The evolution of
Japanese manufacturing
industry in Wales
Reflecting on the longer term impact
of transplant investment for Welsh
development
Introduction
40 years of history – a full circle
Role in promoting regional economic
development in 1980s and 1990s
Evolution J FDI & more general debate in
Wales; Is there still a place in the policy toolkit for FDI; Is FDI relevant to ‘new’ regional
context; Should we be that concerned about
falling levels of FDI
Why Wales is an interesting case
in which to study Japanese TMS
‘Early’ location marketing targeted on J
firms
‘Early’ successes with J FDI
Relatively high concentration of J FDI in
Wales: research hub
Agglomeration of J FDI permitted some
analysis of factories v warehouses
debate
Policy claims and academic
debates
Japanese as more reluctant inward investors with the result
that:
inward investments would be of negligible economic significance
compared to those from the US etc.
outward FDI by Japanese firms existed within a context of a
preference for direct exports
Japanese FDI might perform relatively badly in terms of
productivity and profitability and then with negligible
opportunities for productivity spillovers to domestic enterprises
High import content of Japanese manufacturers, and focus on
production only operations leads to lower quality employment,
lower level of R&D jobs, with high value added operations
retained elsewhere.
Branch plant syndrome; regional economic development
ramifications, efficient use of public money
Timeline 1950s & 1960s
Inward investment in Wales
Policy tools/environment
In 1950 18 foreign owned
manufacturers in Wales employ
14,000. US investment, medium
manufacturing and income
elastic consumer goods. 1960s
foreign owned manufacturing
makes up c.10%% of Welsh
manufacturing employment
Immediate post-war Distribution of
Industry Act, Special development
areas, and industrial estates. Capital
grants emphasis. Development
Corporation for Wales (DCW) set up
1958 to promote location overseas.
Wider context, region &
international
Immediate post war US
firms in unique position to
export capital. US
overseas investments in
manufacturing focused in
UK.
Timeline 1970s
Inward investment in Wales
Policy tools/environment
Mid-decade US investment still
accounts for 90% of foreign
manufacturing employment, by
1980, however, 6 Japanese
firms. Most of Japanese TMS
employment linked to CTV
production in context of trade
restraints
Strong increases in spend on regional
industrial assistance. Development
areas, planning controls in SE (IDCs),
automatic RDG and discretionary RSA,
more active promotion overseas
(DCW). WDA set up in 1976. Some
advance factory building
Wider context, region &
international
Losses in traditional
segments of regional
economy and growing
need for diversification.
Growth of European
economy, Japanese
consumer electronics and
auto firms facing
increasing protection of
EU markets
Timeline 1980-85
Inward investment in Wales
Policy tools/environment
US investment dominant, but
increasing investment from
Japan. Shakeout amongst older
inward investors. New
investment focused in NE and
SE of Wales. Consumer
electronics fastest growing
sector. Although overall FOM
employment falls to 40,000 in
Wales in 1984-5. 1985: 9
Japanese companies employ
est 3,500
Wales amongst closest assisted areas
to SE, increased advance factory
building, overseas promotion, assisted
areas map redrawn in 1984 to give
Assisted Area status to NE Wales. Drift
from RDG to RSA. Attraction of inward
investment the core policy tool.
Background = severe cuts in regional
policy resources
Wider context, region &
international
Massive structural change
1979-1983, large parts of
manufacturing base lost,
end game in coal and
steel, Wales employment
and output growth low.
Timeline: Late 1980s; 2nd wave
Inward investment in Wales
Policy tools/environment
Wales becomes most popular
location for foreign
manufacturing; large increase in
Asian investment driven by EU
policy, and various anti-dumping
measures. By 1989 24
Japanese firms employ 8,200
(close to fifth FOM in Wales)
RDG phased out in 1988, and shift to
RSA under Industry Act 1982. Real
cuts in resources. Formation of
WINVEST, overseas arm of WDA,
extensive representation overseas.
£230m of RSA to FOMs 1986-89,
nearly 15,700 assoc.jobs.
Wider context, region &
international
Wales growing at a
relatively fast rate and put
down to inward investment
success. Trade friction
encourages EU inward
investment. Moving
towards Single European
Market.
Timeline 1990s: peak?
Inward investment in Wales
Policy tools/environment
Poorer econ conditions but
significance of FOM grows in
regional economy, employment
in FOM reaches 68,000 by
1994.(31% Welsh manu emp).
Japanese manu emp reaches
over 13,000 at peak.
Major reversals in the Asian
sector, moves to attract more
services inward investment, LG
debacle. Losses also in the
Japanese sector. But 2001 31
Japanese companies employ
12,300
Gradual shift begins away from inward
investment model. New Assisted Areas
map in 1993. Advances factory building
reduces. Falling spend of regional
assistance to industry. Growing
significance of EU structural funds in
regional policy resources.
Increasing scrutiny of policy towards
FDI, services industry FDI qualifies for
RSA. 1998 White Paper, knowledge
driven economy, and emphasis on
clusters, networks and innovation.
