FDI and Licensing Strategies by Dutch Multinationals in Japan

After reviewing the stylised facts concerning Japan''s low level of inward investment and the explanations for these facts put forward in the literature, this paper examines the licensing and investment behaviour of Dutch multinational enterprises in Japan. It is shown that aggregate data on Dutch foreign direct investment in Japan substantially underestimate the presence of Dutch firms. Survey data indicate that employment in affiliates of Dutch multinationals reached at least 12,000 in 1995. The largest five industrial groups (Shell, Unilever, Philips, Akzo-Nobel and DSM) are responsible for more than 90 percent of Dutch investment. Dutch affiliates on balance register a trade surplus with the rest of the world and with the Netherlands, which contrasts with the trade pattern of other foreign affiliates in Japan. The trade surplus is due to the active procurement of Japanese components and materials for world-wide operations by some affiliates, and the export-oriented manufacturing operations of affiliates in the electronics and speciality chemicals sectors. The data also reveal a diversity of investment strategies, from a focus on wholly and majority owned operations and intra-group transfers (Shell and Unilever), to an almost exclusive use of joint ventures coupled with licensing agreements with independent Japanese firm (DSM and Akzo-Nobel). A striking feature of Dutch investment in Japan remains the complete absence of a large number of multinationals with expanding operations in Europe and the United States. The new opportunities for market entry and acquisitions in Japan in the late 1990s, demonstrated by the expansion of a number of Dutch firms, warrant a much greater focus on the Japanese market than has been the case until today.