, have been
U.S. and Japanese (such as NEC, Fujitsu and Hitachi) chip makers. Following
the fall of Ferdinand Marcos, these companies moved the main base of their
labor-intensive assembly process from the Philippines to Malaysia. They
have since made chips Malaysia's largest export item, exceeding even oil.
A growing number of small and medium sized component makers have also been
gravitating toward Malaysia, partly because "electrical goods and electronics
companies that have moved to Thailand and Malaysia urged their suppliers
to come and join them," according to Japan Economic Journal. But another
reason for the move is Malaysia's proximity to Singapore, which is being
used by a growing number of Japanese transnationals as a distribution center
for the region.
The Singapore government has offered special incentives
to companies that establish operational headquarters on the island. Sony
was one of the first to take advantage of this welcome in November 1987,
and it now has a design center (Sony Precision Engineering), a distribution
center (an International Procurement Office, or IPO) and produces a wide
range of precision components for video cassette recorders and compact
disks there. Aiwa, a subsidiary of Sony, has made Singapore its worldwide
production center, which will account for over half its total output.
routine assembly tasks which used to occur in Singapore are being shifted
to ASEAN, particularly Malaysia and Thailand. Singapore is developing in
other directions. "The last few years have seen a growing number of world-scale
manufacturers, including Japanese ones, distribute their manufacturing
and related activities between Singapore and its neighbors, with Singapore
operations handling such activities as product design and development,
manufacture of newly-developed and high value- added products and production
of critical high-precision components for manufacturing plants elsewhere
in the region," says Masaki Watanabe of the Singapore Economic Development
Board. Thirteen Japanese companies, including Matsushita (which operates
six wholly-owned subsidiaries), have IPOs in Singapore, and many cut labor
costs by using nearby Malaysia as a production base or employing Malaysian
migrant workers in their Singapore factories.
The prospects for continued mobility
The main attraction for Japanese companies in Southeast Asia today
is unquestionably low wages. As these economies and wages rise, however,
Japanese firms may again shift production, in search of even lower labor
costs . Some companies have already started to move to China, Indonesia
and the Philippines.
In the 1970s, following the oil shocks, Indonesia
and the Philippines were the chief targets of Japan's raw material scramble.
But they also saw a gradual increase in machinery investments during this
time. In some cases, these investments actually led to the establishment
of a number of major local conglomerates. For example, in Indonesia, the
Gobel group is essentially an offshoot of Matsushita; the Rodamas group
is an outpost of Asahi Glass; and the Astra group is not much more than
an assembly of Japanese car and component makers, chiefly in the Toyota
group (Toyota, Daihatsu, Nippondenso, Kayaba and Japan Storage Battery).
Six of Astra's seven core companies are linked to Japanese transnationals.
Most of the interest in Indonesia today comes from Japanese car makers
who are aiming to procure parts for their Asian cars as well as to capture
the growing local market. But more attention is also being paid to Indonesia
by such well established giants as Asahi Glass, which has become the dominant
force in the industry in both Thailand and Indonesia and is enlarging its
operations in the latter.
Even in the Philippines, the only remaining Asian
country where U.S. foreign investment still exceeds that of Japan, a few
major business groups have arisen on the coat-tails of Japanese transnationals.
The empire of ex-Marcos crony Ricardo Silverio is largely a product of
his alliance with Toyota, while Matsushita has spawned the fortunes of
the del Rosario clan. Although Japanese interest in the Philippines all
but disintegrated after the fall of Marcos, in part because the high incidence
of corruption between the two governments was disclosed, the lure of low
wages is pulling the labor-intensive Japanese companies back. In the forefront
of the turnaround are Matsushita, Toyota, NEC and Uniden. Uniden is in
the process of withdrawing from "costly" Taiwan, where it pays workers
three times what its Filipino employees get.
Current Japanese multinational
activity complements earlier onslaughts on the region. It is expressed
in changing patterns of trade, such as growing Japanese imports from Asian
subsidiaries. Southeast Asia is now also being crowned as a full-fledged
Japanese sphere of influence by the arrival of the major Japanese banks
in Indonesia, Malaysia and Thailand. ASEAN is being transformed into JASEAN.
Rob Steven is a professor of political science at the University of Canterbury
in New Zealand.