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Switzerland and the industrialisation of Japan: Swiss direct investmentsand technology transfers to Japan during the twentieth centuryPierre-Yves Donzéa

a Graduate School of Economics, Osaka University, Osaka, Japan

Online publication date: 20 August 2010

To cite this Article Donzé, Pierre-Yves(2010) 'Switzerland and the industrialisation of Japan: Swiss direct investments andtechnology transfers to Japan during the twentieth century', Business History, 52: 5, 713 — 736To link to this Article: DOI: 10.1080/00076791003763201URL: http://dx.doi.org/10.1080/00076791003763201

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Switzerland and the industrialisation of Japan: Swiss direct investments

and technology transfers to Japan during the twentieth century

Pierre-Yves Donze*

Graduate School of Economics, Osaka University, Osaka, Japan

After the United States, Switzerland was one of the main sources of FDI to Japanin the twentieth century. Swiss multinationals that have invested there have threecharacteristics in common. First of all, they take a long-term perspective. Themain companies present at the beginning of the twentieth century (Brown Boveri,Ciba, Nestle, Sandoz, Sulzer) were still some of the largest Swiss companies inJapan at the end of the century. Second, they gradually shifted from distributionto production during the inter-war period. Third, they backed Japan’sindustrialisation by strengthening historically underdeveloped sectors (chemicals)and by contributing to the growth of the manufacturing industry (machines).

Keywords: Switzerland; Japan; foreign direct investment (FDI); technologytransfer; twentieth century

Introduction

Switzerland has played an essential yet little known role in Japan’s industrialdevelopment. Naturally, it is not as important as the United States, Japan’s leadingtrade partner since the end of the nineteenth century, yet Swiss companies havegreatly contributed to the Japanese industrial boom, through their direct investmentsand technology transfers, primarily in the fields of machines and chemicals.

Soon after it was forced to open up to trade with the West in May 1853, Japanset itself the policy goal of catching up with the West in terms of economicdevelopment. From the 1860s onwards, Japanese authorities tried to limit the impactof foreign companies on the Japanese economy. Whereas the acquisition of foreigntechnologies was a priority, the Japanese government sought to curtail operationsby foreign companies on its territory as far as possible, banning foreign directinvestment (FDI) up until the mid-1890s. As a result, Japan’s industrialisationduring the second half of the nineteenth century was characterised by the acquisitionof foreign technologies without the influence of foreign capital. In the course of the1890s, however, the limits to this policy became clear, primarily in the case of newtechnologies linked to sectors of the second industrial revolution (electricity,petroleum, chemicals, automobiles, etc.) that were controlled by multinationals orcartels, making it difficult to merely copy imported products without the agreement

*Email: [email protected]

Business History

Vol. 52, No. 5, August 2010, 713–736

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DOI: 10.1080/00076791003763201

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of these firms. The Japanese government therefore took a series of measures in thesecond half of the 1890s designed to integrate the country into the world economy(by putting the yen on the gold standard in 1897; by adopting a new commercial codeauthorising foreign companies to operate in Japan in 1899; and by signing theParis Convention for the Protection of Industrial Property in 1899) and allowforeign companies to operate on Japanese soil (Mason, 1992, pp. 20–22). As a result,American, British and German multinationals flooded in during the first third of thetwentieth century, generally via joint ventures with Japanese partners. These firms,which were primarily active in the sectors of the second industrial revolution(automobiles, electricity, oil, chemicals), played a decisive role in Japan’s industrialdevelopment through the technology transfer that accompanied these investments(Udagawa, 1987). However, this opening up was far from complete. Several sectorsof the economy (shipping, mining, insurance, banks, etc.) remained off-limits orrestricted for foreign companies. Moreover, foreign companies went through hardtimes in the 1930s and during World War II, followed by a period of tight control inthe 1950s and 1960s that limited their activities. All the same, despite many obstacles,foreign companies played an essential role in Japan’s industrial development duringthe twentieth century (Takokuseki kigyo, 1997).

Kuwahara Tetsuya (2007) has shown that multinationals became increasinglyactive in Japan during the twentieth century (see Table 1). The share of the 500largest companies in the world with some form of representation in Japan (head-quarters, subsidiary, branch, joint venture) rose from 10.4% in 1930 (of which 5.8%were non-Japanese) to 35.2% in 1967 (26.6%) and to 56.8% in 2002 (35.2%).This reflects both the need for the Japanese companies to cooperate with foreignpartners with a view to acquiring new knowledge (technologies, marketing andmanagement) and the need for many foreign companies to be present in a countryrepresenting an essential commercial market (Takokuseki kigyo, 1997). Even thoughit was American multinationals that from the 1890s onwards became the mainforeign players in Japan, Switzerland played a decisive role in Japan’s industrialisa-tion, notably in the food, chemicals and machines sectors. Granted, Swiss companiesare not well represented in the statistical study carried out by Kuwahara (2007), whoonly found a single Swiss multinational present in the country in 1930 (Nestle) andfive in 1967 and 2002. Yet Switzerland’s impact on Japan’s industrial growth isgreater than can be imagined from this single quantitative analysis. There are toomany gaps in the data to statistically measure the impact of a country on the pre-warJapanese economy. Thus, even though Swiss multinationals do not appear to bedirectly present on a large scale in Japan before 1945, they operated indirectly,

Table 1. The 500 largest companies in the world (secondary sector) and Japan, 1930–2002.

1930 1967 2002

N % N % N %

Japanese companies 23 4.6 43 8.6 108 21.6Companies present in Japan 29 5.8 133 26.6 176 35.2Companies not present in Japan 448 89.6 324 64.8 216 43.2Total 500 100 500 100 500 100

Source: Kuwahara (2007).

714 P.-Y. Donze


through trading houses or so-called invisible FDI. However, an analysis of statisticaldata after 1945 reveals that Switzerland was second to the United States in terms oftechnical assistance contracts in the 1950s and gross accumulated FDI up until 1980.

Notwithstanding this important role of Swiss companies, researchers havenot really focused on the phenomenon. On the one hand, published work mainlyconsists of general studies of the phenomenon (Fukao & Amano, 2004; Uchida,1980; Udagawa, 1987) or studies that cover specific sectors or countries (Kudo, 1998;Mason, 1992) but fail to include Switzerland in their analysis. On the other hand, therare Swiss academic studies focusing on economic relations with Japan covercommercial or political/economic relations between the two countries but fail toexamine the role of Swiss multinationals in the Japanese economy (Deslarzes, 1958;Jequier, 1990). This article therefore aims to provide an overview of the activity ofSwiss companies in Japan during the twentieth century while focusing on the processfor the period as a whole and on the linkages between FDI and technology transfer.

The article is divided into two parts: the first section covers the pre-war periodwhile the second covers the latter half of the twentieth century. This approach can beexplained by the relatively different conditions for FDI flows to Japan during thetwo periods and by the available sources. The first period was marked by a relativelyliberal policy up until the 1930s. Yet no official surveys on FDI were carried out, andlittle information is available on foreign companies operating in Japan. There is onlya single official study, conducted a posteriori in 1948, which serves as a basis forhistorians studying the question (Nihon ni okeru gaikoku shihon, 1948). Apart fromthis document, historians are forced to rely on qualitative sources. The second periodis marked by strong intervention by the state, which sought to control FDI and theactivities of multinationals in the country. A statistical study of the phenomenon wasmade possible thanks to the figures published annually by the Ministry of Finance(Ministry of Finance, 1977–2000). These data, however, only concern gross capitalflows and exclude for example withdrawals of investments and ploughed-backprofits. Despite this major limitation, by using this source sparingly it is possible todetermine the general trend between 1950 and 2000. In addition to this statisticalsource, there are documents relating to foreign companies present in the country,which have been covered by official studies (Tsushosangyosho, 1960, 1968, 1968–2000) and surveys (Nihon keizai shimbun, 2001).

