Japanese Transnational Corporations in Asian Areas

by Michiko Watanabe
Asian Women Workers Center (AWWC)

 

I. The Rapidly Increasing Overseas Advances of Japanese Corporations and Their Characteristics

A. Direct Overseas Investment Reaching an All-Time High

In the midst of the sharp appreciation of the yen under the Plaza Agreement, which was reached at the conference of finance ministers of five industrial countries (G-5) in September 1985, the number of overseas advances of Japanese corporations has been increasing every year. In 1989, Japan became the largest investment country in the world, outdistancing Britain and the United States. According to statistics compiled by the Ministry of Finance, Japan’s direct overseas in. vestment amounted to US$67.54 billion in fiscal 1989, a year-to-year increase of 43.6%. This is a reflection of the trend that began in 1985 as evidenced by the following year-to-year increases in Japanese direct overseas investment: 82.6% in fiscal 1986, 49.4% in fiscal 1987 and 40.9% in fiscal 1988. The annual increase has accounted for more than US$10 billion in value during these years. As a result, the aggregate amount of investment between fiscal 1986 and 1989 was US$170.2 billion, more than twice as large as that during the 35-year period between fiscal 1951 and 1985 of US$83.55 billion.

Japan’s economic advance into Asia started with the payment of post-war compensation in the mid 1950s. Practically speaking, these payments were "loans secured on compensation" granted by the Japanese government to Asian countries. Japan expanded its trade with Asia utilizing these payments as an economic stimulus for the region. The payments of compensation by Japan lasted until the mid1960s through its merchandise export, a period during which Japan was said to be absorbing even U.S. military aid to Asian countries, which was increasing amid the East-West Cold War.

Japan’s direct investment in south Korea and Taiwan had been active since the conclusion of the Korean-Japanese Treaty in 1965, and it entered a full-scale investment era with capital deregulation and the shift to the floating system in 1972 as a turning point. In the 1970s in particular, Asian countries, including members of the Association of Southeast Asian Nations (ASEAN), strengthened their foreign capital introducing policies and began to invite foreign capital, establishing free trade zones (FTZs) or export processing zones (EPZs). As a result, the overseas advances of Japanese corporations reached its first peak in fiscal 1972 and thereafter, although the growth rate of overseas investment dropped temporarily during the sluggish period of world business resulting from the first oil crisis at the end of 1973. The second peak of overseas advances began just prior to the second oil crisis in 1984. However, the recent rapid increase in overseas investment not only features massive amounts of money but also differs from previous ones in that it has drastically changed the investment structure.

B. Changes In the investment Structure

According to an analysis made by the Japan External Trade Organization (JETRO) about the third peak of overseas investment since 1986, when an all-time high was made in the number and amount of investments, the following characteristics were observed: (1) a decrease in the share of investment aimed at developing countries and an increase in investment aimed at developed countries in terms of value; and (2) a drop in the share of investment in the manufacturing industry and an expansion into non-manufacturing industries.

In other words, as for changes by region, the percentage of investment aimed at Latin America and Asia dropped from 40% during the first and second peaks to 25% during the third peak while that aimed at developed countries in North America and Europe expanded from 40% to almost 70%.

In regard to changes by industrial classifications, the percentage of investment in manufacturing had previously been kept at more than 30% during the first and second peaks but dropped to 24.5% during the third peak. In addition, the composition of investment in the manufacturing sector changed remarkably as well. The weight of investment shifted from such labor-intensive industries as the textile, chemical and ferrous/non-ferrous industries as well as resource processing industries to process/assembly industries, such as machinery, electrical machinery and transportation equipment industries. (The ratio of the latter, which was 22.7% and 38.2% during the first and second peaks respectively, amounted to 50.5% during the third peak.)

In the non-manufacturing sector, the share of commerce dropped while that of the financial/insurance and real estate industries expanded. (The financial/insurance industry accounted for 27.3% of the aggregate amount of the third peak; the real estate industry’s share was 18.9%.)

