Jakarta, 5 February 2024: ERIA's inaugural session of the Insightful Discourses, convened on Monday, offered an examination into the intricacies of firms' internationalisation decisions. Central to this discourse was a thought-provoking Dialogue Paper titled ‘Firms' Internationalization Decisions and Demand Learning, ’ jointly authored by Prof Eiji Ogawa, a professor in the Faculty of Economics at Tokyo Keizai University, and Dr Naoki Tani, a Program-Specific Associate Professor at the Research Center for Advanced Policy Studies (CAPS), Institute of Economic Research, Kyoto University.

‘61% of Japanese FDI entrances have previous export experience, and only 39% have no export experience, ’ shared Prof Ogawa during the session. This statistic underscored a notable trend wherein a significant fraction of Japanese firms embark on their international journey through foreign direct investment (FDI) despite lacking prior export experimentation. The paper also investigates why many of these firms establish foreign affiliates without prior export experience in foreign markets, even though they face demand uncertainty. This investigation employs a statistical decision-making model with a micro-level dataset.

Dr Tani contributed observations on the statistical decision-making model employed in the paper. ‘Based on the model, it expects that the conditional mean of the neighbour's productivity negatively affects the firm's entry decisions of FDI, but positively affects their survival, ’ he stated, shedding light on the nuanced dynamics shaping firms' strategies in foreign markets.

ERIA’s Chief Economist Prof Fukunari Kimura reflected on the contrast between sectors, emphasising, ‘In the contrast between manufacturing and non-manufacturing, including services sector, it may be explained by the demand information; in manufacturing firms, the activities can be in B 2B, while in services firms, they are mainly in B 2C.’

Moderated by Dr Dionisius Narjoko, Senior Economist of ERIA, the session provided an enriching platform for dialogue and exploration of policy implications.