1. The period of trading companies (1899–1945)

Even though Japan opened up to multinationals in the mid-1890s, FDI only trickledin up until World War II. Flows did, however, increase steadily up until the 1930s:the Ministry of Finance estimates the accumulated volume of investments at US$50million in 1913, US$72.5 million for 1919–22 and US$122.5 million in 1929 (Mason,1992, p. 46). In all, by 1931, foreign companies present in Japan with at least a 50%foreign interest had overall assets (balance sheet) of ¥326 million, or some US$145million, with the 10 largest companies accounting for 51.4% (Udagawa, 1987, p. 17).Yet Japan was not a preferred destination for FDI: in 1930, it accounted for less than1% of overall US direct investment worldwide (Wilkins, 2007, p. 24). Nevertheless,even though the overall investment volume was low, these foreign companiessignificantly boosted the Japanese economy by allowing the transfer of newtechnologies and helping Japanese national companies integrate into globaldistribution networks. The official survey published in 1948 lists a total of 88

Business History 715


companies with at least a 50% foreign interest that were founded before 1931 (Nihonni okeru gaikoku shihon, 1948) (see Table 2).

The 88 foreign companies in Japan consisted of both subsidiaries (42) as well asjoint ventures (46). Their main characteristics related to their country of origin andto their field of activity. These companies were primarily from the US (40.9%), theUK (23.9%) and Germany (19.3%). They represented the main sectors of the secondindustrial revolution (automobile, petroleum, chemicals, electrical engineering), aswell as some more traditional sectors (machines, textiles). This study only identifiedtwo companies with Swiss share capital: Nestle and Nichizui Trading. However,Swiss companies were much more numerous on the Japanese market yet remainedrelatively invisible because they often operated through small trading houses whichthe Japanese authorities did not take into consideration in their 1948 study.

1.1. The predominance of trading houses

Up until World War II, Swiss firms were characterised by their very low volume ofdirect investment in Japan. Only rarely did they open production units in any formwhatsoever (branches, joint ventures). The bulk of the Swiss companies present inJapan before 1945 were trading firms, which were either active in trading in generalor represented a Swiss industrial firm whose products they distributed. Yet this doesnot mean that Swiss companies had no impact in terms of technology transfer or themodernisation of Japanese industry. This reluctance to relocate, at a time whencustoms protectionism was on the rise, was mainly due to an export-driven strategyfor sectors where Japanese competition was still weak (machines, chemicals).1

There is no official survey of Swiss companies operating in Japan in the first halfof the twentieth century. No information is available on their exact number or theamount of capital invested in the country. However, a document drawn up in 1922by the Swiss Minister to Japan, Charles Lardy, gives an accurate picture of Swisscompanies in Japan at the time (see Table 3). The survey identified 15 Swisscompanies, but it is likely that some founded previously, especially tradingcompanies based in Yokohama (Donze, 2010), subsequently left the island. Likewise,other companies may have been set up during the remainder of the decade.

Among these companies, trading houses and commercial activities accounted forthe lion’s share. According to the survey, no Swiss company was manufacturing inJapan in 1922. A great many all-round trading houses were in the import–exportbusiness, primarily exporting textile products (cotton fabric, silk) and importing

Table 2. Foreign companies in Japan, 1931.

Branches

Japanese companies (foreignshare capital as a %)

Total100 450 50

USA 15 6 6 9 36UK 5 5 2 9 21Germany 5 2 2 8 17Other 4 – – 10 14Total 29 13 10 36 88

Source: Udagawa (1987, p. 17).

716 P.-Y. Donze


consumer goods (watches, embroidery) and industrial products (steel, electricappliances, machines, chemical products). Also worthy of note is the presence of fourtextile companies that purchased and exported Japanese products, probably silk.

The second half of the 1860s was marked by the rise of many small Westerntrading houses in Japan that benefited from the development of a bankinginfrastructure and maritime transport companies – services which only the largestcommercial corporations, such as the British firm Jardine, Matheson & Co., hadmanaged up until then (Ishii, 1984). This was the case with the various Swisscompanies still present in Japan in 1922. Among them, mention should be made of theleading role played by Siber & Brennwald (Siber Hegner & Cie in 1922) and Bavier &Cie, two of the largest European silk merchants in Japan. In 1873, these two firmswere, respectively, the first and third largest exporters of silk from Japan, occupyingthe first and second slots in 1888 (Ishii, 1984, pp. 176, 355). Founded in 1865 inYokohama, Siber & Brennwald was headed by representatives of the Swiss textileindustry (Siber Hegner & Cie SA, 1965). It helped modernise the Japanese silkspinning industry by bringing Swiss engineer C. Muller to Japan in 1870. Mullerintroduced the first silk spinning machines into the country, which he had learned touse in Italy. This made it possible to modernise Japanese companies, with which Siebersigned exclusive silk sourcing contracts (Ishii, 1984, pp. 182–183). Another importantstep came in 1917, when Eduard Bosshart-Kunz arrived to head up the Japanesesubsidiary. He became the driving force behind the company’s decision to diversifyinto new markets, especially watchmaking (Siber Hegner & Cie SA, 1965, p. 23).

The other major Swiss trading house in Japan in the early twentieth century wasVolkart, which began to distribute its products in Japan in the mid-1890s via aBombay-based company operating in Kobe.2 Founded in 1851, this specialisedcotton trading company had established itself at the end of the nineteenth centuryas one of the main exporters of Indian cotton and had become one of theworld’s five largest cotton trading firms by the early twentieth century (Rambousek,

Table 3. Main Swiss companies present in Japan, 1922.

Name Branch Activities in JapanDate offounding Place

Favre-Brandt & Co. Trading Import–export 1863 YokohamaBavier & Co. Textile Exports 1865 YokohamaSiber Hegner & Co. Trading Import–export 1866 YokohamaVolkart Bros. Agency Trading Import–export 1893 OsakaSulzer Rudolph & Co. Textile Exports 1896 YokohamaNabholz & Co. Trading Import–export 1898 YokohamaF. Straehler & Co. Textile Exports 1904 YokohamaEscher Wyss & Co. Machines Imports 1909 TokyoSulzer Brothers SA Machines Imports 1910 TokyoE. Zellweger & Co. Trading Import–export 1911 YokohamaNestle & Anglo-SwissCondensed Milk Co.

Food Imports 1913 Kobe

Nichizui Trading Co. Trading Import–export 1919 OsakaLiebermann Waelchli & Co. Trading Import–export 1920 YokohamaA. Dubourg Watchmaking Selling – YokohamaH.A. Schmid Trading Exports – Kobe

Source: Lardy (1922, pp. 16–17).



Vogt, & Volkart, 1991). In Japan, it supplied the mills with raw cotton from India,an activity which led it to beef up its presence in the Japanese textile industry in theinter-war period. In 1903, H. Steinmann, under his own name, opened an import–export firm in Kobe (which then moved to Osaka in 1908) to represent Volkart.In 1919, Volkart, in cooperation with Japanese textile industrialists, helped founda trading house – Nichizui Trading Co., with assets of ¥2 million. Among theJapanese founders were men close to the largest cotton mill in the country, ToyoSpinning (Ito, the president’s son; Kimura, the director), merchants dealing withtextiles (Yashiro, Takemura) and chemical products, as well as the directors ofAmasaki Trading (Amasaki, former president; Takashima, manager), whoseactivities were continued by Nichizui (V.B. News, March 1924, p. 2). At that point,Volkart held a two-thirds interest, a share which was increased to 80% in 1922 andto 100% in 1939. Volkart focused on importing chemical products and machines andexporting textiles, representing some 20 Swiss companies by the mid-1920s. Itsmachines division, which worked for Brown, Boveri & Cie, was particularly large: itemployed three Swiss engineers and several Japanese technicians, who mainlyworked on installing hydroelectric plants in the country (V.B. News, March 1924, pp.8–11). They were instrumental in developing this form of energy in the country: thefirst hydroelectric plant in Japan, which went into operation in Komahashi in 1907,was equipped with Swiss turbines (Nakaoka, 2001, pp. 58–59). As a 1924 issue of theVolkart Brothers’ company newspaper reported, ‘a considerable number of largeand small power stations have already been installed’ (V.B. News, March 1924, p. 8).Likewise, Brown Boveri, through Nichizui, supplied electric locomotives to thenational railway company after the decision was taken to electrify the network,bringing in a Swiss engineer to supervise the job (V.B. News, March 1924, p. 8).Among the other industrial companies represented in the country by Nichizui,mention should be made of Theodor Bell & Co., from Kriens, which installed threecog railways in Japan, and the machine-tool maker Tornos, from Moutier, whichsupplied Japanese watchmaking companies with machines (V.B. News, March 1924,pp. 8–9). In 1924, Nichizui employed a total of 18 Swiss and 118 Japanese in all of itsdivisions (V.B. News, March 1924, p. 12). Thanks to technical cooperation betweenSwiss and Japanese engineers, Nichizui became a key player in technology transferdriven by the transmission of know-how.

