UBC Theses and Dissertations

UBC Theses Logo

UBC Theses and Dissertations

An empirical analysis of direct foreign investments in manufacturing in Hong Kong Hung, Chiu Ling 1981

Your browser doesn't seem to have a PDF viewer, please download the PDF to view this item.

Item Metadata

Download

Media
831-UBC_1981_A1 H96.pdf [ 12.27MB ]
Metadata
JSON: 831-1.0095386.json
JSON-LD: 831-1.0095386-ld.json
RDF/XML (Pretty): 831-1.0095386-rdf.xml
RDF/JSON: 831-1.0095386-rdf.json
Turtle: 831-1.0095386-turtle.txt
N-Triples: 831-1.0095386-rdf-ntriples.txt
Original Record: 831-1.0095386-source.json
Full Text
831-1.0095386-fulltext.txt
Citation
831-1.0095386.ris

Full Text

AN EMPIRICAL ANALYSIS OF DIRECT FOREIGN  INVESTMENTS  IN MANUFACTURING IN HONG KONG by Chiu  Lingj^Hung  B.A., U n i v e r s i t y o f Hong Kong, 1965 M.A., U n i v e r s i t y o f Hong Kong, 1968 M.Sc.  (Bus. Admin.), U n i v e r s i t y o f B r i t i s h Columbia, 1973 A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE  REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY in THE FACULTY OF COMMERCE AND BUSINESS We accept t h i s  t h e s i s as conforming  ADMINISTRATION  t o the r e q u i r e d  THE UNIVERSITY OF BRITISH COLUMBIA OCTOBER, 1980  standard  In p r e s e n t i n g t h i s . t h e s i s an advanced degree at the L i b r a r y I  in p a r t i a l  the U n i v e r s i t y  s h a l l make i t  freely  f u l f i l m e n t o f the requirements of B r i t i s h  available  for  Columbia,  thesis  s c h o l a r l y purposes may be granted by the Head of my Department or  by  his  of  this  written  representatives.  It  thesis for financial  i s understood that copying or p u b l i c a t i o n gain s h a l l  not be allowed without my  permission.  Chiu  Department o f The  that  reference and study.  f u r t h e r agree t h a t p e r m i s s i o n f o r e x t e n s i v e copying o f t h i s  for  University  Commerce & B u s i n e s s of B r i t i s h  2075 Wesbrook P l a c e V a n c o u v e r , Canada V6T 1W5  6  I agree  for  Columbia  Ling  Administration  Hung  ABSTRACT  This direct  foreign  analysis  t h e s i s p r e s e n t s an e m p i r i c a l  investments  i n manufacturing  i s b a s e d upon two main d a t a  government s t a t i s t i c s  analysis of  i n Hong Kong. The  s o u r c e s - Hong Kong  and a q u e s t i o n n a i r e  survey conducted i n  March 1979. The d a t a c o l l e c t e d a r e p u t t o g e t h e r  to provide a  comprehensive p i c t u r e o f the investment p a t t e r n  o f the f o r e i g n  m a n u f a c t u r e r s and t o p i n p o i n t Hong Kong. T h e i r  operational  m o t i v e s and needs a r e a l s o into  their activities  investment  t h e i r economic s i g n i f i c a n c e t o c h a r a c t e r i s t i c s as w e l l  explored  to give  and t o t e s t t h e v a l i d i t y  there  i s very  little  business a c t i v i t i e s . of not  foreign  of direct  foreign  liberal  This  p o l i c y i s extended t o i t s treatment  i n v e s t m e n t . The o u t s t a n d i n g  feature  and l o c a l  Foreign There i s i n t e n s i v e  i s any c o n c e s s i o n  investors  hold  on  i t does  foreign  given.  t h i s p o l i c y most  and d i v e r s i f i e d f o r e i g n  i n Hong Kong. W i t h t h e o n l y now  find  i s that  corporations.  C o n s e q u e n t l y , t h e r e i s no s p e c i a l r e s t r i c t i o n investment, but neither  economic p o l i c y  government.iintervention i n p r i v a t e  d i f f e r e n t i a t e between f o r e i g n  investors  insights  theories.  Hong Kong h a s an e x t r e m e l y and  better  as t h e i r  agreeable.  investment  interest  exception of manufacturing,  dominating p o s i t i o n s  foreign  i n a l l major economic  sectors.  The number o f f o r e i g n manufacturers comprises o n l y about one p e r c e n t o f the t o t a l number o f manufacturing establishments i n Hong Kong, but t h e i r c o n t r i b u t i o n s i n terms of p r o v i d i n g i n d u s t r i a l employment and exports are approximately ten  times as much. More s i g n i f i c a n t l y , t h e i r investments have  helped Hong Kong very much i n i t s e f f o r t s diversify  i t s industries.  transferring  to upgrade and  They are an important agent f o r  technology i n t o Hong Kong.  F o r e i g n i n v e s t o r s i n manufacturing have come mostly from the U.S.,  Japan, Western Europe and A s i a n P a c i f i c  The i n d u s t r i e s i n which they have i n v e s t e d most are  countries.  electronics,  t e x t i l e s , chemical products and e l e c t r i c a l p r o d u c t s .  F o r e i g n investments i n manufacturing i n Hong Kong are  mostly o f the export o r i e n t e d type. There are c l o s e  links  i n management, p r o d u c t i o n and marketing e s t a b l i s h e d between the  f o r e i g n manufacturers and t h e i r overseas  indicating  affiliates  t h a t t h e i r o p e r a t i o n s are i n t e g r a t e d .  Furthermore,  f o r e i g n manufacturers appear to have a h i g h e r degree of sophistication  and d i v e r s i f i c a t i o n i n t h e i r p r o d u c t i o n and  marketing o p e r a t i o n s than t h e i r l o c a l c o u n t e r p a r t s .  iv  A c o m p a r i s o n between U.S. and J a p a n e s e characteristics propositions  shows t h a t  derived  four out of f i v e  investment  hypothetical  f r o m t h e o r e t i c a l U.S. and J a p a n e s e  foreign  i n v e s t m e n t m o d e l s a r e s u p p o r t e d . T h e r e i s enough e v i d e n c e t o indicate  that  invested  a r e d i f f e r e n t and a r e t e c h n o l o g i c a l l y l e s s  that  the i n d u s t r i e s i n which Japanese  Japanese manufacturing o p e r a t i o n s  t h a t Japanese firms often  proportion only is  of their  joint  e x p o r t back t o Japan a  s a l e s t h a n U.S. f i r m s  i s a higher  ventures being  incidence  do t o t h e U.S. The  of minority  supported  holdings  u s e d by J a p a n e s e m a n u f a c t u r e r s .  f o r majority  or f u l l  ownership.  more  greater  Kong, b o t h t h e U.S. and J a p a n e s e m a n u f a c t u r e r s have a preference  intensive,  technology  one o f t h e h y p o t h e s e s examined w h i c h c a n n o t be  that there  advanced,  a r e more l a b o u r  u s e u n a d a p t e d home c o u n t r y  and t h a t J a p a n e s e f i r m s  corporations  and  I n Hong strong  V  TABLE 0F  :  CONTENTS Page  Abstract  i i  Table of Contents List  v  of Tables  v i i  Acknowledgement  Chapter  Chapter  Chapter  I:  II:  III:  Chapter  IV:  Chapter  V:  x  Introduction — o b j e c t i v e s and s c o p e o f t h e s i s — organization of thesis — d a t a s o u r c e s and c o l l e c t i o n — t h e o r e t i c a l concepts of d i r e c t investments — notes  1 1 5 7 foreign  I n d u s t r i a l D e v e l o p m e n t i n Hong Kong -- i n d u s t r i a l d e v e l o p m e n t and p r e s e n t structure — g r o w t h f a c t o r s and t h e g o v e r n m e n t ' s role — notes  12 33 38 38 47 52  Government P o l i c y Towards F o r e i g n I n v e s t m e n t s — p o l i c y i n Hong Kong — a comparison w i t h o t h e r c o u n t r i e s i n Southeast A s i a — o v e r v i e w o f f o r e i g n i n v e s t m e n t s i n Hong Kong — notes  58 67  Investments i n M a n u f a c t u r i n g — emergence and g r o w t h — country source of investment — industry d i s t r i b u t i o n , — notes  69 69 73 76 81  Economic S i g n i f i c a n c e — i n d u s t r i a l employment — m a n u f a c t u r i n g o u t p u t and — t r a n s f e r of technology — notes  exports  53 53 56  82 85 89 92 101  vi  Chapter  VX:  Operational Characteristics — m o t i v e s and t y p e o f i n v e s t m e n t — o w n e r s h i p and management c o n t r o l — p r o d u c t i o n and m a r k e t i n g — notes  104 104 110 120 133  Chapter  VII:  Assessment o f Investment C o n d i t i o n s — importance o f investment f a c t o r s — f a v o u r a b i l i t y of factors ; — p e r f o r m a n c e and s e l f e v a l u a t i o n — notes  135 135 14 3 151 155  Chapter V I I I :  Chapter  IX:  A C o m p a r a t i v e A n a l y s i s o f U.S. and Japanese Investment C h a r a c t e r i s t i c s — c h a r a c t e r i z a t i o n s o f t h e U.S. model and t h e J a p a n e s e model — hypothetical propositions — t e s t i n g of hypotheses — o t h e r s i m i l a r i t i e s and d i f f e r e n c e s — notes  158 168 174 187 196  Summary and C o n c l u s i o n — summary o f f i n d i n g s — i m p o r t a n c e and i m p l i c a t i o n s — notes  201 201 206 215  of findings  Bibliography Appendix  I:  Appendix  II:  Appendix  III:  157  216 Q u e s t i o n n a i r e on F o r e i g n M a n u f a c t u r e r s i n Hong Kong  2 22  Statistical  236  Tests  E x c h a n g e V a l u e o f t h e Hong Kong D o l l a r  256  vii  L I S T OF  TABLES  Table  Page  1-1  -  Summary R e s u l t o f S u r v e y  1-2  -  Breakdown o f t h e 108  III-l  -  A C o m p a r i s o n Between Hong Kong and O t h e r Southeast Asian Countries i n T h e i r P o l i c i e s Towards F o r e i g n I n v e s t m e n t  59  F o r e i g n B r a n c h O f f i c e s a t M a r c h 31, (by N a t i o n a l i t y o f Head O f f i c e )  1977 62  F o r e i g n Branch  1977  III-2 III-3  -  (by N a t u r e III-4  -  Insurance  IV-1  -  Year  Response  9  E f f e c t i v e Responses  Offices  a t M a r c h 31,  10  of Business)  63  Companies a t M a r c h 31,  of Establishment of Foreign  O p e r a t i n g a t December 31,  1977  65  Manufacturers  1977  70  IV-2  -  Hong Kong's I n d u s t r i a l  IV-3  -  IV-4  -  D i s t r i b u t i o n o f F o r e i g n Investments i n M a n u f a c t u r i n g by S o u r c e C o u n t r y D i s t r i b u t i o n o f F o r e i g n Investments i n M a n u f a c t u r i n g by Type o f I n d u s t r y D i s t r i b u t i o n of F o r e i g n Investments i n M a n u f a c t u r i n g by Type o f I n d u s t r y and by Source Country  80  Size of Manufacturing 31/12/74  83  IV-5  V-l V-2 V-3 V-4  -  -  Growth 1971-77  Establishments  C a p i t a l Investments i n F o r e i g n E s t a b l i s h m e n t s a t 31/12/74  72  74 77  at  Manufacturing 84  Employment i n M a n u f a c t u r i n g E s t a b l i s h m e n t s 20 o r More W o r k e r s a t 31/12/73  with  Employment i n M a n u f a c t u r i n g E s t a b l i s h m e n t s F o r e i g n O w n e r s h i p a t 31/12/77 by Type o f Industry  with  86  88  viii  V-  5  V-  6  V-  7  V-  8  V-  9  -  -  -  -  Gross Output o f Manufacturing E s t a b l i s h m e n t s w i t h 20 o r More W o r k e r s i n 1973  90  P r o d u c t i o n Output i n Manufacturing E s t a b l i s h m e n t s w i t h F o r e i g n Ownership Type o f I n d u s t r y i n 1974  91  by  Stock of F i x e d Assets i n Manufacturing E s t a b l i s h m e n t s w i t h 20 o r More W o r k e r s a t 31/12/73  95  Provisions i n Foreign-Local Joint i n 1974 by Type o f I n d u s t r y  96  Numbfer o f P a t e n t s  Ventures  R e g i s t e r e d , 1970/71 -  1977/78  99  VI-  1  -  The  Investment Motives  105  VI-  2  -  Type o f O w n e r s h i p  VI-  3  -  Amount o f C a p i t a l  VI-  4  -  Share o f F o r e i g n Ownership  VI-  5  -  Amount o f C a p i t a l  110 Investment  I n v e s t m e n t s and  112 113 Percent  S h a r e o f F o r e i g n O w n e r s h i p a t 31/12/78  114  VI-  6  -  Method o f O w n e r s h i p P a r t i c i p a t i o n  115  VI-  7  -  Use  116  VI-  8  -  Overseas Ownership A f f i l i a t i o n  117  VI-  9  -  Management C o n t r o l  119  VI-10  -  Production A c t i v i t i e s  VI-11  -  Skilled  W o r k e r s Employed  122  VI-12  -  Product  Line Concentration  123  VI-13  -  Licensed Production  VI-14 VI-15  -  S o u r c e s o f E q u i p m e n t and M a t e r i a l Marketing A c t i v i t i e s Performed  VI-16  -  Export  of J o i n t Ventures  Sales  Performed  121  124 Supplies  126 127 128  IX  VI-17  -  Degree  o f Market C o n c e n t r a t i o n  VI-18  -  Overseas Links  i n Marketing  VII-  1  -  Degree  VII-  2  -  Degree o f F a v o u r a b i l i t y o f Factors  VII-  3  -  130  o f Importance  131  o f Investment F a c t o r s  137  Investment 144  R e l a t i v e P o s i t i o n s o f Importance  and  Favourability  149  VII-  4  -  P e r f o r m a n c e and S e l f E v a l u a t i o n  152  VII-  5  -  Business Environment  154  VIII-  1  -  Industry  VIII-  2  -  Skilled  VIII-  3  -  Production  VIII-  4  -  C a p i t a l I n v e s t m e n t and Number o f Employed  and C h o i c e f o r R e l o c a t i o n  D i s t r i b u t i o n a t F e b r u a r y 28, Workers  Employed  Activities  a t December  a t December 31, 1978  Performed  5  -  Export Sales  VIII-  6  -  Import o f C a p i t a l Equipment, Materials  179 181 Machinery  and  i n 1978  7  -  Share o f Ownership  VIII-  8  -  Investment Motives  VIII-  9  -  Management C o n t r o l  VIII-10  -  Product Line  VIII-11  -  Sales  VIII-12  -  Marketing A c t i v i t i e s  183  and Use o f J o i n t V e n t u r e s  186 188  by H e a d q u a r t e r s Company  Concentration  to Foreign  176  Workers  i n 1978  VIII-  174  177  31, 1978  VIII-  Raw  1979  A f f i l i a t e d Companies Performed  191 193 194 195  X  ACKNOWLEDGEMENT  I w i s h t o e x p r e s s my s i n c e r e  thanks t o  P r o f e s s o r s J.D. F o r b e s , S.P.S. Ho, S.M. Oberg, and J.W.C. T o m l i n s o n comments  for their  many u s e f u l  o n my work. I am p a r t i c u l a r l y  Professor  a d v i c e and  grateful to  J.W.C. T o m l i n s o n who s u p e r v i s e d my r e s e a r c h and  gave me a l o t o f v a l u a b l e h e l p a n d g u i d a n c e study  t h r o u g h o u t my  programme.  My t h a n k s go a l s o manufacturing  firms  t o t h e many f o r e i g n  i n Hong Kong w h i c h  responded  s u r v e y a n d p r o v i d e d me w i t h t h e d a t a I needed this  M. Thompson  t o my  for writing  thesis.  Chiu Ling  University  of B r i t i s h  O c t o b e r , 1980.  Columbia,  Hung  1  CHAPTER I - INTRODUCTION  This direct  foreign  t h e s i s p r e s e n t s an  investments  i n the  empirical  analysis  manufacturing  sector  of i n Hong  Kong.  Objectives  and  Scope o f  This objective  i s to  t h e s i s has s e r v e as  ments i n Hong Kong. T h i s importance not Kong b u t  also  m o t i v e s and  Thesis  only to  to  two  main o b j e c t i v e s .  a pioneering i s yet  an  c h a r a c t e r i s t i c s and foreign  i n the  in.the  dramatic  has  a t t r a c t e d world-wide a t t e n t i o n . research  studies  these studies, m e n t i o n e d and t h a n a few thesis  the  growth of  r o l e p l a y e d by  hopes t o  available bits of  base which can  and  achieve and  be  conjectural i n the  pieces  foreign used  this  investments for related  so  as  development.  post-war  l e d to a  is  i n Hong Kong and and  In often  made w i t h no  i s to put  future  years  number  attributes.  to p r o v i d e a  studies  Hong  between  remarks.''" Hence, what place  its  investment  investments  is usually  first  together  also and  foreign  despite  economic  Hong Kong i n t h e I t has  invest-  economy o f  interactions  i t s growth p a t t e r n  r e c o g n i z e d , but  cursory  sive picture  on  subject  study of  i n v e s t m e n t s and  The  of  industrial  unexplored  first  foreign  those concerned w i t h the  those i n t e r e s t e d  government p o l i c i e s ,  s t u d y on  The  more  this  a l l the comprehena broad  data  research.  2  The motives  second  objective  and o p e r a t i o n a l  i s to explore the investment  characteristics of foreign  i n Hong Kong and t o u s e t h e e m p i r i c a l  findings  validity  theories.  manufacturers  to test the  2 of direct  foreign  investment  Hong Kong i s an i d e a l investment  motives  place f o r studying  and c h a r a c t e r i s t i c s  case  fortesting  This  i s because t h e c i t y  and p r o v i d e s a l a b o r a t o r y  economic t h e o r i e s o f d i r e c t itself  o f Hong Kong i s o p e n a n d f r e e . government i n t e r v e n t i o n  foreign  foreign  investment.  i s c o s m o p o l i t a n a n d t h e economy There  i s i n Hong Kong v e r y  i n private business a c t i v i t i e s  little  a n d no  d i f f e r e n t i a t i o n made between f o r e i g n a n d l o c a l c o r p o r a t i o n s . Foreign  i n v e s t o r s h a v e maximum f r e e d o m i n d e s i g n i n g a n d i m p l e -  menting t h e i r best  suit  observed  investment  their  objectives  investment  characteristics  o f t h e economic f o r c e s b e h i n d  In contrast,  and  will  their  i n c o u n t r i e s where p o l i t i c a l o r  e c o n o m i c n a t i o n a l i s m i s s t r o n g a n d where t h e r e e x i s t c o n t r o l s over  so as t o  and r e q u i r e m e n t s . C o n s e q u e n t l y , t h e  p a t t e r n and o p e r a t i o n a l  be a c c u r a t e r e f l e c t i o n s investments.  p l a n s and b u s i n e s s s t r a t e g i e s  foreign corporations, their  o p e r a t i o n s may be d e t e r m i n e d  solely  strict  investment p a t t e r n  by what a n d how much  foreign;'.investors a r e p e r m i t t e d t o do.  This sector  thesis  i s f o c u s s e d upon t h e m a n u f a c t u r i n g  f o r several reasons. F i r s t l y ,  analyses  direct  foreign  i n international business l i t e r a t u r e  investment  usually  c e n t r e on  3  manufacturing. leading  T h i s i s b e c a u s e by  f a r the m a j o r i t y o f  i n v e s t o r corporations i n the world are  the  manufacturing  3  corporations.  Their  investment  interest  lies  mainly  in  been  the  4 manufacturing  too.  Secondly, manufacturing  b a c k b o n e o f t h e Hong Kong economy s i n c e the  fastest  activities  growing s e c t o r . account  gross domestic since  1970,  f o r one-quarter  products. F i n a l l y ,  T h i s has  the investment  foreign  and  foreign  There are a l s o  over  65%  non-  manufacturing a question-^ foreign  a few  investment  foreign  characteristics be  i n manufacturing  of t o t a l  foreign  U.S.  and  o f U.S.  compared  Japanese  i n order  o f 1978  in dollar  countries. investments  they are  i n Hong Kong. T h e i r  investments  and  accord with  analysis. Firstly,  a t t h e end  the  specifically  m o d e l s f o r t h e s e two  r e a s o n s why  investors  for testing  theories,  i n Hong Kong w i l l  are chosen f o r a comparative  investments  the  a p p r o a c h e d by  t o see whether or not these c h a r a c t e r i s t i c s  leading  foreign  n o t b e e n done f o r  findings  investment  operational  Japanese manufacturers  two  has,  therein.  of d i r e c t  theoretical  o f Hong Kong's  primary data f o r a n a l y s i s of  In u s i n g the e m p i r i c a l validity  been  t h e Hong Kong g o v e r n m e n t  e s t a b l i s h m e n t s . Because o f t h i s ,  survey to generate  also  manufacturing  to one-third  i s t h e o n l y s e c t o r w h i c h c a n be  investments  I t has  t r a c k e d down t h o s e e s t a b l i s h m e n t s w i t h  manufacturing  naire  1950.  In r e c e n t y e a r s ,  ownership i n manufacturing.  sector  has  the  combined  accounted terms,  and  for  4  over  50%  i n t e r m s o f t h e number o f e s t a b l i s h m e n t s . S e c o n d l y ,  t h e . U . S . and  Japan  a r e now  t h e two  most i m p o r t a n t  trading  p a r t n e r s o f Hong Kong, b e i n g t h e number one  customer  number one  and most i m p o r t a n t l y ,  supplier  the t h e o r e t i c a l suggest  that  foreign  t h e s e two  investment  motives  investment  and  reveal  valid  how  theories,  hypotheses. and  and  m o d e l s f o r t h e U.S.  and  needs. A comparative characteristics  analysis of i n Hong Kong  may  thesis,  nor  however, i s n o t i n t e n d e d t o  i s i t solely  concerned  i t will  develop  with testing  not attempt  of  t o compare  i n Hong Kong w i t h t h e i r  U.S.  investments  c r o s s country comparisons  give  the impact  even b e t t e r  insights  p a t t e r n and  into  characteristics,  obvious  from g o i n g beyond t h e p r e s e n t  Internationally  consistent  and  and  to generate  t i m e and  operational  such data  resource  c o m p a r a b l e d a t a on  i s n o t what one  man  scope.  foreign are  c a n do,  lacking, given  the  limiations.  Finally,  this  thesis  i s n o t aimed a t u s i n g t h e  example o f Hong Kong t o i l l u s t r a t e investments  characteristics  motives  constraints  the w r i t e r  p a t t e r n and  may  of investment  have p r o h i b i t e d  investment  foreign  are these models.  investments  investment  Japan  their  i n o t h e r c o u n t r i e s . Even though  on  the  c o u n t r i e s have somewhat d i f f e r e n t  Furthermore,  Japanese  Thirdly,  investment  operational  This new  respectively.  and  the impact  of d i r e c t  on e c o n o m i c d e v e l o p m e n t . U n q u e s t i o n a b l y ,  the  foreign impact  5  of foreign  i n v e s t m e n t s on t h e e c o n o m i c d e v e l o p m e n t  is  related  closely  also  v e r y worthy  statistics  of direct  this  foreign  i n Hong Kong w i l l  i n t o any depth  of this  thesis  and i s  o f s t u d y , b u t we do n o t have t h e n e c e s s a r y  f o r analysing this  significance sector  to the subject matter  o f Hong Kong  i m p a c t . C o n s e q u e n t l y , when t h e investments  i n the manufacturing  be d i s c u s s e d , t h i s  i n analysing  thesis w i l l  n o t go  t h e m a g n i t u d e and c o n t r o v e r s i e s o f  impact.  Organization of thesis  This introductory thesis, The  chapter explains  section  nine chapters. This  t h e o b j e c t i v e s and s c o p e o f t h e  foreign  i s a r e v i e w o f some t h e o r e t i c a l  industrial  by t h e w r i t e r . concepts of  investment.  Following development  with a h i s t o r i c a l hundred  i s organized into  i t s d a t a s o u r c e s and t h e s u r v e y conducted  last  direct  thesis  the introduction o f Hong Kong  i s a c h a p t e r on t h e  (Chapter I I ) . I t b e g i n s  a c c o u n t o f t h e Hong Kong economy i n i t s f i r s t  y e a r s and t h e p r o c e s s o f i n d u s t r i a l i z a t i o n  i n the post-  war  y e a r s , and ends w i t h an i n v e s t i g a t i o n o f t h e g r o w t h  and  t h e r o l e p l a y e d by t h e g o v e r n m e n t .  In Chapter towards f o r e i g n  I I I , t h e Hong Kong g o v e r n m e n t ' s  investments  factors  policy  i s a n a l y s e d and t h e n compared w i t h  6  those of neighbouring Southeast Asian c o u n t r i e s . T h i s i s f o l l o w e d by a g e n e r a l o v e r v i e w non-manufacturing  traces  emeregence and  distribution and  by  IV t,o V I I  i n Chapter  industrial  into  s e c t o r . Chapter  IV  in  foreign  first  growth b e f o r e p r e s e n t i n g t h e i r  i n r e c e n t y e a r s by c o u n t r y s o u r c e o f  type o f i n d u s t r y .  analysed  look s p e c i f i c a l l y  i n the manufacturing  their  investments  activities.  Chapters investments  of foreign  Then t h e i r  economic  investment  significance i s  V i n terms o f t h e i r c o n t r i b u t i o n s  employment, m a n u f a c t u r i n g  o u t p u t and  to  exports,  and  t r a n s f e r o f t e c h n o l o g y t o Hong Kong. U s i n g t h e d a t a  generated  from  these  a q u e s t i o n n a i r e survey,  f o r e i g n manufacturers chapter, and is  their  are e x p l o r e d i n Chapter  investment motives,  p r o d u c t i o n and devoted  the c h a r a c t e r i s t i c s  marketing  entirely  to t h e i r  ownership  VI. and  of In  this  control  policies,  o p e r a t i o n s are analysed. Chapter  VII  assessment of investment c o n d i t i o n s  i n Hong Kong, what t h e y c o n s i d e r as i m p o r t a n t and f a v o u r a b l e , and  how  t h e y e v a l u a t e t h e i r own  performance  according to  their  expectations.  Chapter  V I I I g i v e s a comparative  and  Japanese investments.  and  Japanese f o r e i g n  between t h e two derived by  and  U.S.  I t begins with a review of the  U.S.  investment  countries'  t e s t e d . Other  the survey w i l l  analysis of  m o d e l s . H y p o t h e s e s on  investment similarities  characteristics and  differences are  then  differences revealed  a l s o be p r e s e n t e d and d i s c u s s e d .  7  The with a b r i e f importance  Data  last  IX, c o n c l u d e s  summary o f t h e f i n d i n g s and  and  Sources  and  a discussion of  analysis  in this  t h e s i s was  based  s o u r c e s - Hong Kong g o v e r n m e n t s t a t i s t i c s  ( i ) t h e D e p a r t m e n t o f C e n s u s and  Department o f Trade,  I n d u s t r y and  Statistics,  Customs,  these o f f i c i a l  s o u r c e s were u s e d  the i n d u s t r i a l  t h e emergence and  sector  w i t h the purpose  the  Labour  data taken  from back-  d e v e l o p m e n t o f Hong Kong, t o examine  growth o f f o r e i g n  investments  q u e s t i o n n a i r e s u r v e y was of getting  the f o r e i g n manufacturers operational  on  primary their  characteristics.  i n t e r v i e w s w i t h e l e v e n U.S. firms.  those p u b l i s h e d  and  to analyse  i n the manufac-  i n HOng Kong.  The  and  a questionnaire  to provide a h i s t o r i c a l  the economic s i g n i f i c a n c e o f t h e s e investments turing  main  ( i i ) the  (iii)  ( i v ) t h e R e g i s t r a r G e n e r a l . The  on  their  upon two  and  included  D e p a r t m e n t and  ground  thesis  Collection  s u r v e y . Hong Kong government s t a t i s t i c s by  this  implications.  The data  chapter, Chapter  and  d e s i g n e d and  .conducted  information directly investment motives,  There  were a l s o  seven Japanese  from  needs  follow-up  manufacturing  8  The 197 9.  6  questionnaire  (A c o p y o f t h e  questionnaire  The q u e s t i o n n a i r e c o n t a i n e d three parts:  survey  fifty  ( i ) o w n e r s h i p and  m a r k e t i n g and  (iii)  to  production as  and  important assessed  (vi)  their  and  these  overall  (ii) their  respective  and  f a c t o r s i n the  establishments  into  and  foreign investors  of  management  their  ( i v ) what t h e y  considered  operations,  (v)  how  e n v i r o n m e n t o f Hong Kong their  own  and  e v a l u a t i o n of  d e c i s i o n s . Also/..,the r e t u r n s  for testing  divided  o w n e r s h i p and  factors affecting  f o r e i g n investment  The  these  the major c h a r a c t e r i s t i c s  J a p a n e s e m a n u f a c t u r e r s were u s e d  characteristics  was  I.)  assessment of i n v e s t -  behind  p e r f o r m a n c e and  investment  i n Appendix  r e s u l t s o f t h e r e t u r n s were  marketing operations,  investment  they  original  (iii)  and  i n March  ( i i ) production  needs and  (i) the m o t i v a t i o n  c o n t r o l methods,  i s attached  control,  investment  m a n u f a c t u r e i n Hong Kong,  conducted  questions  ment c o n d i t i o n s i n Hong Kong. The used to a n a l y s e  was  from the  f o r comparing  their U.S.  their  hypotheses d e r i v e d  from  their  models.  q u e s t i o n n a i r e was known t o have had  sent  t o a l l 391  manufacturing  f o r e i g n ownership i n t e r e s t  at  7 February was  28,  completed  solicit  1979  according  t o government r e c o r d s .  The  mailing  i n e a r l y M a r c h . T e l e p h o n e c o n t a c t s were u s e d  cooperation  of these  establishments  and  to  to  complete  g questions of the  two  w h i c h were o m i t t e d  months was  survey  allowed  r e s p o n s e by May  i n the  f o r the 15  and  first  instance.  returns. Table Table  1-2  1-1  A  period  summarizes  g i v e s a breakdown  9  TABLE  1-1  Summary R e s u l t o f S u r v e y  Response  Response  Number  L e t t e r r e t u r n e d by p o s t o f f i c e b e c a u s e the f i r m had c e a s e d o p e r a t i o n  % of Total  .  1.0%  L e t t e r r e t u r n e d by p o s t o f f i c e b e c a u s e t h e f i r m h a d moved and c o u l d n o t be traced  16  4.1%  Q u e s t i o n n a i r e r e t u r n e d but not completed because the f i r m d e c l a r e d t h a t i t c o u l d n o t d i v u l g e i n f o r m a t i o n on i t s o p e r a t i o n s  14  3.6%  Q u e s t i o n n a i r e r e t u r n e d but not used because t h e f i r m had l e s s t h a n 5% f o r e i g n owners h i p i n t e r e s t i n 1978  5  1.3%  Q u e s t i o n n a i r e r e t u r n e d but not used because t h e f i r m was no l o n g e r engaged i n m a n u f a c t u r i n g a c t i v i t i e s i n 1978  2  0.5%  Q u e s t i o n n a i r e r e t u r n e d but not used because t h e r e were more t h a n f i v e q u e s t i o n s unanswered  6  1.5%  236  60.4%  108  27.6%  391  100.0%  No r e s p o n s e Effective  responses used  i n the a n a l y s i s Total  of  t h e 108 e f f e c t i v e  The  r e s p o n s e s w h i c h were u s e d  effective  i n the analysis.  r e s p o n s e r a t e o f 27.6% was  already  9 very  satisfactory  investors  by Hong Kong s t a n d a r d s .  f r o m t h e U.S.  and W e s t e r n  Europe  On t h e w h o l e , were more  willing  10  TABLE  1-2  Breakdown o f t h e 108 E f f e c t i v e R e s p o n s e s  By  Number  Industry  % of Total  25 l9 13 8 6 5 5 2 2 2 1 20 108  23.1% 17.6% 12.0% 7.4% 5.6% 4.6% 4, 6% 1 9% 1 9% 1.9% 0.9% 18.5% 100.0%  Total  41 17 15 8 7 3 3 18 (112)  36.6% 15.2% 13.4% 7.1% 6 3% 2 7% 2 7% 16 1% 100.0%  G e n e r a l manager Managing d i r e c t o r Chief accountant / accountant F i n a n c i a l manager A d m i n i s t r a t i o n / O f f i c e manager Others Total  38 24 16 14 7 9 108  35.2% 22.2% 14.8% 13.0% 6.5% 8.3% 100.0%  Electronics Textiles Metal products Watches, c l o c k s & a c c e s s o r i e s E l e c t r i c a l products Chemical products Printing £ publishing Food manufactures Metal r o l l i n g , e x t r u s i o n s * f a b r i c a t i o n Toys Building & construction materials Others Total  x  By C o u n t r y S o u r c e o f I n v e s t m e n t United States U n i t e d Kingdom Japan West Germany Australia Switzerland Thailand Others By P o s i t i o n o f R e s p o n d e n t  Notes:  (1)  (2) (3)  T h e r e were t h r e e f o r e i g n e r s ' j o i n t v e n t u r e s , two w i t h two f o r e i g n i n v e s t o r s e a c h and one w i t h t h r e e foreign investors. The i n d u s t r y breakdown f o l l o w s t h a t o f t h e Hong Kong g o v e r n m e n t . C o u n t r i e s i n c l u d e d i n ' o t h e r s ' had l e s s t h a n t h r e e e f f e c t i v e responses each.  (  11  to respond  w h i l e those from  reluctant.  Consequently,  differ  significantly  by  S o u t h e a s t A s i a n c o u n t r i e s were more  even though  type of industry,  c a s e on a c o u n t r y b a s i s . "^ A t any capital that in  investments  the response  o f t h e s e 108  rate,  r a t e d i d not  t h i s was  not  the  an a n a l y s i s o f  the  responding  firms  indicated  t h e y were a good r e p r e s e n t a t i v e sample o f t h e  391  firms  t h e population.'''"'"  I n o r d e r t o e x t r a c t more i n f o r m a t i o n on ment c h a r a c t e r i s t i c s o f U.S. follow-up seven  and  Japanese  Japanese  firms.  The  100%  U.S.  o p e r a t e d i n Hong Kong f o r a t l e a s t  for  setting  o r Japanese  c o n t r o l over  selection  or Japanese  criteria  was  investment  The October  and  to ensure  p a r e n t c o r p o r a t i o n s c o u l d have f u l l  their  subsidiaries'operations  and from  ownership  t h r e e y e a r s . The  results  and  reason that  the  management  i n Hong Kong  t h e y d i d have s e v e r a l y e a r s ' e x p e r i e n c e and their  firms  i n t e r v i e w e d f i r m s were s e l e c t e d  had  t h e s e two  invest-  manufacturers,  i n t e r v i e w s were a r r a n g e d w i t h e l e v e n U.S.  t h e r e s p o n s e s . They a l l had  U.S.  the  to  and adapt  strategies.  i n t e r v i e w s were c o n d u c t e d  November, 1979.  m a i n i n t e r e s t was  n o t on  In the i n t e r v i e w s , the  the day-to-day  f i r m s b u t on how  their  their  p a t t e r n s and  investment  u n s t r u c t u r e d . The  i n t h e months o f  operations of  investment motives  and  o p e r a t i o n s . The  i n t e r v i e w e e s , who  writer's  needs  these  affected  i n t e r v i e w s were  were i n most i n s t a n c e s t h e  12  chief  e x e c u t i v e s themselves  o r department  m a n a g e r s , were  g i v e n t h e o p p o r t u n i t y t o make e l a b o r a t i o n s on t h e y had discuss  the answers which  p u t down i n t h e r e t u r n s . Then t h e y w o u l d p r o c e e d freely  up o r s t r e s s .  any The  r e l a t e d matters which they wished  Theoretical  Concepts  This  of d i r e c t  of Direct Foreign  foreign  t h e o r i e s which attempt  to  bring  to  the q u e s t i o n n a i r e survey.  Investments  section gives a brief  these investments  to  i n t e r v i e w f i n d i n g s were u s e d m a i n l y  s u p p l e m e n t t h e d a t a g e n e r a t e d by  concepts  first  review of the  i n v e s t m e n t s . The  to explain  theoretical  e m p h a s i s i s on  the economic f o r c e s  b u t n o t t h e management a c t i v i t i e s  the  behind  of  the  international corporations. ^ 1  D i r e c t vs investments  Indirect  are c l a s s i f i e d  F o r e i g n Investments.  into  two- m a i n k i n d s u s i n g t h e  o f management c o n t r o l  as t h e c r i t e r i o n :  indirect  i n v e s t m e n t . The  from  or p o r t f o l i o  the l a t t e r  i n that  i t entails  direct  former  investment  r e p r e s e n t s an  is basically  investment  financial  i n the s e c u r i t i e s  investment  i s pretty  clear,  and  i s distinguished control  i s i n v e s t e d . An i n nature; i t only i s s u e d by  b u s i n e s s c o r p o r a t i o n s . However, e v e n t h o u g h ' t h e d i f f e r e n c e between t h e two  degree  s i g n i f i c a n t management  of the business a s s e t s i n which the c a p i t a l indirect  Capital  some  conceptual  technically  there  13  c a n be p r o b l e m s i n d r a w i n g place, tive  the d i v i d i n g  'management c o n t r o l '  and d o e s n o t l e n d  line.  In the f i r s t  i s more q u a l i t a t i v e t h a n  itself  t o p r e c i s e measurements.  the degree  o f management c o n t r o l  investment  may n o t be i n p r o p o r t i o n t o h i s o w n e r s h i p  dollar  terms.  Thirdly,  quantitaSecondly,  an i n v e s t o r c a n e x e r c i s e o n h i s  t h e r e i s no s i n g l e  interest i n  c r i t e r i o n on what  13 constitutes two  ' s i g n i f i c a n t management c o n t r o l ' .  k i n d s o f i n v e s t m e n t may  i n t e r c h a n g e from  time  example, a n i n v e s t m e n t may b e g i n a s i n d i r e c t , capital drawal  by o t h e r owners may  i n d i r e c t when t h e c a p i t a l direction.  but a gradual  convert i t into a d i r e c t direct  with-  investment.  i n v e s t m e n t may  become  s t r u c t u r e changes i n t h e o p p o s i t e  O r , a r e o r g a n i z a t i o n o f t h e company may r e s u l t i n  management c h a n g i n g  hands f r o m one i n v e s t o r  to another  without  changes i n ownership. Direct  corporations foreigners Indirect  foreign  investments  and e x a m p l e s o f d i r e c t  are r e l a t i v e l y  investments  institutions.  the investment  geographically  investments  a r e made by p r i v a t e  For indirect  motives  to take advantage  a r e made e s s e n t i a l l y by by  individual  r a r e and a r e n o r m a l l y o f s h o r t d u r a t i o n .  business c o r p o r a t i o n s which i n t h i s cial  t o time. F o r  a c q u i s i t i o n by t h e i n v e s t o r o r a sudden c a p i t a l  On t h e o t h e r hand, a n o r i g i n a l l y  any  F i n a l l y , the  individuals  case w i l l  investments  a r e more f i n a n c i a l  of higher security  spread the investment  mostly  as w e l l as be  i n foreign  i n nature;  financountries,  f o r example,  returns overseas or to risk.  The r i s k  elements  14  are r e l a t e d  essentially  to fluctuations  in securities  prices,  14 in  e x c h a n g e r a t e s and i n d i v i d e n d e a r n i n g s .  The investments  motives  of direct  foreign  i n f o r e i g n c o u n t r i e s a r e more s u b t l e and c o m p l i c a t e d .  Even though i n t h e f i n a l are motivated  analysis,  international corporations  by m a r k e t o p p o r t u n i t i e s and p r o f i t  invest overseas, simple  and d e t e r m i n a n t s  a number o f i n v e s t m e n t  potentials to  factors underlie this  truth.  T h e o r i e s o f D i r e c t F o r e i g n Investment. of d i r e c t  foreign  investments  phenomenal and v e r y  i n t h e post-war y e a r s has been  significant  D e s p i t e the l a c k o f complete  i n the i n t e r n a t i o n a l  statistics  and d e f i n i t i o n a l  indicates  t h a t t h e r e h a s b e e n a more r a p i d  foreign  product. direct  Using  foreign  investments the American investments  o f US$11.8 b i l l i o n  problems, a l l a v a i l a b l e  than  i n world  figures  trade or gross  for illustration,  a t book v a l u e r o s e f r o m  i n 1950 t o US$78.2 b i l l i o n  the rate o f increase i n world  national products of and  world  U.S.'s  an e s t i m a t e  i n 1970 - an twenty-year  t r a d e and t o t a l  gross  o f the eleven l e a d i n g i n d u s t r i a l c o u n t r i e s  t h e West were 516.7% (from US$60 b i l l i o n 428.3% (from US$449 b i l l i o n  . , 15 lvely.  evidence  r a t e o f growth i n  i n c r e a s e o f 662.7% i n two d e c a d e s . I n t h e same period  economy.  because o f v a r i o u s  technical  direct  The u p s u r g e  t o US$310  t o US$1,923 b i l l i o n )  billion) respect-  15  T h i s r a p i d growth i n i n t e r n a t i o n a l activities  has l e d t o an e x t e n s i v e  search  business  f o r the u n d e r l y i n g  economic  f o r c e s both  internal  p u s h f a c t o r s ) and i n t h e f o r e i g n c o u n t r i e s i n w h i c h  these  corporations  Different  w i t h i n the i n v e s t i n g corporations  invest  factors).  t h e o r i e s have a l s o b e e n f o r m u l a t e d .  o f t h e many s u b t l e t i e s gent cases  (the e x t e r n a l p u l l  o f these  theories only  t o some, b u t n o t a l l ,  The t h e o r y more g e n e r a l  However, i n v i e w  i n v o l v e d and t h e l a r g e number o f d i v e r -  p o s s i b l e , most  explanations  (the  f o r e i g n investment  w h i c h i s now  instead of p a r t i a l  offer  widely  accepted  applicability  decisions.  as  having  i s t h e one  16 developed can  by Hymer i n 1960.  be c a l l e d  Essentially,  the monopolistic  theory,  was  this  theory,  t h e outcome o f an  a t t e m p t by Hymer t o make up f o r t h e i n a d e q u a c i e s classical  economic  satisfactorily  t h e o r i e s which are r e l a t e d  explain direct  which  of  two  t o , but cannot  f o r e i g n investment  d e c i s i o n s and  patterns. T h e s e two theory  classical  of international  classical  theory  comparative costs  trade  economic t h e o r i e s a r e t h e  and t h e t h e o r y  of international  o f t h e f i r m . The  t r a d e has i t s f o u n d a t i o n  ( R i c a r d i a n model) and r e l a t i v e  endowment  (Heckscher-Ohlin  generally  assumes p e r f e c t l y  identical  production  model) i n d i f f e r e n t competitive  factor  countries. I t  product  f u n c t i o n s and i m m o b i l i t y  on  of  markets, productive  16  f a c t o r s with the exception o f c a p i t a l which moves i n response to d i f f e r e n c e s i n i n t e r e s t r a t e s . While i t s p r e d i c t i o n s accord with the g e n e r a l f a c t t h a t c o u n t r i e s s p e c i a l i z e i n the product i o n o f goods which they can produce more cheaply e n t l y and t h a t r i c h poor  (or capital-abundant)  and e f f i c i -  countries invest i n  (or c a p i t a l - s c a r c e ) c o u n t r i e s , the theory can h a r d l y  p r o v i d e a complete e x p l a n a t i o n o f d i r e c t f o r e i g n  investments.  For example, i t does not e x p l a i n why d i r e c t investments are p r e f e r r e d t o p o r t f o l i o investments,  why p r o d u c t i o n  i s being  undertaken by f o r e i g n i n v e s t o r s i n s t e a d o f l o c a l i n v e s t o r s , why there e x i s t s c r o s s investments by l a r g e c o r p o r a t i o n s i n r i c h countries factors  and why are there t r a n s f e r s o f other  (technology,  productive  management and marketing knowhow, f o r  example) which c o n s t i t u t e as g r e a t a p a r t o f i n t e r n a t i o n a l business  o p e r a t i o n s as the shipment o f goods o r movements o f  capital.  S i m i l a r l y , the theory o f the f i r m has i t s inadeq u a c i e s . While i t d e p i c t s very w e l l the impact o f market s t r u c t u r e , competition  and p r o d u c t i o n c o s t s on a f i r m ' s  o p e r a t i o n s , i t does not e x p l a i n why firms should expand beyond the n a t i o n a l boundary nor take i n t o c o n s i d e r a t i o n the many r e s t r i c t i o n s and a d d i t i o n a l c o s t s and r i s k s i n o p e r a t i n g overseas.  Furthermore, to the extent t h a t i t assumes t h a t f i r m s  are i n p e r f e c t c o m p e t i t i o n ,  i t i s not u s e f u l a t a l l i n a n a l y s i n g  the behaviour o f i n t e r n a t i o n a l c o r p o r a t i o n s which grow  17  in  extremely imperfect  markets.  Hymer, t h e r e f o r e , market by  imperfections  foreign  operate  turned  t o e x p l a n a t i o n s based on  and p o s s e s s i o n o f m o n o p o l i s t i c  i n v e s t o r s . He r e a s o n e d t h a t b e c a u s e  internationally  incur additional  competition.  Thus,  international  scale  internationally.  direct  which  foreign  f i r m s must p o s s e s s c e r t a i n the a d d i t i o n a l  costs of  T h e s e a d v a n t a g e s may be e c o n o m i e s o f  from world-wide i n t e g r a t e d  to c a p i t a l  which  under c o n d i t i o n s o f p e r f e c t  a d v a n t a g e s w h i c h more t h a n compensate operating  firms  c o s t s and r i s k s  t h e i r d o m e s t i c c o u n t e r p a r t s do n o t i n c u r , i n v e s t m e n t s c a n n e v e r be p r o f i t a b l e  advantages  operations or easier  access  and m a r k e t s , b u t t h e d e c i s i v e o n e s , a c c o r d i n g t o  Hymer, a r e p r o b a b l y  s u p e r i o r knowhow i n t e c h n o l o g y , management  and marketing:-  With t h i s  as t h e s t a r t i n g  the fundamental reason f o r business is  t o more f u l l y  exploit  foreign which  certainly  t o maximize  has a v e r y  solid  investment motive d i r e c t l y  i s traditionally  objective.  operational  advantages which they  t h e economic  r e n t . The  b a s e as i t r e l a t e s t h e with p r o f i t maximization  assumed t o be t h e number one b u s i n e s s  The t h e o r y h a s been w e l l  evidence too, since  that  firms to invest overseas  the monopolistic  p o s s e s s , o r i n o t h e r words, argument  p o i n t , Hymer a r g u e d  international  advantages over t h e i r  s u p p o r t e d - by  empirical  f i r m s do have many domestic  superior  counterparts.  18  But there i s s t i l l  a l o o p h o l e : why  i n t e r n a t i o n a l f i r m which possesses choose to investments  should  an  s u p e r i o r knowhow  e x p l o i t the advantages by means of d i r e c t f o r e i g n i n s t e a d of e x p o r t i n g when the former i s c l e a r l y  more r i s k y than the l a t t e r ? E v i d e n t l y , there must be some economic f a c t o r s which determine the c h o i c e . While the  posse-  s s i o n of m o n o p o l i s t i c advantages i s a necessary c o n d i t i o n f o r d i r e c t f o r e i g n investments, We  need to know why  i t i s not a s u f f i c i e n t c o n d i t i o n .  i t i s p r e f e r r e d to e x p o r t i n g .  The d i f f e r e n c e i n c o s t of p r o d u c t i o n i n d i f f e r e n t c o u n t r i e s p r o v i d e s the most obvious e x p l a n a t i o n . Given  the  exchange r a t e , the techniques of p r o d u c t i o n , the c o s t s of t r a n s p o r t and of t r a n s f e r r i n g technology,  and a range of  d i f f e r e n t c o s t s f o r f a c t o r s o f p r o d u c t i o n , c l e a r l y some c o u n t r i e s have a c o s t advantage over o t h e r s as bases.  manufacturing  I f i n t e r n a t i o n a l c o r p o r a t i o n s are assumed to have a  t r u l y g l o b a l p e r s p e c t i v e , to make investment  d e c i s i o n s on  r a t i o n a l c o s t c a l c u l a t i o n s and are not to be i n h i b i t e d , by government r e s t r i c t i o n s or o t h e r non-economic motives, can a l s o be expected  they  to a l l o c a t e t h e i r resources i n the most  economically e f f i c i e n t manner among d i f f e r e n t c o u n t r i e s . T h i s being the case, e x p o r t i n g w i l l not be a s u b s t i t u t e f o r d i r e c t foreign  investments.  Another important  f a c t o r i s the e x i s t e n c e o f trade  19  r e s t r i c t i o n s , or the t h r e a t t h a t the f o r e i g n country may impose them. E x p o r t i n g i s most v u l n e r a b l e t o trade r e s t r i c t i o n s i n the form o f t a r i f f s or quotas, but d i r e c t f o r e i g n investments a r e not because  few c o u n t r i e s , i f any a t a l l , p r o h i b i t  the i n f l o w  o f investment c a p i t a l . In f a c t , many t r a d e b a r r i e r s s e t up by the l e s s developed c o u n t r i e s are intended to complement an import s u b s t i t u t i o n p o l i c y and a r e l a r g e l y r e s p o n s i b l e f o r i n d u c i n g f o r e i g n f i r m s which used t o s e l l  to these c o u n t r i e s  through exports t o s e t up manufacturing f a c i l i t i e s  i n these  c o u n t r i e s t o prevent t h e i r markets from being c u t o f f . The wisdom of such an import s u b s t i t u t i o n p o l i c y implemented by p r o t e c t i v e trade b a r r i e r s i s dubious and debatable. A d i s c u s s i o n on t h i s p o l i c y i s beyond the scope o f t h i s study, but i t i s a f a c t o f life  t h a t t h i s world i s s t i l l  c h a r a c t e r i z e d by r e s t r i c t i v e t r a d e  17  r a t h e r than f r e e t r a d e .  Thus, even though e x p o r t i n g may be  the most e f f i c i e n t way o f e x p l o i t i n g an advantage,  i t may not  be f e a s i b l e i n f a c e o f r e s t r i c t i v e t r a d e b a r r i e r s . The t h i r d reason why e x p o r t i n g may not be a f e a s i b l e s u b s t i t u t e f o r d i r e c t f o r e i g n investments r e l a t e s to the nature o f the advantage.  Some advantages,  f o r example s u p e r i o r marketing  knowhow, cannot be embodied i n a product to be exported. When the f i r m ' s advantages  l i e i n i t s a b i l i t y to d i f f e r e n t i a t e  p r o d u c t s , t o a d v e r t i s e , to serve customers  o r to respond t o  changes i n consumer t a s t e s and market demand, i t can o n l y f u l l y e x p l o i t them by l o c a l manufacturing. T h i s a g a i n c a l l s f o r d i r e c t  20  foreign  investments  rather  than e x p o r t i n g .  A few words must a l s o  be m e n t i o n e d  between u n d e r t a k i n g d i r e c t f o r e i g n of  foreign  licensing degree  l i c e n s i n g . Even though i s also  logies  These i n c l u d e  pf investment,  involved.  if  the technology involved  if  the i n v e s t i n g  the c h o i c e  As  and  a broad  the range  i f business conditions  i s new  and  be p r e f e r r e d  be more a d v a n t a g e o u s .  just a terse  c a n be  of  the  techno-  are  tightly  stable,  controlled,  and  c a p a b i l i t i e s , then  to l i c e n s i n g . This  s i m p l i f i e d one  f o r a complex  are possible  in  subsidiary  a w h o l l y owned m a n u f a c t u r i n g f i r m i n the f o r e i g n  However,  .  Otherwise,  generalization  and many i n t e r m e d i a t e p o s i t i o n s  unrelated  of  the  generalization, i f  f i n a n c i a l and m a r k e t i n g  investments w i l l  l i c e n s i n g may  the  f i r m i s an e x p e r i e n c e d i n t e r n a t i o n a l o p e r a t o r  w i t h b r o a d l y based  course  alternatives.  the s i z e of the market,  the i n d u s t r i a l market s t r u c t u r e products  the  i s so d i f f e r e n t t h a t i t  o f t h e h o s t government, t h e management s t r a t e g y  and  use  foreign  the n o v e l t y o f the technology,  the f o r e i g n market i s l a r g e ,  direct  and m a k i n g  investment,  a r e a number o f f a c t o r s w h i c h i n f l u e n c e  riskiness  firm,  between t h e two  the c h o i c e  speaking,  t o c o n s i d e r them as c o m p e t i n g  between t h e two.  policy  strictly  a form o f d i r e c t f o r e i g n  of involvement  seems b e t t e r There  investments  on  between  and  i s of  decision, investment  l i c e n s i n g to  country.  i n t e r n a t i o n a l c o r p o r a t i o n s may..  not  an  21  necessarily  a l w a y s have f o r e i g n  alternative. f a c t be  that  as a  feasible  Some o f t h e a d v a n t a g e s t h e y p o s s e s s  licensed  inherent  licensing  to other  cannot  f i r m s e i t h e r because they  t o t h e o r g a n i z a t i o n o r b e c a u s e t h e y a r e so  t h e y a r e i m p o s s i b l e t o d e f i n e , v a l u e and  example, a c o r p o r a t i o n ' s m a n a g e r i a l izational  set-up,  are diffused  transfer.  capabilities,  i t s executives' experience, i t s c r e d i t  Moreover, s i n c e these advantages tend  cumulatively with involvement,  size  and  investing  g r e a t e r degree  c o r p o r a t i o n s may  these advantages r a t h e r than d i s s i p a t e this  case,  direct  foreign  licensing  licensing  clearly  advantages  t o grow  international  want t o them by  i s not a f e a s i b l e  that  i s not a s u f f i c i e n t  must p o s s e s s , local  internalize licensing. alternative  In to  or they  of exporting or  condition  investments.  a l l investing corporations  t h i n k they possess, local  for foreign  certain  advantages  c o m p e t i t o r s , one  the c o n c e i v e d advantages are not  through  foreign  the p o s s e s s i o n o f m o n o p o l i s t i c  analysis,  firms or p o t e n t i a l  e x p l a i n why exploited  the p o s s i b i l i t y  indicates  Even though i n the f i n a l  degree  of  be  investment.  Summing up,  over  For  i t s organ-  s t a n d i n g o r i t s r e l a t i o n s w i t h o t h e r f i r m s can h a r d l y licensed.  in  must  outrightly  e x p o r t i n g or l i c e n s i n g which i n v o l v e s a  of business r i s k .  The  answer, i n a n u t - s h e l l ,  non-marketability or f i r m - s p e c i f i c i t y  also  nature o f the  lies  lesser i n the  advantages.  