Abstract
This chapter examines the barriers to cross-border outsourcing, particularly impediments for Japanese firms related to differences in languages. Almost all the Japanese firms exclusively use the Japanese language for internal communications and business with other Japanese firms, but they normally have to use nonnative languages, often English, for outsourcing to foreign firms. Based on RIETI survey, we distinguish the firm’s FDI subsidiaries, subsidiaries owned by other Japanese firms, and foreign firms in order to investigate how entry barriers to outsourcing vary depending on the types of suppliers. Although not directly on outsourcing, this chapter also reports our research results on task content of Japan’s manufacturing trade. As cross-border outsourcing and international trade in tasks are tightly linked each other, we discuss how task content of Japanese trade changed. We highlight how a new mode of globalization, namely, cross-border outsourcing, affects Japanese firms, which are traditionally insulated from intense global competition by impediments at the national border.
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Notes
- 1.
Lyons (2017) reported that nationally diverse teams spend more time for coordination by counting the number of words in chat logs.
- 2.
As a rare example of empirical studies, Rajan and Wulf (2006) found that firms are becoming flatter (more positions reporting directly to CEO and fewer layers between division heads and CEO) in the sample of more than 300 U.S. firms, but they do not examine offshoring or outsourcing .
- 3.
The ownership here determines the boundary of an enterprise group, not exactly the firm, as offshore subsidiaries are independent legal entities.
- 4.
As a support for the focus on majority-owned FDI, Nunn and Trefler (2008) confirmed that, “for a very large proportion of ownership positions in the BEA data, once the position is more than 10%, it is also more than 50%” (p. 21).
- 5.
In more than 90% of Japanese offshore affiliates, people with Japanese nationality occupy the president position at 2006, according to a survey by Japan Institute for Labor Policy and Training.
- 6.
Japanese business groups linked each other through cross-sharing of ownership , traditionally known as keiretsu in Japanese, no longer characterizes Japanese firms . Many firms reduced cross-sharing after the burst of the bubble economy . Foreigners gain shares as stock owners in many Japanese firms .
- 7.
The dummy for shared border or adjacency does not work either for the analysis of Japan.
- 8.
While Brazil, Columbia, Venezuela, and Portugal are ranked similar to Japan, those countries use the languages widely spoken abroad (Spanish or Portuguese). We notice that this ratio is affected by the definition of “the primary country” of each language, of which we follow the definition by the language database Ethnologue. For Chinese, Arabic, and Hindi, it is difficult to identify the primary country.
- 9.
For empirical evidence for impacts of languages on trade cost , see Melitz (2008), for example.
- 10.
The survey titled “Survey on cross-border transactions in computer software sector” was conducted by three industrial associations. See explanations of this survey in Sect. 3.1 of Chap. 3.
- 11.
While we previously referred to French Renault’s acquisition of Nissan, the collision or synergy of different corporate culture has often been discussed for globally merged firms, such as Daimler-Chrysler.
- 12.
For example, this ratio is 0.40% in 2015, the most recent year of BSJBSA.
- 13.
“Corporate function sections” in this statistics also include R&D section and information procession section. Although management of R&D projects at the corporate level and human resource management of data centers should be regarded as corporate management functions, we cannot exclude scientists and data entry workers. We will later adjust this problem by disaggregating middle managers .
- 14.
The share of middle managers or corporate section in total employment within a firm is also affected by numerous factors. For example, the introduction of common-platform manufacturing results in centralization in the case of U.S. automobile industry. Several firms, such as Procter & Gamble or Nestle, adopt mixed organizations by centralizing R&D, finance, accounting, and international contacts but decentralizing production and distribution.
- 15.
R&D expenditures or capital for firms without available data are set at zero. Negligible 10−8 is added before taking logarithm.
- 16.
When a parent company is a subsidiary of multinationals headquartered outside of Japan, both dummies take the value one.
- 17.
Impacts of social networks on international trade have been examined by such pioneering work as Rauch (1999), though they did not mention offshoring or ownership at all.
- 18.
As an example of empirical studies related with international aspects, Guadalupe and Wulf (2010) found that corporate organization tends to be flatter as import competition becomes intensified in the case of U.S. firms when NAFTA was signed.
- 19.
Kastl et al. (2008) found that when the ownership is more concentrated (the share of three largest shareholders is higher), the share of managers is higher in the case of Italian firms.
- 20.
