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JAPANESE-EUROPEAN TRADE.
Term Paper ID:23075
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Essay Subject:
Describes & compares economic environments, policies, foreign investment, regional distribution, financial incentives, restrictions, expansion & joint ventures, quotas. Tables.... More...
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12 Pages / 2700 Words
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Paper Abstract:
Describes & compares economic environments, policies, foreign investment, regional distribution, financial incentives, restrictions, expansion & joint ventures, quotas. Tables.
Paper Introduction:
JAPANESE-EUROPEAN TRADE
Introduction
This research examines Japanese-European trade. European trade is discussed, as is Japanese trade. Differences between the trading activities of the two global entities are then discussed. Lastly, links between Japanese and European trade are examined.
European International Trade
The common external tariff is the “bedrock for a common trade policy” in the European community (Balasubramanyam & Greenaway, 1992, p. 183). Exceptions to this policy, such as the MFA (Multi Fibre Agreement) and the Lome Convention, are negotiated for the Community by the “Commission Commitment to the policy has been eroded in recent years by the use of, among other things, VERs.
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The member states of the European Community pursue common policieswithin a "common" European market "to avoid being overwhelmed by US andJapanese companies" (Lewis & Harris, 1992, p. Japan's chemicalexports to the European Community increased to 18 percent in 199 , a level3 percent over 1985. EuroBusiness,1(3), 18-22. Rappaport, C. The transplants, along with imports, will accountfor 4 percent of all new European production capacity up to the year 2 and will take almost half of all new auto sales" (Eason, 1993, p. % Transportation equipment 3. %Total 1 . European trade isdiscussed, as is Japanese trade. 116). Until recently, theEuropean emphasis on Japan and the rest of Asia has been greater than hasthe Japanese emphasis on the European Community in the conduct ofinternational trade. At the same time, many Europeanautomobile manufacturers began to argue that the output from Japanesefactories located within the European Community also were bound by theagreement. 75]_______________________________________________________________ Japanese International Trade Until the 197 s the international investment scene was dominated bythe United States (Balasubramanyam & Greenaway, 1992, p. %Non-Manufacturing 82. Trade in chemicals between Japan and the European Community gainingincreasing importance (Boosting, 1992, p. Germany, France, andSpain also are major recipients of Japanese FDI in the European Community. 183).Exceptions to this policy, such as the MFA (Multi Fibre Agreement) and theLome Convention, are negotiated for the Community by the "CommissionCommitment to the policy has been eroded in recent years by the use of,among other things, VERs. to start the battle from the inside-and at atime when domestic car-makers are at a low ebb. 1 7). (1993, 18 October). This, of course, could be either due tothe 'push' factor of the increasing net costs of hierarchical control, orto the 'pull' factor of the reduced costs of alliances. 1 9). Allegations "about adverseemployment effects (on both quantity and quality), adverse effects on tradebalances, and asymmetries in R&D commitments abound. Bythe end of the 198 s, the share of the United States in the total worldstock of FDI had declined to 4 percent, while Japan's share had increasedto seven-percent. 181).Table 4Distribution of Japanese FDI Within the European Community By Sector________________________________________________________________Country____________ ProportionManufacturing 18. These are primarilydirected at Japanese investment, in part because they are the marginalprovider, and in part because Japan does not figure prominently as a hostto FDI" (Balasubramanyam & Greenaway, 1992, p. The balance of trade. (1995, December). 18). The European Community, however, asked only that Japan shiftthe sales of its automobiles produced within Europe to Community countriesthat did not regulated the sales levels of Japanese automobiles. . %Portugal .5%Total 1 . It is likely thatboth factors have been at work in recent years; but, it can surely be noaccident that the thrust towards alliance capitalism first originated inJapan, whose culture especially values such qualities as teamwork, trust,consensus, shared responsibility, loyalty, and commitment, which are theessential ingredients of any successful partnership" (Dunning, 1995, p.471). 