22  Closely  related  methods f o r e x p l o i t i n g  t o t h e m o n o p o l i s t i c t h e o r y and  the advantages  i s the product  life  the cycle  18 theory developed this  by V e r n o n , H i r s c h and  t h e o r y does n o t  to  be  it  p o s t u l a t e s and  i n t r o d u c e any  new  marketing  b e c a u s e o f t h e way  factors.  factors  investment  essence,  i t deserves  defensive initial  production costs  and  and  e x p l a n a t i o n o f how  to determine  direct  and  The theory are that  life  explains direct  s t r a t e g y which  c y c l e concept foreign  \  foreign  existing  (i) products  i n n o v a t i o n s o f new  in  life  marketing  investments  business  products  p o t e n t i a l m a r k e t a r e a s and  and  as i.a innovator's  interests.  o f the product  life  undergo p r e d i c t a b l e  marketing  cycle  cost i n  i s aimed a t p r e s e r v i n g an  main assumptions  p r o d u c t i o n and  by  product  t o g e t h e r the theory o f comparative  a d v a n t a g e s and  acterized  sequence  i n w h i c h i t combines  the i n t e r n a t i o n a l  economics w i t h the p r o d u c t literature  though  patterns.  theory blends  characteristics processes w i l l  cycle  changes i n  over occur  time ( i i ) at or  ( i i i ) the p r o d u c t i o n process  that  i n an a d v a n c e d and  a new  product or process w i l l  affluent  country  like  t h e U.S.  near  i s char-  economies o f s c a l e . With t h e s e assumptions,  theory hypothesizes vated  elements,  I t provides a particular  i n t e r a c t over time  In  their  Even  c o n s i d e r e d s e p a r a t e l y because o f the s p e c i a l  a s s i g n s v a r y i n g roles- to technology,  these  Wells.  the  be  inno-  which  23  a l s o possesses  the  a d v a n t a g e s o f a l a r g e and  relatively  abundunt s u p p l y  resources.  The  first is  a t home and  and  market. A t  directly  local  the  establish  industry.  overseas  country enters  will  the  local  a maturity  mass p r o d u c t i o n  position,  be  become d i f f u s e d  g o v e r n m e n t may  i n the  overseas,  innovator w i l l  pledged 'new'  foreign  innovator's  d a y s when t h e  international  the  have t o i n v e s t  l o s e the  the  i n the  probably  be  to p r o t e c t the  o r he w i l l  late  and  a t t r a c t e d to enter  Worse s t i l l ,  invaded  stage  has  barriers  happens, the  producers. be  market  i n f o r e i g n c o u n t r i e s where i t  i n l o c a l manufacturing,  m a r k e t may  entrepreneurial  a monopolistic  technology  or other  this  home product  economy and  i n some l e s s  developed  labour  is plentiful  direct  i s the  only v i a b l e strategy for  f o r e i g n investment  and it  t o meet t h e p o t e n t i a l  to maintain  his original  threat of  advantages.  and  there  c o u n t r i e s where u n s k i l l e d  innovator  a  when f o r e i g n demand grows t o a s u b s t a n t i a l  same t i m e ,  Before  enjoy  producers  tariffs  market to l o c a l  is  then  the p r o d u c t i o n  standardized,  o f t e c h n o l o g i c a l and  will  a l s o i n demand;- But  level  to  product  f r e e m a r k e t and  local  cheap.  the  competition  I n t h e words o f  i s "a method by w h i c h t o e l i m i n a t e p o t e n t i a l  Thus,  Gilpin,  competitors  19 through market  The intended  preemption".  international  to provide  investment  product  life  c y c l e theory  a complete e x p l a n a t i o n of trade  p a t t e r n s . I t does n o t  non-manufacturing operations  or  explain direct  i s not  and  investments  i n c o u n t r i e s where t h e r e  is  in no  24  potential  threat of local  very well c e r t a i n cially  those  developed and of  types o f d i r e c t  i n t h e manufacture  countries.  investment this  competition. But the theory e x p l a i n s  of light  Empirically,  p a t t e r n s do c o n f o r m  valuable i n understanding  of  international  goods, p l a s t i c  products,  e l e c t r o n i c s . The t h e o r y forces  i n t h e growth  c o r p o r a t i o n s such as t h e importance o f  over  the cycle  p r o d u c t s and t e c h n i q u e s  The  consumer goods i n l e s s  some c r u c i a l  maintaining monopolistic leads, and m a r k e t i n g  espe-  v e r y much t o t h e p r e d i c t i o n s  a p p l i a n c e s and more r e c e n t l y ,  is  investments,  a number o f p r o d u c t s ' t r a d e  t h e o r y , f o r example, t e x t i l e  electrical  the changing  r o l e o f technology  and t h e t i m i n g o f i n t r o d u c i n g  new  overseas.  m o n o p o l i s t i c t h e o r y and t h e p r o d u c t l i f e  theory are e s s e n t i a l l y There  foreign  based  upon c o m p e t i t i o n i n p r o d u c t  have a l s o been t h e o r i e s which a r e i n s t e a d  behaviour o f f i r m s o r f i n a n c i a l markets.  cycle markets.  formulated on  An example o f t h e  20 former  i s t h e one a d v a n c e d  the i n d u s t r i e s  i n which i n t e r n a t i o n a l  mostly o l i g o p o l i s t i c some d i r e c t  foreign  oligopolistic  by K n i c k e r b o c k e r .  follow  i n order t o ensure  their  rival.  The s p e e d  concentration  that  i n v e s t m e n t s may s i m p l y be t h e r e s u l t o f  r e a c t i o n . When one f i r m  It will  that  corporations invest are  i n nature, Knickerbocker reasoned  firms  industry.  Observing  that  goes i n t e r n a t i o n a l , they w i l l  of reaction differs  be more r a p i d  from  i f the l e v e l  i s h i g h , t h e p r o d u c t range  other  not l a g behind industry to  of industry  i s n a r r o w and t h e p r o d u c t  25  is  standardized.  The m a j o r weakness o f t h i s  does n o t e x p l a i n t h e i n t e r n a l firm  to i n v e s t overseas  Turning interest  theory  f a c t o r s which push t h e l e a d i n g  i n the f i r s t  place.  t o s o m e t h i n g more f i n a n c i a l  rate differentials  i s that i t  and e x p e c t a t i o n s  movements a r e t h e b a s i s o f A l i b e r ' s t h e o r y  i n nature,  i n exchange r a t e  of direct  foreign  21 investments.  H i s main assumption  assets  are w i l l i n g  strong  currency.  interest  t o pay a premium t o h o l d  I f t h e premium i s r e f l e c t e d  rate differential  differential  equals  which the stronger  will  be a b l e  will  evaluate  currency  i s likely  from s t r o n g  assets  t o secure  capital  in a  such t h a t t h e  the rate a t  to appreciate  relative  t h e n an i n v e s t o r i n a s t r o n g e r  currency  a t a l o w e r c o s t , and h e n c e  investment o p p o r t u n i t i e s a t a lower d i s c o u n t area.  i n v e s t m e n t p r o j e c t s i n a weak c u r r e n c y to local  of l i q u i d  i n the e f f e c t i v e  between two c u r r e n c i e s  t h a n an i n v e s t o r i n a weak c u r r e n c y  tive  these  t h e sum o f t h e premium p l u s  t o t h e weaker c u r r e n c y , area  i s that holders  area  i n v e s t o r s may be a t t r a c t i v e  currency  areas,  Consequently,  rate  some  which a r e u n a t t r a c -  to foreign investors  thus i n d u c i n g d i r e c t  foreign invest-  ments . This supposed t o o f f e r  theory only  i s e v i d e n t l y t o o narrow even i f i t i s a partial  explanation  investment d e c i s i o n s . I n t e r e s t d i f f e r e n t i a l s r a t e may c o n c e i v a b l y  to direct  foreign  and t h e e x c h a n g e  be r e l e v a n t t o i n t e r n a t i o n a l c a p i t a l  move-o  26  merits, b u t as t h e s e e l e m e n t s f l u c t u a t e w i d e l y and can m o t i v a t e d i r e c t term  are r e l a t i v e l y  frequently, foreign  foreign  the middle  to l a t e  overvalued  (hence weak) r e l a t i v e  levels  o f U.S.  and  direct  may  they  of t h i s  investment  t o most E u r o p e a n  investments  exceeded  alone  i n E u r o p e was  the r a t e o f European  long  line  of  trends of dollar  was  currencies, at record direct  invest-  U.S.  Differences  i n the degree  of perfection  m a r k e t s p r o v i d e • an answer t o t h e a p p a r e n t words o f R a g a z z i ,  "Even i n t h e a b s e n c e  behaviour or of t e c h n i c a l attracted  that  1960s when, a l t h o u g h t h e A m e r i c a n  greatly  ments i n t h e  and  which are u s u a l l y  the p r e d i c t i o n s  argument a r e c o n t r a r y t o d i r e c t  the r a t e  i t i s unlikely  investments  commitments. F u r t h e r m o r e ,  volatile  toward  advantages,  a r e a s where a v e r a g e  of  in securities  contradiction.  In  the  oligopolistic  direct  i n v e s t m e n t may  rates of p r o f i t  when s u c h r a t e s a r e n o t e q u a l i z e d i n t e r n a t i o n a l l y  be  are higher  by  portfolio 22  capital  f l o w s owing  to i n e f f i c i e n c i e s  He  pointed out that higher r i s k  in  stock prices  in  direct  investments  1951-67 A m e r i c a n  form o f d i r e c t U.S.  had  this  period,  elements  and w i d e  a s s o c i a t e d w i t h s m a l l and  markets have a n e g a t i v e impact ments, and  in securities  on  securities  (portfolio)  become t h e s u b s t i t u t e .  investments  o v e r s e a s had  investments w h i l e European  invest-  That  is  why  b e e n more i n t h e  investments  b e e n more i n t h e f o r m o f p o r t f o l i o even t h o u g h  fluctuations  imperfect  indirect  markets."  i n the  investments.  t h e r a t e s o f r e t u r n on  During  s t o c k s were  not  27  too d i f f e r e n t  i n t h e two  markets, t h e  r a t e s o f r e t u r n were d e f i n i t e l y  fluctuations  m i l d e r i n t h e U.S.  in  annual  than  in  helpful  in  the European c o u n t r i e s .  Ragazzi's understanding portfolio  direct  investments,  of p o s i t i v e overseas  why  explanation  investments  but  may  i t does n o t  economic f o r c e s ,  i n the f i r s t  is certainly  be p r e f e r r e d t o  show why,  i n the  a f i r m would c o n s i d e r  absence  investing  place.  A n o t h e r t h e o r y w h i c h i s a l s o more f i n a n c i a l nature  c e n t r e s on  portfolios.  As  international  argued  by  diversification  L e v y and  Sarnat,  of  f i r m s go  in  investment international 23  i n o r d e r t o have a more o p t i m a l b a l a n c e Direct  foreign  a'corporate business  investments  are thus b a s i c a l l y  defensive  s i n c e many i n t e r n a t i o n a l managers do  geographical d i v e r s i f i c a t i o n to operate  from  as one  overseas.  o f the motives  But why  across national  for  i s geographical  the b u s i n e s s  risk?  boundaries  the has  often  p r e f e r r e d t o i n d u s t r y d i v e r s i f i c a t i o n ? And  diversification decrease  return.  g e o g r a p h i c a l l y . T h i s argument u n d o u b t e d l y  g r a i n of t r u t h  sification  and  s t r a t e g y ' s p o i n t o f v i e w , aimed a t s p r e a d i n g  risk  companies  of r i s k  cite  their diverwill  increase rather  These are p o i n t s of  a  than  contention  24  which the p o r t f o l i o To  t h e o r y does n o t  conclude  from  this  answer.  s h o r t review,  there i s probably  28  no  s i n g l e m o t i v e a n d , t h e r e f o r e , no s i n g l e  theory which i s  good enough t o e x p l a i n a l l d i r e c t  foreign  But,  corporations are business  no m a t t e r  organizations. investment  how, i n t e r n a t i o n a l The e c o n o m i c  force, u n d e r l y i n g the f o r e i g n  d e c i s i o n ? a s w e l l ' a s a l l b u s i n e s s d e c i s i o n s , must  e v e n t u a l l y be r e l a t e d  to the p r o f i t  objective.""  t h e o r i e s o n l y expound on t h e d i f f e r e n t which i n d i v i d u a l disintegrative,  investments  they  a r e complementary  i n manufacturing  each w i t h  oriented  profit opportunities  initiated  t o one a n o t h e r .  and M o t i v e s .  c a n be c l a s s i f i e d  i t s own d i s t i n c t  investments,  government  Direct into  characteristics:  foreign  t h r e e main export  m a r k e t d e v e l o p m e n t i n v e s t m e n t s and investments.  Export o r i e n t e d investments serve markets o u t s i d e - t h e host country. the  The d i f f e r e n t  f i r m s may come a c r o s s and e x p l o r e . Though  Types, C h a r a c t e r i s t i c s  types,  investment d e c i s i o n s .  a r e p r i m a r i l y made t o T h e s e m a r k e t s c a n be  i n v e s t o r ' s home c o u n t r y m a r k e t o r sorr.e o t h e r m a r k e t s . The  i n v e s t o r ' s m o t i v e i s t o make u s e o f t h e i n d i g e n o u s  production  f a c t o r s w h i c h c a n be some n a t u r a l r e s o u r c e s , l a b o u r o r i n f r a s tructure teristics  facilities  t o p r o d u c e f o r e x p o r t s . The common c h a r a c - -  o f export o r i e n t e d investments  a c c o r d i n g t o Reuber  26 are: (a).  The p r i n c i p a l m o t i v a t i o n i s t o p r o t e c t o r i m p r o v e t h e investor's competitive position  a t home or. i n t e r n a t i o n a l l y ,  29  but (b)  not i n the host country  These investments international  (c)  market.  are v e r t i c a l l y  integrated into the  c o r p o r a t i o n ' s world-wide o p e r a t i o n s .  The c h o i c e o f i n v e s t m e n t  country  depends on f a c t o r s  r e l a t e d , t o p r o d u c t i o n c o s t s and r e l i a b i l i t y  of production  factors. (d)  Because o f t h e emphasis on p r o d u c t i o n c o s t s , such ments t e n d If  the foreign  invested ready (e)  t o be'more v o l a t i l e investor finds  country  than  invest-  t h e o t h e r two t y p e s .  that production costs i n the  a r e no l o n g e r c o m p e t i t i v e , he w i l l  be more  to leave.  Such i n v e s t m e n t s  tend  t o be h i g h l y p r o f i t a b l e  i n the short  run.  Export o r i e n t e d investments proportion o f the production output  inevitably  being exported  have a h i g h from  the host  27 country,  usually  investments  i n excess  o f 50%."'  i n manufacturing  a r e made i n l e s s  where l a b o u r c o s t s a r e l o w . O t h e r s minerals  Export  will  are also called  natural resources oriented  reduce  developed  countries  are i n the extraction of  and. o i l f o r e x p o r t b a c k t o t h e i n v e s t o r ' s home  These investments and  Many e x p o r t o r i e n t e d  labour oriented  country.  investments  investments.  o r i e n t e d investments  can e i t h e r  t h e t r a d e o f t h e i n v e s t o r ' s home c o u n t r y .  be ' t r a d e o r i e n t e d ' and r e f e r s  t o the case  increase or  The  former  i n which the  30  investment outputs are mostly exported back t o the i n v e s t o r ' s 28 home country, thus i n c r e a s i n g the country*s t r a d e . '  On the other  hand, i f the investment outputs a r e mainly s o l d to some o t h e r c o u n t r i e s , the investment may be ' a n t i - t r a d e o r i e n t e d '  because  these s a l e s r e p l a c e the exports p r e v i o u s l y coming from the 29 i n v e s t o r ' s home country. Market development investments, i n o c o n t r a s t to export o r i e n t e d investments, are undertaken w i t h the primary m o t i v a t i o n of a c h i e v i n g g r e a t e r p e n e t r a t i o n o f the host country market. The d i s t i n g u i s h i n g f e a t u r e s o f t h i s type o f investments a r e : (a)  The investments are made p r i m a r i l y i n response to u n d e r l y i n g economic c o n s i d e r a t i o n s such as the s i z e o f l o c a l market and i t s long r u n p o t e n t i a l .  (b)  The investment outputs a r e p r i m a r i l y intended f o r s a l e i n the host country.  (c)  The.investments  r e p r e s e n t a long term commitment i n the  host country; hence, i n v e s t o r s a r e more concerned with the long term o u t l o o k and s t a b i l i t y o f the host country. Short to medium term p r o f i t a b i l i t y c o n s i d e r a t i o n s may o n l y be secondary. (d)  These investments are d i r e c t l y i n f l u e n c e d by p a r t i c u l a r host country p o l i c i e s on t a r i f f s ,  t r a d e c o n t r o l s , taxes and  s u b s i d i e s as w e l l as r e g u l a t i o n s imposed upon f o r e i g n investors.  31  Compared t o e x p o r t o r i e n t e d  investments,  be a g r e a t e r p r o p o r t i o n o f o u t p u t s b e i n g s o l d country. Again  the a r b i t r a r y  differentiating national  there  will  i n the host  benchmark o f 50% may be u s e d f o r  between t h e two."^ Many i n v e s t m e n t s  corporations i n manufacturing  by  inter-  i n developed c o u n t r i e s  a r e o f t h e m a r k e t d e v e l o p m e n t t y p e . I n v e s t m e n t s i n d u c e d by t r a d e barriers will  also belong t o t h i s  c a t e g o r y . B u t o f c o u r s e , an  i n v e s t m e n t may b e g i n a s a a n a r k e t d e v e l o p m e n t i n v e s t m e n t , turning  instead  reaches  saturation.  t o e x p o r t o r i e n t e d when t h e h o s t c o u n t r y m a r k e t  Government i n i t i a t e d mainly  a t the i n i t i a t i v e  investment  investments  are undertaken  o f t h e h o s t c o u n t r y g o v e r n m e n t . The  o u t p u t s c a n be m o s t l y  investments  then  f o r e x p o r t s as i n the case o f  i n mineral extraction,  or to serve the host  country's  n e e d s . The h o s t c o u n t r y g o v e r n m e n t t a k e s up t h e i n i t i a t i v e t o attract  o r even i n v i t e  investment  foreign  p r o j e c t s e i t h e r because l o c a l  c o n d i t i o n s do n o t w a r r a n t investors,  profitable  to undertake  i n a variety  depreciation,  u n d e r t a k i n g s by  Investment i n c e n t i v e s  r e m i t t a n c e s o r duty  free  of capital  local  the required  are usually  o f forms such as t a x h o l i d a y s ,  guarantees  certain  s u p p l y and demand  or only the f o r e i g n i n v e s t o r s possess  t e c h n o l o g y and c a p i t a l . provided  investors  repatriation  accelerated  and p r o f i t  i m p o r t s o f m a t e r i a l s and e q u i p m e n t . The  r e a s o n s why s u c h c o n c e s s i o n s a r e g i v e n a r e g e n e r a l l y r o o t e d i n the government's d e s i r e  to establish  new i n d u s t r i e s ,  t o promote  32  regional  development, to generate  technology.  Such i n v e s t m e n t s  interdependence  employment o r t o  inevitably  between t h e f o r e i g n  import  c r e a t e a h i g h degree  i n v e s t o r s and  the  of  host  c o u n t r y g o v e r n m e n t . I n a number o f i n s t a n c e s , t h e y a r e made in  the form  investments or  of j o i n t  in capital  investments  this  between t h e two  parties.  Many  projects  in.less  developed c o u n t r i e s  i n manufacturing  i n free  t r a d e zones b e l o n g  to  category.  Finally, select a particular According be  ventures  a few words on country  t o B r o o k e and  classified  as  the i n i t i a l  f o r investment  decision  instead of  Remmers, t h e e x t e r n a l p u l l  ' d e f e n s i v e , ' a g g r e s s i v e ' and  to  another.  factors  can  'other p r e s s u r e '  1  31 reasons.  "The  distinction  aggressive reason that  the  former  between a d e f e n s i v e r e a s o n and  i s somewhat b l u r r e d  is essentially  and  concerned  i n the f o r e i g n  arbitrary.  an  It lies  in  with preserving existing  business  interests  country while  the  involves  a change i n d i r e c t i o n o r a s e a r c h f o r new  latter business  32 opportunities. potential product one  threat of l o c a l  life  represent  of  cycle  theory w i l l  advantages w i l l  those reasons  c a t e g o r i e s and the c h i e f  investment  t o meet  c o m p e t i t i o n as i s s u g g e s t e d be  defensive i n nature  w h i c h a i m s a t e x p l o i t i n g more f u l l y  competitive  two  F o r example, a f o r e i g n  be  include,  not  the  whereas  the c o r p o r a t i o n ' s  aggressive.  w h i c h do  by  the  'Other  f i t into  pressures'  either of  these  f o r example, p e r s o n a l c o n v i c t i o n s  e x e c u t i v e r e g a r d i n g t h e need t o expand  overseas.  33  Notes  1.  F o r example, s e e G e i g e r , T. and G e i g e r , F.M., The D e v e l o p m e n t P r o g r e s s o f Horig Kong arid S i n g a p o r e ( T a l e s o f Two C i t y S t a t e s ) , M a c m i l l a n , Hong Kong, 1976. H o p k i n s , K. ( e d . ) , Hong Kong: The I n d u s t r i a l C o l o n y , O x f o r d U n i v e r s i t y P r e s s , L o n d o n , 1971. S z c z e p a n i k , E . , The E c o n o m i c Growth o f Hong Kong, O x f o r d U n i v e r s i t y P r e s s , L o n d o n , 1958. :  2.  Throughout t h i s t h e s i s , a ' f o r e i g n manufacturer' i s used to d e n o t e a m a n u f a c t u r i n g f i r m w h i c h has 25% o r more f o r e i g n ownership i n t e r e s t .  3.  According to a United Nations study (United Nations, M u l t i n a t i o n a l C o r p o r a t i o n s i n W o r l d D e v e l o p m e n t , New York, 1973) a l l o f t h e l e a d i n g t w e n t y - o n e m u l t i n a t i o n a l c o r p o r a t i o n s i n 1971 (each w i t h f o r e i g n a s s e t h o l d i n g s e x c e e d i n g US$1 b i l l i o n ) were engaged i n e i t h e r m a n u f a c t u r i n g o r i n t h e m i n i n g and e x t r a c t i o n o f m i n e r a l s and o i l . I n d e s c e n d i n g o r d e r i n t e r m s o f amount o f f o r e i g n a s s e t s , t h e y were Exxon, Royal Dutch S h e l l , I.T.T., F o r d Motors, M o b i l O i l , G u l f O i l , P h i l i p s , U.S. S t e e l , G e n e r a l M o t o r s , U n i l e v e r , N e s t l e , I.B.M., B r i t i s h P e t r o l e u m , B r i t i s h - A m e r i c a n T o b a c c o , Volkswagon, P e t r o f i n a , R i o - T i n t o - Z i n c , C h r y s l e r , Texaco, F i a t and G e n e r a l E l e c t r i c .  4.  F o r example, i n r e c e n t y e a r s t h e U.S., w h i c h a l o n e a c c o u n t s f o r a r o u n d 50% o f t h e w o r l d ' s t o t a l d i r e c t f o r e i g n i n v e s t ments, has o n l y a b o u t o n e - f i f t h o f i t s d i r e c t f o r e i g n investments i n non-manufacturing a c t i v i t i e s . E x c l u d i n g p e t r o l e u m and m i n i n g , m a n u f a c t u r i n g s t i l l a c c o u n t s f o r o v e r 40% o f t o t a l U.S. d i r e c t i n v e s t m e n t s a b r o a d s i n c e 1966.  5.  I n t h e y e a r 1978, Hong Kong's e x p o r t s t o t h e U.S. amounted t o HK$15,125 m i l l i o n w h i c h was 37.2% o f Hong Kong's t o t a l d o m e s t i c e x p o r t s . I n t h e same y e a r , Hong Kong's i m p o r t s f r o m J a p a n were HK$14,405 m i l l i o n , o r 22.8% o f Hong Kong's t o t a l i m p o r t s . (The r a t e o f e x c h a n g e f o r 1978 a v e r a g e d a b o u t HK$1 = US$0,213.) S o u r c e : Hong Kong A n n u a l R e p o r t , 1979.  6.  T h i s q u e s t i o n n a i r e s u r v e y a c t u a l l y formed a p a r t o f a w i d e r and c o n t i n u o u s r e s e a r c h s t u d y w h i c h a l s o a i m e d a t c o m p a r i n g t h e o p e r a t i o n s o f f o r e i g n m a n u f a c t u r e r s i n Hong Kong w i t h t h e i r l o c a l c o u n t e r p a r t s and r e v e a l i n g c h a n g e s , i f any, i n t h e i r s t r a t e g i e s and a t t i t u d e s t h r o u g h t i m e . The q u e s t i o n n a i r e had been p i l o t t e s t e d i n a s u r v e y i n 1977 i n o r d e r t o f i n d out whether or not the f o r e i g n manufacturers understood the q u e s t i o n s and w o u l d be a b l e and w i l l i n g t o answer. T h e r e were some q u e s t i o n s on f i n a n c i n g and p r i c i n g w h i c h drew v e r y p o o r  34  r e s p o n s e s i n t h e p i l o t s u r v e y . They were d e l e t e d i n t h e 1979 survey.  subsequently  7.  The l i s t o f m a n u f a c t u r i n g f i r m s w i t h f o r e i g n o w n e r s h i p i n t e r e s t was c o m p i l e d by t h e w r i t e r f r o m r e s t r i c t e d r e c o r d f i l e s k e p t by t h e T r a d e P r o m o t i o n B r a n c h , D e p a r t m e n t o f T r a d e , I n d u s t r y and Customs, Hong Kong g o v e r n m e n t .  8.  The most common q u e s t i o n s unanswered i n t h e r e t u r n s i n t h e f i r s t i n s t a n c e were t h o s e r e l a t e d t o " c a p i t a l , ' s a l e s ' and ' r e t u r n on i n v e s t m e n t ' . 1  9.  P r i v a t e b u s i n e s s f i r m s i n Hong Kong a r e n o t p a r t i c u l a r l y c o o p e r a t i v e w i t h a c a d e m i c s t u d i e s . The r e s p o n s e r a t e s o f v a r i o u s b u s i n e s s r e s e a r c h p r o j e c t s c o n d u c t e d by u n i v e r s i t y s t a f f and s t u d e n t s u s i n g q u e s t i o n n a i r e s have s e l d o m e x c e e d e d 20%.  10.  See  11.  See t h e s e c t i o n on ' o w n e r s h i p and C h a p t e r VI and A p p e n d i x I I - 6 . 1 .  12.  T h e o r i e s r e l a t e d t o t h e management o f i n t e r n a t i o n a l c o r p o r a t i o n s may be r e g a r d e d as a s u b s e t o f t h e o r i e s o f d i r e c t f o r e i g n i n v e s t m e n t s . Some w r i t e r s r e g a r d t h e s e t h e o r i e s as r e p r e s e n t i n g a b u s i n e s s a d m i n i s t r a t i o n approach even though t h e y a r e b a s i c a l l y c o n c e r n e d w i t h how f o r e i g n i n v e s t m e n t s a r e o r s h o u l d be managed i n s t e a d o f why f o r e i g n i n v e s t m e n t s have t a k e n p l a c e . Many books on i n t e r n a t i o n a l b u s i n e s s do c o n t a i n v a r i o u s t h e o r i e s on managing t h e e x c h a n g e r i s k , n e g o t i a t i n g w i t h f o r e i g n governments, b a r g a i n i n g w i t h i n t e r n a t i o n a l u n i o n s , o r g a n i z i n g g l o b a l o p e r a t i o n s , and so f o r t h . F o r example: Dymsza, W.A. , M u l t i n a t i o n a l B u s i n e s s S t r a t e g y , McGraw H i l l New Y o r k , 1972, F a y e r w e a t h e r , J . , I n t e r n a t i o n a l B u s i n e s s Management, McGraw H i l l , New Y o r k , 1969, F a r m e r , R.N. and Richman, B.M., I n t e r n a t i o n a l Business; An O p e r a t i o n a l T h e o r y , I r w i n , Homewood, 1972, R o b i n s o n , R.D., I n t e r n a t i o n a l B u s i n e s s Management, H o l t , R i n e h a r t and W i n s t o n , New Y o r k , 1973, Robock, S.H. and Simmonds, K., I n t e r n a t i o n a l B u s i n e s s and M u l t i n a t i o n a l E n t e r p r i s e , I r w i n , Homewood, 1973 and S t o p f o r d , J.M. and W e l l s , L.T. J r . , M a n a g i n g t h e M u l t i n a t i o n a l E n t e r p r i s e , B a s i c Books, New Y o r k , 1972.  13.  I n i n t e r n a t i o n a l b u s i n e s s l i t e r a t u r e , t h e common c r i t e r i a u s e d f o r i d e n t i f y i n g ' s i g n i f i c a n t management c o n t r o l ' by f o r e i g n e r s a r e : ( i ) when f o r e i g n e r s own 50% o r more o f t h e i s s u e d c a p i t a l , o r ( i i ) when f o r e i g n e r s own 50% o r more o f t h e v o t i n g c a p i t a l , o r ( i i i ) when 25% o f more o f t h e v o t i n g  Appendix  II-l.l  and  Appendix  II-l.2. management c o n t r o l ' i n  35  c a p i t a l a r e c o n c e n t r a t e d i n t h e hands o f a s i n g l e f o r e i g n e r o r an o r g a n i z e d g r o u p o f f o r e i g n h o l d e r s o r ( i v ) when f o r e i g n e r s a r e known t o have a c o n t r o l l i n g v o i c e i n t h e company's p o l i c i e s t h r o u g h , f o r example, r e p r e s e n t a t i o n i n t h e b o a r d o f d i r e c t o r s o r some management c o n t r a c t s s i g n e d w i t h l o c a l owners.(But even the l a s t c r i t e r i o n i s n o t e x a c t enough t o s e r v e as a w o r k a b l e d e f i n i t i o n i n some i n s t a n c e s . ) 14.  A good d i s c u s s i o n o f t h e d e t e r m i n a n t s o f i n d i r e c t f o r e i g n i n v e s t m e n t s i s g i v e n i n t h e a r t i c l e by R a g a z z i , G., "Theories of the Determinants o f D i r e c t F o r e i g n Investment", I n t e r n a t i o n a l Monetary Fund S t a f f P a p e r s , Vol.XX, J u l y , 1 9 7 3 .  15.  T h e s e f i g u r e s a r e o b t a i n e d f r o m W a l l a c e ' J r . , D., I n t e r n a t i o n a l Regulations of M u l t i n a t i o n a l Corporations, Praeger, New Y o r k , 197 6, T a b l e 1-1, page 7. The e l e v e n l e a d i n g i n d u s t r i a l c o u n t r i e s o f t h e West r e f e r r e d t o a r e B e l g i u m , Canada, F r a n c e , I t a l y , J a p a n , t h e N e t h e r l a n d s , Sweden, S w i t z e r l a n d , U n i t e d Kingdom, t h e U n i t e d S t a t e s and West Germany.  16.  Hymer, S., The I n t e r n a t i o n a l O p e r a t i o n s o f N a t i o n a l F i r m s : A S t u d y Of D i r e c t F o r e i g n I n v e s t m e n t , The M.I.T. P r e s s , C a m b r i d g e , Mass., 1976. E v e n t h o u g h t h i s work was p u b l i s h e d i n 1976, i t was i n f a c t a d o c t o r a l d i s s e r t a t i o n c o m p l e t e d by Hymer i n 1960 u n d e r t h e s u p e r v i s i o n o f C P . Kindleberger. T h i s t h e o r y i s a l s o sometimes c a l l e d t h e K i n d l e b e r g e r - H y m e r t h e o r y o r K i n d l e b e r g e r - H y m e r - C a v e t h e o r y as t h e three of them were p r o b a b l y t h e e a r l i e s t a d v o c a t e s o f t h e t h e o r y . See a l s o , K i n d l e b e r g e r , C P . , American Business Abroad: S i x L e c t u r e s on D i r e c t I n v e s t m e n t , Y a l e U n i v e r s i t y P r e s s , New Haven, 1969 and C a v e s , R.E., "International Corporation: The I n d u s t r i a l E c o n o m i c s o f F o r e i g n I n v e s t m e n t " , E c o n o m i c a , February, 1971.  17.  See L i t t l e , I . , S c i t o r s k y , T. and S c o t t , M., I n d u s t r y and T r a d e i n Some D e v e l o p i n g C o u n t r i e s , O x f o r d U n i v e r s i t y P r e s s London, 1970 and K o h l h a g e n S.W., "Host C o u n t r y P o l i c i e s and MNC's: The P a t t e r n o f F o r e i g n I n v e s t m e n t i n S o u t h e a s t A s i a " , C o l u m b i a J o u r n a l o f W o r l d B u s i n e s s , S p r i n g , 1977 f o r a d i s c u s s i o n o f the import s u b s t i t u t i o n p o l i c y .  18.  V e r n o n , R., " I n t e r n a t i o n a l I n v e s t m e n t and I n t e r n a t i o n a l Trade i n the Product C y c l e " , Q u a r t e r l y J o u r n a l of Economics, F e b r u a r y , 1967; H i r s c h , S., L o c a t i o n o f I n d u s t r y and I n t e r n a t i o n a l Competitiveness, Oxford U n i v e r s i t y Press, L o n d o n , 1967; W e l l s J r . , L.T., The P r o d u c t L i f e C y c l e and I n t e r n a t i o n a l Trade, Harvard Business School, D i v i s i o n of Research, Boston, 1972.  36  19.  G i l p i n , R., U.S. B a s i c Books, New  Power and t h e M u l t i n a t i o n a l Y o r k , 1975, p.122.  Corporation,  20.  K n i c k e r b o c k e r , F.T., O l i g o p o l i s t i c R e a c t i o n and Multinat i o n a l E n t e r p r i s e s , Harvard U n i v e r s i t y P r e s s , Cambridge, Mass., 1974.  21.  A l i b e r , R., "A T h e o r y o f D i r e c t F o r e i g n I n v e s t m e n t " i n The I n t e r n a t i o n a l C o r p o r a t i o n : A Symposium e d i t e d by CP. Kindleberger, The M.I.T. P r e s s , C a m b r i d g e , Mass., 197 0.  22.  R a g a z a i , G., " T h e o r i e s o f t h e D e t e r m i n a n t s o f D i r e c t F o r e i g n I n v e s t m e n t " , I n t e r n a t i o n a l M o n e t a r y Fund S t a f f P a p e r s , V o l . XX, J u l y , 1973, page 480.  23.  L e v y , H. and S a r n a t , M., "International D i v e r s i f i c a t i o n and I n v e s t m e n t P o r t f o l i o s " , A m e r i c a n E c o n o m i c Review, September, 1970.  24.  A more r e c e n t and d e t a i l e d a n a l y s i s on i n t e r n a t i o n a l d i v e r s i f i c a t i o n i s g i v e n i n Rugman, A.L., International D i v e r s i f i c a t i o n and t h e M u l t i n a t i o n a l E n t e r p r i s e , L e x i n g t o n Books, L e x i n g t o n , Mass., 1979.  25.  F o r example, a s u r v e y o f t h e t h e o r e t i c a l and e m p i r i c a l s t u d i e s on f o r e i g n i n v e s t m e n t d e c i s i o n s by S t e v e n s i n 1973 ( S t e v e n s , G.V.G., "The M u l t i n a t i o n a l F i r m s and the Determinants of Investment", I n t e r n a t i o n a l F i n a n c e D i s c u s s i o n P a p e r 29, W a s h i n g t o n , D.C., 1973) concluded that there was no c o m p e l l i n g t h e o r e t i c a l b a s e o r e m p i r i c a l e v i d e n c e to suggest t h a t i n t e r n a t i o n a l f i r m s d e v i a t e d from the economic assumption o f p r o f i t m a x i m i z a t i o n i n making t h e i r decisions.  26.  Reuber, G.L. ( w i t h C r o o k e l l , H., Emerson, M. and G a l l a i s Hamonno, G.), P r i v a t e F o r e i g n I n v e s t m e n t i n D e v e l o p m e n t , Clarendon Press, Oxford, 1973.  27.  Reuber u s e d ' o v e r 10% o f t h e p r o j e c t ' s o u t p u t i s e x p o r t e d ' as t h e c r i t e r i o n ; b u t i n t h e w r i t e r ' s o p i n i o n , t h i s i s f a r t o o low a p e r c e n t a g e t o be u s e d . A t any r a t e , i n R e u b e r ' s s t u d y , o u t o f t h e e i g h t y p r o j e c t s , t w e n t y - s i x were c l a s s i f i e d as e x p o r t o r i e n t e d and t h e i r e x p o r t s a l e s r e p r e s e n t e d 87% o f t h e i r t o t a l s a l e s .  28.  K o j i m a , K., D i r e c t F o r e i g n I n v e s t m e n t : A J a p a n e s e M o d e l o f M u l t i n a t i o n a l B u s i n e s s O p e r a t i o n s , Croom Helm, L o n d o n , 1978.  29.  T h e r e i s a n o t h e r i n t e r p r e t a t i o n o f t r a d e o r i e n t e d and a n t i t r a d e o r i e n t e d f o r e i g n i n v e s t m e n t s w h i c h has t h e h o s t c o u n t r y as t h e s t a r t i n g p o i n t . xAccording t o t h i s i n t e r p r e -  37  t a t i o n , an i n v e s t m e n t i s t r a d e o r i e n t e d i f i t g e n e r a t e s an e x c e s s demand f o r i m p o r t s , and an e x c e s s s u p p l y o f e x p o r t a b l e s a t c o n s t a n t t e r m s o f t r a d e and i t i s a n t i - t r a d e o r i e n t e d i f t h e c o n v e r s e h o l d s . See P u r v i s , D.D., " T e c h n o l o g y , T r a d e and F a c t o r M o b i l i t y " , E c o n o m i c J o u r n a l , September, 197 2. 30.  The u s e o f 50% may be t o o h i g h i n t h i s c a s e , b u t t h e r e i s no g e n e r a l l y a c c e p t e d c l e a r - c u t d i v i d i n g l i n e between t h e two. The i n v e s t m e n t m o t i v e i s e v i d e n t l y a b e t t e r c r i t e r i o n t o be u s e d t h a n t h e a c t u a l p r o p o r t i o n o f e x p o r t s a l e s .  31.  B r o o k e , M.Z. and Remmers, H.L., The S t r a t e g y o f M u l t i n a t i o n a l E n t e r p r i s e s : O r g a n i z a t i o n and F i n a n c e , Longman, L o n d o n , 1970, C h a p t e r 9: " S t r a t e g i c C o n s i d e r a t i o n s i n t h e M o v e r A b r o a d " . 1  32.  The w r i t e r h a s r e s e r v a t i o n s o v e r t h e u s e o f t h e word ' a g g r e s s i v e ' b e c a u s e i t s l i t e r a l c o n n o a t i o n may be m i s l e a d i n g . I t s h o u l d n o t i n any c a s e i m p l y s o m e t h i n g provocative.  38  CHAPTER I I - •INDUSTRIAL DEVELOPMENT IN  This chapter  gives a brief  d e v e l o p m e n t i n Hong Kong and the growth f a c t o r s  and  account  HONG KONG  of  industrial  examines i t s p r e s e n t s t r u c t u r e ,  the r o l e  p l a y e d by  the government. I t s  p u r p o s e i s t o s e r v e as a r e f e r e n c e f o r a n a l y s i n g d i r e c t f o r e i g n investments  Industrial  i n manufacturing  D e v e l o p m e n t and  The the  British  comprises  First  1842  and  the V i c t o r i a  1860  contiguous leased  Island  (3 3/4  m a i n l a n d and  Kong m i g h t be  and  w h i c h i s one  365  in  sorting  f r e e d o m o f t r a d e and  security  miles)  and  the  adjacent  miles of  t h e New  the  Territories  o f t h e d e v e l o p m e n t o f Hong o f t h e g r o w t h o f an  and  grading  t r a d e r s . Soon a f t e r  i n the Far E a s t . I t  square  location  largest and  by  1898.  hundred years  a strategic  annexed  ceded i n p e r p e t u i t y i n  i s l a n d s known as  o f the world's  as a d i s t r i b u t i o n , Chinese  miles)  d e s c r i b e d as a c e n t u r y  economy. P o s s e s s i n g  Hong Kong was  (29 s q u a r e  square  f o r ninety-nine years  first  Structure  i t s trading post  respectively,  The  and  Present  Hundred Y e a r s :  t o s e r v e as  Kowloon P e n i n s u l a  i n Hong Kong.  and  a n a t u r a l harbour  finest, centre  i t first  f o r the  i t became a B r i t i s h  of B r i t i s h  rule  entrepot  served  British  colony,  attracted  the  a large  39  number o f B r i t i s h and  s e t up  busily  Chinese  businesses.  engaged n o t  financing of  and  and  By  only  the  i n t r a d i n g but  port f a c i l i t i e s ,  projects  throughout  arranged  s y n d i c a t e s to f l o a t  after  Chinese  the  was  R e v o l u t i o n o f 1911,  and  second o n l y  the China  its  p o r t and  basic  other  big British  banks  f o r t h e Manchu g o v e r n m e n t f o r the r e p u b l i c a n regime.  rudimentary  as h a v i n g and  By  the  in  1930s, Hong Kong  and  industries  along  were m o s t l y  The  t h a t Hong Kong linked  up  i t s related  operations  screws, hinges,  such wire,  a l s o brought f o r t h and  i n s c o p e and  i n d u s t r y type  with  i n d u s t r i e s which c o u l d  some i m p o r t a n c e were s h i p b u i l d i n g  food products  were l i m i t e d  the  trading activities.  necessities  cottage  and  the' b u s i e s t t r a d i n g p o r t  these years,  nets, n a i l s ,  apparel,  f o r the c o n s t r u c t i o n  coast.  were e x t r e m e l y  ropes,  were  b a n k s a l s o grew s u b s t a n t i a l l y  t o S h a n g h a i as  had  repairing  The  scope o f a c t i v i t i e s .  During  regarded  loans  they  also i n shipping,  public u t i l i t i e s  sbmthern China.  m e r c h a n t h o u s e s and  number, s i z e  t u r n of the century  e v e n as management a g e n c i e s  railroads,  and,  m e r c h a n t s t o come t o Hong Kong  as  and  the manufacture  of  e t c . L o c a l demand f o r  the manufacture of  beverages.  be  These a c t i v i t i e s ,  were c o n f i n e d a l m o s t  wearing however,  exclusively  to  operations. i  In the the 1932  inter-war years  Commonwealth p r e f e r e n c e  the growth i n p o p u l a t i o n  and  scheme u n d e r t h e Ottawa A g r e e m e n t  c o u l d have g i v e n Hong Kong m a n u f a c t u r e r s  some i n d u c e m e n t  of to  40  expand p r o d u c t i o n countries; occupied  to export  b u t W o r l d War  by  as w e l l as  to nearby  i t s entrepot  p l a n s were s t i l l  extremely  being  China  to a  When t h e War fragile.  developed,  Hong Kong  This brought  trade with  Post-war Years:  economy was  Commonwealth  I I s o o n b r o k e o u t and  t h e J a p a n e s e i n 1941.  The war-torn  and  local  forced The that  turned  out  t o be  ended, Hong Kong's  While r e c o n s t r u c t i o n  there occurred  as w e l l as  The  first  of less  r e s i d e n t s who  than fled  million  ensuing  years  and this  to the Chinese  p o p u l a t i o n more t h a n  2.2  million  the  economy. A l t h o u g h  satisfactorily  the  end  i n China  achievements  world.  i n p o p u l a t i o n . When a popuformer  doubled  i n one  1952.  between t h e t h e r e was  entrepot  d u r i n g the  late  This put trade with  came year  i n c r e a s e d i n the Nationalists  another  influx,  b r i n g i n g Hong Kong's p o p u l a t i o n t o of  both  somehow  m a i n l a n d d u r i n g t h e War  when t h e c o n f l i c t s  of refugees, by  they  i n A u g u s t 194 5, Hong Kong had  Communists i n t e n s i f i e d time  explosive rise  i n mid-1946. I t s t e a d i l y  and  eventually  600,000. When p e a c e r e t u r n e d , many  b a c k t o Hong Kong. The t o 1.55  an  incidents,  industrialization.  s u r p r i s e d the whole  was  the Japanese surrendered lation  of  a remarkable t r a n s f o r m a t i o n with  impressed  two  b l e s s i n g s i n d i s g u i s e as  Hong Kong t o embark upon a p r o c e s s  r e s u l t was  industries  halt.  e i t h e r o f w h i c h c o u l d have been d i s a s t r o u s . B u t incidents  was  over  tremendous p r e s s u r e China  on  revived quite  1940s i t c o u l d n o t p r o v i d e  enough  41  employment f o r t h e p e o p l e i n c o m e s and clothe  nor  could i t generate  government r e v e n u e s  needed t o h o u s e , f e e d  participation a ban  control. May  on  i n t h e war,  19 51,  f o l l o w e d by  placing  strategic  i n c o m e , was  in  that year  in  1955.  Chinese  g o v e r n m e n t i n December China  under  then  1950  Communist embargo i n  i t s member c o u n t r i e s i n  goods t o C h i n a . As  dealt  of i t s t o t a l  Because o f  the United Nation's  r e s t r i c t i o n s on  e n t r e p o t t r a d e , w h i c h was  36.2%  t h e U.S.  a l l trade with mainland  T h i s was  exporting  of  and  them.  Then came t h e K o r e a n War.  put  sufficient  still  a result,  Hong Kong's  i t s most i m p o r t a n t  source  a n e a r m o r t a l blow. I t s e x p o r t s t o  China--  e x p o r t s i n 1951,  t o o n l y HK$520 m i l l i o n  fell  from  i n 1952  HK$1,604  and  million  HK$182 m i l l i o n  1  Faced to manufacturing  with  such  severe a d v e r s i t i e s ,  for survival  and  managed t o do  Hong Kong so  turned  almost  2 c o m p l e t e l y on was  i t s own.  to a c e r t a i n  Among t h e new  The  first  p r o c e s s Of  extent i n c i d e n t a l with  immigrants  and  industrialization  the events  r e f u g e e s who  fled  i n China.  from  the  r e g i m e i n C h i n a were many. S h a n g h a i e n t r e p r e n e u r s w i t h business experience mills. their  i n o p e r a t i n g c o t t o n s p i n n i n g and  With the machines they brought textile  factories  w i t h them t h e y  i n Hong Kong. T h e i r  long weaving reestablished  manufacturing  operations received instant  support  work f o r c e who  t o work f o r e x t r e m e l y  were w i l l i n g  from  communist  the r e a d i l y  available  low wages  and  42  under  harsh conditions,  banks l o o k i n g  from the c r e d i t  for alternative  investment o u t l e t s ,  e x p o r t m a r k e t i n g c h a n n e l s p r o v i d e d by British  and  success, the  the l o c a l  Cantonese  o v e r s e a s C h i n e s e who  their  and  chaotic.  gradually  weaving  the long  soon  furniture,  plastic  familiar  from c o t t o n  flowers,  turned flourish  spinning  handbags,  the manufacture  electrical also  rolling  and  catered  t o t h e needs o f t h e l o c a l  developments  i n turn  and  stores,  shipping,  light  facilities,  and o f a u x i l i a r y  services  and in  city,  shipping Southeast  i t was  centre, Asia.  also well  second  equipment  industries.  and w a r e h o u s e s ,  communication  t a n c y . By m i d - 1 9 6 0 s , Hong Kong was industrial  and  wigs,  public  optical  metal which  These  t h e grov.'th o f a n c i l l a r y  accounting, advertising,  and  electronics  began t o emerge, s u c h as  s u c h as t h e c o n s t r u c t i o n o f f a c t o r i e s p o r t a t i o n and  a p p l i a n c e s and  o f machine t o o l s  stimulated  and  wood and m e t a l p r o d u c t s and .  Eore r e c e n t l y i n t o consumer d u r a b l e goods s u c h as r a d i o s ,  products. Heavier i n d u s t r i e s  by  harbour f o r  products, clothing  artificial  h o u s e h o l d goods,  and p h o t o g r a p h i c e q u i p m e n t ,  the  quick  i n Eong Kong began t o  t o w o o l e n and man-made t e x t i l e toys,  their  i n Indo-China  expanded and d i v e r s i f i e d ,  footwear of a l l kinds,  from  f o l l o w e d . They were j o i n e d  situations  Industries  and  local  established  h o u s e s . I n s p i r e d by  s o u g h t a s a f e and  c a p i t a l when p o l i t i c a l  dubious and  Chinese merchant  f o r t h c o m i n g from  activities  trans-  utilities,  offices  s u c h as b a n k i n g , i n s u r a n c e ,  legal  and management  not only a world  consul-  famous  known as a f i n a n c i a l ,  i n i t s b u s i n e s s volume o n l y  insurance t o Tokyo  43  The  process of i n d u s t r i a l  c o u l d be r e g a r d e d a s c o m p l e t e d based time  entirely  t r a n s f o r m a t i o n i n Hong Kong  i n 1959 when i t s d o m e s t i c  on i t s m a n u f a c t u r i n g  production, f o r the  s u r p a s s e d i t s r e e x p o r t s , and by a c o m f o r t a b l e  (HK$2,282 m i l l i o n  a s a g a i n s t HKS995 m i l l i o n ) .  exports, first  margin  From t h e n onwards,  not only d i d domestic  exports maintain the lead but a l s o  r a p i d l y widened. F u l l  employment was a c h i e v e d by 1960 a n d h a s  been m a i n t a i n e d  ever since.  In f a c t ,  instead  t h e gap  o f h a v i n g unemploy-  ment w h i c h has b e e n p l a g u e i n g many c o u n t r i e s i n r e c e n t y e a r s , Hong Kong has had l a b o u r s h o r t a g e s most o f t h e t i m e .  Although statistics, figures:  Hong Kong has no m a n u f a c t u r i n g  i t sindustrial  growth i s r e f l e c t e d  I n t h e two d e c a d e s f r o m  manufacturing  e s t a b l i s h m e n t s i n c r e a s e d more  five-fold  from  148 t h o u s a n d  e x p o r t s more t h a n t h i r t y HK$35,004  million.  The  times  than t e n - f o l d industries  t o 755 t h o u s a n d ;  and  from  more  domestic  f r o m HK$1,200 m i l l i o n t o  3  Present Structure:  Hong Kong economy  by t h e f o l l o w i n g  1957 t o 1977, t h e number o f  3,290 t o 37,568; employment i n m a n u f a c t u r i n g than  output  The p r e s e n t s t r u c t u r e o f t h e  c a n be summarized by t h e f o l l o w i n g  distinctive  features:  (1) dominated  Hong Kong's m a n u f a c t u r i n g  by l i g h t  sector  consumer goods i n d u s t r i e s .  i s heavily  The o n l y  industries  44  w h i c h may  be  c o n s i d e r e d as h e a v y a r e s h i p b u i l d i n g  a i r c r a f t m a i n t e n a n c e and e q u i p m e n t . The importance (the  leading  the manufacture  light  are t e x t i l e s  and  bulk of which are p l a s t i c  accessories. total  I n 1977,  industrial  repairing,  o f machine t o o l s  industries clothing,  and  i n descending  electronics,  order of  plastics  t o y s ) and w a t c h e s , c l o c k s  these four  work f o r c e and  industries supplied  employed  76%  and  69%  and of  the  o f Hong Kong's  4 domestic  exports.  sporting  and  artificial  travelling  calculated  electrical  industries  f i g u r e s produced  include  products,  apparatus  Hong Kong i n d u s t r i e s  from  light  g o o d s , handbags, m e t a l  j e w e l l e r y and (2)  As  O t h e r more i m p o r t a n t  and a p p l i a n c e s .  are highly  export  oriented.  i n the government's  Census o f M a n u f a c t u r i n g E s t a b l i s h m e n t s , about  8 0% o f  1971  total 5  locally  manufactured  The  three leading  and  electronics  industries  a l l had  (3) The establishments manufacturing t h e end 5,600  products waseexported  over  - textiles  directly  and  85% o f p t h e i r  in  clothing,  1971. plastics  outputs being  overwhelming m a j o r i t y of  exported.  manufacturing  i n Hong Kong a r e s m a l l f i r m s . Of  the  37,568  e s t a b l i s h m e n t s r e g i s t e r e d w i t h the government a t  o f 1977,  24,846 • (66.1%) employed  (14.9%) t e n t o n i n e t e e n w o r k e r s and  to  f o r t y - n i n e workers.  of  a s m a l l i n d u s t r y as b e i n g one  less 4,186  I n o t h e r w o r d s , i f we  w o r k e r s as recommended by  than ten (11.1%)  use  the  w h i c h employs l e s s  t h e W o r k i n g P a r t y on  workers, twenty  definition  than  fifty  Small Scale  I n d u s t r y o f t h e U n i t e d N a t i o n ' s E c o n o m i c and S o c i a l for Asia  and t h e P a c i f i c ,  establishments  establishments,  large  90% o f t h e m a n u f a c t u r i n g  i n Hong Kong were s m a l l .  f o r o v e r 40% o f t o t a l  thousand  then over  industrial  only forty  They t o g e t h e r a c c o u n t e d  employment. Of t h e r e m a i n i n g  h a d an employment o f more t h a n one  a t t h e end o f 1977 and m i g h t  workers  Commission  be c o n s i d e r e d as  firms.  (4)  There  Hong Kong. L a b o u r stoppages  i s a h i g h degree  disputes are rare  of industrial  a n d t h e number  harmony i n  o f work  i s e x t r e m e l y l o w by W e s t e r n s t a n d a r d s . I n 1 9 7 7 ,  were a l t o g e t h e r o n l y 27 m i n o r  work s t o p p a g e s  there  i n manufacturing  7 resulting  i n a total  (5) working city  o f 7,978  man-days  lost.  There  i s a h i g h p r o p o r t i o n o f female  workers  i n industries.  Hong Kong i s p r o b a b l y t h e o n l y  industrial  i n t h e w o r l d which  male workers.  r e l i e s more o n f e m a l e w o r k e r s  A t t h e end o f 1 9 7 7 ,  755,108 workers  working  3 8 6 , 2 5 7 o r 51.2% o f t h e  i n manufacturing  (The p r o p o r t i o n o f f e m a l e s  than on  i n d u s t r i e s were  female.'  i n t h e p o p u l a t i o n o f Hong Kong a t  t h e e n d o f 1977 was 4 8 . 2 % . )  (6) tive. is  This  The i n d u s t r i a l  i s because  unskilled,  the c i t y  are geographically  l a b o u r market i s h i g h l y  competi-  t h e m a j o r i t y o f t h e i n d u s t r i a l work  force  i s v e r y m e t r o p o l i t a n and t h e i n d u s t r i e s  c o n c e n t r a t e d . There  i s a constant  struggle  46  among d i f f e r e n t  i n d u s t r i e s t o a t t r a c t more w o r k e r s by  wages. P r e s e n t l y , under the highest  the  force of  i n d u s t r i a l wage l e v e l  f r e e market c o m p e t i t i o n ,  i n Southeast A s i a ,  Apart  next to  higher  i n Hong Kong, i s the  second  Japan.  from t h e s e f e a t u r e s ,  a government s u r v e y  in  9 1973  gave the  f o l l o w i n g breakdowns o f m a n u f a c t u r i n g  Consumption of m a t e r i a l s F u e l , w a t e r and e l e c t r i c i t y Industrial services Non-industrial services Labour c o s t R e n t a l and o t h e r payments Depreciation of f i x e d assets Net o p e r a t i n g s u r p l u s  Consumption of m a t e r i a l s , imported, products was  the  to other  accounted (total  cost plus  and  operations  total  net  value  more o f t e n  60%  o f w h i c h was  of  operating t o o k up  the  fell  value  directly  of  the  s u r p l u s ) . Labour c l o s e to  extremely high.  20%.  This  surplus)  (labour  indicated  industrial  between 40  to  cost,  came t o an was  50%.  