Companies linked to industrial firms, in both the field of machines (Escher Wyss& Co.; Sulzer Brothers SA) and food (Nestle), were in Japan for commercialpurposes. They opened branches in the country in order to import and distributetheir products but did not initially seek to manufacture in the country. Their activitywas first and foremost of a commercial nature.

1.2. The example of chemicals

Lardy’s 1922 survey of Swiss companies operating in Japan does not list anychemical companies, whereas this sector accounted for one-quarter of Swiss exportsto Japan in 1913 and in 1935. This absence was mainly due to the prevailing strategyadopted by the chemical industry – primarily composed of German and Swiss firms –that favoured exports of finished products rather than direct investments andrelocation of production. However, even though distribution was initially handledby independent trading companies, the Basel-based chemical firms rapidly adoptedmore sophisticated marketing policies in order to boost their sales. After 1914, the

718 P.-Y. Donze


environment became much more competitive due to several factors: the temporarydisappearance of the German chemical firms, which had hitherto dominated themarket; the establishment in 1916 of a state-backed Japanese dye firm, NihonDyestuff Manufacturing, and the introduction of a protectionist commercial policy.Accordingly, the Swiss chemical firms were forced to react and to adopt moreproactive strategies: Ciba established an in-country marketing unit while Rocheopened a branch.

The largest Swiss chemical company in Japan was the firm Ciba, which exportedsynthetic dyestuffs to Japan from 1870 onwards via Siber & Hegner for the companyNagase. In 1900, Ciba began exporting directly to Nagase, with which it maintainedbusiness relations up until World War II. From 1900 onwards, medical products andpharmaceuticals, especially sterilisation equipment, were exported directly for thepharmaceutical firm Takeda, with which special ties were also maintained (exclusivedistribution rights obtained in 1822; licensed production of certain drugs in 1937).Even though Takeda remained a major partner, in 1913 Ciba established a bodyresponsible for the drugs market in Japan, the Japanese Scientific Department of theScience Industry Company of Basel Switzerland (JSD), with a view to boosting salesin Japan.3 Increased competition on the Japanese chemical market required aproactive approach to doing business in Japan. The JSD owes its origin to a meeting,in 1913, between Ciba representatives and a young Japanese man, Imai Genshiro,who was sent by the Japanese Ministry of Agriculture and Trade in 1908 to studyabroad in Europe, more particularly in Germany, to acquire the necessary skills inchemicals and pharmaceuticals. His stay brought him into contact with Ciba, whichwas looking for an opportunity to boost its medicines sales in the country. Imai wastherefore recruited by the Basel-based firm, which appointed him to head the JSD.He developed new sales techniques for Japan based on direct visits to doctors andscientists. JSD then began to produce drugs in the country during World War I, butsubsequently closed in 1941, after the death of Imai (1940) and the outbreak of thewar (Nihon Ciba-Geigy, 1985, pp. 57–67).

The case of Roche is similar. The company exported to Japan from 1904 onwardsvia a German trading corporation, then in 1912 with the help of Siber & Hegner setup a new body called Roche Science Division, which was tasked with developingmarketing activities (advertising, distribution, visits to doctors, etc.). This division,which was headed by a Japanese pharmacist, adopted unheard-of advertisingmethods, such as organising scientific meetings in the country’s main universities inorder to present Roche’s products to the medical profession (Nihon Roche, 1982,pp. 12–13). It then began to manufacture certain drugs without an official licence,leading the authorities to shut the company down (Peyer, 1996, p. 114). In 1924,Roche, with the backing of Japanese partners, created a new firm, Nihon SwitzerYakuhin (NSY), the first foreign-backed company to secure approval to producedrugs in Japan (Nihon Roche, 1982, p. 14). However, NSY, which employed around100 persons by the mid-1920s, focused on distributing drugs imported fromSwitzerland. Only when NSY became a joint stock company in 1932, under the nameof Roche Japan, did production, notably of vitamin C, really begin on Japanese soil.However, the company was shut down in 1941 because of the war (Nihon Roche,1982, p. 23).

The other Basel-based chemical firms adopted a more traditional approach. Forexample, Geigy exported dyestuffs from the late 1880s onwards. Its trading partnerswere a Yokohama-based trading firm, followed by a Japanese intermediary (Nita



Trading) from World War I onwards, and finally Nichizui Trading (Nihon Ciba-Geigy, 1985, pp. 55–56). Notwithstanding, increased competition on the domesticmarket did not seem to prompt a transfer of activities from Basel to Japan beforethe war.

1.3. Nestle and watchmaking: ‘invisible’ direct investments

Yet customs protectionism and the appearance of domestic competition did notaffect only the chemical industry; rather, this was a general trend that led severalcompanies to relocate part of their production to Japan, as Ciba and Roche did to acertain extent. This was particularly true for Nestle and for a small watch merchantfrom Neuchatel, Rodolphe Schmid, both of whom opened production units onJapanese soil. Unlike the Basel-based chemical firms, however, these two Swisscompanies worked through Japanese firms to such an extent that the shiftfrom distribution to production was not officially attributed to foreign directinvestment.

Nestle was present on the Japanese market from the late nineteenth centuryonwards, exporting powdered milk through Western trading corporations (NesureJapan, 2003). In order to exercise greater control over its activities, the companyopened a subsidiary in 1913 in Yokohama, which subsequently moved to Tokyo(1915) then to Kobe (1922). The appearance of a rival firm, Morinaga, led Nestleto start producing milk toffee in Tokyo in 1917, three years after its Japanesecompetitor. In the inter-war period, the growth of the companies Morinaga andMeiji, which embarked on the production of dairy products with the support of aprotectionist policy, led Nestle to consider relocating a much greater share of itsproduction in Japan. After an abortive partnership venture with Dainippon DairyProducts in 1929, Nestle decided to open a production site on its own. In 1933, itbought up a milk manufacturing plant on the island of Awaji, off the coast of Kobe,through seven of its Japanese employees who were lent sums of money. AwajiCondensed Milk was thus legally speaking a Japanese firm but depended on Nestlefrom a practical standpoint.4 This strategy was adopted owing to Japanesenationalism, which turned against FDI in the early 1930s. This meant that Nestle,which acquired a second plant in Saidaiji in Okayama prefecture in 1936, was able toproduce condensed milk in Japan up until the war without encountering politicaldifficulties.