67). 183). Under pressure from France, Italy, andSpain, the European Community asked Japan to renegotiate the agreement toreduce the level of Japanese imports. When Japan's share of the European newautomobile market from 11.6 percent in 1992 to 12.3 percent in 1993, theEuropean Community decreed that the Japanese reduce car and light-truckimports in Europe by 18 percent. The car was developed by MotorIberica in Barcelona, of which Nissan holds a 67 percent equity position,as part of a $2 billion program of capital investment and productdevelopment. For the EuropeanCommunity, trade with Asia is as important as is trade with North America.The European community also has extensive trading relationships withEuropean countries that are not member countries of the European Community. As European Community protective barriers in the form of import quotasare dismantled, the "enemy, as seen by most European manufacturers, hasalready been invited in . McKinsey Quarterly, (2), 114-131. (1993, June). The enemy within. Including the 6 , three ofRover's four models now depend on Honda technology. The European-Japanesejoint-ventures in Europe are creating strong competitors out of companiesonce virtually left for dead (Rappaport, 1993, p. The United Kingdom and the Netherlands are Japan's major targetcountries within the European Community for FDI. (1993, 12 June). References Balasubramanyam, V. %All Others 7.5%Total 1 . In Rover's makeover of the Honda Accord-theRover 6 , Rover estimates that the Rover organization contributed only 15percent of the engineering hours required, and saved $22 million, or 4 %of the cost of bringing out a new model. To an increasing degree this is changing, in partbecause of the growing importance of FDI and its links with trade, in partbecause of the growing recognition that the distinction between border andnon-border measures is no longer as clear as it might once have been. The Japanese have tended to emphasize the NorthAmerican markets to a greater extent than the European markets. %[Source: Balasubramanyam & Greenaway, 1992, p. Rover exports toContinental Europe have been growing, even in France and Germany, whereoverall sales new automobile have fallen off at a steep rate. Chemistry and Industry,(12), 435. Eason, K. 19). One example of such a jointventure is the Honda-Rover partnership that is marketing an automobile inEurope with a European exterior placed over a Honda chassis and engine-theRover 6 , "a sexy British car that's grabbing sales from BMW and Audi"(Rappaport, 1993, p. Atransition is occurring in the 199 s, however, and early in the nextcentury Japanese trade with the European Community likely will equal orsurpass the level of Japanese trade with North America. (1992, June). In the mid-199 s, however, most of these economies, especially those inEastern Europe, are not sufficiently advanced to provide the tradingopportunities that are available in Asia and North America.Table 1Regional Destinations of European Exports________________________________________________________________Region_____________ ProportionAsia 28.3%North America 26. The rate of growth of Japanese FDI in the European Community is higherthan that of Japanese FDI in the United States. (1992, 15 June). These qualities, together with the recognition that, by improvingquality control throughout the value chain and cutting inventories to theminimum, "essentially enabled Japanese producers, particularly in thefabricating sectors, to break into their competitors' markets, and to adoptthe production strategies and working practices that conformed to theresource and institutional advantages of their home countries. %[Source: Niblett, 1995, p. 1 7). %[Source: Balasubramanyam & Greenaway, 1992, p. Reappraising the eclectic paradigm inan age of alliance capitalism. Summary This research examined Japanese-European trade. As the data presented in the table indicate, exports to Asia, includingthose to Japan, rank at the top among global regions. Why globalization mustprevail. Lower tariff barriers,easier movement of goods and people, international courts, and other suchdevelopments are directly aimed at improving the economic strength ofEuropean corporations by giving them a larger and more consistent homemarket. In Spain, a Japanese company has helped produce the first Italian-designed vehicle to be sold across Europe by competing American andJapanese companies (Rappaport, 1993, p. 178]_______________________________________________________________ The destinations of Japanese exports are presented in Table 5. 