Foreign Direct Investment into Japan and Strategy of Multinational Enterprises

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The objective of this research is to clarify the recent trends of inward direct investment in Japan, putting special attention on the process of decision making made by multinational firms, the economic agent actually making investment. This will be done by applying OLI paradigm known as the theoretical framework for the international production. The result showed that the OLI paradigm could explain quite well the following tow points, namely, (1) the inward investment in Japan has been stagnated for a long period of time at very low level since the Meiji Restoration, (2) the inward investment in Japan has started to grow since the late 1990's. Recently, however, the locations of knowledge and capabilities necessary for the firms to possess in order to obtain competitive advantages tend to disperse worldwide as the global competition becomes severe. As a result, multinational firms started to make direct investment overseas in order to strengthen or create ownership advantages and to o … More btain new competitive advantages rather than doing so having ownership advantages in advance as weapons to compete. Given the new strategies of multinational firms as just mentioned, it will be necessary to reconsider the theoretical analysis of direct investment in Japan by reappraising the three elements offered by OLI paradigm respectively in the direction explained as follows. (A) The factor which determines the flow of direct investment is not the disparities of ownership advantages among firms. Considering the situation where ownership advantages become parity among firms worldwide, it is rather the dynamism of firms to create new competitive advantages becomes primary motive power for the direct investment. (B)During the age of "transnational" management or "metanational" management, what are important as location specific advantages are created assets such as technology, knowledge, skill, innovation ability, and so on. In order for hocal governments to effectively conduct the attractive policies for multinational firms, it becomes important how to accumulate such assets which must be obtained after investment and what kind of strategic role should be expected for the local subsidiaries of multinational firms. (C) The strategic alliances will play even more important roles for the analysis of internalization incentives, because those created assets not innately possessed are closely related to the firm specific and context independent natures. Less