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CIAO DATE: 11/00
Different Sectors, Different Story of Globalization — Japanese Automobile and Banking Industries
Atsuko Abe *
Chair of International Governance, Amsterdam, Netherlands
International Studies Association
41th Annual Convention
Los Angeles, CA.
March 14-18, 2000
Introduction
Probably the most popular term in the 1990s, 'globalization', seems to be used to describe everything, including different paths of development taken by various industries. The current economic trouble of Japan is always discussed in the context of globalization, yet globalization itself does not explain the differences between successful and struggling sectors in economic performance. This paper is to explore different paths of globalization in two sectors: one seemingly still internationally competitive automobile sector, the other, banking sector, suspected of structural defects. Japanese firms in both sectors expanded overseas operation in the 1980s, yet what they aimed in being 'internationalized' involved different prescriptions and perceptions of the globalization. This paper investigates how the 'globalization story' differed between the sectors. It also considers what 'globalization' brought to those Japanese sectors.
1. What does globalization mean to various sectors?
The word globalization often appears as a description rather than an analytical concept, describing a certain phenomenon in an extremely wide range of fields. Thus, a large list of concepts of globalization includes the globalization of financial markets, corporate strategies, technology, consumption patterns, regulatory capabilities and governance, world politics, and socio-cultural processes (Petrella, 1996: 64-6). It is easy to perceive the increase in the flow of trade, especially intra-firm transactions by multinational corporations, and the even faster growth of global capital markets that are obvious signs of globalization (Milner and Keohane, 1996: 11-14). The globalization of production is the most visible evidence that can be detected from the growth of manufacturing FDI, and even more significant is the expansion of the international capital market (Cerny, 1997).
The sheer scope of the globalization debate, however, raises the question about the plausibility of a 'universal' understanding of globalization across political, economic and social arenas. Under such circumstances, accumulating stories of globalization in various fields would contribute to a more comprehensive picture of globalization. When focusing on global economy, globalization has two components: finance and production. (Cox, 1994) Globalization of these factors appears in the form of the increased international mobility of capital and the growing incidence of mergers and acquisitions and strategic alliances. (Ruigrok and van Tulder, 1995: 119) And for both finance and production, markets have facilitated the globalization process, while markets themselves also became globalized.
The level of globalization in those various aspects, however, differs significantly depending on industrial sectors; Strange (1997) emphasized that globalization is not a universal phenomenon, but it differs depending on sectors and firms rather than on states 1 . Among various industries, only a few are practicing 'globalism' in all aspects of sales, production, personnel, research and development, and financing. Individual firms often seek for localization of their activities along with their 'global strategies' (Veseth, 1998). Only a handful of multinational corporations specifically target the global market instead of focusing on several local markets, and operate their production globally rather than having local production independent and separate from production in other areas. In this sense, globalization has not permeated as thoroughly as the popularity of the word suggests 2 .
Despite the unevenness of the development, globalization has brought changes in commitment-rules (Onuf, 1997:10-12) that have caused systemic transition, though not yet complete, of cross-border economic transactions. Globalization was preceded by internationalization, which differs from globalization in that the nation-state system itself was not in question at the time. Internationalization is still based on 'a comparatively stable system of sovereign states, each with an internal hierarchy of more or less subservient local governments', whereas globalization is based on a system 'characterized by emerging and still primitive governance structures...' (Scott, 1998: 7). The current trend aggrandizes a situation that is better described as globalization, 'in which national economies are evolving from a condition in which they are less like billiard balls in holistic interaction than they are permeable entities in various states of amalgamation with one another.' (Scott, 1998: 25-6) Therefore, 'The term globalisation suggests a quantum leap beyond previous internationalisation stage.' (Ruigrok and van Tulder, 1995: 119).
This paper focuses on the implication of such globalization on certain economic sectors. In those sectors, globalization involves various actors (state or non-state, political or economic) to participate in 'games', whether cooperative or competitive, which have rules set globally instead of nationally or locally. The result of such globalization is 'a general shift ... (that) has favoured markets and firms rather than states, and that the hegemony of one or a few states is unlikely to constitute an adequate basis for world economic order.' (Wyatt-Walter, 1995: 75)
While globalization is a popular idea for academics, business people, journalists, and politicians, some doubt the inflated image of globalization. Naturally, it is not as simple as saying that globalization alone can explain the changes and shape of the Japanese (or any other country's) political economy in the last few decades. The role and nature of the state is one aspect in which the advocates and sceptics of globalization differ. While some suggest that the nation state system is no longer the only regime comprising international political economy (Strange, 1996; Bull, 1995; Rosenau and Czempiel), others reinstate the significance of state power (Weiss, 1998; Boyer and Drache, 1996).
