The major works on Japanese overseas investment all appeared in the mid- and late 1970s and inevitably they reflected the specific conditions of that time. Japanese investment of that period was concentrated in resource extraction, in import-substitution manufacture for the host market, and in the production of parts and components required by final manufacturers in Japan. Within Asia, the majority of Japanese investment projects were in the newly industrializing countries (NICs).

In the decade since these major works appeared, the nature of Japanese overseas investment has changed dramatically, both in scale and character. Now export-oriented projects dominate. And within Asia, ASEAN has assumed greater importance. Most of this change has been concentrated in the past five years.

This chapter examines the new wave of Japanese investment, its motivations from the supply side, and the key characteristics of its impact on ASEAN. It begins with an explanation of what the new wave is by briefly reviewing the main characteristics of the old wave of Japanese investment from the 1960s to the mid-1980s, and then presents the key facts concerning the scale and features of Japanese investment in the region since 1984. Next, the chapter examines the processes driving Japanese capital to flow overseas on this new scale. This involves an extended discussion of structural change in the Japanese economy as background for understanding the roles of trade friction and the yen appreciation in driving Japanese capital to venture overseas. Finally the chapter examines key characteristics of new-wave Japanese ventures in ASEAN, in particular their choice of location, the establishment of networks of linked firms across ASEAN, their increased use of local content, and the changing character of the overseas investing Japanese firm. This chapter aims to show how much the new wave of investment differs from that described in the “classic” works on Japanese overseas investment by Kojima, Yoshihara and Ozawa. The theoretical and practical implications of these differences are held over until Chapter 5.