Abstract: The Hidden Peril of Foreign Connections: Banyu Pharmaceutical Becomes Merck Japan, 1915-2003

Maki Umemura

Abstract

The Japanese pharmaceutical industry illustrates the paradox of Japan's dual economy. It straddles Japan's first tier of globally competitive firms, such as automobiles and electronics, and its second tier of domestically oriented firms, such as aluminum and food processing. Under government protection, many Japanese pharmaceutical firms were able to catch up with Western counterparts through reverse engineering and incremental innovations. But they have struggled to become globally competitive. For Japanese pharmaceutical firms, foreign connections have played an important role in their development—whether for technology imports, joint ventures, or exports. This presentation examines the experience of Banyu Pharmaceutical from a small, family-run enterprise to a large and successful multinational firm. Banyu, which was acquired by Merck in 1984, was one of the first major Japanese firms to become a subsidiary of a foreign firm. Banyu's experience sheds light upon a group of firms that have survived by becoming subsidiaries of foreign firms. It shows the changing nature of foreign connections and the challenges of high technology firms in late developing economies in becoming globally competitive.