In relation to the question of the role of the state, there are arguments that globalization has reintroduced authorities other than states: Strange (1996) gives examples of international authorities in a wider sense in the areas including telecommunications, insurance, and accountancy. Within the state structure, on the other hand, transnational actors influence the state regulations to lessen their effectiveness (Krasner, 1995: 267-76), although states do play a role in re-regulation (Vogel, 1996). In the case of Japan, the Japanese government has supervised such industries with the policies of 'national champion' (in the case of telecommunications) or 'convoy system' (banking), in which hierarchical order among firms were kept so that bankruptcy should be kept as low as possible. However, globalization of capital, market, and production makes governmental control ineffective 3 .
The role of the state differs depending on sectors. Some sectors are dependent on protection from the state, whereas transnational actors have emerged in other sectors, who rely less on state initiatives for the growth of the industry and instead utilize transnational relations they have established aside from state-centric relations. In Japan, state decision-makers are sensitive to exogenous factors including gaiatsu (foreign pressure), while non-state actors have invested much effort to increasing their level of participation and influence in policy processes. The transnational approach emphasizes the activities of non-state actors in the international arena. Borrowing Risse-Kappen's definition, transnational relations are regular cross-border interactions of which at least one party is not a representative of a state or an intergovernmental organization (Risse-Kappen, 1995: 3). In this paper I refer to transnational actors as non-state actors that operate in more than one country and thus transcend any specific nationality 4 . Whether or not a sector largely consists of such transnational actors is a clear indication of the extent of globalization in that sector. Globalization has made domestic systems more vulnerable to international non-governmental organizations; domestic structure may be effected by changes in transnational relations (Katzenstein and Tsujinaka, 1995), which can be witnessed in some areas of Japanese economy.
The significance of transnational actors in the globalized world is widely recognized. Kamo (1997) points out that we must consider the behavioural change of transnational actors in the context of the new global order after the end of the Cold War, since globalization is part of the structural rather than the cyclical change of the world structure. Business leaders acknowledge that corporations have been quicker to respond to the world structural change than politicians and bureaucrats (Fukai, 1997: 122-6). Together with the activities of non-profit organizations and other non-state actors, business corporations have an important role in revising what is described as 'post-Cold War' and globalization.
The automobile industry is a case in point. In this sector, distance from state actors (Ministry of International Trade and Industry in particular) helped make firms more globally competitive. In contrast, banking industry in Japan has been under close supervision by the government (namely by the Ministry of Finance), and its convoy system did not save the industry as it was exemplified by the series of failure of all size of banks.
As the effect of globalization differs among different areas and sectors, the degree of significance of transnational relations also depends on domestic structure (Risse-Kappen, 1995: 6, 19-28). While there are some who consider that nation states are no longer important (Ohmae, 1995), most academic debates maintain that states are still relevant. The question is how much non-state actors have gained influence over issues that used to be under the exclusive power of the state. The transnational approach is one way to observe the balance between the state and non-state actors, and is a key to distinguish the difference in globalization stories of different sectors. The following sections examine two sectors that indicate different degrees of dependence on state regulation and protection, which correlate to the level of globalization and evolution of transnational actors in the sector.
2. Internationalization in the 1980s for the Japanese banking sector
Since there already exist a vast amount of literature discussing the impact of rapid growth of Japanese banks in the last two decades, I rely on secondary sources for the activities of Japanese banks abroad and their evaluation, based on which I attempt to reconsider the internationalization process of Japanese banks in relation to the globalization of financial markets.
The scale of Japanese banks in the 1980s was keenly felt in financial and property markets world-wide. Among US total banking assets, Japanese banks had 10.8 % share in 1989 (Hultman and McGee, 1990: 69). Even as late as 1994, the ten biggest banks of the world were Japanese (Peek and Rosengren, 1999), although the size of their assets had been rendered to the sky-rocketed share and land price in Japan before 1991.
There are several reasons for the growth of Japanese banks' presence abroad in the 1980s. They are roughly divided into two categories: endogenous and exogenous. Endogenous factors include Japanese monetary policy at the time and the overseas activities of banks' domestic clients; namely Japanese manufacturing and distributing companies. Exogenous factors point to foreign financial markets, foreign monetary policy and foreign financial regulations. For example, the British financial market went through radical deregulation (the original 'Big Bang') in 1986 (Vogel, 1996: 93-117), which attracted not only Japanese but financial companies world-wide. At that time, two areas indicated notable growth, foreign direct investment and financial services sector, which consequentially attracted Japanese capital, whereas the period also coincided with the economic struggle in Britain in the 1980s. The growth of Japanese presence in London, therefore, was largely due to exogenous factors: a generalized process of the multinationalization of banking and the development of the City (of London) as a major international financial center (Tickell, 1994).