In addition to the above-mentioned characteristics of the third peak, JETRO notes that investment by medium- and small-sized corporations in 1989 accounted for the majority of investment in terms of the number of investment cases. In other words, although the share of investment aimed at developing countries or that in labor-intensive and resource-securing industries dropped, the number of investment cases and the amount of investment aimed at developing countries increased in terms of the absolute value. Particularly noteworthy is the rush to the Asian region by medium-and small-sized Japanese corporations, which have focused their advance on the manufacturing industry.

The number of direct overseas investment cases by Japanese medium- and small-sized corporations was about 300 per year during the first half of the 198Os, which accounted for 30% to 40% of the total number of direct overseas investment cases by Japanese corporations, including major corporations. After 1986. it almost doubled every year until 1988 when it amounted to 1,625. Although it decreased a little in 1989, the share of medium- and small-sized corporations still maintains a level of more than 50%.

As noted above, direct overseas investment by medium- and small-sized corporations centers on the manufacturing industry, which accounted for 535 cases or 38.2% of the total investment made by medium- and small-sized corporations in 1989. This percentage is considerably high compared with 24.1%, the percentage of investment in the manufacturing industry made by all Japanese corporations, including major corporations. Of the investments made by medium- and small-sized corporations in the manufacturing industry, the ratio of investment aimed at Asia was overwhelmingly high: 64.7% and 9.0% respectively. While this investment had been focused on three Newly Industrialized Countries (NLCs) until 1987 - south Korea, Taiwan and Hong Kong, the center of investment has shifted to ASEAN countries since 1988, particularly to Thailand and Malaysia.

In making a summary of what is discussed above, the following features of the overseas advances of Japanese corporations can be detected: (1) the move has expanded to almost all types of industry, from the manufacturing industry to the service sector, and involves medium- and small-sized corporations as well as major corporations; (2) while investment in the West, which has sharply increased in the 1980s, centers on the service sector, such as financial/insurance and real estate businesses, investment in the manufacturing industry is concentrated in Asia, making the bipolar structure clearer; and (3) with investment in the Asian region rapidly increasing again after a brief drop as a result of the appreciation of the yen, centering on investment in the manufacturing industry by medium-and small-sized corporations, Asia has been positioned more and more clearly as a "production/processing" region for Japanese corporations.

C. The Factors Contributing to the Sharply Increasing Overseas Advances

According to various surveys, the three major factors of the rapidly increasing overseas advances of Japanese corporations are: measures to tide over Japan’s lowered international competitiveness resulting from the appreciation of the yen; the avoidance of trade friction; and the globalization strategies of corporations. A questionnaire survey conducted by the Ministry of International Trade and Industry (MJTI) indicates that "in response to import restrictions" is an important motive of investment in the West, along with the "expansion of sales routes in local markets," while "low production costs, including labor costs," is a major motive of investment in Asia.

The "globalization strategies of corporations" above means that corporations are trying to conduct efficient operations globally in regard to production, sales, research and development and fund raising. Such strategies can be regarded as long-term strategies by Japanese corporations that are aimed at emerging as transnational corporations (TNCs).

According to a survey conducted by MITI in 1990 covering the manufacturing industry, the majority of corporations are currently developing overseas business operations by making the most of overseas production activities, though most of the corporations were export-oriented in their overseas business five years ago. In parallel with such a change, they are said to be shifting from a management form under which the head office in Japan controlled development, production and sales to one under which such activities are controlled in bulk by the head office and its overseas bases. In other words, these globalization strategies are aimed at establishing the most efficient production system by mutually accommodating finished products and parts between bases around the world with parts being procured locally.

In another survey involving operations in the manufacturing industry conducted by JETRO between October and December 1989, many medium- and small-sized corporations named the "security of markets in advanced countries" and the "security of cheap and affluent labor" as the motives of their overseas advance; only a small number of corporations cited the "avoidance of trade friction." Investment in Asian countries was primarily aimed at the "security of cheap and affluent labor" and creating "bases of export to third countries or reverse export to Japan" while investment in the West was largely targeted at the "security of markets."

