Determinants of the Profitability of Japanese Manufacturing Affiliates in China and Other Regions: Does Localisation of Procurement,Sales and Management Matter?

Does localisation of procurements, sales and management contribute to the profitability of overseas affiliates? This study examines this question by analysing the performance of Japanese multinationals’ manufacturing affiliates in China using an affiliate‐level dataset for the period from 1989 to 2002 collected by the Ministry of Economy, Trade and Industry. We find that even though foreign multinationals often seem to enter China for the local market potential, affiliates with a higher local sales ratio tend to be less profitable – a pattern that is conspicuously different from that observed for Japanese affiliates in other regions such as the USA or the ASEAN4, where local sales orientation has a positive impact on profitability. On the other hand, we find that Japanese affiliates’ profitability was positively associated with their local procurement ratio. Using the coefficients of the profit function estimated from data on all Japanese manufacturing affiliates around the world, we calculate the effect of local sales and procurements on profitability by country, controlling for the level of GDP and per capita GDP. In the case of China, the localisation effects are positive following the country’s accession to the WTO, suggesting that both local procurement and sales expansion contribute to higher profitability in China.     

Sourcing patterns of export‐platform foreign affiliates: The case of Japanese affiliates in Mexico

This study investigates the sourcing patterns of Japanese export‐platform foreign affiliates in Mexico, which mainly export to the United States and Canada. We propose a novel approach to estimate intermediate input elasticities of exports by sourcing country. We find that, on average, Japanese export‐platform foreign affiliates in Mexico source intermediate inputs from third countries, including the United States and Canada, rather than from Japan and Mexico, suggesting that Japanese export‐platform foreign affiliates in Mexico are mainly integrated into the vertical production networks back and forth between Mexico, the United States and Canada. In turn, Japanese foreign affiliates selling domestically in Mexico source intermediate inputs not only within the North American Free Trade Agreement countries but also from Japan. In addition, we find that export‐platform foreign affiliates in Mexico use more labour‐intensive production than do foreign affiliates selling domestically in Mexico. This suggests that saving labour costs is one of the motives for export‐platform foreign direct investment in Mexico.     

Networks of foreign affiliates: Evidence from Japanese micro-data

The paper provides evidence of the investment patterns of Japanese multinational enterprises (MNEs) across countries and industries and analyses the main drivers of their location strategies, using detailed micro-data on Japanese parents and their affiliates including the final destination of affiliate sales. The breakdown of affiliate sales by destination market reveals that Japanese MNEs establish services affiliates primarily to maximise proximity to local customers, while foreign affiliates in manufacturing sectors tend to engage more widely with third countries. Yet, some economies emerge as strategic gateways to other destinations in their region. The empirical analysis delves into the drivers of host country attractiveness for FDI seeking new markets, production efficiency and to act as regional or global platforms. Important factors shaping Japanese FDI decisions include trade and investment policies in goods and services, deep FTAs, as well as streamlined customs procedures. Furthermore, well-calibrated rules for digital commerce and investments in digital infrastructure and innovation contribute to attracting MNEs. Overall, the paper stresses the factors behind better integration into global production networks and the policy priorities to attract various types of FDI inflows.     

Outward Foreign Direct Investment,Interindustry Networks,and U.S. Trade Politics

This article investigates how outward foreign direct investment by U.S. multinational corporations influences industry lobbying for trade protection in the United States, focusing on interindustry structure of goods sales networks between upstream and downstream sectors and also on the multinationals’ input procurement patterns. If foreign affiliates of U.S. multinationals switch input sources from U.S. to host-country suppliers, U.S. suppliers should receive a negative demand shock, ceteris paribus. An empirical test finds that those U.S. upstream sectors that are highly dependent upon U.S. multinationals for goods sales tend to lobby more as the multinationals’ overseas production and sales increase.     

The moderating role of local embeddedness on the performance of foreign and domestic firms in emerging markets

This paper examines the impact of the firm’s degree of local embeddedness on its performance in emerging markets using the World Bank’s Enterprise Survey Manufacturing Sector Module data on 15,715 firms covering 78 emerging markets. We use the degree of localization of sourcing and sales to measure the degree of embeddedness in the host country market. We argue that since embeddedness brings the firm into closer interaction with local firms and institutions, the costs of embeddedness should be lower for local firms than for MNE subsidiaries, since local firms can be assumed to be better able to decipher local institutions. We find that both dimensions are subject to a reversed U-shaped function. That is, by extending the degree of local sales and local sourcing up to a certain percentage, a firm can realize positive performance growth by becoming more embedded into the emerging market, but beyond this point, the performance impact is negative. We also find that foreign firms involved in local sales seem to lose part of their ability to exploit their ownership advantages as compared to foreign firms that export their production.     

