ABSTRACT
In response to accelerated outward foreign direct investment (FDI) by Japanese firms triggered by the 2008 financial crisis, in 2011 the Japanese government began to be actively engaged in promoting partnerships with the private sector as part of its ODA activities. Economic cooperation agencies such as the Ministry of Economy, Trade and Industry (METI), the Japan External Trade Organization (JETRO) and the Overseas Human Resources and Industry Development Association (HIDA)3 have long supported Japanese business, forging PPPs as the core part of their operations. Today, it is notable that even the Ministry of Foreign Affairs (MOFA) and the Japan International Cooperation Agency (JICA), which have previously demonstrated considerable reluctance to support individual firms and rarely become involved in any business proposals presented to them, have started to use the ODA budget to support new private sector partnership activities, and to provide support for the overseas expansion of small and medium-sized enterprises (SMEs). Another interesting development is that METI and related agencies have begun to promote the Base of the Pyramid (BOP) business model,4 also known as “inclusive business” (International Finance Corporation 2012), to Japanese companies to broaden the interface between the private sector and development. Targeting the BOP is a new business model in which core business operations aim directly to resolve the social and development challenges faced by the poor in developing countries and emerging economies. Preoccupied with the hollowing out of domestic industry, national and local government in Japan have until recently taken a cautious approach to supporting
the overseas expansion of SMEs. However, since 2010 there has been a new wave of internationalization as growing numbers of SMEs have sought fresh opportunities abroad. These SMEs not only demonstrated a willingness to take on new risks, but also made the move without the support of a parent company, as has traditionally been the case. Consequently, the government shifted its policy away from a guarded stance to one that provided active support to these pioneers (SME Agency 2010).5 A number of factors contributed to Japan’s growing interest in the BOP business model, which was also precipitated by the 2008 financial crisis. Chief among them was the rise of the emerging economies and developing countries as the “growth centres” of the global economy, and the perception that these centres also represent future markets with a new middle class of consumers that would compensate for sluggish demand in the developed world. There was also a greater awareness of the need to extend support for socially and ethically responsible business practices (Sugawara et al. 2011). The motivation for JICA and MOFA to utilize ODA to progress private sector partnerships is linked to a number of different but related factors: (1) an increased recognition of the importance of private capital in poverty reduction and sustainable growth in developing countries; (2) the potential application of private sector technology, know-how and innovation, including that of Japanese companies, to resolve the global challenges of the environment, climate change, infectious diseases, food security and energy supply; and (3) the strong perception that such partnerships would be mutually beneficial for developing countries and Japan. This line of thinking was already evident when the Democratic Party of Japan (DPJ) was in power. For example, the ODA Review (MOFA 2010) compiled under the guidance of Minister of Foreign Affairs Katsuya Okada put forward the concept of “enlightened national interest” and the Government of Yoshihiko Noda launched the Rebirth of Japan: A Comprehensive Strategy (Cabinet Secretariat 2012). Going one step further, when the Liberal Democratic Party (LDP) came to power at the end of 2012, Prime Minister Shinzo Abe unveiled the Japan Revitalization Strategy: Japan is Back (Headquarters for Japan’s Economic Revitalization 2013), which made global outreach one of its three action plans. The global outreach action plan sets specific numerical targets for infrastructure exports, and the overseas expansion of SMEs and leading medium-sized enterprises. It also envisages “the strategic use of economic cooperation”. Table 10.1 provides examples of recently introduced ODA modalities to support partnerships with the Japanese private sector. Needless to say, economic cooperation agencies affiliated with METI, such as the Organization for Small and Medium Enterprises and Regional Innovation (SMRJ), JETRO and HIDA, have long supported Japanese businesses across the board and are boosting measures to support the overseas expansion of Japanese SMEs by strengthening one-stop consultation services.6 These agencies also provide feasibility studies and hands-on support for export promotion and outward FDI.
