A Comparative Study on Japan’s outward FDI to Korea and China

Abstract

This paper addresses a comparative analysis of outward FDI to Korea and China by Japanese MNCs. The study aims to review the level of economic development of countries expanding overseas and the relativity of outward FDI patterns, and the change process of Japan’s outward FDI from the standpoint of the Investment Development Path Theory. The result can be summarized as follows: First, as a result of examining the long-term changes of Japan’s outward FDI, the development process can be mapped in the order of resource securing→entry into developed markets→production cost reduction→measurements to regional economic integration→establish international division of production→entry into developing countries for markets. In particular, the exchange rate factor called high Yen played a vital role in terms of production cost reduction. Second, as result of outward FDI compared with Korea and China, while the proportion of non-manufacturing industry is higher in the case of Korea, China still has a high proportion in the manufacturing industry. This implies that the investment towards Korea in Japan’s outward FDI pattern is swaying toward developed countries. Third, since the 2000s, Japan’s outward FDI to China began increasing tremendously, as a new phenomenon, by strategic asset seeking motivation, such as R&D base, rather than the traditional efficiency seeking or market seeking motivations. This explains that the strategic asset seeking motivation can be demonstrated both in South→North and North→South, which can exist in third or fourth phases of the IDP theory. It shows that, dynamics of different directions are also feasible within the strategic asset seeking motivation depending on technology levels.