Japanese banks went overseas mostly in order to accommodate the need of their domestic clients. Among their overseas activities, Japanese banks increased their lending to the manufacturing companies in Britain, reflecting the advancement of manufacturing FDI typically by electronics and automobile industries. Distribution sector, however, accumulated more money than manufacturing sector from Japanese banks (Tickell, 1994: 297). In short, lending to Japanese-origin corporations is the most significant part of the Japanese banks' activities in Britain, although such role has shown relative decline (Tickell, 1994: 300). This reflects the general trend of 'leaving banks' (ginko banare) since 1992 by manufacturing firms, shifting more towards direct financing from indirect financing (Ishigaki and Hino, 1999). Also important is the fact that many Japanese manufacturers abroad now turn to non-Japanese financial institutions, whether local or foreign, along with Japanese banks (JETRO, 1999b: 32-3).
It is only natural that the United States and the United Kingdom attracted Japanese banks, since they have the two biggest financial markets in the world. On the other hand, those two countries have also been the largest recipients of Japanese non-financial FDI among advanced economies. The existing studies of Japanese banks suggest that they followed their domestic clients rather than initiating overseas activities themselves (Hultman and McGee, 1990: 70-2, 77; Tickell, 1994; Yamori, 1998 5 ).
That Japanese banks followed their domestic clients abroad can be explained by the close relationship between banks and industries in Japan, which is rooted in the so-called main-bank system. As the studies of the main-bank system revealed, Japanese banks in general served the purpose of industrial development in the post-WWII reconstruction and high-growth periods, whereas the system inhibited accountable corporate governance that supports the Anglo-American business success in the last decade (Aoki and Patrick, 1994). In this sense, internationalization in the 1980s did not totally swipe the traditional structure of Japanese banking industry; Japanese financial system was highly inter-mediated with the banks in its core. As Beason and James (1999: 51) declared, "The 1980s were a period of rapid internationalization in quantity terms, though perhaps not in quality."
3. 'Competitiveness' of Japanese banks in the 1990s – the consequence and implication of the 1980s internationalization
The slowdown in the performance of Japanese banks is a stark contrast to the revisionists warning against the hypothetical Japanese take-over of the US economy ten years before (Asher, 1996) 6 . 'The burst of the bubble,' that is the sharp fall of the stock and estate markets in 1991, revealed that the banks were heavily burdened with non-performing loans 7 . The actual size of the non-performing loans was uncertain due to the lack of disclosure. The discrepancies are quite large: while the government's estimate of non-performing loans was 12.3 trillion yen in 1992, banks' self-estimate was 77 trillion yen (Iwatsubo and Hino, 1999), although Japanese banks' self-estimate was criticized of being ambiguous in terms of categorizing non-performing loans (Ohara, 1999). On the other hand, the new accounting standard introduced in 1998 changed the categorization of loans to extend the bad loan in accordance with international standard, thus calculating the sum up to 35 trillion yen from the earlier estimate of 25 trillion yen (Financial Times, 17 July 1997). As of February 2000, the total amount of the write-off of such bad debts climbed to 51 trillion yen (Financial Times, 2 February 2000). Most symbolic events were the bankruptcy of banks of various size, including the major Long Term Credit Bank in 1998. Review by Bank of England in 1999 is not optimistic: 'Overall, the uncertainties remain significant, given the Japanese economy's structural difficulties, including the large current and prospective government deficit. While the authorities' actions have averted a spreading financial crisis, Japan's problems continue to pose threats to stability' (p. 16).
The role of the state to respond to the banks' problem is quite significant: the government has poured in public money, the most recent one with 7.45 trillion yen in March 1999, which is equivalent to 1.5 % of GDP (Bank of England, 1999). Supporting banks with public money caused political difficulties, typically seen at the jusen (mortgage finance corporations) problem (Beason and James, 1999: 83-6). Although the government intervention was justified in order to avoid the systemic collapse, there remains the question of whether this leads to a moral hazard, especially in the light of erosion of the Big Bang programme, such as delaying the introduction of pay-off. Furthermore, it raises the question about who is in charge of the banks' globalization strategy: is it led by the state rather than private banks' own initiatives? The Big Bang deregulation, named after the British financial deregulation in the mid-1980s, was motivated by the government's perception of globalization. The Japanese government considers the globalization as the main determinant of the scale of influence of financial system on 'real' economy (MITI, 1999).
Domestic problems reflected the international performance of the banks. In 1996, even before the collapse of major financial institutions such as Yamaichi Securities and Long Term Credit Bank, Japanese banks indicated a continuous decline in the international banking market share (Cross, 1996). According to the Bank of England statistics, the market share of Japanese banks worldwide fell by 12.3% in six years since the beginning of 1990 (to 21.6%), while the market share of Japan as a centre for international banking fell by only 2.8%. This means that the Japanese market remains highly involved in the global financial market, whereas Japanese banks are losing their positions in the international market.
