to 19.2%, against the 13.5% of the second stage.

In conclusion, after the second half of the 1980s, major currencies realignments heavily affected the terms of trade and forced Japan to undertake a process of industrial restructuring, which together with the new trend of technological development concurred to the formation of a new structure of comparative advantages among the Asian Pacific countries. These factors fuelled the speed of the catching-up industrialization occurring in the Region and induced massive investment flows not only from Japan to the NIEs, the ASEAN4, and China, but also from the NIEs towards the ASEAN4 and China.

The strategy of Japanese investment in Asian electronics was gradually losing its characteristic bipolar structure and started to move towards a more structured pattern. New productions, in particular of the industrial goods sub-sector, began to be transferred and the traditional investments of MNEs were followed by those of SMEs. Moreover, due to the process of economic development, the growth of the Asian markets is inducing Japanese firms to relocate their production facilities in order to serve a more sophisticated internal demand for consumption goods as well as for industrial electronic equipments and parts.

### 3.3 Japanese Investment in Malaysia and Trade Pattern

The process of production transfer occurring from Japanese electronics to Malaysia presents the main characteristics discussed in the previous section (3.2). In particular, after the rapid growth of FDI flows experienced since 1985, the “bipolar” structure (big projects form MNEs concentrated in consumption goods for the domestic markets and in micro-electronics for the export to western markets) is rapidly transforming into a more articulated shape. Japanese MNEs have enlarged their production activities to consumer and industrial goods, primarily destined for the export to the Asian markets. Furthermore, a massive process of production relocation from SMEs in the “non-active” field of electronic parts is taking place.

According to this new model of investment, also the pattern of trade was induced to significant changes towards an intensification of the interdependence between the two countries. The two-ways trade flows in electronic parts have been dramatically increasing and Japanese imports of consumer and industrial goods have been experiencing a rapid growth. In comparison to the other ASEAN countries, Malaysia offers several advantages. Not only cheap labour and political stability, but also good infrastructures, educated and diligent manpower, tax incentives, language facilities and a warm welcome from the government, which since the 1970s actively promoted foreign investment in electronics, and during the 1980s adopted the so-called “look-East” policy in order to learn from the Japanese experience of economic development.

## Pattern of Investment

Table 3.5 shows the dramatic increase experienced by Japanese FDI in Malaysian electrical machinery industry since 1986 to 1990. Total investments in the manufacturing sector show a spectacular growth from 116 million ringgits (45 projects) in 1986 to more than 4 billion ringgits (134 projects) in 1990. During the same period, the share of electrical machinery on the total of the manufacturing sector increased from 1/3 to almost 1/2, as