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.     

A Case-based Reasoning Approach for Supporting Facilitation in Online Discussions

Group Decision and Negotiation - In online discussion platforms, participants gather to discuss the effective approaches to solve the common issues they face. To facilitate these discussions...     

Trade exposure and electoral protectionism: evidence from Japanese politician-level data

Review of World Economics - This study empirically examines the causal impact of economic shocks of trade on trade policy positions by candidates who run for national elections using...     

How Did the Dollar Peg Fail in Asia?

In this paper, we have constructed a theoretical model in which the Asian firm maximizes its profit, competing with the Japanese and the U.S. firms in their markets. The duopoly model is used to determine export prices and volumes in response to the exchange rate fluctuations vis-à-vis the Japanese yen and the U.S. dollar. Then, the optimal basket weight that would minimize the fluctuation of the growth rate of trade balance was derived. These are the novel features of our model. The export price equation and export volume equation are estimated for several Asian countries for the sample period from 1981 to 1996. Results are generally reasonable. The optimal currency weights for the yen and the U.S. dollar are derived and compared with actual weights that had been adopted before the currency crisis of 1997. For all countries in the sample, it is shown that the optimal weight of the yen is significantly higher than the actual weight.J. Japan. Int. Econ.,Dec. 1998,12(4), pp. 256–304. Institute of Economic Research, Hitotsubashi University, Kunitachi, Tokyo 186, Japan; Department of Commerce, Hitotsubashi University, Kunitachi, Tokyo 186, Japan; Department of Commerce, Takachiho University, Suginami, Tokyo 168, Japan.Copyright 1998 Academic Press.Journal of Economic LiteratureClassification Numbers F31, F33, O11.     

A note on disequilibrium growth theory

Disequilibrium growth theory is an extension of disequilibrium theory to a neo-classical growth model. The real wage is not supposed to adjust instantaneously to ensure full employment. Behavior of capital accumulation may be different according to a regime of unemployment, full employment or overemployment.     

Incomplete insurance and absolute risk aversion

Suppose that a subset of states of nature are not verifiable individually. Given an optimal feasible insurance scheme, the expected utility across a group of unverifiable states is greater (less) than that of a verifiable state, if the degree of absolute risk aversion is decreasing (increasing).     

Japanese spinoffs: Unexplored survival strategies

This paper analyzes spinoffs of Japanese firms and the use of the spinoff as an instrument to achieve corporate growth objectives. The initial separation of the organizations and its governance mode are analyzed in the context of transaction costs theory. Spinoffs may be created in order to (1) balance costs associated with managing diversified businesses, (2) generate growth based on core competencies of a firm, and (3) pursue an efficient internal labor market. In a changing environment, the spinoff has been a widely used flexible organizational arrangement that is suitable to survival and offers an alternative way of diversification.