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FDI from Japanese nonmanufacturers up 35% in FY2007

August 10, 2008
By Ken Worsley


One of themes that has often been touched on over at BizCast Japan is the increasing overseas presence of Japanese non-manufacturing firms. The Nikkei has just published an article showing the results of a joint Finance Ministry and the Bank of Japan survey showing that direct foreign investment by Japanese non-manufacturers jumped 35% in fiscal 2007 to reach about 4.3 trillion yen.

This amount is still lower than what what seen during the bubble years, when Japan’s FDI by non-manufacturing firms surpassed 6 trillion yen. Still, it is a trend that is expected to continue, given the lack of growth opportunities in the domestic market.

Retail and wholesale firms led the charge in FDI, pouring about 560 billion yen overseas in FY2007. They were followed by investment in oil and mining operations (480 billion yen) and investments in transport (330 billion yen).

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Comments

6 Responses to “FDI from Japanese nonmanufacturers up 35% in FY2007”

  1. Contrarian on August 12th, 2008 5:45 am

    Ken:

    Do you think that this is a consequence of these companies having strong cash flows and relatively few attractive domestic investment options?

  2. Ken Worsley on August 13th, 2008 3:35 pm

    Absolutely, I think that’s a big part of it. The domestic market is shrinking in size. During the 80s and early 90s we saw Japanese firms buying things overseas because they could. Now we’re seeing them act out of the need to survive. Getting into overseas markets is a huge part of that.

  3. Ken Worsley on August 13th, 2008 11:26 pm

    Contrarian,

    CASH-RICH FIRMS: Seek M&As, Expand Ops With Y60tln Surplus Funds

    Japanese companies awash in cash are beginning to aggressively funnel their surplus funds into merger and acquisition activity and new lines of business.

    The move away from core operations should be a red flag. But some are focusing on expanding overseas ops:

    Takeda Pharmaceutical Co. (4502), which came in fifth on the list, moved to buy a U.S. drug development venture for about 800 billion yen, and 15th-ranked Daiichi Sankyo’s envisioned acquisition of Ranbaxy Laboratories is aimed at entering the generic medicine market.

    There’s also talk of Fast Retailing’s moves in China, while Kirin is earmarking 300 billion yen for future buyouts - are there any US breweries out there to target?

  4. WG on August 14th, 2008 11:25 pm

    I think it’s good to see more Japanese firms moving overseas and taking advantage of opportunities in other markets. For too long, too many commentators on Japan have expressed the view that Japanese firms are too insular to succeed overseas.

  5. Ken Worsley on August 15th, 2008 12:03 am

    For too long, too many commentators on Japan have expressed the view that Japanese firms are too insular to succeed overseas.

    Who? Besides the really obvious one, who was writing about the state of Japanese companies 15-20 years ago.

  6. Mike Smitka, Washington and Lee University on August 16th, 2008 9:10 pm

    We need to take one step back from FDI: this cannot be separated from the larger surplus issue. Attractive domestic investments are indeed lacking, and have been for a long while. Hence savers (corporate and household) have long put money overseas, but into low return assets. There is thus the range of cash (well, short-term bonds), portfolio investment and FDI. It’s not always easy to distinguish these.

    Note that net income receipts (¥8.5 trillion) now exceed the surplus on goods and services (¥2.7 trillion) and the former does not include net royalties (¥0.4 trillion).

    However, the return on the stock of DFI and portfolio investments returns low in international comparison though it is up significantly the past year or so. Some of this may be merely the vintage effect of DFI (startups take time to earn money), some of it is lack of experience in portfolio management.

    But the bottom line then remains that, with the share of retirees rapidly increasing (21% of the population now over age 65), attempts to save today to pay for tomorrow are not going as well as one might hope, and the upfront cost of flat or falling personal incomes hurts growth and current consumption.

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