The merits of horizontal versus vertical FDI in the presence of uncertainty

We examine the impact of uncertainty on vertical and horizontal FDI. Our model shows that greater supply uncertainty reduces the expected income from vertical FDI but increases the expected income from horizontal FDI. Greater demand uncertainty adversely affects the expected income under both production modes. Uncertainty about predatory actions by the host country is more costly to the multinational under vertical than under the horizontal mode. We examine sales by foreign affiliates of U.S. parent companies. Conditioning on host-country characteristics thought to influence FDI, we find evidence that volatility and sovereign risk have a greater negative impact on vertical FDI than on horizontal FDI.     

Investment History and Market Orientation Effects in the TFP–FDI Relationship1

This paper examines the robustness of previous stochastic dominance tests that find significant total factor productivity (TFP) heterogeneity between firms that export abroad and multinational enterprises (MNEs). We extend this literature by focusing on how ‘within‐MNE’ heterogeneity affects the extent to which one can identify the TFP threshold in the exporter–MNE TFP relationship. Within‐MNE heterogeneity is established by determining both the number and location of the foreign affiliates established by each MNE. In this way, we separate single‐affiliate MNEs from those with multiple affiliates, as well as analyse the role played by vertical FDI, a topic typically ignored in previous stochastic dominance tests of the Helpman et al. (2004, American Economic Review, 94, 300–16) hypothesis. Our empirical tests employ Japanese firm‐level FDI and TFP data for the period 1975–2000. Using Kolmogorov–Smirnov tests to determine stochastic dominance, we find significant TFP heterogeneity within the MNE group based on investment history and affiliate geographic location. While our results confirm the standard HMY three‐tiered classification to exist for Japanese firms, exporter–MNE ‘between‐group’ TFP heterogeneity is sensitive to the ‘within‐MNE’ investment history heterogeneity. We note that single‐ and two‐affiliate MNEs are statistically more similar to exporting firms than to MNEs with greater foreign affiliate totals. This shows the exporter–MNE TFP threshold to be not as explicit as Helpman et al. (2004, American Economic Review, 94, 300–16) suggest. In fact, our results allow us to identify the MNE‐side width of Girma et al.’s (2005, Economic Letters, 83, 317–24) ‘uncertainty region’ surrounding this threshold. Finally, we also find a strong TFP–market orientation relationship exists where the most productive firms follow complex integration strategies, lesser TFP firms do horizontal FDI, and the least productive MNEs do vertical FDI.     

CUSFTA effects: A joint consideration of trade and multinational activities

This paper estimates the effects of the Canada–US Free Trade Agreement (CUSFTA) on trade, sales of foreign affiliates of multinational enterprises, and total bilateral commerce (aggregate of both trade ands sales of foreign affiliates) in the manufacturing sector. The empirical investigation is carried out over a panel dataset covering the US bilateral transactions with the Organization for Economic Cooperation and Development (OECD) countries for the period 1983–1998. The empirical specification is guided by a gravity-based model that accounts for trade and the operation of foreign affiliates as alternative modes of accessing foreign markets. The results show that the CUSFTA induced an increase in inward and outward trade between the US and Canada, but also led to a significant reduction in sales of their foreign affiliates in the corresponding CUSFTA partner country. This outcome implies that the trade-generating effect of the CUSFTA is overstated.     

Characterising Euro Area Multinationals

This study uses firm‐level data on a large sample of European manufacturing firms to investigate the links between opening up foreign affiliates and firms’ productivity. The analysis is guided by recent theoretical models of international trade with firm heterogeneity. The paper finds that while only a small share of euro area firms locate affiliates abroad, these firms account for over‐proportionally large shares of output, employment and profits in their home countries. They have higher survival rates and their productivity growth is also higher. The strongest contribution is by productivity growth of existing firms with a multinational status rather than entry into the multinational status. Finally, there are performance premia for multinationals with a large number of affiliates abroad relative to those with a small number.     