labour rent,  average  relatively  countries  cost  Compared  i n Hong Kong were h i g h l y  this proportion  when compared t o t h a t o f o t h e r proportion  62.5%  59.5% 1.3% 3.6% 2.9% 19.3% 2.9% 2.2% 8.3% 100.0%  f a c t o r incomes  operating and  to  and  i t was  However, t o t a l  depreciation of  net  item  factor costs,  that manufacturing  32.7%  for close  next heaviest  intensive.  around  costs:  low  whose  of  47  Growth F a c t o r s  and  The the  the  tutions,  f a c t o r s , i t s l o c a t i o n and  and  influx  i t s established  insti-  The  purpose of  t o examine more c r i t i c a l l y  The i n the  i n t e r m s o f an  i t s o v e r s e a s market l i n k s  government's economic p o l i c y .  skill  g r o w t h o f Hong Kong i n  i s commonly e x p l a i n e d  in particular,  elaborate  Role  phenomenal i n d u s t r i a l  post-war years  of productive  Government's  i n f l u x of  labour,  these  capital  immediate post-war y e a r s  this  and  was  unquestionably  rise  provided  expansion o f the  and  a large pool of  entrepreneurs  textile  i n p u t s was the  favourably  certainly  strategic  a c c o u n t s o f Hong Kong as  to  straight  forward  as  explosive  and  the  from Shanghai l e d t o the  the  process.  i n South-  cheap.  l o c a t e d to r e c e i v e these  valuable fact,  l o c a t i o n appears f r e q u e n t l y i n  t h e main r e a s o n  i n view of  Hong Kong's emergence as  between l o c a t i o n and  and  the  s o m e t h i n g t o Hong Kong's b e n e f i t . I n  geographical  perhaps j u s t i f i a b l e  labour  from nearby c o u n t r i e s  finance p l e n t i f u l  Being  The  i n d u s t r y which spearheaded  Then f u r t h e r i n f l o w s o f c a p i t a l east A s i a kept  s e c t i o n i s to  entrepreneurial  Hong Kong's i n d u s t r i a l i z a t i o n .  inflows of c a p i t a l  the  growth f a c t o r s .  main engine behind i n population  and  an  industrial some may  for i t s success,  i t s crucial entrepot  importance  i p o i J t . But  in  the  and  relation  relation  g r o w t h i n Hong Kong i s n o t  have t h o u g h t . A l t h o u g h t h e  is  as  entrepot  48  facilities days,  d i d h e l p Hong Kong's i n d u s t r i a l i z a t i o n  the a c t u a l  geographical location  has  i n o t h e r ways. I t i s u n f a v o u r a b l e b o t h o f raw is  m a t e r i a l s and  Hong Kong's  raw  material  f o r over  65%  s u p p l i e s a l s o have t o come from d i s t a n t  The Hong Kong has usable land sites. on  in relation  factor,  flat  l a n d r e c l a i m e d from and  offices  residential  has  a r e now  needs  Thus,  and  limited for  actually  in  industrial located  - K a i Chung, Kwun  T e r r i t o r i e s which  costs including  apartments  among t h e t o p i n t h e  Evidently,  premises  a l l i n t h e New  f r o m C h i n a . Land  now  is strictly  land which i s s u i t a b l e  under l e a s e and  countries.  l a n d , i s most u n f a v o u r a b l e .  the sea a t a h i g h c o s t  T a i Po,  o f Hong Kong's  ideal.  no m i n e r a l r e s o u r c e s and  Most o f i t s i n d u s t r i a l  Tong, Tuen Mun  as  and  o f m i l e s away.  to i t s i n d u s t r i a l  regarded  remaining  especially  neither  U.S.  Material  be  hinterland  m a r k e t f o r i t s p r o d u c t s . The  e x p o r t s i n r e c e n t y e a r s are thousands  cannot  sources  nor  domestic  market o u t l e t s  to  needs  Western Europe which t o g e t h e r account  Hong Kong's l o c a t i o n  hindrance  communist c o u n t r y w h i c h c a n  s u p p l y t o Hong Kong i t s i n d u s t r i a l p r o v i d e a good p o t e n t i a l  been an  in relation  to export markets.  C h i n a , an u n d e r d e v e l o p e d  i n i t s early  those  are extremely  for factories,  h i g h and  are  World.  the combination  o n l y been a m i x e d b l e s s i n g  and  of productive factors  cannot  fully  are  explain  Hong  49  Kong's r a p i d  industrial  g r o w t h . The i n s t i t u t i o n a l  t h e government's economic p o l i c y complete  s e t - u p and  have t o be i n c l u d e d  f o r a more  explanation.  To b e g i n w i t h , Hong Kong's e n t r e p o t h i s t o r y behind a commercial links.  overseas  market  When t h e e n t r e p o t t r a d e s u b s i d e d i n t h e e a r l y  1950s,  many c o m m e r c i a l facturing  sector with established  f i r m s took  industries  traditional  the i n i t i a t i v e  banks a l s o w i l l i n g l y  canon o f prudent  banking,  s h o u l d c o n c e n t r a t e on s h o r t t e r m Instead,  they  b u i l d i n g s and m a c h i n e r y .  The part. and  chose  grow. They s p e c i a l i z e d  themselves  specifications  the commercial  sector,  m a r k e t s by a l l y i n g with,  received  needed.  a s e t - u p w h i c h a l l o w e d them t o s u r v i v e i n manufacturing  a limited  range  stage o f t h e i r o p e r a t i o n s .  t o o v e r s e a s b u y e r s more o r l e s s a s p r o d u c -  t i o n w o r k s h o p s and m a n u f a c t u r e d latter's  i n factory  however, were a l s o w i s e o n t h e i r  o f p r o d u c t s and p r o c e s s e s i n t h e e a r l y They o f f e r e d  investment  Thus, t h e m a n u f a c t u r e r s  manufacturers,  they  l e n d i n g and f u n d i n g o f c a p i t a l .  support which they badly  They s e n s i b l y  ignored the  a c c o r d i n g t o which  f i n a n c e d much o f t h e f i x e d  financial  i n d e v e l o p i n g manu-  t o provide,themselves w i t h the merchandise  to t r a d e . L o c a l commercial  strong  left  their  products according to the  and r e q u i r e m e n t s . A i d e d by t h e s e r v i c e o f they e s t a b l i s h e d  themselves  to, rather  foreign producers. This sheltered  themselves  i n overseas  t h a n a t t e m p t i n g t o compete them f r o m  the superior  50  research, w o u l d be  product rivals.  were o b t a i n e d , -  to  own  products  started  and  to e s t a b l i s h  themselves  world.  p a r t p l a y e d by not  necessities  such  service  public  is  founded  practising  no wage c o n t r o l s ,  t a x h o l i d a y s and  be  developed  as  actually  and  done, b u t  leaving faire  no  neutrality.  policy  i s one  In a n u t s h e l l ,  o f minimal  gas,  telephone  and  100%  by  activities.  one  the  factor  industries prices.  reserves  and  standard  w h i c h aims a t  the government's and  protective  owned. M a r k e t  a l l product  government  modern  subventions,  a mechanism n o t u n l i k e t h e o l d g o l d  fiscal  the  Even the b a s i c  light,  i s b a c k e d more t h a n  this  in this  t o shape t h e economy, t o s e l e c t to determine  i n what i t  i t as  controls,  t r a n s p o r t are p r i v a t e l y  and  ago.  b e e n most  f i v e - y e a r p l a n s , no sort.  their  i n foreign countries.  laissez  budget i s always a b a l a n c e d  private business  directions  a f r e e p o r t and  price  nothing of the  Hong Kong d o l l a r r e g u l a t e d by  no  as e l e c t r i c i t y  are allowed  s y s t e m . The  skills  to design  i n Hong Kong  so much i n what i t has  which i s s t i l l  and  and  t h e g o v e r n m e n t has  I n Hong Kong, t h e r e a r e no  tariffs,  forces  sales offices  remained unchanged i n a c e n t u r y ,  only c i t y  otherwise  as a s s e m b l y w o r k s h o p s t w e n t y y e a r s  n o t done. Hong Kong was  i d e a has  The  of the  G r a d u a l l y when t h e e x p e r i e n c e  established industrialists  controversial,  to  marketing  t h e y were a b l e t o i n t e g r a t e i n b o t h  The  no  and  'manufacture-up' the p r o d u c t i o n p r o c e s s ,  Many now  has  designs  economic  non-interference i n  51  This policy the economists f o r not extreme i n e q u a l i t i e s w o r k e r s no  using f i s c a l  o f income,  and  present  from i n d u s t r i a l i s t s  has  instances reiterated  policy  At  reason  any  that  r a t e , no  one  environment.  has  But  no  minimum wage  t h e g o v e r n m e n t has  i t s i n t e n t i o n to s t i c k justification  Hong Kong has  in to i t s  is  simply  been a b l e recourse  to to  economy. T h e r e seems t o be  been a b l e  i s not  the  p r o v i d i n g them  f o r c h a n g i n g a p o l i c y w h i c h i s so  such a p o l i c y  unique  f o r not  a whole range o f economic g o a l s w i t h o u t  government i n t e r v e n t i o n i n the valid  m e a s u r e s t o remove  o f n o n - i n t e r v e n t i o n . The  worked. In the p a s t y e a r s ,  achieve  from  from t r a d e u n i o n i s t s f o r g i v i n g  s u b s i d i z e d f a c t o r y premises.  a number o f  it  o f t e n come u n d e r a t t a c k :  p r o t e c t i o n a g a i n s t unemployment and  legislation with  has  to prove,  t h e most i d e a l  or  f a r , so to  no  good.  disprove  f o r Hong Kong i n i t s  52  Notes  1.  S o u r c e : Hong Kong Government, D e a p r t m e n t o f Commerce and I n d u s t r y (now t h e D e p a r t m e n t o f T r a d e , I n d u s t r y and C u s t o m s ) , D i r e c t o r y o f Commerce, I n d u s t r y arid F i n a n c e , 1957.  2.  I n t h e i m m e d i a t e p o s t - w a r y e a r s t h e o n l y o u t s i d e a i d Hong Kong r e c e i v e d was f o r r e l i e f and r e h a b i l i t a t i o n o f t h e r e f u g e e s and n o t f o r r e c o n s t r u c t i o n and d e v e l o p m e n t .  3.  S o u r c e : Hong Kong Government, D e p a r t m e n t o f C e n s u s and S t a t i s t i c s , Monthly D i g e s t o f S t a t i s t i c s , v a r i o u s i s s u e s .  4.  Ibid.  5.  D e p a r t m e n t o f Commerce and I n d u s t r y , Hong Kong Government, 1971 C e n s u s o f M a n u f a c t u r i n g E s t a b l i s h m e n t s , Hong Kong, 1972.  6.  S o u r c e : Hong Kong Government, D e p a r t m e n t o f C e n s u s and S t a t i s t i c s , M o n t h l y D i g e s t o f S t a t i s t i c s , J u n e 1978.  7.  Ibid.  8.  Ibid.  9.  The s u r v e y was c o n d u c t e d by t h e C e n s u s and S t a t i s t i c s D e p a r t m e n t i n 1974. I t c o v e r e d a l l m a n u f a c t u r i n g e s t a b l i s h ments e m p l o y i n g t w e n t y o r more w o r k e r s . T h e s e e s t a b l i s h ments, a t t h e t i m e o f t h e s u r v e y , a c c o u n t e d f o r 77% o f t h e i n d u s t r i a l work f o r c e , 86% o f g r o s s m a n u f a c t u r i n g o u t p u t and 84% o f v a l u e added i n m a n u f a c t u r i n g .  53  CHAPTER I I I - GOVERNMENT POLICY TOWARDS FOREIGN  In t h i s  c h a p t e r , we  government's p o l i c y with  towards  shall  foreign  l o o k i n t o Hong Kong i n v e s t m e n t s , compare i t  t h o s e o f n e i g h b o u r i n g S o u t h e a s t A s i a n c o u n t r i e s and  an o v e r v i e w o f f o r e i g n complete  our  Policy  investments  take  will for foreign  i n Hong Kong.  i n Hong Kong  The  government's n o n - i n t e r v e n t i o n economic  has  been extended  one  of n o n - d i f f e r e n t i a t i o n  are treated under  i n Hong Kong. T h i s  examination of the b u s i n e s s environment  manufacturers  to i t s treatment of f o r e i g n  alike.  foreign  and  under  F o r e i g n and  t h e same l a w s ,  regulations  o f any  local  own kind.  policy  investors.  It is  a l l private businesses  corporations are  registered  s u b j e c t e d t o t h e same s e t o f b u s i n e s s  i n v e s t o r s are minimal.  b u s i n e s s and  which  t a x e d a t t h e same: r a t e .  (1)  tion  INVESTMENTS  Ownership: equity  up  Legal requirements f o r  They a r e h e r e  summarized  F o r e i g n e r s can i n v e s t t o 100%.  There  i s no  below:  i n any  special  restric-  54  (2) legislation child  Employment: T h e r e i s no r e s t r i c t i v e  apart  f r o m t h e one w h i c h i s e n a c t e d  and f e m a l e l a b o u r e r s  and t h i s  p r i v a t e businesses."'" F o r e i g n e r s easily  and t h e r e  repatriation interest  Remittances:  of capital  or other  i n renewal.  and r e m i t t a n c e s  freedom f o r  of earnings,  f e e s . Hong Kong h a s no e x c h a n g e  loans,  control;  i n and o u t o f Hong Kong a t  moment.  (4) provide  patent  businesses lutions, but  applies toa l l  There i s absolute  f o r e i g n c u r r e n c i e s c a n move f r e e l y any  to protect  can o b t a i n working v i s a s  i s no d i f f i c u l t y  (3)  legislation  employment  Business  p r o t e c t i o n : Hong Kong  legislations  p r o t e c t i o n . T h e r e i s no g u a r a n t e e t o p r i v a t e  against  l o s s e s due t o n a t i o n a l i z a t i o n ,  i n s u r r e c t i o n s and i n c o n v e r t i b i l i t y  t h e r e h a s n e v e r b e e n an i n c i d e n t o f t h i s  wars,  revo-  of currencies etc.; kind i n the past  years.  (5) except  D u t i e s : T h e r e i s no g e n e r a l  f o r f o u r g r o u p s o f commodities:-- a l c o h o l i c  tobacco,  c e r t a i n hydrocarbon o i l s  o f whether they  a r e imported  (6) of  tariff  income a r i s i n g  on  liquor,  a n d methy a l c o h o l s  o r manufactured  Taxes: Taxes a r e l e v i e d  imports  irrespective  locally.  on s p e c i f i e d  i n o r d e r i v e d f r o m Hong Kong o n l y ,  sources namely,  55  property is  no  tax,  capital  interest gains  other withholding  tax,  taxes  Property 15%  on  t a x , p r o f i t t a x and no  t a x on  apart  tax  corporate  from i n t e r e s t  i s charged  at the  t h e owner o f l a n d a n d / o r b u i l d i n g  occupied  by  properties  exempted  from p a y i n g p r o p e r t y  ownership are chargeable  Interest interest  withholding  arising  and  no  rate of  for properties premises  and  Properties  i n Hong Kong  tax because p r o f i t s  to p r o f i t  tax  from  are their  tax.  i s charged  a t the  standard  rate of  15%  i n o r d e r i v e d f r o m Hong Kong. T h i s i s a  tax deducted  a p a r t o f the p r o f i t s  at source  a t a r a t e not  unless  the  interest  forms  o f a c o r p o r a t i o n c a r r y i n g on b u s i n e s s  Hong Kong, i n w h i c h c a s e payable  standard  Territories.  c o r p o r a t i o n s c a r r y i n g on b u s i n e s s  There  tax.  t h e owner f o r h i s r e s i d e n c e , v a c a n t i n c e r t a i n p a r t s o f t h e New  tax.  capital  except  owned by  on  salary  in  i t i s subject to p r o f i t tax. I n t e r e s t  exceeding  the  savings  deposit rate  by  2 licensed  c o m m e r c i a l b a n k s i s exempt.  Profit of  15%  i s charged  for unincorporated  companies t h e r e 1976.  tax  i s a 2%  a l s o a t the  businesses,  surcharge,  G e n e r a l l y a l l expenses to the  but  extent  Losses  can  be  carried  rate  for incorporated  i . e . , a t 17%  been i n c u r r e d i n t h e p r o d u c t i o n o f p r o f i t s are deductable.  standard  since A p r i l  1,  to which they  have  chargeable  tax  forward  to  indefinitely  and  56  allowances at  for writing off capital  20-25% i n t h e f i r s t  depending  on  f o r o r g a n i z a t i o n and  Salary t o 30%  5-30%  rate  life  o f the  years  particular  p r e o p e r a t i n g expenses  tax i s c a l c u l a t e d  onnnet c h a r g e a b l e  i s limited  tax nor  reinvestment.  on  a graduating scale  income, i . e . , income  deductions of personal allowances. tax  i n ensuing  generous,  e x p e n d i t u r e . However, t h e r e i s no  deduction f o r expansion  5%  and  the estimated working  category of c a p i t a l allowance  year  expenditure are  But  after  the o v e r a l l  t o t h e s t a n d a r d r a t e o f 15%  from  on  effective total  gross  income.  3 A Comparison w i t h Other  Countries i n Southeast  Asia  Compared t o Hong Kong, c o u n t r i e s i n S o u t h e a s t have f a r more d e l i b e r a t e investments.  On  butions  foreign  at  that  one  t h e same t i m e  foreign local  and  specific  towards f o r e i g n  hand, t h e y r e c o g n i z e t h e v a l u a b l e investments  they are anxious  investments  policies  f l o w and  bring  to t h e i r  to c o n t r o l  Asia  contri-  countries,  but  the areas t o which  to encourage the p a r t i c i p a t i o n  of  investors.  To  this  array of incentive  end,  t h e s e c o u n t r i e s have c r e a t e d a v a s t  schemes and  restrictive  regulations.  Economic  57  nationalism require  i s c o n s p i c u o u s . A l l new f o r e i g n i n v e s t m e n t  government a p p r o v a l  Some s e c t o r s others given  are closed  entirely  require majority  local  to export oriented  In r e c e n t  years,  of their  to foreign investors  ownership. Preferences  i s also placed  resources  t o compensate f o r t h e r e s t r i c t i o n s holidays,  accelerated capital  duty  on t h o s e i n d u s t r i e s  (have a h i g h  local  content)  i s , o f course, only  these countries  flexibility  i n t h e form o f  goods and raw m a t e r i a l s ,  earnings.  d e s c r i p t i o n o f some c o m p l i c a t e d  with  provided  and g u a r a n t e e s o f r e p a t r i a t i o n o f  arid r e m i t t a n c e s o f  Furthermore,  are mainly  f r e e imports o f c a p i t a l  depreciation  This  while are usually  g e n e r a t e s u b s t a n t i a l employment. The i n c e n t i v e s  tax  'status'.  and t e c h n o l o g i c a l l y a d v a n c e d i n d u s t r i e s .  emphasis  w h i c h make u s e o f l o c a l and  and c o n f i r m a t i o n  projects  a very  t e r s e and g e n e r a l i z e d  sets of business  usually administer  regulations. their  and f o r e i g n i n v e s t m e n t p r o p o s a l s  policies  are often  d e a l t w i t h on a c a s e by c a s e b a s i s . The b r o a d g u i d e l i n e s a r e written nor it and  i n theoregulations  unchangeable. This  b u t most o f t h e t e r m s a r e n o t r i g i d  i s good i n some i n s t a n c e s ,  c a n g e n e r a t e u n c e r t a i n t i e s and o p p o r t u n i t i e s possible bureaucratic  but i n others,  for discrimination  exploitation.  A c o m p a r i s o n between Hong Kong and o t h e r Asian  countries  (Indonesia,  Malaysia,  S o u t h K o r e a , T a i w a n and T h a i l a n d )  Southeast  P h i l i p p i n e s , Singapore,  i n their  policies  towards  58  foreign  investment  reveals  t h a t Hong Kong i s u n i q u e i n t h e  country  that  local  (iv)  ( i ) makes no  business,  investors, has  formal  n a t i o n a l s o r on and  permits  and  a t any  and  other  no  specific  official  forward.  clearly  r e g i o n . I t i s the  i n c e n t i v e s granted  tax  is levied only.  on  of  local of  ( v i ) has the  tax  staff,  (v) has  f u n d s i n any no  general  no  exchange c o n t r o l  f o r m , i n any  tariff  on  Disregarding  the  imports  Overview o f F o r e i g n  are  income on  forward  Investments  tax  the o n l y  income a r i s i n g  Because o f the  corporate  tax r a t e i n tax).  a territorial  the o n l y  the  countries in  i n or derived  are  reductions  status i n  (interest two  and simple  t a x e x e m p t i o n s and  withholding  Singapore  carried  quantity  s y s t e m i n Hong Kong i s most  In a d d i t i o n , they  l o s s e s t o be  to f o r e i g n  employment o f f o r e i g n  i s o n l y one  Hong Kong and  and  i n f o r m a l r e g u l a t i o n s on  c o u n t r i e s , Hong Kong has the l o w e s t there  only  between f o r e i g n  to f o r e i g n c o r p o r a t i o n s which o b t a i n c e r t a i n  country  permit  It  i n f o r e i g n ownership,  r e g i o n which a s s e r t taxable  i.e.,  III-l.  restrictions  training  Furthermore,  Finally,  the  or  moment and  r e g i o n and  the  no  i n Table  differentiation  free remittances  straight  granted  ( i i ) has  ( i i i ) has  no  exports.  i s summarized  two  basis,  from w i t h i n which  indefinitely.  i n Hong Kong  complete l a c k of r e s t r i c t i o n s  on  f o r e i g n o w n e r s h i p , a l l e c o n o m i c s e c t o r s i n Hong Kong have extensive  f o r e i g n investments.  But  the n o n - d i f f e r e n t i a t i o n p o l i c y  TABLE  III-l  A C o m p a r i s o n between Hong Kong and O t h e r S o u t h e a s t A s i a n C o u n t r i e s i n T h e i r P o l i c i e s Towards F o r e i g n I n v e s t m e n t  Hong  Kong  Indonesia, Malaysia, P h i l i p p i n e s S i n g a p o r e , S. K o r e a , T a i w a n T h a i l a n d  General business regulations  Same f o r a l l p r i v a t e businesses  Different or additional regulations f o r foreign corporations  Ban on f o r e i g n ownership  No s p e c i f i c ban  S p e c i f i c ban i n s e l e c t e d 'key' industries  Local equity cipation  No s p e c i f i c  requirement  Required  Employment o f f o r e i g n nationals  No s p e c i f i c  restriction  Some f o r m a l  or informal  restrictions  Training of local staff  No s p e c i f i c  requirement  Some f o r m a l  or informal  requirements  Exchange  No exchange c o n t r o l  Exchange c o n t r o l s range from l i m i t e d t o highly restrictive controls  Investment i n c e n t i v e s for f o r e i g n corporations  No s p e c i f i c  S p e c i f i c investment i n c e n t i v e s granted i f f o r e i g n c o r p o r a t i o n s have a c q u i r e d c e r t a i n recognized status  Withholding  On i n t e r e s t o n l y  On most t o a l l payments t o  No g e n e r a l  Duties  Duties Source:  parti-  controls  taxes  on imports See n o t e 3.  incentives  tariff  i n selected  l e v i e d on most  industries  non-residents  imports  60  has  also  foreign sible  resulted investment  a c t i v i t i e s . Consequently,  i n the v a r i o u s s e c t o r s  general overview  If in  the  we  'foreign'  on C h i n e s e  include category  soil),  banking  and  foreign  trading  these trading  a  are c r u c i a l  i n Hong Kong - t r a d i n g  and  and  broad  distribution  (merchant  direct  Chinese  and  ina l l  distribution,  s e c t o r was  where  money. Hong Kong was p o s t i n the Par  h o u s e s ) e s t a b l i s h e d by  foreign  colony  manufacturing.  t o s e r v e as i t s t r a d i n g  were t h e e a r l i e s t  foreign  the mainland  investments  f i r s t placed their  'hongs'  impos-  (though Hong Kong i s a B r i t i s h  then f o r e i g n  trading  investors  the B r i t i s h  The  i t i s quite  i n Hong Kong. O n l y  t h e B r i t i s h and  insurance, u t i l i t i e s  The  for  i s possible.  major economic s e c t o r s  by  separate s t a t i s t i c s produced  t o g i v e an a c c u r a t e a c c o u n t o f t h e e x t e n t o f  investments and  i n no  investments  annexed  East.  the  British  i n Hong Kong. Among  h o n g s , t h e b i g g e s t and most p o w e r f u l ones were  H u t c h i s o n Whampoa, J a r d i n e M a t h e s o n , S w i r e  Pacific  and  Wheelock  4  Marden.  But  i n t h e p a s t y e a r s , t h e y have d i v e r s i f i e d  o p e r a t i o n s and of  have become c o n g l o m e r a t e s  b u s i n e s s a c t i v i t i e s a p a r t from  such  as m a n u f a c t u r i n g ,  r e s t a u r a n t s and entrenched local  engaging  trading  shipping, wharfing,  retailing. Actually,  and  variety  distribution  insurance, real  t h e y have b e e n so  i n Hong Kong t h a t t h e y a r e more o f t e n  companies.  in a  their  estates,  deeply  regarded  as  61  The and  its traditional  foreign in  c e n t r a l l o c a t i o n of  investors  l i n k w i t h C h i n a have a l s o to  Hong Kong. Many o f  responsibilities investorsfchave s h o u l d be  Hong Kong i n t h e  s e t up  trading  them a r e  and  regional  attracted  centres  f o r S o u t h e a s t A s i a . Most o f  to a thousand. T h i s  other  d i s t r i b u t i o n companies with  these  come f r o m P a c i f i c - r i m c o u n t r i e s  close  region  i s deduced  and  business  foreign t h e i r number  from  the 5  government's r e c o r d (Table  III-2) At  minus 49)  of  f o r e i g n b r a n c h o f f i c e s i n Hong Kong.  M a r c h 31,  Pacific-rim  (22.7%) o f  identified  countries.  (educational, the  (73.3%) o f  890  (945  of branch o f f i c e s . list  minus 55)  at  U.S.  A u g u s t 1976.^ A  that  time,  (Table  a l o n e had of  244 the  to the  Subsidiaries  553  II-3)  But  i n the  there  form  American and  Affiliates in  companies l i s t e d  indicates that  insurance  202  directly  c o m p a n i e s engaged  foreign trading 7 i n Hong Kong i n 1977. b a n k i n g and  in  and d i s t r i b u t i o n  though not  example, a c c o r d i n g  simple e x t r a p o l a t i o n  In the  of  b r a n c h o f f i c e s were  ccLose t o a t h o u s a n d  companies  source  (945  organizations),  foreign trading  d i s t r i b u t i o n out  896  non-business o f f i c e s  professional  of American Firms,  i n Hong Kong, t h e and  For  the  export a c t i v i t i e s .  companies which e x i s t e d  the  t h e i r head o f f i c e s l o c a t e d  Excluding  were c e r t a i n l y many o t h e r  Consulate's  had  r e l i g i o u s and  e n g a g e d i n i m p o r t and  t o be  657  f o r e i g n b r a n c h o f f i c e s whose c o u n t r y  i n v e s t m e n t was  trading  1977,  in  there  ought  and d i s t r i b u t i o n  sector,  foreign  investors  TABLE T I T - 2 F o r e i g n B r a n c h O f f i c e s a t M a r c h 31, 197 7 (By N a t i o n a l i t y o f Head O f f i c e ) Number o f Branch O f f i c e s  Nationality of Head O f f i c e United States U n i t e d Kingdom Japan * Panama Australia Singapore Switzerland Canada China Malaysia Philippines Bahamas Liberia France Bermuda Cayman I s l a n d s West Germany India Thailand South Korea Netherland Taiwan Indonesia Others Total  240 123 109 74 61 56 31 25 22 . 22 19 15 13 12 10 9 9 9 9 8 8 7 5 49 945  S o u r c e : R e g i s t r a r G e n e r a l , Hong Kong Government, A n n u a l D e p a r t m e n t a l R e p o r t 1976/77.  TABLE Foreign  Nature  of Business  TIT-3  B r a n c h O f f i c e s a t M a r c h 31, (By N a t u r e o f B u s i n e s s )  Number o f Branch O f f i c e s  I m p o r t and e x p o r t Insurance Shipping, ship b u i l d i n g & breaking Engineering, e l e c t r i c a l & mechanical Banking Miscellaneous industries A i r and l a n d c a r r i e r s Financiers Land & b u i l d i n g s Chemical & pharmaceuticals T e x t i l e k n i t t i n g , s p i n n i n g & weaving Advertising & public consultants Newspaper p r o p r i e t o r s & p u b l i s h e r s Provisions & foodstuffs Cinemas & t h e a t r e s Garment m a n u f a c t u r e r s T o u r i s t agents Costumiers & t a i l o r s Timber & paper merchants Hotels & restaurants Telegraphic & wireless Non-business o r g a n i z a t i o n s (educational professional & religious) Others Total Source:  1977  202 102 65 62 61 54 48 44 42 26 19 18 17 14 11 9 8 7 6 5 3 55 67 945  R e g i s t r a r G e n e r a l , Hong Kong Government, D e p a r t m e n t a l R e p o r t 1976/7 7.  Annual  64  c l e a r l y , have t h e four  licensed  the  rest  share of  t w e n t y - f o u r had  foreign  as  an  follows:  twelve overseas Chinese,  and  non-British  numbered  fifty  foreigners'  or  local  foreign  category,  77.0% end  of of  the  one  operating 201  of  the  the  total.  s i z e and  British  eleven  foreign  foreign  But  Communist  t h i s already  b u s i n e s s volume o f  and  seven of  the  foreign  include  the  exceeded  local  several  b a n k s were others  former i n  banks t h e n comprised  licensed  understated  American banks, f a r  o w n e r s h i p and  had  the  fifty-seven  or  c o m m e r c i a l b a n k s i n Hong Kong a t  from the  licensed  hundred r e p r e s e n t a t i v e i n HOng Kong a t  finance  the  the  o f f i c e s of  end  c o m p a n i e s owned by  c o m m e r c i a l b a n k s , t h e r e were  of  engaged i n v a r i o u s  financing  c o n t r o l l e d by  In r a n c e companies  the  1977.  banks and  i n s t i t u t i o n s which accepted d e p o s i t s  owned o r  in  1977.  Apart also  1977  banks  i n t e r e s t . I f we  total  of  E u r o p e a n . I n o t h e r words, f o r e i g n  known t o have m a j o r i t y foreign  British,  s i x American,  banks. Furthermore,  minority  end  Asian  banks, e s p e c i a l l y ' the those of  the  seventy-  eleven  67.6%  s h a r e as  at  the  original local registration five  Chinese, five  i n t e r e s t . Of  commercial banks o p e r a t i n g  Hong Kong o n l y and  majority  foreign  In a d d i t i o n ,  of  the  o t h e r non-bank f i n a n c i a l  from the  activities,  banks  public  and  were  about o n e - t h i r d  were  foreigners.  insurance area,  (57.5%) o u t  of  the  t h e r e were 164 total  foreign  insu-  28 5 i n Hong Kong a t  the  end  o f M a r c h 1977.  ( T a b l e I I I - 4 ) . The B r i t i s h  took f i r s t  place  TABLE I I 1 - 4 I n s u r a n c e Companies a t M a r c h 31, 1977 (By C o u n t r y o f I n c o r p o r a t i o n ) Country o f I n c o r p o r a t i o n  Number o f Companies  Hong Kong U n i t e d Kingdom United States Australia Japan Singapore Switzerland India Canada France Bahamas China New Z e a l a n d Philippines Bermuda West Germany Malaysia Netherlands Brunei Cayman I s l a n d s Luxembourg Panama Sweden  121 60 38 8 8 6 6 5 4 4 3 3 3 3 2 2 2 2 1 1 1 1 1 285  Total Source:  with  sixty  R e g i s t r a r G e n e r a l , Hong Kong Government, A n n u a l D e p a r t m e n t a l R e p o r t 1976/7 7.  c o m p a n i e s , f o l l o w e d by t h e U n i t e d  eight,  Australia  six .  Again,  and J a p a n w i t h  among t h e 121  States with  e i g h t e a c h and S i n g a p o r e  insurance  companies  thirtywith  originally  66  incorporated today>  but  i n Hong Kong, some have f o r e i g n o w n e r s h i p  t h e e x t e n t i s unknown.  Utilities  i n ' H o n g Kong a r e p r i v a t e l y  the o n l y e x c e p t i o n of water supply dominate the u t i l i t i e s utilities  the  sector. Nearly  ferry  and  bus  s t o c k e x c h a n g e and  these  the B r i t i s h  are  s u b s c r i b e d t o by  still  gas  financed  numerous  by  quoted  in  local  h o l d e f f e c t i v e management  relatively  analysed  investors.  investments  those  control  In terms o f  and  sector distribution.  introductory chapter,  i n manufacturing  i n the  s e c t o r which  in this  i n trading  a l r e a d y g i v e n i n the  investments  in detail  local  foreign  fewer than  However, f o r r e a s o n s foreign  i s the o n l y important  not dominate over  number o f e s t a b l i s h m e n t s  be  owned  operations.  f o r e i g n e r s do  direct  British  a l l the p r i v a t e l y  s e r v i c e s were i n i t i a l l y  Manufacturing  are also  with  t h e r a i l w a y . The  c a p i t a l ' . Though a l l t h e s e c o m p a n i e s a r e now  investors, of  and  owned  c o m p a n i e s i n Hong Kong p r o v i d i n g e l e c t r i c i t y ,  telephone, British  interest  i n Hong Kong  following chapters.  will  67  Notes  1.  I n Hong Kong, no c h i l d u n d e r t h e age 14 i s a l l o w e d t o be employed i n i n d u s t r i e s a n d women and young w o r k e r s u n d e r the age o f 18 a r e p r o h i b i t e d f r o m w o r k i n g a t n i g h t , u n d e r ground o r i n dangerous t r a d e s .  2.  The s a v i n g s d e p o s i t  r a t e on A p r i l  1, 1979 was 5 3/4%.  3.  Government l e g i s l a t i o n s and r e g u l a t i o n s o n f o r e i g n c o r p o r a t i o n s i n o t h e r Southeast A s i a n c o u n t r i e s a r e so c o m p l i c a t e d and v o l a t i l e t h a t i t i s e x t r e m e l y d i f f i c u l t t o g i v e a n a c c u r a t e d e s c r i p t i o n by o n e who i s n o t a l e g a l expert. F o r general d e s c r i p t i o n s o f investment conditions and r e g u l a t i o n s f o r f o r e i g n i n v e s t o r s i n I n d o n e s i a , M a l a y s i a , t h e P h i l i p p i n e s , S i n g a p o r e , South Korea, Taiwan and T h a i l a n d , s e e A l l e n , T.W., P o l i c i e s o f ASEAN C o u n t r i e s Towards D i r e c t F o r e i g n Investment, S o u t h e a s t A s i a Development A d v i s o r y Group o f t h e A s i a S o c i e t y , New Y o r k , 1973. K a p o o r , A., A s i a n B u s i n e s s and E n v i r o n m e n t i n T r a n s i t i o n : S e l e c t e d Readings and E s s a y s , Darwin P r e s s , P r i n c e t o n , N . J . , 1976. S.G.V. - Goh T a n P t e . L t d . , C o m p a r a t i v e I n v e s t m e n t I n c e n t i v e s : I n d o n e s i a , Korea, M a l a y s i a , P h i l i p p i n e s , S i n g a p o r e , Taiwan, T h a i l a n d , Hong Kong, The SGV Group, S i n g a p o r e , September, 1975. , D o i n g B u s i n e s s i n T h a i l a n d (1976) ; T a i w a n , R.O.C. . (1977) ; I n d o n e s i a (1978); M a l a y s i a (1978), t h e P h i l i p p i n e s ^ (1978) ; S i n g a p o r e ( 1 9 7 8 ) , T h e SGV Group, S i n g a p o r e . S t e v e n s , C.R., L e g a l A s p e c t s o f D o i n g B u s i n e s s i n E a s t A s i a , P r a c t i s i n g Law I n s t i t u t e , New Y o r k , 1977. V a s e y , L.R., ASEAN a n d a More P o s i t i v e S t r a t e g y f o r F o r e i g n I n v e s t m e n t , U n i v e r s i t y P r e s s o f H a w a i i , H o n o l u l u , 1978. W i l d e , D., I n v e s t m e n t i n S o u t h a n d E a s t A s i a : A C o m p a r a t i v e S t u d y o f Law and T a x a t i o n P e r t a i n i n g t o I n v e s t m e n t i n Indonesia/ the P h i l i p p i n e s , Thailand, Malaysia, Singapore and P a k i s t a n , Committee f o r E c o n o m i c D e v e l o p m e n t o f A u s t r a l i a , M e l b o u r n e , 1973.  4.  These a r e t h e l a t e s t past years.  5.  A b r a n c h o f f i c e i s o f f i c i a l l y d e f i n e d a s "companies i n c o r p o r a t e d o u t s i d e Hong Kong w h i c h have e s t a b l i s h e d a p l a c e o f b u s i n e s s i n Hong Kong a n d r e g i s t e r e d documents u n d e r P a r t X I o f t h e company o r d i n a n c e " .  6.  Source: American  company names. They  Consulate's Office,  List  have c h a n g e d  o f American  i n the  Firms  68  S u b s i d i a r i e s arid A f f i l i a t e s i n Hong Kong/ August 1976. 7.  T h i s i s c a l c u l a t e d as f o l l o w s : Estimated number o f U.S. import and export branch o f f i c e s = 240 x 202/945 = 51 app. Estimated number o f f o r e i g n t r a d i n g and d i s t r i b u t i o n companies = 202 x 244/51 = 966 app.  CHAPTER IV - INVESTMENTS IN MANUFACTURING  This chapter looks s p e c i f i c a l l y investments  i n the manufacturing  into  sector: their  growth, c o u n t r y source o f investment  and  foreign  emergence  industry  and  distribution.  Emergence arid Growth  Direct became i m p o r t a n t strictly who  foreign  investments  i n Hong Kong o n l y a f t e r  speaking, t h i s  E v e n t h o u g h no  statistics  the f o r e i g n manufacturers  certify  this.  Of  t h e 328  e s t a b l i s h m e n t c o u l d be in or after  1970.  r e p r e s e n t e d new  industrial and  a few  o r more t h a n  i n 1975-77.  i n the l i g h t  The  Kong came a f t e r  t h e r e was  industries  ownership  o f 1977  can  whose y e a r  of  one-quarter,  ( T a b l e IV-1)_ T h i s i s by  o f t h e h i s t o r y o f Hong Kong's  little  Hong Kong was manufacturing  associated with trading  indigenous i n d u s t r i a l t h e War  as  (64.0%) s t a r t e d o p e r a t i o n  d e v e l o p m e n t . B e f o r e t h e War,  traditional  activities.  210  refugees  the year o f establishment  o p e r a t i n g a t t h e end  traced,  investments  e n t r e p o t p o r t and  foreign  f o r e i g n manufacturers  Ninety-two,  no means s u r p r i s i n g  on  sector  (But  1950s were n o t r e g a r d e d  i n t e r e s t were a v a i l a b l e b e f o r e 1970, of  t h e 1960s.  i s the case o n l y i f the Chinese  came t o Hong Kong i n t h e e a r l y  'foreign'.)  i n the manufacturing  a  fishing  apart and  from  fishing  t r a n s f o r m a t i o n o f Hong  i n t h e 1950s. F o r e i g n e r s ' r o l e  in this  70  TABLE  IV-1  Year of E s t a b l i s h m e n t of F o r e i g n Manufacturers O p e r a t i n g a t December 3 1 , 1977 Year o f Establishment  Number o f Establishments  B e f o r e 1960  1960 1965 1970 1975 1977  -  21  1964 1969 1974 1976 Total  Note:  % of  Total 6.4%  35 62 118 42 _50  10.7% 18.9% 36.0% 12.8% 15.2%  328  100.0%  The a c t u a l number o f f o r e i g n m a n u f a c t u r e r s o p e r a t i n g a t December 31, 1977 was 339. The year of establishment of the remaining eleven f o r e i g n m a n u f a c t u r e r s c o u l d n o t be t r a c e d .  S o u r c e : C o m p i l e d f r o m r e c o r d s k e p t by t h e D e p a r t m e n t o f T r a d e , I n d u s t r y and Customs, Hong Kong Government.  t r a n s f o r m a t i o n was B e f o r e 1960, its  Hong Kong's m a n u f a c t u r i n g was  tested  and  also uncertain.  The  I t was  situation  Kong's i n d u s t r i a l versatility  clarified  had  i t s r e l a t i o n w i t h t h e new not a safe harbour  commitments i n m a n u f a c t u r i n g  and  still  i n f a n c y . Hong Kong's e c o n o m i c v i a b i l i t y  seriously was  f o r obvious reasons p r a c t i c a l l y  v e r y much a t n o t y e t been  regime  i n China  f o r long  term  for foreigners.  improved  somewhat i n t h e 1960s. Hong  economy g r a d u a l l y d e m o n s t r a t e d to the world.  Its political  w i t h t h e Communist g o v e r n m e n t w h i c h  )  negligible.  its viability  s t a t u s was had  then  also conso-  71  lidated  i t s rule  maintained  and  i n the Chinese mainland.  foreign  investors,  u n c e r t a i n t y , were a t t r a c t e d  i n other countries  many f o r e i g n  investors  investment  as w e l l  as o t h e r s e c t o r s .  capital  sector  By  t h e end o f 1969,  foreign capital end o f 1977,  1970  has  risen  160.5%. T h i s p e r c e n t a g e  to  Hong Kong's m a j o r i n d u s t r i a l  electricity ( T a b l e IV-2) foreign  indicates  investments  Kong's a v e r a g e  57.3%  i n the  that  manufact-  growth.  31, By  1971, the  - a  rise  t h e h i g h e s t when compared In t h i s  same s i x -  e x p o r t s i n c r e a s e d by  industrial  154.6%;  industrial  employment,  33.8%.  i n t h e 1970s t h e g r o w t h o f  i n the manufacturing  industrial  1  t o HK$1,978.5 m i l l i o n  statistics.  and  total  million.  e s t a b l i s h m e n t s , 101.8%;  consumption,  manufacturing  HK$759.5 m i l l i o n .  i n c r e a s e was  Hong Kong's d o m e s t i c  This  induced  been d r a m a t i c . A t December  f i g u r e had  number o f m a n u f a c t u r i n g  military  t h e r e were a l r e a d y  HK$500  investments  investments t o t a l l e d  this  but  i n Hong Kong w i t h  to around  of  year period,  firms  growth o f f o r e i g n  since  and  also  began t o f l o w i n , i n t o  i n v e s t m e n t s amounting  The  p o l i t i c a l chaos  be  political  i t s liberal  i n Southeast A s i a  14 0 f o r e i g n m a n u f a c t u r i n g  capital  uring  The  o f the  to  t o move t h e i r o p e r a t i o n s t o Hong Kong.  Foreign  about  relieved  t o Hong Kong by  secured b u s i n e s s environment. conflicts  A s t a t u s - q u o was  s e c t o r outpaced  Hong  72  TABLE IV-2 Hong Kong's I n d u s t r i a l  Foreign investments i n m a n u f a c t u r i n g a t end o f y e a r ( i n HK$ m i l l i o n )  Growth  1971-77  1971  1977  760  1,979  Domestic e x p o r t s i n t h e y e a r ( i n HK$ m i l l i o n ) Number o f m a n u f a c t u r i n g e s t a b l i s h m e n t s a t end of year Industrial electricity consumption i n the year ( i n m i l l i o n KWHs) I n d u s t r i a l employment a t end o f y e a r Source:  % Increase i n Period  160.5%  1  5  4  18,612  37,568  101.8%  2,031  3,194  57.3%  564,370  755,108  33.8%  D e p a r t m e n t o f T r a d e , I n d u s t r y and Customs f o r f o r e i g n investments i n m a n u f a c t u r i n g . O t h e r s : Department o f C e n s u s and S t a t i s t i c s , Hong Kong g o v e r n m e n t , M o n t h l y Digest of S t a t i s t i c s , various issues.  73  Country  Source  of  At foreign  Investment  t h e end o f 1977, t h e r e were a l t o g e t h e r t w e n t y - s i x  c o u n t r i e s with investment  Hong Kong. A l l t h e i m p o r t a n t  interests  investors  came f r o m  c o u n t r i e s o f t h e West o r S o u t h e a s t A s i a . investment of  from  overseas  investor  total.  i n manufacturing  near  t h e r e was  joint  a l s o had a v e r y  already a long distance the q u a r t e r - b i l l i o n an u p s u r g e  y e a r s , jumping  from  mark  t o HK$393.4  and i t s i n v e s t m e n t s  e x c e e d i n g HK$100 m i l l i o n .  i n the l a t e r  steady  20% p e r annum.  s i n c e 197 3. The N e t h e r l a n d s was  investments  for-  h a l f of the  by t h e end o f 1977. U n i t e d Kingdom o c c u p i e d  p o s i t i o n w i t h HK$148.6 m i l l i o n  strongly  b u t was  hovered  1973-75, b u t t h e r e a f t e r  with  of foreign-local  r e p r e s e n t e d about  investments  second,  I t s investments  stagnated  thirty  i n Hong Kong. I t s c a p i t a l  o f HK$920.4 m i l l i o n  J a p a n was  million  number  i n v o l v i n g more t h a n one  The number  g r o w t h i n t h e y e a r s 1971-77, a t a b o u t  in  China.The  U n i t e d S t a t e s was by f a r t h e most i m p o r t a n t  ( T a b l e IV-3) U.S.  behind.  single  unknown.  The  commitment  not a  339 o f w h i c h a b o u t  v e n t u r e s each  source of investment.  v e n t u r e s was  eign  joint  totalled  industrialized  T h e r e was  any communist c o u n t r y i n c l u d i n g  f o r e i g n manufacturers  were f o r e i g n e r s '  i n manufacturing i n  third had a p p a r e n t l y  the only other country Its position  rose  the tenth p o s i t i o n i n  TABLE IV-3 D i s t r i b u t i o n o f F o r e i g n I n v e s t m e n t s i n M a n u f a c t u r i n g by S o u r c e ( Amount i n HK$ M i l l i o n a t End o f Y e a r ) (Excluding Local Interest i n J o i n t Ventures) 1971  Country United States Japan U n i t e d Kingdom Netherlands Australia Switzerland Singapore Thailand West Germany France Taiwan Philippines Others Total  (110) ( 88) ( 31) ( 7) ( 23) ( 12) ( 16) ( 16) ( 15) 0 2) ( 13) ( 3) ( 31) (367)  406. 0 169.9 85.9 17.4 31.5 13.5 8.7 2.5 6.2 0.0 9.5 2.1 6.3 759.5  1973 589. 0 278. 9 151.0 9.9 47.4 29.3 51.2 140.5 7.8 31-6 16.9 9.6 29. 0 1,392.1  1975 800.2 261.3 159.0 22.7 93.8 42.3 61.0 134.5 19.3 23.9 31.0 15.8 30.1 1,694.9  1977 920.4 393.4 148.6 102.8 90. 3 64. 8 63.7 52.4 50.4 23.1 13.5 11.0 44.1 1,978.5  Country  % of Total Average Investment a t 31/12/77 a t 31/12/77 46.5% 19;. 9% 7.5% 5.2% 4.6% 3.3% 3.2% 2.6% 2.5% 1.2% 0.7% 0.6% 2*2% 100.0%  8.4 4.5 4.8 14.7 3.9 5.4 4.0 3.3 3.4 11.6 1.0 3.7 11.; 4 5.4  Notes;  The f i g u r e s i n b l a c k e t s r e p r e s e n t t h e number o f e s t a b l i s h m e n t s as a t December 31, 1977. The a c t u a l t o t a l number o f f o r e i g n m a n u f a c t u r e r s a t December 31, 1977 was 339. The a p p a r e n t d i s c r e p a n c y a r o s e b e c a u s e some e s t a b l i s h m e n t s were j o i n t v e n t u r e s i n v o l v i n g more t h a n one f o r e i g n o w n e r s h i p i n t e r e s t . The amounts a r e c u m u l a t i v e . See A p p e n d i x I I I f o r t h e i r a p p r o x i m a t e e q u i v a l e n t s i n U.S. d o l l a r s .  Source:  Department o f T r a d e ,  I n d u s t r y and Customs, Hong Kong G o v e r n m e n t .  75  1975 t o t h e f o u r t h  i n 1977. A u s t r a l i a  came f i f t h  ments o f HK$90.3 m i l l i o n w h i c h was s l i g h t l y level. Like  lower  t h e U.S., S w i t z e r l a n d a l s o had a c o n t i n u o u s  HK$63.7 m i l l i o n ,  but unlike  amount was i n v e s t e d  shows t h a t  followed closely  than  i t s 1975 million.  and s t e a d y  behind  with  S w i t z e r l a n d , t h e major p o r t i o n o f  i n 1971-7 3. The f i g u r e s  t h e r e were d i v e s t m e n t s  1975-77, p u l l i n g eighth  invest-  F o l l o w i n g A u s t r a l i a was S w i t z e r l a n d w i t h HK$64.8  g r o w t h i n 1971-77. S i n g a p o r e  this  with  i t down f r o m  of close  f o rThailand  t o HK$80 m i l l i o n i n  the fourth p o s i t i o n  i n 1977.West Germany, w i t h HK$50.4 m i l l i o n ,  i n 1975 t o t h e was  another  c o u n t r y w h i c h had a n o t a b l e i n c r e a s e i n 1975-77 a t a r a t e c o m p a r a b l e t o t h a t o f t h e N e t h e r l a n d s . The o t h e r c o u n t r i e s w i t h more t h a n HK$10 m i l l i o n  capital  investments  a t t h e end o f 1977  were F r a n c e , T a i w a n and t h e P h i l i p p i n e s .  investments  The  figures  i n T a b l e IV-3 r e v e a l  in  manufacturing  trated  on a c o u n t r y b a s i s .  nearly  h a l f while the leading  the t o t a l  i n dollar  the average million  smaller  from  i n Hong Kong were h i g h l y  five  There  size of capital  investment  investment one  terms.  investors  foreign  c o u n t r i e s took over  80% o f  was a l s o a w i d e d i s c r e p a n c y i n  investment.  I t ranged  t o HK$1.0 m i l l i o n  from  HK$14.7  f o r Taiwan.  S o u t h e a s t A s i a n c o u n t r i e s h a d a much  p e r e s t a b l i s h m e n t . A t any r a t e ,  the average  p e r e s t a b l i s h m e n t o f HK$5.4 m i l l i o n was a  by Hong Kong  concen-  One c o u n t r y , t h e U.S., a c c o u n t e d f o r  f o r the Netherlands  Evidently,  that  standards.  substantial  76  Industry D i s t r i b u t i o n  F o r e i g n investments  i n manufacturing  i n Hong Kong  tend t o c o n c e n t r a t e i n t e c h n o l o g i c a l l y more advanced  industries.  In 1 9 7 7 , the i n d u s t r i e s i n which f o r e i g n i n v e s t o r s had- most i n t e r e s t i n terms of number o f establishments were 'electronics', products' and  'metal products',  'textiles',  'food manufactures',  'chemical  'toys'. (Table IV-4) The other i n d u s t r i e s  attracted  l e s s than ten f o r e i g n i n v e s t o r s each. But i n terms of d o l l a r investments,  ' e l e c t r o n i c s ' took the p l a c e o f ' t e x t i l e s ' as the  l e a d i n g i n d u s t r y and by a wide margin. T h i s r e f l e c t e d the g r e a t e r c a p i t a l needs of the i n d u s t r y . However, 'chemical products', ' p r i n t i n g and p u b l i s h i n g ' , 'metal r o l l i n g , e x t r u s i o n and f a b r i c a t i o n ' and average  ' e l e c t r i c a l products' had an even higher  investment  per establishment than  ' e l e c t r o n i c s ' . At  any  r a t e , a l l the i n d u s t r i e s s p e c i f i e d i n Table IV-4 a c c o r d i n g to g o v e r n e m t v c l a s s i f i c a t i o n had a much higher average  investment  per e s t a b l i s h m e n t than the n o n - s p e d i f i e d i n d u s t r i e s with o n l y HK$2.0 m i l l i o n each, compared to the average  of HK$5.8 m i l l i o n .  Looking a t the o v e r a l l t r e n d i n the l a s t few y e a r s , two  i n d u s t r i e s are p a r t i c u l a r l y worthy of note:  products' and  ' e l e c t r i c a l products'. While  ' t e x t i l e s ' , the l e a d i n g two and  'chemical  'electronics'  and  i n d u s t r i e s , s t e a d i e d down i n 1975-77  1973-75 r e s p e c t i v e l y , both  'chemical products' and  'elec-  t r i c a l products' i n c r e a s e d from l e s s than HK$100 m i l l i o n t o over  TABLE IV-4 D i s t r i b u t i o n o f F o r e i g n I n v e s t m e n t s i n M a n u f a c t u r i n g by T y p e o f ( Amount i n HK$ M i l l i o n a t End o f Y e a r ) (Excluding Local I n t e r e s t i n J o i n t Ventures)  Industry Electronics Textiles Chemical products E l e c t r i c a l products Printing & publishing Watches, c l o c k s & accessories Metal products Food manufactures Toys Metal r o l l i n g , extrusion & fabrication Building & construction materials Others Total  1971  1973  1975  1977  Industry  % o f T o t a l Average Investment a t 31/12/77 a t 31/12/77 26.1% 15.8% 11.9% 10.2%  8.1 3.6 18.2 9.6  ( ( ( (  64) 87) 13) 21)  264.7 160.9 11.6 16. 3  304.0 306.5 124.5 49.8  587. 5 253.1 96.5 97.2  516.1 312.7 236.1 201.5  (  9)  22.7  42. 7  61.5  140. 3  7.1%  15.6  ( 25)  26.2  184.0  188.2  135.2  6.8%  5.4  ( 26) ( 14) ( 10)  19.8 5.4 36.4  24.9 58.5 74 .0  49.7 59. 9 58.2  95.1 72. 5 60. 6  4.8% 3.7% 3.1%  3.7 5.2 6.1  (  5)  18.6  43.0  46.8  54.9  2.8%  11.0  (  5)  32.7  51. 9  34.5  1.7%  6.9  147.5 1,392.1  144. 4 1,694. 9  119.0 1,978.5  6.0% 100.0%  2.0 5.8  ( 60) (339)  n. a. 17 6.9 759.5  Notes:  n.a. - n o t a v a i l a b l e . The f i g u r e s i n b l a c k e t s r e p r e s e n t t h e number o f e s t a b l i s h m e n t s a t December 31, 1977. The amounts a r e c u m u l a t i v e . See A p p e n d i x I I I f o r t h e i r a p p r o x i m a t e e q u i v a l e n t s i n U.S. d o l l a r s . . . . •.. / • '  Source:  Department o f Trade, I n d u s t r y  and Customs, Hong Kong Government.  78  HK$200 m i l l i o n 'electronics' restrictions likely  that  overtake  i n 1975-77. They s t i l l  faced  'food  in  as t h e second  the eleven  leading  industries listed,  period.  17.6%  'watches, c l o c k s  and c o n s t r u c t i o n m a t e r i a l s '  f r o m HK$188.2 m i l l i o n  'metal  products',  and f a b r i c a 1971-77.  degrees 6f set-backs i n t h e whole  On an i n d u s t r y  (-12.2%)  f o r an i n d u s t r y . B u t  had even h e a v i e r  tumbles,  (-28.2%) and HK$51.9  (-33.5%) r e s p e c t i v e l y . O t h e r  not s p e c i f i e d i n Table  f r o m HK$144.4 m i l l i o n  IV-4 a l s o had a h e a v y f a l l o f  t o HK$119.0 m i l l i o n  basis,  the degree o f  i n 1975-77.  concentration  was n o t a s h i g h  a s t h a t on a c o u n t r y b a s i s . The f o u r  industries only  t o o k up 64% o f t h e t o t a l ,  leader,  ('elec-  and a c c e s s o r i e s ' and  t o HK$135.2 m i l l i o n  t o HK$34.5 m i l l i o n  industries  five  ' e l e c t r o n i c s ' shed HK$71.4 m i l l i o n  i n percentage terms,  may  for foreign  o f continuous growth i n the p e r i o d  w h i c h was t h e l a r g e s t s i n g l e d i s i n v e s t m e n t  million  only  t h o u g h none had a c t u a l l y d e c l i n e d  I n 1975-77,  'building  products'  extrusion  s i x i n d u s t r i e s had v a r i o u s  c e r t a i n years  quota  i t i s quite  industry  ' p r i n t i n g and p u b l i s h i n g ' ,  had a r e c o r d  behind  few y e a r s .  m a n u f a c t u r e s ' and 'metal r o l l i n g ,  remaining  exports,  or 'electrical  i n Hong Kong i n t h e n e x t  products',  tion') The  by Hong Kong's t e x t i l e  'chemical products'  Of trical  much  i n 1977 , b u t i n v i e w o f t h e i n c r e a s i n g  'textiles'  investors  lagged very  ' e l e c t r o n i c s ' , accounted  leading  a n d t h e number one  for slightly  over  one-quarter.  79  Table and  IV-5  matches the d a t a f o r type o f  country source of f o r e i g n  investment  industry  as a t December  31,  2 1974.  