The evolution of Japanese

manufacturing industry in Wales Reflecting on the longer term

impact of transplant investment for Welsh development

Introduction40 years of history – a full circleRole 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 tool-kit 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 FDIRelatively high concentration of J FDI in Wales: research hubAgglomeration 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 exportsJapanese FDI might perform relatively badly in terms of productivity and profitability and then with negligible opportunities for productivity spillovers to domestic enterprisesHigh 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 Wider context, region & international

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.

Immediate post war US firms in unique position to export capital. US overseas investments in manufacturing focused in UK.

Timeline 1970sInward investment in Wales Policy tools/environment Wider context, region &

international 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

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 1980-85Inward investment in Wales Policy tools/environment Wider context, region &

international 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

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 Wider context, region & international

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.

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 Wider context, region &

international 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.

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.

Growing globalisation pressures, increasing competition from EU fringe, and CEE. Single European Market

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

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.

English RDAs SEA currency crises, Global FDI inflows compromised

Japanese TMS Planned Capital Spending in Wales

£m

0.00

50.00

100.00

150.00

200.00

250.00

300.00

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

New Jobs Announced in Japanese TMS 1984-2007

0

500

1,000

1,500

2,000

2,500

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Japanese TMS contribution 1994

Employment in overseas owned manufacturing plants by country of ownership : 1994 (1)Source: 1995 Census

Country of ownership No. plantsNo. of

companiesEmployment

(1000s)

Employment as a % of total in

overseas owned plants in Wales

USA 128 103 29.8 44.0Japan 32 24 12.4 18.3EC (ex UK of which) 113 97 14.8 21.8

Germany 41 34 5.4 8.0France 22 18 4.4 6.5

Italy 5 4 1.5 2.2Denmark 10 8 0.8 1.2

Irish Republic 13 12 1 1.5Sweden 12 10 1.5 2.2Switzerland 12 11 1.3 1.9Other European 12 11 2.1 3.1Australia 14 8 0.5 0.7Canada 17 12 4.1 6.0Other countries 12 8 1.3 1.9

Total overseas 353 284 67.8 100

Employment in foreign owned manufacturing units by manufacturing industry: 1994Source: 1995 Census

SIC (1980) Class

Industry No. of plantsEmployment

(1000s)

Employment as a % of total in

overseas owned plants in Wales

22 Metal manufacture 16 2.9 4.3

23/24

Extraction of minerals not elsewhere specified and manufacture of non-metallic mineral products 22 2.2 3.2

25/26

Chemical industry and production of man-made fibres 55 8.2 12.1

31Manufacture of metal goods not elsewhere specified

29 3.8 5.6

32 Mechanical engineering 28 2.8 4.1

33

Manufacture of office machinery and data processing equipment

6 0.7 1

34Electrical and electronic engineering

48 17.7 26.1

35Manufacture of motor vehicles and parts thereof

26 8.3 12.2

36Manufacture of other transport equipment

5 1.9 2.8

37 Instrument engineering 11 2.4 3.5

41/42Food, drink and tobacco manufacturing industries 20 3.8 5.6

43/45Textile industry and footwear and clothing industries

9 1.1 1.6

46Timber and wooden furniture industries 7 1.1 1.6

47

Manufacture of paper and paper products, printing and publishing 27 4.6 6.8

48Processing of rubber and plastics 33 3.8 5.6

49/14Other manufacturing industries 11 2.5 3.7

Total all manufacturing industries 353 67.8 100

Timeline 2000-05Inward investment in Wales Policy tools/environment Wider context, region &

international 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!

EU enlargement, increasing competitiveness of China, and other Asian areas.

1984-2007?Grand Total

J apan 183

Grand Total 2,767

J apan nj 18,939

Grand Total 175,426

J apan sj 8,495

Grand Total 100,198

J apan kx 1,706

Grand Total 16,331.77

Why Wales?Wales closest assisted area to SE and consumer markets and wholesale hubs; also distance from Channel portsLabour availability, relatively low unit costsRSA and RDG availability and other sweeteners and a well coordinated marketing effortRoad infrastructure

Contribution to regional economic development

Factories and warehouses debate suggests impact might be different, because of underlying motivationBut also conclusions on role of J FDI important to future development of policy in WalesCurrently international location marketing very limited

Wales: economic needsLow growth; poor productivity recordOpportunities in the peripheryIncome and employment in disadvantaged areasFunctional and occupational diversityOvercoming the branch plant syndromeLow 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 Large/small Number of Graduates High/low percentage Earnings Above/below average Stability Equivalent job years. Stickers or snatchers Training Spend High percentage of sales Overseas Exporting High/Low R&D Spending Corporate High/Low Local R&D functions/ or largely process/engineering Embeddedness High locally, high indirect multipliers/low little indirect activity supported Performance By local criteria on productivity

Above/below average

Profitability Above/below average Subsidiary role Product position in life cycle/strategic intent

Fast growth/declining

Growth of product Fast/slow Functional diversity Strong/Largely production oriented

Further researchRegional analysis of productivity spillovers from Japanese vs other parts of manufacturing sector in WalesHow did the systems set up in 1980s for IR, personnel management etc stand up to pressures in the new MillenniumNeed 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

WalesIn 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 non-market 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