The number of medium- and small-sized corporations that are developing globalization strategies are also increasing. The segregation of production bases, or horizontal specialization, is underway as plants in Japan receive orders for the following types of items: high-grade products aimed at the domestic market and high-tech products; and such specially ordered products as super-high precision/small-lot products or products that should be delivered in a short time while overseas plants are engaged in mass production. As for local procurement, however, machinery and equipment are procured from Japan; materials are primarily obtained locally; and parts are procured both from Japan and locally. In an increasing number of cases, local governments demand that the ratio of local procurement for materials and parts in particular be raised.

According to a survey conducted by Small Business Finance Corporations at the end of January 1991 covering corporations to which direct loans had been made, corporations advancing into Asian NICs, ASEAN member countries and China cited the "utilization of low-cost labor" as the first target of their overseas advance. The "development/security of markets" was the second-ranked reason among corporations advancing into NICs; the "security of order-receiving" among those advancing into ASEAN countries; and "export to Japan" among those advancing into China. The results reflect the difference in the actual state of the economy in each country/region as well as the industrial structure. On the other hand, the first reason for advances into Europe and the United States was the "development/security of markets" followed by the "collection of information."

As seen above, Japanese corporations are now advancing all over the world under various strategies, including the "survival strategies" of medium- and small-sized corporations in the manufacturing industry, which are aimed at attaining the "security of cheap and affluent labor" amid the appreciation of the yen, and major corporations’ "strategies aimed at emerging as multinational corporations." They are about to create new problems: the former as profit-driven corporations called "migration corporations" and the latter through the dangerous "export of Japanese-style labor controls."

II. The Consequences of the Overseas Advances of Japanese Corporations In Asia

It is said that the overseas advances of corporations and direct investment contribute to the stimulation of the world economy, especially for countries accepting TNCs by contributing to their capacity for production and export, creating employment and transferring technology, etc.

Since "Japan Contributing to the World" became a slogan cried loudly by the Nakasone administration, the Japanese government and economic organizations have encouraged and glorified Japan’s economic overseas advancement as a contribution to international society.

It is certain that the governments of developing countries, East European countries and the Soviet Union keep paying attention ardently to Japanese corporations, like their Look East policy in ASEAN countries. However, such admiring voices come only from governments or administrative authorities who are intending to promote economic development by introducing foreign capital and from local entrepreneurs who are expecting to form joint ventures with Japanese corporations.

With the rapid increase of Japanese corporations’ overseas advances, however, the voices criticizing the oppressive behavior of Japanese corporations have been increasingly raised in the past few years in many countries, especially in Asia.

A. Cases of Exploiting People and Nature

In February 1989, the People’s Action Network To Monitor Japanese TNCs (PAN) presented a report of 24 cases involving the activities of Japanese corporations in the past few years. The following cases are typical problems caused by Japanese corporations that were revealed.

Case 1 - Exportation of Pollution: People have been exposed to radioactive waste thrown away at an open-air storage area by ARE Co. in Malaysia, which is a joint venture with Mitsubishi Chemical Industry. Local people brought the case against ARE Co. to court - a case now pending in the High Court in Malaysia.

Case 2 - Unfair Labor Practices, Oppression against Workers and Disregard for Human Rights: Like the cases of Asia Swany Co. and Korean Sumida in south Korea, unfair labor practices, the oppression of workers and their unfair dismissal occurred one after another, especiab ly in Asian countries, in total disregard of the fundamental human rights of workers and local laws.

Case 3 - Environmental Destruction and the Excessive Exploitation of Resources: Japanese paper-manufacturing companies and trade companies have deforested and destroyed the natural environment in Sarawak in Malaysia and in Australia. In the Philippines and Indonesia, Japanese large-sized fishing boats have taken fish and shellfish excessively. These activities have been facing strong criticism in the world.