Japanese banks are diminishing their lending not only to their domestic clients (credit crunch), but also international lending have experienced major decrease in the outflow of Japanese capital. Japanese banks' business 'continued to decline within the UK in 1996, with their external lending falling by $25 billion (10%). Japanese banks' market share fell by 3% to 15%.' (Cross, 1996). It is also noted that their lending to the emerging market economies are declining: Japanese banks are the second biggest lenders to EMEs (Emerging Market Economies) supplying 13 per cent of the stock of BIS (Bank for International Settlements) area bank lending as of December 1998. According to the Bank of England, 'One of the significant trends has been the fall in the share of total BIS lending attributable to Japanese-owned banks since ... 1997. That is partly explained by the problems within their domestic banking system. Also, in 1998, the contraction was affected by the financial crisis in Asia, as ending to developing Asia accounted for around 80 per cent of Japanese-owned banks' lending to EMEs.' (Bank of England, 1999: 6) 8
Another factor of the retreat of Japanese banks from international markets is the BIS regulation that set the risk asset ratio (ratio of capital to debt) for banks operating internationally at 8 % minimum. The regulation came into existence in 1988 partly in order to restrain the expansion of Japanese banks at the time, and the ratio was raised in 1992 from 7.75 %. The implication of the regulation was fully realized during Japan's domestic economic down turn: the burst of the bubble reduced the banks' asset so that 8 % minimum ratio became too high for many of the Japanese banks to maintain. As a result, those banks decided to close their international operations.
Japanese version of the Big Bang financial deregulation also is going to introduce more severe competition for the Japanese banks even in the domestic market with foreign competitors. In response, or in order to survive, Japanese banks have been experiencing unprecedented movements for mergers and other forms of alliances. Bank of Tokyo and Mitsubishi Bank were the first to merge between major banks. The integration of Fuji, Dai-ichi and Industrial Bank of Japan to become the world's largest bank ushers in a new era of mega banks (Nihon Keizai Shimbun, 19 August 1999). The announcement of the plan of merger between Sakura and Sumitomo, two of the former zaibatsu, which would have been unthinkable even a few years before, signifies the difficulty that traditional Japanese banks are facing (Nihon Keizai Shimbun 14 October 1999). Such movements, however, so far tend to be within domestic banks, rather than forming transnational alliance or international merger. This is a great contrast with the automobile sector discussed below.
4. International expansion of the Japanese automobile industry
Like Japanese banks, Japanese automobile industry threatened their international rivals in the 1980s. Unlike the banks, however, the automobile makers, at least a few of them, have been highly competitive globally throughout the 1990s. The automobile sector's globalization process began with international sales by export, where the ultimate determinant of success for a corporation is profits based on their sales.
Japan's automobile export was the centre of trade friction with the US and the European Community in the 1980s. It was partly because Japanese manufacturers tried to mitigate the conflict that they began local production. Foreign direct investment to facilitate the local production had other merits as well: for the Japanese manufacturers it enabled them to avoid the risk of exchange rate fluctuation and to respond more directly to the needs of local markets. For the host region of the investment, it meant not only job-creation, but also eventual transfer of certain technologies via sub-contracting that raised the productivity of the local firms (R. Strange, 1993; Sako, 1990).
In addition to overseas production, which is part of the response to market globalization by the Japanese automobile sector, the production system they adopted also has a significant implication to the globalization of the industry. That is, Japanese manufacturers led departure from Fordism mass production system to post-Fordism in order to respond to more variable and flexible demands, which introduced oragnizational innovations (Bernard, 1994). One way to express such post-Fordism is the 'lean production' system, which began to replace the Fordism mass-production system even in the United States (Womack, Jones and Roos, 1990). Lean production 9 , according to Womack, Jones and Roos, is not a unique feature of Japanese industry, but they present it as a group of universal ideas applicable anywhere by anyone 10 . Mass-production system of Fordism had an immense socio-political implication (Rupert, 1997: 116), whereas post-Fordism is also bringing change in the social environment, such as a different style of industrial relations (Bernard, 1994). The spread of lean production to the US manufacturers indicates the change of commitment-rules, in which sense the production system originated from some Japanese firms conveyed a certain globalization effect. In short, the Japanese automobile manufacturers (or at least some of them) were leaders in globalization, adjusting their system to market globalization. Also, this suggests that globalization does not equal Americanization in the automobile sector at least (Pauly and Reich, 1997), whereas globalization of financial sector is more Anglo-American centric.
