Courtesy Reuters

Dominance through Technology: Is Japan Creating a Yen Bloc in Southeast Asia?

The recent recession in Japan and the resurgence of American competitiveness in various industries have helped reestablish the preeminence of U.S. manufacturing in world markets. However, while the Japanese economic threat may have receded temporarily, this turnaround has had little effect on important long-term trends in technology transfer that endanger the prosperity of American firms at home and abroad. The impact of technology transfer on economic competitiveness is already evident in the vibrant Southeast Asia region, where Japanese firms now dominate the local economies through strategic control of technology. And while members of the Asia-Pacific Economic Cooperation forum meet in November to discuss free trade and investment, increasingly vocal support in the region for a Japan-anchored East Asian Economic Caucus and for the establishment of a yen bloc portends a different scenario.

The Japanese have long taken a strategic approach to technology transfer. During the Cold War, the keiretsu system and powerful government controls prevented the penetration of Japanese domestic markets by foreign firms. American manufacturers were permitted to participate in the Japanese market primarily through technology sales. This strategy allowed technology to flow into the Japanese economy while investment restrictions excluded foreigners and foreign control. Meanwhile, American businesspeople, eager to reap ready profits through sales of technology to Japan, inadvertently sold off their competitive advantage in high-technology products without gaining significant market access in return.

The vast majority of U.S.-Japan corporate ventures from the 1950s until the mid-1980s involved licensing agreements that entailed the straight-out sale of U.S. patents, directly transferring basic research and development knowledge to Japanese manufacturers. From 1951 through 1983, Japanese companies entered into some 42,000 contracts for technology imports, paying a cumulative price of $17 billion. The Japanese expense to acquire this advanced technology, about $500 million per year, was far lower than it would have cost to develop the same technology domestically. In contrast, the United States often spent more in one year on research and development--as early as 1964, for example, U.S. government and

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