175). Fearing further European crackdownsagainst imports in the future, the Japanese invested US$76 billion inproduction facilities in Europe in 1993. The MITI report condemned Italy inparticular for restricting direct imports of Japanese cars to 3,6 a yearand indirect imports (Japanese-made cars imported through other MemberStates of the European Community) to 27, annually. As a result, multilateral co-ordination of investment policies is being more widely discussed" withinthe European Community (Balasubramanyam & Greenaway, 1992, p. Lastly, linksbetween Japanese and European trade are examined. Already fighting for salesin the most competitive market-place in the world, European manufacturersare now going to have to compete in earnest against models made by theJapanese here inside the EC and more imports coming from the Far East"(Eason, 1993, p. With Japanese backing,however, many of these companies are surviving. Niblett, R. % Finance and insurance 47.3% Commerce 12. Mitsubishi Motors is teaming up with Sweden's Volvo to produce cars ina joint venture in Holland (Enemy, 1993, p. By 2 , Japanese investment will have "translated into production ofup to 8 , cars a year from the three manufacturing sites in the UKalone for a European market forecast to grow by not much more than two tothree per cent a year. Theinclusion of trade-related investment measures (TRIMs) as an agenda item onthe Uruguay Round is a good example of this. MITI condemned both the European Community for establishingarbitrary rules in assessing the origin of products, a key issue forJapanese companies who have set up production within the EuropeanCommunity. Japanese accelerate into Europe. %[Source: Balasubramanyam & Greenaway, 1992, p. % Electrical machinery 4.5% General machinery 3. Japan has a new launching pad.Fortune, 128(9), 1 7-1 9. Journal of International Business Studies,26(4), 461-49 . 116). N., & Greenaway, D. Called the Terrano II byNissan and the Maverick by Ford, this four-wheel-drive off-road vehiclecombines the interior feel of a family car with the look of something youmight use to negotiate white-water rivers. Economicintegration and foreign direct investment: Japanese investment in the EC.Journal of Common Market Studies, 3 (2), 175-193. 68). At the beginning of the 199 s, the United States was the targetcountry for 4 percent of Japan's total stock of FDI, with 21 percentflowing into the European Community (Balasubramanyam & Greenaway, 1992, p.175). Thestop management reasoning at Citizen Watch was that: "If you want the verybest know-how and experience in machine tools, you must have a Germanpartner" (Rappaport, 1993, p. The distribution of Japanese FDI inthe European community by economic sector is presented in Table 4.Table 2Regional Distribution of Japanese FDI________________________________________________________________Region_____________ ProportionNorth America 5 .2%European Community 21.3%Asia 12.2%South America 7.8%Africa 1. European International Trade The common external tariff is the "bedrock for a common trade policy"in the European community (Balasubramanyam & Greenaway, 1992, p. The distribution of Japanese FDI within the European Communityby country is presented in Table 3. 1 8). Indeed,most researchers are agreed that the two most significant competitiveadvantages of Japanese firms that evolved during the post-World War IIperiod were, first, the way they restructured their production and intra-firm transactions, and second, the way they managed and organized theirvertical and horizontal relationships with other firms" (Dunning, 1995, p.471). H. %Latin America 7.7%Rest of world 38. Japanese interests hold an 8 percent equityposition in the company (Rappaport, 1993, p. 1 8) The deep slump in Germany pushed manysmall toolmakers to the edge of extinction. 435). Post-1992, however, these should be swept away,or become Euro restraints, thereby restoring a completely common policy.No such provisions exist with respect to investments, or to be more preciseFDI originating from non-EC countries. % Chemicals 2.5% Textiles 1.1% Metals .9% All other 3. . Japan had only a .6 per cent share. The growing significance of inter-firm cooperative transactionarrangements "would suggest that 'voice,' relative to 'exit,' strategiesare becoming more cost effective. The destinations of European Community exports are presented in Table1. At the endof the 196 s the United States had a 47 percent share in the total stock offoreign direct investment (FDI). 