The Rise of Asia Pacific Multinational Companies in the Global Economy

Introduction

Foreign direct investment (FDI) refers to a long-term investment into international foreign markets with the aim of boosting the economy of a country through improvement of profits. Unlike the United States of America, which had made strides regarding foreign direct investment, it was not until the early 1970s that the Japanese electronics industry ventured into outward foreign direct investment. Some of the first electronics companies to venture into the international market included Sony and Fujitsu. The decisions to venture into foreign direct investment by the Japanese multinational corporations gained momentum with the commitment of Japanese government towards eradicating unequal treaties as well as the European market protectionism policy. The only way the companies from Japan could therefore tap the profits in the European market was to invest directly as opposed to just importing or exporting goods. Most of the Japanese electronics companies ventured into foreign direct investment through the formation of joint ventures, creation of subsidiaries, licensing, and sole entry. The paper seeks to analyze the competitive advantage of the Japanese electronics industry in comparison with their rivals from the Asia Pacific region, particularly South Korea and China, and the electronics companies outside the region. The paper will also analyze the multinational performance of the electronics companies from the Asia Pacific region in comparison with Japanese automobile companies.

Motivations and Strategies in Multinational Performance of Japanese Electronics Companies and Their Rivals

The majority of the Asia Pacific electronics companies turned to FDI after 1980, unlike the automobile industry, where most companies ventured between 1950 and 1980, with Toyota leading the trail. The only Japanese electronics company that had internationalized by 1980 was Sony. From 1980 onwards, however, companies like Fujitsu followed suit. The Japanese electronics industry faced close competition from other Asian electronics companies like Samsung in South Korea and Huawei in China. In the European market, the competitors of the Japanese electronics companies include Hewlett-Packard (HP) and the Apple Inc., all from the United States of America. The Japanese electronics companies, such as Sony and Fujitsu, have employed the value-based strategy to enter the international market (Di Minin, Zhang & Gammeltoft 2012). This strategy enables the companies to buy the required raw materials at a lower cost, turn the materials and technologies into products of high value, and export the finished products at a cost-efficient price (Aggarwal & Urata 2013). Opening many subsidiaries and building a strong culture of business management is yet another strategy (Aaker 2008). The Japanese electronics industry, however, has witnessed decline after 1980 because of the rise of other companies in Asia Pacific region like Samsung and Huawei, which use the same value-based strategy just like Japanese firms. The only difference is that Sony and Fujitsu from Japan have a strong culture of research and development.

Unlike the Asia Pacific electronics multinationals, the US companies like Apple and Hewlett Packard have employed foreign outsourcing, licensing and product imports as their main strategies in the international market. These strategies enable the companies to compete highly with the Japanese electronics corporations by using cheap labor and cheap raw materials to facilitate their sales growth, advance in technologies, and expand their market (Schuller & Turner 2005).

If to speak about the motivation for going multinational, both the Japanese, South Korean, Chinese and the US electronics industries were motivated by the need to conquer the foreign market and expand their sales. Apart from the abovementioned reasons, however, Sony and Fujitsu were motivated by the need to circumvent the European protectionism policy.

The country of origin and the year of establishment have also been important factors to influence the ways and strategies of the electronics firms going multinational. The Japanese, South Korean and Chinese companies ventured into FDI early because they were established early, and the Asian Pacific governments were very supportive. Fujitsu and Sony, for example were established in 1935 and 1946 respectively (Clark 1981). Sony got internationalized in 1960 with the opening of the Sony America branch in the United States, while Fujitsu ventured into FDI in the year 1967, when it opened the New York branch. In comparison, Hewlett Packard, established in 1939, went international in 1960, and Apple Inc., established in 1976, went international in 1988 (Belderbos & Zou 2006). HP formed a joint venture with Sony in Japan in 1960, while Apple Inc. followed in the year 1988 with the acquisition of IBM, among other companies. The other Asia Pacific electronic companies like Samsung and Huawei decided to go international from the 1980s onward (Horaguchi & Shimokawa 2013). Samsung, for example, opened its Samsung America branch in 1980, while Huawei went international in 1996 by opening plants in America and Russia (Yamakawa, Peng & Deeds 2008). One notable observation, however, is that while the Japanese and South Korean multinational companies decided to venture majorly into the Asian and the European markets, the Chinese multinationals decided to invest in Africa (Morck, Yeung & Zhao 2008).

The Reasons for the Asia Pacific Multinational Corporations Going International

The engagement of the Japanese, Chinese, South Korean, Taiwanese and other Asian Pacific countries in foreign direct investment was motivated by the need to beat the regional legal and political constraints, especially in the import and export of goods, and tap into the international market (Aggarwal & Urata 2013). The Asian multinationals like Samsung, Huawei and Sony wanted to draw benefits from the innovation provided by other countries and expand their markets. Thus, starting the companies in the respective foreign countries would be cheaper and affordable than exporting the finished products.