I t shows one  different linked  c o u n t r i e s had  'electronics'  and  products' 60%). Only interests  and  products'  and  and  80%),  (around  70%)  (around  were v e r y much d o m i n a t e d  total  i n ' t o y s ' and (around  industry  90%  single  and in  8 5%),  'electronics' in  fabrication'  'metal  1  (around  diversified  accounting for  investments. Also,  by one  in  and A u s t r a l i a  t h e U n i t e d Kingdom had more  more t h a n h a l f o f t h e i r  'food manufactures'  investments  t h e U.S.  e x t r u s i o n and  d i d n o t have a s i n g l e  example, t h e U.S.  of t h e i r  needs.  exclusively  'chemical products'  (around  'metal r o l l i n g ,  Japan  nearly  i n 'food manufactures'  in 'textiles'  'electrical  ( o v e r 90%  apparently  p a t t e r n o r market  invested  accessories',  respectively  from  areas of i n t e r e s t ,  the Netherlands  terms), Singapore  Switzerland and  and  'watches, c l o c k s  dollar  different  t o t h e home c o u n t r y ' s i n d u s t r i a l  Thailand, France in  i n t e r e s t i n g phenomenon: i n v e s t o r s  some  industries  country investor,  'electronics' i n each c a s e ) .  and  for  Singapore  in  TABLE IV^5 D i s t r i b u t i o n o f I n v e s t m e n t s i n M a n u f a c t u r i n g by Type o f I n d u s t r y & by S o u r c e ( Amount i n HK$ M i l l i o n a t End o f 1974 T (Excluding Local Interest i n J o i n t Ventures)  Industry  Total  580. 2 El nics. 218.1 Textiles W.C. & A. 180.0 Chem. 96. 5 El'cal. 93. 9 61.6 P. & P. 57.8 Toys 56.7 F o o d Man. 51.9 B. & C M . 49.7 M e t a l P. M.R. & E . 45.9 141.1 Others Total 1 ,633.2 1  U.S. 512.4 54.0 13.7 41.2 73.4 15. 6 57.8 0.0 0.0 10.4 3.0 31. 2 812.7  Japan  U.K. T h a i l a n d  4.1 45.0 19.4 97.2 0.7 11.6 23.1 8.3 18.5 0.0 1.7 39.7 0.0 0.0 0.0 3.1 7.0 0.0 12.4: 1 0.0 0.0 9.6 9. 2 8 2.0 254.7 138.0  0.0 0.3 132. 9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.3 134.5  Country  NetheSwitzAustr- Singalia apore Taiwan e r l a n d France r l a n d s Others 0.1 6.6 0.0 0.9 0.0 2.0 0.0 0.0 19.5 23. 3 33.3 4.5 90.1  0.3 5.7 0.0 0.0 0.9 0.0 0.1 53.5 0.0 0.0 0.0 0. 5 60.9  0.0 0.7 0.0 0.0 1.1 0.0 0.0 0.0 25.4 3.6 0.0 0.1 31.0  0.0 21.5 4.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.3 26. 6  0.8 0.0 0.0 23.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 23.9  v  16.8 0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 17. 0  0.8 12.4 16.3 0.0 0.0 2.5 0.0 0.0 0.0 0.0 0.0 11. 9 43.9  Notes:  E l ' n i c s . - e l e c t r o n i c s ; W.C. & A. - w a t c h e s , c l o c k s & a c c e s s o r i e s ; Chem. - c h e m i c a l p r o d u c t s ; E l ' c a l . - e l e c t r i c a l p r o d u c t s ; P. & P. - p r i n t i n g & p u b l i s h i n g ; Food Man. - f o o d m a n u f a c t u r e s ; B. & C M . - b u i l d i n g & c o n s t r u c t i o n m a t e r i a l s ; M e t a l P. m e t a l p r o d u c t s ; M.R. & E . - m e t a l r o l l i n g , e x t r u s i o n & f a b r i c a t i o n . The f i g u r e s may n o t add up b e c a u s e o f r o u n d i n g .  Source;  D e p a r t m e n t o f T r a d e , I n d u s t r y a n d Customs, Hong Kong Government, O v e r s e a s Investment i n Hong Kong M a n u f a c t u r i n g I n d u s t r i e s : I n d u s t r i a l S u r v e y R e p o r t , A u g u s t 1975.  00  o  81  Notes  1.  Around US$90 m i l l i o n a t a r a t e of exchange of US$1 to HK$5.5. The e a r l i e s t o f f i c i a l estimates by the government were f o r May 1970. At May 31, 1970, there were 161 manufacturing establishments with f o r e i g n ownership i n t e r e s t i n Hong Kong and t h e i r combined investments t o t a l l e d HK$595.1 m i l l i o n .  2.  No such matching of country source of investment and type of i n d u s t r y has been g i v e n by the government except f o r December 31, 1974 which was c o n t a i n e d i n the I n d u s t r i a l Survey Report. See source of data, Table IV-5.  82  CHAPTER V - ECONOMIC SIGNIFICANCE  The exceeded  one  number o f f o r e i g n m a n u f a c t u r e r s  p e r c e n t o f the t o t a l  establishments  f o r e i g n manufacturers  the  total.  percentage foreign the  1  manufacturers  are  of  and  and  Trade,  less  I n terms  and  over  overwhelming  but f o r e i g n  have f e w e r  t h a n twenty  workers  workers  and  R e p o r t by  a t December  (12.3%) had  seventy-three 31,  1974.  t h e v a r i o u s employment s i z e g r o u p s  than t h e i r l o c a l  employment, t h e d i f f e r e n c e  was  less  of  than workers.  the Department  foreign  manufac-  an employment  (30.9%) had  foreign  31,  as  figures  1974  are  manufacturers  c o u n t e r p a r t s . In terms  w i d e as w e l l  of  fewer  comparative  a t December  shown i n T a b l e V - l . I t c l e a r l y shows t h a t were much l a r g e r  The  80%  than f i f t y  Customs, o u t o f t h e 236  we  manufacturers  o f employment, o v e r  90%  of foreign  e s t a b l i s h m e n t s i n Hong Kong, as  I I , are small;  I n d u s t r y and  significant.^  The  e s t a b l i s h m e n t s i n Hong Kong employ each,  of  t y p e o f o p e r a t i o n between t h e  surveyed, only twenty-nine  than f i f t y  of  i s mainly because  the l o c a l manufacturers.  i n Chapter  workers  This  a c c o r d i n g to the I n d u s t r i a l Survey  turers  for  i n scale  of manufacturing  manufacturing  But  t h e r e were  u n d e r s t a t e s the importance  i n t h i s sector.  much b i g g e r f i r m s .  twenty  1977,  t h i s f i g u r e r e p r e s e n t e d 0.9%  f i g u r e tremendously  difference  have s e e n  31,  However, f r o m a l l t h e a v a i l a b l e e v i d e n c e , t h i s  investments  majority  and  never  number o f m a n u f a c t u r i n g  i n Hong Kong. A t December  339  has  of  statistically  83  TABLE V - l S i z e o f M a n u f a c t u r i n g E s t a b l i s h m e n t s a t 31/12/74 (By Number o f E m p l o y e e s ) :  1  A l l Manufacturing Establishments Number % Of T o t a l  Number o f Employees  1 10 20 50 100 200 500 1,000  9 10 49 99 199 499 999 - 1, 999  19,558 4,182 2,864 1,180 610 344 83 28 8 28,857  2,000 & over Total  Foreign Manufacturers Number % of T o t a l  67.8% 14.5% 9.9% 4.1% 2.1% 1.2% 0.3% 0.1% 0. 0% 100.0%  4.2% 8.1% 18.6% 16.9% 20.3% 19.1% 7.6% 3.8% 1.3% 100.0%  10 19 44 40 48 45 18 9 3 236  Note;  The a c t u a l number o f e s t a b l i s h m e n t s w i t h s i g n i f i c a n t f o r e i g n o w n e r s h i p (25% o r more f o r e i g n o w n e r s h i p ) a t December 31, 1974 was 247. Employment d a t a o n e l e v e n o f t h e s e e s t a b l i s h m e n t s were n o t a v a i l a b l e .  Source:  D e p a r t m e n t . o f T r a d e , I l n d u s t r y and Customs, Hong Kong Government, O v e r s e a s I n v e s t m e n t i n Hong Kong M a n u f a c t u r i n g I n d u s t r i e s : I n d u s t r i a l Survey Report, August, 1975. D e p a r t m e n t o f C e n s u s and S t a t i s t i c s , Hong Kong Government, M o n t h l y D i g e s t o f S t a t i s t i c s , J u n e , 1975.  I  In terms o f c a p i t a l  f o r e i g n manufacturers Kong s t a n d a r d s . O n l y facturers  had  capital  The  total  forty-two  investments  f i r m s by  236  ( T a b l e V-2)  Hong  f o r e i g n manu-  investment of l e s s  o f 1974.  than  Most o f them  r a n g i n g f r o m HK$500,000 t o HK$10 m i l l i o n .  investments  t o HK$2,151 m i l l i o n  (17.8%) o f t h e  a capital  a t t h e end  capital  the m a j o r i t y o f  were a l s o medium t o l a r g e  s u r v e y e d had  HK$500,000 e a c h  investment,  of these  236  e s t a b l i s h m e n t s amounted  o f w h i c h HK$1,633 m i l l i o n  (75.9%) were  84  TABLE Capital  Investments i n F o r e i g n Manufacturing E s t a b l i s h m e n t s a t 31/12/74 : ; :  :  Amount i n HK$'000 0 501 1,001 5,001 10,001 Over  V-2  Number Establishments  500 1,000 5,000 10,000 20,000 20,000  42 39 85 25 22 23  Total  236  of  Total  17.8% 16.5% 36.0% 10.6% 9.3% 9.7% 100.0%  Notes:  T o t a l c a p i t a l i n v e s t m e n t s o f t h e 236 e s t a b l i s h m e n t s = HK$2,151 m i l l i o n . T o t a l f o r e i g n i n v e s t m e n t s o f t h e 236 e s t a b l i s h m e n t s = HK$1,633 m i l l i o n . The a c t u a l number o f e s t a b l i s h m e n t s w i t h s i g n i f i c a n t f o r e i g n o w n e r s h i p a t December 31, 1974 was 247. C a p i t a l i n v e s t m e n t d a t a on e l e v e n o f t h e s e e s t a b l i s h m e n t s were n o t a v a i l a b l e .  Source:  D e p a r t m e n t o f T r a d e , I n d u s t r y and Customs, Hong Kong G o v e r n m e n t , O v e r s e a s I n v e s t m e n t i n Hong Kong M a n u f a c t u r i n g I n d u s t r i e s : I n d u s t r i a l Survey Report, August, 1975.  foreign in  these  t h i s was  owned. I n o t h e r w o r d s , f o r e i g n e r s ' 236  establishments averaged  most l i k e l y much l a r g e r  investment comparative  i n l o c a l manufacturing statistics  In investments  were  investments  HK$6.9 m i l l i o n e a c h .  than the average  Again,  capital  e s t a b l i s h m e n t s even though  no  available.  t h i s c h a p t e r , t h e economic  i n manufacturing  capital  significance  of  foreign  i n Hong Kong i s a n a l y s e d i n t e r m s  85  of  their contribution  facturing The  output  and  non-verifiable,  excluded  to  ( i ) i n d u s t r i a l employment,  e x p o r t s and  (iii.)  transfer  n o n - m e a s u r a b l e and  b e c a u s e t h e r e i s no  official  of  ( i i ) manutechnology.  indirect effects data  are  i n Hong Kong w h i c h  3  c a n be  used  Industrial  to analyse  these  effects.  Employment  There are three d i f f e r e n t sets w h i c h s e r v e t o show t h a t ribution  The from  f o r e i g n manufacturers'  t o i n d u s t r i a l employment  t e r m s o f number o f  of o f f i c i a l  data  share of  f a r exceeds t h e i r share  contin  establishments.  f i r s t data  s e t and  t h e D e p a r t m e n t o f C e n s u s and  also  the e a r l i e s t  Statistics  1  s e t came  197 3 C e n s u s o f  4 industrial  Production.  statistics  were a n a l y s e d by p e r c e n t  for  a l l manufacturing  workers. According  I n t h i s C e n s u s , some p r i n c i p a l share of f o r e i g n  establishments  to the  findings  253  (5.1%) had  and  227  had  latter,  ownership exceeding establishments accounted  as b e i n g  f o r 12.6%  Kong a t t h e end  25%.  of  of t o t a l 1973.  regard these  'foreign',  then  share of 227  their  foreign  manufacturing  employment  employment i n m a n u f a c t u r i n g  ( T a b l e V-3)  the  f o r e i g n ownership i n t e r e s t ,  a percentage  I f we  t w e n t y o r more  o f t h i s C e n s u s , among  4,965 e s t a b l i s h m e n t s , among t h e  employing  ownership  Even i f those  i n Hong  establishments  86  TABLE V-3 Employment i n Manufacturing E s t a b l i s h m e n t s With 20 or More Workers a t 31/12/73 (by Percent Share of F o r e i g n Ownership) :  Percent Share of F o r e i g n Ownership 0% 1-25% 26-50% 51-75% 76-99% 100%  :  Total  Source:  Number of Establishments 4,712 26 56 30 25 116 4,965  Workers Employed 454,623 5,026 10,893 9,796 4,281 41,649 526,268  96 193 195 327 171 3 59 106  Department o f Census and S t a t i s t i c s , Hong Kong Government, 1973 Census of I n d u s t r i a l Production,1976.  w i t h 26-50% share o f f o r e i g n ownership centage  Workers Per Establishments  share s t i l l  there was  were excluded, the per-  exceeded 10%. A l s o , Table V-3  a wide d i s c r e p a n c y i n the s i z e of employment between  those e s t a b l i s h m e n t s w i t h f o r e i g n ownership The average percentage  shows t h a t  s i z e of employment was  c l e a r l y r e l a t e d to the 5  share of f o r e i g n ownership.  per e s t a b l i s h m e n t i n the 100%  and those without.  The number of workers  f o r e i g n owned establishments  c l o s e to four times h i g h e r than t h a t of those w i t h no  was  foreign  ownership. The second s e t of data came from a survey by the Department of Trade, Industry and Customs i n 1975. to the survey, the responding 236  According  f o r e i g n manufacturers  employed  87  a total  o f 56,750 w o r k e r s  a t t h e end o f 1974.  e s t a b l i s h m e n t s known t o have s i g n i f i c a n t ownership it  was  interest  but which  estimated that  a l t o g e t h e r employed  ( o v e r 25%)  d i d not respond  which  Survey,  (totalling  was  9.8%  eleven  foreign  to the  f o r e i g n manufacturers  58,823 w o r k e r s  Including  24 7)  o f Hong Kong's  7 total  employment  In  i n manufacturing.  1977,  t h e Hong Kong government a l s o began t o  produce  employment  Kong by  t y p e o f i n d u s t r y v . T h i s p r o v i d e s us w i t h t h e t h i r d  of  official  turing  f o r f o r e i g n manufacturers  d a t a . A t t h e end o f 1977,  t h e 339  each.  workers  which  Kong. On  ( T a b l e V-4) was  9.9%  Total  foreign  of t o t a l  an i n d u s t r y b a s i s ,  industrial  manufac-  t h e s h a r e o f employment p r o v i d e d by  h i g h e s t - 44.2%  and  ' e l e c t r i c a l p r o d u c t s ' were two  f o r e i g n manufacturers  foreign  other industries  less  however, may  10%  of t o t a l  t h a n 1% o f t h e t o t a l still  be  accessories' i n which  p o r t i o n of g case.  i t i s apparent that  income i n Hong Kong d e s p i t e  comprise  manufacturers  'Watches, c l o c k s and  employment - more t h a n o n e - q u a r t e r i n e a c h  have p r o v i d e d a r o u n d  220  the i n d u s t r y i n  provided a significant  Summing up,  of  employment i n Hong  ' e l e c t r o n i c s ' was  of t o t a l .  set  employment amounted t o 74,758  was  labour  i n Hong  e s t a b l i s h m e n t s i n Hong Kong employed an a v e r a g e  workers  which  figures  industrial the f a c t  foreign  total  manufacturers  employment  and  that they o n l y  number o f e s t a b l i s h m e n t s . T h i s ,  an u n d e r e s t i m a t e b e c a u s e  i t does  not  TABLE Employment  i n Manufacturing Establishments with a t 12/31/77 by T y p e o f I n d u s t r y  Number o f Establishments  Industryd -*  Electronics Textiles Toys E l e c t r i c a l Prod. W. C. & A. Metal Products P. & P. Food Manufact. M. R., E . & F. B. & C. Mat. Chemical Prod. Others Total  64 87 10 21 25 26 9 14 5 5 13 60 339  V-4  % of Workers Employed (A) T o t a l 29,620 17,176 5,392 4,918 4,894 2,215 1,777 1,632 910 613 587 5,024 • 74,758  39.6% 23.0% 7.2% 6.6% 6.5% 3.0% 2.4% 2.2% 1.2% 0.8% 0.8% 6.7% 100.0%  Employment P e r Establishment.:; 463 197 539 234 196 85 197 117 182 123 45 84 220  Foreign  Ownership  T o t a l Employment i n Hong Kong (B)  (A)/(B) 42,2% 16.8% 12.7% 25.4% 31.9% 3.1% 8.0% 10.7%  70,188, 102,461° 42,369 19,337 15,326 70,931 22,091 15,274 n. a. n. a. 5,822 391,309 755,108  —  10.1% 9.9%  Notes:  W. C. & A. - w a t c h e s , c l o c k s and a c c e s s o r i e s ; P. & P. - p r i n t i n g and p u b l i s h i n g ; M. R. , E. & F. - m e t a l r o l l i n g , e x t r u s i o n and f a b r i c a t i o n ; B. & C. Mat. b u i l d i n g and c o n s t r u c t i o n m a t e r i a l s ; n.a. - n o t a v a i l a b l e . a — i n c l u d e s garmets; b — excludes garments; c — f o r p l a s t i c toys only; d — i n c l u d e s employment i n m e t a l r o l l i n g , e x t r u s i o n and f a b r i c a t i o n and b u i l d i n g and c o n s t r u c t i o n m a t e r i a l s .  Sources:  C o m p i l e d f r o m r e c o r d s k e p t by t h e D e p a r t m e n t o f T r a d e , I n d u s t r y t h e Department o f Census and S t a t i s t i c s , Hong Kong g o v e r n m e n t .  and  Customs  and  CO 00  89  include by  t h e employment g e n e r a t e d  foreign manufacturers.  of o f f i c i a l is  no way  U n f o r t u n a t e l y , because o f the l a c k  to estimate i t s extent.  Output and E x p o r t s  The  1973 C e n s u s and t h e 1974 S u r v e y  i n d i c a t i o n s on f o r e i g n e r s '  manufacturing  output  The  and e x p o r t s  was  interest  Report  also  share o f c o n t r i b u t i o n to  i n Hong Kong.  1973 C e n s u s r e v e a l e d t h a t  o u t p u t o f t h e 253 m a n u f a c t u r i n g ownership  sub-contracted  r e c o r d s o f t h e amount o f s u b - c o n t r a c t e d work, t h e r e  Manufacturing  provided  t h r o u g h work  t h e combined  establishments with  i n 1973 amounted t o HK$38,606  gross  foreign  million  14.7% o f t h e t o t a l . ( ( T a b l e V-5) E v e n i f we e x c l u d e  e s t a b l i s h m e n t s i n which f o r e i g n ownership the  171 f o r e i g n m a n u f a c t u r e r s  10%  of total  gross output.  the gross output  those  short of majority,  c o n t r i b u t e d t o more  T a b l e V-5 a l s o c l e a r l y  shows  than that  p e r e s t a b l i s h m e n t was much g r e a t e r i n t h o s e  establishments with t h a t were f u l l y  still  fell  which  f o r e i g n ownership,  f o r e i g n owned  particularly  i n those  - again n e a r l y four times  as t h o s e w i t h no f o r e i g n o w n e r s h i p .  The a v e r a g e  gross  was a g a i n r e l a t e d  share o f f o r e i g n  as much  output 9  The  t o the percentage  amount o f p r o d u c t i o n o u t p u t  relative  ownership.  to the  90  TABLE: V - 5 Gross  Output o f Manufacturing E s t a b l i s h m e n t s With- 20 o r More W o r k e r s i n 1973 (by P e r c e n t S h a r e o f F o r e i g n O w n e r s h i p ) ;  P e r c e n t Share of Number o f Gross Output i n Average Output F o r e i g n O w n e r s h i p E s t a b l i s h m e n t s HK$ M i l l i o n i n HK$ M i l l i o n :  0% 1-25% 26-50% 51-75% 76-99% 100%  4,712 26 56 30 25 116 4,965  Total  22,406.2 359.9 694.1 374.1 258.6 2,173.9 26,266.8  4.8 13.8 12.4 12.5 10.3 18.7 5.3  Note:  The number o f e s t a b l i s h m e n t s r e p r e s e n t e d f i g u r e s a t December 31, 1973. The g r o s s o u t p u t was f o r t h e y e a r 1973. I n c a l c u l a t i n g t h e g r o s s o u t p u t p e r e s t a b l i s h ment, t h e a v e r a g e number o f e s t a b l i s h m e n t s i n t h e y e a r 1973 s h o u l d be u s e d , b u t t h e number o f e s t a b l i s h m e n t s by p e r c e n t s h a r e o f f o r e i g n o w n e r s h i p a t J a n u a r y 1, 1973 was n o t a v a i l a b l e .  Source:  D e p a r t m e n t o f C e n s u s and S t a t i s t i c s , Hong Kong Government, 197 3 C e n s u s o f I n d u s t r i a l P r o d u c t i o n ,  1976.  investment  V-6,  capital  calculated  from  Apparently, foreign two  figures  investment  'toys'  was  i n 1974.  production output The  industry  f o r 1974  produced  i n the  the p r o d u c t i o n output  dollars  times.  by  (2.7)  manufactures'  and  by  Report.  each d o l l a r  m u l t i p l e was  only  onerand-a-half  capital ratio  (0.8),  than  the  ( 2 . 3 ) . A t t h e o t h e r end,  'chemical products'  of  o n l y s l i g h t l y more  with a higher output  'electronics'  (0.4),  Survey  i n c l u d e l o c a l investment,  to investment  industries  1974  generated  n o t h i g h . I t was  I f we  i s given i n Table  were 'food  'electrical  TABLE  V-6  P r o d u c t i o n Output i n M a n u f a c t u r i n g E s t a b l i s h m e n t s w i t h F o r e i g n ' O w n e s r h i p by Type o f I n d u s t r y i n 1974 ~ (Amount i n HK$ M i l l i o n ) Number o f Establishments  Industry Electronics Textiles W. C. & A. Chemical Products E l e c t r i c a l Prod. Printing & Publ. Toys Food Manufactures B. & C. M a t e r i a l s Metal Products M. R., E. & F. Others Total Notes:  Source:  52 59 17 11 10 8 7 4 4 12 4 48 236  Amount o f C a p i t a l Foreign Local 580.2 218.1 180.0 96. 5 93.9 61.6 57 8 56.7 51.9 49.7 45.9 141.1 1,633.2  19.0 189.8 103.0 0.8 23.5 7.4 6.3 50. 2 9.2 31.9 56.9 19.4 517.4  Investment Total  Amount  599.2 407.9 283.0 97. 3 117.4 69.0 64.1 106.9 61.1 81. 6 102.8 160.5 2,150.6  1,400.5 615.8 273.8 82. 0 103.9 85.6 175. 9 39. 7 114.7 93.2 157.1 168.1 3,310.4  P r o d u c t i o n Output s As a M u l t i p l e of Foreign of Total Investment Investment 2.4 2.8 1.5 0.9 1.1 1.4 3.0 0.7 2.2 1.9 3.4 1.2 2.0  2.3 1.5 1.0 0.8 0.9 1.2 2.7 0.4 1.9 1.1 1.5 1.1 1.5  >'•;. W. C. & A. - w a t c h e s , c l o c k s and a c c e s s o r i e s ; B. & C. M a t e r i a l s - b u i l d i n g and c o n s t r u c t i o n m a t e r i a l s ; M. R., E . & F. - m e t a l r o l l i n g , e x t r u s i o n and f a b r i c a t i o n . C a p i t a l i n v e s t m e n t f i g u r e s were a s a t December 31, 1974. P r o d u c t i o n o u t p u t f i g u r e s were f o r t h e y e a r 1974. I n o . c a l c u l a t i n g t h e p r o d u c t i o n o u t p u t m u l t i p l e , t h e a v e r a g e c a p i t a l i n v e s t m e n t i n t h e y e a r 1974 s h o u l d be u s e d , b u t t h e c a p i t a l i n v e s t m e n t w i t h f o r e i g n and l o c a l breakdowns a t J a n u a r y 1, 1974 was n o t a v a i l a b l e . C o m p i l e d f r o m r e c o r d s k e p t by t h e D e p a r t m e n t o f T r a d e , I n d u s t r y and C u s t o m s , Hong Kong government and t h o s e c o n t a i n e d i n i t s O v e r s e a s I n v e s t m e n t i n Hong Kong M a n u f a c t u r i n g I n d u s t r i e s : I n d u s t r i a l S u r v e y R e p o r t , A u g u s t 1975.  92  products' their  (0.9)  and  'watches, c l o c k s  value of output  and  accessories'  i n the year f a l l i n g  (1.0)  s h o r t of the  had  capital  investment.  I n 1974, f o r e i g n ownership w h i c h was  10.9%  t h e 247  interest  terms o f i n d u s t r i a l  Transfer of  o f HK$2,498.8  domestic  roughly to t h e i r employment.  exports  share of  million  intthat  contribution  1 0  Technology  Technology  i n a broad  knowledge - s c i e n t i f i c , e x p e r i e n c e and p r o d u c t s and Technology  establishments with  exported a t o t a l  o f Hong Kong's t o t a l  year. This corresponded in  manufacturing  skills  empirical,  necessary  for establishing  flows through  sense  denotes  artistic,  t h e sum  or i n general,  f o r manufacturing  an e n t e r p r i s e  of  a product  for this  purpose.  i n t e r m e d i a t e goods, t e c h n i q u e s o r p r o c e s s e s ,  manpower, and  through  well-known agent  the flow of p r o p r i e t o r y  foreign  we  assertion.  do  investment  i n manufacturing  t r u e i n t h e c a s e o f Hong Kong  n o t have much q u a n t i t a t i v e  skilled  and n o n - p r o p r i e t o r y  through which technology i s t r a n s f e r r e d  host country. This i s also though  1 1  embodiment o f k n o w l e d g e i n c a p i t a l  e q u i p m e n t and  information. Direct  or  data to support  is a to  the  even this  93  Looking in  a t the history of i n d u s t r i a l  Hong Kong, i t i s q u i t e o b v i o u s  i n d u s t r i e s were f i r s t joint  providing  modern t e x t i l e trial  imported  local  knowhow. I n t h e 1950s, t h e more Hong Kong's i n d u s -  and t e c h n o l o g y i n t e x t i l e m a n u f a c t u r i n g  i n t o Hong Kong and t h e d i f f u s i o n  the establishment of other t e x t i l e  were  i n c o u r s e o f time  f a c t o r i e s by t h e  t h e 1960s, f o r e i g n  t o Hong Kong's s e c o n d  i n v e s t o r s were a l s o  stage o f i n d u s t r i a l i z a t i o n  Even though  t h e number  f o r e i g n c a p i t a l was r e l a t i v e l y  another  impetus  was b e c a u s e  small i n this  were l e s s  t o Hong Kong's m a n u f a c t u r i n g  their  investments,  were s p r e a d  i n s t e a d over a range  such as e l e c t r i c a l optical  comparative  advantage  industrial  foreign  base and gave  operations. This  and r e l a t e d  investments,  industries, but  o f more s o p h i s t i c a t e d  products, metal  and p h o t o g r a p h i c  -  decade,  u n l i k e most C h i n e s e  concentrated i n t e x t i l e s  instrumen-  of firms established  i n v e s t o r s h e l p e d t o w i d e n Hong Kong's i n d u s t r i a l  of  from  Cantonese.  diversification.  and  o r as  investors with the  f a c t o r i e s which spearheaded  In  with  investors,  t r a n s f o r m a t i o n were e s t a b l i s h e d by t h e new i m m i g r a n t s  generated  tal  and f o r e i g n  the technical  C h i n a . The s k i l l thus  i n most i n s t a n c e s new  e s t a b l i s h e d by f o r e i g n  v e n t u r e s between l o c a l  latter  that  development  products, p l a s t i c s ,  e q u i p m e n t where t h e y h h a d  industries electronics a greater  i n knowhow and where t h e y c o u l d make u s e  Hong Kong's v a s t p o o l o f l a b o u r e r s .  94  Defined more q u a l i t a t i v e to  i n a broad  than  sense,  quantitative.  technology  I t does n o t  p r e c i s e measurements. Furthermore,  d o e s n o t k e e p s e p a r a t e r e c o r d s on ment and  i s something lend  t h e Hong Kong  the import  itself government  of c a p i t a l  equip™  component p a r t s o r o u t w a r d r e m i t t a n c e s o f r o y a l t i e s  licensing  f e e s by m a n u f a c t u r i n g  difficult,  i f not  and  e s t a b l i s h m e n t s . Thus, i t i s v e r y  i m p o s s i b l e , t o t r a c e how  and  t o what  extent 12  foreign But  i n v e s t o r s have brought  i f we  technology  assume t h a t t e c h n o l o g y  r e c e i v e d m a t t e r - o f - f a c t l y through fixed  a s s e t s and  management and of  patented  licensing  the e x t e n t o f such T a b l e V-7  turing by  share of  The  their  c o n t r a c t s , t h e n we  signing of  have t h r e e  indicators  a s s e t s i n manufac-  20 o r more w o r k e r s a t t h e end  stock of  fixed  a s s e t s per  had  fixed  a s s e t s was  local  establishment  of foreign  ownership.  that  intensive  counterparts.  statistically 13  share  1973  a much b i g g e r  a s a w h o l e were more t e c h n o l o g y their  of  shows t h a t  f o r e i g n ownership. T h i s might suggest  stock of  the percentage  embodied  transfer.  p r o d u c t i o n o p e r a t i o n s than  average  through  f o r e i g n ownership i n t e r e s t  f o r e i g n manufacturers in  and  and  of technology  g i v e s the stock of f i x e d  (three to f o u r times) t h o s e w i t h no  transferred  f o r e i g n ownership. I t c l e a r l y  establishments with  than  be  t h e use  processes  establishments with  percent  will  i n t o Hong Kong.  related  to  95  TABLE Stock  V-7  of F i x e d Assets i n Manufacturing Establishments w i t h 20 o r M o r e W o r k e r s a t 31/12/73 : . (By P e r c e n t S h a r e o f F o r e i g n O w n e r s h i p ) :  P e r c e n t Share o f F o r e i g n Ownership  :  Number o f Establishments  0% 1-25% 26-50% 51-75% 76-99% 100%  4,712 26 56 30 25 116 4,965  Total Source:  1  Stock of Fixed Assets i r i HK$ ' 000  Average Per Establishment i n HK$'000  3,998,685 113,451 169,242 104,251 59,664 287,726 4,733,019  848.6 4,363.5 3,022 .2 3,475.0 2,386.6 2,480.4 953.3*  D e p a r t m e n t o f T r a d e , I n d u s t r y and C u s t o m s , Hong Kong Government, 1973 C e n s u s o f I n d u s t r i a l P r o d u c t i o n , 1976,  A breakdown o f t h e a d d i t i o n a l p r o v i s i o n s i n local  joint  ventures  i n T a b l e V-8.  Of  taken  t h e 118  from  t h e 1974  (exactly half  foreign-local  technical  knowhow a r r a n g e m e n t s , t w e n t y - e i g h t  licensing  a b o u t one  was  average,  the  Report  236  establishments  fifty-eight  (49.2%)  (23.7%)  twenty-five  i s given  had  had  (21.2%)  had  foreign venturers i n  each f o r e i g n - l o c a l  joint  1974,  venture  a r r a n g e m e n t r e g a r d i n g a d d i t i o n a l p r o v i s i o n s by  foreign venturer In  a r r a n g e m e n t s and  a r r a n g e m e n t s p r o v i d e d by  T h i s meant t h a t on had  ventures,  of the  surveyed)  management f a c i l i t i e s  joint  Survey  foreign-  in technical  knowhow, management o r  o t h e r w o r d s , t h e y were a l l a g e n t s transferred  i n t o Hong Kong.  through  which  the  licensing.  technology  TABLE Provisions  Industry  Textiles Electronics Watches, c l o c k s & a c c e s s o r i e s Metal products E l e c t r i c a l products Food manufactures Printing & publishing Metal r o l l i n g , extrusion & fabrication Chemical products Toys Building & construction materials Others Total  Source:  i n Foreign-Local J o i n t Ventures by Type o f I n d u s t r y  Number o f J o i n t Ventures  1  V-8  37 11 10 5 4 4 4  in  1974  J o i n t V e n t u r e s w i t h P r o v i s i o n s on Technical Management Licensing Knowhow Facility Arrangement Total 14 6 2 4 1 ' 4 3  9 3 1 1 1 2 2  9 5 2 0 0 2 1  32 14 5 5 2 8 6  4  2  1  0  3  3 3  2 2  0 1  1 1  3 4  2  2  2  1  5  31 118  16 58  5 28  3 25  24 111  D e p a r t m e n t o f T r a d e , I n d u s t r y and Customs, Hong Kong Government, O v e r s e a s I n v e s t m e n t i n Hong Kong M a n u f a c t u r i n g I n d u s t r i e s : I n d u s t r i a l g u r v e y R e p o r t , August,  1975.  97  On i n which the was  only  industry  In  industries  basis,  l a r g e s t number o f  because of  industry.  and  an  the  ' t e x t i l e s ' was  p r o v i s i o n s was  l a r g e number o f  terms o f p r o v i s i o n s  per  'printing  venture,  and  publishing'  (1.5),  'electrical 'toys'  (1.3)  this  ventures i n  i n w h i c h more p r o v i s i o n s were made were  c o n s t r u c t i o n m a t e r i a l s ' (2.5),  industry  made, b u t  joint  joint  the  the 'building  products' and  that  (2.0),  'electronics'  (1.3) .  No were g i v e n  s i m i l a r breakdowns by  i n the  distribution  of  venturer.  any  for it  At  country  S u r v e y R e p o r t . T h u s , we  such p r o v i s i o n s  by  most t e c h n o l o g y  T h e r e i s no  legislation that  the  of  though the  that  the  foreign  United  be  United  apply  been i s s u e d  registered. but  r e g i s t e r e d under  Kingdom, o r  within  f i v e years  the  provides any  person  from  the  t o have i t r e g i s t e r e d i n Hong  such r e g i s t r a t i o n w i l l  p a t e n t had  provisions.  p a t e n t s i i n Hong Kong,  g r a n t e e may,  patent,  ventures,  number o f p a t e n t s  Kingdom may  i n the  only  received  Kingdom P a t e n t s O r d i n a n c e . T h i s  a patent  the  for non-joint  from foreigners„through such  United  r i g h t from the  Kong, and  the  w h i c h p a r t i c u l a r i n d u s t r y had  r e g i s t r a t i o n of  i n the  issue of  not  i n d i c a t o r i s the  original  grantee of  deriving date of  to say  last  patents granted  know  investment  r a t e , b e c a u s e s u c h p r o v i s i o n s were g i v e n  imports  The  not  n a t i o n a l i t y of  f o r e i g n - l o c a l j o i n t v e n t u r e s but i s impossible  do  source of  confer  i n the  the  United  same r i g h t s  as  Kingdom w i t h  an  98  extension  t o Hong  Kong.  Table according April  shows t h e number  t o t h e home c o u n t r y  o f the grantees  i n the period t h e r e were  r e g i s t e r e d , i n c l u d i n g 102 whose c o u n t r y  the grantees  patents  of domicile  during  this  period.  The  f i g u r e s i n Table V-9  r e g i s t r a t i o n denotes a r e g i s t r a t i o n then  5,230  was Hong Kong. I n o t h e r w o r d s , t h e r e were 5,128  r e g i s t e r e d by f o r e i g n c o r p o r a t i o n s  eight-year  tion,  o f patents r e g i s t e r e d  1, 1 9 7 0 t o M a r c h 3 1 , 1 9 7 8 . A l t o g e t h e r ,  patents of  V-9  xst  about  reveal that i fa patent  of a technological  98% o f such t e c h n o l o g i c a l i n n o v a t i o n s  innovaapplied  t o Hong Kong came f r o m f o r e i g n c o r p o r a t i o n s . t h r o u g h  their  subsidiaries  by l o c a l  i n Hong Kong. "* R e g i s t e r e d i n n o v a t i o n s 1  m a n u f a c t u r e r s were p r a c t i c a l l y  Nearly  negligible.  a l l the patents  r e g i s t e r e d i n Hong Kong by  f o r e i g n c o r p o r a t i o n s h a d t h e i r home c o u n t r i e s i n t h e i n d u s t r i a l i z e d Western world. source by  Evidently, this  of technology  Southeast  Asian  1  investment  important  i n f l o w f o r Hong Kong. P a t e n t s r e g i s t e r e d  c o u n t r i e s were m i n i m a l ,  two f o r a l l S o u t h e a s t period. ^  h a d b e e n t h e most  Asian  totalling  c o u n t r i e s i n t h e whole  only  twenty-  eight-year  T h i s was a r e f l e c t i o n o f t h e d i f f e r e n c e i n n a t u r e o f and t y p e  o f manufacturing  f r o m t h e two g r o u p s o f c o u n t r i e s .  operations  between i n v e s t o r s  TABLE V-9 Number o f P a t e n t s R e g i s t e r e d / 1970/71  Home C o u n t r y of Grantee United States Japan U n i t e d Kingdom Switzerland West Germany Hong Kong France Canada Australia Netherlands Others Total Notes: • Source:  -  1977/78  70/71  71/72  72/73  7 3/73  74/7 5  7 5/76  76/77  7 7/78  194 27 52 33 48 7 6 4 5 6 g 391  227 57 76 20 53 20 14 9 5 11 17 509  264 55 101 40 82 8 28 9 5 12 35 639  574 55 91 36 36 11 3 9 3 32 31 881  382 73 84 44 44 9 7 6 7 18 34 708  310 72 87 48 64 5 10 4 4 2 32 638  260 136 123 63 75 14 14 3 5 39 73 805  196 112 106 53 51 28 24 15 14 14 46 659  SubTotal  % of Total  2,407 46.0% 11. 2% 587 720 13.8% 337 6.4% 453 8.7% 102 2.0% 106 2.0% 59 1.1% 48 0.9% 134 2.6% 277 5.3% 5,230 100.0%  The y e a r r e f e r s t o t h e f i s c a l y e a r o f Hong Kong w h i c h i s A p r i l 1 t o M a r c h 31. O t h e r c o u n t r i e s n o t s p e c i f i e d had l e s s t h a n t e n p a t e n t s g r a n t e d e a c h d u r i n g 1977/78. R e g i s t r a r G e n e r a l , Hong Kong Government, A n n u a l various issues.  Departmental  Report,  100  By c o m p a r i n g it  i s apparent  that  Table V-9  and  T a b l e IV-3  t h e number o f p a t e n t s r e g i s t e r e d  c o r r e l a t i o n w i t h t h e d o l l a r amount o f i n v e s t m e n t s The  (page  c o e f f i c i e n t o f c o r r e l a t i o n between t h e two  had  74), a  close  i n manufacturing.  was  as h i g h as  17 0.939. foreign  The  11.S. w h i c h  investments  for  46.9%  of t o t a l  the  leading  foreign  J a p a n were a l s o  accounted  f o r 46.5%  i n manufacturing 'foreign  i n 1977  of t o t a l was  d o l l a r s of  also  responsible  p a t e n t s ' i n 1970/71 t o 1 9 7 7 / 7 8 .  investors  coming  from Western Europe  important r e c i p i e n t s of patent r i g h t s .  1 8  and  All  101  Notes  1.  The t o t a l number o f m a n u f a c t u r i n g e s t a b l i s h m e n t s i n Hong Kong a t December 31, 1977 was 37,568. S o u r c e : Hong Kong Government, Hong Kong A n n u a l R e p o r t 1978.  2.  The d i f f e r e n c e was f o u n d t o be by u s i n g c h i - s q u a r e t e s t .  3.  T h e s e e f f e c t s i n c l u d e , f o r example, d i s t r i b u t i o n o f i n c o m e , changing consumption h a b i t s , induced investment, b a l a n c e o f payments, t h e e x c h a n g e r a t e and t h e t e r m s o f t r a d e . F o r a t h e o r e t i c a l d i s c u s s i o n o f t h e s e e f f e c t s , s e e Bos, H.C., S a n d e r s , M. and S e c c h i , C , P r i v a t e F o r e i g n I n v e s t m e n t i n D e v e l o p i n g C o u n t r i e s : A Q u a n t i t a t i v e S t u d y on t h e E v a l u a t i o n o f the Macroeconomic E f f e c t s , R e i d e l P u b l i s h i n g Co., B o s t o n , 1974.  4.  T h i s C e n s u s was c o n d u c t e d i n A p r i l 1974 t o F e b r u a r y 1975 and c o v e r e d d i v i s i o n s 2 ( m i n i n g and q u a r r y i n g ) , 3 (manufact u r i n g ) and 4 ( e l e c t r i c i t y , gas and w a t e r ) o f t h e U n i t e d Nations I n t e r n a t i o n a l Standard I n d u s t r i a l C l a s s i f i c a t i o n o f A l l E c o n o m i c A c t i v i t i e s . The p e r i o d o f r e f e r e n c e was t h e c a l e n d a r y e a r 1973, b u t e s t a b l i s h m e n t s were a l l o w e d t o r e p o r t on t h e i r b u s i n e s s y e a r e n d i n g n o t e a r l i e r t h a n J u n e 30, 1973 and n o t l a t e r t h a n J u n e 30, 1974. A l l d a t a c o l l e c t e d were i n r e s p e c t o f one w h o l e y e a r e x c e p t f o r e s t a b l i s h m e n t s w h i c h commenced o r c e a s e d p r o d u c t i o n d u r i n g 1973. The d a t a s u p p l i e d by t h e s e e s t a b l i s h m e n t s were o n l y i n r e s p e c t o f t h e p a r t o f 1973 w h i c h t h e y were i n o p e r a t i o n .  5.  The a v e r a g e s i z e o f employment and f o r e i g n o w n e r s h i p were f o u n d t o be by u s i n g c h i - s q u a r e t e s t .  6.  D e p a r t m e n t o f T r a d e , I n d u s t r y and Customs, Hong Kong Government, O v e r s e a s I n v e s t m e n t i n Hong Kong M a n u f a c t u r i n g I n d u s t r i e s : I n d u s t r i a l Survey Report, August 1975. T h i s s u r v e y was c a r r i e d o u t f r o m F e b r u a r y 3 t o M a r c h 26, 1975 and c o v e r e d a l l m a n u f a c t u r i n g e s t a b l i s h m e n t s known t o have s i g n i f i c a n t f o r e i g n o w n e r s h i p i n t e r e s t , d e f i n e d a s 25% o r more f o r e i g n o w n e r s h i p . T h r o u g h o u t t h i s t h e s i s , a f o r e i g n manufacturer i s used to denote a manufacturing f i r m w h i c h has 25% o r more f o r e i g n o w n e r s h i p i n t e r e s t .  7.  The t o t a l number o f w o r k e r s employed i n m a n u f a c t u r i n g i n Hong Kong a t t h e end o f 1974 was 600,218. S o u r c e : Hong Kong Government, Hong Kong A n n u a l R e p o r t 1975. T h i s p e r c e n t i s much l o w e r t h a n t h e one d e r i v e d f r o m t h e  statistically  significant  the percentage share of statistically related  102  p r o c e e d i n g d a t a s e t b e c a u s e t h e l a t t e r had e x c l u d e d t h e s m a l l m a n u f a c t u r i n g f i r m s employing l e s s than twenty workers. 8.  The D e p a r t m e n t o f T r a d e , I n d u s t r y and Customs h a v e d i f f e r e n t industry c l a s s i f i c a t i o n s f o r f o r e i g n investments i n m a n u f a c t u r i n g and f o r a l l m a n u f a c t u r i n g i n d u s t r i e s . Hence, t h e p e r c e n t a g e s c a l c u l a t e d i n T a b l e V-4. may n o t be v e r y a c c u r a t e .  9.  The a v e r a g e g r o s s o u t p u t and t h e p e r c e n t a g e s h a r e o f f o r e i g n o w n e r s h i p were f o u n d t o be s t a t i s t i c a l l y r e l a t e d by u s i n g c h i - s q u a r e t e s t .  10.  T h i s was b a s e d on an e s t i m a t e•,g i v e n i n t h e S u r v e y R e p o r t , o f 73.7% o f t o t a l p r o d u c t i o n o u t p u t b e i n g e x p o r t e d i n t h e s e 24 7 m a n u f a c t u r i n g e s t a b l i s h m e n t s w i t h f o r e i g n o w n e r s h i p . T o t a l d o m e s t i c e x p o r t s o f Hong Kong i n 1974 amounted t o HK$22,911 m i l l i o n . S o u r c e : Hong Kong Government, Hong Kong A n n u a l R e p o r t 1975.  11.  T h i s i s t h e d e f i n i t i o n u s e d by t h e U n i t e d N a t i o n s . ( U n i t e d N a t i o n s , G u i d e l i n e f o r t h e A c q u i s i t i o n o f F o r e i g n Technol o g y i n D e v e l o p i n g C o u n t r i e s , U n i t e d N a t i o n s , New Y o r k , 1973, page 1.)  12.  F o r i n s t a n c e , Hughes, H. and You, P.S. i n t h e i r book on f o r e i g n i n v e s t m e n t s i n S i n g a p o r e ( F o r e i g n I n v e s t m e n t and I n d u s t r i a l i z a t i o n i n S i n g a p o r e , The U n i v e r s i t y o f W i s c o n s i n P r e s s , M a d i s o n , 1969) l i s t e d t r a n s f e r o f t e c h n o l o g y a s one o f t h e most i m p o r t a n t e f f e c t s o f d i r e c t f o r e i g n i n v e s t m e n t s i n S i n g a p o r e , b u t a d m i t t e d t h a t t h e y had n o t b e e n a b l e t o f i n d empirical proof that a t r a n s f e r o f t e c h n o l o g y had i n d e e d o c c u r r e d . The r e a s o n may w e l l be t h a t s e r i o u s p r o b l e m s i n d e f i n i t i o n and measurement a r e i n v o l v e d , p e r h a p s to the extent that t r a n s f e r of technology i s a c t u a l l y something u n v e r i f i a b l e and unmeasurable.  13.  The a v e r a g e s t o c k o f f i x e d a s s e t s a n d t h e p e r c e n t a g e s h a r e o f f o r e i g n o w n e r s h i p were f o u n d t o be s t a t i s t i c a l l y r e l a t e d by u s i n g c h i - s q u a r e t e s t .  14.  W i t h e f f e c t f r o m November 16, 1977, t h e p r o v i s i o n s o f t h e I n t e r n a t i o n a l Convention f o r the P r o t e c t i o n of I n d u s t r i a l P r o p e r t y (The P a r i s C o n v e n t i o n ) a r e e x t e n d e d t o Hong Kong. The C o n v e n t i o n c o v e r s t r a d e marks and d e s i g n s as w e l l a s patents.  15.  I f a f o r e i g n m a n u f a c t u r e r i n Hong Kong r e g i s t e r s a p a t e n t d i r e c t l y u n d e r i t s name, t h e n t h e c o u n t r y o f g r a n t e e w o u l d be Hong Kong. Hence, t h e a s s u m p t i o n h e r e i s t h a t t h e p a r e n t  103  c o r p o r a t i o n o v e r s e a s r e g i s t e r s a p a t e n t u n d e r i t s name and t h e n g r a n t s i t s u s e t o i t s s u b s i d i a r y c o r p o r a t i o n i n Hong Kong. Of c o u r s e , some p a t e n t r e g i s t r a t i o n s may h a v e b e e n p u r e l y p r o t e c t i v e i n n a t u r e and t h e p a t e n t e d p r o d u c t s o r p r o c e s s e s may n o t b e u s e d a t a l l b y t h e s u b s i d i a r y c o r p o r a t i o n s i n Hong Kong. 16.  The home c o u n t r y o f g r a n t e e o f t h e s e t w e n t y - t w o p a t e n t s were a s f o l l o w s : T a i w a n 11, S i n g a p o r e 7, M a l a y s i a 3 a n d P h i l i p p i n e s 1.  17.  See A p p e n d i x  18.  ' F o r e i g n p a t e n t s ' h e r e r e f e r t o p a t e n t s whose home c o u n t r y o f g r a n t e e was n o t Hong Kong. T h e r e f o r e , t h e 102 'Hong Kong p a t e n t s ' were e x c l u d e d i n t h e c a l c u l a t i o n o f t h e U.S.'s s h a r e o f t o t a l ' f o r e i g n p a t e n t s ' .  II-5.1.  104  CHAPTER V T - OPERATIONAL  CHARACTERISTICS  :  When f o r e i g n  i n v e s t o r s a r e n o t c o n s t r a i n e d by  nment r e s t r i c t i o n s , : t h e i r accurately reflect of  their  investment motives  the impact  operational investment  c h a r a c t e r i s t i c s can  m o t i v e s . Hence, a n  and o p e r a t i o n a l  o f the former  on t h e l a t t e r  as w e l l  most p r e v a l e n t i n a c e r t a i n  same t i m e , one may  also  the v a l i d i t y  use t h e o p e r a t i o n a l  of direct  foreign  examination  characteristics will  type o f investment  test  based  characteristics  upon d a t a g e n e r a t e d  country. A t the  c h a r a c t e r i s t i c s to  investment  theories.  Motives  and Type o f  Using described motives  'aggressive' motive this  of  i n Hong Kong  the q u e s t i o n n a i r e survey.  the c l a s s i f i c a t i o n  by B r o o k e and Remmers  I, the survey r e v e a l e d that  foreign manufacturers  i n nature.  1  the investment  i n Hong Kong were m o s t l y  'To make u s e o f l o c a l  m e n t i o n e d by t h e l a r g e s t  l a b o u r ' was t h e  number o f r e s p o n d i n g f i r m s and  confirmed the general b e l i e f  manufacturers  and  Investment  i n Chapter  behind  of foreigniinianufacturers  from  reveal  as determine t h e  This chapter explores the investment motives operational  gover-  that the majority of foreign  came t o Hong Kong t o make u s e o f i t s v a s t p o o l  l a b o u r . However, t h i s m o t i v e  might have thought  was n o t a s i m p o r t a n t a s some  b e c a u s e more t h a n one q u a r t e r o f t h e  105  responding  f i r m s d i d n o t have t h i s  motive  i n m i n d . They were  a p p a r e n t l y not labour o r i e n t e d . (Table VI-1)  TABLE V I - 1 The  Investment  Motives  Motive  Number o f Responses  % of Total  77 68  7 1 . 3% 6 3 . 0%  58  5 3 . 7%  54  50. 0%  35  32. 4%  33  30. 6%  31  2 8 . 7%  23  2 1 . 3%  21  1 9 . 4%  20  1 8 . 5%  10  q 3%  10  Q 3%  7 /  c ^ & D•D%  4  3. 7%  4 1  7%  6  5. 6%  To make u s e o f l o c a l l a b o u r To t a k e a d v a n t a g e o f l o w e r l o c a l t a x e s To g e o g r a p h i c a l l y d i v e r s i f y t h e company's operations To e l i m i n a t e o r r e d u c e t h e c o s t o f t r a n s p o r t a t i o n i n s e l l i n g t o t h e l o c a l market or i t s neighbouring markets To make u s e o f l o c a l p r o d u c t i o n s k i l l a n d technology To m a t c h c o m p e t i t i o n by l o c a l f i r m s o r other foreign firms To make t h e company's p r o d u c t s more a c c e p t a b l e by l o c a l p e o p l e To make u s e o f l o c a l c a p i t a l To m a n u f a c t u r e a t o r n e a r s o u r c e s o f raw material supplies TO b e t t e r meet l o c a l p r o d u c t s t a n d a r d s by manufacturing t h e r e i n To t a k e a d v a n t a g e o f c o n c e s s i o n s g r a n t e d by t h e l o c a l government t o f o r e i g n companies The company h a s r e a c h e d i t s l i m i t o f e x p a n s i o n a t home Tb e n s u r e s u p p l i e s o f m a t e r i a l s e s s e n t i a l t o t h e company's o p e r a t i o n s a t home To g e t o v e r i m p o r t restrictions The company i s b e i n g i n v i t e d by t h e l o c a l government Others Note:  Total  number o f r e s p o n d i n g  firms =  Source:  Questionnaire survey r e t u r n s .  108.  j .•J o  106  I n s e c o n d p o s i t i o n was local  t a x e s ' , m e n t i o n e d by s i x t y - e i g h t  responding nature  'to take  advantage o f  (63.0%) o f t h e 108  f i r m s . T h i s m o t i v e was d e f i n i t e l y  and a p p e a r e d t o i n d i c a t e  government's l i b e r a l economic  Only  lower  aggressive i n  a favourable response  to the  policy.  two o t h e r m o t i v e s were m e n t i o n e d by 50% o r  more o f t h e r e s p o n d i n g company's o p e r a t i o n s '  firms:  'to g e o g r a p h i c a l l y d i v e r s i f y  (fifty-eight  responses)  and  the  'to e l i m i n a t e  or reduce the c o s t of t r a n s p o r t a t i o n i n s e l l i n g  to the l o c a l  market or i t s neighbouring  responses).  markets'  (fifty-four  T h e s e two m o t i v e s m i g h t be c o n s i d e r e d corporate  as d e f e n s i v e  from a  s t r a t e g y ' s p o i n t o f v i e w ; b u t b e c a u s e t h e y were n o t  intended  to preserve  existing  business  interest  country,  t h e y w o u l d l o o k more a g g r e s s i v e t h a n  i n the host  defensive  according  2 to  the c r i t e r i a l a i d  down by B r o o k e and Remmers.  'To make u s e o f l o c a l was  another  the  firms. This to a certain  skill  and t e c h n o l o g y  t h e more pretty  important  'developed'  production  skill  and  technology  m o t i v e , m e n t i o n e d by a r o u n d o n e - t h i r d o f extent  suggested  i n some i n d u s t r i e s ones such  that  production  i n Hong Kong,  as t e x t i l e s  a d v a n c e d and c o u l d be an a t t r a c t i o n  probably  and g a r m e n t s , were in itself  to f o r e i g n  investors.  The  only other  investment  m o t i v e w h i c h h a d some  1  107.  importance  was  twenty-three constant  * t o make u s e o f l o c a l  mentioned  1  by  o r s l i g h t l y more t h a n o n e - f i f t h o f t h e f i r m s .  inflows of capital  countries  capital  from  nearby  Southeast  i n t h e p a s t y e a r s had k e p t c a p i t a l  The  Asian  funds  i n Hong Kong  3 relatively  plentiful  investors,  especially  investment  capital,  of  and c h e a p .  Consequently  t h e s m a l l e r ones who  were a t t r a c t e d  foreign  were s h o r t o f  t o Hong Kong by t h e low c o s t  funds. The  The  defensive motives  two most i m p o r t a n t o n e s were  local  firms or other foreign  were l e s s  (30.6%) and t h i r t y - o n e first  firms'  life  cycle  foreign  i n c o m p e t i t i v e markets. market o r i e n t e d foreign  people'.with  closely  thirty-three  respectively.  related  investments The l a t t e r  type o f investments  investments  and t h i s  indicated  product  came t h i r d  among t h e d e f e n s i v e m o t i v e s .  suggested  that not  i n Hong Kong were by t h e m o t i v e  s t a n d a r d s by m a n u f a c t u r i n g  therein'  other o b v i o u s l y d e f e n s i v e motive  supplies of materials essential  which  seemed r e l a t e d more t o  meet l o c a l  The  reaction  as a d e f e n s i v e s t r a t e g y  i n manufacturing  e x p o r t o r i e n t e d . T h i s was a l s o  The  to the product  t h e o r y and t h e t h e o r y o f o l i g o p o l i s t i c  postulate direct  mentioned.  and ' t o make t h e company's  (28.7%) r e s p o n s e s  o f t h e s e two m o t i v e s was  frequently  ' t o m a t c h c o m p e t i t i o n by  p r o d u c t s more a c c e p t a b l e by l o c a l  all  some  'to b e t t e r which  - 'to ensure  t o t h e company's o p e r a t i o n s a t  108  home' was  a n s w e r e d by o n l y  seven responding  In t h e r e s p o n s e s , company was put  down  local  being  four  firms  i n v i t e d by t h e l o c a l  firms.  believed  t h a t 'the  government' w h i l e t e n  ' t o t a k e a d v a n t a g e o f t h e c o n c e s s i o n s g r a n t e d by t h e  g o v e r n m e n t f o f o r e i g n c o m p a n i e s ' a s a m o t i v e f o r them t o  come t o Hong Kong. T h i s  requires  t o be i n c o n s i s t e n t w i t h  the government's p o l i c y o f n o n - d i f f e r -  e n t i a t i o n and n o n - i n t e r v e n t i o n .  an e x p l a n a t i o n  The f a c t  i s that  a s i t seemed  t h e Hong  Kong  g o v e r n m e n t h a s n o t a c t i v e l y i n v i t e d any p a r t i c u l a r f o r e i g n m a n u f a c t u r e r s t o i n v e s t i n Hong Kong e v e n t h o u g h a few o f them may  believe  so. In recent  years,  t h e g o v e r n m e n t has  a number o f b u s i n e s s p r o m o t i o n teams t o v a r i o u s industrial  countries  dispatched  countries,  mostly  o f t h e West, t o p u b l i c i s e t h e i n d u s t r i a l  capabilities  o f Hong Kong and i t s a t t r a c t i o n s a s an  investment  centre.  has i n d u c e d  exploration  This  some f o r e i g n f i r m s  m i s s i o n s t o Hong Kong and s u b s e q u e n t l y  t o send  s e t up m a n u f a c t u r i n g  operations.  T h e r e a r e a l s o no s p e c i a l c o n c e s s i o n s g r a n t e d t o f o r e i g n companies.The o n l y by  t h a t has e v e r b e e n g r a n t e d  t h e Hong Kong g o v e r n m e n t t o m a n u f a c t u r e r s i s s u b s i d i z e d  industrial local and  concession  land  leases,  but these leases  and f o r e i g n m a n u f a c t u r e r s .  1977 o f f e r r e d t o new  to both  In view o f the r a p i d l y  extremely expensive land cost,  since  are granted  rising  t h e Hong Kong g o v e r n m e n t h a s  investors,  local  or foreign,  who  109  require at  large pieces of factory  about  (i)  o n e - f i f t h o f market p r i c e  result  to  concessionary land leases  i f their  i n the import o f i n d u s t r i a l  at  processes,  a generally  industrial performed (iv)  higher level  are those which w i l l  leases  i n the f o l l o w i n g  their  60%  established  sections, of their  i n t e g r a t e d . Furthermore,  able  total  sales  terised  by  indicating  i n 1978.  