Multinational Enterprises and Foreign Direct Investment: Introduction

This study uses firm‐level data on a large sample of European manufacturing firms to investigate the links between opening up foreign affiliates and firms’ productivity. The analysis is guided by recent theoretical models of international trade with firm heterogeneity. The paper finds that while only a small share of euro area firms locate affiliates abroad, these firms account for over‐proportionally large shares of output, employment and profits in their home countries. They have higher survival rates and their productivity growth is also higher. The strongest contribution is by productivity growth of existing firms with a multinational status rather than entry into the multinational status. finally, there are performance premia for multinationals with a large number of affiliates abroad relative to those with a small number.     

Benefitting from Chinese FDI? An assessment of vertical linkages with Vietnamese manufacturing firms

Previous studies have suggested that foreign direct investment between emerging economies can benefit domestic firms more than investments from industrialised countries because of a lower technology gap and more appropriate technology being transferred. Empirical evidence for this is scarce. Addressing this gap, we investigate the impact of Chinese direct investment on local firms through vertical linkages in manufacturing industries of Vietnam. We find that the share of local sourcing of Chinese firms is similar to other foreign investors while their forward linkages are more extensive. Although this supports assertions about the benefits of investment by emerging market firms, the overall potential gains seem limited. This is due to little value-adding interaction with local firms, the local sourcing of low-technology goods, and the sparse provision of training and financial support.     

Asymmetric effects of demand uncertainty on intrafirm trade in durable and non‐durable industries

This paper unveils a new empirical regularity regarding the asymmetric patterns of international sourcing modes in the durable and non‐durable industries under uncertainty, and explains the asymmetry based on the traditional lens of the transaction cost economics. Under demand uncertainty, firms face trade‐offs between outsourcing and vertical integration: while outsourcing requires less initial investment and allows easier market entry and exit, vertical integration offers better management and communication systems. In the durable industries, consistent with the transaction cost economics, the relationship between vertical integration and uncertainty is positive. In the nondurable industries, however, such relationship is weaker because inelastic demand and shorter gaps between production and sales mitigate the effect of uncertainty. I show the asymmetric effects of uncertainty based on a simple general equilibrium model and provide consistent empirical evidence using US intrafirm trade and microeconomic uncertainty data.     

Productivity spillovers from foreign direct investment: evidence from Turkish micro-level data

This paper analyzes the productivity spillovers from foreign direct investment (FDI) using Turkish firm-level data for a more recent time period, 2003–2010, which coincides with significant FDI inflows both in manufacturing and service sectors in the region. The empirical model is derived from endogenous growth theory whereby the rate of technological progress is partly determined by technology transfers and spillovers from international contacts, our exclusive focus being on FDI-induced spillovers. The impact of FDI onto the firm-level productivity is evaluated via the channels of horizontal and vertical linkages. The empirical results show that horizontal linkages decrease the productivity of firms, whereas vertical linkages exert a positive impact onto the local productivity levels, thereby drawing attention of policy makers towards strengthening of supplier–buyer relationship between local and multinationals in order to optimize the benefits from FDI. This study also acknowledges the heterogeneity of local (foreign) firms and their differential capacity to absorb (exude) the FDI-induced externalities.     

The fallacy of the heavy buyer: Exploring purchasing frequencies of fresh fruit and vegetable categories

‘Avocado lover,’ ‘banana lover,’ or ‘berry lover’ – these words are starting to dominate the contemporary marketing campaigns for fresh fruit and vegetable categories. Such campaigns assume that there are sizable buyer segments who purchase a particular fresh category more frequently, who are contributing a larger portion of sales, and who will continue to do so into the future. Yet, an established body of empirical evidence from consumer packaged goods (CPG) categories suggests that these assumptions could be false. The current study empirically examines fresh category purchasing behavior (through a large Nielsen US panel data) by applying three known models: the Negative Binomial Distribution, the Pareto share, and the stability over time analysis (buyers and sales contribution). This study compares the results and finds that despite many differences between fresh and CPG categories, buyers' purchasing behavior follows the same established benchmarks patterns as those observed in CPG contexts. There are many more infrequent or light buyers than heavy ‘lovers’; the heavy buyers contribute roughly 60% of sales; they are purchasing less frequently, and contributing fewer sales as time goes by. These findings carry important implications for marketers, retailers, and farmers of fresh categories. Specifically, the results show which marketing campaigns (i.e., those highly targeted at ‘lovers’ or those with a mass marketing appeal) are better grounded in the empirical evidence about buyer behavior which has the highest probability of increasing consumption.     

