Introduction
South East Asia has been experiencing unequal economic and social transformation. In the last 50 years, South East Asian region has experienced rapid industrial and economic growth rates, which have had a compounding effect on human lives. The fastest developing economies in the region include China and other economies in the Southeast Asian regions. These economies have attracted attention and investment from large multinational companies in Japan. This paper seeks to address the main factors or forces that influenced the Japanese multinational companies to invest in the Southeast Asia region (Stonehill & Moffett, p. 12, 2007).
Forces driving Japanese investments in South East Asia
Most of the Japanese multinational companies have been attracted to the Southeast Asian region by the general political and social stability. For any business venture to be successful, it needs to enjoy relative calm and peace. The Southeastern Asian region has enjoyed considerable peace and stability over the past few decades. This has made the region to be an attractive investment and business hub. Cooperation between Japanese government and other governments in the Southern Asia improved after the Second World War leading to the signing of cooperation treaties. These treaties paved way for economic and infrastructural investments (Huang, p.124, 2001).
With the fluctuation of currency values in the Southeast Asia region, many Japanese multinational companies reallocated the bulk of their investments around the region from newly industrialized countries such as Taiwan, South Korea, and Singapore. These multinationals moved to nations under the Association of the Southeast Asian Nations (ASEAN), which include Indonesia, Malaysia and Thailand. The competitive strength of Japanese multinational companies originates from their long history and culture of low cost production. Currently, the average mean wages of the Japanese human resource is about 65% in comparison to the average the U.S. mean wages (Huang, p.127-128, 2001). As the Japanese yen continues to double in value against the American dollar, Japanese firms have been forced to look for other labor alternatives in order to maintain their grip on low labor costs. This prompted the shift of investment into the Southeast Asia region. Initially, Japanese corporations accessed cheap labor from the newly industrialized countries in Asia. The yen gained in value from 230 per dollar during the early 1985 to 140 per dollar in 1987 without having a negative impact on real wages within Japan. This rate almost tripled income wages. As a consequence, capital from the manufacturing industry predominantly manufacturers of electronic and motor vehicle components from the Japanese corporations were shifted to Southeast Asia (Gomez-Dierks, pp.123-124, 2001).
Japanese multinational companies also turned to the Southeastern Asia region to cushion themselves from harsh effects of the United States trade deficit. When the yen gained value against the dollar, it made exports to the United States significantly expensive. The constant reevaluation of domestic currencies of newly industrialized countries also made exports from these countries to the United States uneconomical. As a result, Japanese multinational companies have turned their attention to the ASEAN countries. These countries provide safe and cheap manufacturing sites for export oriented products. Initially, the wave of investments in Southeast Asia was driven by the high population growth rate experienced in the region between the early and mid-1980s. This high population served as a source of cheap and reliable labor force while at the same time presenting a ready market for the manufactured goods. Japanese manufacturing companies use cheap labor to minimize their production costs. Thus, they were attracted by the abundant labor force and the ready market. The Southeast Asian nations are also endowed with natural resource deposits that are used by Japanese multinational manufacturing companies. The availability of raw materials offers a great opportunity to these companies. It is cheaper to transport finished goods to the market rather than transporting raw materials to distant factories (Huang, p.125, 2001).
Apart from the high population increase, which provides labor and market for manufactured goods, the ASEAN region is characterized by good infrastructural development. Good infrastructure tends to reduce other manufacturing costs such as transport of raw materials to the processing plants and finished goods to the market. Apart from transport infrastructure, the ASEAN region also has made significant developments in energy and information technology provision, which attracts the multinational companies to the region (Stonehill & Moffett, p. 104, 2007).
Japanese multinational companies enjoy foreign investment incentives from local governments in the Southeast Asian region. Examples include special offers made by the Singapore government to any multinational that established a regional headquarters in the country. Sony Corporation was the first to embrace this incentive. During the year 1988, the ASEAN car parts complementation treaty reduced tariffs levied on interregional transactions of components amongst subsidiaries of a parent company. Toyota took the advantage by substituting imports from Japan with regionally manufactured part and shipping about 20% of all ASEAN manufactured parts back to Japan (Stonehill & Moffett, p. 123, 2007).