shall on  T h e r e was  ownership  a  and u n d i v i d e d  that  their  their  and  o p e r a t i o n s were  t h e y p l a c e d a h e a v y emphasis on  of export oriented  R e u b e r and  t y p e . As we  i n management, p r o d u c t i o n and  of production input factors  typical  i n manufacturing  the f o r e i g n manufacturers  links  t o e a r n a h i g h r e t u r n on  features  fifteen  between t h e s e f o r e i g n m a n u f a c t u r e r s  overseas a f f i l i a t e s  importance  or  the survey r e v e a l e d  investments  to the export o r i e n t e d  T h e r e were c l o s e  marketing  and  such c o n c e s s i o n a r y l a n d  strong preference f o r m a j o r i t y i f not f u l l control.  of  be  buildings  around  the type of investment,  f a r the m a j o r i t y o f f o r e i g n  exported  t h e use  Territories.  Hong Kong b e l o n g e d  average  o f 1978,  new  opportunities  require  industrial  received  projects  existing  t h e i r very nature cannot  t h e end  c o m p a n i e s had  Regarding  see  (iii)  of  n o t o t h e r w i s e be e s t a b l i s h e d  i n Hong Kong. By  i n t h e New  t h a t by  of s k i l l ,  p r o c e s s e s w h i c h by  manufacturing  upgrading  ( i i ) p r o v i d e employment  i n standard multi-storey  developed  industrial  processes which are  Hong Kong o f ' r e p r e s e n t a s i g n i f i c a n t  industrial  in  space  the  and many o f them had  been  i n v e s t m e n t s . T h e s e were type of investment  d e s c r i b e d i n Chapter  I.  charac-  110  O w n e r s h i p and  Management  The  Control  complete l a c k o f government r e s t r i c t i o n s  f o r e i g n o w n e r s h i p i n Hong Kong has  permitted  to  of ownership, the  foreigners i n choosing  of c a p i t a l  h e l d and  the  type  maximum  on  freedom proportion  t h e d e g r e e o f management c o n t r o l o v e r  their  investments.  Type o f Ownership; existed  n e a r l y e x c l u s i v e l y i n the  liability the only  Foreign  form o f p r i v a t e  f i v e of the  limited 108  liabilities.  responding  c o m p a n i e s i n 1978.  Type o f  f i r m s were n o t  private  three  limited  partnerships  Number of Firms  survey  survey,  Ownership  Sole p r o p r i e t o r s h i p Partnership P r i v a t e l i m i t e d l i a b i l i t y company P u b l i c l i m i t e d l i a b i l i t y company Total Questionnaire  The  to the  plus  VI-2  Type o f O w n e r s h i p  Source:  According  ( T a b l e VI-2)  TABLE  (a) (b) (c) (d)  limited  c o m p a n i e s w h i c h g a v e them t h e b e n e f i t o f p r i v a c y  protection of  liability  m a n u f a c t u r e r s i n Hong  returns.  0 3 103 2 108  Total 0.0% 2.8% 95.4% 1.9% 100.0%  Ill  a l l had t h e i r f o r e i g n c a p i t a l coming from Southeast A s i a n c o u n t r i e s . C o n c e i v a b l y , the f o r e i g n p a r t n e r s were overseas Chinese s u b s c r i b i n g funds to the business of t h e i r f r i e n d s or relatives  i n Hong Kong. There were o n l y two  which were p u b l i c l i m i t e d stock exchange. One was 'electronics'  foreign  manufacturers  l i a b i l i t y companies quoted i n the  a Japanese  and the other was  c o r p o r a t i o n engaged i n  a 'watch, c l o c k s and  accessories'  f i r m with T h a i investment. The former was m a j o r i t y h e l d by the Japanese;  the l a t t e r ' s share of T h a i investment was  between 26%  and 49% a t the end of 1 9 7 8 V •• r .31, .''.-'7  Amount of C a p i t a l  Investment:  investments as r e v e a l e d by the survey was f i n d i n g s of the I n d u s t r i a l  The amount of c a p i t a l c o n s i s t e n t with the  Survey Report by the Department of  Trade, Industry and Customs i n 1 9 7 5 .  The m a j o r i t y of f o r e i g n  manufacturing e s t a b l i s h m e n t s were medium s i z e d c a p i t a l investments r a n g i n g from HK$1 (Table V I - 3 )  Only f i f t e e n  f i r m s with  m i l l i o n to HK$10 m i l l i o n .  (13.9%) of the 108  responding f i r m s  had c a p i t a l investments of l e s s than HK$500,000 each and c o u l d be regarded as s m a l l f i r m s . At the o p p o s i t e end, t h e r e were twelve f i r m s w i t h c a p i t a l investments exceeding HK$10 m i l l i o n which by Hong Kong standards would p l a c e them among t h e ! l a r g e firms.  The d i s t r i b u t i o n o f f i r m s among the v a r i o u s c a p i t a l investment s i z e c a t e g o r i e s i n d i c a t e d t h a t i f t h i s  distribution  11.2  TABLE  VI-3  Amount of C a p i t a l Investment C a p i t a l Investment i n HK$'000 a t 31/12/78 (a) (b) (c) (d) (e) (f) (g)  500 or 501 1,001 5,001 10,001 More than No r e p l y  Source:  had  less 1,000 5,000 10,000 20,000 20,000 Total  Questionnaire  survey  responding  of the p o p u l a t i o n of 391  % of Total  15 16 44 12 9 3 9 108  13.9% 14.8% 40.7% 11.1% 8.3% 2.8% 8.3% 100.0%  returns.  remained unchanged from December 1974  then the 108  Number o f Firms  to February  f i r m s were a good r e p r e s e n t a t i v e sample f i r m s b e c a u s e o s t a t i s t i c a l l y there  no d i f f e r e n c e i n the d i s t r i b u t i o n of f i r m s i n the 4 c a p i t a l investment s i z e groups.  Share of Ownership: was  1979,  different  F o r e i g n ownership p a r t i c i p a t i o n  on average very h i g h . E i g h t y - e i g h t  f o r e i g n ownershp at the end o f 1978  (81.5%) had  majority  and among them, s i x t y - n i n e  (63.9%) were f u l l y owned by f o r e i g n e r s , d e f i n e d as those share of f o r e i g n ownership exceeding 95%. were f i v e  was  (Table VI-4)  with  There  (4.6%) f i r m s i n which the ownership s h a r i n g between  the f o r e i g n i n v e s t o r ( s ) and f i f t y - f i f t y . Ten  firms  the l o c a l i n v e s t o r ( s ) was  exactly  (9.3%) had only m i n o r i t y f o r e i g n ownership  113  TABLE Share  VI-4  o f F o r e i g n Ownership  Share o f F o r e i g n O w n e r s h i p a t 31/12/78 (a) (b) (c) (d) (e) (f) (g) (h)  O v e r 95% 76 - 95% 51 - 75% E x a c t l y 50% 26 - 49% 5 - 25% L e s s t h a n 5% No r e p l y  Source:  ownership  49%.  The  o f between 5% and  'foreign manufacturers' firms claimed that  five  b u t t h e y had  69 6 13 5 10 3 0 2 108  63.9% 5.6% 12.0% 4.6% 9.3% 2*8% 0.0% 1.9% 100.0%  returns.  three  (2.8%) f i r m s w i t h  25% m i g h t  be  t h e y had  foreign  e x c l u d e d from  c a t e g o r y ; but because  r e s p o n s e s were i n c l u d e d originally  % of Total  Total  Questionnaire survey  o f between 26% and  Number of Firms  a l l these  a p a r e n t company o v e r s e a s  i n the a n a l y s i s . A l s o ,  f i r m s w i t h f o r e i g n ownership  the  their  t h e r e were  of less  a l r e a d y been e x c l u d e d i n t h e l i s t  three  of  than  5%,  effective  5 responses.  A breakdown o f t h e f o r e i g n m a n u f a c t u r e r s of c a p i t a l  investments  showed t h a t was  t h e two  a positive  investment  f j  and  percent share of f o r e i g n  by  ownership  were n o t u n r e l a t e d . S t a t i s t i c a l l y ,  relation:  the l a r g e r  t h e amount o f  amount  there  capital  the higher the p e r c e n t share of f o r e i g n  ownership.  114  Of  the s e v e n t y - f i v e firms with f o r e i g n e r s '  exceeding HK$1  75%,  million  s i x t y - o n e had  by  foreigners.  thirteen  indicated full  in  their  1978.  Only  three of the  ( T a b l e VI-5)  On  t h a n HK$1  the l a r g e r  ownership  than  twelve  e x c e e d i n g HK$10 m i l l i o n were n o t f u l l y  of less  that  ownership  o f more  t h e o t h e r hand, n i n e o f  f i r m s w i t h o n l y m i n o r i t y f o r e i g n ownership  investments  to  a p a i d up c a p i t a l  a t December 31,  firms with c a p i t a l  share of  and  investment  million  foreign  capital  each.  owned  the  had  capital  T h i s somehow  investors preferred majority  requirementswas  not a  constraint  decisions.  TABLE  VI-5  Amount o f C a p i t a l I n v e s t m e n t s and P e r c e n t S h a r e o f F o r e i g n O w n e r s h i p a t 31/12/78 Number o f F i r m s C a p i t a l Investment i n HK$' 000 (a) 1,000 o r l e s s (b) 1,001 t o 10,000 (c) More t h a n 10,000 Total  Share o f F o r e i g n Ownership O v e r 95% 76-95% 50-75% U n d e r 50% 14 46 9 69  0 5 _JL 6  8 2 _1 11  Note:  T h e r e were n i n e f i r m s w i t h no r e p l y on c a p i t a l investments.  Source:  Questionnaire survey  returns.  9 3 _1 13  Total 31 56 12 99  t h e amount o f  115  Method o f O w n e r s h i p P a r t i c i p a t i o n : E x a c t l y q u a r t e r o f t h e 108 with  r e s p o n d i n g f i r m s were o r i g i n a l l y  f o r e i g n ownership.  local  companies  through  later  Only  absorbed  s a l e o f ownership  acquired  thirteen  f o r e i g n ownership  fully  (12.0%) were  established originally  o r p a r t l y by  foreigners  i n t e r e s t . The  remaining  fourteen  i n t e r e s t by  i s s u e o f new  i n Hong Kong m o s t l y  through  a c q u i s i t i o n . This  benefits (Table  s h o u l d have brought  t o Hong Kong t h a n w o u l d be  the case  from  local  to  in  took the form o f newly  investments, but not t r a n s f e r r e d investments  (13.0%)  capital  f o r e i g n e r s ; : In o t h e r words, d i r e c t f o r e i g n i n v e s t m e n t s manufacturing  three-  added investors  more e c o n o m i c otherwise.  VI-6)  TABLE  VI-6  Method o f O w n e r s h i p P a r t i c i p a t i o n  Method (a) (b) (c) (d)  Company f o r m e d w i t h f o r e i g n o w n e r s h i p L o c a l company s o l d a l l i t s o w n e r s h i p i n t e r e s t to foreigners L o c a l company s o l d p a r t o f i t s ownership i n t e r e s t to f o r e i g n e r s L o c a l company e n l a r g e d i t s c a p i t a l t o take i n f o r e i g n ownership i n t e r e s t Total  Source:  Q u e s t i o n n a i r e survey  returns.  Number of Firms  % of Total  81  75.0%  2  1.9%  11  10.2%  14  13.0%  108  100.0%  116  Use local is  equity participation  important,  appeal in  of J o i n t Ventures:  joint  to foreign  a r e r e q u i r e d o r where a l o c a l  ventures with  investors.  c o n s i d e r e d themselves  investors.  foreign  interested  as b e i n g  image  i n v e s t o r s have a s t r o n g  v e n t u r e s . Out o f t h e 108 r e s p o n d i n g  one-third local  local  But e v i d e n t l y ,  Hong Kong were n o t p a r t i c u l a r l y  joint  I n h o s t c o u n t r i e s where  investors  i n entering into  firms, only joint  ( T a b l e VI-7) I n a d d i t i o n ,  about  ventures  t h e r e were  with  three  T a b l e VI-7 Use J o i n t Venture (a) (b) (c) (d)  Ventures  S t a t u s a t 31/12/78  Number of Firms  % of Total  71 34 3 0 108  65.7% 31.5% 2.8% 0.0% 100.0%  Not a j o i n t v e n t u r e A f o r e i g n - l o c a l j o i n t venture A foreigners' j o i n t venture A j o i n t v e n t u r e w i t h t h e government Total  Source:  Questionnaire survey r e t u r n s .  foreigners' and  of Joint  one w i t h  j o i n t v e n t u r e s , two w i t h two f o r e i g n three f o r e i g n i n v e s t o r s . A l l these  joint  v e n t u r e s h a d no l o c a l  joint  venture with  non-intervention  ownership i n t e r e s t .  the government, a d i r e c t  policy.  investors three  foreigners'  T h e r e was  result  each  no  of the l a t t e r ' s  117  Ownership A f f i l i a t i o n : i n manufacturing had  ownership  Nearly a l l foreign  i n Hong Kong were c o r p o r a t e i n v e s t o r s and  a f f i l i a t i o n w i t h companies o v e r s e a s .  Table Overseas  Ownership  VI-8)  Affiliation Number of Firms  Company had o w n e r s h i p a f f i l i a t i o n w i t h companies o v e r s e a s Company had no o w n e r s h i p a f f i l i a t i o n with companiesvoverseas Total  (b)  (Table  they  VI-8  Overseas Ownership A f f i l i a t i o n S t a t u s a t 31/12/78 (a)  investors  % of Total 9 5 49.  . ^ 108  4 6 " 100.0%  101 15 29  93.5% 11319% 26.9%  &  Nature o f Ownership A f f i l i a t e d O v e r s e a s Companies (a) (b) (c)  P a r e n t company S u b s i d i a r y company S i s t e r company  Note:  Some f o r e i g n m a n u f a c t u r e r s had more t h a n one ownership a f f i l i a t e d o v e r s e a s companies.  type of  Source: Q u e s t i o n n a i r e survey  returns.  101  p a r e n t companies o v e r s e a s . A l l t h e .  (93.5%) o f t h e f i r m s had  seven which indicated in  d i d n o t were S o u t h e a s t A s i a n i n v e s t o r s .  that  some i n v e s t m e n t s  from S o u t h e a s t A s i a n  Hong Kong were o f a p e r s o n a l r a t h e r  Fifteen  (13.9%) f i r m s had  c o u n t r i e s and  this  implied  subsidiary that  This countries  t h a n an i n s t i t u t i o n a l  companies  i n foreign  they l a y i n the middle of a  nature  118  vertical had  ownership a f f i l i a t i o n  they  with  twenty-nine  some s i s t e r  could  with  a l s o be  some o t h e r  whom t h e r e were no  i n management between t h e their  affiliated  firms with parent of the  direct  firms  abroad;  parent  companies o v e r s e a s .  their  parent  company.  fourteen  indstead  an o u t p o s t e d  ( T a b l e VI-9)  s t a t e d t h a t they without  parent  companies,  i t was  corporations investments  Taking  f i r m s which d i d not  operations  had  companies,  share.holdings.  evidenly. a c l o s e  Nearly  chief executive.  their  course,  link  f o r e i g n m a n u f a c t u r e r s i n Hong Kong  c o m p a n i e s had  company as  sister  inter-company  the  h a l f o f the  executive  Again,  them, a p p o i n t m e n t s a t management l e v e l  those but  companies  f i r m s w h i c h had  Management C o n t r o l : T h e r e was  and  (26.9%)  e v i d e n t l y f o r m e d a p a r t o f a m u l t i n a t i o n a l g r o u p . Of  there but  c h a i n o f companies. A l s o ,  of  101  the  f o r around h a l f  required approval  by  also into consideration  complete the  questionnaire  c o u l d not d i v u l g e  information  prior  their  approval  of  q u i t e obvious t h a t the  on  overseas  investing  a p r e t t y t i g h t management c o n t r o l o v e r  their  i n Hong Kong.  However, t h e p r o p o r t i o n o f e x e c u t i v e s management o r  supervisory  l e v e l s with  an  employed  at  expatriate status  in  g these The  foreign manufacturing  nationality  of  the  f i r m s was  chief executive  t o - t w o between f o r e i g n and f o r e i g n owned f i r m s , t h e  local,  not was  particularly only  about  high. three-  meaning t h a t f o r many m a j o r i t y  person a t the  t o p was  a local  manager.  119  TABLE V I - 9 Management  Nationality (a) (b)  (b) (c)  Local Foreign  Total  (c)  % of Total  42 66 108  38. 9% 61. 1% 100. 0%  45  41. 7%  56  51. 9%  7 108  6. 5% 100. 0%  Executive  An o u t p o s t e d e x e c u t i v e - o f p a r e n t company N o t an o u t p o s t e d e x e c u t i v e o f p a r e n t company Company h a d no p a r e n t company Total  A p p o i n t m e n t s a t Management (a) (b)  Number of Firms  o f Chief Executive  Status of Chief (a)  Control  Level  _  R e q u i r e d a p p r o v a l by p a r e n t company D i d n o t r e q u i r e a p p r o v a l by p a r e n t company Company had no p a r e n t company Total  49  45. 3%  52  48. 1%  7 108  6. 5% 100. 0%  30 38 16 8 16 108  27. 8% 35. 2% 14. 8% 7. 4% 14. 8% 100. 0%  Percent of Expatriate Executives a t Management o r S u p e r v i s o r y L e v e l s a t 31/12/78 (a) (b) (c) (d) (e)  0% 1 1 - 10% 11 - 30% 31 - 50% More t h a n  50% Total  Source:  Thirty sixteen  Questionnaire  survey  returns.  f i r m s d i d n o t e v e n employ  any f o r e i g n e x e c u t i v e s and o n l y  (14.8%) f i r m s h a d a h i g h e r p r o p o r t i o n o f f o r e i g n  executives  than  local  e x e c u t i v e s . Thus, on t h e  whole, t h e  120-  p r o p o r t i o n of f o r e i g n executives manufacturing f i r m s was  employed i n these f o r e i g n  r e l a t i v e l y low when compared to the  share of f o r e i g n ownership.  Production  and  Marketing  I t i s g e n e r a l l y b e l i e v e d t h a t the environment o f Hong Kong i s conducive--  industrial  to manufacturing opera-  t i o n s t h a t i n v o l v e simple p r o c e s s i n g , t h a t are u n s o p h i s t i c a t e d and  are u n s k i l l e d labour i n t e n s i v e . T h i s may  be t r u e f o r  i n d u s t r i e s i n Hong Kong as a whole; but f o r f o r e i g n manufacturers, the survey  r e v e a l e d t h a t i t was  not q u i t e t r u e . Instead,  they  seemed to have a high degree o f s o p h i s t i c a t i o n i n t h e i r p r o d u c t i o n and marketing  operations.  P r o d u c t i o n A c t i v i t i e s Performed: responding  f i r m s , eighty-one  Of the  or exactly three-quarters  t h a t they were engaged i n the complete process  (Table V-10)  claimed  of manufacturing,  i . e . , the t r a n s f o r m a t i o n of raw m a t e r i a l s i n t o f i n a l f o r s a l e to customers.  108  products  Only f o u r t e e n f i r m s  were engaged e x c l u s i v e l y i n assembly work - the l e a s t  (13.0%)  sophis-  t i c a t e d work u s u a l l y performed by u n s k i l l e d workers. These f o u r t e e n f i r m s were e i t h e r i n ' e l e c t r o n i c s ' or and a c c e s s o r i e s ' .  'watches, c l o c k s  On the other hand, more than h a l f o f  f i r m s had q u a l i t y t e s t i n g and  the  c o n t r o l and about o n e - t h i r d  had  1 2  is  TABLEVr-10 Production A c t i v i t i e s  Performed  Activity (a) (b) (c) (d) (e) (f) (g)  Number of Firms  % of Total  81 58 45 30 23 22 6  75.0% 53.7% 41.7% 27.8% 21.3% 20.4% 5.6%  Complete p r o c e s s o f m a n u f a c t u r i n g Q u a l i t y t e s t i n g and c o n t r o l Assembly P r o d u c t i o n r e s e a r c h and d e v e l o p m e n t P a c k a g i n g and p a c k a g e d e s i g n Product design Others  Notes:  T o t a l number o f r e s p o n d i n g f i r m s = 108 T h e r e were f o u r t e e n f i r m s w h i c h were engaged i n a s s e m b l y work o n l y .  Source:  Questionnaire  production  survey  r e s e a r c h and  research f a c i l i t i e s represented  returns.  development. In a s m a l l c i t y  are g r o s s l y inadequate,  this  already  a h i g h d e g r e e o f work s o p h i s t i c a t i o n .  Product  and  p a c k a g e d e s i g n were a l s o p e r f o r m e d by  the  f i r m s . T h i s wide a r r a y o f p r o d u c t i o n a c t i v i t i e s  indicated  that f o r e i g n manufacturers  nut-and-bolt  about o n e - f i f t h  were n o t  design of  performed  simply  engaged i n  operations.  S k i l l e d W o r k e r s E m p l o y e d : The s k i l l e d manual turers  where  high proportion of  w o r k e r s employed a l s o showed t h a t f o r e i g n m a n u f a c -  i n Hong Kong were o p e r a t i n g a t a r e l a t i v e l y  work s o p h i s t i c a t i o n .  high  level  E v e n t h o u g h t h e r e i s no breakdown o f  the  of  122  different there  degrees o f s k i l l  is little  three-quarters) and  skilled  contention  f o r i n d u s t r i a l w o r k e r s i n Hong Kong, t h a t by f a r t h e m a j o r i t y  (about  o f i n d u s t r i a l w o r k e r s i n Hong Kong a r e u n s k i l l e d  w o r k e r s c o n s t i t u t e o n l y a r o u n d 15% o f t h e l a b o u r  g force. use  But the survey  o f a much h i g h e r  showed t h a t f o r e i g n m a n u f a c t u r e r s  proportion of skilled  workers.  made  (Table  VlSrll)  TABLE V I - 1 1 S k i l l e d Workers Percent  of  (a) (b) (c) (d) (e) (f)  0% 20% 40% 60% 80% - 100%  1 21 41 61 81  Source:  Close  Skilled  W o r k e r s a t 31/12/78  Number of Firms  % of Total  6 28 25 7 33 9 108  5.6% 25.9% 23.1% 6.5% 30.6% 8.3% 100.0%  Total Questionnaire  survey  returns.  t o 40% o f t h e r e s p o n d i n g  w o r k e r s employed b e i n g  Product line  Employed  concentration  skilled  f i r m s had over workers.  Line Concentration: i n these  h i g h by Hong Kong s t a n d a r d s .  60% o f t h e i r  The d e g r e e o f p r o d u c t  f o r e i g n manufacturing Many m a n u f a c t u r i n g  Kong d e v o t e t h e m s e l v e s e n t i r e l y  f i r m s was n o t f i r m s i n Hong  on t h e p r o d u c t i o n  o f j u s t one  123  single  line  important excess  and f o r t h o s e w h i c h do n o t , t h e most  line usually  takes up t h e l i o n ' s  that  f o r e i g n manufacturers  of product  line  of product.  (often i n  However, t h e s u r v e y  d i d n o t have such a h i g h  c o n c e n t r a t i o n . Only  t h a n o n e - t h i r d o f t h e 108 r e s p o n d i n g line  share  o f 75%) i n t e r m s o f v a l u e o f o u t p u t .  revealed degree  of product,  thirty-one or less  f i r m s produced  ( T a b l e VI-12) B u t a g a i n t h i r t y - o n e  one  single  firms  TABLE VI-12 Product  Line Concentration  L i n e o f Products Produced (a) (b) (c)  One Two t o f i v e More t h a n f i v e  P e r c e n t Share o f Most P r o d u c t L i n e i n 1978 (a) (b) (c) (d) (e) (f)  i n 1978  Total  % of Total  31 46 31 108  28.7% 42.6% 28.7% 100.0%  31 24 22 8 22 1 108  28.7% 22.2% 20.4% 7.4% 20.4% 0.9% 100.0%  Important '  100% 81 - 99% 61 - 80% 41 - 60% 21 - 40% 20% o r l e s s  Total  Source:  Questionnaire survey r e t u r n s .  produced  more t h a n f f i v e  represented  Number o f Firms  significant  l i n e s o f products which a l r e a d y product  line  diversification  by Hong  12 4  Kong s t a n d a r d s . The lines  line  f i r m s had  two  l i n e was  f o r e i g n manufacturers  diversification  to  o n l y modest. T h i s  reliance  indicated  i n Hong Kong had more p r o d u c t  than l o c a l  five  firms with  of products produced, the degree o f  t h e most i m p o r t a n t  that  forty-six  o f products produced. For the seventy-seven  more t h a n one on  remaining  line  manufacturers.  Overseas L i n k s i n Production' Operations. F o r e i g n manufacturers  i n Hong Kong had  p r o d u c t i o n o p e r a t i o n s . Of (38.9%) had  t h e 108  responding  products b e i n g produced  with overseas licensor  close overseas  companies.  under l i c e n s i n g  forty-two agreements  c o m p a n i e s o v e r s e a s were t h e p a r e n t c o m p a n i e s o r  Production Operation i n  sister  VI-13  Licensed Production  Had H^d  firms,  in their  ( T a b l e VI-13) In.most i n s t a n c e s , t h e  TABLE  (a) (b)  links  1978  Number of Firms 42 66 108  licensed production no l i c e n s e d p r o d u c t i o n Total  % of Total 38.9% 61.1% 100.0%  N a t u r e o f L i c e n s o r Company (a) (b) (c) (d)  30 0 32 8  The p a r e n t Company A s u b s i d i a r y company A s i s t e r company An u n a f f i l i a t e d company  Note:  Some f i r m s had l i c e n s i n g one o v e r s e a s company.  Source:  Questionnaire survey  a g r e e m e n t s w i t h more  returns.  27.8% 0.0% 29.6% 7.4% than  125  companies.  In addition,  eight  agreements w i t h u n a f f i l i a t e d  The  f i r m s had p r o d u c t i o n companies  licensing  overseas.  s o u r c e s o f equipment and m a t e r i a l s u p p l i e s  c o n f o r m e d v e r y much t o t h e g e n e r a l p a t t e r n i n Hong Kong - a heavy r e l i a n c e firm raw  relied  solely  s u p p l i e s . Not a s i n g l e  b u t many d i d r e l y  ( T a b l e VT-14) F u r t h e r m o r e ,  these  responding  on t h e l o c a l m a r k e t f o r e i t h e r  material supplies,  sources. for  on o v e r s e a s  f o r e i g n manufacturers  equipment o r  e x c l u s i v e l y on f o r e i g n  t h e r e was a c l e a r  to rely  tendency  o n t h e home c o u n t r y  as a s u p p l y s o u r c e b e f o r e t u r n i n g t o o t h e r c o u n t r i e s . F o r equipment and machinery s u p p l i e s , by  fifty-six  seventeen  (51.9%) f i r m s a s t h e most i m p o r t a n t  (15.7%) a s t h e s e c o n d  as  t h e t h i r d most i m p o r t a n t .  of  the responding  t h e most i m p o r t a n t was  t h e home c o u n t r y was c i t e d  most i m p o r t a n t  Only  and s e v e n  f o r twenty-eight  (6.5%)  (25.9%)  f i r m s was t h e home c o u n t r y n o t c i t e d  a s among  t h r e e . As f o r raw m a t e r i a l s , t h e home c o u n t r y  e v e n more i m p o r t a n t  as a supply source, c i t e d  (59.3%) f i r m s a s t h e most i m p o r t a n t , second  source,  most i m p o r t a n t  seventeen  by s i x t y - f o u r  (15.7%) a s t h e  and f i f t e e n (13.9%) a s t h e t h i r d  most  important.  The suppliers. than h a l f  affiliated  c o m p a n i e s o v e r s e a s were  F o r t y - f o u r (40.7%) o f t h e r e s p o n d i n g of their  coming from  their  important  f i r m s h a d more  f o r e i g n e q u i p m e n t and m a c h i n e r y s u p p l i e s foreign a f f i l i a t e s .  Again,  t h e l i n k was e v e n  126  TABLE V I - 1 4 S o u r c e s o f E q u i p m e n t arid M a t e r i a l Sources o f C a p i t a l Equipment arid M a c h i n e r y S u p p l i e s i n 1978 (a) (b) (c) (d)  A l l local Mainly l o c a l Mainly foreign A l l foreign  Total  Supplies Number of Firms  % of Total  0 18 74 16 108  0.0% 16.7% 68.5% 14.8% 100.0%  56 17 7 28 108  51.9% 15.7% 6.5% 25.9% 100.0%  0 4 77 27 108  0.0% 3.7% 71.3% 25.0% 100.0%  64 17 15 12 108  59.3% 15.7% 13.9% 11.1% 100.0%  44 57  40.7% 52.8%  Home C o u n t r y a s a S u p p l y S o u r c e f o r C a p i t a l E q u i p m e n t arid M a c h i n e r y i n 1978 (a) (b) (c) (d)  The The The Not  most i m p o r t a n t s e c o n d most i m p o r t a n t t h i r d most i m p o r t a n t among t h e t h r e e most i m p o r t a n t Total  S o u r c e s o f Raw M a t e r i a l (a) (b) (c) (d)  S u p p l i e s i n 1978  A l l local Mainly l o c a l Mainly foreign A l l foreign Total  Home C o u n t r y a s a S u p p l y S o u r c e f o r Raw M a t e r i a l s i n 1978 (a) (b) (c) (d)  The most i m p o r t a n t The s e c o n d most i m p o r t a n t The t h i r d most i m p o r t a n t Not among t h e t h r e e most i m p o r t a n t Total  Overseas A f f i l i a t e d Compaby(ies) S u p p l y i n g More t h a n 50% o f (a) (b)  F o r e i g n e q u i p m e n t and m a c h i n e r y F o r e i g n raw m a t e r i a l s u p p l i e s  Source:  Q u e s t i o n n a i r e survey  supplies  returns.  127  c l o s e r f o r raw m a t e r i a l s ,  w i t h f i f t y - s e v e n (52.8%) firms  r e c e i v i n g more than h a l f o f t h e i r f o r e i g n raw m a t e r i a l  supplies  from t h e i r overseas a f f i l i a t e s . T h i s suggested t h a t many f o r e i g n manufacturing f i r m s  i n Hong Kong were v e r t i c a l l y  i n t e g r a t e d with t h e i r overseas  affiliates.  Marketing A c t i v i t i e s Per formed:  F o r e i g n manufac-  t u r e r s i n Hong Kong a l s o performed a wide v a r i e t y o f marketing a c t i v i t i e s , again i n d i c a t i n g that t h e i r o p e r a t i o n s were more sophisticated  than l o c a l manufacturers.  (Table VI-15)  TABLE VI-15 Marketing A c t i v i t i e s Performed Marketing A c t i v i t y (a) (b) (c) (d) (e) (f)  D i s t r i b u t i o n and w h o l e s a l i n g Export s a l e s promotion Advertising Marketiand consumers r e s e a r c h After sales servising Retailing  Source:  Q u e s t i o n n a i r e survey  Number of Firms  % of Total  59 50 49 45 33 14  54.6% 46.3% 45.4% 41.7% 30. 6% 13.0%  returns.  D i s t r i b u t i o n and w h o l e s a l i n g was the most common, followed by export s a l e s promotion and a d v e r t i s i n g . S u r p r i s i n g l y , many o f them were a l s o engaged i n market and consumers r e s e a r c h  which  128  was  seldom performed  Export confirm in  by  local  Sales'i  the a s s e r t i o n  The  manufacturers.  export  that foreign  Hong Kong a r e m o s t l y  sales figures  investments  export o r i e n t e d , but  TABLE  VI-16  Export  Sales  0% 20% 40% 60% 80% - 100% reply  1 21 41 61 81 No  a t the  Total Source:  they  Q u e s t i o n n a i r e survey  Of  the  on  their  sales  108  that for industries  responding  sales),  i n 1978  as e x p o r t  These f i f t y - n i n e oriented.  But  firms  fifty-one  firms  time  % of Total 11.1% 14.8% 11.1% 4.6% 7.4% 47.2% 3.7% 100.0%  returns.  r e v e a l t h a t the degree of export o r e i n t a t i o n  n o t as h i g h as  same  12 16 12 5 8 51 4 108  ~:  VI-16  manufacturing  Number of Firms  E x p o r t S a l e s as a P e r c e n t o f T o t a l S a l e s i n 1978 (a) (b) (c) (d) (e) (f) (g)  in  i n Table  (47.2%) had and  the over  eight  could d e f i n i t e l y  f o r the remaining  was  i n Hong Kong as a w h o l e .  (including  sales,  i n 1978  f o u r w i t h no 80%  of t h e i r  (7.4%) had be  forty-five,  total  61-80%.  regarded the  replies  local  as  export  market  129  was  a t l e a s t as  f i r m s devoted twenty-eight average, around  important  themselves  entirely  firms  of their  i n manufacturing  many l o c a l rely  on  the c l a i m the f o r e i g n  wider  manufacturers,  spread  investments  i n Hong Kong a r e e x p o r t o r i e n t e d .  not p a r t i c u l a r l y  j u s t one  exported  rationwas  x  M a r k e t C o n c e n t r a t i o n : The t r a t i o n was  On  replies)  i n 1978. ^ This export  a l r e a d y h i g h enough t o j u s t i f y  and  than overseas.  ( e x c l u d i n g t h e f o u r no  sales  (11.1%)  t o the l o c a l market  (25.9%) s o l d more l o c a l l y  t h e 104  60%  as f o r e i g n m a r k e t s . T w e l v e  o r a few  in their  of market  concen-  h i g h by Hong Kong s t a n d a r d s .  especially buyers,  sales.  degree  the  s m a l l ones, o f t e n  f o r e i g n manufacturers  had  In terms o f f o r e i g n c o u n t r y  only  sixteen  (14.8%) f i r m s had  more t h a n  1978  g o i n g t o t h e same f o r e i g n c o u n t r y .  While  80%  of t h e i r  markets,  sales i n  ( T a b l e V I - 1 7 ) The  f i r m s a l l seemed t o have r e a s o n a b l y good m a r k e t (40.7%) f i r m s d i d n o t have a s i n g l e  country  accounting  f o r 40%  among them,  percentage  s h a r e o f t h e most i m p o r t a n t  for  t w e n t y - f i v e f i r m s was  as  low  as  sales,  20%  and  foreign country or  degree  relied  on  just  o f c o n c e n t r a t i o n was  e v e n t h o u g h no o f f i c i a l between the l o c a l  one also  low by  and  the  the  market  foreign  or a couple of customers.  s t a t i s t i c s was  manufacturers  market  less.  I n t e r m s o f c u s t o m e r c o m p a n i e s , a g a i n few manufacturers  other  diversification.  Forty-four  o r more o f t h e i r  a  Hong Kong available foreign  The  standards for  comparison  manufacturers.  130  TABLE V I - 1 7 Degree o f Market C o n c e n t r a t i o n S a l e s t o Most I m p o r t a n t F o r e i g n C o u n t r y M a r k e t a s a % o f T o t a l S a l e s i n 1978 (a) (b) (c) (d) (e) (f) (g)  No 1 21 41 61 81 No  export sales - 20% - 40% - 60% - 80% - 100% reply  Total =  S a l e s t o Most Important Company a s a % o f T o t a l (a) (b) (c) (d) (e) (f)  1 21 41 61 81 No  Number of Firms  % of Total  12 25 19 24 8 16 4 108  11.1% 23.1% 17.6% 2 2*2% 7.4% 14.8% 3.7% 100.0%  29 14 31 13 17 4 108  26.9% 13.0% 28.7% 12.0% 15.7% 3.7% 100.0%  Customer S a l e s i n 1978  20% - 40% - 60% - 80% - 100% reply  Total  Note:  The most i m p o r t a n t c u s t o m e r company c o u l d be a f o r e i g n company o r a l o c a l company.  Source:  Questionnaire survey  Overseas  Links  returns.  i n Marketing:  between t h e f o r e i g n m a n u f a c t u r e r s c o u n t r i e s was a l s o c l o s e the  even  p r o d u c t i o n l i n k . While  as t h e m a i n f o r e i g n materials,  The m a r k e t i n g  link  i n Hong Kong and t h e i r  home  though  i t was n o t a s c l o s e a s  t h e home c o u n t r y was o f t e n  s o u r c e o f s u p p l y f o r equipment  i t was n o t a s o f t e n c i t e d  f o r e i g n c o u n t r y market.  Only  cited  a n d raw  a s t h e most i m p o r t a n t  f o rtwenty-four  (22.2%) f i r m s was  131  t h e home c o u n t r y t h e most i m p o r t a n t forty-seven  f o r e i g n market, b u t f o r  (43.5%) f i r m s , o r t w i c e a s many a s t h e f o r m e r , t h e  home c o u n t r y was n o t e v e n among t h e t h r e e most ( T a b l e VI-18) E v i d e n t l y , many f o r e i g n Hong Kong a s a m a n u f a c t u r i n g  important.  i n v e s t o r s were u s i n g  base t o produce  t h e r e g i o n , b u t n o t f o r t h e home c o u n t r y  f o r markets i n  market.  TABLE V I - 1 8 Overseas Home C o u n t r y (a) (b) (c) (d) (e) (f)  Links i n Marketing  a s a F o r e i g n M a r k e t i n 1978  The most i m p o r t a n t The s e c o n d most i m p o r t a n t The t h i r d most i m p o r t a n t N o t among t h e t h r e e most i m p o r t a n t No e x p o r t s a l e s No r e p l y Total  Number of Firms  % of Total  24 13 8 47 12 4 108  22.2% 12.0% 7.4% 43.5% 11.1% 3.7% 100.0%  14 29 11 5 7 26 12 4 108  13.0% 26.9% 10.2% 4.68 6.5% 24.1% 11.1% 3.7% 100.0%  P e r c e n t o f Export S a l e s Going t o F o r e i g n A f f i l i a t e d C o m p a n y ( i e s ) i n 1978 (a) (b) (c) (d) (e) (f) (g) (h)  0% 11 • - ?20%  21 41 61 81 No No  Source:  40% 60% 80% - 100% export sales reply  Total  Questionnaire survey r e t u r n s .  132  The l i n k between the f o r e i g n manufacturers Kong and t h e i r overseas a f f i l i a t e s  i n Hong  ( i n c l u d i n g the parent company  at home and o t h e r s i s t e r companies) was a c l o s e one t o o . E x c l u d i n g the f o u r 'no r e p l i e s ' and the twelve f i r m s w i t h no export s a l e s , o n l y f o u r t e e n f i r m s (13.0%) d i d not s e l l to t h e i r foreign a f f i l i a t e s  a t a l l i n 1978. (But <Sut o f these f o u r t e e n  f i r m s , f i v e i n f a c t d i d not have any f o r e i g n a f f i l i a t e s . ) six  Twenty-  f i r m s (24.1%) had more than 80% o f t h e i r export s a l e s going  to overseas a f f i l i a t e s  i n 1978. Among these twenty-six f i r m s ,  twenty-one had products being produced with t h e i r foreign  affiliates.  under l i c e n s i n g agreements  133  Note s  1.  B r o o k e , M.Z. and Remitters, H.L., The S t r a t e g y o f M u l t i n a t i o n a l E n t e r p r i s e s : O r g a n i z a t i o n and F i n a n c e , Longman, L o n d o n , 1970, C h a p t e r 9: " S t r a t e g i c C o n s i d e r a t i o n s i n t h e Move A b r o a d " . A l s o s e e n o t e 32, C h a p t e r I , page 37.  2.  The n a t u r e o f t h e s e two m o t i v e s a r e somewhat d e b a t a b l e . B r o o k e and Remmers c l a s s i f i e d tham as d e f e n s i v e , b u t t h e y s h o u l d be a g g r e s s i v e because they are not intended to preserve e x i s t i n g business i n t e r e s t , i n the host country.  3.  F o r example, i n t h e p a s t few y e a r s , Kong had most o f t h e t i m e b e e n 2-3% t h e U.S. o r C a n a d a .  4.  See  Appendix  5.  See  Table  6.  The amount o f c a p i t a l and t h e p e r c e n t s h a r e o f f o r e i g n o w n e r s h i p were f o u n d t o be s t a t i s t i c a l l y r e l a t e d by u s i n g chi-square test.  7.  S t r i c t l y speaking, whether o r not a f i r m i s a j o i n t v e n t u r e d e p e n d s on w h e t h e r m a n a g e m e n t i i s m a t e r i a l l y s h a r e d between t h e i n v e s t o r s ; b u t t h e w r i t e r has t h e f e e l i n g t h a t some r e s p o n d i n g f i r m s c l a i m e d t h e m s e l v e s t o be j o i n t v e n t u r e s s i m p l y on t h e b a s i s t h a t t h e p a r e n t c o r p o r a t i o n d i d n o t f u l l y own t h e company. I n o t h e r words, t h e ' t r u e ' number o f f o r e i g n - l o c a l j o i n t v e n t u r e s c o u l d be s m a l l e r t h a n thirty-four.  8.  B e c a u s e o f t h e p e c u l i a r p o l i t i c a l s t a t u s o f Hong Kong, t h e m e a n i n g o f a ' f o r e i g n e x p a t r i a t e ' i s , a c c o r d i n g t o common u s a g e and w h i c h i s a l s o u s e d h e r e , 'one who i s n o t o f e t h n i c Chinese o r i g i n A .  9.  The w o r k i n g d e f i n i t i o n u s e d i n Hong Kong i s t h a t a s k i l l e d w o r k e r s h o u l d have o b t a i n e d a g e n e r a l e d u c a t i o n s t a n d a r d o f up t o Form 3 (Grade 8) l e v e l and has t h r e e y e a r s ' s p e c i a l i z e d t r a i n i n g . T h o s e w i t h one t o t h r e e y e a r s ' t r a i n i n g a r e s e m i - s k i l l e d and t h o s e w i t h no f o r m a l t r a i n i n g are u n s k i l l e d .  10.  The a c t u a l e x p o r t r a t i o c o u l d be much h i g h e r i e x p o r t s were i n c l u d e d . F o r example, t h e w r i t e r t h a t some f o r e i g n m a n u f a c t u r i n g f i r m s s o l d t o m a r k e t s t h r o u g h some t r a d i n g c o m p a n i e s i n Hong  1-1,  t h e bank r a t e i n Hong lower than t h a t o f  II-6.1. Chapter  I,  page  9.  f indirect discovered overseas Kong; b u t  134  t h e y p u t t h e s e s a l e s as l o c a l s a l e s i n t h e i r r e t u r n s . A t l e a s t one U.S. f i r m w h i c h s o l d t o o v e r s e a s m a r k e t s t h r o u g h i t s own m a r k e t i n g a f f i l i a t e i n Hong Kong a l s o c o n s i d e r e d t h e s a l e s as l o c a l s a l e s . T h i s was r e v e a l e d to the w r i t e r i n the i n t e r v i e w s .  CHAPTER V I I - ASSESSMENT OF INVESTMENT: CONDITIONS  This chapter presents the c o l l e c t i v e investment  factors  f o r e i g n manufacturers  t o t h e i r o p e r a t i o n s , how  they assessed  different  c o n s i d e r e d as  the business  i n Hong Kong and e v a l u a t e d t h e i r o r i g i n a l Inevitably,  investment  f o r e i g n manufacturers  views on a l l t h e s e , depending  on t h e i r  v i e w o f what important  environment decisions.  would have d i f f e r e n t  investment  motives  needs a n d t h e t y p e o f i n d u s t r y t h e y were i n ; b u t s t i l l , collective  view should h e l p t o sharpen  environment  for foreign  investors  and  their  t h e f o c u s on t h e b u s i n e s s  and t o r e v e a l more  clearly  where Hong Kong's s t r e n g t h s and w e a k n e s s e s l a y .  The data generated  analysis from  in this  chapter  Altogether  Factors  twenty investment  the r e l e v a n t environmental  elements  for their  degrees  were s p e c i f i e d ?  o f importance  'not important'  '2',  'l'l,  scaling  '0' and  and  factors covering a l l  were p r e s e n t e d . t o t h e  f o r e i g n manufacturers  Using a r t i f i c i a l  upon  the q u e s t i o n n a i r e survey.  Importance o f Investment  'important',  i s a g a i n based  assessment. Four 'vitally  'completely  different  important',  irrelevant'.  and a s s i g n i n g n u m e r i c a l w e i g h t s  '0' r e s p e c t i v e l y  to the four d i f f e r e n t  of degree  136  of  importance  investment  s p e c i f i e d , Table VII-1  f a c t o r s were b e i n g r a n k e d  t u r e r s , i n descending weighted  scores.  of  On  factors  these factors  the f o r e i g n  mainly  affected  The  twenty investment  and  arranged  twenty  the f o r e i g n  manufac-  according to  manufacturers  on how  factors  their  d i r e c t l y and and  order of t h e i r  o p e r a t i o n s as  (i)  Production input factors  extremely  importance  immediately  profitability.  c o u l d be b r o a d l y g r o u p e d  turing  together  ' i n t i m a c y ' t o manufac-  follows:  'cost  supply, cost  were  t h e degree' o f  business v i a b i l i t y  i n descending  skill',  the  x  the whole, they ranked  investment  by  o r d e r of importance  Evidently, pragmatic.  shows how  ( ' a v a i l a b i l i t y of  o f l a n d , o f f i c e and and  productivity',  factory  and  'raw  managerial space',  material  'labour '  supplies'), (ii)  Stability  factors  ('currency  economic s t a b i l i t y ' , and (iii)  'political  ('business  'corporate taxes',  (iv)  Marketing  exports') Indirect  relationship'  factors  laws and  regulations',  'exchange c o n t r o l s ' , a n d 'government  towards f o r e i g n  market p o t e n t i a l '  (v)  'labour-management  'domestic  stability'),  Incentive factors  policy  stability',  investment ), 1  ('geographical l o c a t i o n ' , and  ' t r a d e r e s t r i c t i o n s on  'local imports  and factors  ('education  standard of population',  and  TABLE V I I -1 Degree o f Importance o f Investment Vitally Important  Factor  L a b o u r s u p p l y , c o s t and p r o d u c t i v i t y C o s t o f l a n d , o f f i c e and f a c t o r y s p a c e A v a i l a b i l i t y o f managerial s k i l l Currency s t a b i l i t y Raw m a t e r i a l s u p p l i e s Labour-management r e l a t i o n s h i p Corporate taxes T r a d e r e s t r i c t i o n s o n i m p o r t s and e x p o r t s D o m e s t i c economic s t a b i l i t y Political stability B u s i n e s s laws and r e g u l a t i o n s Exchange c o n t r o l s F i n a n c i a l maturity Government p o l i c y t o w a r d s f o r e i g n i n v e s t m e n t L o c a l market p o t e n t i a l G o v e r n m e n t ' s i n t e g r i t y and e f f i c i e n c y in administration Geographical location G e n e r a l a t t i t u d e towards f o r e i g n e r s and f o r e i g n compariiest. S o c i a l overhead f a c i l i t i e s Education standard o f population Note:  Number o f r e s p o n d i n g  f i r m s = 108.  Source:  Questionnaire  returns.  survey  Factors  Number o f R e s p o n s e s Not Completely Weighted I m p o r t a n t I m p o r t a n t I r r e l e v e n t -'Score  79 69 59 44 43 32 38 37 26 33 17 24 21 18 34  26 35 43 45 41 61 48 50 69 52 68 51 57 61 24  3 4 4 18 19 11 19 17 13 23 21 24 28 18 26  5 4 3 4 0 0 2 9 2 11 24 <  184 173 161 133 127 125 124 124 121 118 102 99 99 97 92  9  71  25  3  89  20  42  28  18  82  12  53  25  18  77  9 7  57 57  31 33  11  75 71  0 0 2 11  111  138  'financial maturity', and  'general  f o r e i g n companies',  efficiency  a t t i t u d e towards f o r e i g n e r s  'government's i n t e g r i t y  i n a d m i n i s t r a t i o n ' and  'social  and  overhead  facilities'). Table  VII-1  shows t h a t t h e s e  their  degree of  manufacturing  the  importance according  operations  The  i n the  first  occupied  first  (73.1%) f i r m s c o n s i d e r i n g i t as six  (24.1%) as  the  l e a d i n g investment  w h i c h was  'important'.  three  f i r m s were s m a l l  'Cost T h i s might •rental  of  firms with  other  manufacturing  land, o f f i c e  as  'not  of  i n above.  cost  twenty-  related  important'.  three A l l these  less  than  1978.  and  f a c t o r y s p a c e ' was  b e c a u s e as we  to the  2.9%  saw  of the  197 3 C e n s u s o f  total  Industrial  this  low  percentage could not  so h e a v y an  e m p h a s i s on  this  f a c t o r e s p e c i a l l y when t h e  i n Hong Kong were n o t  second.  i n Chapter I I ,  Apparently,  f o r e i g n manufacturers  to  labour'  Production.  of  at  and  and  local  employment o f  payments' c o m p r i s e d o n l y  cost according  to  (71.3%) f i r m s . O n l y  an  of  seem a b i t s u r p r i s i n g  and  in  seventy-nine  closely  ' t o make use  factor  end  given  important'  T h i s r e s u l t was  this  twenty workers each a t the  as  p o s i t i o n with  seventy-seven  (2.8%) f i r m s c o n s i d e r e d  intimacy  'Labour s u p p l y ,  'vitally  motive -  r e s p o n d e d by  ranked  i n p u t f a c t o r s were a l l p l a c e d  quartile.  the  to t h e i r  same o r d e r  four production  top w i t h i n the  productivity'  f a c t o r s were a c t u a l l y  justify operations  particularly  139  land-intensive. r e s p o n s e . The very  T h e r e was  c o s t of  r a p i d l y i n the  double to t r i p l e  probably  land, o f f i c e  late  the  1970s and  1973's c o s t  meant t h a t i f a c e n s u s was of production take  up  quickly to  the  had  three  1973  C e n s u s was  f o r a long  when t h e  and  8.3%.  f o r 1978  of  another  and  other  the  this  about This  a breakdown payments'  total.  This  s u r p l u s ' which  This r a p i d l y r i s i n g  according  local  land  and effect  asked to assess  the  investment f a c t o r .  of managerial  i n d i c a t i o n o f the  skill'  was  third.  This  f a c t t h a t many f o r e i g n m a n u f a c t u r e r s  Hong Kong were engaged i n t e c h n o l o g i c a l l y more a d v a n c e d operations;  d e p e n d e d a g r e a t d e a l on However, we the  that  should  they  scores.  last  w h i c h was  T h e r e was  viability  and  e f f i c i e n t management and who  own  role  production ranked  nothing  fifth  i n the  input  according  unusual with  this  supervision.  i t was  company as  f a c t o r was to the  and  profitability  actually  were managers t h e m s e l v e s and  would view t h e i r  The supplies"  hence, t h e i r  a l s o remember t h a t t h o s e  questionnaire  could  would  c o s t of  manufacturers,  the  risen  location).  t h i s w o r r y m i g h t have a m a g n i f y i n g  importance of  sophisticated  in  ( d e p e n d i n g on  'net o p e r a t i n g  'Availability  in  1978's c o s t was  f o r e i g n m a n u f a c t u r e r s were b e i n g  degree of  was  the  ' r e n t a l and  time been w o r r y i n g  foreign alike,  f a c t o r y s p a c e had  to s i x percent  e r o d e away t h e  in  and  conducted  c o s t s made, t h e n  another  a psychological bias  'raw  filled unlikely  unimportant.  material  weighted  r e s u l t . Nearly a l l  140  o f Hong Kong's m a t e r i a l needs were imported or processed from imports and 'consumption o f m a t e r i a l s ' represented.the. most important c o s t item  (59.5% o f t o t a l cost) a c c o r d i n g  197 3 Census. A l l the f i v e responding f i r m s which 'raw  m a t e r i a l s u p p l i e s ' as being  t h e i r raw m a t e r i a l s  considered  'completely i r r e l e v a n t ' had  s u p p l i e d by t h e i r overseas a f f i l i a t e s .  Next i n importance to the p r o d u c t i o n  input f a c t o r s  were those f a c t o r s c o n t r i b u t i n g t o s t a b l e business 'currency  stability',  conditions:  'labour-management r e l a t i o n s h i p ' ,  'domestic economic s t a b i l i t y ' occupied  t o the  and ' p o l i t i c a l s t a b i l i t y ' .  They  p o s i t i o n s f o u r t h , s i x t h , n i n t h and t e n t h r e s p e c t i v e l y  i n the rank o r d e r . Among these four f a c t o r s , 'currency  stability'  r e c e i v e d the h e a v i e s t emphasis and was the only f a c t o r which was p l a c e d w i t h i n the f i r s t q u a r t i l e . T h i s , however, might  again  be the r e s u l t o f a p s y c h o l o g i c a l e f f e c t caused by the weakness o f the Hong Kong d o l l a r i n 1978. In l e s s than one year, the trade weighted Hong Kong d o l l a r exchange r a t e index 1971  = 100) f e l l  from 107 i n January 1978 to 91 i n October 1978,  or a t an annual r a t e o f more than nineteen 1978  (December 18,  percent.  From October  t o the end o f May 1979, i t had been f l u c t u a t i n g between  90 arid 95. T h i s weakness o f the Hong Kong d o l l a r meant on one hand t h a t manufacturers had t o pay more f o r the import o f m a t e r i a l s and , on the other hand, face u n c e r t a i n t i e s i n quoting p r i c e s f o r t h e i r export s a l e s which were i n the m a j o r i t y o f cases c o n t r a c t e d  i n f o r e i g n c u r r e n c i e s , the most common  being  141  U.S.  dollars.  The i n c e n t i v e f a c t o r s :  'business laws and  'corporate t a x e s ' , ^exchange c o n t r o l s ' and  regulations',  "government p o l i c y  towards f o r e i g n investment' o n l y occupied p o s i t i o n s near  the  middle of the rank order d e s p i t e the f a c t t h a t they ware o f t e n the most important e x t e r n a l p u l l  f a c t o r s t h a t motivate  n a t i o n a l c o r p o r a t i o n s to i n v e s t i n a c e r t a i n country.  interThe  r e l a t i v e l y l i g h t emphasis which they r e c e i v e d i n the assessment was  probably because the responding f o r e i g n manufacturers  a l r e a d y o p e r a t i n g i n Hong Kong, had committed themselves  were and  had taken these f a c t o r c o n d i t i o n s f o r granted. Thus, they were more concerned w i t h p r o d u c t i o n i n p u t f a c t o r s and s t a b i l i t y which tended to be more v o l a t i l e than the i n c e n t i v e  Three factorswere r e l a t e d to marketing tion:  'geographical l o c a t i o n ' ,  factors  factors.  and  distribu-  ' l o c a l market p o t e n t i a l '  and  'trade r e s t r i c t i o n s on imports and e x p o r t s ' . Among these three factors,  'trade r e s t r i c t i o n s on imports and e x p o r t s ' was  h i g h e s t , i n the seventh p o s i t i o n . T h i s was manufacturers  understandable  ranked as  i n Hong Kong, f o r e i g n and l o c a l a l i k e j had to r e l y  h e a v i l y on f o r e i g n s u p p l i e s o f equipment and m a t e r i a l s f o r t h e i r p r o d u c t i o n o p e r a t i o n s , as w e l l as on f o r e i g n markets f o r t h e i r sales.  'Local market p o t e n t i a l ' , being ranked a t the bottom of the  t h i r d q u a r t i l e i n f i f t e e n t h o p o s i t i o n , had the most evenly spread of responses among the twenty f a c t o r s i n d i c a t i n g t h a t the  142  foreign  manufacturers  in  factor.  this  differed  T h i s appeared  i n t h e i r a s s e s s m e n t most w i d e l y t o be  b a s i c a l l y determined  relationship  between t h e t y p e o f i n v e s t m e n t  orientation.  While  the e x p o r t o r i e n t e d  w o u l d c o n s i d e r i t as those which s o l d  important did  1  or  foreign  'important'  location'  attribute  market  manufacturers  'completely  irrelevant',  or  'vitally  w h i c h had  important'.  o f t e n been r e g a r d e d  as  used  a d i s t r i b u t i o n and  The population',  efficiency  Hong Kong as a m a n u f a c t u r i n g selling  remaining  foreign  factors:  ability.  'education standard of  companies',  i n a d m i n i s t r a t i o n ' and  direct As  i n t h e i r impact a group,  be  ' s o c i a l overhead i m p o r t a n t , were  t h e y were c o n s i d e r e d by factors,  of  ' f i n a n c i a l m a t u r i t y ' were p l a c e d i n t h e l a s t o r d e r . N e v e r t h e l e s s , a l l o f them s t i l l  the responding  'important'  or  firms indicating  'vitally  important'.  