The Asian production networks of Japanese electronics firms

Like their American counterparts, Japanese electronics firms have developed

substantial international production networks (IPNs) in Asia.1 This article

examines how far Japanese firms have cloned key features of American IPNs or

developed substantially different international production activities. As we shall

see, there have been substantial differences that mirror important characteristics of

the respective national political economies. Those differences have had significant

competitive effects.

I proceed in four steps. First, I provide an overview of the internationalization

of the Japanese electronics industry up to 1991, i.e. before the bursting of the

bubble economy. I briefly describe two peculiar features of Japanese IPNs that

distinguish them from the networks established by American firms —their closed

and Japan-centered governance structures and their asymmetric trade relations.

Second, I discuss some of the causes for these differences. Although nationality is

only one factor determining the nature of Japan’s IPNs, aspects of domestic

industrial organization do spill over into foreign operations.

In the third section, I describe the factors that are gradually forcing Japanese

firms to open up their Asian production networks. While the “bursting of the

bubble economy” and the yen appreciation have acted as powerful catalysts, more

fundamental forces are also at work. The closed and Japan-centered nature of the

country’s production networks originally was a great strength. It enabled Japanese

electronics firms to rapidly ramp up export platform production in Asia and to

sustain international market share expansion. Yet it also came at a heavy cost. Farreaching

changes in the domestic production system associated with yen

appreciation and recession forced rapid changes in IPNs. Of equal importance,

however, were changes within East Asia. As the region improved its production

and innovation capabilities and became a leading growth market for electronics

products and services, Japanese firms needed to exploit these opportunities.

I conclude with a brief review of some recent changes in the organization of

Japanese production networks in Asia. Overall, the Japanese case suggests that

changes in the organization of international production are path-dependent.

Industry- and product-specific factors, firm-level characteristics and locational

advantages of the host economies matter, but the significance of national

characteristics persists.

The Asian production networks of Japanese electronics firms during the early 1990s

Three distinctive features characterize the Asian production networks of Japanese

electronics firms prior to the early 1990s: (1) heavy geographic concentration; (2)

closed, headquarters-centered governance structures; and (3) asymmetric trade

links with East Asia (Ernst 1994a). While the first feature constitutes an important

similarity with American IPNs in the electronics industry, the other two features

do not.

Locational patterns

As Encarnation (1995) has shown, Japanese investments in general are more

geographically dispersed across Asia than American ones. This was also true for

the electronics industry, because until the mid-1980s Japanese affiliates produced

primarily for protected local markets. Once the focus shifted to export-platform

production, Japanese electronics firms invested heavily in “mega-plants”

concentrated in a handful of industrial sites in Malaysia, Taiwan, Singapore, and

Thailand. In 1993, these four countries together accounted for two-thirds of all

Japanese affiliates in Asia: Malaysia had the highest share (24 percent), followed by

Taiwan (17 percent), Singapore (13 percent), and Thailand (12 percent).2

With regard to location, similarities thus have been stronger than differences; US

electronics firms have also concentrated their Asian production networks in

Singapore, Malaysia, Taiwan, and Thailand. For both Japan and the United

States, Singapore often is the apex, performing critical support and coordination

functions; Taiwan and South Korea are suppliers of precision components and

sources of OEM (original equipment manufacturing) supply; and Malaysia and

Thailand are the preferred locations for volume manufacturing.