While we regard general administration section handles outsourcing , such function itself could be outsourced or offshored in some global firms. See examples of the adoption of cloud-based systems for back-office operations, cited in UNCTAD (2017, p. 176).
- 21.
As we disaggregate employees in corporate function sections, this category excludes employees dispatched to overseas subsidiaries/plants.
- 22.
See Sect. 8.2 of Chap. 8 for our classification of non-production workers .
- 23.
We confirm the robustness of our main results from random-effect panel estimations by cross-section regressions of each year.
- 24.
In our sample, no firm happens to choose F*J.
- 25.
Our principal findings are qualitatively unaffected even if the multinomial logit model of the firm’s sourcing mode choice (combinations on the left-hand side) is instead estimated.
- 26.
When a firm exports goods/services to FDI subsidiaries, but imports nothing from FDI subsidiaries, it is engaged in vertical FDI , but not in offshore sourcing .
- 27.
As reported shortly, we confirm that FDI (not only vertical but also horizontal FDI combined) is actually related to higher L I share.
- 28.
Foreign affiliates in this regression are widely defined to include not only majority-owned subsidiaries, minority-owned affiliates, but also plants and branch sales offices. FDI stock or per-employee fixed assets abroad has been used in FDI studies, but the number of foreign affiliates is more appropriate to capture foreign contacts. In our sample, only large firms own foreign affiliates.
- 29.
The subcontracting in the MITI survey (shitauke in Japanese) is defined by manufacturing tasks outsourced from other firms that are larger in size.
- 30.
Tomiura (2007b) confirmed the robustness of the result by replacing R&D expenditure flows with patent count data.
- 31.
While it is also discussed in this context, a skill is not an activity, but distinguished from task and defined as an endowment of human capability for performing various tasks. See Acemglu and Autor (2011) for this distinction. While their study is not related to international trade, Acemoglu and Autor (2011) discussed the “task content of jobs” (p. 1078). The output of a task includes not only final goods, but also intermediate goods as well as services, while each task requires inputs of at least one production factor (labor).
- 32.
The literature on the multitasking problem in organizational economics tells us that agents naturally gravitate toward allocating more efforts and attention on observable and rewarded tasks. Our assumption is then similar to assuming that labor market is competitive and internal corporate organizations run efficiently.
- 33.
We replaced “N.A.” in the O*NET data with zero, but our main results are qualitatively robust, even if we replace it with 50 or 100.
- 34.
Even after imposing this bold assumption, we need to construct a concordance table between U.S. and Japanese occupations. We restrict our analysis to the occupations observed in both countries.
- 35.
O*NET reports both the “level” and “importance” of tasks, but these correlate each other strongly. Oldenski (2012) also used O*NET importance data. In analyzing the decadal change in Japan, this calculation assumes that the importance of tasks for each occupation remains unchanged.
- 36.
The definition given above considers only labor employed directly in the production of the product. However, Tomiura et al. (2014) confirmed that our main results are qualitatively unaffected even if we include labor indirectly used for production through input–output linkages between industries.
- 37.
This calculation of Japan’s trade balance deterioration may be an underestimation, as imports from developing countries are likely to be produced by technologies more intensive in operation tasks compared to domestic substitutes. However, task data from other countries are unavailable.
- 38.
Net exports of tasks using scientific methods and of complex problem solving increased but that of tasks using mathematics decreased during that decade. That contrast might be related with Japan’s relative weakness in software industry.
- 39.
The decline of system analysis task, which is included in the system task, was the largest among detailed 35 task categories.
- 40.
Increase in the net exports of financial management tasks ranks as the second largest among detailed 35 tasks.
- 41.
Hummels et al. (2014) also found, by linking O*NET data with employer–employee-matched data from Denmark, that wage gains from international trade are large in occupations that intensively use language and social science skills.
- 42.
Deming (2017) found that the return to social skills in the U.S. labor market increased in the 2000s compared with previous decades. His research uses the same O*NET data and adopts basically the same definition of social skills as ours.
- 43.
If we further disaggregate interpersonal tasks in task content of trade , net exports increased during that decade, especially in persuasion, followed by service orientation, but rather decreased in instructing and social perceptiveness. Such variations within interpersonal tasks warn us from drawing any straight conclusion.
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Tomiura, E. (2018). Barriers to Cross-Border Outsourcing. In: Cross-Border Outsourcing and Boundaries of Japanese Firms. Advances in Japanese Business and Economics, vol 18. Springer, Singapore. https://doi.org/10.1007/978-981-13-0035-6_9
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