that  facilities',  and  foreign  the l e a s t  profitmanufacturers  w i t h the only  had  and  comparatively  on b u s i n e s s v i a b i l i t y  important. A l l these  towards  'government's i n t e g r i t y  as  rank  than  base.  though c o n c e i v a b l y might a l s o less  foreign  base r a t h e r  'financial maturity', general attitude  f o r e i g n e r s and  an  t o t h e i n d u s t r i a l d e v e l o p m e n t o f Hong Kong  n o t r e c e i v e t o o much e m p h a s i s p r o b a b l y b e c a u s e t h e s e  manufacturers  of  their  the  t o t h e l o c a l m a r k e t o r r e l i e d h e a v i l y on i t  would r e g a r d i t as 'Geographical  'not i m p o r t a n t  and  by  exception  quartile of more t h a n  t h e y were  either  the  half  143  Favourability  of Factors  The factors  rating  of the.favourability  i n Hong Kong by  enlightening.  The  the f o r e i g n  results  of these  manufacturers  was  are g i v e n i n Table VII-2  they are p l a c e d i n descending  order of t h e i r  investment e v e n more  where a g a i n  favourability  ratings.  Despite, i n c r e a s i n g about one  Hong Kong's b u s i n e s s e n v i r o n m e n t  o f the twenty  u n f a v o u r a b l e by averages  was  investment  the f o r e i g n  1.815  T h i s must be judging  scale  examination  the government's p o l i c y not a s u r p r i s i n g  the i n d i v i d u a l  a pretty turers  of  themselves  taxes',  on  factors.  variation  The  o f +5  rated  mean o f  of less  towards f o r e i g n  being  which r e p r e s e n t e d rating.  even  though  system  investment,  this  one.  high c o e f f i c i e n t of  factors  indicated  that  of f a v o u r a b i l i t y of  Only.four investment 20%  ' t r a d e r e s t r i c t i o n s on  factors  imports  and  was  manufac-  these  had  ('exchange c o n t r o l s ' ,  variation  there  i n o p i n i o n among t h e f o r e i g n  the degree  than  as the  o f t h e Hong Kong e c o n o m i c  investment  wide d i f f e r e n c e  investment  actually  t h e most u n f a v o u r a b l e  However, t h e r e l a t i v e l y for  was  manufacturers.  t o -5,  manufacturers  i n recent years, only  r e g a r d e d as a v e r y good o v e r a l l r a t i n g  from our  r e s u l t was  factors  within a rating  t h e most f a v o u r a b l e r a t i n g  and  c o m p l a i n t s v o i c e d by  a coefficient  'corporate  e x p o r t s ' and  'financial  TABLE VII-2 Degree o f F a v o u r a b i l i t y o f Investment  Number o f Responses Unfavourable Favourable -5 -4 -3 -2 -1 +1 +2 +3 +4  Factor Exchange c o n t r o l s Corporate taxes Trade r e s t r i c t i o n s on imports and e x p o r t s General a t t i t u d e towards f o r e i g n e r s and f o r e i g n companies Business laws and r e g u l a t i o n s F i n a n c i a l maturity Political stability Geographical l o c a t i o n Government p o l i c y towards f o r e i g n investment A v a i l a b i l i t y o f managerial s k i l l Labour-management r e l a t i o n s h i p E d u c a t i o n standard of p o p u l a t i o n S o c i a l overhead f a c i l i t i e s Domestic economic s t a b i l i t y Government's i n t e g r i t y and e f f i c i e n c y i n administration L o c a l market p o t e n t i a l Raw m a t e r i a l s u p p l i e s Currency s t a b i l i t y Labour supply, cost and p r o d u c t i v i t y Cost o f land, o f f i c e and f a c t o r y space Notes:  Factors  0 0 0  survey r e t u r n s .  Average Coef. Score Var.  0 0 n  0 0  1 1  0 0  6 14  12 13  19 15  19 33  51 32  3.9 3.5  15. 5% 17.2%  1  0  2  12  9  19  33  32  3.5  15.8%  \j  i _l_  J-  1  0  0  1  16  12  29  29  19  3.0  21.1%  0 0 1 0 n  1 1 0 1  2 0 1 2  2 4 2 5  14 9 14 26  8 17 19 6  34 44 40 25  29 20 18 25  18 13 12 17  3.0 2.9 2.7 2.6  20.3% 18.2% 21.7% 24.5%  \j  0 0 1 1 1  0  1  4  23  19  34  13  13  2.5  21.7%  5 0 0 1 1  2 1 2 1 2  4 1 1 1 5  4 1 6 0 10  1 7 4 7 10  16 21 23 48 27  12 33 36 22 24  34 24 27 17 22  11 14 5 8 7  19 6 4 3 0  2.2 2.1 1.8 1.6 1.5  36.7% 23.2% 25.6% 24.4% 32.9%  i  1  9  8  10  13  13  41  8  4  1.4  37.2%  6 4 5 6  8 9 7 5  2 3 6 8  7 15 3 10  6 11 19 16  25 11 39 27  15 20 13 16  22 26 13 17  6 7 3 3  11 2 0 0  1.0 0.6 0.2 0.1  46.8% 49.3% 44.2% 48.0%  10  14  7  5  5  0  1  1  0  -3.8  21.5%  65  Coef. Var. - c o e f f i c i e n t o f v a r i a t i o n .  Source: Questionnaire  +5  Mean o f average scores = 1.815.  145  m a t u r i t y " ) . Those investment  f a c t o r s which had the  widest  d i s c r e p a n c i e s o f o p i n i o n , as i n d i c a t e d by a c o e f f i c i e n t o f v a r i a t i o n exceeding  30%,  were a l s o f a c t o r s t h a t were being  r a t e d as r e l a t i v e l y l e s s f a v o u r a b l e . The ' a v a i l a b i l i t y of managerial of  36.7%  exceptions were  s k i l l ' with a c o e f f i c i e n t of v a r i a t i o n  but a r e l a t i v e l y f a v o u r a b l e r a t i n g score of 2.2  'cost of- l a n d , o f f i c e and  and  f a c t o r y space' with a more g e n e r a l  consensus on i t s u n f a v o u r a b i l i t y .  'Cost of l a n d , o f f i c e and  f a c t o r y space' was  also  the o n l y f a c t o r which o b t a i n e d a negative s c o r e , and a very one  too  (-3.8). T h i s i s because Hong Kong has  and  there i s no c o n t r o l on land p r i c e s e i t h e r .  the c o s t of o f f i c e and  f a c t o r y space;(as  apartments) i n Hong Kong i s now c i t i e s of the world, to  and  little  bad  usable land  Unquestionably,  w e l l as  residential  one o f the h i g h e s t among major  i n the A s i a n P a c i f i c r e g i o n , second o n l y  Tokyo. At the end of 1978,  o f f i c e space i n c e n t r a l  business  d i s t r i c t s r e n t e d f o r about HK$7 to HK$12 per square f o o t per 2 month depending on l o c a t i o n and modernness of b u i l d i n g . i n d u s t r i a l premises,  For  the monthly r e n t a l ranged from HK$1.5 per  square f o o t i n upper f l o o r s to HK$5 i n ground f l o o r s . H o p e f u l l y , the government's p o l i c y to grant concessionary q u a l i f i e d manufacturers may  land l e a s e s to  i n f u t u r e help to a l l e v i a t e  this  problem. 'Labour supply, c o s t and p r o d u c t i v i t y ' was  the second  146  least  favourably rated factor,  a positive the  average  but  s c o r e . I t was  i t still  a l s o the  managed t o  f a c t o r which r e c e i v e d  second h i g h e s t c o e f f i c i e n t of v a r i a t i o n  t h e r e was ability.  a w i d e d i f f e r e n c e i n o p i n i o n on The  fact  increased rapidly being  considered  pull  indicating  that  i t s degree of  favour-  i s t h a t Hong Kong's i n d u s t r i a l wages h a v e i n recent years, but as more s k i l l f u l  by  i t s workers are  Southeast  Asian  still  standards 3  and  this provides  some c o m p e n s a t i o n  F u r t h e r m o r e , s i n c e most o f t h e t u r e r s were f r o m t h e U.S.,  108  f o r the h i g h e r responding  J a p a n and  manufacturers  too unfavourable  might hold e n t i r e l y 'Political  favourable rating of  2.7  between 1979  enough l e e w a y i n t h e i r was  when t h e  dated  their  survey control  was  a number o f o c c a s i o n s status-quo  obtained  u n c e r t a i n t y o f the the  still  was  local  a pretty political  f o r e i g n manufacinvestment  provide  them  The with  planning. Another p o s s i b l e  The  reiterated  i n Hong Kong. T h i s had  the minds o f  course, 4 views.  already a stable  1997  conducted,  i n China.  factor  c o u n t r i e s i n the r e g i o n .  and  forward  this  them. Of  Probably,  t u r e r s b e l i e v e d t h a t Hong Kong was c e n t r e when compared t o o t h e r  f o r e i g n manufac-  surprisingly  d e s p i t e the  s t a t u s o f Hong Kong b e y o n d 1997.  eighteen years  by  different  stability'  f o r e i g n i n v e s t o r s on  cost.  o t h e r Western European  c o u n t r i e s where wage r a t e s were e v e n h i g h e r , n o t c o n s i d e r e d as  labour  the  ' m o d e r a t e s ' had  reason  consoli-  Communist g o v e r n m e n t had i t s intention generated  on'  to maintain  a  more c o n f i d e n c e  the p o l i t i c a l  future of  in  Hong  14 7.  Kong and  m i g h t have h e l p e d  the  r a t i n g of  this factor.  A n o t h e r somewhat s u r p r i s i n g s c o r e was obtained  by  t h a t the  s i z e of the  f o r e i g n m a n u f a c t u r e r s as handicap, probably high  that  t h e r e was  t h a t by  a whole d i d not  of v a r i a t i o n  not  revealed  f a r the m a j o r i t y  m a r k e t i n 1978 with  d i d not  a gross  second h i g h e s t  (46.8%),  by  of  the  those  o r more o f  rate this  r e g i o n and  not  be  positive  score  deserved  one.  too of  The favourably certainly  by  however, i n d i c a t e d  unfavourable 1.0  One  firms  output  and  'trade  i n the  c a p i t a which i s  afterall.  of  five  out  local In the  million  Hong Kong m a r k e t Thus, perhaps  f a c t o r r e c e i v e d was  the  a  well  i n c e n t i v e f a c t o r s as a g r o u p were r a t e d most  the  f o r e i g n manufacturers. This r e s u l t  a justifiable  one  i f we  recall  how  at least  -two  restrictions  incentive factors on  imports  and  was  favourable  u n i q u e Hong Kong i s i n i t s t r e a t m e n t o f p r i v a t e Actually,  VII-2  (thirty-four  a population  which t h i s  interesting  f a c t o r as u n f a v o u r a b l e .  the  serious  oriented.  f i g u r e s i n Table  their  n a t i o n a l income p e r  i n the  i t as a  them were e x p o r t  which i s g e o g r a p h i c a l l y concentrated, should  consider  a wide d i f f e r e n c e i n o p i n i o n .  o f f o r t y ) w h i c h s o l d 4 0%  fact,  l o c a l m a r k e t i n Hong Kong i s s m a l l ,  b e c a u s e most o f  coefficient  f i n d i n g w h i c h was was  one  ' l o c a l market p o t e n t i a l " . Even though i t i s g e n e r a l l y  recognized  The  that  and  businesses.  'exchange c o n t r o l s '  exports'  should  have  1.4-8  received are At  even b e t t e r  or perfect  p r a c t i c a l l y no s u c h c o n t r o l s any r a t e ,  ratings  and they a l s o  v a r i a t i o n , meaning t h a t  agreed regarding  occupied  factors  four  substantially  incentive  factors  q u a r t i l e , one a p p a r e n t  'government p o l i c y t o w a r d s f o r e i g n  investment'  p o s i t i o n w i t h a s c o r e o f 2.5. T h i s  p r o b a b l y because t h e government, i n f o l l o w i n g i n the p r i v a t e  foreign  investors  applied  t h e same s e t o f r u l e s  were l o c a l  i n the  f o r e i g n manufacturers  i n the f i r s t  the ninth  non-intervention  there  their favourability.  w h i c h were a l l p l a c e d  only  because  had t h e l o w e s t c o e f f i c i e n t  When compared t o t h e o t h e r  a n o m a l y was t h a t  ratings  o r r e s t r i c t i o n s i n Hong Kong.  t h e s e two were t h e l e a d i n g  favourability of  ratings  sector,  was  a policy of  had n o t been  giving  any s p e c i a l c o n c e s s i o n s , b u t i n s t e a d h a d  or foreign.  This  t o a l l b u s i n e s s e s whether  they  p o l i c y was n o t c o n s i d e r e d by f o r e i g n  m a n u f a c t u r e r s a s p a r t i c u l a r l y f a v o u r a b l e a n d t h e r e were e v e n six  negative  ratings.  When we compared t h e r e l a t i v e p o s i t i o n s investment bility finding  factors  of the  i n t h e i r importance rank o r d e r and f a v o u r a -  r a t i n g order,  t h e r e was one v e r y  important  and i n t e r e s t i n g  - t h e n e g a t i v e c o r r e l a t i o n between t h e two. ( T a b l e  Even though t a k i n g  the i n d i v i d u a l factors  n e g a t i v e c o r r e l a t i o n was n o t s t a t i s t i c a l l y  VII-3.)  separately, the significant,  became s i g n i f i c a n t when we g r o u p e d t h e f a c t o r s  together  i t i n the  TABLE V I I - 3 Relative  Positions  of  I m p o r t a n c e arid  Factor L a b o u r s u p p l y , c o s t and p r o d u c t i v i t y C o s t o f l a n d , o f f i c e and f a c t o r y s p a c e A v a i l a b i l i t y of managerial s k i l l Currency s t a b i l i t y Raw m a t e r i a l supplies Labour-management r e l a t i o n s h i p Corporate taxes T r a d e r e s t r i c t i o n s on i m p o r t s and e x p o r t s Domestic economic s t a b i l i t y Political stability B u s i n e s s laws and regulations Exchange c o n t r o l s F i n a n c i a l maturity Government p o l i c y t o w a r d s f o r e i g n i n v e s t m e n t L o c a l market p o t e n t i a l G o v e r n m e n t ' s i n t e g r i t y and e f f i c i e n c y i n a d m i n i s t r a t i o n Geographical location G e n e r a l a t t i t u d e t o w a r d s f o r e i g n e r s and f o r e i g n c o m p a n i e s S o c i a l overhead f a c i l i t i e s Education standard of population Source:  T a b l e s VII-1  and  Favourability P o s i t i o n of Importance  P o s i t i o n of Favourability  1 2 3 4 5 6 7, 7, 9 10 11 12. 12, 14 15 16 17 18 19 20  19 20 10 18 17 11 2, 2, 14 7 4, 1 6 9 16 15 8 4, 13 12  VII-2.  4^  150  same way  a s we d i d p r e v i o u s l y .  The  production  turers considered as  the l e a s t  quartile last  i n p u t f a c t o r s which f o r e i g n manufac-  as most i m p o r t a n t  favourable. A l l these  of the f a v o u r a b i l i t y  f a c t o r s w h i c h were n e x t poorly  r a t e d . In f a c t ,  placed  i n the f i r s t  'currency  the only  quartile  stability'  - took  On t h e o t h e r  w h i c h were p l a c e d n e a r t h e m i d d l e  factory  stability  the production  relatively  f a c t o r which  i n the  alongside the produc-  o f the importance rank factors while  considered  i n p u t and s t a b i l i t y  even though i n v e s t m e n t  -  position  order  t h e mark-  a s more  satis-  factors.  c o r r e l a t i o n h a s an i m p o r t a n t  the whole f a v o u r a b l e , they  was  hand, t h e i n c e n t i v e f a c t o r s  f a c t o r s were b e i n g  This negative cation:  rating  r a t e d a s t h e most f a v o u r a b l e  than  The  the only remaining  input factors.  and i n d i r e c t  first  i n the importance ranking  tion  were b e i n g  rating.  stability  q u a r t i l e of the f a v o u r a b i l i t y  rated  b u t t h e y were a l l i n t h e  i n i m p o r t a n c e were a l s o  last  eting  f a c t o r s were i n t h e  o f the importance ranking,  quartile  were a t t h e same t i m e  impli-  c o n d i t i o n s i n Hong Kong a r e o n  a r e n o t s t r o n g e s t i n t e r m s o f what  f o r e i g n manufacturers  considered  words, t h e r e  p l e n t y o f s c o p e f o r Hong Kong t o i m p r o v e  its  is still  international  base. ^  as most i m p o r t a n t .  image and a t t r a c t i v e n e s s a s a  In other  manufacturing  151  Performance  and  1  On well  Evaluation  the whole, f o r e i g n m a n u f a c t u r e r s performed  i n Hong Kong as m e a s u r e d by  Table  V I I - 4 shows t h a t o u t  replied,  only  r e t u r n on the  Self  of  the  company's e s t a b l i s h m e n t .  At  51%  21-50%. T h i s o v e r a l l  result  satisfactory  standards.  by  But  to  earn  five  any  that their  expected. At  thought t h a t the business  r e t u r n was  risk  one  of  world.  served  the  Hong Kong w i t h  an  overwhelming m a j o r i t y initial  retrospect, probably  f i v e years end,  tax or  fifteen  regarded  as  earned  not  high  even  f i r m s d i d not  a c t u a l r e t u r n was same t i m e ,  firms  highly  were a c t u a l l y e a r n i n g ;  the  greater  expect  but  forty-  l o w e r t h a n what  forty-seven  the  firms  enough t o c o m p e n s a t e a b i t s u r p r i s i n g as  s a f e s t investment harbours  extremely high of the  hopes f o r p r o f i t s . responding  At  for Hong  in  the  d e c i s i o n . Only twelve  a m i s t a k e and.'.not a s i n g l e one  any  firms believed  d e c i s i o n t o m a n u f a c t u r e i n Hong Kong was,  a right  since  t o show t h a t many f o r e i g n i n v e s t o r s came  to  their  after  sixteen others  Only nineteen  i n v o l v e d . T h i s was  Kong i s a l r e a d y I t only  be  which  f o r e i g n m a n u f a c t u r e r s had  expectations.  said  company f i r s t  the  should  apparently,  last  investment. firms  t h a n 6%  the other  o r more and  as much as what t h e y  firms  less  i n the  earned a s p e c t a c u l a r  and  eighty-seven  s i x t e e n firms earned  investment annually  ambitions  t h e r e t u r n on  very  firms  said  that  in  thought i t  i t was  rate,  was  definitely  152  TABLE Performance  VII-4  and S e l f E v a l u a t i o n  A n n u a l R a t e o f R e t u r n on I n v e s t m e n t i n t h e L a s t F i v e Y e a r s o r S i n c e t h e Comp a n y ' s E s t a b l i s h m e n t (Annual , A f t e r Tax) 1  Number of Firms  % of Total  (a) (b) (c) (d) (e) (f) (g) (h) (i)  Negative 1 5% 6 10% 11 15% 16 20% 21 50% 51 - 100% More t h a n 100% No r e p l y  4 12 13 19 8 16 13 2 21 108  3.7% 11.1% 12.0% 17.6% 7.4% 14.8% 12.0% 1.9% 19.4% 100.0%  (a) (b) (c) (d)  Higher Lower A b o u t t h e same No r e p l y  19 45 40 4 108  17.6% 41.7% 37.0% 3.7% 100.0%  57 47 4 108  52.8% 43.5% 3.7% 100.0%  60 28 12 0  55. 6% 25.9% 11.1% 0.0%  4  3.7%  4 108  3.7% 100.0%  Total Compared t o t h e Company's O r i g i n a l E x p e c t a t i o n s , t h e R e t u r n was  Total  Was t h e R e t u r n H i g h Enough t o Compensate f o r t h e B u s i n e s s R i s k ? (a) (b) (c)  Yes No No r e p l y  Total  Company's I n i t i a l D e c i s i o n t o M a n u f a c t u r e i n Hong Kong was (a) (b) (c) (d) (e) (f)  Definitely a right decision Probably a r i g h t d e c i s i o n P r o b a b l y a wrong d e c i s i o n D e f i n i t e l y a wrong d e c i s i o n Too e a r l y t o j u d g e w h e t h e r i t was r i g h t o r wrong No r e p l y Total  Note:  Seventeen f i r m s which d i d not g i v e the r a t e o f r e t u r n on i n v e s t m e n t b u t a n s w e r e d t h e o t h e r q u e s t i o n s had been i n c l u d e d .  Source:  Questionnaire  survey  returns.  153  a wrong move. I n c o n t r a s t , happy w i t h  their i n i t i a l  that  overall  the  conditions  the  had  conditions  on  the  chance to r e l o c a t e , the  of country  higher.  any  that  region  out  of  (Table  i f the as  r a t e , i t should d i d not  we  responding  expect the  be  i n v o l v e any firms  stressed real  t h e y g a v e an question  was  answer), the somewhat  had  not  nearly The  was,  however, much  that  since  commitments  of  answering  (nor  could  in-depth  investment  reliability  dubious.  as  favourable.  t h a t they would  t o u n d e r t a k e an  environmental a n a l y s i s of comparative  thought  VII-5)  company  these firms,  they would s t a y - p u t  this question  to t h i s  more t h a n t w i c e  r e s p o n s e s were n o t  and  for  (22.2%)  t h a t t h e y w o u l d move t o S i n g a p o r e i n s t e a d . saying  before  firms  improved.  firms or over one-quarter s a i d  proportion At  had  i n the  have c h o s e n Hong Kong a g a i n , said  extremely  environment  four  d e t e r i o r a t e d , but  But  Thirty-one  choice  seemed t o be  business  i n v e s t o r s i n Hong Kong, t w e n t y  many t h o u g h t t h a t t h e  half  firms  decisions.  Looking a t the foreign  sixty  conditions the  responses  154  TABLE V I I - 5 Business  1  Environment  1  •and C h o i c e f o r R e l o c a t i o n  The B u s i n e s s E n v i r o n m e n t f o r F o r e i g n I n v e s t o r s i n t h e L a s t Ten Y e a r s ' ::  (a) (b) (c) (d)  Had i m p r o v e d Had d e t e r i o r a t e d Had r e m a i n e d a b o u t t h e same No r e p l y Total  of Firms  Total  52 24 28 4 108  4 8.1% 22.2% 25.9% 3.7% 100.0%  73 31 4 108  67.6% 28.7% 3.7% 100.0%  14 8 6 4 2 1  13.0% 7.4% 5.6% 3.7% 1.9% 0.9%  I f t h e Company Had t h e Chance t o R e l o c a t e , t h e Company Would (a) (b) (c)  Have c h o s e n Hong Kong a g a i n N o t have c h o s e n Hong Kong a g a i n No r e p l y Total  C o u n t r y P r e f e r r e d t o Hong Kong by Companies w h i c h w o u l d R e l o c a t e (a) (b) (c) (d) (e) (f) Note:  Singapore Taiwan Philippines Malaysia South Korea Thailand  A few c o m p a n i e s w h i c h r e p l i e d t h a t t h e y w o u l d n o t have c h o s e n Hong Kong a g a i n p u t down more t h a n one c o u n t r y p r e f e r r e d t o Hong Kong.  Source: Questionnaire  survey r e t u r n s .  Notes  1.  The n u m e r i c a l w e i g h t s were n o t g i v e n t o t h e f o r e i g n manufacturers i n the q u e s t i o n n a i r e .  2.  The r a t e o f e x c h a n g e a t t h e end o f 1978 was HK$1 = US$0.21.  3.  D u r i n g t h e y e a r s 1973 t o 1978, n o m i n a l wages i n Hong Kong i n c r e a s e d by a p p r o x i m a t e l y 9% p e r annum. T h e r e i s no o f f i c i a l d a t a t o compare t h e p r o d u c t i v i t y o f i n d u s t r i a l w o r k e r s i n Hong Kong w i t h t h o s e o f n e i g h b o u r i n g c o u n t r i e s . B u t i n t a l k i n g t o t h e managers i n t h e i n t e r v i e w s , many o f t h e managers who a l s o h a d management e x p e r i e n c e i n o t h e r S o u t h e a s t A s i a n c o u n t r i e s d i d say t h a t they f e l t t h a t Hong Kong i n d u s t r i a l w o r k e r s had a h i g h e r p r o d u c t i v i t y and s k i l l .  4.  E v e n t h o u g h t h e . n a t i o n a l i t y o f t h e managers who f i l l e d i n t h e q u e s t i o n n a i r e was unknown, t h e w r i t e r h a d t h e f e e l i n g t h a t l o c a l C h i n e s e managers g a v e t h i s f a c t o r a much l e s s f a v o u r a b l e r a t i n g than t h e e x p a t r i a t e managers. T h i s p r o b a b l y caused the wide d i f f e r e n c e i n o p i n i o n .  5.  'Trade r e s t r i c t i o n s on i m p o r t s and e x p o r t s ' a p p a r e n t l y shared the second p o s i t i o n i n the f a v o u r a b i l i t y r a t i n g w i t h ' c o r p o r a t e t a x e s ' s i m p l y b e c a u s e o f r o u n d i n g up o f d e c i m a l s . The f o r m e r ' s t r u e a v e r a g e was 3.4 91 and t h e l a t t e r ' s was 3.472.  6.  T a k i n g t h e f a c t o r s i n d i v i d u a l l y , t h e c o e f f i c i e n t o f rank c o r r e l a t i o n b e t w e e n t h e two was -0.318 and t h e s i g n i f i c a n c e o f o b s e r v e d c o r r e l a t i o n ( t ) was 1.423. ( t = 2.101 a t l e v e l o f s i g n i f i c a n c e 0.05 a n d d e g r e e s o f f r e e d o m 18.) T a k i n g t h e f a c t o r s i n groups, the c o e f f i c i e n t o f rank c o r r e l a t i o n became -0.600 and t h e s i g n i f i c a n c e o f o b s e r v e d c o r r e l a t i o n was 3.182. See A p p e n d i c e s I I - 7 . 1 and I I - 7 . 2 .  7.  I t was p o s s i b l e t h a t t h e r e was a p s y c h o l o g i c a l b i a s i n t h e responses w h i c h m a g n i f i e d t h e n e g a t i v e c o r r e l a t i o n . E v e n t h o u g h t h e r e was no way t h e w r i t e r c o u l d p r o v e i t , he had t h e f e e l i n g t h a t t h e r e s p o n d i n g managers c o u l d e a s i l y o v e r e m p h a s i z e t h e i m p o r t a n c e o f an i n v e s t m e n t f a c t o r i f t h e y c o n s i d e r e d i t a s a ' p r o b l e m ' , o r i n o t h e r w o r d s , as u n f a v o u r a b l e . B u t anyhow, t h e n e g a t i v e c o r r e l a t i o n was s t i l l w o r t h y o f n o t e and i m p o r t a n t .  8.  According t o Business I n t e r n a t i o n a l ' s Country Ratings f o r 1978 o n t h e i n t e n s i t y o f i n v e s t m e n t r i s k ' , Hong Kong's o v e r a l l r a t i n g s c o r e (86 o u t o f 100) was s e c o n d (after 1  about  S i n g a p o r e ) among f i f t y - s e v e n c o u n t r i e s r a t e d . As f o r i n d i v i d u a l f a c t o r g r o u p s c o r e s , Hong Kong was f i r s t i n p o l i t i c a l - l e g a l - s o c i a l f a c t o r s , co-second i n commercial f a c t o r s ( w i t h K u w a i t a f t e r Japan) a n d e i g h t h i n m o n e t a r y f i n a n c i a l f a c t o r s ( a f t e r S i n g a p o r e , S w i t z e r l a n d , West Germany, J a p a n , M a l a y s i a , K u w a i t and S a u d i A r a b i a ) . See B u s i n e s s I n t e r n a t i o n a l C o r p o r a t i o n s , B I C o u n t r y R a t i n g s 1978, New Y o r k , 197 8.  157  CHAPTER V I I I - A COMPARATIVE ANALYSIS OF AND  JAPANESE INVESTMENT CHARACTERISTICS  T h i s c h a p t e r compares t h e i n v e s t m e n t o f U.S.  and  Japanese  whether the s p e c i f i c  manufacturers.  The  purpose  characteristics i s to analyse  c a s e o f Hong Kong p r o v i d e s an  which supports or r e f u t e s being  U.S.  example  the t h e o r e t i c a l models suggested  r e p r e s e n t a t i v e o f U.S.  o r Japanese  foreign  as  investment  behaviour.  There rative  i s a serious  studies of d i r e c t  Pacific  region.  1  and  investments.  important  foreign  investments  Studies focussing  have a l s o b e e n few Japanese  dearth of l i t e r a t u r e  than Japan  are nearly  as a f o r e i g n  compa-  i n the A s i a n  upon i n v e s t o r c o u n t r i e s exclusively  Even though  on  t h e U.S. investor  confined to  i s not  less  i n the r e g i o n , 3  a n a l y s e s o f U.S. Nevertheless,  investments  h a v e b e e n s p o t t y and  n e a r l y a l l the e x i s t i n g  as a g r e e i n g s u b s t a n t i a l l y on one investment motives t h e U.S.  and  different.  and  s t u d i e s c a n be  generalization:  needs w h i c h a r e d i f f e r e n t  consequently,  fragmentary.  i t s investment  interpreted  Japan  has  from  those  behaviour  i s also  of  158  C h a r a c t e r i z a t i o n s of the U.S.  Model and the Japanese  Model  The t h e o r i e s of d i r e c t f o r e i g n investment d e s c r i b e d i n Chapter I evolve mostly around U.S. U.S.  experience because  has been the most important source country i n the  post-war  y e a r s . Hymer s m o n o p o l i s t i c theory and the product l i f e  cycle  1  theory developed by Vernon, foundation of the U.S.  the  H i r s c h and Wells t o g e t h e r form the  model and p r o v i d e a good account of the  i n t e r n a l push f a c t o r s behind U.S.  investments i n manufacturing  overseas. In essence, as summed up by Vernon,  the U.S.  trade  and f o r e i g n investment p o s i t i o n i s based h e a v i l y on the p o s s e s s i o n of p r o d u c t i o n and marketing advantages  and on the g e n e r a t i o n o f  i n n o v a t i o n r a t h e r than on the more c o n v e n t i o n a l n o t i o n o f r e l a t i v e l y abundant and cheap c a p i t a l . i n c r e a s e i n U.S.  4  The r a p i d  post-war  f o r e i g n investments i n manufacturing has come  about mainly i n i n d u s t r i e s a s s o c i a t e d w i t h h i g h l e v e l  technology  and i n n o v a t i o n . The u n d e r l y i n g motives are to e x p l o i t more f u l l y the i n v e s t o r ' s s u p e r i o r knowhow i n p r o d u c t i o n and marketing or to c o u n t e r a c t the p o t e n t i a l t h r e a t of l o c a l c o m p e t i t i o n through market preemption.  Consequently,  the U.S.  has i n v e s t e d  abroad  mostly i n those i n d u s t r i e s t h a t rank a t the top o f i t s comparative advantages  such as e l e c t r o n i c s , chemical p r o d u c t s , m a c h i n e r i e s ,  t r a n s p o r t a t i o n equipments and s c i e n t i f i c i n s t r u m e n t s .  But the U.S.  model i s not a p p l i c a b l e to Japan.  p o i n t e d out by Ozawa, Japan's  i n d u s t r i e s i n the post-war  As  years  have been, f o r the most p a r t , i n t e r c e p t o r s o f Western t e c h n o l o g i e s .  159  They, have n o t i n t r o d u c e d any not u n t i l  very recent years  significant , t h a t would  t a t i o n s o v e r s e a s as e n v i s a g e d by Furthermore,  one  and  investments  Japanese  startling  empirical  abroad  the l a t t e r  Differences  interests.  investments  Japan's  foreign  has  investment  former  oligopolistic  involved  relatively  d i r e c t i o n of  sense, Japan's  internal  foreign  v e r y much g u i d e d by  factor  been t h e c a s e , we  U.S.  f o r the divergence i n  are s t i l l  c o s t s and  theory.  industries.  account  In a c e r t a i n  i n manufacturing  this  highly  i n t h e n a t u r e and  r a t i o n a l e of comparative s t a n d why  and  competitive  p u s h f a c t o r s a r e what l a r g e l y  cycle  i s that, while the  least imi-  d i f f e r e n c e between  have more t y p i c a l l y  s t a n d a r d i z e d p r o d u c t s and  investment  i n v i t e massive  the product l i f e  c o n c e n t r a t e upon t e c h n o l o g y - b a s e d industries,  innovations, at  endowments. To  the  under-  need t o t a k e a l o o k a t  e x p e r i e n c e and  the economic  forces  investments  i n the  behind.  The post-war 1965  h i s t o r y o f Japan's  y e a r s c a n be d i v i d e d  as the d i v i d i n g  line.  o v e r s e a s were s t r i c t l y and  War  economy and  I I . The brought  two  War forth  distinct  periods with  Japan's  investments  B e f o r e 1965,  c o n s t r a i n e d by  t h e payment d e f i c i t s  of World  into  foreign  i t had had  i t s economic  been r u n n i n g i n t o  practically  capabilities since the  devastated the  end  Japanese  the c o n f i s c a t i o n of n e a r l y a l l i t s  f o r e i g n a s s e t s . When p e a c e r e t u r n e d , t h e m a i n t a s k was  economic  160  r e c o n s t r u c t i o n and r e e s t a b l i s h m e n t o f i t s i n d u s t r i e s But  Japan immediately  ran into  t h e p r o b l e m o f f i n d i n g and  adapting  t o new e x p o r t m a r k e t s . M a n c h u r i a and C h i n a ,  absorbed  a b o u t 20% o f J a p a n ' s e x p o r t s  were l o s t  u n d e r communist another  control.  i n China which subsequently  T a i w a n and K o r e a ,  came  which accounted f o r  20% o f J a p a n ' s p r e - w a r e x p o r t s , began t o r e s t r i c t  raw s i l k  culties. for  years  b r o k e o u t between t h e  J a p a n e s e i m p o r t s . A l s o , J a p a n ' s two t r a d i t i o n a l ties,  which  i n the inter-war  a s e x p o r t m a r k e t s when f i g h t i n g  Communists and N a t i o n a l i s t s  and e x p o r t s .  and c o t t o n t e x t i l e s ,  faced considerable  The i n v e n t i o n o f s y n t h e t i c n y l o n a l m o s t  raw s i l k  countries  and t h e i m p o r t  i n Southeast  substitution policy  A s i a was o f t e n f i r s t  t e x t i l e s w h i c h was t h e o b v i o u s l a r g e domestic  e x p o r t commodidiffi-  w i p e d o u t demand of developing  directed  at cotton  t a r g e t i n view o f the r e l a t i v e l y  demand and t h e s i m p l e  technology  required for  production. F i n a l l y ,  t h e h a t r e d t o w a r d s t h e J a p a n e s e i n many  A s i a n c o u n t r i e s took  time  t o mend and t h a t a l s o h i n d e r e d  e x p o r t growth. Consequently, industrial to  their  while  production, per capita  pre-war l e v e l s  e x p o r t s was  regained.  In adopted  GNP and r e a l wages a l l r e t u r n e d recovered  1959 t h a t t h e p r e - w a r l e v e l o f  7  t h e s e y e a r s , an i m p o r t a n t  i n order  relatively  Japan's a g r i c u l t u r a l and  i n 1952, i t s e x p o r t s h a d o n l y  by o n e - t h i r d . I t was n o t u n t i l  Japan's  s t r a t e g y which  Japan  t o i n c r e a s e e x p o r t s was t o t a k e a d v a n t a g e o f i t s  cheap b u t s k i l l f u l  l a b o u r , and t o f o c u s much o f i t s  161  export  effort  competitive same t i m e , developed  disadvantages with  especially  i n Southeast  products,  optical  Asian  using  considerable  i n f o r e i g n markets  c o u n t r i e s . The s t r a t e g y p a i d o f f  products,  simple  and p h o t o g r a p h i c  and c o t t o n t e x t i l e s  e l e c t r o n i c s products, products  as i t s more  c o m m o d i t i e s . T h e r e was a r a p i d r e v i v a l  The  At the  effort, i t  mostly  This created  advantages f o r Japanese products  p l a c e o f raw s i l k  the  o f consumer goods i n d u s t r i e s ,  by 1960, e l e c t r i c a l  export  intensive production.  but s o p h i s t i c a t e d technology.  competitive  steel  i n labour  the a i d o f a comprehensive l i c e n s i n g  new l i n e s  imported  and  t o w a r d s t h e U.S. and W e s t e r n E u r o p e w h i c h had  improvement i n J a p a n ' s b a l a n c e  took t h e important  of exports.  o f payments i n  e a r l y 1960s was, however, o n l y modest b e c a u s e t h e J a p a n e s e  government a l s o s t a r t e d t o l i b e r a l i z e  i t s imports  p e r i o d . Around  were s u b j e c t t o q u o t a  to  60% o f J a p a n ' s i m p o r t s  1960, b u t t h i s p r o p o r t i o n was r e d u c e d  April  1963. A c c o m p a n y i n g  t h i s programme o f i m p o r t  was an i n c r e a s e i n i m p o r t s . continued  to only  t o remain i n d e f i c i t  In that year,  its  first  gap  widened r a p i d l y  increased  exports  post-war t r a d e  sharply,  around  this  i n the f i r s t  overtook  liberalization account  h a l f o f t h e 1960s.  changed t o Japan's  imports  , g i v i n g Japan  s u r p l u s o f a b o u t US$1 b i l l i o n .  and J a p a n ' s i n t e r n a t i o n a l f r o m US$2 b i l l i o n  prior  10% i n  Consequently, Japan's c u r r e n t  A r o u n d 1965, t h e t r a d e ' b a l a n c e favour.  during  reserves  The also  i n 1967 t o US$5 b i l l i o n i n  162  1970  and  t h e n US$20 b i l l i o n  i n 1972.  T h i s surplus not only  worried  t h e government, i t a l s o b r o u g h t  Japan's  t r a d i n g p a r t n e r s and  to  i t s c o n t r o l on  ease  Japanese  foreign  induced the Japanese  investments  investment  f o r t h complaints  abroad.  Law  (1949) and  scrutiny.  their  a p p r o v a l was  B e g i n n i n g from October  of  up  to  automatic  following year. F i n a l l y  raised  i n July  government  F o r e i g n Trade C o n t r o l  given only a f t e r 1969,  overseas  t o US$200,000 were g r a n t e d a u t o m a t i c a p p r o v a l was  government  B e f o r e 1969, a l l  projects required  a p p r o v a l u n d e r t h e F o r e i g n E x c h a n g e and  t o US$1 1971,  by  careful  investments  approval. This  million  limit  i n the  t h e l i m i t was  abolished  altogether.  The  r e s u l t was  a substantial  direct  foreign  investments,  from  fiscal  y e a r t o US$2,328 m i l l i o n  increase i n  US$557 m i l l i o n i n 1972  - an  Japan's  i n the  1968  i n c r e a s e o f more  o  than  4 00%  i n four years.  t u a t e d between US$2.5 and v a l u e o f Japan's since total,  1951) over  foreign  T h e r e a f t e r , the annual US$3.5 b i l l i o n . investments  stood a t around  US$22.2 b i l l i o n .  factor.  motivated  the Japanese  Of  the  this  cumulative government  cumulative  of course, only a  T h e r e were some more f u n d a m e n t a l manufacturers  the  fluc-  1972-1977.  r e l a x a t i o n o f c o n t r o l was,  secondary  1977,  ( a p p r o v e d by  80% were made i n t h e y e a r s The  By  amount  to venture  factors  overseas.  which  163  The period  of  country.  first  was  t i m e , J a p a n had But  as  a result  rising  a labour  s h o r t a g e began t o a p p e a r  acute  i n the  of around 1970.  f o l l o w i n g years  labour  10%  per  the  Southeast Asian  i n the  was  a cheap  and  the  pace o f  labour  increase  a t an  average to over  of  geographically,  a small portion  the  longer  i n f o r e i g n markets  the  problem  have  as  (4-5%) o f  that land costs total  l e d to s t r i c t  e n v i r o n m e n t and  the  t o pay  more f o r t h e  increases the  usually  production  e s p e c i a l l y those which r e q u i r e d unfortunate  of  i n J a p a n were  costs, large  Minamata i n c i d e n t  government r e g u l a t i o n f o r treatment of  industrial  w a s t e . A l l t h e s e meant t h a t J a p a n e s e m a n u f a c t u r e r s had  in  manufacturers  resulting in rapid  fact  l a n d , were a l a r m e d . The  of mercury p o i s o n i n g  plants  20%  o v e r s e a s where  r a p i d l y expanding  i n l a n d p r i c e s and  i n wages. D e s p i t e  industrial  rate  intensive industries,  next inducements. I n d u s t r i e s  Japanese manufacturers, pieces  of  development  centres  countries  labour  p r o b l e m became  l a n d p r i c e s w h i c h were s e v e r a l t i m e s more r a p i d t h a n  constituted  new  considerable  l i b e r a t e d home m a r k e t .  concentrated  increases  the  when t h e  f o r manufacturing  t o compete w i t h  p o l l u t i o n were t h e  in  i n 1960  a s e r i o u s blow t o t h e  The  highly  a  c o s t s were c h e a p e r . O t h e r w i s e , t h e y w o u l d no  in developing as  and  annum i n 1960-65, t h e n j u m p i n g  them t o l o o k  been a b l e  well  surplus  C o n s e q u e n t l y , wages i n c r e a s e d ,  T h i s was  forcing  c o s t s . For  o f r a p i d economic growth, s i g n s  labour  accelerated.  labour  land,  constructing  i n v e s t e x t r a money  to  164  prevent p o l l u t i o n  and m i g h t e v e n have t o u n d e r t a k e  lengthy negotiations with many o f them l o o k e d  " After in low  retrospect level  tion.  t h e s u r r o u n d i n g community.  foralternate  wildly,  it  attribute  t o Japan's r a p i d internal  i n December 1971. E v e n t h i s was  enough and J a p a n c o n t i n u e d t o have b a l a n c e o f t h e y e n was a l l o w e d  1973. I t h a s b e e n f l u c t u a t i n g but the o v e r a l l  1978, i t was a r o u n d two d i r e c t  ever  since,  sometimes  US$1 t o 200 y e n . T h i s a p p r e c i a t i o n h a d a t  effects  secondly,  to float i n  t r e n d h a s b e e n an upward o n e . By t h e end  on Japanese m a n u f a c t u r e r s .  made home p r o d u c t i o n f o r e x p o r t s l e s s i t made f o r e i g n  Firstly,  c o m p e t i t i v e and l e s s  investments,  either i n  f o r m o f new v e n t u r e s , o r t a k e - o v e r s o f i n d i g e n o u s  cheaper  a n d more  The was  and s u c c e s s f u l r e c o n s t r u c -  and e x t e r n a l p r e s s u r e , t h e y e n was  t o 308 y e n p e r d o l l a r  attractive; the  a t US$1 t o 360 y e n ,  a t r e m e n d o u s u n d e r v a l u a t i o n . I t was k e p t a t t h a t  payment s u r p l u s e s . F i n a l l y , February  instead.  f o r more t h a n two d e c a d e s a n d t h i s was c e r t a i n l y an  forceful  least  overseas  Consequently,  f a c t o r was t h e a p p r e c i a t i o n o f t h e y e n .  But under both  revalued  of  sites  t h e War, t h e e x c h a n g e r a t e was f i x e d  important  not  Another  c o s t l y and  attractive.  continuous  a l s o an i m p o r t a n t  market f o r producers tariffs  firms,  and n o n - t a r i f f  liberalization  factor.  o f imports  s i n c e 1965  I t made J a p a n p e n e t r a b l e a s a  i n Southeast barriers  Asian countries. Previously,  had been s e r i o u s o b s t a c l e s t o  165  exports to Japan. When import c o n t r o l s were r e l a x e d i n the l a t e 1950s and e a r l y 1960s, t a r i f f s were r e v i s e d i n 1961 to p r o t e c t Japanese i n d u s t r i e s . They were r a t h e r high, for  especially  l a b o u r - i n t e n s i v e products. But a f t e r Japan signed the a.  agreements o f the Kennedy round, i t took steps to reduce i t s tariffs. tariffs 1972,  From J u l y 1968 to A p r i l 1971, Japan reduced i t s f o r about two thousand commodities by around 50%. In  the t a r i f f  f o r around nineteen hundred commodities  was  f u r t h e r lowered by 20%. A f t e r these r e d u c t i o n s , the average Japanese t a r i f f  l e v e l was  no longer higher than t h a t i n other  developed c o u n t r i e s .  N o n - t a r i f f b a r r i e r s were a l s o r e l a x e d along w i t h reductions i n t a r i f f s .  The import d e p o s i t system,which was  added i n t e r e s t burden f o r importers, was  an  a b o l i s h e d i n Hay  1970.  Many import quotas were a l s o removed. By the end o f March  1970,  the  number of goods which came under quota r e s t r i c t i o n s  was  down to n i n e t y - e i g h t , c o m p r i s i n g f i f t y - n i n e a g r i c u l t u r a l products, t h i r t y - o n e manufactured goods and e i g h t m i n e r a l s . T h i s number was  f u r t h e r reduced to t h i r t y - t h r e e i n 1972. Twenty-five were  primary commodities and only e i g h t were manufactured goods of which h a l f were l e a t h e r goods and the remainder being p a r t s and i n t e g r a t e d  circuits.  F i n a l l y , the Japanese government measures  computer  a l s o took a c t i v e  to encourage d i r e c t investments overseas. One important  166  incentive  was  low  Bank o f J a p a n . used  interest  Started  i n August  1960,  to a c q u i r e shares or purchase  overseas  affiliates.  required  capital  of  l o a n s g r a n t e d by  6-7%  They u s u a l l y  machinery  p r o v i d e d 50% a t an  and  Other  setting  investment  t o 60%  or  the Japanese  rate the  Tax  and  abroad reduced  and  from  Export Trade O r g a n i z a t i o n  Chamber o f Commerce and  from p r o f i t s  foreign  t a x s p a r i n g on  Industry  o r exempted  survey those  as a r e s e r v e a g a i n s t  investments,  foreign  an  expanding  i n c e n t i v e s were a l s o g r a n t e d , s u c h as  which allowed deductions losses arising  the  i n s u r a n c e programme and  o t h e r b u s i n e s s a s s o c i a t i o n s when t h e y s e n t i n v e s t m e n t  missions abroad.  tax  than  the  i n c e n t i v e measures i n c l u d e d  the i n f o r m a t i o n s e r v i c e o f the Japan subsidizing  of  interest  I n s t i t u t e o f D e v e l o p i n g Economies, r e s t r u c t u r i n g  and  equipment i n  s e v e r a l p e r c e n t lower  p r e v a i l i n g market r a t e . up o f a f o r e i g n  Export-Import  t h e s e l o a n s c o u l d be  and were made a v a i l a b l e  p e r annum w h i c h was  the  credits  f o r taxes  paid  income i n c a s e s where t a x  i n c o u n t r i e s w i t h which Japan  had  was  concluded  treaties.  Summing up,  wage i n c r e a s e s ,  land p r i c e  a p p r e c i a t i o n of the yen,  government i n c e n t i v e s  of  the l a t t e r  import b a r r i e r s  been the economic  since forces  attractive.  and r e d u c t i o n  h a l f o f t h e 1960s have  u n d e r l y i n g Japan's  They have made o v e r s e a s m a n u f a c t u r i n g market i t s e l f  increases,  investments  for either  the  o r o t h e r e x p o r t m a r k e t s more p r o f i t a b l e  They a r e t h e i n t e r n a l  push f a c t o r s which  overseas.  Japanese and prompted  167  the Japanese  manufacturers  to search f o r overseas  b a s e s where wages were l o w e r ,  land p r i c e s  manufacturing  cheaper  and  exports  encouraged.  These  a r e t h e r e a s o n s why  Japan's  i n m a n u f a c t u r i n g , as d e s c r i b e d by K o j i m a , traditional of  steel  industries  i n which  the assembly  can  Japan  i s losing  o f motor v e h i c l e s ,  o f r a d i o s and costs  s u c h as t e x t i l e s ,  clothing  i t s comparative  technological  knowhow.  investments are s t i l l ations.  I t i s better  10  the Japanese  f o r exports of f i n a l  In t h i s  sense, Japan's  direct  b e i n g g u i d e d by c o m p a r a t i v e f o r Japan,  as i t has  i n which  advantage  to invest  i n foreign  a comparative  advantage  i n t h e s e same i n d u s t r i e s . foreign  are  and  29.7%  respectively  l a n d c o s t s a r e much l o w e r .  for  Japanese  manufacturing  - a phenomenon  which  appears  gaining why  countries  where b o t h l a b o u r  I t a l s o e x p l a i n s why t h e g r e a t e r has  firms to r e s o r t  foreign  i n manufacturing  a t March 1976)  t h e more c o m p e t i t i v e t h e i n d u s t r y ,  and  That i s  have b e e n made i n S o u t h e a s t A s i a n and L a t i n A m e r i c a n ( 3 9 . 5 % and  products  transfer  c o u n t r i e s which  investments  firms  i t s comparative  and  t o 70% o f Japan'.s  labour  cost consider-  done, t o  i t i s losing  or  components  cheaper  equipment f o r the f a c t o r y  out of those i n d u s t r i e s  close  advantage,  p r o d u c t s , i n which  exports, substituting and  and p r o c e s s i n g  p r o d u c t i o n o f p a r t s and  other electronics  with exports o f machinery  investments  have b e e n m o s t l y i n  i n f o r e i g n c o u n t r i e s a r e a c h i e v e d and  increase  foreign  i t i s that been the  need  to overseas production  i n c o m p a t i b l e w i t h the m o n o p o l i s t i c  168  theory  and  with  Hypothetical  the  U.S.  model.  ± ±  Propositions  A number o f h y p o t h e t i c a l from the and  above e x p o s i t i o n o f  out  the  d i f f e r e n c e s i n the  characteristics countries not  and  of  we  t h e U.S.  shall  use  these propositions  The  first  and the hold  are  corporations  from, t h e  i n the  Japan s h i f t s lost  their  with  the  overseas  countries.  i s that  g r o w t h by difference  "the  are  industries in  d i f f e r e n t from,  than the  top  U.S. of  t o a s t u d y on  J o r g e n s o n and i n the  level  Nishimizu, of  directly  t r a n s f e r s abroad i t s comparative  l e v e l : of  technology  U.S.  and  there  and  i n d u s t r i e s i n which  c o m p a r a t i v e a d v a n t a g e s a t home. I t has  According  foreign  c a s e o f Hong Kong.  i t s manufacturing operations  d i f f e r e n c e i n the  U.S.  operational  T h i s h y p o t h e s i s comes  t h e s i s t h a t whereas t h e  i n d u s t r i e s which rank a t the  the  data c o l l e c t e d to t e s t whether  invested  invested".  derived  Japanese manufacturers i n  t e c h n o l o g i c a l l y l e s s advanced  U.S.  be  propositions  i n v e s t m e n t and  hypothesis  which Japanese c o r p o r a t i o n s  can  c h a r a c t e r i z a t i o n s of  Japanese f o r e i g n investment models. These  spell  or  the  propositions  has  those  advantages, which  have  nothing  to  i n these  Japanese b e e n no  t e c h n o l o g y between t h e  U.S.  do  two  economic significant and  Japan  been w i d e b e f o r e  1960,  12 since  1974.  The  gap  between t h e  two  had  169  when J a p a n ' s l e v e l  o f t e c h n o l o g y was o n l y a r o u n d  ( a t 1952) t o o n e - h a l f  ( a t 1959) o f t h e c o r r e s p o n d i n g U.S.  but  the dramatic  had  r a p i d l y p u s h e d i t up t o a l e v e l  in  around  advance i n Japanese t e c h n o l o g y  ten years'  The  hypothesis  i n t h e 1960s t h a t o f t h e U.S.  "Japanese  a r e more l a b o u r i n t e n s i v e  more l a b o u r i n t e n s i v e ; this  advanced  industries  b u t t h e more i m p o r t a n t  i s because r i s i n g  reason  for  labour o r i e n t e d motive  this  investments  b e i n g more i m p o r t a n t  than  foreign t e n d t o be for setting  l a b o u r c o s t a t home has  internal  t h e U.S. I n f a c t ,  manufacturing  t h a n U.S.  b e e n a much more i m p o r t a n t  Japanese f o r e i g n  level,  time.  operations". Technologically less  up  a t par with  next hypothesis i s that  o p e r a t i o n s abroad  one-quarter  push f a c t o r  has been c i t e d  f o r Japan  than  behind  i n many s t u d i e s as  t h e s e c u r i n g and p r o t e c t i n g o f f o r e i g n 13  markets behind  tariff  walls.  T h i s h y p o t h e s i s r e q u i r e s one f u r t h e r Conceivably,  i f the i n t e n t i o n  i s t o make u s e o f c h e a p  l a b o u r , a n i n v e s t o r may d e l i b e r a t e l y process  Put  readapt  foreign  the production  i n t h e f o r e i g n c o u n t r y s o a s t o make i t more l a b o u r  intensive. in  clarification.  But the assumption  industries  here  i s different:  he w i l l  t h a t a r e by t h e i r v e r y n a t u r e more l a b o u r  i n another  way,  the proposition  c o s t a t home i s t h e i n t e r n a l industries w i l l  i s that  push f a c t o r ,  be t h e i n d u s t r i e s  i f rising  the labour  invest intensive.  labour  -  intensive  t h a t a r e b e i n g pushed  overseas.  170  The According  undertaken  or  hypothesis concerns  to the product  investments  protect  third  life  i n manufacturing  foreign  a r e d e f e n s i v e i n n a t u r e . They a r e  to counteract possible  local  t h e i n v e s t o r ' s market p o s i t i o n  produced  orientation.  c y c l e m o d e l , many U.S.  i n t h e r e g i o n by s u b s t i t u t i n g  locally  market  c o m p e t i t i o n and t o i n the f o r e i g n  exports  from  country  t h e U.S. w i t h  o u t p u t s . On t h e o t h e r hand, J a p a n e s e  investments  a r e c o s t p u s h e d and e x p o r t o r i e n t e d , i n d u c e d by t h e a t t r a c t i v e n e s s of  overseas manufacturing  f o r e x p o r t b a c k t o J a p a n o r t o some  o t h e r c o u n t r i e s . Hence, we c a n h y p o t h e s i z e t h a t manufacturers their  have a h i g h e r d e g r e e  "Japanese  o f e x p o r t o r i e n t a t i o n and  e x p o r t s back t o Japan a r e p r o p o r t i o n a t e l y g r e a t e r  U.S. m a n u f a c t u r e r s  e x p o r t i n g back t o t h e U.S.".  These t h r e e hypotheses embodied  r e p r e s e n t major p r o p o s i t i o n s  i n t h e t h e o r e t i c a l m o d e l s and d e s c r i b e some o f t h e  differences  i n foreign  U.S. a n d J a p a n . derived.  than  Both  Apart  from  characteristics  The  than  first  between t h e  t h e s e t h r e e , two o t h e r s c a n a l s o be  o f t h e s e two h y p o t h e s e s  management p o l i c y  b e i n g used  investment  a r e more r e l a t e d t o  t o the investment p a t t e r n .  concerns  the type o f technology  i n f o r e i g n o p e r a t i o n s . The h y p o t h e s i s  " J a p a n e s e f i r m s u s e u n a d a p t e d home c o u n t r y  that i s  i s that  t e c h n o l o g y more o f t e n  14 t h a n U.S. f i r m s " . hypothesis.  There  In the f i r s t  a r e two r e a s o n s  for setting  up t h i s  p l a c e , b e c a u s e t h e U.S. h a s i n v e s t e d  171  abroad mostly i n those i n d u s t r i e s t h a t rank a t the top o f i t s comparative  advantages,  the home country technology may be too  advanced f o r the host country and some a d a p t a t i o n s may be r e q u i r e d t o s u i t the f a c t o r endowment p o s i t i o n . On the o t h e r hand, the i n d u s t r i e s i n which the Japanese manufacturers  have  i n v e s t e d a r e t e c h n o l o g i c a l l y l e s s advanced, more s t a n d a r d i z e d , more c o m p e t i t i v e and more labour i n t e n s i v e . The technology i s thus, as argued by Kojima, more i n l i n e w i t h host country 15 f a c t o r endowments and r e q u i r e s l i t t l e o r no a d a p t a t i o n .  