Case 4 - Pollution and Environmental Destruction Caused by ODA- Related Projects: Pollution from copper refining on Leyte Island in the Philippines and from the Asahan aluminum project in Indonesia - Overseas Development Assistance (ODA)-related projects -have caused several problems.

Case 5 - Unfair Sales of Medical Goods, Powdered Milk and Agricultural Chemicals: The production of agricultural chemicals, which is prohibited in Japan, and the inadequate marking of labels of medical goods and its sale have become problems in Southeast Asian countries. Additionally, a flood of Japanese merchandise, like consumer durables - electric household appliances, cars and motorcycles - and food items, such as seasonings, have an immeasurable impact on people’s lives in Asian countries.

The above-mentioned cases are typical of the operations of Japanese corporations and their consequences in Asia. They are only the visible tip of an iceberg of many problems.

Last year people and workers came to Japan one after another in order to protest against these types of oppressive behavior by Japanese corporations. From south Korea, groups of workers’ representatives from Korean Sumida, TND and Asia Swany came to Japan in order to negotiate with their head offices. Every group insisted that they could not accept the closure of factories that had been decided by the companies unilaterally. They campaigned for a period of three to six months.

From Malaysia, representatives of villagers in Bukit Merah came to Japan asking why the factory banned in Japan was established in Malaysia. They called for the operations of ARE Co. to stop. In the same way, representatives of inhabitants from the Malaysian state of Sarawak came and asked the Japanese corporations not to destroy their forests, which is life for them.

In regard to ODA-related projects, such as the Narmada Dam project in India and the Calabarzon project in the Philippines, representatives also came to Japan. Recently, the construction of resorts by Japanese corporations has stirred public discussions - a new problem caused by the overseas advances of Japanese corporations. For instance, native people from Guam Island -the Chamorro tribe - came to Japan to ask the developer not to build a hotel on their tombs.

B. Problems Created by the Overseas Advances of Japanese Corporations

The criticism from abroad against the overseas advances of Japanese corporations is that they are an economic invasion resulting in destruction of economic and social self-support of the countries in which the Japanese corporations enter. Putting in order the problematic cases which were made public, it is clear that Japanese corporations’ overseas advances bring about the following problems, especially in Asian countries:

  1. Disturbs economic and social self-support creating economic subordination, the exploitation of resources and an expanded disparity in wealth;

  2. Supports oppressive and dictatorial governments by giving aid to the political powers and development fascism;

  3. Violates human rights, especially the human rights of the weak in society, such as women s, workers’ and consumers’ rights;

  4. Destroys the environment and Nature through the exportation of pollution and development;

  5. Destroys traditional and cultural lifestyles through discrimination and prejudice against the cultures and lifestyles of the people of the South.

Why have these kinds of problems arisen? Above all, they have been caused by a lack of moral responsibility by corporations; they are the result of basing decisions and operations on standards which give priority to profit. Focusing on Asian countries, two problems can be highlighted.

First, the behavior of Japanese corporations that has caused international criticism has, in fact, been done legally in countries which have accepted these corporations. For example, in the Mitsubishi Chemical Industry case in which it dumped radioactive waste in Malaysia, the corporation took advantage of the fact that a law or a rule does not exist in Malaysia which regulates this behavior.

The oppression of workers and unfair labor practices in EPZs, like the Masan Free Export Zone in south Korea, also took advantage of special laws which ban the activities of labor unions - measures taken by the government in order to introduce foreign capital. Because of special laws for foreign capital, Japanese corporations can do legally abroad what is banned in Japan. The Japanese corporations operating overseas cannot be regulated by only appealing to them to observe the laws and rules of the countries where they operate, for often these laws or rules are weak or non-existent.

Secondly, another serious problem is the fact that Japanese corporations, which never behave badly in Europe and the United States, behave arrogantly in Asia and in other developing countries without feeling any guilt. This is not only a problem of corporations but a problem of the Japanese people’s consciousness as well. Without reflecting on their past military invasion of other Asian countries and without being aware of the arrogance of the "Economic Power" that is built and maintained by their economic invasion of other Asian countries, Japanese society, which has not completely thrown away its discriminatory consciousness and prejudice against Asian people, allows these kinds of behavior by Japanese corporations to exist and continue in Asian countries. We find that corporations’ activities do not have any national border; economic activities have actually entered into the borderless era. However, without facing up to the blame and criticism which are raised in countries accepting Japanese corporations, Japanese society and its corporations will not be actually internationalized.