The move by the Japanese automobile companies to ASEAN region was meant to cement corporation and alliances between local business elites and the Japanese. Throughout the ASEAN region, local companies are predominantly owned by a number of conglomerates grounded on either by colonial-style business or support from post-colonial governments. For example, the partners of Toyota in Thailand include the Bangkok Bank, which is the nation’s largest business group predominantly owned by the royal family. On the other hand, Nissan partners with Siam motors, which is the third largest business group owned by the Phornprapha family empire. Most of the Japanese multinationals and joint ventures in the ASEAN region are similar. However, the strategy is significantly developed in Thailand, which has been the main destination for Japanese multinational companies’ low cost manufacturing (Gomez-Dierks, p.124, 2001).
Reason why Asian firms built production firms in Mexico
The Mexican duty-free manufacturing industries started to connect to manufacturers in Mexico and the United States. However, this has been regarded by Japan and other nations as a gateway to extend their incursion into the American economy while circumventing trade squabbles. Inspired by the two year appreciation in the value of the yen and by reservations about American reprisals towards Japanese made goods, the Japanese multinational companies are eyeing Mexico as an almost perfect foundation from which to export to the United States. This is due to the favorable business conditions that are extended towards the maquiladora assembly plants by the Mexican and American governments (Ganster, San Diego State University & Japan Studies Institute, pp. 42-45, 1987).
The maquiladora program that derives its name from a processing levy, which was imposed in the colonial era, has been in existence from the mid-1960s. It allows foreign-owned factories to ship components in the country free of any tax. This also allows the factories to carry out assembly in Mexico using the available and cheap labor and then ship the finished product. Historically, the United States has been the main destination of such commodities. The US imposes a duty on the value added on the commodity through assembly in Mexico. Essentially, the tariff laws do not make any clear distinction between foreign and American businesses provided the components imported by the Mexican industries are manufactured in the United States. The number of maquiladoras has increased two-fold to an average of about 1000 since 1982. On the other hand, the Mexican peso has depreciated against the dollar from 24 pesos per dollar to about 1230 pesos per dollar. The Japanese companies that have benefited from this program include Sony, Sanyo, Matsushita, and Hitachi (Sklair, p.11, 2012).
Mexico boasts of having the longest border line with the world’s largest economy, and which also happens to be the prime export destination for Japanese products. This would be the most logical site to invest in building assembly factories. In this case, the attractions that brought the companies to Mexico are bound to exist for a very long time. Japanese multinational companies were originally attracted to the maquiladora program and the closeness of Mexico to the state of California, which has the lion’s share of Japanese foreign investment in the United States. However, the drastic increase in the value of the yen has also played a very significant role in decisions made to locate the industries close to the Mexican-Californian boarder. Coupled by the dollar’s appreciation against the Mexican peso, it is probable that this will attract more Japanese multinationals to set up camp in the Mexican maquiladora. Japanese multinationals are being forced out of Japan due to the constant revaluation of the Japanese yen. As the case to other countries such as those in Southeast Asia, the availability of cheap and reliable labor in Mexico is a big enticement to the multinational corporations. This is coupled by the appreciation of the dollar against the peso (Ganster, San Diego State University & Japan Studies Institute, pp.107-109, 1987).
It is noted that a shift in the money exchange rate is directly in favor of the Japanese multinational companies. They earn in dollars and spend using the Mexican pesos. Notably, the exchange rates are always predictable. As a result, Japanese companies are insulated from oscillations in the peso-dollar exchange rates. Thus, they avoid trade barriers. There has been a growing awareness amongst the Japanese multinationals that, by investing in Mexico, they can avoid trade restrictions. A clear example is when tariffs were imposed on Japanese semiconductors. In this regard, the Japanese industries operating from the Mexico would not be subjected to the tariff. From this perspective, the perceived viable advantage of investing in Mexico turned to be a practical advantage. State officials from the Mexican and American governments also highlight the fact that exports from the Japanese maquiladoras industries are not captured in the Japanese and American trade statistics. However, they are reflected in the trade between the United States and Mexico (Sklair, pp. 40-41, 2012).
Currently, Japan is the only Asian nation with a considerable economic presence in the maquiladora. Although other companies from Taiwan, Singapore, South Korea, and Hong Kong are on Japan’s heels. They are also evaluating the viability of establishing maquiladora in Mexico. The huge disparities between the United States and Japan have forced a change in strategy among the Japanese multinational companies (Ganster, San Diego State University & Japan Studies Institute, p. 21, 1987).
Conclusion
The principal attraction of the Japanese multinational companies to Southeast Asia is the availability of low wages. However, as these economies and wages rise, Japanese multinational companies tend to shift their production to other regions with perceived low labor costs such as Mexico. The current multinational company activity in the region pays supplements to other onslaughts in the area. It is manifested in the changing frequencies of trade, like increasing Japanese imports from their Asian subsidiaries.
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