ABSTRACT
This paper examines how German multinational enterprises (MNEs) navigated political risk in postwar Japan, focusing on the government's industrial policies between 1950 and 1975. These policies, which included the licensing of foreign investments and technology imports, added political risk to existing economic risk. Government agencies used ambiguous criteria that were difficult for applicants to understand when making licensing decisions.
The study analyzes the experiences of the German chemical firms BASF and Henkel, which adopted different security strategies. BASF minimized risk by making modest demands in its investment applications and collaborating with local partners to secure investment licenses. Henkel avoided investment licensing by relying on security strategies that allowed it to circumvent the licensing requirement. In both cases, commitment and the cultivation of business networks were essential to successful entry into Japanese markets despite high political risk.
The study finds that German managers preferred to avoid political risk and instead accepted additional economic risk. It shows that some of these risks were perceived rather than real. This contrasts with U.S. managers, who were more likely to negotiate with government agencies, facing political risk head-on. It also finds that different sources of risk can be interrelated and have a compounding effect.
