ABSTRACT Pacific Asia has looked to direct foreign investment (DFI) to achieve economic growth and technological catch‐up, and Japanese multinational corporations (MNCs) have responded massively. This paper evaluates Japanese MNCs as a source of industrial learning and technological transfer in the region, drawing from a large research literature and from the authors’ own surveys of Japanese DFI in the electronics sector. Japan's historic learning‐based approach to industrialisation is captured by the flying geese metaphor of structural transformation. As an explanation of the transfer of technological know‐how from Japan to Pacific Asia, however, the flying geese model is problematical. This paper reflects on the effectiveness, problems and dilemmas of Japanese MNCs in transferring such know‐how to the region from a political economy perspective summarised as a ‘reverse product cycle model’. This model portrays DFI as a ‘bargain’ between Japanese MNCs and host countries, and which becomes more difficult to negotiate as DFI moves from low‐skilled manufacturing to more innovative activities. The bases for this hypothesis relate to the increased complexity of industrial know‐how and the conflicting motivations between MNCs and host countries in early stages of the product life cycle. In practice, however, this ‘bargain’ has developed differently among Asian countries, and we illustrate these differences by comparing the experiences of South Korea, Taiwan and Malaysia.
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