A similar situation prevailed in the watchmaking industry. A Swiss watchmerchant decided to move a watch production unit to Japan as a direct result of theboom in domestic production by the firm Hattori, which had manufactured pocketwatches since 1895 and reaped the benefits of a protectionist customs policy (Donze,2006; Uchida, 1985). Consequently, Swiss exports of finished watches to Japanplummeted from 255,838 pieces in 1900 to 173,417 pieces in 1910 (Statistique ducommerce de la Suisse, 1900–1910). In order to make up the shortfall, RodolpheSchmid, a watch merchant from Neuchatel based in Yokohama since 1894, startedto import unassembled watches and assemble them in a workshop in 1908.5 In1913, he moved the production of watch cases to Japan.6 This company, whichsubsequently moved to Tokyo in 1912, experienced strong growth: by 1920 itemployed 110 persons, making it the second largest watch producer in Japan afterHattori (Chou, 2002, p. 23). Yet despite this industrial success, the company was notlisted among foreign companies resulting from direct investment. Legally speaking, it

720 P.-Y. Donze


was just another import–export company based in Yokohama, like so many othersat the time. The Schmid factory continued to grow thanks to a partnership withJapanese watch merchants, who invested in the company in 1930 and gave it a newname: Citizen Watch Company. As with Nestle, the Swiss were not the maininvestors in this new watchmaking company. Even though Schmid ‘wished to obtain100,000 ¥ worth of shares in the company’,7 that is, half the capital, he was obligedto invest via middlemen. It was the Japanese directors of his company who held one-third of the share capital, as he himself had only a symbolic share (¥3000, or 1.5% ofthe capital), with the balance held by Japanese merchants.8 By integrating Swisstechnical know-how and Japanese commercial networks in this way, Citizen was ableto develop new models copied from Mido watches, which Schmid was authorised toimport to Japan, and to carve out a position as a major challenger for Hattori: by1940, Citizen had a 14.8% share of the watch market in Japan.9

1.4. Swiss multinationals in Japan during World War II

Foreign multinationals, which faced increasing difficulties from the early 1930sonwards owing to the authorities’ nationalistic policy, by and large pulled out ofJapan after Pearl Harbor. After the Enemy Property Control Law was passed in1941, enemy country multinationals such as Kodak, IBM and Dunlop weresequestered and their patents revoked. The government sold them off to Japanesefirms for a total of ¥362 million, broken down as follows: ¥221 million forAmerican firms and ¥89 million for British ones (Mason, 1992, p. 107; Wilkins,1982).

Owing to Switzerland’s neutrality, the Swiss multinationals present in Japan,such as Ciba and Nestle, were able to stay, and Schmid held on to his shares inCitizen during the war even though he was domiciled in Switzerland. But fortrading companies with no production facilities in the country, the war brought aradical change – a sharp drop in Japanese foreign trade, which was subject togovernmental control. For the few multinationals that remained in Japan duringthe conflict, even though the war was bad for business, this continuity allowed themto start up quickly after 1945, although the Supreme Commander of the AlliedPowers (SCAP) and the new Japanese authorities did not view FDI favourably upuntil the early 1950s. Yet keeping subsidiaries in the country posed a number ofproblems for Swiss multinationals, particularly Nestle, owing to the ambiguousnature of their nationality. In order to keep on operating throughout the world,some Swiss multinationals, including Hoffmann-LaRoche and Nestle, adopted aspecial organisational type based on the coexistence of two holding companiesbased in different countries. For example, in the case of Nestle, the Swissmultinational initially faced a danger of sequestration owing to the dependency ofNestle Japan on the holding company based in the United States. Accordingly, theshares of the Japanese subsidiary were transferred to the Swiss-based holdingcompany in 1941. Moreover, Nestle had to cope with the cartelisation policy pursuedby the Japanese dairy industry, which was characterised by the abandonment oftrademarks and price controls (1940). Subsequently, the military authoritiesrequisitioned Nestle’s factories in 1944.10 Despite these difficulties and notwith-standing the fact that it was impossible to really do business in the country, Nestlewished to hold on to its presence in Japan, as it felt that business would pick back upafter the war.



2. Swiss companies in Japan during the second half of the twentieth century (1945–

2000)

After the war, Japan continued its determined efforts to industrialise, which made itthe second largest industrial power in the world by the end of the 1960s. Thisdevelopment strategy was based to a large extent on technology imports as a result ofcooperation with multinational firms. Yet even though it needed foreign industrialknow-how, Japan wished to maintain control over its economy, so multinationalsoperating in the country were subjected to strict control by the authorities up untilthe 1970s. For this purpose, the state had two main legislative instruments at itsdisposal. The first was the Law on Exchange Controls and Foreign Trade, adoptedin 1949. It regulated the use of foreign currencies, making it possible to controltechnology imports via short-term technical assistance contracts (lasting less than ayear) – an approach which facilitated the acquisition of specific technologies withoutany real influence by multinationals. The second tool was the 1950 Law on ForeignInvestment, which regulated in particular the acquisition by foreigners of stakes inJapanese firms as well as the approval of technical assistance contracts lasting longerthan a year. Stringent conditions were imposed on FDI, which for example had tohelp improve the balance of payments and develop strategic industries. Officiallyspeaking, approval for FDI depended on a deliberative council composed ofbureaucrats, but it was above all the major firms that played a decisive rolethrough various working committees (Mason, 1992, pp. 156–157). Initially, thestate exercised strict control over the activities of foreign firms on its territory.According to a survey by the Ministry of International Trade and Industry (MITI),in 1950–51 there were 45 foreign firms in Japan, of which only two were 100%foreign owned (Wilkins, 2007, p. 25). Following pressure by foreign powers andtheir own multinationals, in July 1966 the Japanese authorities adopted a planfor the gradual liberalisation of FDI before repealing the law in 1980 (Fukao &Amano, 2004, p. 66). Notwithstanding, various legislative measures restricted FDI incertain sensitive sectors (finance, telecommunications, energy), and these conditionswere only partially liberalised in the late 1990s (Kurosawa, 2009). Trends for thevolume of gross FDI towards Japan reflect this gradual opening up. Whereas lessthan US$100 million per year was recorded for 1950 to 1980, the correspondingfigure was US$930 million in 1985, US$2.8 billion in 1990 and US$28.9 billionin 2000 (Ministry of Finance, 1977–2000). Yet Japan was not the only countrycharacterised by such exponential growth. The phenomenon took on globalproportions following the liberalisation policies adopted during the 1990s and themegamergers of multinationals that followed. Despite such spectacular growth,however, Japan remained below the trend (Miyajima, 2007). For the years 1998–2005, the value of mergers and acquisitions in Japan came to a mere 2.5% of GNP,as compared with 10.7% in the US, 21.8% in the UK and 7.5% in Germany(Miyajima, 2007, p. 334).

Switzerland played an essential role in FDI towards Japan. For the entireperiod 1950–2000, Swiss capital represented 4.7% of FDI, placing the country infifth place behind the United States with 33.1%, the Netherlands with 9.9%, Francewith 7.2% and Germany with 5.6%. However, if we look at the period preceding themajor wave of liberalisation and M&As, Switzerland played a more important role,coming in second behind the United States for 1950–80 (9.9%) and in third placebehind the United States and the Netherlands for 1950–95 (5.8%).

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The development over time of the gross volume of Swiss capital invested in Japanfollows the overall trend. Swiss investment started off at a relatively level in 1950–80with an average annual volume of US$7.7 million, increasing to US$86 million in1985 and US$142 million in 1990 and peaking at US$2 billion in 2000 due to aninvestment by a multinational active in the oil trading sector with its headquartersin Switzerland (see Figure 1).11 Thus, Swiss companies in Japan increased theiractivities gradually. During World War II, only Nestle and Ciba kept arepresentative office on the island, a factor which enabled them to becomeoperational rapidly once the war ended (Kuwahara, 2007, p. 17). Yet they wereisolated cases, and the bulk of Swiss industrial firms preferred technical assistanceprojects to direct investment in the 1950s. It was above all from the 1960s onwards,when the conditions for setting up firms were relaxed, that Swiss companies openedsubsidiaries or joint ventures in Japan.

2.1. Technical cooperation contracts

But direct investment was not the only option for foreign multinationals wishing todo more business with Japan. From 1950 onwards, the state authorised technicalcooperation projects between foreign firms and Japanese companies, which generallyled to the transfer of patent rights or licensed manufacturing on the island. Eventhough it did not constitute direct investment as such, this strategy appearsimportant. A number of multinationals chose this option for doing business inJapan, primarily during the 1950s and the first half of the 1960s, on strategic grounds(lack of control over a minority joint venture) and the conditions of the Japanesemarket (underdeveloped, geographically remote, different language and culture)(Wilkins, 2007, p. 30). This was also why FDI flows towards Japan remained modest(Abegglen, 2007). For 1950 to 1975, the total volume of technical cooperationcontracts amounted to US$5.8 billion, as compared with US$1.5 billion for FDI(Ministry of Finance, 1977; Historical Statistics of Japan, 18–7).

Figure 1: Swiss direct investment in Japan, in millions of dollars, 1950–2000.Source: Ministry of Finance (1977–2000).