The Modes of Entry into Foreign Direct Investment by the Asia Pacific Multinational Corporations

As much as most Asia Pacific multinational companies had similar motivations and strategies in engaging in FDI, they conquered the international market using different modes. The most common mode of entry was a joint venture, which allowed to avoid the licensing requirements of the foreign country and also beat the cultural barriers (Aaker 2008). The mode has been exercised by Samsung, Huawei, and Sony. In very rare cases, however, the companies used the Greenfield investment by starting a new plant in the country. The choice of the mode of entry was determined by the business startup requirements and the need to acquire new technologies and assets. Samsung created a joint venture with Sony to form the Samsung LCD in Japan. Huawei in Russia created a joint venture with Russia Telecom, while Hewlett Packard created a joint venture with Sony in Japan.

The differences in modes of entry came about as a result of the circumstances in the host country of investment. The reasons vary from saving on profits, beating the regional licensing and start-up requirements to maximizing profits. Sony America, for example, settled on a Greenfield investment, as there were no companies offering similar services in the U.S. The persistent protectionism policy of the US on the Asia Pacific exports has also contributed to the difference in strategies. China, for example, has not been a WTO member for a very long time, and it has faced a lot of import restrictions in the European market (Peng 2012). Huawei preferred joint ventures and wholly owned subsidiaries in the US to beat the restrictions on exportation.

Asia Pacific Multinational Companies Compliance with Foreign Direct Investment Theories and the Concept of Institutional Advantage

The two main theories of foreign direct investment include the Ricardo’s comparative advantage theory and the internationalization theory (Belderbos & Zou 2006). The comparative advantage theory advocates that a country should invest in products it can produce at a cheaper cost as compared to other countries. The internationalization theory, on the other hand, aims at maintaining cost efficiency in running the multinationals for making higher profits for the home country and the owners of the multinational companies.

Sony and Fujitsu decided to venture into electronics and go global because they have cheap labor as compared to other countries as well as advanced technologies, so they can use the imported cheap raw materials to make high value products (Belderbos & Zou 2006). Samsung also has advanced technologies to produce electronics at a low cost as compared to European firms. As such, the Japanese and the South Korean electronics companies comply with the comparative advantage theory (Li & Park 2006). On the other hand, proper integration and management of the subsidiaries to cut on costs and improve profits coupled with proper control and pricing transfer makes the companies compliant with the internationalization theory. The profits earned eventually not only trickle to the owners but to Japan as well.

The internationalization theory has also given rise to the concept of institutional advantage. In international marketing, institutional advantage refers to the cost efficiency arising due to the proper management of the subsidiaries. The creation of subsidiaries means pulling together resources to circumvent the labor, taxation and the start-up costs, which will eventually create efficiency (Rugman 2005). Internationalization assists in pulling together resources to decrease costs. Thus, the theory of comparative advantage encourages a company to venture into producing goods at a cheap cost (Porter & Kramer, 2006). This way, the reduction in costs leads to an increase in profits of the Asian Pacific multinational companies like Sony, Samsung, Huawei and others (Collinson & Rugman 2008). The long-term result is that the governments of the various countries hosting the headquarters of the companies benefit in return. This enables the companies to control the international market.

Variations in the Modes of Entry into the International Markets by the Asia Pacific Multinational Companies

The multinational companies within various industries in the Asia Pacific region have used different patterns and modes of entry into the international market. Different timings, locations of the subsidiaries and entry modes have been applied (Li & Park 2006). The consideration of the site of the subsidiaries has been very crucial because of the distance it takes to transport raw materials (Dyer & Singh 1998). Samsung, Sony, and Huawei all preferred locating their subsidiaries where there are fewer competitors on the market. The variation in the modes of entry, however, can be explained by the need to localize the international market. Most Asia Pacific companies preferred joint ventures and whole subsidiary ownerships over sole entry because they wanted to go behind the export restrictions imposed primarily by the European countries. They never wished to incur additional legal requirement costs for starting a sole entry in these countries. One peculiar characteristic of the Asia Pacific multinational companies is that they are majorly market- and asset-based (Dyer 1996). Being market-based means that they were all interested in tapping the customers from the foreign countries to boost their sales, while being asset-based means they preferred joint ventures and subsidiaries where there is no need to incur other extra costs in purchasing assets to start a new company. The companies therefore acquire the assets of their subsidiaries for innovation purposes to aid them in maximizing their profits.