Competitive advantages derived from the lean system spread in various areas of the automobile sector: designing of a new model, the entire manufacturing process, the distribution to end users, and even financing. Most important, though exceptional, case is Toyota – like Ford before World War II, Toyota is not dependent on external finance (Womack, Jones and Roos, 1990: 193). Other manufacturers relied mostly on bank loans from their keiretsu banks, which enabled them to raise funds cheaply. In the 1990s, however, credit crunch that resulted from the problem of Japanese banks' non-performing loans, affected automobile companies as well as auto parts manufacturers. Overseas subsidiaries list the difficulty to borrow money from Japanese banks in Japan as one of the biggest impacts of the worsening economic condition at home (JETRO, 1999a), and to some extent began to rely on local finance in the host country (JETRO, 1999b).
The changing role of the state is also an important aspect of globalization in the auto industry. In general, industrial and trade policy for the automobile sector is in the hands of Ministry of International Trade and Industry (MITI), even though various studies have questioned the degree to which MITI determined the shape and post-war success of the Japanese automobile industry. Without limiting its scope to Japanese industries, Milner (1988: 256) argues that 'the internationalization of an economy reduces demands for protection and the capacity to obtain it at the firm and industry level.' MITI has been responsible for the supervision and nurturing of many industries, but some industrial sectors, including the automobile sector, were relatively independent from MITI (Cusumano, 1985). This did not mean, however, that MITI was irrelevant to the development of the automobile industry. In Honda's case, for example, Mair's study reiterated the complicated nature of the relationship between the industry and the state, even though Honda from its inception has had much less protection from MITI compared with Toyota or Nissan (Mair, 1997).
Looking at individual policy-making processes, the independent activities of the industry, such as launching foreign direct investment, are significant components of the policy process. Each Japanese firm that has built manufacturing facilities in host countries usually establishes solid relations with the foreign governments. Such transnational relations between Japanese private firms and foreign governments are crucial factors in challenging MITI's initiatives.
Prior to the rise of FDI, the role of the government for the development of the automobile industry other than protecting the domestic market from the international competitors is questionable. With the assumption that export is the key for industrial development, Tanaka (1994) asks if it was the economies of scale or the entrance of new competitors, which enabled the Japanese automobile manufacturers to export. At the inception of the Japanese automobile industry in the 1950s, the government's contribution to the manufacturers' ability to export was limited; MITI preferred fewer manufacturers, thereby controlling the domestic competition. MITI was more co-operative in nurturing economies of scale for the two giants (Toyota and Nissan), while encouraging domestic mergers for medium-sized firms. While MITI tried to control the industrial structure, some manufacturers resisted such governmental policy and sought for international alliance with US manufacturers who, in turn, wanted to penetrate the Japanese market (Hiwatari, 1995: 174-5). Despite MITI's preference, the medium-sized firms such as Honda and Mitsubishi led in technological innovation in various areas and succeeded in expanding their size and market share without direct support from the government. More recently, the MITI-Toyota war was rumored since 1992 (Noguchi, 1993).
In summary, various members of the Japanese automobile industry in the 1980s pursued their own globalization strategies, and began to develop transnational relations with foreign governments. As the competition within the automobile sector world-wide intensified, Japanese manufacturers turned to international alliances. These trends continued in the next decade, leading to further globalization of the automobile sector.
5. From internationalization to globalization: production and market
There are different ways in which the Japanese automobile industry responds to globalization. In terms of production, foreign direct investment is a major factor that promotes globalization. In terms of market globalization, on the other hand, any automobile manufacturer is conscious that in order to survive the company can not rely exclusively on domestic market but must be competitive in the global market, which is a significant difference from banking sector. This is shown in the series of mergers and tie-ups across borders: both GM and Ford have acquired several Japanese and European makers, whereas Daimler and Chrysler merged. I will return this point in the next section.
Japanese automobile export became less of a bone of contention in trade conflicts, as manufacturers placed more emphasis on local production. In general, intrafirm trade by large transnational corporations contributes to the growth of trade as a whole. Statistics show that 'Japanese foreign affiliate sales exceeding Japanese exports by a factor of two.' (Scott, 1998: 36).
Overall Japanese FDI has been in decline since 1996 (JETRO, 2000). Automobile sector is included in this category; however, this means only that new investment did not take place as fast as previous years. Production level of Japanese automobile factories abroad does not show any sign of retreat. From 1997 to 1999, all of the major Japanese manufacturers in the United States decreased their production, whereas they increased their production level in the UK from 1997 to 1998 11 .
FDI that began with merely assembling parts mostly made in Japan and imported to the host country, expanded into the area of parts industry. JETRO's study indicates that in the United States, many Japanese auto-parts manufacturers have invested in the area near the finishing factories. In other words, globalization has permeated to the lower tiers of the industry. Where there are Japanese automobile assembly factories, there are also numbers of Japanese parts manufacturers to supply the auto manufacturers with whom they already have long established business relationships in Japan. In the United States, for example, Honda's plants in Ohio attracted around 60 Japanese parts manufacturers within the state; also Indiana, Kentucky and Michigan where Toyota and Matsuda operate their subsidiaries are areas where Japanese parts manufacturers have concentrated (JETRO, 1999a).
