Offshoring of Japanese Small and Medium Enterprises

This paper uses firm-level data to examine the determinants and impacts of offshoring of small and medium enterprises (SMEs) in Japan, comparing results with those for larger firms from existing studies. The results of this paper can be summarized as follows. First, offshoring of Japanese SMEs is largely determined by the time preference and overseas experience of the chief executive officer (CEO) and not by the productivity level. In fact, existing studies using data for larger firms found mixed results on the effect of productivity on offshoring decisions. Second, while intra-firm offshoring does not seem to improve productivity, arm's-length offshoring has a positive effect. This is opposite to the result using data for larger firms. Finally, offshoring of SMEs does not significantly affect the level of domestic employment, while it leads to a higher demand for more educated workers. This result is consistent with results for larger firms.