Maintenance of Competitive Advantage of the Asian Pacific Multinational Companies in the International Market

Maintaining the competitive advantage in the electronics sector is not an easy task, but the Asian electronics multinational corporations have managed to prove their competitiveness internationally. Samsung and Huawei, for example, have invested much in research and development (Coe & Lee 2006). It is the innovation posed by Samsung that has made it the best electronics company in the world since the year 2009. In China alone, for example, Samsung has established a telecommunication research and development centre in Beijing, research and development centres in semiconductors in Suzhou and Hangzhou, and also a television research and development centre in Tianjin (Shimizutani & Todo 2008).

Huawei uses the links it gains from the foreign markets to improve on its technology and technical know-how. All the three companies, however, Samsung, Sony, and Huawei, enjoy massive government funding that assists in their research. The companies focus on improving their relations with customers by ensuring commitment from all the employees and concentrating much on the customers’ long-term needs (Huggins, Demirbag & Ratcheva 2007). The companies also ensure that the management of the subsidiaries is localized, but they are using the expatriate management. Such type of control ensures that the expatriate managers are held accountable to the managers in the main company (Jung & Bansal 2009). Thus, the combination of the abovementioned factors is what gives a competitive advantage to the Asia Pacific multinationals as compared to the companies from other countries.

Management of the Subsidiaries

The establishment of joint ventures and subsidiaries abroad gives rise for the need to have a proper management of the subsidiaries. In this case, management of subsidiaries abroad by the Samsung, Sony and Huawei is done by sending expatriates from the mother country while the employees in the subsidiaries are recruited from the host country (Belderbos & Heijltjes 2005). All the coordination of the subsidiaries abroad is done through the main office. Samsung, for example, has its main office in South Korea, Sony has its headquarters in Japan, while Huawei is headquartered in China. A good connection between the host country and the subsidiary enables the mother company to evade additional costs and other trade control barriers (Enright 2005). The above scenario is therefore a reflection of the OLI model that has three main pillars: the ownership benefits, the internationalization advantages, and the benefits accruing to the mother nations (Dunning & Lundan 2008).

Strategies Associated with the Establishment of Subsidiaries

With the Asia Pacific companies extending to other foreign nations, the need to set up the corporate and business unit strategies arise. The strategies are necessary, since there is a need for establishing goals and objectives in the subsidiaries. The corporate strategy is set at the headquarters of the companies while the business unit strategies occur at the subsidiaries (Leach-man, Pegels & Kyoon Shin 2005). Legal and development strategies may also be set up at the subsidiaries, because the companies are operating in totally new environments that need legal regulation (Kiggundu & Anfeng 2008). Departmental and operational strategies are also critical in running a subsidiary.

The Asia Pacific Governments Promotion of Inward FDI

Governments have a responsibility of ensuring the improvement of the inward foreign direct investment (He & Lyles 2008). While multinational companies struggle to secure the outward foreign direct investment, the Asian Pacific governments have a responsibility to ensure that such countries invest in the home country. One of the ways that Japan, for example, uses to promote inward FDI is through setting up rules and regulations for the market controls (Schonberger 2007). Another way is the unification of the multinational companies and promotion of research and development. The provision of proper education systems and a well-groomed workforce is also a way in which the Asia Pacific governments have promoted inward FDI. The government of Japan in its mission to fulfil its role in the promotion of inward FDI enacted the Foreign Exchange and Foreign Trade Control Law of 1949 to control imports and exports in Japan. The law focuses on protecting the Japanese industries.

Unlike the Japanese government, the government of the United States uses the protectionism policy as a way of controlling inward and outward FDI. The protectionism policy restricts imports from majorly the Asia Pacific region to ensure growth of the local industries. There is no difference, however, between the Japanese, South Korean and Chinese governments in the stimulation of inward FDI as they all belong to the Asian Union and therefore champion the same trade ideas (Schonberger 2007).  The governments therefore have a political interest in the promotion of inward FDI, as it leads to creation of employment and the improvement in technology.

Conclusion

In conclusion, the Japanese, Chinese, South Korean and the US electronics industries all rely on the importation of cheap materials and technology for the production of their products and therefore maintain competitive advantage. They also used the same modes of entry, i.e. Samsung , Sony and Hewlett Packard used joint ventures and wholly owned subsidiaries to conquer the international market. The timings in the internationalization are also similar as most companies ventured in around 1960s. The Japanese companies like Sony and Fujitsu have, however, maintained a competitive advantage due to proper research and development programs with the adequate support of the government. Good management of the subsidiaries using the localization method with expatriates coming from the home countries acting as managers also works miracles for the companies. Samsung, Sony, and Huawei from South Korea, Japan and China respectively have complied with the FDI theories of internationalization and comparative advantage, which led to significant institutional advantages. As such, the Asia Pacific region boasts of nurturing the best multinationals.