Further influence of FDI appears in the productivity of local manufacturers. In the study of British manufacturing, R. Strange (1993) indicated the positive effect of Japanese FDI on British manufacturing productivity. Sako (1989) revealed the case of Nissan in Britain, which cultivated local, European-owned suppliers, and implied that lean production system is also adopted by some British companies. Consequentially, local suppliers, not just Japanese subsidiaries, are increasing their business with Japanese auto manufacturers: US companies, for example, sold a record $28.31 billion in parts and materials to Japanese auto manufacturers, up 13.5 percent over the $24.95 billion recorded during the preceding fiscal year. (Japan Auto Trends (1999), III, 3)
Japanese market is also being globalized, although it has long been criticized for its slow pace in opening to non-Japanese manufacturers (Duncan, 1999). As quoted in Japan Auto Trends, Jürgen Hubbert of DaimlerChrysler said in October 1999, "For the first time in our history, we will sell more than 50,000 cars in Japan...in a market that is still slowing down. So we are totally against the market trend with our figures..." Even though export remains the most important marketing strategy towards Japan, US manufacturers are now considering local production in Japan, which will further deepen globalization.
Japanese import market has been expanding for the last few decades, though too slowly in the minds of American and European manufacturers. Despite the economic downturn in Japan, 1999 showed a slight increase in Japanese imports, though large part of the growth was due to Honda increasing its shipment from the US to Japan by nearly 400%. Simultaneously, Japanese cars made in the US have also been exported to the European market, though in small quantity. 12
6. Transnational relations at work in globalization of automobile industry
The automobile industry in Japan has generally maintained its international competitiveness throughout the 1990s despite the recession, although the division between winners and losers among domestic competitors is clearer than ever. The industry's strength in coping with the globalization of markets, production, and capital derives from the development of transnational relations that individual manufacturers cultivated. State policy-making is not irrelevant yet the once popular, mercantilist view of MITI does not explain the dynamism of the industry in the 1990s. 13
Foreign direct investment was the most significant factor in establishing transnational relations between Japanese manufacturers and foreign governments. Before the Single European Market was completed in 1993, France and other member states of the European Community had a quota system for Japanese car imports 14 . Therefore, the US government had a stake in selling Japanese transplant cars as American cars so that the restriction did not apply to them (Mair, 1997: 85-6). Consequently, the interests of the Japanese automobile makers were represented by not only MITI but also sometimes even US trade officials who are usually fierce foes of Japanese traders.
Regarding their operation in Europe, Japanese automobile manufacturers launched FDI in the European Community in the late 1980s, largely as a response to the Single Market Programme. In addition, prior to the Plaza Agreement of 1985, FDI was not economically viable due to the exchange rate, which set the yen low. That situation changed in the mid-1980s. The level of the Japanese capital flowing out in the shape of FDI in the 1980s can be described as a recycling of Japanese trade surpluses (Petrella, 1996: 70)
Britain was the most popular destination among EC countries for Japanese manufacturers. Along with technical reasons such as language, labour cost, and infrastructure, Japanese auto-makers were attracted to the investment opportunity in Britain because of the British government's promotion of inward FDI. Britain's Department of Trade and Industry (DTI) encouraged Japanese companies to build factories; and local governments, especially in economically depressed areas, were also enthusiastic about the opportunities to increase jobs. Since part of the reason for FDI was to alleviate trade friction, Japanese manufacturers tried to become 'local' even in a social context, involving themselves in community activities.
When Nissan began the first Japanese automobile factory within Europe in 1984, pressure from other EC members (especially France) made the manufacturer raise local content. In this case, as the previous custom among EC countries, the British government and Nissan agreed to 60 percent local content in making the 'British' Bluebird 15 . While the dispute was brought to the EC level, it was resolved with a 'voluntary' decision by the Nissan and other Japanese manufacturers to raise the local content.
The effect of the dispute was to make the DTI and in-coming Japanese firms allies. Cooperative relationship between the British government and Japanese firms helped MITI at the international negotiations with the EC Commission to decide how to treat Japanese imports after 1992, which was documented in the Elements of Consensus between Japan and the European Community in 1991 16 .
Compared with the 1980s when France was apprehended that the Japanese firms were putting their foot in the European market, a significant change in the French automobile policy took place in the second half of the 1990s; Renault's merger with Nissan is a major example, and France now hosts FDI from Toyota.