1 8). At the beginning of 1989, these shares had changed to 3 percent for the United States and 17 percent for Japan. In 1992, the Japanese Ministry of International Trade and Industry(MITI) charged the European Community with trade violations (Japan, 1992,p. Europe2 , 4(6), R62-R63. 177]_______________________________________________________________ The growth of foreign ownership in the European Community has excitedstrong emotions, especially where Japanese FDI is concerned(Balasubramanyam & Greenaway, 1992, p. 176]_______________________________________________________________Table 3Distribution of Japanese FDI Within the European Community By Country________________________________________________________________Country____________ ProportionUnited Kingdom 37.5%Netherlands 32.4%France 8.1%Germany 7.7%Luxembourg 4.7%Spain 3.6%Belgium 2.3%Italy 2.2%Ireland 1. Japanese investment within the European automobile industry has beenspurred by European protectionism (Enemy, 1993, p. Soonafter the 1991 agreement was made, however, new automobile sale within theEuropean Community plummeted. Lewis, W. 1 7). 76]_______________________________________________________________ Comparing European and Japanese International Trade The European Community has long required Japanese manufacturers to buya high proportion of their components locally or face stiff fines(Rappaport, 1993, p. %[Source: Niblett, 1995, p. (1992, Spring). European-Japanese Trade Links In the 199 s, Japan is pursuing trade expansion within the Europeanmarket through a major effort to develop joint ventures between Europeanand Japanese firms (Rappaport, 1993, p. R62). 1 8). The European Community was criticized for imposingdiscriminatory quantitative restrictions on imports of 49 differentproducts manufactured in Japan. Citizen Watch Company (Japan) acquired control of Boley, a 123-year-old German machine tool company, in 1992 (Rappaport, 1993, p. In most of thesejoint ventures, the Japanese contribute marketing, design, and productionexpertise rather than large amounts of cash. JAPANESE-EUROPEAN TRADE Introduction This research examines Japanese-European trade. Boosting trade relations. 1991 the EuropeanCommunity agreed to open its market progressively, with the last importrestrictions disappearing by 2 . % Mining 3.1% Transportation .3% All other 19.3%Total 1 . 181). Both Japanese penetration of the European Communitychemicals market and European penetration of the Japanese chemicals market,however, approximates only one-percent. (1992, July-August). Approximately one-third ofJapan's chemical imports came from European Community producers in 199 , alevel that represented a 2 percent increase over 1989. Japan accuses EC of trade violations. Differences between the tradingactivities of the two global entities are then discussed. Dunning, J. The 1991 plan called for orderly annualincremental increases in Japan's share of the European Community newautomobile market from approximately 11 percent in 1991 to approximately 16percent in 1999. The anticipation in 1991 was that the Japanese marketshare would increase to approximately 2 percent subsequent to 1999. (1995, Winter). Regional distribution of Japanese FDI on a global scale is presentedin Table 2. Historically investment policy hasnot been viewed as a border measure, but rather as a non-border instrumentof industrial policy. Another joint venture example is ICL, the only profitable Europeancomputer manufacturer. The Frontera, a four-wheel-drive vehicle sold by General Motors with an Opel or Vauxhall brandname, is made in Britain in a joint venture with Japan's Isuzu Motors. "Many of these changes-things like uniform regulations andtechnical standards, for example-also make it easier for US and Japanesecorporations to operate in Europe, which contributes to further economicintegration" (Lewis & Harris, 1992, p. Management Today,74-77. As thedata presented in the table indicate, exports to Europe rank only thirdamong global regions.Table 5Regional Destinations of Japanese Exports________________________________________________________________Region_____________ ProportionAsia 46.5%North America 26.4%Europe 17.6%Latin America 2.6%Rest of world 6.9%Total 1 . 19).Thus, the Japanese automobile manufacturers "are on the fast track toEuropean growth while the long-established European industry is stilltrying to rev its engine to keep pace" (Eason, 1993, p. Economist, 327(7815), 67-68. W., & Harris M.
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