The main goal of this thesis was to define the overall attractiveness of Sweden as a host-country for Japanese foreign direct investment (FDI), as well as its advantages and disadvantages. While Japan has been an attractive market for some specific Swedish industries, e.g. telecom and automotive sectors,the amount of Japanese FDI into Sweden remains low.

1) What is the history of Japanese FDI in Sweden since 1970’s?

Since the 1970's Japanese investment into the Nordic and Swedish market in particular was insignificant. The share of direct trade with Japan was also marginal and steadily declining due to the shift to imports via other European countries. The situation was worsened by the declining Swedish currency and appreciating Japanese yen. At the same time the Japanese share of trade with Western Europe started to grow due to the formation of the European Union. Most of the Japanese subsidiaries in Sweden belonged to machinery, electronics, transport and equipment sectors, where Sweden traditionally had a competitive advantage. Investment in sectors in which Japan was traditionally strong (e.g. automotive and electronic) were usually made in less competitive countries. Nevertheless, several large investments were made at the beginning of the 2000's, mostly in the automotive industry (e.g. Toyota). A large part of Japanese affiliates was located in big cities or clusters. A few large firms employed the majority of the local workforce, however a majority of Japanese affiliates was of small or medium size. The size of the affiliates was smaller than in other European countries.

2) What is the current picture of Japanese outward FDI in Sweden?

The number of Japanese affiliates in Sweden is slowly growing (from 127 in 2005 to 175 in 2009), although remaining marginal compared to other foreign-owned subsidiaries. Most of the Japanese subsidiaries belong to the secondary sector although affiliates that directly produce in Sweden account for only 11 percent. An overwhelming part of subsidiaries is small or medium-sized: this has not changed over time. The average number of employees in 2009 was 75, while the mean number of employees was around 16, considerably lower than the average number of employees: a few large companies employ a large share of total number of employees. The total number employed by Japanese affiliates in Sweden was 13,184 in 2009.

Japan’s Foreign Direct Investment flow in 2005-2009 (in billion yen)

Source:Adapted from Ministry of Finance Japan.

There is a clear tendency towards acquisitions when looking at mode of establishment, at least when it comes to larger investment, often in manufacturing industries. It can be explained by high costs associated with Greenfield investment. This contradicts the historical pattern brought up earlier, when Greenfield investment was seen as preferred mode ofestablishment in the eyes of corporate Japan. When it comes to establishing a smaller representation office or branch there is no need to acquire another company, since a new one can be created quite smoothly. 

It was noticed that industries like automotive, electronics and machinery still make up a large share of Japanese investment in Sweden. However, during the last five years new industries like environmental technologies and life science (pharmaceuticals, biotechnology, etc.) emerged. Swedish companies often possess unique technologies in these cutting-edge industries. Geographically subsidiaries are situated in clusters or in big city areas, while a more modest part is dispersed over the country. Almost half of the Japanese affiliates in Sweden operate via another European country and only around 20 percent directly from Japan. Nevertheless there is some evidence that Sweden can be a geographical hub for investors that are interested in Northern Europe.

The analysis suggests that Japanese investment in Sweden is primarily neither of a market seeking nature nor of a geographical location nature. Japanese firms are often interested in a special technology, production technique, performance or something that could be missing in the Japanese firm. Many of these superior technologies are developed in specific clusters. Achieving this missing part can greatly benefit the company (e.g. the joint venture of Sony and Ericsson, acquisitions of BT Industries by Toyota and Garphyttan by Suzuki). Large successful mergers like the ones above are hard to predict, as large Japanese investors only account for 13 percent of the total investment in number of firms, although financially they are significant.

Sweden surely has to stimulate its investment environment in order to become more attractive to Japanese investors. It can introduce incentives in the form of tax breaks, favorable loan conditions and other stimulus that can promote inward direct investment. According to the analysis Sweden has to develop fields where it possesses ownership (e.g. technologies, infrastructure, R&D base) or location advantages (e.g. center for the Nordic market) in order to match expectations of Japanese investors.

Number of Japanese owned affiliates in Sweden and their total number of  employees divided by municipality