Letter: The broader benefits of Japanese investment

Sir: Ian McAllister, chairman of the Ford Motor Company (letter, 20 March), fails to reflect upon the broader benefits of Japanese direct investment in this country. It should be remembered that the Japanese are relatively new players in supplying direct investment into Europe and the US. The volume of Japanese foreign direct investment has expanded enormously since the mid-Eighties, and it is not surprising that this has been principally concentrated in 'down-stream' manufacturing activities.

As consumer demand develops further in Japan and the Japanese domestic research and development base proves insufficient to cope with the growing levels of high technology manufacturing, it is more and more likely that the 'high value-added research, design and engineering work' to which Mr McAllister refers will also be transplanted to receptive locations such as Europe.

This process is already under way with firms such as Sony and Nissan building a considerable design, development and engineering presence within the EC. As multinational enterprises increasingly develop global strategies to cope with the competitive environment, their countries of origin become less relevant. In order to compete successfully in the single European market, Japanese companies have to develop strong European brand identities for their products. This they have achieved more effectively than their European and US counterparts. Many would argue that the Japanese possession of superior managerial and technical assets is mainly responsible for this.

The ability of Japanese car manufacturers to produce and design more efficiently is well documented. To discourage Japanese investment is to prevent products such as cars and other consumer durables from being produced as efficiently as possible. This would have detrimental effects on consumer welfare. Moreover, exposure to such competition is likely to force European manufacturers to produce in a more cost-effective manner.

Studies of the effects of foreign direct investment on US and European economies would appear to indicate that fears about unemployment and balance of payments disequilibrium are not generally well-founded. All this leads one to question Mr McAllister's assertion that Japanese investment in the UK is likely to put Britain's long-

term industrial capability in peril.

Yours faithfully,

DAVID WILLIAMS

Senior Lecturer in Economics

University of Derby

Derby

23 March