Wider context, region &
international
Growing globalisation
pressures, increasing
competition from EU
fringe, and CEE. Single
European Market
English RDAs
SEA currency crises,
Global FDI inflows
compromised
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
Japanese TMS Planned
Capital Spending in Wales £m
300.00
250.00
200.00
150.00
100.00
50.00
0.00
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
New Jobs Announced in
Japanese TMS 1984-2007
2,500
2,000
1,500
1,000
500
0
Japanese TMS contribution 1994
Employment in overseas owned manufacturing plants by country of ownership : 1994 (1)
Source: 1995 Census
No. plants
No. of
companies
Employment
(1000s)
Employment as a
% of total in
overseas owned
plants in Wales
Sweden
Switzerland
Other European
Australia
Canada
Other countries
128
32
113
41
22
5
10
13
12
12
12
14
17
12
103
24
97
34
18
4
8
12
10
11
11
8
12
8
29.8
12.4
14.8
5.4
4.4
1.5
0.8
1
1.5
1.3
2.1
0.5
4.1
1.3
44.0
18.3
21.8
8.0
6.5
2.2
1.2
1.5
2.2
1.9
3.1
0.7
6.0
1.9
Total overseas
353
284
67.8
100
Country of ownership
USA
Japan
EC (ex UK of which)
Germany
France
Italy
Denmark
Irish Republic
Employment in foreign owned manufacturing units by manufacturing industry: 1994
Source: 1995 Census
No. of plants
Employment
(1000s)
22 Metal manufacture
Extraction of minerals not
elsewhere specified and
manufacture of non-metallic
mineral products
Chemical industry and
production of man-made
fibres
Manufacture of metal goods
31 not elsewhere specified
32 Mechanical engineering
Manufacture of office
machinery and data
33 processing equipment
Electrical and electronic
34 engineering
Manufacture of motor
35 vehicles and parts thereof
Manufacture of other
36 transport equipment
37 Instrument engineering
Food, drink and tobacco
manufacturing industries
16
2.9
Employment as a
% of total in
overseas owned
plants in Wales
4.3
22
2.2
3.2
55
8.2
12.1
29
3.8
5.6
28
2.8
4.1
6
0.7
1
48
17.7
26.1
26
8.3
12.2
Textile industry and footwear
and clothing industries
Timber and wooden furniture
46 industries
Manufacture of paper and
paper products, printing and
47 publishing
Processing of rubber and
48 plastics
Other manufacturing
industries
SIC
(1980)
Class
23/24
25/26
41/42
43/45
49/14
Industry
Total all manufacturing
industries
5
1.9
2.8
11
2.4
3.5
20
3.8
5.6
9
1.1
1.6
7
1.1
1.6
27
4.6
6.8
33
3.8
5.6
11
2.5
3.7
353
67.8
100
Timeline 2000-05
Inward investment in Wales
Policy tools/environment
Wales still relatively successful
in attracting foreign owned
manufacturing capital, but large
losses continue in inward
investors, electronics, motor
components, engineering. By
end of period Japanese
manufacturing employment falls
below 4,000.
Continued scrutiny of FDI-related
activity, tools little changed, but limits
on resources available to promote
region overseas. Announcement WDA
to be merged into Assembly. Uncertain
times!
Wider context, region &
international
EU enlargement,
increasing
competitiveness of China,
and other Asian areas.
1984-2007?
Grand Total
Japan
183
Grand Total
2,767
Japan nj
18,939
Grand Total
Japan sj
Grand Total
Japan kx
Grand Total
175,426
8,495
100,198
1,706
16,331.77
Why Wales?
Wales closest assisted area to SE and
consumer markets and wholesale hubs; also
distance from Channel ports
Labour availability, relatively low unit costs
RSA and RDG availability and other
sweeteners and a well coordinated marketing
effort
Road infrastructure
Contribution to regional economic
development
Factories and warehouses debate
suggests impact might be different,
because of underlying motivation
But also conclusions on role of J FDI
important to future development of
policy in Wales
Currently international location
marketing very limited
Wales: economic needs
Low growth; poor productivity record
Opportunities in the periphery
Income and employment in
disadvantaged areas
Functional and occupational diversity
Overcoming the branch plant syndrome
Low levels of business R&D
Full appraisal?
New jobs, industrial diversification
Overall competition effects, resource allocation
Overall productivity spillovers
Specific value chain effects
Profits and performance
Earnings & labour markets
Trade unions and industrial relations
HRM and Operational Techniques
Hood, Young & Peters (1994)
Best/Worst Impact
Employment
Numbers
Number of Graduates
Earnings
Stability
Training Spend
Large/small
High/low percentage
Above/below average
Equivalent job years. Stickers or snatchers
High percentage of sales
Overseas Exporting
R&D Spending
Corporate
Local
High/Low
Embeddedness
Performance
By local criteria on
productivity
Profitability
Subsidiary role
Product position in life
cycle/strategic intent
Growth of product
Functional diversity
High locally, high indirect multipliers/low little indirect activity supported
High/Low
R&D functions/ or largely process/engineering
Above/below average
Above/below average
Fast growth/declining
Fast/slow
Strong/Largely production oriented
Further research
Regional analysis of productivity spillovers from
Japanese vs other parts of manufacturing sector in
Wales
How did the systems set up in 1980s for IR,
personnel management etc stand up to pressures in
the new Millennium
Need for more thorough audit of extent of foreign
firm activity in Wales, particularly contribution of the
services industry sector.
Further consideration of real impacts of the policy
resources devoted to indigenous versus foreign
sector.
Japanese inward manufacturing investment is
still relevant to the economic needs of Wales
In some respects the regional economic context has
changed markedly since 1980, but underlying needs
of the Welsh economy are actually little changed.
Decline of Japanese sector (and other parts of manu
after 2000 been matched with employment growth in
part time opportunities, and growth in the nonmarket sector.
Neither of these latter developments would seem to
square up with the ‘new vision’ of a dynamic learning
economy.
Falling levels of new foreign manufacturing
investment, or disinvestment to other locations, will
seriously compromise Welsh growth aspirations