Business alliances also redraw the dividing line of the nationality of interests. This exhibits another contrast to the banking sector; the mergers and alliances chosen by automobile manufacturers are not limited among domestic firms. As the major markets (North America, Western Europe, and Japan) became mature and saturated, there are increasing numbers of cross-border corporate alliances as a way to survive in the automobile industry 17 . In the context of lean production, the prophecies by its supporters seem quite accurate in distinguishing the winners and losers via a particular system rather than via nationality. Consequently, transnational development has made the nationality of manufacturers more ambiguous than ever. GM and its partner, Suzuki, unveiled the YGM-1, which will go to market in 2001 and will be produced somewhere in Asia. Nissan and Renault will develop a common platform by mid-2002 for Nissan's Cube and March models and Renault's Clio. Mitsubishi announced that it would form a capital alliance with Volvo to develop and build trucks and buses. Mazda plans to send 30 young employees to Ford plants in the US to get a first-hand look at how the Detroit automaker does things. GM and Toyota plan to develop hybrid engine and hydrogen fuel cell technology jointly in an effort to produce cleaner-burning cars. DaimlerChrysler, which is building its PT Cruiser in Mexico, said it was looking for a second manufacturing base to handle the vehicle's expected high demand. The company plans to introduce the combination sedan/minivan in Japan next year as a "unique" American vehicle. (Japan Auto Trends, 1999, III, 4)
In the case of the merger of Nissan and Renault in March 1999, which was a practical acquisition by Renault of Nissan through 36.8 per cent share, both companies have been closely linked to the state (especially Renault having been state-owned), and the deal inevitably involved the state decision-makers. It is assumed that the main reason for Renault's decision was that it acquired MITI's word that Nissan whould not go bankrupt (Sentaku, August 1999: 94-5). In this sense, MITI remains crucial in determining the industrial structure. Compared to the 1970s, however, when MITI opposed to the deal between Mitsubishi and Chrysler (the plan was revealed in 1969), the fact that MITI approves and even encourages foreign ownership of Japanese automobile company is a great change and signifies the involvement of transnational relations in policy-making.
An international corporate alliance is one way to increase the economy of scale for the participating firms. While the government tried to enlarge the size of the corporations via domestic mergers in the 1960s, to which domestic firms did not respond, it seems that it is the globalization effect, enhancing the international competition in the 1990s, that motivated mergers to increase the economy of scale in the auto industry. Toyota, for example, announced possible parts standardization with Volkswagen in the area of environmental technology. This area is not easy to develop alone, thus leading to inevitable alliance with competitors or even non-automobile related firms (Japan Auto Trends, Executive Highlights, 1999)
7. Conclusion
The contrast between the Japanese banking sector and the automobile sector has its roots in the difference in the respective industry's level of adapting to globalization. Regardless of the industries' preferences, the market is globalized, even if domestic market regulations may yet differ from country to country. In place of the old, hierarchical structure that gave order and rigidity to various business sectors, a new dichotomy between winners and losers has appeared in some areas, which is deemed a direct consequence of globalization.
As shown above, globalization has affected the role of the state in these sectors. Although the Japanese government exhibited some aspiration for deregulation for the financial sector, whose commitment is symbolized by the Big Bang, many Japanese banks seem content to remain dependent on governmental support. While the bailing out of banks by using the public money was inevitable in order to sustain the financial system, there remains the question of moral hazard. In contrast, automobile sector receives less direct support or intervention from the government, and individual firms seek cross-border alliance including international mergers in order to survive. In this sense, transnational relations penetrate more thoroughly in the automobile sector, reflecting the relative independence of the sector from the state.
The story of the banking sector indicates that their 'internationalization' was limited to providing services to their domestic customers in overseas markets. Also, because of the domestic problems, they still rely heavily on state intervention. In this sense, the Japanese banks have so far been inward-looking. On the other hand, the automobile sector has been more aggressive in developing transnational relations, either with foreign governments or with foreign competitors-cum-allies. In addition, Japanese firms managed to initiate a new global norm, namely lean production system.
Japan clearly plays an important part in globalization. The movement of capital, people, information (the amount of electric and electronic communications), and goods in and out of Japan have grown dramatically (Hirano, 1997: 95-8). Such massive amount of transactions is an important element that comprises of transnational relations the Japanese automobile manufacturers have established. In general economic terms, Japan, being a superpower despite the 1990s downturn, has a significant influence on the global economy, as well as being subjected to its impacts. The fact that Japan's position in international politics is less important than its economic power reflects the way Japan has been involved in globalization 18 . This paper suggests that research on different economic sectors contribute to the understanding of what globalization means to each sector and how each sector contributes to globalization.
Annex
| 1997 | 1998 | 1999 | |
| Honda | 648,268 | 694,703 | 685,900 |
| Nissan | 279,510 | 222,733 | 167,742 |
| Toyota | 554,110 | 538,200 | 516,984 |
| Mitsubishi | 184,675 | 158,522 | 159,702 |
| Subaru | 102,180 | 104,229 | 993,070 |
| 1997 | 1998 | |
| Honda | 108,097 | 112,089 |
| Toyota | 104,615 | 172,342 |
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Endnotes
*: Research Fellow of the Japan Society for the Promotion of Science, Tsukuba University, Japan, aabe@gmu.edu, atsuko_a@xd5.so-net.ne.jp Back.