III. The Overseas Advances of Japanese Corporations and the Response of Japanese Society

A. The Japanese Government and Administrative Response

Although Japan has become the biggest investing country in the world, no responsive administrative measures have been taken by the government to the advances abroad of Japanese corporations. In fact, Japanese society has not shown any proper reaction to these advances in its legal system or social norms.

The basic attitude is that "the government will continue its efforts not to cause any unnecessary friction in foreign countries cooperating with the activities of private economic organizations." Thus, the government’s position is to leave the matter in the self-control of the corporations.

In other words, the government does not recognize the need to make "guidelines" and conduct direct administrative guidance to the corporations and business circles. On the contrary, the government does not know the actual activities of overseas advancing corporations accurately, and furthermore, they do not show any willingness to make any efforts to learn.

As for statistics concerning the overseas business activities of Japanese corporations, the following reports - "Notified Overseas and Domestic Direct Investment Performance" and "Statistics on International Balance of Payment," both released by the Ministry of Finance based on the Foreign Exchange and Foreign Trade Control Act - only indicate investment moves made from Japan. MIITI has various regular and irregular surveys, such as "A Basic Survey on Overseas Business Activities," but the contents of these surveys, which are conducted by sending questionnaires to corporations, have been limited to the managerial situation, equipment and the number of employees. These kinds of surveys do not reveal the problems that Japanese corporations have caused in the countries in which they have established operations.

In "Ideal Corporations’ Actions in Developing Overseas Business Activities" given to the minister of international trade and industry by an advisory organ of MITI in May 1989 - the first guideline presented from the standpoint of an administrative organ, but with no legal force - the following 10 articles were provided as an action guideline for Japanese corporations to follow in order to prevent friction created by foreign investment:

  1. The smooth transfer of technology and know-how to the countries invested;

  2. A systematic operation of supplying parts locally;

  3. Active research and development in the countries invested;

  4. Recruitment of local people at the managerial level in the overseas-invested corporation as well as prohibition against unfair discrimination at the time of recruitment, placement and promotion;

  5. Establishment of a good labor-management relationship;

  6. Respect for the independence of the invested corporations;

  7. Active participation in the society of the invested countries to solve problems peculiar to the society;

  8. Active participation in social and cultural activities, such as voluntary and donation activities, in the countries invested;

  9. Full consideration of environmental problems in the countries invested; and

  10. No unfair practices, like bribery.

Meanwhile, the Ministry of Labor is creating a manual for dispatched workers to prevent problems caused by differences in labor practices, manners and customs in European countries, the United States and ASEAN nations in which Japanese corporations have invested.

In regard to environmental problems, the Environmental Ad Hoc Committee in the House of Council adopted a "Resolution on Environmental Consideration Caused by Japanese Corporations’ Overseas Advancement" in June 1991.

B. An Action Guideline for Financial and Economic Organizations

The response from financial and economic organizations started in the beginning of the 1970s with an investment boom in developing countries focusing on Southeast Asia as a background. In 1973, an "Action Guideline for Investment to Developing Countries" was released by five economic organizations. Later a new "Action Guideline for Overseas Investment," which included Europe and the United States as well as developing countries, was made because of the increasing direct investment in developed countries.

The "Action Guideline for Overseas Investment" was composed of 13 articles ranging from cooperation with industries in the invested countries, the promotion of technology transfer, the encouragement of reinvestment and cooperation and harmony with the society of the invested country to labor-management relations and selection of staff, education and the term of dispatched stuff.

In addition, individual economic organizations announced their "counter-plan" to friction caused by investment. In April 1991, Keidanren (Federation of Economic Organizations) released "The Global Environment Charter" offering 24 action guidelines for companies, including the implementation of environmental assessments on all business activities of corporations.

