Abstract
This paper conducted an empirical analysis using an NEG model to investigate the factors in choosing overseas locations for the relevant MNFs’ production sites for both final and intermediate goods by looking at these companies’ final and intermediate production sites separately. Therefore, we focused on two major Japanese industries: the Japanese global-type electronics and the pyramid-type automotive industries. After construction of the three hypotheses; the first hypothesis that the agglomeration of the final goods production sites for Japanese MNFs in a particular country can occur because of the concentration of the intermediate goods production sites for Japanese MNFs in that countries; the second hypothesis that the agglomeration of the final goods production sites for Japanese MNFs in a particular country can occur because of the market potential of the final goods production sites in that countries or neighboring countries; and the third hypothesis that the agglomeration of the final goods production sites for Japanese MNFs in a particular country can occur because of the supplier access of the intermediate goods production sites in that countries or neighboring countries, we estimated this location choice model. In first and third hypotheses, we found that the agglomeration of the final goods production sites for Japanese electronics firms in a particular country can occur because of the total supplier access of the intermediate goods production sites (vertical supply linkage) and supplier access in neighboring countries (global vertical supply linkage) as well as vertical and horizontal Japanese industrial agglomerations, whereas the agglomeration of the intermediate goods production sites for Japanese electronics firms in a particular country can occur because of the total supplier access of the intermediate goods production sites and supplier access in neighboring countries as well as vertical Japanese industrial agglomeration. In the second hypothesis, we found that the agglomeration of the final goods production sites for Japanese MNFs in a particular country can occur because of the market potential of the final goods production sites in that countries, whereas the agglomeration of the intermediate goods production sites for Japanese MNFs in a particular country can occur because of the domestic market potential of the intermediate goods production sites in that countries.
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Notes
In this paper, the global-type electrical/electronics industry refers to the manufacture of electronic parts, devices, and electronic circuits per JSIC Code 28, the manufacture of electrical machinery, equipment, and supplies per JSIC Code 29, and the manufacture of information and communication electronics equipment per JSIC Code 30; the pyramid-type transportation equipment industry refers to the manufacture of transportation equipment per JSIC Code 31; and the automotive industry refers to the motor vehicle parts and other motor vehicle-related industries within the broader transportation equipment manufacturing sector. With regard to the importance of the intermediate goods sector on the final sector’s agglomeration, see Fujita and Thisse (2013, p.335).
We eliminated those firms whose entry date was unknown.
For the automotive industry only, it should be noted that only ten countries were included, because Taiwan was eliminated due to data restrictions in calculating estimates using Stata.
Interviews conducted at Japanese companies located in Dalian, China, and at JETRO’s Dalian office found that the major reasons that Japanese firms located in the area were the availability of high-quality inexpensive labor, good infrastructure (a good harbor), and municipal and government incentives to attract foreign capital [On-site survey of Japanese food and electric/electronics-related firms in Dalian, China, and JETRO’s Dalian office (November 2013)] (Ikegawa and Tokunaga 2018).
Tokunaga and Ishii (2000), Tokunaga and Jin (2011), and Tokunaga et al. (2018) demonstrated that the agglomeration variable is a key explanatory variable in overseas location choice, because economies of agglomeration are at work, but this paper is the first to demonstrate the vertical and horizontal agglomeration effect on location by separating production sites into those for final goods and those for intermediate goods for the electrical/electronics and automotive industries. Belderbos and Carree (2002) demonstrated the influence of a group of Japanese firms (keiretsu) on FDI in China. Yamashita et al. (2014) demonstrated the importance of the agglomeration effect in Japanese MNFs’ location choices in China.
In chapter 4 and 16 of Fujita, Krugman, and Venables (1999), they showed that there are real income gains (agglomeration economies) from industrial clustering (industrial agglomeration), deriving from the proximity of closely linked firms (p. 341) using NEG model based on the core-periphery (CP) model. Fujita and Thisse (2013, p. 350 ) also pointed out that firms must be able to serve almost all markets equally to enjoy the local advantages associated with the formation of a cluster. Tokunaga et al. (2014) found that there was the agglomeration on Japanese assembly-type manufacturing industry during 1985‒2000 using the agglomeration EG-index (Ellison and Glaeser 1994, 1997), and there were positive and weak agglomeration economies (this is, slight increasing returns to scale) on production side.
Low transportation costs strengthen the market access effect and weaken the market crowding effect, thus increasing market consolidation and enlarging the home market effect (HME), which occurs when the proportion of a region’s (or country’s) population exceeds a firm’s market share. In other words, low transportation costs cause firms to concentrate further in regions (countries) with greater economies of scale. When communications costs are added, lower transportation costs have a non-linear impact on spatial fragmentation of the supply chain (Fujita and Thisse 2013, ch. 9, pp. 357–363).
See Akune, Okiyama, and Tokunaga’s “Tai ni okeru nikkei shokuhin, jidosha kanren kigyo oyobi JETRO Bankoku jimusho no genchi chosa (2011)” [On-site survey of Japanese automotive-related companies in Thailand and JETRO’s Bangkok office (2011)] and Ikegawa, Tan, and Tokunaga’s “Chugoku Dairen ni okeru nikkei shokuhin, denki denshi, jidosha kanren kigyo oyobi JETRO Dairen jimusho no genchi chosa (2013/11)” (On-site survey of Japanese food, electrical/electronics, and automotive-related companies in Dalian, China, and JETRO’s Dalian office (November 2013)] (Ikegawa and Tokunaga 2018).
See Fig. 3.
This paper is the first to conduct an empirical analysis of the market potential (market access) and supplier access variables involved in choosing locations by clearly differentiating between the final goods and intermediate goods production sites in the electrical/electronics and automotive industries and looking at domestic and neighboring countries’ markets separately. Ikegawa and Tokunaga (2018) studied the frozen food industry using the same methodology. These were the first empirical studies to shed light on the importance of market access and supplier access at factors in overseas location choice.
Regarding this point, see Fujita and Thisse (2013, ch. 9).
Regarding this point, see Fujita and Thisse (2013, p. 335).
Fujita and Thisse (2013, ch. 8) used a simple NEG model to show that a region experiences coagglomeration of the intermediate goods sector and the final goods sector when the transportation costs for intermediate goods exceed the transportation costs for final goods in that region. .
Tokunaga and Ikegawa (2018) studied a location choice model for Japanese electrical/electronics companies’ final goods production sites using the same methodology. However, this paper is the first empirical study for Japanese electrical/electronics and automobile companies’ final and intermediate goods production sites to shed light on the importance of market access and supplier access at factors in overseas location choice.
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Tokunaga, S., Ikegawa, M. Global supply chain, vertical and horizontal agglomerations, and location of final and intermediate goods production sites for Japanese MNFs in East Asia: evidence from the Japanese Electronics and Automotive Industries. Asia-Pac J Reg Sci 3, 911–953 (2019). https://doi.org/10.1007/s41685-019-00132-9
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DOI: https://doi.org/10.1007/s41685-019-00132-9