Even though they were not, strictly speaking, a form of direct investment,technical assistance contracts were an initial stage that often led Western companiesto open a branch in the country later on in order to intensify commercial ties withJapanese clients once political conditions made this possible. Many Swiss companiesinvested in Japan in this way (see Table 4). According to an official survey publishedin 1960, a total of 1069 contracts were signed between 1950 and 1959, to the tune ofUS$255 million (contracts for 12 months and over) (Tsushosangyosho, 1960, pp.148–233). With 80 contracts (7.5%), Switzerland was the second larger provider oftechnical contracts after the United States (706 contracts or 66.0%), outstrippingGermany (75; 7.0%), France (34; 3.2%), United Kingdom (32; 3.0%) and theNetherlands (30; 2.8%) (Tsushosangyosho, 1960, pp. 148–233).12 The primarysectors where Japan imported Swiss technologies were the machine industry andchemicals. The firms involved were mainly companies that invested in the followingdecades by setting up subsidiaries and joint ventures. Moreover, most of thecompanies signing these contracts had already been active on the Japanese marketbefore the war. This was the case for the six largest (Sulzer Freres, Escher Wyss,Brown Boveri, Nichizui, Ciba, Geigy), which alone accounted for 50 of the 80

Table 4. Technical assistant contracts signed by Swiss companies, 1950–59.

Company Sector N

Sulzer Freres SA Machines 17Escher Wyss Ltd Machines 13Brown Boveri & Co. Electric appliances/Machines 6Ciba Ltd Chemicals 5Nichizui Trading Co. Trading 5J.R. Geigy SA Chemicals 4Oerlikon Engineering Co. Electric appliances/Machines 3Concast SA Metallurgy 2Luwa AG Machines 2A. Maurer SA Machines/Chemicals 2Sandoz Ltd Chemicals 2Dr. Oswald Wyss Paper 2Emile Haefely & Co. Machines 1Swiss Car and Elevetor Manufacturing Co. Machines 1Swiss Industrial Co. Machines 1McGregor AG Machines 1Societe d’etudes et de participations SA Machines 1Maerz Industrie Offenbau AG Machines 1Contrues AG Machines 1Jean E. Kopp Machines 1Leder & Co AG Machines 1Inventa SA Chemicals 1Ammonia Casale SA Chemicals 1Rostero SA Chemicals 1Heberlein & Co. AG Chemicals 1Durisol AG Construction 1Bureau BBR Construction 1Fred Fahrni Paper 1The Champion Paper Paper 1Total 80

Source: Tsushosangyosho (1960, pp. 148–233).

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contracts. In the 1960s, when conditions for investment were relaxed, they openedbranches and joint ventures. Thus, technical assistance contracts played animportant transitional role for these firms.

The case of Sulzer Brother is typical of this trend. This Zurich-based companybegan operations in Japan in 1910 by opening a branch for selling and servicing itsmachines. In the 1950s, it went on to conclude technical assistance contracts,primarily for the licensed manufacturing of gas-powered motors and compressors.For example, it signed five contracts with Mitsubishi Heavy Industries, three withUraga Shipbuilding, two with Harima Shipbuilding and one with MitsubishiShipbuilding. These cases of technical cooperation, which provided for licensedmanufacturing and the skills mentoring of Japanese engineers by their Swisscolleagues, were key vehicles for technology transfer to Japan. In the ensuingdecades, these relations became institutionalised, when Sulzer opened a Tokyobranch in 1959 then participated in several joint ventures in the 1960s and 1070s.

2.2. An overview of Swiss companies operating in Japan in 2001

Owing to documentary gaps, it is difficult to arrive at a dynamic overall analysis ofSwiss companies present in Japan for the entire second half of the twentieth century.Although several surveys were conducted, available data do not lend themselves to acomparative diachronic study. The yearbook of foreign-backed firms that NihonKeizai Shimbun published in 2001 provides an overall view of the question (Nihonkeizai shimbun, 2001). Of course, using such a source in a historical approach entailsa risk of a deterministic analysis, because in the final analysis only companies presentin Japan in 2001 were studied, to the exclusion of any companies that might haveleft the country in the meantime. However, this is not a major drawback. When wecompare the 2001 survey with previous publications (Nihon ni okeru gaikoku shihon,1948; Tsushosangyosho, 1960), we see that it is above all smaller companies,normally sales subsidiaries, which tended not to stay very long, whereas industrialfirms manufacturing in the country were more stable.

When we analyse Swiss-backed companies present in Japan in 2001 by sector ofactivity, we can see that changes in their status both dovetail with the general trendfor FDI in Japan and reflect the characteristics of the Swiss economy (see Table 5).Although the companies set up prior to 1945 were indeed fewer in number, theywere major multinationals (Nestle, Siber & Hegner, Roche, Sulzer, etc.) which atthe beginning of the twenty-first century were some of the largest Swiss firmsestablished in Japan. During the post-war years (1945–59), very few Swiss-backedfirms were established, Ciba being the largest, as Swiss companies preferredtechnical cooperation contracts. The 1960s and 1970s were marked by theexpansion of Swiss direct investment, with the creation of more than one-third ofall of the Swiss companies present in 2001. This trend was no doubt reinforced bythe liberalisation of direct investment, especially with regard to industries wishingto manufacture in the country, but it was primarily a response to the boomingJapanese domestic market. The tremendous growth of the Japanese economyduring these two decades turned the country into a major commercial market formany companies, which opened subsidiaries to market and sell their products.Nearly half of the Swiss firms opened during these years fell into this category, atrend that continued in following decades. Yet the 1980s and 1990s were above allmarked by the liberalisation of financial services.



The high percentage of entirely Swiss-owned firms, regardless of sector ofactivity, may seem surprising in the Japanese context: up until the mid-1960s, theJapanese authorities favoured joint ventures controlled by Japanese firms, as theycould initiate technology transfer while curtailing the activities of foreign firms ontheir territory (see Table 6). Yet the Swiss were determined to retain control overtheir companies and appeared to make this a prerequisite for investment, unlike theUS multinationals, which did not hesitate to take minority interests in joint venturesto gain access to the Japanese market (Nakamura, 1979). This Swiss characteristic ispartly due to the presence of a great many commercial firms that had littletechnological interest in Japan and were thus less interested in cooperation. Aninternational comparison shows that a high percentage of trading companies wereSwiss: in 1966, 39.1% of Swiss firms in Japan were active in trading (import anddistribution) as compared with only 25.8% for all foreign firms (Tsushosangyosho,1968, p. 270). Another sign of this policy could be seen in the 1950s: where shares ofJapanese firms owned by foreign companies amounted to a total of US$59.7 million,not a single Swiss company was involved. Moreover, Swiss banks had very littlecontact with Japanese industry during this decade: the only deals on record are aUS$110,000 loan by Union de banques suisses to the auto maker Hino DieselIndustry (1955) and Credit suisse loans to Akita Trading (US$105,000 in 1954) andFuji Flour Mill (US$252,000 in 1955) (Tsushosangyosho, 1960, p. 167).13

Table 6. Legal form of the Swiss companies established in Japan in 2001, classified by periodof founding (% of Swiss capital).

Before1945 1945–59 1960–69 1970–79 1980–89 1990–99 Total

Subsidiaries andbranches (100%)

7 4 10 20 24 20 85

Joint venture (450%) – – 2 7 3 3 15Joint venture (50%) 1 1 1 1 5 – 9Joint venture (550%) 1 – – 2 4 1 8Total 9 5 13 30 36 24 117

Source: Nihon keizai shimbun (2001).

Table 5. Fields of activities for the Swiss companies present in Japan in 2001, classified byperiod of founding.

Before1945 1945–59 1960–69 1970–79 1980–89 1990–99 Total

Chemicals, pharmaceuticals,food

2 1 2 4 5 4 18

Machines, mechanics,measuring instruments

3 2 2 4 6 3 20

Services: banks, finance,insurance, transport

1 – 2 3 14 6 26

Services: sales, distribution,marketing

3 1 5 16 11 11 47

Construction, industrialequipment

– 1 2 3 – – 6

Total 9 5 13 30 36 24 117

Source: Nihon keizai shimbun (2001).

