Artigo Revisado por pares

Japanese foreign direct investment in India: An institutional theory approach

2012; Taylor & Francis; Volume: 54; Issue: 5 Linguagem: Inglês

10.1080/00076791.2012.683417

ISSN

1743-7938

Autores

Peter J. Buckley, Adam R. Cross, Stephen Horn,

Tópico(s)

Indian Economic and Social Development

Resumo

Abstract This article charts the history of Japanese corporate engagement with India. While there has been a profound historic relationship between the two nations, economic interaction is commonly portrayed in the context of geographical and psychic distance. As institutions set the rules of corporate engagement, we analyse the evolving regulatory and policy regime for foreign direct investment (FDI) in post-independence India and the corporate strategies of Japanese multinational enterprises (MNEs) in response to this institutional change. Using a firm-level dataset we show that the trajectory of Japanese investment in India broadly follows that of other nationalities of foreign firms. Differentiated responses to institutional changes are detected by industry. Our analysis reveals important instances of Japanese firm flexibility and pragmatism vis-à-vis the rapidly growing Indian market. Keywords: foreign direct investmentemerging economiesJapanIndiainternational corporate strategies Acknowledgements This research was generously supported by the Japan Foundation Endowment Committee. Notes 1. India did not sign the San Francisco Peace Treaty in 1951 concluded between Japan and the Allied Powers to officially end the Second World War. The link between the Peace Treaty and the US–Japanese security treaty (the Treaty of Mutual Cooperation and Security between the United States and Japan, signed in 1960) was considered a stepping stone to the looming Cold War and counterintuitive to India's non-alignment policy. 2. It should also be noted that underpinning much of Indo-Japanese political relations in the post-war era is the generally positive view held of India by Japan following the actions of Justice Radhabinod Pal, the Indian member of the International Military Tribunal for the Far East (IMTFE), during the Tokyo War Crimes Tribunal in 1946. Justice Pal was the lone dissenting voice, claiming that Japan did not conduct an aggressive and therefore illegal war and for this he is held in high regard in Japan, especially by Japanese nationalists. He was awarded the First Class of the Order of the Sacred Treasure by the Emperor of Japan in 1966, and he continues to be regularly mentioned during formal ministerial meetings between the two countries as symbolic of the extent of mutual friendship and support. 3. While Japan was largely perceived at the time to be a satellite of US interests in the Asia-Pacific region, India's foreign policy then is commonly characterised as being pro-Soviet (despite its official non-alignment claim). This led to fundamental divergences in Indo-Japanese political relations during the Cold War period. 4. This Indo-Japanese joint venture (JV) is an example of a province-level initiative for attracting foreign direct investment in a highly controlled market environment. Promoted by Kerala Industrial Infrastructure Development Corporation (KINFRA), the operation has been hailed as a success story in regional development. As the state of Kerala is one of the key regions for the Indian biotechnology industry, the case of Nitta Gelatin India Ltd. can be seen as a model for technology transfer and the transformation of a local economy through state-level initiatives. 5. The Monopolies and Restrictive Trade Practices Act of 1969 attempted an efficient resource allocation. Addressing price incongruences and the oligarchic concentration of economic power, the Act was detrimental to foreign trade. These restrictions were later complemented by the Foreign Exchange Regulation Act, which sought to control the impact of international payments on foreign exchange rates and the import and export of currency. 6. Citroen, Fiat, Honda, Mitsubishi and Toyota submitted license applications in this period (D'Costa, 1995). 7. The Korean company Daewoo Corporation acquired Toyota Motor Corporation's equity stake in DCM Toyota in 1995 and increased its holdings to over 90% in 1997. 8. China started to challenge Europe and North America as a prime destination for Japanese outward FDI in the 1990s. Embedded within an overall shift in perspectives on future growth markets, increasing institutional openness paired with geographic proximity triggered increased corporate activities in territories close to Japan. 9. The 1997 reforms of the automobile and electronics sectors are of particular relevance for Japanese investment as these are the main source industries for Japan's outward FDI in the manufacturing sector (JETRO, 2011). 10. This negative list means that apart from explicitly stated goods, restrictions on the imports of capital goods and intermediates have been removed and are subject to automatic approval. 11. Special economic zones (SEZs) replaced export processing zones (EPZs) which had been in place since 1965. By 2005, eight EPZs had been successfully converted. 12. The fragmented Indian retail sector continues to be highly regulated, particularly for multi-brand formats (Hiscock, 2008). However, recent election results and announced government reforms hint at an increasingly open access for foreign firms (Financial Times [FT], 2009) which would essentially create a rapidly evolving sector in India's economy. 13. The Japanese Ministry of Finance discontinued the recording of FDI statistics on the basis of approvals and notifications in 2004. According to Masataka Fujita's estimation (Chief, Investment and Trend Data Section, UNCTAD), about four-fifths of approved and notified investments have actually taken place. 14. It needs to be considered, however, that many Japanese firms have established regional HQs in Singapore which may be used for arm's-length investments in India. 15. The picture is a complex one, however. On the one hand, it could be argued that Japanese FDI is primarily market driven because Japanese business groups (that is, keiretsu firms) have complex supplier networks in Japan, which makes it difficult to transfer entire production systems to foreign countries. On the other hand, there is strong evidence to suggest that these closely knit networks of Japanese firms are undergoing transformation, with corporate linkages becoming much more complex and fluid, but on a firm-by-firm basis (Lincoln & Shimotani, 2009). Horn and Buckley (2011) argue that Japanese MNEs, long portrayed as quintessential global marketers, are increasingly engaged in localising their business activities, including dealing with local suppliers and undertaking local production. 16. The data available only include new numbers of investments and do not allow inferences about divestments. This limitation of the Tôyô Keizai database is documented by Belderbos and Zhou (2006). 17. Due to data availability issues, only investment cases between 2002 and 2005 are subsumed under Phase 6, the 'new experimental' phase.

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