Declining Risk, Market Liberalization and State-Multinational Bargaining: Japanese Automobile Investments in India, Indonesia and Malaysia

This study examines the bargaining interaction between host countries and multinational corporations over the life cycle of an investment project. During the early phase of an investment in an underdeveloped sector, market risks are high. Most foreign firms are reluctant to enter such an environment without guarantees. In the cases examined here, state protection was extended to automobile joint ventures so as to maximize returns. In this early phase, foreign firms were able to negotiate more favourable terms. However, once production developed, market risks began to decline. Consequently, host economics became attractive to other prospective investors and liberalization led to the influx of new foreign investment activity. The increase in new projects reduced state dependence and enabled host countries to play one MNC against another in order to increase their bargaining power.