In  the second p l a c e , there i s a d i f f e r e n c e i n market o r i e n t a t i o n . Because the U.S. manufacturers'  t a r g e t markets are more o f t e n  the host country o r neighbouring c o u n t r i e s i n the r e g i o n , a d a p t a t i o n s i n the q u a l i t y o f product and i n the p r o d u c t i o n process to meet l o c a l needs and t a s t e s may be necessary. But such a d a p t a t i o n s w i l l not be as important f o r the Japanese manufacturers  with the Japanese consumers i n mind. They can use  the same p r o d u c t i o n process, the same machines and even the same m a t e r i a l s which they have been u s i n g i n Japan,  thus making i t  p o s s i b l e to s u b s t i t u t e f o r exports o f f i n a l products w i t h exports of machinery, equipment and knowhow. ^ 1  The  second hypothesis which i s more managerial i n  nature r e l a t e s , t o ownership  and c o n t r o l . The hypothesis i s t h a t  "there i s a higher i n c i d e n c e o f m i n o r i t y h o l d i n g s and j o i n t ventures being used by Japanese manufacturers  than by U.S.  manufacturers". A number o f reasons as w e l l as e m p i r i c a l  supports  172  (from o u t s i d e Hong Kong) have been put forward f o r t h i s hypothesis: (a)  1 7  There has been a g r e a t e r p r o p o r t i o n o f Japanese  foreign  investments i n manufacturing being undertaken by s m a l l to medium s i z e d f i r m s , and s m a l l e r f i r m s p r e f e r m i n o r i t y h o l d i n g s to reduce the s i z e o f t h e i r i n i t i a l  investments, 18  or j o i n t ventures to achieve b e t t e r economies and synergy. Small to medium s i z e d f i r m s p l a y a more important r o l e i n the Japanese  economy. T h e i r share o f employment and output  of the t o t a l i n manufacturing are about  65% and 50%  r e s p e c t i v e l y . In the U,S., they are o n l y about 40% i n both cases. Furthermore,  these s m a l l t o medium s i z e d f i r m s i n  Japan s p e c i a l i z e more o f t e n i n labour i n t e n s i v e o p e r a t i o n s . They have been the ones which have been h a r d e s t h i t by the r i s i n g labour c o s t . (b)  The overwhelming m a j o r i t y o f Japan's  foreign  investments  i n manufacturing a r e i n l e s s developed c o u n t r i e s where, even though  labour i s p l e n t i f u l and cheap, p o l i t i c a l and  business c o n d i t i o n s a r e f a r from s t a b l e . The p r e f e r e n c e f o r m i n o r i t y h o l d i n g s and j o i n t ventures i s a d e l i b e r a t e and 19 conscious r i s k r e d u c t i o n s t r a t e g y . (c)  The advantages  which the Japanese manufacturers possess l i e  more i n marketing and t r a d i n g and not i n technology and management. E n t e r i n g i n t o j o i n t ventures i s thus a s t r a t e g y 20 to supplement t h e i r i n a d e q u a c i e s . the U.S. manufacturers' advantages  On the other hand, which they want to  173  fully  exploit  a r e more  nology, marketing  . - i n production tech-  and management. T h u s , U.S.  a r e more r e l u c t a n t their  general  t o share the ownership  o p e r a t i o n s as t h i s may  economic r e n t w i t h l o c a l  result  manufacturers  and c o n t r o l o f  i n sharing of the  p a r t n e r s o r even a p p r o p r i a t i o n o f 21  (d)  the advantages  i n the long run.  The i n d u s t r i e s  i n which the Japanese  in  f o r e i g n c o u n t r i e s a r e more c o m p e t i t i v e s u c h as  steel  p r o d u c t s , l e a t h e r p r o d u c t s , machine p a r t s ,  a p p l i a n c e s and t h e l i k e . run  into direct  joint  venture  investments  i n this  c a s e may  tion  is little through Having  have  need  joint  U.S.  are mostly  advanced  household they  will The  foreign  i n more  sophisti-  and o l i g o p o l i s t i c  f o r them t o seek  protective  industries. collaborar.  ventures.  spelled  these hypotheses  gathered.  that  textiles,  serve.the purpose o f  In contrast,  i n manufacturing  cated ,^technologically There  I t i s more l i k e l y  invest  competition with l o c a l manufacturers.  protective collaboration.  to t e s t  manufacturers  out the hypotheses,  with the empirical  we now  proceed  evidence which  we  174  Testing of  Hypotheses  Industry D i s t r i b u t i o n : The f i r s t h y p o t h e s i s i s t h a t " i n d u s t r i e s i n which Japanese c o r p o r a t i o n s i n v e s t e d are d i f f e r e n t from, and are t e c h n o l o g i c a l l y l e s s advanced which U.S.  than i n d u s t r i e s i n  c o r p o r a t i o n s i n v e s t e d " . Table VIII-1 g i v e s the  TABLE' VIII-1 Industry D i s t r i b u t i o n a t February 28, 197 9 No. o f Firms & % of T o t a l Industry  U.S.  Electronics 42 Textiles 19 Metal products 10 E l e c t r i c a l products 9 Chemical products 8 Toys 8 Watches, c l o c k s & a c c e s s o r i e s 3 Food manufactures 1 Printing & publishing 2 Metal r o l l i n g , e x t r u s i o n & f a b r i c a t i o n 2 B u i l d i n g fi c o n s t r u c t i o n m a t e r i a l s 0 Others 20 Total 12 4  ( 33.9%) ( 15.3%) ( 8.1%) ( 7.3%) ( 6.4%) ( 6.4%) ( 2.4%) ( o. 8%) ( 1.6%) ( 1.6%) ( 0.0%) ( 16.1%) (100. 0%)  Source;  Japan 20 21 13 6 2 0 4 8 4 2 0 18 98  ( 20.4%) ( 21.4%) ( 13.3%) ( 6.1%) ( 2.0%) ( o .0%) ( 4 .1%) ( 8 .2%) ( 4.1%) ( 2. 0%) ( o .0%) ( 18.4%) (100 .0%)  Compiled from r e c o r d s . k e p t by the Department o f Trade, Industry and Customs, Hong Kong government.  i n d u s t r y d i s t r i b u t i o n o f U.S.  and Japanese manufacturing  o p e r a t i n g i n Hong Kong a t the end o f February 1979. based upon the i n d u s t r y c l a s s i f i c a t i o n  firms  Statistically,  used by the government,  175  t h e r e was was  a s i g n i f i c a n t d i f f e r e n c e between t h e two.  evidence  to suggest  that  industries  i n w h i c h U.S.  i n v e s t e d were t e c h n o l o g i c a l l y more a d v a n c e d i n which Japanese 'electronics ,  p r o d u c t s ' and  t e c h n o l o g i c a l l y more a d v a n c e d classified,  industries  broadly  identify  'chemical products'  than the other  then the percentage  47.6%  s h a r e o f U.S.  as compared t o J a p a n ' s  28.5%. The  as  industries manufacturing  f i r m s o p e r a t i n g i n t h e s e t e c h n o l o g i c a l l y more a d v a n c e d was  there  corporations  than those  c o r p o r a t i o n s i n v e s t e d . I f we  'electrical  1  Also,  industries  d i f f e r e n c e was  again  23 statistically  significant.  Looking a t the i n d i v i d u a l turers'  number one  i n t e r e s t was  as t h e most t e c h n o l o g i c a l l y t h e o t h e r hand, J a p a n e s e in  1  textiles',  Indeed, tial,  advanced  Japan's  concerned,Japan's  investments  industries.  (Textiles  c a n be w i d e v a r i a t i o n s  w h i l e we  can c o n c l u d e  the i n d u s t r i e s  But  investments  i n 'electronics'  manufac-  often  i s an  regarded  interest as f a r as in  by one  industry  However, we  from  from  the i n d u s t r y  i n which Japanese  was the  firm. substanshould  c o m p r i s i n g many  i s t h e same.) W i t h i n t h e i n d u s t r y , i n the technology  On  'textiles'  i n ' e l e c t r o n i c s ' were a l s o  f u r t h e r breakdowns a r e a v a i l a b l e  that  number one  amounting t o o n e - f i f t h o f i t s t o t a l . 'electronics'  U.S.  consumer goods i n d u s t r y .  manufacturers'  i t s investments  remember t h a t  no  i n 'electronics',  p r o b a b l y t h e most t r a d i t i o n a l .  number o f f i r m s was o n l y exceeded  industries,  there  involved. Unfortunately, the government. Thus, distribution  statistics  corporations invested  are  176  different  from those  t i o n s when c l a i m i n g  o f t h e U.S., t h e r e  have t o be some  reserva-  t h a t t h e former a r e l e s s t e c h n o l o g i c a l l y  advanced than t h e l a t t e r .  The  p r o p o r t i o n o f s k i l l e d manual w o r k e r s  may be r e l a t e d t o t h e l e v e l The  of technology  involved  i n operations.  assumption here i s t h a t a t e c h n o l o g i c a l l y higher  operation  employs a g r e a t e r  However, t h e d a t a  i n Table  anything  proportion of s k i l l e d  employed  level  workers.  V I I I - 2 b a s e d upon t h e s u r v e y  do  not y i e l d  conclusive  on  t h e w h o l e t h e r e was a g r e a t e r  employed by U.S. m a n u f a c t u r i n g  i n this  returns  r e s p e c t . Even  though  proportion of s k i l l e d  workers  f i r m s a t t h e end o f 1978, t h e l  d i f f e r e n c e was n o t s t a t i s t i c a l l y s i g n i f i c a n t  enough t o w a r r a n t  24 support  o f the hypothesis.  TABLE V I I I - 2 Skilled  W o r k e r s E m p l o y e d a t December  S k i l l e d Workers as a % o f T o t a l Workers Employed (a) (b) (c) (d) (e) (f)  1 21 41 61 81  0% - 20% - 40% - 60% - 80% - 100% Total  Source:  Questionnaire survey  No. o f  31, 1978  Firms & % of  U.S. 0 11 9 4 13 4 41  returns.  ( 0.0%) ( 26.8%) ( 22.0%) ( 9.8%) ( 31.7%) ( 9.8%) (100.0%)  Total  Japan 1 4 4 1 4 1 15  ( 6.7%) ( 26.7%) ( 26.7%) ( 6.7%) ( 26.7%) ( 6.7%) (100.0%)  177  The performed  n a t u r e and v a r i e t y o f p r o d u c t i o n  c a n a l s o be a n i n d i c a t i o n o f t h e l e v e l  Table VIII-3  shows t h a t  control' terms,  existed  types o f a c t i v i t i e s ,  i n 'product d e s i g n ' ,  manufacturing  the widest  'quality  t e s t i n g and  and ' p r o d u c t i o n r e s e a r c h and d e v e l o p m e n t ' . I n p e r c e n t a g e  t h e r e were a t l e a s t  which claimed t h a t  t w i c e as many U.S. as J a p a n e s e  t h e y were i n v o l v e d i n t h e s e a c t i v i t i e s  Kong. T h i s s u g g e s t e d  t h a t Japanese manufacturing  e n g a g e d i n a more l i m i t e d their  firms operating the l i s t e d  i n Hong Kong t h a n J a p a n e s e  f i r m s . Amongst t h e f i v e differences  o f technology.  t h e r e was a c r o s s - t h e - b o a r d a g r e a t e r  p r o p o r t i o n o f U.S. m a n u f a c t u r i n g production a c t i v i t i e s  activities  f i r m s were  U.S. c o u n t e r p a r t s . T h u s , .the••.•data i n T a b l e V I I I - 3  Production A c t i v i t y  & % of Total  U.S.  Assembly P a c k a g i n g and p a c k a g e d e s i g n Product design P r o d u c t i o n r e s e a r c h and development Q u a l i t y t e s t i n g and c o n t r o l  32 11 11  Japan  ( 78.0%) ( 26.8%) ( 26.8%) . ' ^ ( 73.2%) c  1  5  30  (  3  6  6  o  9 3 2 _  X  2  (  ( 60.0%) ( 20.0%) ( 13.3%) . _ _ - «> 4 ( 26.7%) 1 3  number o f f i r m s : U.S. = 41, J a p a n = 15.  Note:  Total  Source:  Questionnaire  tend to  Performed No. o f F i r m s  (e)  than  VIII-3  Production A c t i v i t i e s  (a) (b) (c) (d)  i n Hong  number o f p r o d u c t i o n a c t i v i t i e s  TABLE  firms  survey r e t u r n s .  n  o N  3  178  give  support to the hypothesis that  Japanese  corporations invested  the i n d u s t r i e s  are technologically  i n which less  advanced  25 than  t h o s e o f t h e U.S.  Factor "Japanese  I n t e n s i t y : The s e c o n d  manufacturing  o p e r a t i o n s a r e more l a b o u r  t h a n U.S. o p e r a t i o n s " . W i t h o u t w h i c h were n o t a v a i l a b l e calculate We  factor  breakdowns on c o s t  for this  intensity  survey,  to test  Japanese  intensive composition,  i t i s impossible to  this hypothesis  c a n o n l y do so somewhat i n d i r e c t l y  investment  hypothesis i s that  directly.  by c o m p a r i n g  the c a p i t a l  a n d t h e number o f w o r k e r s employed i n t h e U.S. and  manufacturing  firms.  L o o k i n g a t T a b l e V I I I - 4 , we c a n s e e t h a t t h e average end  s i z e o f U.S. m a n u f a c t u r i n g  o f 1978 was o n t h e w h o l e b i g g e r t h a n t h a t o f t h e J a p a n e s e .  In terms o f c a p i t a l less  than  investment,  t h a n HK$1 m i l l i o n .  ment r a n g i n g f r o m  o n l y 17% o f t h e U.S. f i r m s had  Medium s i z e d  HK$1 m i l l i o n  60% o f t h e t o t a l .  investment  more t h a n  Over o n e - f i f t h  invest-  comprised  (22.0%) h a d a  more  capital  o f more t h a n HK$10 m i l l i o n w h i c h by Hong Kong  70% o f t h e J a p a n e s e  with a capital  investment  1978. The r e m a i n d e r  a single  firms with c a p i t a l  t o HK$10 m i l l i o n  s t a n d a r d s w o u l d p l a c e them among  of  f i r m s i n Hong Kong a t t h e  the large  In  comparison,  f i r m s r e s p o n d i n g were s m a l l f i r m s  o f HK$1 m i l l i o n o r l e s s  were medium  firm with c a p i t a l  firms.  sized  investment  a t t h e end  f i r m s and t h e r e was n o t  e x c e e d i n g HK$10 m i l l i o n .  179  TABLE V I I I - 4 C a p i t a l I n v e s t m e n t and Number o f W o r k e r s Employed a t December 31, 1978  No. Capital (a) (b) (c) (d) (e) (f)  Investment  i n HK$'000  Total  (a) (b) (c) (d) (e) (f) (g) (h) (i)  Japan  1 6 14 11 7 2 41  ( 2.4%) ( 14.6%) ( 34.1%) ( 26.8%) ( 17.1%) ( 4.9%) (100. 0%)  3 8 3 1 0 0 15  ( ( ( (  0 1 2 9 17 8 1 2 1 41  ( 0.0%) ( 2.4%) ( 4.9%) ( 22.0%) ( 41.5%) ( 19.5%) ( 2.4%) ( 4.9%) ( 2.4%) (100. 0%)  0 2 3 3 4 2 0 1 0 15  (  than  -  Total Questionnaire survey  also a difference. fifty  have u s e d  o. 0%) 13.3%) 20.0%) 20.0%) 26.7%) 13.3%) 0.0%) 6.7%) ( o. 0%) (100. 0%)  eturns.  I f we  use  t h e same y a r d s t i c k o f  workers'  for identifying  i n Chapter  I I , then l e s s  were s m a l l . The  20.0%) 53.3%) 20.0%) 6.7%) ( o. 0%) ( 0.0%) (100. 0%)  ( ( ( ( ( ( (  I n t e r m s o f t h e number o f w o r k e r s e m p l o y e d , was  small industries, t h a n 10%  o f t h e U.S.  c o r r e s p o n d i n g p r o p o r t i o n f o r J a p a n was  'less as  exactly  employed  T h e r e were o n l y f o u r U.S.  t o 4 99 w o r k e r s .  we  firms  f i r m s , b o t h U.S.  50  and  there  o n e - t h i r d . Most o f t h e r e m a i n i n g from  Total  Employed  1 9 10 19 20 49 50 99 100 199 200 499 500 999 1,000 1,999 2,000 & o v e r  Source:  & % of  U.S.  Less than 500 501 1,000 1,001 5,000 5,001 - 10,000 10,001 - 20,000 More t h a n 20,000  Number o f W o r k e r s  of Firms  Japan, firms  180  and  one  Japanese  f i r m w h i c h employed  important p o i n t here d i f f e r e n c e was  i s that,  500  o r more w o r k e r s .  i n percentage  n o t as w i d e as t h a t  terms,  for capital  this  investment.  f a c t , w h i l e t h e number o f w o r k e r s employed by J a p a n e s e and  U.S.  f i r m s r e s p e c t i v e l y was  The  not s t a t i s t i c a l l y  In  firms  different,  26 the l e v e l  of c a p i t a l  manufacturing to c a p i t a l  investment  was.  I n o t h e r words,  f i r m s i n Hong Kong a p p e a r  investment  ratio  arid t h i s  r e l a t i v e l y more l a b o u r i n t e n s i v e  Japanese  t o have a h i g h e r l a b o u r  suggests  in their  that  they  are  o p e r a t i o n s than  U.S.  firms.  orientation sales for  and  Market  Orientation:  c a n be  t e s t e d by  the r e l a t i v e  though firms  importance  firms.  Table VIII-5  and  Japanese  i n Hong Kong a r e e x p o r t o r i e n t e d .  t h e d i f f e r e n c e was still  and  market of  export  s i g n i f i c a n c e o f t h e home c o u n t r y m a r k e t  t h e m a j o r i t y o f b o t h U.S.  investments  h y p o t h e s i s on  the l e v e l  f o r e i g n owned m a n u f a c t u r i n g  shows t h a t  The  not s t a t i s t i c a l l y  clearly  manufacturing  However,  even  significant,  e x p o r t e d a. h i g h e r , . p r o p o r t i o n o f t h e i r  sales  Japanese than  U.S.  27 firms  i n 1978.  r e s p o n d i n g U.S.  F o r example, whereas a t l e a s t f i r m s had o n l y two  than  output  while  60%  of their  o f Japanese  (24%)  t h e l o c a l m a r k e t i n mind more  overseas markets, 60%  ten  (13%)  o f the Japanese  i n Hong Kong i n 1978.  firms exported over  c o r r e s p o n d i n g p r o p o r t i o n o f U.S.  f i r m s was  80%  of  the  than  firms sold  more  A t t h e same t i m e , of their  48.8%.  sales,  the  181  TABLE  VIII-5  E x p o r t S a l e s ' i n 1978 Nov o f F i r m s E x p o r t s as a % o f T o t a l (a) (b) (c) (d) (e) (f)  1 21 41 61 81  Sales  U.S.  0% - 20% 40% 60% 80% - 100% Total  Home C o u n t r y (a) (b) (c) (d) (e)  of  ( 4.9%) ( 7.3%) ( 12.2%) ( 17.1%) ( 9.6%) ( 4 8.8%) (100.0%)  1 1 0 2 2 9 15  ( 6.7%) ( 6.7%) ( 0.0%) ( 13.3%) ( 13.3%) ( 60.0%) (100.0%)  13 7 2  ( 31.7%) ( 17.1%) ( 4.9%)  10 2 2  ( 66.7%) ( 13.3%) ( 13.3%)  17  ( 41.5%)  0  2 41  ( 4.9%) (100. 0%)  1 15  as a F o r e i g n Market  more  export d e s t i n a t i o n ,  important  the responding  J a p a n e s e f i r m s named J a p a n a s t h e most  than o n e - t h i r d . Furthermore,  40% o f U.S.  over  f o r U.S.  export sales  important  f i r m s was  less  firms d i d not put  down t h e U.S. a s one o f t h e t h r e e most i m p o r t a n t not the case  was  f o r Japanese f i r m s . E x a c t l y two-thirds  figure  and  0.0%)  ( 6.7%) (100. 0%)  t h e home m a r k e t  f o r e i g n m a r k e t . The c o r r e s p o n d i n g  T h i s was  (  Questionnaire survey r e t u r n s .  Regarding evidently  Japan  2 3 5 , 7 4 20 41  The most i m p o r t a n t The s e c o n d most i m p o r t a n t The t h i r d m o s t i m p o r t a n t N o t among t h e t h r e e most important No e x p o r t s a l e s Total  Source;  & % of Total  foreign  markets.  f o r any o f t h e J a p a n e s e f i r m s w h i c h h a d  i n 1978. The d i f f e r e n c e was  t o o w i d e t o be a d e q u a t e l y  statistically  e x p l a i n e d by t h e r e l a t i v e  significant geogra-  182  p h i c a l p r o x i m i t y o f Japan.*°  The therefore,  figures  i n T a b l e V I I I - 5 appear  t h a t b o t h U.S. a n d J a p a n e s e  Hong Kong have a highi d e g r e e conclusive degree  statistical  evidence  their  i s no  the l a t t e r ' s  to support the hypothesis  that  home c o u n t r y t h a n do U.S. f i r m s . The  t o t h i s argument i s t h a t w h e r e a s most U.S. m a n u f a c t u r i n g  investments region,  that  There  firms export a greater proportion of  s a l e s back t o t h e i r  corollary  to verify  firms i n  i s higher than the former's.  However, t h e e v i d e n c e a p p e a r s manufacturing  manufacturing  of export o r i e n t a t i o n .  o f export o r i e n t a t i o n  Japanese  to indicate  i n Hong Kong a r e g e a r e d  Japanese  manufacturing  t o serve markets i n the  investments  a r e g e a r e d more t o  s e r v e t h e home c o u n t r y m a r k e t .  Use  o f U n a d a p t e d Home C o u n t r y  Technology:  good e v i d e n c e t o s u p p o r t t h e h y p o t h e s i s t h a t use  unadapted  firms".  machinery  and raw m a t e r i a l s .  b o t h U.S. and J a p a n e s e import in  "Japanese  home c o u n t r y t e c h n o l o g y more o f t e n  I t comes f r o m t h e i r  Table VIII-6  manufacturing  firms  t h a n U.S.  supply sources f o r c a p i t a l  f r o m o u t s i d e most o f t h e i r  1978, t h e d e g r e e  There i s  equipment,  shows t h a t e v e n  though  f i r m s i n Hong Kong h a d t o  capital  e q u i p m e n t and m a c h i n e r y  o f r e l i a n c e on t h e home c o u n t r y and o n 29  overseas  affiliated  companies d i f f e r e d  significantly.  h a l f o f t h e U.S. f i r m s h a d t h e U.S. a s t h e i r supply  source  f o rcapital  Just  over  number one f o r e i g n  e q u i p m e n t and m a c h i n e r y  i n 1978. On  183  TABLE V I I T - 6 Import o f C a p i t a l Equipment, Machinery and Raw M a t e r i a l s i n 1978 Sources o f C a p i t a l Equipment and M a t e r i a l S u p p l i e s (a) (b) (c) (d)  A l l local Mainly l o c a l Mainly foreign A l l foreign  Home C o u n t r y a s a S u p p l y S o u r c e F o r C a p i t a l Equipment & Machinery (a) (b) (c) (d)  The most i m p o r t a n t The s e c o n d most i m p o r t a n t The t h i r d most i m p o r t a n t N o t among t h e t h r e e most important  A f f i l i a t e d Companies S u p p l y i n g More t h a n 50% o f F o r e i g n C a p i t a l Equipment & Machinery S u p p l i e s Sources (a) (b) (c) (d)  o f Raw M a t e r i a l  (a) (b) (c) (d)  0 4 30 7 41  Japan  ( 0. 0%) ( 9. 8%) ( 73. 2%) ( 17. 1%) (100. 0%)  24 ( 58. 5%) 8 ( 19. 5%) 8 ( 19. 5%) 1 (  2. 4%)  41 (100.  0%)  0 1 8 6 15  ( 0.0%) ( 6.7%) ( 5 3 3 %) ( 40.0%) (100.0%)  13 ( 86.7%) 1 ( 6.7%) 1 ( 6.7%) 0 (  0.0%)  15 (100.0%)  15 ( 36. 6%)  11 ( 73.3%)  0 2 31 8 41  0 1 8 6 15  ( o. 0%) ( 4. 9%) ( 75. 6%) ( 19. 5%) (100. 0%)  ( 0.0%) ( 6.7%) ( 53.3%) ( 40.0%) (100.0%)  Source  T h e most i m p o r t a n t T h e s e c o n d most i m p o r t a n t The t h i r d most i m p o r t a n t N o t among t h e t h r e e most important Total  A f f i l i a t e d Companies S u p p l y i n g More t h a n 50% o f F o r e i g n Raw Material Supplies  Source:  U.S.  Total  Supplies  A l l local Mainly l o c a l Mainly foreign A l l foreign  Home C o u n t r y a s a S u p p l y F o r Raw M a t e r i a l s  NO . o f F i r m s & % o f  Questionnaire survey r e t u r n s .  15 ( 36. 6%) 9 ( 22. 0%) 10 ( 24. 4%) 7 ( 17. 1%)  10 ( 66? 7%) 2 ( 13. 3%) 3 ( 20. 0%) 0 (  0. 0%)  41 (100. 0%)  15 (100. 0%)  13 ( 31. 7%)  12 ( 80. 0%)  184  t h e o t h e r hand, o n l y two o u t o f f i f t e e n country o t h e r than Japan percentage such  o f Japanese  supplies  from  Japanese  f i r m s had a  as t h e i r main s u p p l i e r . A l s o  f i r m s w h i c h r e c e i v e d more t h a n  their  affiliated  the 50% o f  companies o v e r s e a s was  t w i c e a s g r e a t a s t h a t o f U.S. f i r m s .  The  situation  r e g a r d i n g raw m a t e r i a l  s o u r c e s was 3  similar  and t h e d i f f e r e n c e was a g a i n s t a t i s t i c a l l y  W h i l e more t h a n foreign  90% o f t h e r e s p o n d i n g  source f o r Japanese  overseas a f f i l i a t e s one  f i r m s h a d t o r e l y on  s o u r c e s , t h e home c o u n t r y was d e f i n i t e l y  important  supplier  t h e most  f i r m s i n 1978. S i m i l a r l y , t h e  were i n t h e m a j o r i t y o f c a s e s  company. F o r U.S. f i r m s ,  c o u n t r y o r on o v e r s e a s  significant.  affiliated  their  number  t h e r e l i a n c e on t h e home  c o m p a n i e s was n o t p a r t i c u l a r l y  heavy. The  relationship  between t h e u s e o f home c o u n t r y  t e c h n o l o g y and t h e need t o i m p o r t c a p i t a l and  raw m a t e r i a l s f r o m  firm  that  they used  to  that  Japanese  firms interviewed  t h e same t e c h n o l o g y a s t h e i r  c o m p a n i e s and h a d i m p o r t e d even mentioned  t h e i r machines from  fortraining.  were m o s t l y  imported  Similarly,  parent  Japan.  t h e y had t o 'import' Japanese  o p e r a t e and s e r v i c e t h e s e m a c h i n e s o r s e n d  Japan  machinery  t h e home c o u n t r y was c o n f i r m e d by t h e  i n t e r v i e w s . A l l t h e seven  stressed  equipment,  Five  firms  technicians  local  staff to  raw m a t e r i a l s a n d component p a r t s  from Japan.  In contrast,  nine out o f eleven  185  U.S.  firms  interviewed  technology need  declared  or production  f o r them t o i m p o r t  materials  directly  Kong. I n s t e a d , supplies  t h a t they  process capital  and t h e r e was  had a c q u i r e d  from nearby  no  their  particular  e q u i p m e n t , m a c h i n e r y and raw  f r o m t h e U.S.  they  had m o d i f i e d  for their  operations  i n Hong  a substantial portion of  these  countries.  S h a r e o f O w n e r s h i p and Use o f J o i n t V e n t u r e s : Apparently,  there  is little  d i f f e r e n c e i n ownership  policy  between t h e U.S. a n d J a p a n e s e i n v e s t o r s i n Hong Kong. The hypothesis holdings  that  "there.is a higher  and j o i n t  ventures  being  incidence of minority u s e d by J a p a n e s e m a n u f a c t u r e r s  t h a n by U.S. m a n u f a c t u r e r s " c a n n o t , t h e r e f o r e , Table  VIII-7  ownership, the  total  majority parent  shows t h a t m a j o r i t y  fifty-six  responding  h e l d by t h e U.S.  owned,  firms, only  parent  ventures.  a s a t December  i f not  full  foreign  five  (8.9%) were n o t  companies o r t h e Japanese forty  31, 1978. Two  O n l y t h r e e mad m a j o r i t y  local  firms  (71.4%)  f i r m s were  50-50  ownership, but i n  (U.S. o r J a p a n e s e )  interest  s h o r t o f 25%.  Nevertheless, between t h e U.S. fully  ownership,  companies. I n c o n t r a s t , a l t o g e t h e r  no c a s e d i d t h e m i n o r i t y fell  supported.  i s p r e f e r r e d by b o t h U.S. and J a p a n e s e i n v e s t o r s . Of  were f u l l y joint  clearly  be  owned  (over  t h e r e were s t i l l  some d i f f e r e n c e s  and J a p a n . The p r o p o r t i o n o f f i r m s w h i c h were 95%) was h i g h e r  (75.6% v s 60.0%) and m i n o r i t y  186  TABLE V I I I - 7 Share  o f O w n e r s h i p and  Use  of Joint No.  % S h a r e o f F o r e i g n Owners h i p a t December 31, 197 8 (a) (b) (c) (d) (e) (f)  31 3 4 1 2 0 41  Total  (a) (b) (c)  &  % of  Total  Japan  ( 75.6%) ( 7.3%) ( 9.8%) ( 2.4%) ( 4.9%) ( 0.0%) (100.0%)  Firm  9 2 2 1 1 0 15  ( 60.0%) ( 13.3%) ( 13.3%) ( 6.7%) ( 6.7%) ( 0.0%) (100. 0%)  •  Not a j o i n t v e n t u r e A j o i n t venture with l o c a l investor A j o i n t venture with another foreign investor Total  Source:  of Firms U.S.  O v e r 95% 76 - 95% 51 - 75% E x a c t l y 50% 26 - 49% 0 - 25%  Status of  Ventures  31  ( 75.6%)  9  (  60.0%)  8  ( 19.5%)  5  (  33.3%)  „ z  41  .  1  . ' *> (100.0%) A  3  1  ' (100.0%)  (  6  15  7 % )  Questionnaire survey r e t u r n s .  h o l d i n g s were l o w e r Furthermore,  (.4.9% v s  6.7%)  f o r t h e U.S.  because a l l the responding  owned by  joint  ventures, the p r o p o r t i o n of f i r m s c l a s s i f i e d seemingly  for  f i r m s w h i c h were  fully  v e n t u r e s was  the overseas  than  parent c o n s i d e r e d themselves  h i g h e r f o r Japan  (4 0.0%  vs  as  Japan. not to  joint  24.4%).  However, e v e n t h o u g h t h e s e d i f f e r e n c e s were a l l c o m p a t i b l e t h e h y p o t h e s i s , t h e y were n o t w i d e and  significant  be  with  enough t o  .. 31 verify i t .  The  preference for f u l l  ownership  was  also  confirmed  187  by  the i n t e r v i e w s . A l l the eighteen  firms  selected for inter-  v i e w were 100% U.S. o r J a p a n e s e owned and a l l o f them that  their  policy said  o w n e r s h i p p o l i c y was  of the parent  that, at least  inviting  local  a d e l i b e r a t e and p r e f e r r e d  corporation.  Furthermore, a l l the companies  f o r the time being,  consider  and D i f f e r e n c e s  T h e r e were o t h e r  similarities  i n v e s t m e n t c h a r a c t e r i s t i c s o f U.S.  uring  they would n o t  partners.  Other S i m i l a r i t i e s  the  claimed  f i r m s w h i c h were r e v e a l e d  and d i f f e r e n c e s i n  and J a p a n e s e m a n u f a c t -  by t h e s u r v e y and t h e i n t e r v i e w s .  Investment M o t i v e s : Despite  the d i f f e r e n c e s i n the  internal  p u s h f a c t o r s s u g g e s t e d by t h e o r e t i c a l m o d e l s , t h e  specific  investment motives  by  t h e U.S.  'To make u s e o f l o c a l  local  taxes',  tion  labour',  'to g e o g r a p h i c a l l y  and  in selling  were t h e n o t a b l e  Nearly  though w i t h  mentioned  'to take advantage o f lower  diversify  t h e company's  'to e l i m i n a t e o r r e d u c e t h e c o s t o f t r a n s p o r t a t o the l o c a l market o r i t s neighbouring f a c t o r s which i n i t i a l l y  t o Hong Kong i n s t e a d o f t o o t h e r VIII-8).  factors)  and J a p a n e s e m a n u f a c t u r e r s were f u n d a m e n t a l l y t h e  same.  operations'  (the e x t e r n a l p u l l  a l l the firms  varying  cities  markets'  a t t r a c t e d them t o come i n the region  interviewed  (Table  mentioned these f a c t o r s ,  d e g r e e s o f e m p h a s i s w h i c h a p p e a r e d t o be  188  TABLE V I I I - 8 Investment  Motives No.  of Firms  Motive (a) (b) (c) (d)  (e) (f)  & % of Total  U.S.  To make u s e o f l o c a l l a b o u r To t a k e a d v a n t a g e o f l o w e r l o c a l taxes To g e o g r a p h i c a l l y d i v e r s i f y t h e company's o p e r a t i o n s To e l i m i n a t e o r r e d u c e t h e cost of transportation i n s e l l i n g t o t h e l o c a l market or i t s n e i g h b o u r i n g markets To m a t c h c o m p e t i t i o n by l o c a l firms or other foreign firms Others  Japan  29 (70.7%)  12  (80.0%)  .  _,  •', •  0  _. , , , , r  0  0N  v  (26.7%) 31 (75.6%)  11  (73.3%)  Notes:  T o t a l number o f f i r m s : U.S. = 41, J a p a n = 15. O t h e r m o t i v e s i n c l u d e ' t o make u s e o f l o c a l p r o d u c t i o n s k i l l a n d t e c h n o l o g y ' , ' t o make t h e company's p r o d u c t s more a c c e p t a b l e by l o c a l p e o p l e ' , ' t o make u s e o f l o c a l c a p i t a l ' , ' t o m a n u f a c t u r e a t o r n e a r s o u r c e s o f raw m a t e r i a l s u p p l i e s ' , ' t o b e t t e r meet l o c a l p r o d u c t s t a n d a r d s by m a n u f a c t u r i n g t h e r e i n ' , ' t o t a k e a d v a n t a g e o f c o n c e s s i o n s g r a n t e d by t h e l o c a l g o v e r n m e n t t o f o r e i g n c o m p a n i e s ' , ' t h e company h a s r e a c h e d i t s l i m i t o f e x p a n s i o n a t home', ' t o e n s u r e s u p p l i e s o f m a t e r i a l s e s s e n t i a l t o t h e company's o p e r a t i o n s a t home', ' t o g e t o v e r i m p o r t r e s t r i c t i o n s ' and ' t h e company i s b e i n g i n v i t e d by t h e l o c a l g o v e r n m e n t ' . E a c h o f t h e s e m o t i v e s i n d i v i d u a l l y h a s l e s s t h a n a 20% r e s p o n s e from b o t h t h e U.S. a n d J a p a n e s e m a n u f a c t u r e r s .  Source:  Q u e s t i o n n a i r e survey  returns.  189  r e l a t e d more t o t h e t y p e o f i n d u s t r y  than to anything  F o r example, a l l t h e n i n e e l e c t r o n i c s t h e number one t h i s was  motive  as  firms  i n t e r v i e w e d put  'to make use o f l o c a l  n o t t h e c a s e f o r any  else.  labour", but  o f the t h r e e chemical products  firms.  Type o f O w n e r s h i p : t h e r e s p o n d i n g U.S. in  and  the form o f p r i v a t e  was  an e l e c t r o n i c s  Japanese limited  f i r m which  company m a j o r i t y h e l d  With  by  the  of  liability was  and  - thirty  than d i f f e r e n t .  t h i r t e e n out of f i f t e e n  t h e U.S.  and  a public  limited  The e x c e p t i o n liability  The method o f i n v e s t m e n t  f o r Japan  or  manufacturers o r Japan.  them were c o r p o r a t e i n v e s t o r s . f i r m s a l s o had  either  sister  companies o v e r s e a s w i t h which None o f t h e J a p a n e s e  But  manufacturers  With  Japanese  had  In o t h e r words, a l l o f  companies o r  had  (85.4%)  no e x c e p t i o n ,  i n Hong Kong  i n addition,  t h e y had  85%  (86.7%).  Ownership A f f i l i a t i o n :  Japanese  was  I n b o t h c a s e s , more t h a n  e s t a b l i s h e d w i t h U.S.  p a r e n t c o m p a n i e s i n t h e U.S.  U.S.  companies.  existed  f i v e o u t o f f o r t y - o n e f o r t h e U.S.  Overseas all  firms  Japanese.  t h e f i r m s were o r i g i n a l l y  ownership  exception, a l l  manufacturing  Method o f I n v e s t m e n t : a g a i n more s i m i l a r  o n l y one  twelve  subsidiary  ownership any  such  (29.3%)  affiliation. affiliation.  190  This  appeared  to i n d i c a t e that  were more m u l t i n a t i o n a l  t h e U.S.  i n their  investors  i n Hong Kong  network o f o p e r a t i o n s  than the  Japanese.  Management exercised  Control:  The d e g r e e o f management  by t h e p a r e n t c o r p o r a t i o n  control  and t h e t o o l s f o r c o n t r o l  u s e d were m a r k e d l y d i f f e r e n t .  Table VIII-9 executive,  h i s status  shows t h e n a t i o n a l i t y o f t h e c h i e f  and t h e company's d e c i s i o n autonomy i n  a p p o i n t m e n t s a t management The  l e v e l s i n t h e U.S. and J a p a n e s e  d i f f e r e n c e s i n a l l these three  firms.  a s p e c t s were w i d e a s w e l l  as  32 statistically  significant.  Japanese firms for  O n l y two  (13.3%) o f t h e f i f t e e n  h a d a l o c a l manager a s t h e c h i e f e x e c u t i v e ;  the forty-one  U.S.  firms,  the corresponding  f i g u r e was  seventeen  ( 4 1 . 5 % ) . By f a r t h e m a j o r i t y  executive  i n J a p a n e s e f i r m s were h e a d q u a r t e r s manager  from Japan; third.  f o r U.S.  In a d d i t i o n , e x a c t l y  including  required  approval  staff.  recruitment  interviewed  T h i s meant t h a t  firms  w h e r e a s U.S.  firms,  w h i c h were 100%  f r o m h e a d q u a r t e r s company. U.S.  outposted  about one-  two-thirds o f the Japanese  level  In c o n t r a s t ,  more  had autonomy i n r e c r u i t i n g  a t l e a s t as f a r as s t a f f i n g  was c o n c e r n e d , J a p a n e s e f i r m s  'ethnocentric'  was o n l y  s a i d t h a t a p p o i n t m e n t s a t management  70% o f t h e f o r t y - o n e  senior  (73.3%) o f t h e c h i e f  the proportion  a l l the seven f i r m s  J a p a n e s e owned,  than  firms,  but  and  i n Hong Kong were more 33 f i r m s were more ' p o l y c e n t r i c ' .  191  TABLE V I I I - 9 Management C o n t r o l by H e a d q u a r t e r s  Company  No. o f F i r m s Nationality (a) (b)  of Chief Executive  & % of Total  U.S.  Local Foreign Total  Japan  17 24 41  ( 41.5%) ( 58.5%) (100.0%)  2 ( 13.3%) 13 ( 86.7%) 15 (100.0%)  14  ( 34.1%)  11  ( 73.3%)  27  ( 65.9%)  4  ( 26.7%)  41  (100.0%)  15 (100.0%)  12  ( 29.3%)  10  ( 66.7%)  29  ( 70.7%)  5  ( 33.3%)  41  (100.0%)  Status of Chief Executive (a) (b)  An o u t p o s t e d e x e c u t i v e o f h e a d q u a r t e r s company Not an o u t p o s t e d e x e c u t i v e o f h e a d q u a r t e r s company Total  Appointments (a) (b)  a t Management  Level  R e q u i r e d a p p r o v a l by h e a d q u a r t e r s company Did not require approval by h e a d q u a r t e r s company Total  Source:  Questionnaire survey  The views,  tools  for control  through  also differed.  interviewed, from Japan  i n Japan  t h e y had h e a d q u a r t e r s  f o r plant v i s i t s ,  Hong Kong, o r h i s d e p u t y ,  firms placed  and r e p o r t s . Of t h e s e v e n  s i x claimed that  regularly  From t h e i n t e r -  f i r m s d e p e n d e d more  p e r s o n a l c o n t a c t s w h e r e a s U.S.  more e m p h a s i s on b u d g e t s  company  returns.  t h e w r i t e r g o t t o know t h a t J a p a n e s e  on c o n t r o l  15 (100.0%)  or the c h i e f  Japanese staff  firms  coming  executive i n  had t o go b a c k t o t h e h e a d q u a r t e r s  t o r e p o r t o n h i s company's p e r f o r m a n c e .  In  192  c o n t r a s t , U.S. impersonal  f i r m s ' main  i n that  given rather r i g i d  control  the s u b s i d i a r y  tool firms  a p p e a r e d t o be more i n Hong Kong were  often  p e r f o r m a n c e b u d g e t s and s t a n d a r d s and t h e y  had t o s u b m i t q u a r t e r l y  o r even monthly r e p o r t s  to headquarters  companies. V i s i t s  f r o m h e a d q u a r t e r s company s t a f f were much  frequent,  a b o u t once o r t w i c e i n t h e y e a r .  usually  less  G e o g r a p h i c a l p r o x i m i t y m i g h t be a r e a s o n f o r t h e more f r e q u e n t u s e o f d i r e c t investors, styles  ' o r g a n i c ' and p l a c e d  Japanese  in traditional  t h e A m e r i c a n s and t h e J a p a n e s e was  Traditionally,  relations  c o n t r o l s by  but probably the d i f f e r e n c e  between  factor.  personal  management  t h e main  t h e J a p a n e s e management s t y l e was  more  a g r e a t e r v a l u e on harmony and human  i n organizations.  On t h e o t h e r hand,  the Americans  put 3  the emphasis  more on s y s t e m a t i c management and work  The d i f f e r e n c e a reflection  efficiency.  i n c o n t r o l methods u s e d a p p e a r e d t o be  of this  underlying  largely  difference.  The more f r e q u e n t use o f u n a d a p t e d home c o u n t r y t e c h n o l o g y by t h e J a p a n e s e m a n u f a c t u r e r s c o u l d  a l s o have  been  a r e a s o n . B e c a u s e J a p a n e s e f i r m s o f t e n u s e d t h e same t e c h n o l o g y as t h e i r  parent corporations,  i t became p o s s i b l e , o r m i g h t  have b e e n n e c e s s a r y , f o r them t o r e l y control  their  operations  i n Hong Kong.  even  on J a p a n e s e managers t o  193  Product Line Concentration: difference  between t h e U.S. m a n u f a c t u r e r s  manufacturers  i n the degree  cases,  v e r y much t o t h e o v e r a l l  f o r a l l f o r e i g n manufacturers t h e r e were a r o u n d  as a whole. In both  one-third of the firms  i n one s i n g l e p r o d u c t l i n e , more t h a n f i v e  and t h e J a p a n e s e  of product l i n e concentration.  T h e i r g e n e r a l p a t t e r n conformed pattern  T h e r e was no n o t a b l e  specializing  and a n o t h e r o n e - t h i r d  lines of products.  s h a r e o f t h e most i m p o r t a n t l i n e  (Table VIII-10) also  producing The p e r c e n t a g e  showed l i t t l e  difference  between t h e two.  TABLE  VIII-10  Product Line Concentration No. o f L i n e o f Products Produced (a) (b) (c)  i n 1978  One Two t o f i v e More t h a n f i v e Total  P e r c e n t S h a r e o f Most P r o d u c t L i n e i n 1978 (a) (b) (c) (d) (e) (f)  U.S.  Total  Japan  12 14 15 41  ( 29.3%) (34.1%) ( 36.6%) (100.0%)  5 6 4 15  ( 33.3%) ( 40.0%) ( 26.7%) (100.0%)  12 8 7 3 10 1 41  ( 29.3%) 5 3 ( 19.5%) ( 17.1%);' 3 1 ( 7.3%) ( 24.4%) 3 ( 2.4%) 0 15 (100.0%)  ( 33.3%) ( 20.0%) ( 20.0%) ( 6.7%) ( 20.0%) ( 0.0%) (100.0%)  Important  100% 81 - 99% 61 - 80% 41 - 60% 21 - 40% 20% o r l e s s Total  Source:  Firms & % of  Questionnaire survey  returns.  194  Sales the  U.S.  export  and  to A f f i l i a t e d  J a p a n e s e f i r m s had  s a l e s r e g i s t e r e d as  overseas a f f i l i a t e s percentages,  Companies O v e r s e a s : significant  intercompany  i n 1978  Both .  portions of  t r a n s f e r s to  their  (Table VIII-11); Looking  there was apparently - l i t t l e  their  at  the  d i f f e r e n c e . However,  :  TABLE VI11-11 Sales  to Foreign A f f i l i a t e d No.  S a l e s t o F o r e i g n A f f i l i a t e d Cos as a % o f T o t a l E x p o r t S a l e s i n 1978 (a) (b) (c) (d) (e) (f) (g)  export sales 0% 1 20% 21 40% 41 60%' 61 80% 81 - 100% Total  Source:  Questionnaire  t h e r e was discovered  a significant by  survey  the  'qualitative'  the  % of  Total  Japan 1 0 0 2 2 4 6 15  ( 4.9%) ( 4.9%) ( 9.8%) ( 9.8%) ( 7.3%) ( 24.4%) ( 39.0%) (100.0%)  ( 6.7%) ( 0.0%) ( 0.0%) ( 13.3%) ( 13.3%) ( 26.7%) ( 40.0%) (100.0%)  d i f f e r e n c e w h i c h was  i n t e r v i e w s . Most o f t h e  J a p a n e s e f i r m s were t o t h e i r  headquarters companies; but went m o s t l y t o t h e i r  Firms &  returns.  the w r i t e r i n the  company s a l e s o f  of  " U.S. 2 2 4 4 3 10 16 41  No  Companies  t r a n s f e r s from the  intra-  Japanese U.S.  firms  overseas marketing a f f i l i a t e s outside  U.S.  T h i s was  consistent with  that  t h e U.S.  and  the  finding  that despite  J a p a n e s e m a n u f a c t u r e r s had  later  little  the  the fact  difference  195  i n the degree o f export o r i e n t a t i o n , there was a s i g n i f i c a n t d i f f e r e n c e i n the degree o f importance o f the home country as a foreign  market.  Marketing A c t i v i t i e s Performed. 1  Table VIII-12  shows the marketing a c t i v i t i e s performed by the U.S. and Japanese f i r m s i n Hong Kong. There seemed to be a wide d i f f e r e n c e between the two. In four out o f the s i x a c t i v i t i e s l i s t e d , there were i n percentage terms  about twice as many U.S. as Japanese  f i r m s performing the a c t i v i t i e s . T h i s , to a c e r t a i n extent, i n d i c a t e d t h a t the U.S. f i r m s on the whole were more s o p h i s t i c a t e d i n t h e i r marketing o p e r a t i o n s .  2_  TABLE VIII-12 Marketing A c t i v i t i e s  Performed  No. Of Firms & % o f T o t a l Activity (a) (b) (c) (d) (e) (f)  U.S.  Advertising After sales servising D i s t r i b u t i o n and w h o l e s a l i n g Export s a l e s promotion Market and consumers r e s e a r c h Retailing Total  Source:  18 11 17 23 14 4 (41)  Q u e s t i o n n a i r e survey r e t u r n s .  ( 43.9%) ( 26.8%) ( 41.5%) ( 56.1%) ( 26.8%) ( 9.8%) (100.0%)  Japan 4 2 6 3 2 4 (15)  ( 26.7%) ( 13.3%) ( 40.0%) ( 20.0%) ( 13.3%) ( 26.7%) (100.0%)  196  Notes  1.  The only study of t h i s nature which the w r i t e r i s aware o f i s the one on South Korea by C H . Lee. (Lee, C H . , "United S t a t e s and Japanese D i r e c t Investment i n Korea: A Comparative Study", H i to tsuba s h i J o u r n a l o f Economics, V o l . 20, No. 2, February, .1980.) T h i s work compares the market o r i e n t a t i o n , m o t i v a t i n g f a c t o r s and impact on the Korean economy of U.S. and Japanese d i r e c t investments based upon some f o r e i g n investment s t a t i s t i c s (1962-74) kept by the Economic P l a n n i n g Board of the Korean government. There i s a l s o a d i s c u s s i o n paper by Kohlhagen, but i t i s b a s i c a l l y a d e s c r i p t i v e l i t e r a t u r e survey r a t h e r than a comparative study. (Kohlhagen, S.W., "The C h a r a c t e r i s t i c s , M o t i v a t i o n s and E f f e c t s o f Japanese and United S t a t e s D i r e c t Investments i n the P a c i f i c B a s i n " , E x p l o r a t i o n s i n Economic Research, V o l . 2, No.4, 1976.)  2.  The more important books p u b l i s h e d i n E n g l i s h on Japanese investments a r e : Katano, H., Murakami, A. and Ikemoto, K., Japan's D i r e c t Investment to ASEAN C o u n t r i e s , Research I n s t i t u t e f o r Economics and Business A d m i n i s t r a t i o n , Kobe U n i v e r s i t y , Kobe, 1978. Kojima, K., D i r e c t F o r e i g n Investment: A Japanese Model o f M u l t i n a t i o n a l Business O p e r a t i o n s , Croom Helm, London, 1978. Ozawa, T., M u l t i n a t i o n a l i s m , Japanese S t y l e : The P o l i t i c a l Economy of Outward Dependency, P r i n c e t o n U n i v e r s i t y Press, P r i n c e t o n , N.J., 1979. Tsurumi, Y., The Japanese are Coming: A M u l t i n a t i o n a l I n t e r a c t i o n Of Firms and P o l i t i c s , B a l l i n g e r P u b l i s h i n g Company, Cambridge, Mass., 1976. Sandhu, K.S. and Tang, P.T. (eds.), Japan as an Economic Power arid i t s I m p l i c a t i o n s f o r Southeast A s i a , I n s t i t u t e f o r Southeast A s i a n S t u d i e s , Singapore, 1974. Yoshihara, K., Japanese Investment i n Southeast A s i a , The U r i i v e r s i t y Press o f Hawaii, Honolulu, 1978. Yoshino, N.Y., Japanese M u l t i n a t i o n a l E n t e r p r i s e s , Harvard U n i v e r s i t y Press, Cambridge, Mass., 1976.  3.  The U.S. and Japan are by f a r the two most important f o r e i g n i n v e s t o r s i n manufacturing i n the A s i a n P a c i f i c r e g i o n . In d o l l a r terms, the U.S.'s p o s i t i o n i s f i r s t i n Hong Kdng, the P h i l i p p i n e s and South Korea, second i n Indonesia, M a l a y s i a , Taiwan and Singapore and t h i r d i n T h a i l a n d . Japan i s number one i n Indonesia, Singapore, Taiwan and T h a i l a n d , second i n Hong Kong, the P h i l i p p i n e s and South Korea and f o u r t h i n Malaysia.  197  4.  V e r n o n , R., "The E c o n o m i c C o n s e q u e n c e o f U.S. Foreign D i r e c t Investment", U n i t e d S t a t e s I n t e r n a t i o n a l Economic P o l i c y i n an I n t e r d e p e n d e n t W o r l d , P a p e r s I , W a s h i n g t o n , D.C., J u l y , 1971.  5.  A d e t a i l e d e x a m i n a t i o n o f U.S. f o r e i g n i n v e s t m e n t s i s n o t g i v e n h e r e b e c a u s e t h e i r t y p i c a l f e a t u r e s have been w e l l d e s c r i b e d i n many i n t e r n a t i o n a l b u s i n e s s l i t e r a t u r e . F o r example, s e e Hymer, S., " U n i t e d S t a t e s I n v e s t m e n t A b r o a d " i n D i r e c t F o r e i g n I n v e s t m e n t i n A s i a and t h e P a c i f i c e d i t e d by P. D r y s d a l e , A u s t r a l i a n N a t i o n a l U n i v e r s i t y P r e s s , C a n b e r r a , 1972. K i n d l e b e r g e r , C P . , American Business Abroad: S i x L e c t u r e s on D i r e c t I n v e s t m e n t , Y a l e U n i v e r s i t y P r e s s , New Haven, 1969. Rhodes, J.B., " F o r e i g n D i r e c t I n v e s t m e n t by U.S. C o r p o r a l '.o:::f, t i o n s " , Columbia J o u r n a l o f World B u s i n e s s , J u l y A u g u s t , 1972. U.S. D e p a r t m e n t o f Commerce, " T r e n d s i n D i r e c t I n v e s t m e n t s A b r o a d by U.S. M u l t i n a t i o n a l C o r p o r a t i o n s , 1960 t o 1970", The M u l t i n a t i o n a l C o r p o r a t i o n : S t u d i e s on U.S. Foreign I n v e s t m e n t , V o l . 1., 1972. V e r n o n , R., S o v e r e i g n t y a t Bay: The M u l t i n a t i o n a l S p r e a d o f o f U.S. E n t e r p r i s e s , B a s i c Books, New Y o r k , 1 9 7 i . W i l k i n s , M., The M a t u r i n g o f M u l t i n a t i o n a l E n t e r p r i s e : A m e r i c a n B u s i n e s s A b r o a d f r o m 1914 t o 1970, H a r v a r d U n i v e r s i t y P r e s s , C a m b r i d g e , Mass., 1974.  6.  Ozawa, T., M u l t i n a t i o n a l i s m , J a p a n e s e S t y l e : The P o l i t i c a l Economy o f Outward Dependency, P r i n c e t o n University P r e s s , P r i n c e t o n , N . J . , 1979, page 50.  7.  The  8.  S o u r c e : M i n i s t r y o f I n t e r n a t i o n a l T r a d e and I n d u s t r y , J a p a n e s e g o v e r n m e n t . The f i s c a l y e a r o f J a p a n i s A p r i l t o M a r c h 31.  pre-war  level  r e f e r s t o t h e 1934-36  level.  1  9.  S o u r c e : M i n i s t r y o f Labour, Japanese government, of Labour S t a t i s t i c s , v a r i o u s issues.  Yearbook  10.  Kojima, D i r e c t F o r e i g n Investment: A Japanese Model o f M u l t i n a t i o n a l B u s i n e s s O p e r a t i o n s , Croom Helm, L o n d o n , 1978, page 86. A l s o , a c c o r d i n g t o t h e M i n i s t r y o f I n t e r n a t i o n a l T r a d e and I n d u s t r y , among t h e t o t a l a c c u m u l a t e d Japanese f o r e i g n investments i n manufacturing o f US$96 3 m i l l i o n between 1951 and 1970, p u l p and wood (resourceo r i e n t e d ) a c c o u n t e d f o r 22.1%, t e x t i l e s 19.7%, s t e e l and m e t a l s 14.3%, t r a n s p o r t m a c h i n e r y 19.6%, e l e c t r i c a l a p p l i a n c e s 7.4%, o t h e r m a c h i n e r y 7.0%, f o o d s t u f f s 6.3%,  ;  198  chemicals 6.2%  and o t h e r s  6.4%.  11.  A c c o r d i n g to Ozawa, there i s , however, an emerging p a t t e r n of overseas investments by l a r g e Japanese companies t h a t x i f i t s the m o n o p o l i s t i c model. These ventures are l o c a t e d mostly i n advanced c o u n t r i e s , e s p e c i a l l y i n the U.S., and i n h i g h technology s e c t o r s t h a t r e q u i r e f i r m - s p e c i f i c advantages. But t h i s type of d i r e c t investments accounts f o r o n l y a s m a l l p o r t i o n of Japan's overseas investments i n manufacturing and are s t i l l n o n - e x i s t e n t i n Southeast Asia.  12.  Jorgenson, D.W. and N i s h i m i z u , M., "U.S. and Japanese Economic Growth;. 1952-1974: An I n t e r n a t i o n a l Comparison", The Economic J o u r n a l , Cambridge U n i v e r s i t y P r e s s , V o l . 88, No. 352, December, 1978.  13.  For example, see A l l e n , T.W., D i r e c t Investment of Japanese E n t e r p r i s e s i n Southeast A s i a , Economic Cooperation Centre f o r the A s i a n P a c i f i c Region, Bangkok, 1973. Kohlhagen, S.W., "The C h a r a c t e r i s t i c s , M o t i v a t i o n s and E f f e c t s of Japanese and U n i t e d S t a t e s D i r e c t Investments i n the P a c i f i c B a s i n " , E x p l o r a t i o n s i n Economic Research, V o l . 2, No. 4, 1976. Landes, J.E., "Japanese D i r e c t Investment i n Developing ECAFE C o u n t r i e s " , F o r e i g n Investment arid Economic Development i n A s i a , e d i t e d by N.K. Sarkar, O r i e n t ' Longman L t d . , Bombay, 1976.  14.  A r e l a t e d hypothesis on the a p p r o p r i a t e n e s s to the host I t i s not done here because i s beyond the scope of t h i s  15.  Kojima,:.K. , " T r a n s f e r o f Technology to Developing C o u n t r i e s : Japanese Type versus American Type", H i t o t s u b a s h i J o u r n a l of Economics, Vol.u-17, No. 2, February, 197 7  16.  A c c o r d i n g to the Second Q u e s t i o n n a i r e Survey (1968) undertaken by the Export-Import Bank of Japan, 90% of Japanese manufacturing f i r m s overseas use Japanese technology, 8 6 % of them import Japanese machinery and equipment and t h e i r imports of Japanese raw m a t e r i a l s and i n t e r m e d i a t e goods account f o r 58% of t h e i r t o t a l . i m p o r t s of these m a t e r i a l s .  17.  For example, a c c o r d i n g to a survey by Tsurumi on ownership p a t t e r n s , the m a j o r i t y of Japanese manufacturing o p e r a t i o n s (58%;);uinof o r e i g n c o u n t r i e s were i n the form of m i n o r i t y h o l d i n g s i n January 1971. (Tsurumi, Y, The Japanese are Coming: A M u l t i n a t i o n a l I n t e r a c t i o n of Firms arid P o l i t i c s ,  q u a l i t y of technology and i t s country can a l s o be put up. the w r i t e r b e l i e v e s t h i s s u b j e c t study.  r  199  B a l l i n g e r P u b l i s h i n g Co., C a m b r i d g e , Mass., 1976, page 203, T a b l e 8-3.) A n o t h e r s u r v e y by Y o s h i n o on f i f t y Japanese e n t e r p r i s e s w i t h manufacturing subsidiaries o v e r s e a s r e v e a l e d t h a t o f t h e i r 417 f o r e i g n s u b s i d i a r i e s , 342 were j o i n t v e n t u r e s and 304 had m i n o r i t y J a p a n e s e s h a r e h o l d i n g s . ( Y o s h i n o , M.Y., Japan's M u l t i n a t i o n a l E n t e r p r i s e , H a r v a r d U n i v e r s i t y P r e s s , C a m b r i d g e , Mass., 1976, page 143.) 18.  A c c o r d i n g t o r e c o r d s k e p t by t h e J a p a n e s e g o v e r n m e n t ' s S m a l l and Medium E n t e r p r i s e A g e n c y , 41.8% o f t h e t o t a l number o f J a p a n e s e m a n u f a c t u r i n g i n v e s t m e n t s o v e r s e a s a t t h e end o f 1975 were made by s m a l l and medium s i z e d f i r m s ( t h o s e w i t h f e w e r t h a n 300 e m p l o y e e s o r p a i d - u p c a p i t a l o f l e s s t h a n 100 m i l l i o n y e n ) . T h i s i s a much h i g h e r p e r c e n t a g e t h a n t h a t o f t h e U.S. See Ozawa, T., M u l t i n a t i o n a l i s m , J a p a n e s e S t y l e : The P o l i t i c a l Economy o f Outward Dependency, P r i n c e t o n U n i v e r s i t y P r e s s , P r i n c e t o n , N . J . , 1979, p a g e s 25-28.  