However, these guidelines and "counter-plans" have been a whitewash without any power of enforcement. Furthermore, a lot of problems can be seen concerning the effectiveness of the guidelines as there are many companies which do not even know the existence of these guidelines.

C. The Response of Labor Unions

From the viewpoint of regulations on the overseas advancement of corporations and the international solidarity of workers, labor unions have the greatest responsibility and role to play. How have Japanese labor unions, primarily based in companies, tackled these problems?

In July 1973, the Labor Unions’ Liaison Committee for Problems on Transnational Corporations was established. This liaison committee consisted of the International Metal Federation - Japan Council (IMFJC) and affiliated unions, such as unions in the electrical machinery, automobile, steel and metal industries, which are major industries involved in the overseas advancement of Japanese corporations as well as textile and chemical- industrial unions. This liaison committee was formed through the leadership of IMF-JC, which responded to criticisms from labor unions in the Asian region and to the response of the International Confederation of Free Trade Unions (ICFTU) since Sohyo (General Council of Trade Unions of Japan), the biggest national labor center at that time, had little interest and no policy on overseas advancement because of its characteristic role of organizing mainly public sector workers.

Among industrial unions, it is said that Denkiroren (All Japan Federation of Electric Machine Workers’ Union) is the most advanced in the response of labor unions to overseas advancement since the advances of Japanese corporations overseas are most active in the electric machinery industry, and they stand in the forefront of trade and investment friction. In the "Overseas Comprehensive Measures of Denkiroren," which was adopted at its regular meeting in 1981, seven guidelines were set forth with the following points:

  • The security of domestic employment and working conditions with attention paid to corporations’ future plans, including their interest in moving their operations overseas;

  • Disapproval of factory closures and a reduction of personnel inside Japan because of an increase of personnel outside Japan;

  • The positive acceptance of labor unions and a move to organize labor in the countries overseas;

  • The regular inspection and observation of corporations advancing into other countries by Denkiroren to encourage prior solutions to problems;

  • Assigning international solidarity with labor unions in the countries overseas to IMF-JC and strengthening industrial union relationships with related unions in Asia.

When these "comprehensive measures" were announced, there was much concern about losing dustries inside Japan and emphasis was put on the security of employment for Japanese workers. However, in the past few years emphasis has been put on solidarity with overseas workers since the number of industrial disputes has increased with the rapid increase of overseas advances by Japanese corporations.

On Sept. 18, 1991, the third Matsushita Labor Union World Conference was held and the Matsushita Labor Unions World Association was formed linking 250,000 workers in 128 Matsushita groups in 38 countries and regions. The union in Matsushita has held conferences inviting related unions to Japan every five years since 1981. The world association formed in 1991 is to collect and present detailed demands and information to its headquarters in Japan and to cooperate for the promotion of friendship and mutual understanding.

Rengo (Japan Labor Union Confederation), which was inaugurated as a national labor center in the autumn of 1989, has shown a constructive attitude to cope with the problems caused by the overseas advances of Japanese corporations, such as organizing seminars with the Labor Unions’ Liaison Committee. However, they have not formulated definite measures and guidelines yet. To the recent moves of labor unions, like the formation of the International Labor Foundation by Rengo, there has been strong criticism from inside and outside of Japan saying that overseas advances are being carried out with the cooperation of labor and management and that Japanese labor unions are more eager than management to transplant overseas the Japanese-style of labor- management relationships. I hope the move of the Matsushita labor union is not a model of that. In spite of this criticism, Japanese labor unions have a large role to play in responding to the move of Japanese corporations across national borders and in listening to and responding to the voices of workers and people in the countries accepting Japanese corporations.


(This paper was presented at the Trade Union Study Meeting on TNCs, October and November1991, Ho Chi Minh City, Vietnam, and Bangkok, Thailand.  The paper concludes with an in-depth description of the history of the labor movement in Japan which has been excluded in this article.)