however, a decline in export competitiveness caused by the following Won appreciation and wage hikes forced Korea to shift its stress to the domestic market in Korea. Table 16 indicates that the majority of the Japanese affiliated enterprises in Korea were selling their manufactured products to the domestic market in Korea, and it should be interpreted as a change in their strategies which had originally sought for out-sourcing from Korea.

In the meanwhile, the three local corporate groups of Korea developed their techniques and expanded export by their own efforts. At the same time, increases in the supply of AV products under OEM contracts with the Japanese enterprises accelerated their export growth. For the Japanese enterprises who made the OEM contracts, imports under the OEM carried lower costs than their own production. They also carried lower risks than foreign direct investment in the case of the market collapses since they have neither capital transfer nor the construction of production facilities. From the viewpoint of the Korean enterprises, OEM arrangements expand their sales by letting them use Japanese-brand names and they also can expect technological transfers from the Japanese enterprises. In the course of such developments, the HEEI in Japan specialized in high-quality, multi-function and large-size products while the Korean HEEI specialized in standardized and simple-function products. However, the electronic parts industry in Korea still depended on the Japanese HEEI.

(2) Japanese investment in Thailand

Investment flows in HEEI from Japan to Thailand started at the beginning of the 1960's and kept a steady pace while the volume of it was small. They arrived at a multi-item production systems which were made by a few Thai local enterprises and big Japanese manufacturers targeting at domestic markets. Table 15 indicates many Japanese enterprises rushed into Thailand from 1985 to 1989. 5.8 billion Bahts was invested in the period from 1986 to 1989. The amount was 13 times larger than the investment by the U.S. electric and electronics industries to Thailand, and accounted for 72% of the total investment to the HEEI in the same period $ ^{2} $ . It was partly due to an attempt by the Japanese electric and electronics industry to realize the globalization of their production system in the Asian countries. It also was partly due to the political stability in Thailand, its stable exchange rate and the investment promotion policies introduced by the government. In this period, Thailand's HEEI was transformed into the production bases of foreign firms for their out-sourcing purposes from those on aiming at its domestic market.

This is indicated in Table 16. Table 16 shows the result of a survey conducted by the Electronic Industries Association of Japan on the Japanese electric and electronics enterprises having invested in Thailand. In the case of the Japanese enterprises in Korea, 55% of enterprises which responded were selling their products to the domestic market. In the case of those in Thailand, only 28% of the enterprises which responded were aiming at the domestic market and remaining 72% were targeting the Japanese market or third countries.

(3) Korean investment in Thailand

As has already been mentioned, the Won appreciation and the wage hikes aggravated investment conditions in Korea for Japanese enterprises, and investment flows from Japan rushed to the ASEAN countries in the second half of the 1980's. Given these trends, the Korean HEEI started to struggle to find a way to be independent. It was getting difficult for them to stick to mass-production systems with few product differentiations, and at the same