Does FDI Spur Productivity,Knowledge Sourcing and Innovation by Incumbent Firms? Evidence from Manufacturing Industry in Estonia

Does FDI affect knowledge sourcing activities, innovation and productivity growth of domestic firms? This study employs firm‐level panel data from Estonia’s manufacturing sector to investigate different channels through which FDI affects domestic firms. Based on instrumental variables approach, I find no evidence of an effect of FDI entry on local incumbents’ short‐term productivity growth. However, there is positive association between the entry of FDI and the more direct measures of spillovers. FDI inflow to a sector is associated with more knowledge flows to domestic firms and increase in their innovation activities.     

Determinants of Sales Destinations of U.S. Multinational Firms' Affiliates in Developing Countries

This study examines the determinants of the sales of .U.S. multinational firms' affiliates to alternative destinations, including sales to other affiliate firms in a host country and a source country markets as well as sales to other non-affiliate persons in each market. Sample host countries are drawn from developing economies where U.S. multinational firms had affiliate firms during the period 1983–1998. The results of the study reveal that affiliates of multinational firms manipulate sales to minimize international taxation. This is supported by the finding that foreign corporate income taxes: affect sales between affiliate firms favorably, unlike its impacts on sales of affiliates to non-affiliate persons in both a host country and source country markets. Considering all markets together, economic volatility and political instability have minimal impacts on sales of affiliates to other affiliate firms compared to their impacts on sales to non-affiliate persons. The results also confirm that host countries' economic policy reforms and membership in multinational investment guarantee agencies facilitate sales of affiliates to other affiliate firms.     

The Trade‐Off between Foreign Direct Investments and Exports: The Role of Multiple Dimensions of Distance

To serve foreign markets, firms can either export or set up a local subsidiary through horizontal foreign direct investment (FDI). The conventional proximity–concentration theory suggests that FDI substitutes for trade if distance between countries is large, while exports become more important if scale economies in production are large. This paper investigates empirically the effect of different dimensions of distance on the choice between exports and FDI. We find that different dimensions of distance affect exports and FDI differently. There is clear evidence of a proximity–concentration trade‐off in geographical terms: the share of FDI sales in total foreign sales increases with geographical distance. The positive relation between import tariffs and FDI intensity provides further evidence for a trade‐off resulting from trade costs. On the other hand, the share of FDI decreases with language differences and cultural and institutional barriers. The latter dimensions of distance thus affect FDI more strongly than exports.     

Foreign affiliates' knowledge sourcing from parent firms

This study investigates the factors that influence the extent to which foreign research and development affiliates source knowledge from their parent firms, by developing theoretical hypotheses that predict patterns of foreign affiliates' knowledge sourcing according to their technological capabilities at multiple levels (firm, industry, and country). We use cross‐border mergers and acquisitions and patent citation data from Fortune Global 500 firms to test our theoretical arguments. The findings suggest that a parent firm's foreign affiliate ownership, industry‐level R&D intensity, and home–host country differences in technological capabilities increase foreign affiliates' knowledge sourcing from their parent firms.     

Factor Prices,Factor Substitution and Exporting in US Manufacturing Affiliates Abroad

This paper uses the unique matched individual parent and affiliate data from the foreign investment survey of the Bureau of Economic Analysis to examine how US firms of different industries and capital intensities at home adapt to lower costs of labour and other host‐country characteristics in their foreign production. We find that foreign affiliates of US multinationals carry their parent firms’ technology with them in producing abroad. That is, affiliates of capital‐intensive parents produce in a relatively capital‐intensive manner wherever they are located. Despite these resemblances to their parents, affiliates produce in a more labour‐intensive manner where labour is cheaper and also where the scale of production is small. We found no evidence that more labour‐intensive firms selected production locations where labour was cheaper. Labour costs dominated the methods of production but not its location. Affiliates that export are more responsive in their factor proportions to the labour costs where they produced than affiliates selling only in their host countries. The probability that an affiliate would export, however, did not seem to be much affected by factor proportions. It was much more closely related to the scale of the affiliate's operations; larger affiliates were more likely to be exporters.     

按属权原则核算美国服务贸易差额

在分析美国服务贸易的跨境贸易数据、附属机构销售数据和公司内贸易数据内涵基础上,依据贸易平衡的属权核算原则,提出对美国服务贸易平衡进行全面核算的方法和模型,并进行实证研究。