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Finally, a reference should be made to foreign multinational holding companieswhich have located in Switzerland for tax purposes and which invested in Japanthrough their Swiss branches. Of the 119 Japanese firms with share capitalconsidered as Swiss in 2001, 12 (10.1%) were actually foreign multinationals:German firms – Wacker (1960), Merck (1968), Siegling (1968), EGO (1971), Burkert-Contromatic (1995) and Wagner-Hosokawa (1997); US firms – Getz Brothers (1974)and Caterpillar (1963, 1987); an Austrian firm – Swarovski (1973); and Frenchfirms – Sceti (1952) and Michelin (1989).14 This is part of the reason why Switzerlandhas been such a quantitatively important player in FDI flows to Japan since 1945: itssecond place showing behind the US reflects a particularly dynamic domesticindustry as well as a tax haven for foreign holding companies. The statistical weightof these foreign multinationals can be seen clearly for example in the case ofCaterpillar Overseas, a Swiss-based holding group which in 1963 set up a jointventure with Mitsubishi Heavy Industries to the tune of ¥16.8 billion (US$46.7million at the time). By 1968 the company had become the third-largest foreign firmin Japan, behind an oil company founded by the kingdom of Saudi Arabia and IBMJapan (Tsushosangyosho, 1968). Thus, this trend helped make Switzerland a majorFDI player (Schroter, 1993, p. 57).15

2.3. Chemicals: an essential sector

The chemicals sector is not only one of the most active in the country; it is also one ofthe fields where transfer of production has been the most pronounced. One of themain characteristics of the chemicals industry has been a shift from selling tomanufacturing in the country, a change encouraged by the Japanese authorities. Twotypes of chemical firms invested in Japan after 1945: all-round producers of chemicaland pharmaceutical products, on the one hand, and manufacturers of synthetictextile fibres, on the other.

The all-round companies were essentially the Basel-based firms Ciba, Geigy,Hoffmann-La Roche and Sandoz, already present on the Japanese market in theinter-war period. The main Swiss chemical firm in Japan was Ciba, which was able tostart doing business again thanks to a company representative, Zeller, who hadremained in Japan during the war. The company’s Japanese office reopened in 1948.Distribution contracts were signed rapidly, with Nagase & Co. for plastic products(1950) and with Takeda for medicine (1953) (Nihon Ciba-Geigy, 1985, pp. 83–89).However, Ciba’s strategy soon reflected a desire to shift production to the country.To achieve this goal, it set up new firms in cooperation with Japanese and Americanpartners.

The first such firm was a pharmaceutical company, Ciba Manufacturing,established as a subsidiary in 1952 (see Table 7). At the time, very few firms withoutJapanese capital were allowed to open, and this preferential treatment for Ciba canbe explained by the authorities’ desire to develop a modern pharmaceutical industry.Moreover, relations between Ciba and the Ministry of Health were excellent: in 1958the Ministry asked Ciba to step up production, and the company opened a newindustrial site in 1960 (Nihon Ciba-Geigy, 1985, p. 117). In the 1960s, the market fordrugs grew very rapidly and Ciba became a key player. Ciba’s turnover for drugssales in Japan, even though it declined in relative terms owing to growth in othersectors, rose from ¥159 million in 1955 to ¥692 million in 1960 and ¥3.3 billion in1970 (Nihon Ciba-Geigy, 1985, p. 451), increasing the Swiss firm’s share of national



drugs production from around 0.3% in 1960 to nearly 4% by 1970 (Nihon tokeinenkan, 1986, p. 246).

Ciba’s second area of activity was the production of plastics, for which twoproduction plants were opened. A first factory opened in 1961 was subsequentlytaken over by a joint venture established with Nagase & Co. in 1970.16 It initiallyproduced exclusively plastics, then diversified into photographic material (1964),pesticides (1967) and animal feed (1969) (Nihon Ciba-Geigy, 1985, pp. 151–163). Thesecond factory, which specialised in plastics, grew out of a cooperation venture withthe Japanese firm Asahi and the American firm Dow Chemical, leading to thecreation in 1965 of Asahi Ciba, in which Ciba held a 25% stake that was laterincreased to a 50% interest when Ciba bought Dow out in 1973 (Tsushosangyosho,1968, p. 324).

Before merging with Ciba, Geigy had hardly moved any production to Japan.Even though it did not stop doing business during the war, its Japaneserepresentative, Nichizui Trading, only dealt with imports and sales. In the post-warperiod, Geigy primarily made a name for itself by marketing pesticides, inparticular DDT, signing technical assistance contracts with some 30 firms from1947 onwards (Nihon Ciba-Geigy, 1985, pp. 102–104). Later, it gradually took overimports of other products, such as drugs (1952), additives (1963), fertiliser (1964)and dyes (1971) (Nihon Ciba-Geigy, 1985, p. 47). With the exception of a fewinsecticides produced by Japanese partners under licence, Geigy did not produceanything in the country until the end of the 1960s but took direct control of theJapanese market with the establishment of a branch in 1963 responsible forsupervising imports and distribution, Geigy Trading & Marketing Service Co(GTMS). In 1969, it established a joint venture with Musashino ChemicalsLaboratory for manufacturing antioxidants, plastics and pesticides (Nihon Ciba-Geigy, 1985, p. 397).

The policy of transferring production to Japan continued after the merger of thetwo Basel-based giants. Ciba-Geigy Japan, established in 1971, was a major chemicalfirm in Japan with more than 900 employees the year of its founding (Nihon Ciba-Geigy, 1985, p. 221). During the 1980s, it continued to pursue its strategy of alliancesand on-site production, taking on a more Japanese character when it recruited thefirst two Japanese directors in 1980 (Nihon Ciba-Geigy, 1985, p. 314). Two new jointventures were set up: Asahi Composite Ltd, in cooperation with Asahi ChemicalIndustry, for manufacturing carbon fibres and fibreglass (1981), and Nippon AlkylPheno Co., opened with Mitsui Chemicals (1984).

Table 7. Breakdown of turnover for Ciba-Geigy Japan, in ¥ millions and %, 1960–80.

1960 1970 1980

Turnover (millions ¥) 692 5477 75,692Drugs (%) 100 60.8 44.5Dyes (%) – 11.0 13.7Plastics (%) – 24.9 23.1Agricultural produce (%) – 2.1 11.2Photographic material (%) – 0.6 1.4Various (%) – 0.6 6.1

Source: Nihon Ciba-Geigy (1985, p. 451).

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Sandoz adopted a similar strategy. Initially, its products were imported by thetrading company Siber & Hegner. However, as business developed on the Japanesemarket, it decided to take control, opening two subsidiaries, for importingpharmaceutical products (1960) and dyes (1966). The latter subsidiary then startedmanufacturing activities in the mid-1960s, establishing a joint venture withMitsubishi Yuka in 1981. When Novartis was set up, in 1995, the pharmaceuticaldivision became part of Ciba-Geigy, while the chemicals division took the name ofClariant Japan. In 1999, it took over, in the form of a subsidiary, the Germancompany Hoechst, founded in 1962 with a Japanese partner under the name ofClariant Polymers.

Finally, Hoffmann-La Roche, which had reopened its plant in 1947, opted formanufacturing under licence during the 1950s. In 1951, it sold the rights for theproduction of sulfamides used to treat tuberculosis to the pharmaceutical firmsYamanouchi and Shionogi. Subsequently, new agreements were signed withYamanouchi for the production of tranquillisers (Librium, Valium) (Yongue,2005, pp. 124–126). In recent decades, the Roche group has made several directinvestments, for example by opening a branch of the perfumery company Givaudan(1970), by launching the Nutritec Co. joint venture, co-founded with a Japaneseanimal feed company (1985), and by opening a branch specialising in the distributionof vitamins (1998). Finally, in 2002, Roche Japan merged with the pharmaceuticalcompany Chugai, founded in 1925, while remaining a subsidiary of the Hoffmann-La Roche group. All these changes are to be seen against the backdrop of a vastrestructuring of the Japanese pharmaceutical industry, which has undergonesuccessive waves of mergers in order to boost its ability to compete on worldmarkets (Urushihara, 2007, p. 175).

