IMD International

Acquisition of Japan’s Sharp by Taiwan’s Foxconn

IMD Professor Jean-Pierre Lehmann on the highly symbolic significance of the deal

26 February 2016

The substance of the outcome of the acceptance by Japanese electronics giant Sharp of a USD $4.3bn takeover bid by Taiwanese multinational Foxconn remains to be seen. Its symbolic significance however could be quite outstanding: will Japan’s notoriously insular economy, notably its notoriously ultra-insular electronics industry, be opening up to the outside world and especially to its East Asian neighbors?

When Sharp was founded in 1912, Taiwan was a Japanese colony. In the late 19th/early 20th century, Japan emerged as the only non-Western industrial and imperial power. In its ideological pursuit of what was referred to as Datsu-A (shedding A), Japan sought to join the Western powers both by colonizing its neighbors and by forming alliances with the West: Britain in 1902, Nazi Germany and Fascist Italy in 1940, and with the US since 1952.

Though Japan’s Asian empire collapsed with its defeat in 1945, it was rapidly rehabilitated by the US following the outbreak of the cold war and liberation of China; in the ensuing decades, it remained rather aloof from its Asian neighbors. Japan had Asian colonies. It has never had Asian allies.

As Taiwan and South Korea (a Japanese colony from 1910 to 1945) industrialized in the course of the 70s and 80s, their exporters looked to American and European markets, while the Japanese market remained hermetically sealed. You would find, still today, far more Samsung television sets or Hyundai cars in any mid-size European city than in, say, Tokyo, Osaka or Fukuoka. Japan is the only Asian nation that refused to join the China-initiated AIIB (Asian Infrastructure Investment Bank).

Japan’s current tense state of relations with its Asian neighbors in good part arises from not having come to terms with the past. In striking contrast to the reconciliation between Germany and its neighbors, historical issues (eg the “comfort women”) continue to bedevil relations between Japan and its neighbors. In the same vein, Japan has been very hostile territory to would-be Asian migrants and refugees. The Korean minority of some 600,000 in Japan, most of whom are descendants of Korean workers forcibly brought to work in Japanese factories and mines during World War II, remain heavily discriminated against.

Having said all that, in the course of the post-war decades Japan became the first of the so-called Asian miracle economies as it achieved spectacular growth and staggering business successes especially in the automotive (Toyota), electronics (Toshiba) and office automation (Canon) sectors. Japan developed a highly innovative and until the recent lost decades a highly successful industrial structure. It was a model to developing Asian economies. In Korea, for example, the chaebol industrial conglomerates (eg Samsung, LG, Hyundai, Lotte, Shinsegae, etc) are modeled on the Japanese zaibatsu (eg Mitsui, Mitsubishi, Fuyo, Sumitomo, etc). Similarly, a number of industrializing Asian economies have emulated the Japanese model by adopting export-oriented strategies with proactive government trade policies.

As dynamic as the Japanese model proved to be in the 50s, 60s, 70s and 80s – and it was very dynamic, that was not an illusion – since the 1990s it has become obsolete and the Japanese economy as well as Japanese society have wallowed in the doldrums. As globalization surged, Japan became ever more insular. This parochial defensiveness was also initially reflected in the Foxconn-Sharp deal with the Tokyo government trying to orchestrate a domestic fund to carry out the take-over. Foxconn’s success therefore is all the more significant as it may be seen as a victory against “Japan, Inc”.

In 2009 along with co-authors John Haffner and Tomas Casas i Klett, we wrote a book entitled Japan’s Open Future: An Agenda for Global Citizenship. We had initially wanted to entitle it “Japan, Open Up!”, but the publishers judged it too aggressive. That, we were and remain certain, was the only way out of the doldrums. As the eldest of the three authors and one who spent many highly stimulating years in Japan in the 60s and 70s, I could testify that Japan was and therefore can be outward looking, intellectually globally curious and dynamic. Indeed culturally and intellectually, Japan in the 1960s was one of the most exciting places to be. In the 1980s, Japan reached its ascent; it has been pretty much downhill ever since and Japanese society has closed in on itself.

In the book, we argued forcefully that an open Japan would provide great benefits not only for Japan, but also for the Asia Pacific Region and indeed the planet. While reviewers were generally positive in respect to our diagnosis, a number expressed reserved skepticism regarding the prescription. Today there is a tendency to see “open Japan” as an oxymoron.

The Foxconn-Sharp deal may turn out to be an exceptional blip in an otherwise unchanged insular landscape. Alternatively, it may turn out to a landmark event, heralding an open Japan well integrated with its neighborhood. It could, in other words, prove highly significant!

Jean-Pierre Lehmann spent part of his childhood in Japan (1950-58) and in the ensuing decades returned frequently for study (his doctoral thesis was on Japanese economic history from the late “feudal” period to early industrialization). He is the author of several books on Japan.

Jean-Pierre Lehmann is emeritus Professor of International Political Economy at IMD. Professor Lehmann teaches on the Orchestrating Winning Performance program.

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