Fukunari Kimura

Subcontracting and the Performance of Small and Medium Firms in Japan

This paper provides an empirical analysis of the choices made by Japanese firms with respect to subcontracting status, that is, whether to take in work as subcontractor, to outsource work to subcontractors, to do both or to do neither. It shows that the probability of working as a subcontractor, a choice made by many small firms in Japan, is negatively related to size, foreign sales and technological capability. Furthermore, profits do not appear to be higher for subcontracting firms; indeed, they are highest for the group that does not get involved in any type of subcontracting, whether as a supplier or as an outsourcer.

Production Networks in East Asia: What We Know so Far

Production networks in East Asia, particularly in the manufacturing and machinery industries, are well recognized as the most advanced in the world, in terms of their magnitude, extensiveness, and sophistication. This paper tries to link various economic studies on related topics, to see how much we understand about production networks in East Asia. After providing a brief overview of international trade statistics, the paper reviews a number of academic papers concerning (i) the structure and mechanics of production networks, (ii) the conditions for production networks, and (iii) the properties and implications thereof.

Fragmentation, Internalization, and Interfirm Linkages: Evidence from the Micro Data of Japanese Manufacturing Firms

The concept of fragmentation has been developed in the context of international trade theory and thus has naturally inherited a strong flavor of location theory. Deardoiff (1998, p. 1) defines fragmentation as “the splitting of a product process into two to more steps that can be undertaken in different locations but that lead to the same final product.” Two key ideas relevant to the concept of fragmentation are production blocks and service links (Jones and Kierzkowski 1990). Owing to the drastic cost reduction of service links such as transportation, telecommunication, and coordination, a set of production processes can be split into multiple production blocks in different locations. The concept of fragmentation has been developed primarily in conjunction with international trade theory; it relates to local production conditions and the costs of connecting different locations.

The Economic Analysis of International Production/Distribution Networks in East Asia and Latin America: The Implication of Regional Trade Arrangements

This paper applies an economic approach to empirically investigate differences in inward foreign direct investment (FDI) patterns between East Asia and Latin America and discusses the implication of regional trade arrangements. International production/distribution networks in East Asia effectively utilize the new economic logic of fragmentation, agglomeration, and optimal internalization and seem to greatly contribute to economic development. The paper examines statistical data for international trade as well as the activities of Japanese and U.S. multinational enterprises (MNEs) and argues that international production/distribution networks, particularly in machinery industries, are extensively developed in East Asia while remaining immature in Latin America.The impact of regional trade arrangements is substantially different depending on whether international production/distribution networks have already been developed or not. Our findings suggest that the impact of FTAA on FDI in Latin America by East Asian MNEs could be either positive or negative, depending on the content of FTAA and accompanying policies. If differentials between intra-regional tariffs and MFN-based tariffs are kept large, import-substituting FDI from East Asia may stagnate or even decrease. With a proper policy package to nurture international production/distribution networks, on the other hand, FDI from East Asia could be accelerated and contributed to deeper integration of Latin America.

The Internationalization of Small and Medium Enterprises in Regional and Global Value Chains

Production networks and the regional division of labor have been established in East Asia resulting in massive vertical intra-industry trade in parts and components within the region. This phenomenon is known as cross-border production sharing or the fragmentation of production processes into many stages across different countries. New development strategies claim that participation in international production and distribution networks is the key to accelerating economic development in the era of globalization. This process suggests that vertical input-output linkages between local firms and multinational corporations are the most powerful channels to accelerate technology transfers and spillovers. [ADBI Working Paper 231]

Host-site institutions, production networks and technological capabilities

This article examines critically the literature on industrial policy, regional production specialization, global production sharing, global value chains and global production networks to analyse technological capability development in clothing, automotive and semiconductor firms in China and Southeast Asia. Host-site institutional support and regional production linkages were identified as having a strong influence on firm-level technological capabilities. The article then provides the justification and the structure of the automotive, clothing and semiconductor industries, which are characterized by strong international division of labour.