In addition to the four largest Basel-based firms, other Swiss chemical firmsinvested in Japan in the second half of the twentieth century. In 1965, Elastomer AGteamed up with Nippon Valqua Industries to produce polyurethane, while Seronoopened a branch in 1979. Other smaller firms opened specialised production units inthe country, such as the Helena Rubenstein cosmetics production plant (1963) or theAtes AG globulin production centre (Tsushosangyosho, 1968, pp. 328–329). Finally,producers of synthetic textile fibres took up one of the major technologicalchallenges facing the Japanese chemical industry in the post-war period, in a sectordominated by US multinationals. In addition to Ciba-Geigy, which was present inthe sector via a joint venture established with Asahi in 1981, there were two otherSwiss firms. Asbiton AG held one-third of the share capital of a joint venturelaunched in 1961 with Nitto Spinning, while EMS-Chemie invested in the late 1970s.It opened a subsidiary in Tokyo in 1977 in order to market its own products inJapan. To do so, it teamed up with a local partner, Tamaru, which took a 30% stake.Lastly, it spun off its nylon division, moving production to Japan. In 1990, incooperation with Ube Kosan, it launched a joint venture (49% interest) – EMS-Ube,specialised in the production of basic materials for nylon production.

2.4. The machines and precision mechanics industry

The machines industry is the other major Swiss industrial sector featuring bothmassive direct investment and large-scale technology transfer. The sector isdominated by two companies which were already present in the first half of thetwentieth century and which signed a host of technical cooperation agreements in the



1950s: Sulzer Brother and Brown Boveri. Both opened subsidiaries in Japan to boosttheir commercial relations. Although Sulzer opened its subsidiary in 1959, it didnot begin transferring production until the early 1970s. The firm continued to selllicensed technologies, focusing on importing and distributing its production,especially motors. The takeover of Escher Wyss in 1969 did not affect Sulzer Japandirectly because Escher did not have any production facilities on the island either.Subsequently, the development of ties with Toyoda Automatic Looms Ltd led Sulzerto open production sites in Japan in the early 1970s. Sulzer and Toyoda establishedtwo joint ventures in 1971, one for producing mechanical parts (Toyoda-SulzerManufacturing) and the other for importing and selling Swiss machines in Japan(Toyoda-Sulzer Sales). Finally, in 1966 Sulzer Japan took over Medco Japan, whichhad been in the country since 1960 and was a subsidiary of the US firm by the samename. As for Brown Boveri, which had been selling its products since the earlytwentieth century via Nichizui Trading, it opened a branch in 1967 that primarilydealt with imports and sales. It was not until the early 1990s that the firm took aninterest in industrial products projects in Japan, when it took a 60% stake in JapanGas Turbine, a joint venture launched in 1993 with Kawasaki Heavy Industries.

In addition to these two major companies that were present on the Japanesemarket from the early twentieth century, several Swiss companies entered themachines and mechanics sector after World War II. These firms fell into twocategories. First of all, some, mainly those that set up joint ventures with Japanesepartners, transferred part of their production to the island. For example, SchenkIndustrie acquired half of the share capital of Nagahama Manufacturing, a jointventure that produced parts for the automobile industry (1955); Lear SieglerInternational teamed up with Nozaki to manufacture parts for aeronautics (1962);Lucien Meroz, a manufacturer of stones for watches, helped found Citizen Precision(1963); Georg Fischer entered into a joint venture with the Japanese leader in theconstruction equipment sector, Kubota (1985); and Schindler took a minorityinterest in Nippon Elevator Industry in 1985 which it subsequently upped to amajority holding in 1987. A handful of companies set up their own production unitsin Japan: Oerlikon (1954), Luwa (1967), Marposs (1970) and Bobst, which opened aJapanese branch in 1971 and a plant in Kawagoe in 1979. Second, several Swisscompanies only opened commercial branches on the island. These firms focused onimports, distribution and the provision of technical assistance to local clients. Thiswas the case with Feintool (1973), Muller Martini (1974), Bien Air Japan (1975),Ascom Hasler Japan (1977), Hospal (1977), Mikron (1977), Wurth Japan (1977),Kinstler Instrumente (1985), Caltek (1986), Agie Charmilles Japan (1987), Brown &Sharpe (1987), LEM (1988), Schaffner Elektronik (1994) and Reishauer (1995).

Finally, the point should be made that watchmaking was a special case: ever sincethe 1960s Japan was not only a sales outlet but also the main rival of the Swisswatchmaking industry. Owing to Swiss legislation, with the watchmaking monopoly(1934–71) and protection via the Swiss Made label (from 1971 onwards), it wasdifficult if not impossible to shift production facilities to Japan. As a result, the onlyfirm that embarked on an industrial joint venture was a producer of watch parts,Lucien Meroz, a maker of stones for watches, who worked together with Citizen.The Swiss firms tied to the watchmaking industry only opened branches in charge ofmarketing (commercialisation, distribution, after-sales service), such as Portescap(1973), Longines (1974), Rolex (1980) and Sowind, which owned the brandGirard-Perregaux (1995). However, the majority of brands were imported by

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Japanese agents or all-round merchants such as Siber & Hegner. Finally, the SwissWatchmaking Federation opened an office in Tokyo in 1964.

2.5. From condensed milk to instant coffee: Nestle’s boom

Like Ciba, Nestle kept operating in Japan during World War II, which allowed it toresume its activities shortly after the war ended. Nevertheless, even though its growthin Japan was mainly due to the production and sale of dairy products during the firsthalf of the century, Nestle owes its success in the post-war years to another product:instant coffee (Nesure Japan, 2003).

In January 1946, Nestle regained control of its two factories, which had not beendestroyed during the war because they were located far from built-up areas.Production of condensed milk resumed in 1950, but the market was very unstableduring the first half of the 1950s. The Saidaiji plant closed in 1954 and productionwas concentrated in Hirota. Imports also resumed in 1953, and developed with thearrival of Nescafe. However, the firm had to supply its own foreign currency. In1954, Awaji Condensed Milk began exporting aluminium plates to Brazil in order toobtain hard currency and continued until 1957, thereby making it possible to importNestle products. Diversification was introduced in the mid-1950s, with imports ofnew Nestle products such as fortified drinks combined with on-site production ofnew products like Nesco ice cream (1955). However, Nestle’s real boost came frominstant coffee. Coffee imports were authorised once again in 1953 then liberalised in1961. Imports of Nescafe began, primarily from the United States. But competitionwas fierce, which led to a decision to manufacture on Japanese soil. The creation ofNestle Japan SA in 1960 was born of the merger of the Kobe branch and the Hirotafactory (Awaji Condensed Milk), which were legally speaking independent. Thisreorganisation was aimed at restructuring coffee production on Japanese soil, inanticipation of the 1961 liberalisation, which was accompanied by stiff customsduties.

The 1960s and the 1970s were two decades marked by strong growth, duringwhich the company’s turnover skyrocketed from ¥942 million in 1960 to ¥178billion 20 years later and staffing rose from 154 employees to 2213 employees (seeFigure 2). Nestle earned a reputation as one of the giants in the Japanese foodindustry. In 1968, it was the largest foreign food firm in terms of capital invested(¥2.7 billion), outperforming Coca-Cola (¥2.52 billion) (Tsushosangyosho, 1968,p. 321). This success was due first of all to Nescafe, for the production of whichtwo new plants were built, in 1965 and 1975. Also worthy of note was an activepolicy of diversification, with for example the creation of a joint venture withFujiya Milk Industry for the production of milk and dairy products (1970); acooperation agreement with Findus for the production and distribution of frozenfood products (1975), or the opening of a fourth production site (1978). Growthwas also driven by mergers. In 1985, Nestle bought up Carnation Food, its mainforeign rival in Japan, and created a new joint venture for Japanese partners withits animal food division.

