Do Keiretsu Really Hinder FDI into Japanese Manufacturing?

Abstract

This paper examines an issue that has received considerable comment but little analysis. It has often been argued that the presence of the Keiretsu in Japan has been instrumental in deterring multinational firms from entering Japan, though evidence for this is patchy. We present some new analysis of this issue, thereby evaluating the effects of Keiretsu on inward investment penetration in Japan. In contrast to previous work in this area, our results suggest that there is little relationship between inward FDI and keiretsu networks, once one controls for endogeneity and unobservable heterogeneity. In contrast, the results do illustrate some important interaction effects between Keiretsu and other explanatory variables that explain differences in inward investment penetration.

Exploring the significance of domestic investment for foreign direct investment in China: A city-network approach

“…In conclusion, in contrast to Tang et al’s (2008) finding, DI is found to be significant for FDI in China. In addition, in line with Kimino et al (2012), the established domestic network plays an important role in attracting FDI. Specifically, bridging positions, regional clustering and a diversified linkage profile in the DI network can be expected to enhance the attractiveness of cities to foreign investors.…”

“…In terms of explaining FDI using a network analysis lens, Kimino et al (2012) and location factors (endogenous influence) coincide in cities (Wall and Stavropoulos, 2016).…”

“…Although there is an increasing number of empirical studies in China highlighting city positions in urban networks (see Pan et al, 2017; Taylor et al, 2014; Zhao et al, 2015), these studies focus on shedding light on city networks or on urban network connectivity itself but do not explore the association between city network positions and urban FDI agglomeration. In terms of explaining FDI using a network analysis lens, Kimino et al (2012) pioneered work using the domestic ‘Keiretsu’ 2 network to explain FDI in Japan and found that the domestic network is a significant influence on FDI inflows. They argued that the domestic network can provide pipelines for foreign investors to obtain knowledge and information.…”

“… 2. Keiretsu is a traditional Japanese corporation system, which is highly embedded in the Japanese economic, social and political context. It usually refers to the forms of interlocking business partnerships and cross-shareholding of member companies in a highly organised and hierarchical system (Kimino et al, 2012). Keiretsu insulates member companies from financial fluctuations and hostile takeovers by foreign companies, which provides stable conditions for long-term strategic planning (Czinkota and Kotabe, 2000).…”