Note 1: On the other hand, it is argued that the level of involvement in the globalization also differs from one state to another. Globalization is deepening the schism between the wealthy and the poor both within and without the state-border. Great portion of the cross-border trade and investment take place among the triad, namely North America, Western Europe, and Japan, and other newly industrialized economies; while the Third World, especially Africa, is totally left out from the growth. For this reason, Petrella (1996) argues that globalization is partial and unstable. Back.
Note 2: It is not only micro-level analyses that indicate the less globalized aspects of what are believed to be globalized; Wade (1996) gives macro-level evidence to counterclaim the globalized economy. Back.
Note 3: Regarding the 'little or no bankruptcy' policy, there are studies which reveal that there is no concrete evidence that Japanese banks let firms fail less than US banks. See Ramseyer, 1994. Also, Cerny (1997) describes the erosion of state control on financial markets. Back.
Note 4: International non-governmental organizations (INGOs) are typical transnational actors, though they usually do not include profit-making organizations. Back.
Note 5: This study indicates the significance of FDI of the manufacturing industry for the overseas operation of Japanese banks, but it also points out that local banking opportunity in the host country partially determines the banks' choice for locations. Back.
Note 6: Most often cited examples of revisionism include Choate, 1990; Prestowitz, 1988. Back.
Note 7: For the details of the Japanese financial crisis in the 1990s, see Beason and James, 1999: 67-100. Back.
Note 8: Contraction of banks' lending has also caused domestic problem of credit crunch. See MITI's White Paper on International Trade 1999 – Executive Summary. Back.
Note 9: The lean production is a system in which the idea of cutting waste, whether space or time or labour, is thoroughly pursued throughout the production process. The elements of the system includes the Just-In-Time (by which parts suppliers and section that handles the previous stage of the assembly would deliver the goods frequently in small quantity), Quality Circle (by which workers are given more responsibility and teamwork environment).. Back.
Note 10: Weakness of lean production is precisely the lack of waste. The system requires the utmost efforts on every single individuals who participates, therefore there is not much room for improvement within the system. When there was a fire accident in one of the suppliers of Nissan, the entire production line had to stop precisely because there were no spare parts to continue the other stages of production line. Consequently, it is likely that some other style of production may be developed in anywhere, which in turn may take over the dominant method of production. Back.
Note 11: See Annex, http://perso.club-internet.fr/motorsat/index.html; http://perso.club-internet.fr/motorsat/DonneesStat/royaume.html Back.
Note 12: Emphasis on local production rather than exporting is a common strategy for most automobile manufacturers. In this sense, Japanese-badged cars made in the US are to be sold within North America, and those made in Europe are for European market. For example, to get a 10 percent market share in Japan, General Motors and Ford conceded that they need to engineer and produce vehicles for the Japanese and Asian markets in Japan, not the US or Europe. (Japan Auto Trends, 1999, III, 4) Back.
Note 13: The seminal work on MITI by Chalmers Johnson applies to the period up to the recovery from the Oil Shock in the 1970s (Johnson, 1982). Although his work has been tremendously influential in the studies of Japanese industrial policy and the wider political economy of Japan, it has also been criticized for its overemphasis on MITI's role. Inoguchi and Iwai (1987: 3, 5) suggested that Johnson reflected too much on MITI officials' lamentation and nostalgia over the era up to the 1960s when MITI controlled the overall industry via capital allocation. Also, Okimoto, 1989. Back.
Note 14: Prior to the 1992 Single Market Programme, France had a 3 per cent quota for Japanese cars in its automobile market. Italy, Spain, and Portugal also had national quotas set by their respective governments, while Britain's Society of Motor Manufacturers and Traders had a gentlemen's agreement with the Japan Automobile Manufacturers Association to limit the Japanese market share to 11 per cent. Other EC member countries did not have official restriction on Japanese car imports. Back.
Note 15: When Nissan began production of Bluebird at its Sunderland factory in 1986, with annual production capacity of 100,000, France warned that those cars contained less than 80 per cent of locally-produced parts, and thus treated them under the import restriction applied to Japanese cars. The British government strongly opposed such treatment, arguing that the rule of origin did not depend on the local content criteria and that an agreement between a transnational firm and the host government determines the percentage for local content. Back.
Note 16: The main part of the agreement targeted the amount of exports from Japan, whereas control over the share of transplants (Japanese-badged cars) was mentioned in the side paper. Back.
Note 17: See The Economist, 26 February 2000, p. 77. Back.
Note 18: Lincoln (1993) pointed out the limits of economic power in global political economy. Back.
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