2.6. Services: sales and finance companies

Up until the 1970s, the service sector was dominated by trading companies, one ofthe striking features of Swiss direct investment in Japan prior to liberalisation. These



were primarily all-round trading firms, long-standing residents of the island in somecases (e.g. Siber & Hegner or Nichizui Trading), which helped other companies dobusiness in Japan. Next, various major international trading houses opened branchesin Japan, such as Danzas (1969) and Andre Far East (1972). Finally, a host of salessubsidiaries were responsible for importing and marketing their companies’ productsin Japan. This was the case with industrial firms, as we saw with the machineindustry and the watchmaking sector. Japan’s importance as an outlet for the luxuryindustry also explains why many top-end companies opened subsidiaries, such asGolay-Buchel (1962), Furrer-Jacot (1967), Bally (1973), Platinum Guild Interna-tional (1980), Alfa Metalkrafft (1983), Century Time Gems (1991) and Caran d’Ache(1997).

The 1980s and 1990s were marked by a massive inflow of banks and insurancecompanies, even though the two main Swiss banks, Credit Suisse (CS) and UnionBank of Switzerland (UBS), had already arrived the previous decade. CS opened aTokyo office in 1972, which it turned into a branch in 1985. It then opened twosubsidiaries, CS Trust and Banking in 1986, as well as CS Asset Management in1993. UBS opened a Japanese branch in 1978 then set up two subsidiaries, UBSAsset Management Japan (1986) and UBS Securities (1987). The activities of thesetwo banks were quite diversified (stock market investment, asset management,loans, etc.). UBS stood out as a result of its work alongside the US banksGoldman Sachs and Merrill Lynch as a major player in the megamergers that havemarked the Japanese economy since the 1990s (Kurosawa, 2009, p. 247). Alsopresent were private banks, essentially active in the asset management field, such asPictet & Cie (1986), Union bancaire privee (1990) and Lombard, Odier & Cie(1992). The banks’ late arrival reflected both the traditional reluctance of Swissbanks to invest abroad (Schroter, 1993, p. 58) and Japanese characteristics (a smallnumber of high net worth individuals, belated liberalisation of the sector). Finally,the Swiss insurance companies came on the scene during the same period, whenWinterthur opened a branch in 1985, followed by Swiss Re in 1995 and Zurich Lifein 1996.

Figure 2: Turnover for Nestle-Japan, in millions of ¥, 1960–2000.Source: Nesure Japan (2003).

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Conclusion

The purpose of this paper is to provide a general overview of Swiss FDI in Japanduring the twentieth century and to explain Switzerland’s key role as a source ofinvestment towards Japan by means of an international comparative analysis. Thisin turn requires additional research at the company level to determine why and howtechnology was transferred between Swiss multinationals and their Japanesepartners. The emphasis will be placed on evaluating the impact of such actors asMITI on decisions to enter into technical cooperation projects or joint ventures, andto show why it benefited Swiss multinationals to transfer their technology and know-how to Japanese firms. Finally, it also appears necessary to analyse the nature of thetechnologies which Japanese companies acquired through these joint ventures andthe role they played in the development of these firms.

In the present state of our research, we can already say that Switzerland’simportance as the number two source of FDI to Japan after the United States duringthe twentieth century can be seen as the reflection of particularly dynamic andcompetitive Swiss capitalism worldwide. Japan, like other countries throughout theworld, witnessed an influx of the main Swiss multinationals (Brown Boveri, Ciba,Nestle, Sulzer, etc.) and a boom in the textile and watch trade. However, the highvolume of Swiss FDI to Japan also reflects deeper economic relations, characterised byeconomic complementarity rather than rivalry.17 The strong sectors of Swiss industrymet the considerable needs for new technologies and products of Japanese industry. Inthe textile industry first of all, Switzerland and Japan appear as two rare countries thatwere active in both the cotton and silk sectors, a characteristic that reinforced tiesbetween the two countries. From the mid-nineteenth century onwards, Swiss tradingfirms dealing with cotton (Volkart Brothers) and silk (Siber & Brennwald) helped drivethe expansion of the Japanese textile industry, not only as commodity suppliers or ascustomers but also as partners in the mechanisation of firms, particularly silk mills.The Swiss chemical industry, traditionally close to the textile industry, also found keypartners in the Japanese textile firms, which not only bought their products but alsoacquired their technologies through technical cooperation agreements and jointventures (dyes, synthetic fibres). The machine industry offers a similar case. The initialfocus was on the electrical machinery sector. As Japan and Switzerland are bothmountainous countries with limited coal resources, priority was given to thedevelopment of hydroelectric energy, allowing Brown Boveri to provide its Japanesepartners with skills and technologies from the 1900s onwards. Likewise, theelectrification of the rail network provided a fresh opportunity for cooperationbetween the two countries. After World War II, the machine tool industry investedheavily in Japan. It did so to meet the strong demand for precision machines in theautomobile industry, shipbuilding and electronics, the mainstays of Japan’sformidable economic growth in the second half of the twentieth century. Here aswell, relations were deeper than mere business ties, because several joint ventures wereset up to pool skills and technologies. Lastly, the chemical industry was a traditionalweak sector of the Japanese economy and a particularly well-developed one inSwitzerland. The growth of Swiss FDI in this field was encouraged by the Japaneseauthorities from the early 1950s onwards, at a time when they tended to give priorityto technical cooperation because it allowed the Japanese economy to acquire thenecessary technologies, primarily via Ciba joint ventures. As for the pharmaceuticalsector, which was also under-developed in Japan, technological transfer took the form



of licensed manufacturing. Thus, by meeting the various needs of Japanese industry,Switzerland’s competitive advantages helped drive direct investment and technologytransfer to Japan, underpinning its industrial boom.

Acknowledgements

I would like to express my gratitude to Takafumi Kurosawa for his kind help and usefulcomments.

Notes

1. The German multinationals adopted the same strategy (Kudo, 1998, p. 29).2. Information kindly provided by Christof Dejung.3. The official Japanese name is ‘Suisu Bazeru Kagaku Kogyo Kaisha Nihon Gakujutsubu’

(Nihon Ciba-Geigy, 1985, p. 54).4. Nestle archives, Vevey (Switzerland), 1520 Japan.5. Musee international d’horlogerie (MIH), La Chaux-de-Fonds, report of Mr P. Wurmli,

director of Fidhor, about chablonnage in Japan, 6 October 1930.6. Swiss Federal Archives (SFA), Berne, E6.178.7. Archives Omega, Bienne (Switzerland), commercial report, 10 December 1912.8. The University of Tokyo, Library of Economics, Citizen Watch Co. Management

Report, 1941.9. Statistics of Citizen Watch Co.10. Nestle archives, Vevey (Switzerland), 1520 Japan.11. Official statistics from the Japanese Ministry of Finance (MOF) report an oil investment

of 188 billion yen, or 67.5% of the volume of Swiss FDI for the year in question. It hasnot been possible to identify the firm, as the MOF does not communicate informationrelating to companies. Moreover, virtually all of the world’s oil trading companies beganto move their headquarters to Switzerland from the late 1990s onwards for tax purposes,a factor that makes identification difficult. Source: MOF statistics, retrieved June 23,2009, from http://www.mof.go.jp

12. The other countries account for 112 countries, or 10.5%.13. Foreign loans to Japanese companies during the 1950s totalled US$726.9 million.14. The dates given are when branches were opened in Japan. For Getz Brothers, this was

the date when the group’s Zug-based holding company took over a subsidiary opened inKobe in 1925.

15. However, Margrit Muller (2007) puts this in perspective by noting that the foreignmultinationals operating in Switzerland, primarily German and US firms, were not theresolely for tax purposes but also opened real production units, in industry and services inparticular.

16. The company Nagase-Ciba, whose share capital of ¥418 million was owned as follows:Nagase & Co. (50%), Ciba Holding, Basel (25%) and Ciba Manufacturing, Japan (25%).

17. This complementarity is the reason why the two countries signed a free trade agreementin 2009.

Notes on contributor

Pierre-Yves Donze is Research Fellow of the Japan Society for the Promotion of Science(JSPS), at Osaka University, Graduate School of Economics. He has extensively published onthe Swiss watchmaking industry, including Histoire de l’industrie horlogere suisse de JacquesDavid a Nicolas Hayek (1850–2000) (2009), and is currently working on the technologicaldevelopment of the Japanese precision machine industry in an international perspective.

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