Tweet

Foreign Joint Ventures in Southeast Asia and the Role of Japan

Guest post by: United Nations University

Article Overview: It is next to impossible to discuss the dynamism of local entrepreneurship in Southeast Asia without discussing its relationship with foreign capital. Foreign joint ventures have been the major form of international linkage in Southeast Asia, transferring technology and skills to local investors.

Foreign Joint Ventures in Southeast Asia and the Role of Japan

It is next to impossible to discuss the dynamism of local entrepreneurship in Southeast Asia without discussing its relationship with foreign capital. Foreign joint ventures have been the major form of international linkage in Southeast Asia, transferring technology and skills to local investors. Foreign firms acted as catalysts, and their role has diminished over time as local firms have gained access to the same international networks, skilled personnel, equipment, and information. Critical to this process has been the role of Japan and other Asian investors, who tend to behave quite differently from European and U.S. investors.

The story of foreign investment has been one of continual change. For example, in 1974 in Malaysia, foreign firms produced nearly 50 percent of manufacturing output, and made up 11 percent of firms. Ten years later, this had dropped to 7.6 percent of firms, and 35 percent of output. In part this was a response to the NEP which led many British firms to withdraw from Malaysia. But the same phenomenon has also been observed in Thailand. In the mid-1960s, Japanese companies owned most of the textile industry in Thailand, but by the 1980s, most were owned by Thai firms.

Foreign investors need incentives to source their component supplies locally, and Southeast Asian governments have been actively promoting joint ventures as a mechanism for the transfer of skills. For garments, the skills are relatively easy to transfer. Skill requirements are higher in electronics, but many Malaysian firms are now exporting indirectly through supplying components to foreign assemblers. In Indonesia, domestic entrepreneurs "thrived" by entering joint ventures with foreign firms in "textiles, electronics, glass manufacture, pharmaceuticals, and finance." Ownership data don't always reflect local-foreign linkages. For example, economist Hal Hill notes that in Indonesia, "most firms in the manufacturing sector have some kind of commercial involvement with foreign parties", either through subcontracting or marketing arrangements.

More than other nationalities, Japanese firms are likely to be the partners in these foreign linkages, and Japanese firms are not only more likely to enter into joint ventures, they are more likely to be using technology that is transferable to partners at the skill levels present in Southeast Asia. Japan has a long presence in Southeast Asia (and a brief presence in Africa). Trading firms such as Mitsubishi had already established outposts in Southeast Asia by 1917. Because Japan has been such an active trading partner in Southeast Asia, when local traders decided to move into industry, they frequently did so with assistance from their Japanese distributors, much as Nnewi traders in Nigeria did later with their Taiwanese distributors. For example, Thai trading groups in the 1950s and 1960s moved into manufacturing under ISI policies, producing the same products they had formerly been importing. About a third of the 211 industrial firms owned by the major trading groups were joint ventures with foreign firms; of these, 80 percent were with Japanese firms.

Japanese firms often entered into joint ventures as minority partners, often with Chinese businessmen who "provided important distribution networks which were vital for the Japanese because they were newcomers and specialized in consumer goods." Yet government actions to promote indigenous interests in Malaysia led to a drop in Chinese participation in these joint ventures. Between 1970 and 1975, 40 percent of Japanese investment was in joint ventures with Chinese firms, and 18 percent with state enterprises or Malay firms. By 1976-1980 with more emphasis by the government on Malay participation, joint ventures with Chinese firms dropped to 29 percent, and ventures with Malay interests (including the state) rose to 54 percent.

Japanese investment tends to come in waves, whenever the yen is highly valued, making exports from Japan itself uncompetitive. The problems Japan has experienced over the past several years have also led to a fall off in new joint venture investment. Although Japanese firms had started to invest in Subsaharan Africa, their moves were tentative. For example, not one of the auto assembly firm joint ventures in Nigeria were with Japanese firms, whereas Japanese firms dominate auto assembly in Southeast Asia. Africa has been far more likely to receive investment from Europe and the U.S., and firms from these countries, the U.S. in particular, seem far more likely to remain wholly owned, and to invest only in high capital, extractive ventures.

By: Deborah Bräutigam
Local Entrepreneurship in Southeast Asia and Subsaharan Africa: Networks and Linkages to the Global Economy
School of International Service
American University
Washington, DC

Related Articles
  Local Entrepreneurship in Southeast Asia and Subsaharan Africa: Networks and Linkages to the Global Economy
  Entrepreneurs and the State
  Joint Venture and NonDisclosure Agreements
  The Train Keeps on Rolling ...
  PROPOSITIONS, HYPOTHESES, AND CONCLUSIONS

Article Tags: asian governments, asian investors, assemblers, catalysts, commercial involvement, component supplies, continual change, dynamism, foreign investors, glass manufacture, hal hill, international linkage, international networks, japanese companies, manufacturing sector, mid 1960s, nep, skill requirements, southeast asia, transferring technology



Related Forum Posts
Joint Ventures?? - I read this following paragraph in another business forum. Has anyone used joint ventures and had successful results? How do you go about setting up joint ventures? [quote:3vnvuml9]Joint Ventures have been, and always will be one of the most powerful marketing tactics ever, and for good reason. They are easy to set up, and they cost you nothing and if set up correctly will allow you to have more customers than you can handle! So if you promote a great product or service and want to expose it to more prospects, or you you seek ways to increase your sales, but aren't quite sure how to go about it you should definitely consider harnessing the power of Joint Ventures And the best part is that anybody can start using joint ventures to skyrocket their profits. It doesn't matter what you sell, or where you sell it.[/quote:3vnvuml9]
Re: Marketing a company - Get their contacts from someone who had been marketing to them before and do Joint Ventures with the guy
Free Ebook on Joint Ventures - Julie, you might be interested in the free ebook offer through Dollarmakers.com on Joint Ventures that has upto 30 variations for a small business to create joint ventures. Once you've read it I'd be happy to share more advanced ideas based on the book.
Re: World Population Shifts from Europeans to Africans and India - Hi Wendybird33, Welcome to the forum! As someone who lives in Japan I'd like to quibble with the findings about East Asia. You will never get an accurate picture if you throw the Japanese and Chinese into the same pot! Their socio-cultural circumstances and demographic trends are completely different. The Japanese population is shrinking, not expanding. In the case of Japan, more choices are available to women than ever before. Many people are choosing either to postpone marriage or not to marry at all and the cost of raising children is also a factor for many. David H
Different types of funding - Business Relationship Funding This is another source of funds that can be overlooked. It may be possible to introduce potential alliances to add value to both parties. It may produce an ultimate exit route in the medium to long term. Joint Ventures: Requires a legal agreement embodying the deal and another company Partnerships: Two companies collaborate with possible funding. Joint working relationships: These are an informal partnership which may be more project specific where the parties can share resources. Agencies: These can be geographical or product specific and generally incorporates a payment for the right to the agency. Distributors: Very like an agency but may not necessarily involve up front payment. Alliances: These do not require a separate company and can be embodied by a legal agreement to work together. Trade investors: Otherwise known as Corporate Partnering. This can be a good way to involve a much larger company in the business with a view to possible trade sale further down the line. Associates: This can be a loose arrangement with no fundamental commitments either way, rather like a preferred supplier. Equity Swop: Two companies exchange shares to a similar value to develop both businesses. Franchises: This can allow the business to grow without further direct investment. Licensing: This involves licensing a product or service to enable others to sell it. This requires you to own the intellectual property.


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Tweet

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

Tips for the Novice Traveler

LISTENING SKILLS IN COACHING

What is an Adaptive Organization

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.