In Chapter 6, we examined the pattern of Japanese entry in the European and U.S. manufacturing industries in the late 1980s when the explosive increase in the flow of FDI was observed. What happened to those Japanese firms that rushed into Europe and the United States? Did they exit already from these markets? In fact, a number of Japanese firms that entered in the U.S. and European industries in the 1980s have left these markets by now. The purpose of this chapter is two-fold: first, it examines the pattern of Japanese exit from the United States through 2000; second, it tests several hypotheses on the relationship between concentrated entry and exit patterns.

Patterns

The data used to describe the exit pattern of U.S. subsidiaries of Japanese firms is constructed from the subsidiary level information published in Toyo Keizai, kaigai shinshutsu kigyo soran and described fully in Chapter 6. The sample of Japanese subsidiaries used in this chapter is generated by the following criteria: (1) the subsidiary is in manufacturing; (2) the Japanese parent firm is in manufacturing; (3) the subsidiary was established during the 1985–1990 period; and (4) the Japanese parent owns more that 10 percent of the subsidiary. These criteria and the unavailability of some of quantitative data on subsidiary, parent, and industry characteristics produce a sample of 316 subsidiaries in the United States. The 1985–90 period records the highest concentration of Japanese entries into the U.S. market in any 5 consecutive years in history.

The yearly value of exports used in Figure 1.2 and Table 1.5 is obtained from the Customs and Tariff Bureau, Ministry of Finance, Japan, Nihon Gaikoku Boeki Nenpyo [Yearly Trade Statistics of Japan]. Value of outward foreign direct investment used in Figures 1.2, 1.3, and 1.4 and Table 1.6 was obtained from the Ministry of Economy, Trade and Industry, Japan, Wagakuni Kigyo no Kaigai Gigyo Katsudo [Business Activities Abraod by Japanese Corporations] report, various years. The yearly statistics reported in this data source are based on the Ministry of Finance data. The value of the outward direct investment is the approval and notification base, and it is a gross figure.

The figures in Table 1.2, and the list of industries presented in Table 1.3 and Table 1.4, are all based on the OECD trade statistics. Audretsch, Sleuwaegen, and Yamawaki (1989), in appendix A and appendix B provide detailed accounts on these tables.

Figure 1.5 is based on figures for passenger cars, buses, and trucks. The statistics used in this exhibit were obtained from Economic Research Division, JETRO. Mr. Dai Higashino at Economic Research Division, JETRO Tokyo, and Mr. Minoru Hara at JETRO Los Angeles helped me greatly by providing these statistics and other information needed to prepare this chapter.

Introduction

As Japanese firms in engineering-intensive industries expanded their international operations in the late 1980s, their product focus also shifted from low-end products to middle-range products, and further to high-end products. The most notable example of such upward shifts in product segments was observed in the automobile industry in the late 1980s. Although Japan's automobile manufacturers succeeded in penetrating the international markets based on their competitive advantages in production efficiency and product quality in small-sized and middle-range passenger vehicles, they were not yet a major competitive force in the high-end luxury car segment in the late 1970s and the early 1980s. Contrary to the low-end and mid-segment, European manufacturers were historically strong competitors in the high-end luxury segments worldwide. In the U.S. passenger car market, German, British, and U.S. firms had been the major players in the luxury segment after World War II. A notable change in market structure, however, occurred in the late 1980s when Japanese firms entered the luxury segment of the U.S. passenger car market. Chapter 4 investigated their entry process in the U.S. market and described how Japanese firms took advantage of their competitiveness and implemented a policy to set export price at a level that undercut incumbents' price. When measured by market share, the newly established brands of Japanese automakers, such as Toyota's Lexus, were no doubt very successful in penetrating the U.S. market that had been entrenched by the existing European and U.S. luxury brands.

I owe many people debts of gratitude for their help in the development of this book. Certain parts of this book were written and published in various forms while I was at the Wissenschaftszentrum Berlin in 1982–1990 and Université catholique de Louvain in 1990–1997. I benefited greatly from the research opportunities and the intellectual environment that these institutions provided. I am particularly indebted to Paul Geroski, Alexis Jacquemin, Dennis Mueller, Hiroyuki Odagiri, F. M. Scherer, and Leonard Weiss for their criticisms and suggestions on various papers that are now integrated in this book. I thank David Audretsch, Manfred Fleischer, Elizabeth de Ghellinck, Christian Huveneers, Joachim Schwalbach, and Leo Sleuwaegen for their advice and encouragement.

José de la Torre, Marvin Lieberman, and Mariko Sakakibara at UCLA's Anderson Graduate School of Management offered many insights and useful comments on certain parts of this book. I thank my colleagues at the Peter Drucker and Masatoshi Ito Graduate School of Management at Claremont Graduate University for their moral support and encouragement.

Over the years, I have had many opportunities to present the material in this book in various forms at seminars and conferences. I extend my thanks to Nicola Acocella, Luca Barbarito, Jean-François Hennart, Fukunari Kimura, Bruce Kogut, Franco Malerba, Jean-Louis Mucchielli, Yoko Sazanami, and Klaus Zimmermann for such opportunities and their valuable comments.

Introduction

A natural sequence to the analysis of bunching in FDI among Japanese firms in Chapter 6 is the analysis of oligopolistic rivalry among Japanese firms and their foreign rivals in cross-market FDI. Although the Knickerbocker hypothesis suggests oligopolistic interactions among the firms domiciled in the same country, international oligopolists may interact with each other across international boundaries. Several pioneering studies on the incidence and behavior of the MNE pointed out that the local firm is often motivated to invest in the home market of the foreign firm to defend the local firm's home market from competition injected by the foreign firm (Hymer, 1960; Kindleberger, 1969; Caves, 1971; Wilkins, 1974; Vernon, 1977). This notion of defensive FDI was strongly associated with the rapid expansion of foreign direct investment by European firms in the United States during the late 1960s and 1970s (Franko, 1976). Graham (1978) first tested the hypothesis of retaliatory defensive FDI by using time-series data on European investment for a cross-section of U.S. manufacturing industries and provided some evidence that supports this hypothesis. He argued that when the foreign firm enters into the home market of the local firms, a disruption in stable environment occurs in a local oligopoly. This will subsequently stimulate rivalry among the local firms and the foreign entrant, and the local firms would consider an option of entering the home market of the foreign firm for retaliation and defense.