Globalization and Domestic Operations: Applying the JC/JD Method to Japanese Manufacturing Firms*

Does outward foreign direct investment accelerate de-industrialization at home or generate domestic jobs and operations? This paper applies the job creation (JC)/destruction (JD) method to micro data of Japanese manufacturing firms and provides a birds eye view of the dynamism of globalizing firms in terms of domestic employment, domestic establishments, domestic affiliates, exports, and imports. It examines gross and net changes in domestic operations by multinational enterprises (MNEs) that expand operations abroad (expanding MNEs), compared with non-expanding MNEs and local firms, for the periods of 1998–2002, 2002–06, 2006–08, and 2008–10. It also conducts the Kolmogorov-Smirnov test to investigate whether the changes in domestic operations and trade by expanding MNEs are larger than those by other firm types. Major findings are the following: (1) gross changes in domestic employment and domestic operations are much larger than net changes, showing restructuring dynamism and firm heterogeneity; (2) de-industrialization or the shrinkage of the manufacturing sector is not relevant except for the period 1998–2002, though a slight declining trend in manufacturing activities is observed in recent years; (3) expanding multinational small- and medium-sized enterprises (SMEs) tends to enlarge domestic employment and domestic operations, compared with other types of SMEs; (4) expanding MNEs intensify headquarters activities; and (5) expanding multinational SMEs are likely to expand exports and imports more than other types of SMEs.

Evolution of Machinery Production Networks: Linkage of North America with East Asia

This paper investigates new developments in the pattern of machinery trade, with a focus on the extent and depth of production networks in North America. We pay particular attention to North Americas trade links with East Asia, which have intensified in the last two decades. Investigation of changes in total trade value and the growth of trade on the extensive margin both demonstrates the expanding fragmentation of production in North America as well as the strengthening of connections with Mexico. Our quantitative analysis, which is based on gravity estimation of trade volume and extensive margin trade responses, also provides evidence that U.S. imports of machinery from East Asia are especially strong, and further, that Mexicos role has changed, as it now provides a bridge for trade between East Asia and the United States. These new developments in the pattern of machinery trade reflect reductions in services link costs, the further evolution of production sharing in the U.S.–Mexico nexus, and the strengthening competitiveness of production networks based in East Asia.

Japanese manufacturing FDI and international production and distribution networks in East Asia

Introduction Shujiro Urata, Chia Siow Yue, and Fukunari Kimura 1. FDI Flows, their Determinants, and Economic Impacts in East Asia Shujiro Urata 2. Japanese Manufacturing FDI and International Production and Distribution Networks in East Asia Fukunari Kimura and Mitsuyo Ando 3. U.S. Firms and East Asian Development in the 1990s Robert E. Lipsey 4. Hong Kong as a Source of FDI: Experience and Significance Edward K. Y. Chen 5. The Role of Inward FDI: A Case Study of Foreign Firms in the Republic of Korea Taeho Bark and Hwy-Chang Moon 6. Inward FDI in Singapore: Policy Framework and Economic Impact Chia Siow Yue 7. Firm-Level Productivity and FDI in Taiwan Bee-Yan Aw 8. Foreign Investment and Development: Indonesias Experience Mari Pangestu and Titik Anas 9. FDI Inflows and Economic Development: The Postcrisis Experience of Malaysia Sieh Lee Mei Ling 10. FDI and Economic Development: The Case of the Philippines Myrna S. Austria 11. The Experience of FDI Recipients: The Case of Thailand Peter Brimble 12. FDI and Economic Development: The Case of Vietnam Tran Van Tho 13. The Experience of FDI Recipients: The Case of China Yu Yongding 14. Liberalization, FDI Flows, and Economic Development: The Indian Experience in the 1990s Nagesh Kumar

Deepening and Widening of Production Networks in ASEAN

This paper assesses the recent widening and deepening of machinery production networks in ASEAN by using highly disaggregated international trade data over 2007–13. Based on both traditional trade value data analysis and a novel approach to the diversification of exported products and destinations, we confirm the steady development of back-and-forth trade links, notably with East Asian partners, centering on Singapore and Thailand. In addition to the five ASEAN forerunners, Vietnam is an increasingly active player in such networking. Although their degree of participation is still limited, Cambodia, Lao PDR, and Myanmar also show signs of joining production networks.