19.  See T s u r u m i , Y., " M u l t i n a t i o n a l S p r e a d o f J a p a n e s e F i r m s and A s i a n N e i g h b o u r s R e a c t i o n " , P a p e r p r e s e n t e d t o Y a l e U n i v e r s i t y C o n f e r e n c e on t h e M u l t i n a t i o n a l C o r p o r a t i o n as an I n s t r u m e n t o f D e v e l o p m e n t - P o l i t i c a l C o n s i d e r a t i o n s , May, 1974.  20.  See C l a r k , G., " J a p a n e s e D i r e c t I n v e s t m e n t O v e r s e a s " , F o r e i g n I n v e s t m e n t and J a p a n e d i t e d by B a l l o n , R . J . and L e e , E.H., K o d a n s h a , T o k y o , 1972.  21.  See K i n d l e b e r g e r , C P . , American Business Abroad: S i x L e c t u r e s on D i r e c t I n v e s t m e n t , Y a l e U n i v e r s i t y P r e s s , New Haven, 1969.  22.  See  Appendix  II-8.1.  23.  See  Appendix  II-8.2.  24.  See  Appendix.I1-8.3.  25.  U s i n g c h i - s q u a r e t e s t s , however, t h e p r o p o r t i o n o f U.S. and J a p a n e s e f i r m s o p e r a t i n g t h e s e p r o d u c t i o n a c t i v i t i e s was o n l y s i g n i f i c a n t l y d i f f e r e n t ( a t a l e v e l o f s i g n i f i c a n c e 0.05) f o r ' q u a l i t y t e s t i n g and c o n t r o l ' b u t n o t f o r t h e r e m a i n i n g f o u r a c t i v i t i e s . See A p p e n d i x I I - 8 . 4 .  26.  See  Appendices  27.  See  Appendix  II-8.7.  28.  See  Appendix  II-8.8.  II-8.5  and  II-8.6.  200  29.  See A p p e n d i x  II-8.9.  30.  See A p p e n d i x  II-8.10.  31.  See A p p e n d i c e s  32.  See A p p e n d i x  33.  T h e s e 'management a t t i t u d e s ' o r ' s t a t e s o f m i n d ' ( e t h n o c e n t r i c , p o l y c e n t r i c and g e o c e n t r i c ) a r e t a k e n f r o m P e r l m u t t e r , H.V., "The T o r t u o u s E v o l u t i o n o f t h e M u l t i n a t i o n a l C o r p o r a t i o n " , Columbia J o u r n a l o f World B u s i n e s s , J a n u a r y - F e b r u a r y , 1969.  34.  F o r a d i s c u s s i o n on t h e d i f f e r e n c e i n t r a d i t i o n a l A m e r i c a n and J a p a n e s e management s t y l e s , s e e Yang, C.Y., "Management S t y l e s : American v i s - a - v i s Japanese", Columbia J o u r n a l o f W o r l d B u s i n e s s , F a l l , 1977.  I I - 8 . 1 1 and I I - 8 . 1 2 .  II-8.13.  201  CHAPTER IX  In a  short  this last  summary o f  i m p o r t a n c e and  Summary o f  and  there  does not  tions.  i s very  c o n c l u d e by  a discussion  of  this thesis  are:  extremely  liberal  giving  their  This  investors.  neither  in  p o l i c y i s extended to i t s  The  i s no  i s any  economic  government i n t e r v e n t i o n  outstanding  d i f f e r e n t i a t e between f o r e i g n  and  feature  local  concession given.  is  that  corpora-  special restriction  neighbouring Southeast Asian countries,  u n i q u e and  on  foreign  Compared this  to  policy  distinct.  (2) most a g r e e a b l e .  Foreign In  investors,  however, f i n d  t h e i r assessment of  i n Hong Kong, t h e y g i v e which are  an  little  Consequently, there  those of  and  of  Hong Kong has  foreign  investment, but  is  main f i n d i n g s  business a c t i v i t i e s .  treatment of it  findings  shall  Findings  (1)  private  c h a p t e r , we  CONCLUSION  implications.  The  policy  the  - SUMMARY AND  the  directly related  highest to  the  investment  scores  to  this policy conditions  those  factors  government's economic  policy  202  and  i t s policy  a policy  towards f o r e i g n  investment.  o f n o n - i n t e r v e n t i o n and  f o r e i g n and investors  local  This suggests  non-differentiation  c o r p o r a t i o n s w o u l d be v i e w e d  as a p o s i t i v e  incentive  by  that  between  foreign  r a t h e r than a negative  impediment.  (3) investment  There  interest  manufacturing,  i s i n t e n s i v e and  i n Hong Kong. W i t h  foreign  investors  i n a l l major economic s e c t o r s . enon, b u t t h i s between f o r e i g n  (4) in  one  sector,  has  t h e government o r l o c a l  exports are their  h e l p e d Hong Kong v e r y much i n i t s e f f o r t s i t s industries.  transferring it  level  They a r e an  growth.  firms  providing  approximately  to upgrade  important agent these  t h a t Hong Kong c o u l d have a t t a i n e d  of i n d u s t r i a l  comprises  investments  t e c h n o l o g y i n t o Hong Kong. W i t h o u t  i s unlikely  still  number o f m a n u f a c t u r i n g  t e n t i m e s as much. More s i g n i f i c a n t l y ,  diversify  conflicts  investors.  they p l a y i s  c o n t r i b u t i o n s i n terms o f domestic  phenom-  n o t have m a j o r i t y c o n t r o l  but the r o l e  percent of the t o t a l  employment and  positions  not g e n e r a t e d open  number o f f o r e i g n m a n u f a c t u r e r s  Hong Kong, b u t t h e i r  industrial  and  the o n l y e x c e p t i o n of  hold dominating  F o r e i g n i n v e s t o r s do  i m p o r t a n t . The  o n l y about in  investors  foreign  T h i s i s a g a i n an u n u s u a l  f o r e i g n domination  the manufacturing  very  now  diversified  have  and for investments,  i t s present  203  (5)  F o r e i g n manufacturers have come mostly  from  the U.S., Japan, Western Europe and A s i a n P a c i f i c c o u n t r i e s . The i n d u s t r i e s i n which they have i n v e s t e d most are e l e c t r o n i c s , t e x t i l e s , chemical products  and e l e c t r i c a l products. T h i s p a t t e r n  conforms w i t h the g l o b a l p a t t e r n i n which the i n v e s t o r c o r p o r a t i o n s are mostly and  from developed  the manufacturing  c o u n t r i e s o r nearby c o u n t r i e s  i n d u s t r i e s i n which they i n v e s t tend t o  be t e c h n o l o g i c a l l y more advanced.  (6)  The overwhelming m a j o r i t y o f f o r e i g n manufac-  t u r e r s are m a j o r i t y or f u l l y owned by the parent c o r p o r a t i o n s . There are c l o s e l i n k s i n management, p r o d u c t i o n and marketing e s t a b l i s h e d between these f o r e i g n manufacturers and t h e i r overseas  a f f i l i a t e s . These i n d i c a t e t h a t t h e i r o p e r a t i o n s are  i n t e g r a t e d and there i s a s t r o n g p r e f e r e n c e f o r u n d i v i d e d ownership and c o n t r o l t o f a c i l i t a t e the i n t e g r a t i o n .  (7)  F o r e i g n manufacturers on the whole appear t o  have a higher degree o f s o p h i s t i c a t i o n and d i v e r s i f i c a t i o n i n t h e i r p r o d u c t i o n and marketing o p e r a t i o n s than l o c a l manufact u r e r s . T h i s may be an i n d i c a t i o n as w e l l as a r e s u l t o f the f a c t t h a t they possess  c o m p e t i t i v e advantages over t h e i r  c o u n t e r p a r t s which i s an important  hypothesis  m o n o p o l i s t i c theory o f d i r e c t f o r e i g n  (8)  local  i n Hymer's  investment.  The high p r o p o r t i o n o f export s a l e s shows t h a t  204  foreign  investments  i n manufacturing  the export o r i e n t e d  t y p e and  i n Hong Kong a r e m o s t l y  are t h e r e f o r e ,  a i m e d more a t p r o t e c t i n g o r i m p r o v i n g position  a t home o r i n t e r n a t i o n a l l y  Kong m a r k e t . The manufacturers attracted its  other  suggest  to invest  liberal  mention  s p e c i f i c motives that  the i n v e s t o r ' s c o m p e t i t i v e  t h a n a t d e v e l o p i n g t h e Hong  mentioned  i n Hong Kong by  geographical d i v e r s i f i c a t i o n  product l i f e  foreign  cycle  diversification  motive.  the  foreign  or matching  and  by  also  c o m p e t i t i o n by provide  t h e o r i e s based  H i r s c h and W e l l s ) ,  Sarnat)  initially  number o f them  These r e p l i e s  investment  (Vernon,  (Levy and  by  i t s a b u n d a n t l a b o u r and  economic p o l i c y . A s i g n i f i c a n t  support to d i r e c t  a c c o r d i n g t o Reuber,"  t h e m a j o r i t y o f them were  f i r m s as t h e i n i t i a l  of  empirical  upon  the  portfolio  oligopolistic  reaction  (Knickerbocker).  (9) their  investment  Foreign manufacturers attitudes.  ment f a c t o r s m a i n l y these factors that  according  fits  immediately  and  of  directly  assessment,  agree  Hong Kong's g r e a t e s t a t t r a c t i o n  h e a v y e m p h a s i s t h e y p l a c e on  consider as'  the p r o d u c t i o n  squarely with Reuber s c h a r a c t e r i z a t i o n of  export oriented  invest-  o p e r a t i o n s . They s u b s t a n t i a l l y  i n the f a c t o r s which they themselves  most i m p o r t a n t . The factors  their  the importance  in  c o n d i t i o n s i n Hong Kong a r e f a v o u r a b l e ; b u t  to t h e i r  does not r e s t  a c c o r d i n g t o how  affect  investment  They r a t e  are very pragmatic  1  type of  investment.  the  205  (10)  Foreign  manufacturers a r e doing very  Hong Kong a n d many o f them have o b t a i n e d investments. This terized the  r e t u r n on i n v e s t m e n t  by Reuber a s t y p i c a l  short  believe  high  run.  that  Also,  a high  the majority  r e t u r n on t h e i r  i s again  o f export, o r i e n t e d of foreign  well i n  charac-  investments i n  manufacturers  t h e y made t h e r i g h t d e c i s i o n i n i n v e s t i n g i n Hong  Kong a n d t h a t  t h e b u s i n e s s e n v i r o n m e n t i n Hong Kong i n t h e l a s t  t e n y e a r s h a s n o t d e t e r i o r a t e d . A p p a r e n t l y , Hong Kong h a s b e e n able  t o m a i n t a i n i t s image a n d a t t r a c t i v e n e s s a s a m a n u f a c t u r i n g  base d e s p i t e recent  the rapidly r i s i n g  labour  A c o m p a r i s o n between U.S. a n d J a p a n e s e  i n v e s t m e n t c h a r a c t e r i s t i c s shows t h a t propositions  foreign  derived  corporations  hypothe-  f r o m t h e o r e t i c a l U.S.- a n d J a p a n e s e  invested  the i n d u s t r i e s i n which  Japanese  a r e d i f f e r e n t and a r e t e c h n o l o g i c a l l y  advanced, t h a t Japanese m a n u f a c t u r i n g o p e r a t i o n s  labour  i n t e n s i v e , t h a t Japanese firms  t e c h n o l o g y more o f t e n Japan a g r e a t e r the  four out o f f i v e  i n v e s t m e n t m o d e l s a r e s u p p o r t e d . T h e r e i s enough  evidence to i n d i c a t e that  less  costs i n  years.  (11)  tical  wages a n d l a n d  u s e u n a d a p t e d home c o u n t r y  and t h a t Japanese f i r m s  proportion  of their  a r e more  sales  e x p o r t back t o  t h a n U.S. f i r m s  do t o  U.S. T h u s , one c a n c o n c l u d e t h a t U.S. and J a p a n e s e m a n u f a c -  turing  investments overseas are a c t u a l l y underlain  economic f o r c e s  by d i f f e r e n t  a s h y p o t h e s i z e d by t h e o r e t i c a l m o d e l s .  206  (12) cannot  be  minority  The  supported  o n l y one  i s that  h o l d i n g s and  joint  manufacturers  abroad.  manufacturers  have o p t e d  Apparently, has  case o f  into  joint  than d i f f e r e n t  by  both Japanese  f o r majority or f u l l  i t has  Japanese  and  U.S.  ownership. and  control  overshadowed the b e n e f i t s  ventures with l o c a l  There  of  p a r t n e r s even i n the  and  are other s i m i l a r i t i e s Japanese  in their  c o n c e n t r a t i o n . On the degree  and  differences.  a r e more  i n the degree  the marketing  similar  i n Hong Kong, i n t h e  i n the type o f ownership  o f management c o n t r o l ,  and  and  of product  used,  are  c o n t r o l methods u s e d , activities  in  line  t h e o t h e r hand, n o t a b l e d i f f e r e n c e s  c h a n n e l s employed and  importance  manufacturers  investment motives  of export o r i e n t a t i o n ,  t h e method o f i n v e s t m e n t  in  which  Japan.  t h e w h o l e , U.S.  degree  v e n t u r e s b e i n g used  the p r e f e r e n c e f o r u n d i v i d e d ownership  (13) On  examined  there i s a higher incidence of  Empirically,  b e e n so s t r o n g t h a t  entering  of the hypotheses  found sales  performed.  Implications of Findings  This a comprehensive  thesis  represents a f i r s t  analysis of d i r e c t  foreign  manufacturing  sector  i n Hong Kong. The  h a v e been p u t  together to p r o v i d e a broad  attempt  to present  investments  available bits picture of  i n the and  the  pieces  207  investment pattern tional also  of the foreign manufacturers. Their  c h a r a c t e r i s t i c s as w e l l  been e x p l o r e d  to give  and  to t e s t the v a l i d i t y  The  findings  future  herein  research  and  economic  insights  of direct foreign  s h o u l d be u s e f u l  their  investment  forrelated  strategies  w h i c h he w o u l d  from t h e f i n d i n g s ,  like  would  like  between investors  t h e r e i s an i m p o r t a n t and a  t o make. The f o r m e r i s on h o s t  towards f o r e i g n  i n v e s t m e n t and t h e l a t t e r  and p r e d i c t i n g  foreign  t h e many t h e o r i e s  making o b j e c t i v e  behind  government  investment theories i n  investment c h a r a c t e r i s t i c s .  and p l a u s i b l e  economic f o r c e s  clarification  concerns the  H o s t Government P o l i c y Towards F o r e i g n  underlying  theories.  s t u d i e s and  of foreign  to discuss  usefulness of existing d i r e c t foreign  Despite  activities  development.  i s s u e which the w r i t e r  explaining  into  o n , f o r example, t h e i n t e r a c t i o n s  Arising  policy  a s t h e i r m o t i v e s a n d needs have  better  government p o l i c i e s , c o r p o r a t e  opera-  explanations of the  foreign  i s clearly decisive  Investment;  investments,  and u l t i m a t e .  the p r o f i t  Better  e x p l o i t a t i o n o f the advantages possessed, access t o f o r e i g n productive "resources, essentially  only  protection  d i f f e r e n t means t o a c h i e v e t h i s g o a l .  u n l e s s a c o u n t r y has p r o f i t investors,  o f m a r k e t s f o r example a r e  opportunities  i t cannot expect the l a t t e r  Multinational  corporations  ( t h e common  Hence,  to offer to foreign  t o come and s t a y . 'global  b r a n d name' f o r  208  f o r e i g n i n s t i t u t i o n a l , i n v e s t o r s ) are business and  not f o r e i g n a i d  The  organizations  agencies.  reason why  so many f o r e i g n i n v e s t o r s have come  to Hong Kong i s p r e c i s e l y because of i t s p r o f i t o p p o r t u n i t i e s . With only a small l o c a l market and no m i n e r a l r e s o u r c e s ,  the  p r o f i t o p p o r t u n i t i e s which Hong Kong o f f e r s to f o r e i g n i n v e s t o r s come mainly from i t s : abundant and business  cheap labour, e s t a b l i s h e d  and government i n s t i t u t i o n s and a l i b e r a l  business  environment which g i v e s f o r e i g n i n v e s t o r s maximum freedom i n t h e i r o p e r a t i o n s . But with r a p i d l y r i s i n g labour wages and p r i c e s i n r e c e n t y e a r s , Hong Kong i s g r a d u a l l y l o s i n g , or  land may  even have a l r e a d y l o s t much of i t s c o s t advantage. T h i s means t h a t Hong Kong w i l l have to r e l y more on i t s two  remaining  a t t r a c t i o n s i f i t wants to keep or i n c r e a s e the present  l e v e l of  f o r e i g n investments which are so v i t a l to i t s economy. T h i s i s d e f i n i t e l y a j u s t i f i c a t i o n f o r c o n t i n u i n g the present p o l i c y of n o n - i n t e r v e n t i o n and n o n - d i f f e r e n t i a t i o n between f o r e i g n and local  corporations.  In t h i s r e s p e c t , Hong Kong perhaps p r o v i d e s a l e s s o n to be l e a r n e d f o r the l e s s developed c o u n t r i e s . In i n t e r n a t i o n a l business  l i t e r a t u r e , the most c o n t r o v e r s i a l s u b j e c t of debate  i n r e c e n t years has been the p o l i c y i s s u e , c e n t e r i n g around  the  i n t e r a c t i o n between m u l t i n a t i o n a l c o r p o r a t i o n s and n a t i o n a l governments - e s p e c i a l l y those of l e s s developed c o u n t r i e s . I t  209  is  a t t h e same t i m e  written. is  t h e s u b j e c t a b o u t w h i c h most h a s b e e n  B u t i n s p i t e o f t h e v a s t volume o f work, t h e i s s u e  1  f a r from b e i n g  discrepancy  resolved. Instead,  there i s s t i l l  a wide  o f o p i n i o n and a c o n f u s i o n o f a t t i t u d e s ,  observations,  2 theories  and p o l i t i c a l  The  positions.  c o n t r o v e r s y , however, a p p e a r s t o a r i s e  n o t so  much f r o m d i s a g r e e m e n t s a b o u t d a t a and methods o f a n a l y s i s a s from disagreements about fundamental v a l u e s one  side,  the "business  o f open c o m p e t i t i o n It  favours  conducive develop  pragmatists"  camp s t r e s s e s t h e v i r t u e s  and b e n e f i t s o f i n c r e a s e d e c o n o m i c  a f r e e e n t e r p r i s e and l i b e r a l to f o r e i g n investments  natural resources,  factors,  and o b j e c t i v e s . On  widen t h e l o c a l  business  system  which can channel  improve u t i l i z a t i o n  industrial  i n capital,  of productive  b a s e and g e n e r a t e  employment. A t t h e o p p o s i t e e n d , t h e " n a t i o n a l i s t s " sizes  of conflicting  the host  country.  camp empha-  from b e i n g capital  controlled  outflows, the l o c a l  i n t e r e s t s between f o r e i g n i n v e s t o r s and  I t advocates  f o r e i g n investments  render  income and  t h e i m p o r t a n c e o f e c o n o m i c s o v e r e i g n t y and t h e a d v e r s e  effects  on  activities.  placing directives  so a s t o p r e v e n t  and r e s t r i c t i o n s  the country's  by f o r e i g n e r s w h i c h i n t u r n may  weaken t h e c o u n t r y ' s  balance  government's economic p o l i c i e s  hamper t h e d e v e l o p m e n t o f l o c a l  Hong Kong s e r v e s  economy induce  o f payment  position,  i n e f f e c t i v e and  industries.  as a case  i n support  o f the former  210  camp. I t has  shown t o t h e w o r l d  b e n e f i t b o t h p a r t i e s as w e l l two. its of  Despite  economic g o a l s  allowing  and  employment. T h i s  host  in conflicts  c o u n t r y ' s economic  Equally the  t o a c h i e v e a whole  clearly  concessions.  important,  fact,  that  to e x e r c i s e  does n o t  their  necessarily  i n v e s t m e n t i n t e r e s t and  as  artificial  investment  competition  among t h e  e x p e n s e and  s o l e l y to the  Hong Kong has  the  demonstrated  t h a t a c o u n t r y need n o t  a t t r a c t i v e , nor  In  range  objectives.  l e s s developed countries  a b u n d a n t t o be  in  price  indicates  management s o v e r e i g n t y between t h e i r  the  foreign investors  maximum f r e e d o m t o f o r e i g n i n v e s t o r s  o w n e r s h i p r i g h t s and result  been a b l e  by  - r a p i d growth, i n d u s t r i a l i z a t i o n ,  full  can  as m a i n t a i n harmony between  a dominating p o s i t i o n held  economy, Hong Kong has  stability  that a pragmatic approach  i s i t necessary  a r g u e d by  incentives  to r e l y  Kohlhagen, the  can  only  lead  l e s s developed countries  be  to  to resource  upon  o f f e r of unnecessary  at their  own 3  advantage of  Some p e o p l e may is  too  phical  unique a h i s t o r i c a l  argue t h a t accident  foreign  the  t o be  s e t t i n g , i t s cosmopolitan heritage  political  (or l a c k o f  a political)  status  combination which cannot again  be  may  s e t - u p and  be  policy  true, are  the  institutional  features  which are  investors.  example o f relevant. and  Its  geogra-  i t s peculiar  f o r m an a t t r a c t i v e  reproduced. Yet,  definitely  Hong Kong  the not  while  liberal  this  economic  accidental  and  211  are  what f o r e i g n i n v e s t o r s  Kong. F u r t h e r m o r e , t h e controls','corporate are  consider  constituent  taxes'  and  and  natural  d e p e n d e n c e on  inevitable. one.  resources.  regulations'  Perhaps i t s present  v i a b l e and  still  desirable  u n w i s e and  ideologies,  religious beliefs,  the whole, the  support  to the  theories explain  and  need a few  believes  ethnic  that  and  or  countries.  let political national  Investment  Theories:  have e x a m i n e d . T h u s , in their  provided  these  ability  words o f  caution  and  to  starting point  needs o f  mostly,  i f not  without  incorporating  the  of  nearly  investor.  a l l existing  In o t h e r  e x c l u s i v e l y around the the  we  clarification.  theories  determinants of d i r e c t f o r e i g n investment i s the  m o t i v e s and  pride  policies.  f r o m Hong Kong has  useful  viable  this policy is  heritage  Direct Foreign  valid  only  l e s s developed  dictate their  t h e o r i e s w h i c h we  impossible  overseas markets i s  p o l i c y i s to i t the  evidence  city  p r e d i c t f o r e i g n i n v e s t m e n t c h a r a c t e r i s t i c s . But  The the  of  empirical  a p p e a r t o be  and  unfortunate i f they should  economic r e a l i t i e s  Usefulness  semi-autonomous  f o r other  I t w o u l d be  i n s t e a d of  and  exercise  Self sufficiency i s  foreign capital  However, t h e w r i t e r  equally  of  laws and  'exchange  f a c t o r s o v e r which a l l n a t i o n a l governments can  s t a t e w i t h no  i n Hong  e l e m e n t s s u c h as  'business  some c o n t r o l . Hong Kong i s a s m a l l  On  as most a p p e a l i n g  external  words, they  investment evolve  i n t e r n a l push f a c t o r s .  pull  f a c t o r s , these  But  theories  212  are g r o s s l y investment  inadequate  i n explaining  characteristics.  teristics  are not s o l e l y  investors  alone; instead,  The f a c t  determined  towards f o r e i g n  have a b s o l u t e f r e e d o m  i s that  foreign  investment  of the interactions  and needs and t h e h o s t  investment.  charac-  by t h e i n t e r e s t o f f o r e i g n  they a r e the r e s u l t s  between t h e i n v e s t o r s ' m o t i v e s policy  and p r e d i c t i n g  government's  Gone a r e t h e day when  investors  i n c h o o s i n g where t o go, what t o p r o d u c e ,  how t o make, o r e v e n when t o p u l l o u t .  One be  compatible  search  may a r g u e  t h e two s e t s o f f a c t o r s have t o  f o r an investment  f o r labour  t o t a k e p l a c e . F o r example, a  (the investment motive)  t o c r e a t e employment exploit  that  ( t h e government o b j e c t i v e )  a p r o d u c t i o n advantage  volatility  especially  developed  investor's primary o b j e c t i v e have m u l t i p l e range  from  fighting  and p o l i c i e s , foreign  m a k i n g , a c o u n t r y may  substitution  that  to export d i v e r s i f i c a t i o n ,  from  e c o n o m i c g r o w t h t o r e d u c i n g payment d e f i c i t s ,  recession  t o c h e c k i n g i n f l a t i o n o r from r a i s i n g  ment t o a v o i d i n g f o r e i g n e c o n o m i c d o m i n a t i o n . towards f o r e i g n  investment  will  Government  so a s t o a d a p t  themselves  from  employpolicies  v a r y a c c o r d i n g l y and f o r e i g n  i n v e s t o r s may a l s o have t o make c h a n g e s i n t h e i r plans  t o comprehend t h e  c o u n t r i e s . Whereas a  i s profit  technology.  and sometimes d i v e r g e n t e c o n o m i c o b j e c t i v e s  import  accelerating  and f a i l s  o f government o b j e c t i v e s  i n the l e s s  or a desire to  w i t h t h e need t o import  T h i s argument, however, i s t o o s t a t i c potential  may mesh w i t h a w i s h  s t r a t e g i e s and  t o t h e new r u l e s o f t h e game.  213  Hence, the investment c h a r a c t e r i s t i c s they d i s p l a y may  a c c u r a t e l y r e f l e c t t h e i r o r i g i n a l investment motives and  What t h i s means i s t h a t a theory  needs.  of d i r e c t f o r e i g n  investment which i s based e n t i r e l y on investment motives needs has  and  l i m i t e d power i n p r e d i c t i n g investment c h a r a c t e r i s t i c s .  S i m i l a r l y , u s i n g c h a r a c t e r i s t i c s to d e t e c t motives and be an e q u a l l y f u t i l e e x e r c i s e . We  have to i n c o r p o r a t e  government p o l i c y , or i n broader terms, the c o n s t r a i n t s i n t o the theory conclusions.  Right now,  before we  there s t i l l  T h i s i s e x a c t l y why unique. The  analyses  needs the  does not e x i s t a  theory  4  the case of Hong Kong i s so  i n the p r e v i o u s ^ c h a p t e r s  and  host  meaningful  have r e v e a l e d  s u r p r i s i n g r e s u l t s coming out o f the e m p i r i c a l f i n d i n g s . manufacturers  may  environmental  can draw any  which i n t e g r a t e s a l l the r e l e v a n t elements.  U.S.  i  not  ho  The  Japanese manufacturers a l l seem to  be  behaving j u s t as t h e o r e t i c a l models would p r e d i c t . There are  no  c o n t r a d i c t i o n s or even s i g n i f i c a n t d e v i a t i o n s from the hypothet i c a l p r o p o s i t i o n s . The  only f i n d i n g which appears to be  incon-  s i s t e n t w i t h a t h e o r e t i c a l p r o p o s i t i o n i s the high p r o p o r t i o n majority  holdings  by the Japanese manufacturers. But  apparent i n c o n s i s t e n c y o n l y serves argument. Despite put  to i l l u s t r a t e the  the v a r i o u s motives and  forward to e x p l a i n the frequent  this general  needs t h a t have been  use of j o i n t ventures by  Japanese i n v e s t o r s i n f o r e i g n c o u n t r i e s , the s t r o n g e s t one  is  of  214  probably because the  h o s t c o u n t r y government r e q u i r e s  Hong Kong where t h e r e i s no participation, foreign  the  characteristics  strict can  do,  displayed  from d i f f e r e n t c o u n t r i e s The  industries  the  degree of  be  very  the the  for majority  or  may  find  investors  fact that  t h e y may  export o r i e n t a t i o n , management c o n t r o l  the  t o be  pattern  and  motives.  they  sources,  the  very  have come  technology  material  what  investment  foreign  the  full  In o t h e r words, i f  have d i f f e r e n t i n v e s t m e n t  use, the  l i k e may  all  similar.  the  the  writer  fact that  Kong d o e s n o t elsewhere to  laboratory  a t h e o r y has necessarily explain  O n l y an  would l i k e  government's l a i s s e z f a i r e  for testing direct foreign  istics.  other  the  and  Kong's c a s e i s u n i q u e and  the  and  t h e n we  i n which they i n v e s t ,  because of  place  U.S.  l i m i t a t i o n s on  by  In c o n c l u s i o n , that  the  In  equity  r e s t r i c t i o n s and  i r r e s p e c t i v e of  o w n e r s h i p and  like  show a c l e a r p r e f e r e n c e  had  investors  much a l i k e  for local  u n d i v i d e d management c o n t r o l .  Hong Kong has foreign  Japanese i n v e s t o r s ,  investors,  o w n e r s h i p and  requirement  them.  and  found  integrated  emphasize  policy,  support i n the i t can  foreign  theory can.  We  Hong  I t p r o v i d e s an  investment t h e o r i e s .  mean t h a t predict  like.  to  However,  case of  reliably  investment b a d l y need  ideal  be  Hong used  characterone.  215  Notes  1.  Out o f t h e some t h r e e t h o u s a n d t i t l e s l i s t e d i n t h e i n t e r n a t i o n a l b u s i n e s s b i b l i o g r a p h y by B r o o k e , B l a c k and N e v i l l e ( B r o o k e , M.Z., B l a c k , M. and N e v i l l e , P., Intern a t i o n a l B u s i n e s s B i b l i o g r a p h y , M a c m i l l a n , London, 1977) more t h a n s e v e n h u n d r e d and f i f t y , o r a b o u t o n e - q u a r t e r , a r e c o n c e r n e d w i t h government-company r e l a t i o n s .  2.  A d i s c u s s i o n o f t h e i n t e r a c t i o n between t h e m u l t i n a t i o n a l c o r p o r a t i o n s and n a t i o n a l g o v e r n m e n t s i s b e y o n d t h e s c o p e o f t h i s s t u d y . See B a r n e t , R . J . and M u l l e r , R.E., G l o b a l Reach; The Power o f Multinational Corporations, Simon and S c h u s t e r , New York, 1974. B i e r s t e k e r , T.J., D i s t o r t i o n or Development?: Contending P e r s p e c t i v e on t h e M u l t i n a t i o n a l C o r p o r a t i o n , M.I.T. P r e s s , C a m b r i d g e , Mass., 1978. Boarman, P.M. and S c h o l l h a m m e r , H. ( e d s . ) , M u l t i n a t i o n a l C o r p o r a t i o n s and G o v e r n m e n t s : B u s i n e s s - G o v e r n m e n t R e l a t i o n s i n an I n t e r n a t i o n a l C o n t e x t , P r a e g e r , New York, 1975. C u r z o n , G., The M u l t i n a t i o n a l E n t e r p r i s e i n a H o s t i l e W o r l d , M a c m i l l a n , London, 1977. M u r r a y , R., M u l t i n a t i o n a l Companies and N a t i o n S t a t e s , B e r t r a n d R u s s e l Peace F o u n d a t i o n , Nottingham, 1975. S t e p h e n s o n , H., The Coming C l a s h : The Impact o f M u l t i n a t i o n a l C o r p o r a t i o n s on N a t i o n S t a t e s , S a t u r d a y Review P r e s s , New Y o r k , 1973. V e r n o n , R., S t o r m O v e r t h e M u l t i n a t i o n a l s , H a r v a r d U n i v e r s i t y P r e s s , C a m b r i d g e , Mass., 1977.  3.  K o h l h a g e n , S.W., " H o s t C o u n t r y P o l i c i e s and M N C s " The P a t t e r n of F o r e i g n Investment i n Southeast A s i a " , Columbia J o u r n a l of World B u s i n e s s, S p r i n g , 1977  4.  A work w h i c h has t a k e n an i n t e g r a t e d a p p r o a c h and comes c l o s e i n t h i s d i r e c t i o n i s t h e one by Y. T s u r u m i . ( T s u r u m i , Y., The J a p a n e s e a r e Coming: A M u l t i n a t i o n a l I n t e r a c t i o n o f F i r m s and P o l i t i c s , B a l l i n g e r P u b l i s h i n g Co., Cambridge, Mass., 1976.)  5.  I n a s t u d y on J a p a n e s e d i r e c t i n v e s t m e n t s i n S o u t h e a s t A s i a , Y o s h i h a r a a l s o notes t h a t t h e r e are fewer j o i n t v e n t u r e s i n I n d o n e s i a because t h e I n d o n e s i a n government does not r e q u i r e them. ( Y o s h i h a r a , K., J a p a n e s e D i r e c t I n v e s t m e n t i n S o u t h e a s t A s i a , O c c a t i o n a l P a p e r 18, I n s t i t u t e o f S o u t h e a s t A s i a n S t u d i e s , S i n g a p o r e , 1973.)  216  BIBLIOGRAPHY  Allen,  T.W., P o l i c i e s o f ASEAN C o u n t r i e s Towards D i r e c t F o r e i g n I n v e s t m e n t , S o u t h e a s t A s i a D e v e l o p m e n t A d v i s o r y Group o f t h e A s i a S o c i e t y , New Y o r k , 1973.  , D i r e c t Investment o f Japanese E n t e r p r i s e s i n Southeast A s i a : A S t u d y o f M o t i v a t i o n , C h a r a c t e r i s t i c s and A t t i t u d e s , Economic C o o p e r a t i o n Centre f o r the A s i a n P a c i f i c R e g i o n , Bangkok, 1973. A m e r i c a n Chamber o f Commerce i n Hong Kong, S u r v e y o f I n v e s t m e n t C o n d i t i o n s i n t h e A s i a n P a c i f i c R e g i o n , Hong Kong, February, 1975. Barnet,  R . J . and M u l l e r , R.E., G l o b a l R e a c h : The Power o f M u l t i n a t i o n a l C o r p o r a t i o n s , Simon and S c h u s t e r , New 1974.  York,  Behrman, J.N., T r a n s f e r o f M a n u f a c t u r i n g T e c h n o l o g y w i t h i n M u l t i n a t i o n a l E n t e r p r i s e s , B a l l i n g e r , C a m b r i d g e , Mass.,' 1976. Benoit,  E . , " A t t a c k on t h e M u l t i n a t i o n a l s " , C o l u m b i a o f W o r l d B u s i n e s s , November, 1972.  Journal  Boarman, P.M. and S c h o l l h a m m e r , H. ( e d s . ) , M u l t i n a t i o n a l C o r p o r a t i o n s arid Government: B u s i n e s s - G o v e r n m e n t R e l a t i o n s i n an I n t e r n a t i o n a l C o n t e x t , P r a e g e r , New Y o r k , 1975. Bos,  H.C., S a n d e r s , : M . and S e c c h i , C , Private Foreign i n D e v e l o p i n g C o u n t r i e s , R e i d e l P u b l i s h i n g Co., 1974.  B r o o k e , M.Z. and Remitters, H.L. , The E n t e r p r i s e : O r g a n i z a t i o n and 1970.  Strategy of Multinational F i n a n c e , Longman, L o n d o n ,  Brown, C C . (ed. ) , W o r l d B u s i n e s s : P r o m i s e s and M a c m i l l a n , New Y o r k , 1970. :  Business I n t e r n a t i o n a l Corporation, New Y o r k , 1978.  Investment Boston,  BI  Problems,  Country Ratings,  1978,  Cameron, V.S., P r i v a t e I n v e s t m e n t arid I n t e r n a t i o n a l T r a n s a c t i o n s i n A s i a arid S o u t h P a c i f i c C o u n t r i e s , Mathew B e n d e r , New York, 1974.  217  C a t e o r a , P.R., "The M u l t i n a t i o n a l E n t e r p r i s e MSU B u s i n e s s T o p i c s , S p r i n g , 1971.  and  Nationalism",  C a v e s , R.E., " I n t e r n a t i o n a l C o r p o r a t i o n : The I n d u s t r i a l E c o n o m i c s o f F o r e i g n Investment", Economica, February, 1971. , B e n e f i t s to Host C o u n t r i e s from F o r e i g n Investment, Harvard I n s t i t u t e o f Economic Research D i s c u s s i o n Paper No. 294, B o s t o n , 1973. C h e n g , : T . Y . , The Economy o f Hong Kong, 1977.  Hong Kong, F a r  C u r z o n , G. , The M u l t i n a t i o n a l E n t e r p r i s e M a c m i l l a n , London, 1977. 1  East  Publications,  in a Hostile  World,  D r y s d a l e , P. ( e d . ) , D i r e c t F o r e i g n I n v e s t m e n t i n A s i a and P a c i f i c , The A u s t r a l i a n N a t i o n a l U n i v e r s i t y P r e s s , Canberra, 1972.  the  /  D u n n i n g , J.H., E c o n o m i c A n a l y s i s and t h e A l l e n and Unwin, L o n d o n , 1974. G a b r i e l , P.P., "MNC's i n t h e Unavoiadable?" Harvard 1972.  Multinational  Enterprise,  T h i r d World: Is C o n f l i c t s B u s i n e s s Review, J u l y - A u g u s t ,  G a l b r a i t h , J . , "The D e f e n c e o f M u l t i n a t i o n a l B u s i n e s s Review, M a r c h - A p r i l , 1978.  Company",  Harvard  G a l l o w a y , J.R. and K a p o o r , A., " A s i a : P r o b l e m s and P r o s p e c t s f o r t h e MNC", Columbia J o u r n a l of World B u s i n e s s , November, 1971. G e i g e r , T. and G e i g e r , F.M., The D e v e l o p m e n t P r o g r e s s o f Hong Kong and S i n g a p o r e ( T a l e s Of Two C i t y S t a t e s ) , M a c m i l l a n , Hong Kong, 1976. G i l p i n , R., U.S. B o o k s , New  Power and t h e York, 1975.  Multinational  Corporation,  Basic  H a h l o , H.R., S m i t h , J.G. and W r i g h t , R.W. (eds.), Nationalism and t h e M u l t i n a t i o n a l E n t e r p r i s e : L e g a l , E c o n o m i c and M a n a g e r i a l A s p e c t s , Oceana P u b l i c a t i o n s I n c . , Dobbs F e r r y , N.Y., 1973. H i r s c h , S., L o c a t i o n o f I n d u s t r y and ness, Clarendon Press, Oxford,  International 1967.  Competitive-  218  Hong Kong Government., D e p a r t m e n t o f Commerce and I n d u s t r y (Department o f T r a d e , I n d u s t r y and C u s t o m s ) , O v e r s e a s I n v e s t m e n t i n Hong K o n g M a n u f a c t u r i n g I n d u s t r i e s : I n d u s t r i a l S u r v e y R e p o r t , Hong Kong, A u g u s t , 1975. Hong Kong Government, D e p a r t m e n t 197 3 C e n s u s o f I n d u s t r i a l  o f Census and S t a t i s t i c s , P r o d u c t i o n , Hong Kong, 1976.  H o p k i n s , K. (ed.) Hong Kong; The- I n d u s t r i a l U n i v e r s i t y P r e s s , London, 1971.  Colony, Oxford  H o s k i n s , W.R., "The LDC and t h e MNC: W i l l They D e v e l o p T o g e t h e r ? " , Columbia J o u r n a l o f World B u s i n e s s , September,1971. Hsia,  R. and Chau, L., I n d u s t r i a l i z a t i o n , Employment arid Income D i s t r i b u t i o n ; A C a s e S t u d y o f Hong Kong, Croom Helm, London, 1978.  Hughes, H. and You P.S., F o r e i g n I n v e s t m e n t arid I n d u s t r i a l i z a t i o n i n S i n g a p o r e , The U n i v e r s i t y o f W i s c o n s i n P r e s s , M a d i s o n , 1969. Hymer, S., The I n t e r n a t i o n a l O p e r a t i o n s o f N a t i o n a l F i r m s : A S t u d y o f D i r e c t F o r e i g n I n v e s t m e n t , The MIT P r e s s , C a m b r i d g e , Mass., 1976. 1  J o r g e n s o n , D.W. and N i s h i m i z u , M., "U.S. and J a p a n e s e E c o n o m i c Growth, 1952-1974: An I n t e r n a t i o n a l C o m p a r i s o n " , The E c o n o m i c J o u r n a l , Cambridge U n i v e r s i t y P r e s s , December, 1978. K a t a n o , H., Murakami, A. and Ikemoto, K. ( e d s . ) , J a p a n ' s D i r e c t I n v e s t m e n t s t o ASEAN C o u n t r i e s , R e s e a r c h I n s t i t u t e f o r E c o n o m i c s and B u s i n e s s A d m i n i s t r a t i o n , Kobe U n i v e r s i t y , Kobe, 1978. K i n d l e b e r g e r , C P . , A m e r i c a n B u s i n e s s A b r o a d : S i x L e c t u r e s on D i r e c t I n v e s t m e n t , Y a l e U n i v e r s i t y P r e s s , New Haven, 1969. ( e d . ) , The I n t e r n a t i o n a l C o r p o r a t i o n : A Symposium, MIT P r e s s , C a m b r i d g e , Mass., 1970.  The  K o h l h a g e n , S.W., "The C h a r a c t e r i s t i c s , M o t i v a t i o n and E f f e c t o f J a p a n e s e and U n i t e d S t a t e s D i r e c t I n v e s t m e n t s i n t h e P a c i f i c B a s i n " , E x p l o r a t i o n s i n E c o n o m i c R e s e a r c h , V o l . 2, No. 4, 1976. , " H o s t C o u n t r y P o l i c i e s and MNC's: The P a t t e r n o f F o r e i g n Investment i n Southeast A s i a " , Columbia J o u r n a l o f World B u s i n e s s , S p r i n g , 1977.  2.1.9  K o j i m a , K., " T r a n s f e r o f T e c h n o l o g y t o D e v e l o p i n g C o u n t r i e s : J a p a n e s e Type v e r s u s A m e r i c a n T y p e " , H i t o t s u b a s h i J o u r n a l of Economics, February, 1977. , D i r e c t F o r e i g n Investment: A Japanese Model o f M u l t i n a t i o n a l B u s i n e s s O p e r a t i o n s , Croom Helm, L o n d o n , 1978. 1  Lai,  Lall,  D., A p p r a i s i n g F o r e i g n I n v e s t m e n t i n D e v e l o p i n g Heinemann, London, 197 5. 1  S., " L e s s D e v e l o p e d C o u n t r i e s and P r i v a t e F o r e i g n I n v e s t ment: A Review A r t i c l e " , W o r l d D e v e l o p m e n t , A p r i l - May 1974. , F o r e i g n i n v e s t m e n t , T r a n s n a t i o n a l s and C o u n t r i e s , M a c m i l l a n , L o n d o n , 197 7  Lee,  Countries,  Developing  C.H., " U n i t e d S t a t e s and J a p a n e s e D i r e c t I n v e s t m e n t i n Korea: A Comparative Study", H i t o t s h i b a s h i J o u r n a l of Economics, February, 1977.  L e v y , H. and S a r n a t , M., " I n t e r n a t i o n a l D i v e r s i f i c a t i o n and Investment P o r t f o l i o s " , American Economic Review, September, 1970. Mason, R.H., " C o n f l i c t s Between H o s t C o u n t r i e s and t h e M u l t i n a t i o n a l E n t e r p r i s e " , C a l i f o r n i a Review, F a l l , 1974. Miller,  R.R. and W e i g e l , D.R., "The M o t i v a t i o n f o r F o r e i g n D i r e c t Investment", J o u r n a l of I n t e r n a t i o n a l Business Studies, F a l l , 1972.  M u r r a y , R., M u l t i n a t i o n a l Companies and N a t i o n S t a t e s , R u s s e l Peace F o u n d a t i o n , Nottingham, 1975.  Bertrand  Ozawa, T., M u l t i n a t i o n a l i s m , J a p a n e s e S t y l e : The P o l i t i c a l Economy o f Outward Dependency , P r i n c e t o n U n i v e r s i t y P r e s s , P r i n c e t o n , N.J., 1979. P e r l m u t t e r , H.V., "The T o r t u o u s E v o l u t i o n o f t h e M u l t i n a t i o n a l C o r p o r a t i o n " , Columbia J o u r n a l of World B u s i n e s s , J a n u a r y - F e b r u a r y , 196 9. R a g a z z i , G., " T h e o r i e s Of t h e D e t e r m i n a n t s o f D i r e c t F o r e i g n I n v e s t m e n t " , I n t e r n a t i o n a l M o n e t a r y Fund S t a f f P a p e r s , July, 1973. 1  R e u b e r , G.L., C r o o k e l , H., Emerson, M. and G a l l a i s - H a m m o n n o , P r i v a t e F o r e i g n Investment i n Development, C l a r e n d o n Press, Oxford, 1973.  G.,  2*20  Roemer, J . E . , U.S.Japanese Competition i n I n t e r n a t i o n a l Markets: A Study o f t h e Trade-Investment C y c l e i n Modern C a p i t a l i s m , I n s t i t u t e o f I n t e r n a t i o n a l S t u d i e s , University of C a l i f o r n i a , Berkeley, 1975. Rugman, A.L., International national Enterprise, 1979.  D i v e r s i f i c a t i o n arid t h e M u l t 1L e x i n g t o n Books, L e x i n g t o n , Mass., :  Sandhu, K.S. and T a n g , P.T. ( e d s . ) , J a p a n as an E c o n o m i c Power and i t s I m p l i c a t i o n s f o r S o u t h e a s t A s i a , I n s t i t u t e of Southeast Asian Studies, Singapore U n i v e r s i t y Press, Singapore, 1974. S h e r k , D.R., " F o r e i g n I n v e s t m e n t i n A s i a : J a p a n vs t h e U.S.", Columbia J o u r n a l of World B u s i n e s s, F a l l , 1974. S i d d a y a o , CM., ASEAN and t h e M u l t i n a t i o n a l I n s t i t u t e of Southeast Asian Studies,  Corporations, Singapore, 1978.  S t e p h e n s o n , H., The Coming C l a s h : The Impact o f M u l t i n a t i o n a l C o r p o r a t i o n s on t h e N a t i o n S t a t e , S a t u r d a y Review P r e s s , New Y o r k , 1973. S t o b a u g h J r . , R.B., "How to Analyse F o r e i g n Investment C l i m a t e s " , H a r v a r d B u s i n e s s Review, September - O c t o b e r , 1969. S z c z e p a h i k , E . , The E c o n o m i c Growth o f Hong Kong, U n i v e r s i t y P r e s s , London, 1958.  Oxford  T s u r u m i , Y., The J a p a n e s e a r e Coming: A M u l t i n a t i o n a l I n t e r a c t i o n o f F i r m s and P o l i t i c s , B a l l i n g e r P u b l i s h i n g Company, C a m b r i d g e , Mass., 1976. United  Nations, Multinational New Y o r k , 1973.  Corporations  i n World  Development,  V e r n o n , R., " I n t e r n a t i o n a l I n v e s t m e n t and I n t e r n a t i o n a l T r a d e i n the Product C y c l e " , Q u a r t e r l y J o u r n a l of Economics, February, 1967. ,  "The E c o n o m i c C o n s e q u e n c e o f U.S. F o r e i g n D i r e c t I n v e s t ment", U n i t e d S t a t e s I n t e r n a t i o n a l E c o n o m i c P o l i c y i n an I n t e r d e p e n d e n t W o r l d , P a p e r s 1, W a s h i n g t o n , D.C., 1971.  , S o v e r e i g n t y a t Bay: The M u l t i n a t i o n a l S p r e a d o f E n t e r p r i s e s , B a s i c Books, New Y o r k , 1971. ;  , Storm Over the M u l t i n a t i o n a l s , C a m b r i d g e , Mass., 1977.  Harvard U n i v e r s i t y  U.S.  Press,  W e l l s J r . , L.T., The P r o d u c t L i f e C y c l e and I n t e r n a t i o n a l Trade, Harvard Business School, D i v i s i o n o f Research, B o s t o n , 1972. Yang, C.Y., "Management S t y l e s : A m e r i c a n v i s - a - v i s J a p a n e s e " , C o l u m b i a J o u r n a l - o f W o r l d B u s i n e s s , F a l l , 1977. Y o s h i h a r a , K., J a p a n e s e I n v e s t m e n t U n i v e r s i t y Press o f Hawaii,  i n Southeast A s i a , H o n o l u l u , 1978.  Y o s h i n a , M.Y., J a p a n e s e M u l t i n a t i o n a l E n t e r p r i s e s , U n i v e r s i t y P r e s s , C a m b r i d g e , Mass., 1976.  The  Harvard  APPENDIX I  QUESTIONNAIRE ON FOREIGN IN HONG KONG  MANUFACTURERS  223  T h i s q u e s t i o n n a i r e c o n t a i n s 50 q u e s t i o n s and i s d i v i d e d i n t o three parts: (I) O w n e r s h i p and c o n t r o l ( q u e s t i o n s 1 t o 1 5 ) , (II) P r o d u c t i o n and m a r k e t i n g ( q u e s t i o n s 16 t o 40) and (III) I n v e s t m e n t c h a r a c t e r i s t i c s and a s s e s s m e n t o f i n v e s t m e n t c o n d i t i o n s i n Hong Kong, ( q u e s t i o n s 41 t o 50) . P l e a s e answer o r mark w i t h an 'X' t h e c o r r e c t answer i n t h e space provided.  The t y p e o f o w n e r s h i p o f t h e company i s (a) sole proprietorship (b) partnership (c) p r i v a t e l i m i t e d l i a b i l i t y company (d) p u b l i c l i m i t e d l i a b i l i t y company (e) others (please specify)  2.  The y e a r o f e s t a b l i s h m e n t o f t h e company was The amount o f p a i d - u p c a p i t a l a t t i m e o f e s t a b l i s h m e n t was ( p l e a s e g i v e f i g u r e i n a p p r o x i m a t e HK$'000) $  3.  The y e a r i n w h i c h f o r e i g n e r s s h a r e d i n t h e e q u i t i e s o f t h e company was ( T h i s may be t h e same as t h e y e a r of establishment.)  4.  5.  The p e r c e n t a g e s h a r e o f p a i d - u p c a p i t a l i n t h a t y e a r was (a) o v e r 95% . (b) 76 - 95% (c) 51 - 75% (d) e x a c t l y 50% (e) 26 - 49% (f) 5 - 25% (g) l e s s t h a n 5%  held  by  foreigners  How d i d f o r e i g n e r s p a r t i c i p a t e i n t h e e q u i t i e s o f t h e company? (a) The company was o r i g i n a l l y e s t a b l i s h e d w i t h f o r e i g n ownership i n t e r e s t (b) The company was p r e v i o u s l y a l o c a l company and s o l d a l l i t s ownership i n t e r e s t to f o r e i g n e r s (c) The company was p r e v i o u s l y a l o c a l company and s o l d p a r t o f i t s ownership i n t e r e s t to f o r e i g n e r s (d) The company was p r e v i o u s l y a l o c a l company and enlarged i t sc a p i t a l to take i n f o r e i g n ownership i n t e r e s t  224  The amount o f p a i d - u p c a p i t a l o f t h e company a t t h e end o f 1978 was ( p l e a s e g i v e f i g u r e i n a p p r o x i m a t e HK $'0 0 0) $ The p e r c e n t a g e s h a r e o f p a i d - u p a t t h e end o f 1978 was (a) o v e r 95% (b) 76-95% (c) 51 - 75% (d) e x a c t l y 50% (e) 26 - 49% (f) 5-25% (g) l e s s t h a n 5% The  nationality  c a p i t a l h e l d by  o f f o r e i g n ownership  foreigners  .  interest  is/are  D i s r e g a r d i n g the percentage share o f f o r e i g n ownership i n t e r e s t , do y o u c o n s i d e r t h e company a s b a s i c a l l y a j o i n t venture? (a) No, n o t a j o i n t v e n t u r e (b) Yes, a j o i n t venture with l o c a l p r i v a t e interest (c) Yes, a j o i n t venture w i t h the l o c a l government (d) Y e s , a j o i n t v e n t u r e w i t h more t h a n one f o r e i g n c o u n t r y s o u r c e o f i n v e s t m e n t (a f o r e i g n e r s j o i n t venture) 1  I s t h e company a f f i l i a t e d w i t h , by o w n e r s h i p , company(ies) i n f o r e i g n c o u n t r i e s ? (a) Yes (b) No  some o t h e r  I f y o u r answer t o q u e s t i o n (10) i s ' y e s ' , what i s t h e nature o f t h a t a f f i l i a t e d company(ies)? ( p l e a s e mark a l l that apply) (a) The p a r e n t company (b) S u b s i d i a r y company(ies) • (c) S i s t e r company(ies) o f equal s t a t u s ' ( F o r c o m p a n i e s w i t h a p a r e n t company o v e r s e a s ; o n l y ) A r e a l l o r most a p p o i n t m e n t s a t management l e v e l r e q u i r e a p p r o v a l by t h e p a r e n t company? (a) Yes (b) No  225  13.  ( F o r c o m p a n i e s w i t h a p a r e n t company o v e r s e a s o n l y ) I s t h e p r e s e n t c h i e f e x e c u t i v e ( p r e s i d e n t , managing d i r e c t o r o r g e n e r a l manager who makes t h e f i n a l d e c i s i o n i n t h e company) an o u t - p o s t e d e x e c u t i v e o f t h e p a r e n t company? (a) Yes (b) No  14.  The n a t i o n a l i t y (a) local (b) foreign  15.  The a p p r o x i m a t e p e r c e n t a g e o f e x e c u t i v e s employed by t h e company a t management o r s u p e r v i s o r y l e v e l s b e i n g f o r e i g n expatriates i s  16.  The t y p e o f m a n u f a c t u r i n g i n d u s t r y t o w h i c h t h e company belongs i s (a) b u i l d i n g and c o n s t r u c t i o n m a t e r i a l s (b) chemical products (c) e l e c t r i c a l p r o d u c t s and a p p l i a n c e s ' (d) electronics (e) f o o d and b e v e r a g e s (f) metal products (excluding toys) (g) m e t a l r o l l i n g , e x t r u s i o n and f a b r i c a t i o n (h) p r i n t i n g and p u b l i s h i n g (i) textiles (j) toys (k) w a t c h e s , c l o c k s and a c c e s s o r i e s (1) others (please specify)  17.  The p r o d u c t i o n o p e r a t i o n s p e r f o r m e d by t h e company i n c l u d e ( p l e a s e mark a l l t h a t a p p l y ) (a) the complete process o f manufacturing (b) assembly (c) product design (d) q u a l i t y t e s t i n g and c o n t r o l (e) p r o d u c t i o n r e s e a r c h and d e v e l o p m e n t ' (f) p a c k a g i n g and p a c k a g e d e s i g n (g) others (please specify)  18.  How many l i n e s o f p r o d u c t s (a) One (b) Two t o f i v e (c) More t h a n f i v e  of the c h i e f  executive i s  d o e s t h e company  produce? _ —  226  19.  I f t h e company p r o d u c e s more t h a n one l i n e s o f p r o d u c t s , t h e p e r c e n t a g e s h a r e o f t h e most i m p o r t a n t p r o d u c t l i n e i n terms o f o u t p u t i s (a) o v e r 80% . (b) 61 - 80% _ _ _ (c) 41 - 60% (d) 21 - 40% _ _ _ (e) 20% o r l e s s  20.  The p r o d u c t s p r o d u c e d by t h e company a r e ( p l e a s e mark a l l that apply) (a) consumer p r o d u c t s r e a d y f o r u s e by f i n a l consumers (b) i n d u s t r i a l p r o d u c t s ( i n c l u d i n g component p a r t s ) f o r i n d u s t r i a l buyers (c) semi-finished products '  21.  Are t h e company s products (a) made a c c o r d i n g t o b u y e r s ' specification ( o r d e r made) (b) made f r o m t h e company's own d e s i g n s ( s t a n d a r d made) (c) p a r t l y o r d e r made a n d p a r t l y s t a n d a r d made  22.  A r e any o f t h e company's p r o d u c t s b e i n g p r o d u c e d u n d e r l i c e n s i n g a g r e e m e n t ( s ) w i t h a n o t h e r company o v e r s e a s ? (a) Yes (b) No  23.  I f y o u r answer t o q u e s t i o n (22) i s ' y e s ' , what i s t h e n a t u r e o f t h i s o v e r s e a s company? (a) The p a r e n t company (b) A s u b s i d i a r y company (c) A s i s t e r company (d) An u n a f f i l i a t e d company  24.  The s o u r c e s o f t h e company's c a p i t a l supplies are (a) a l l local (b) mainly l o c a l (c) mainly foreign (d) a l l foreign  25.  1  equipment and machinery  '  I f t h e company h a s f o r e i g n c a p i t a l e q u i p m e n t and m a c h i n e r y s u p p l i e s , t h e . t h r e e most i m p o r t a n t c o u n t r y s o u r c e s i n d e s c e n d i n g o r d e r a r e ( p l e a s e name t h e c o u n t r y ( i e s ) ) And t h e p e r c e n t a g e s h a r e o f s u c h c a p i t a l e q u i p m e n t a n d machinery s u p p l i e s coming from a f f i l i a t e d companies ( t h e p a r e n t company, s u b s i d i a r y company o r s i s t e r company) is %.  227  ~ 26.  27.  The s o u r c e s o f t h e company's raw ( i n c l u d i n g component p a r t s ) a r e (a) a l l local (b) mainly l o c a l (C) mainly foreign (d) a l l foreign  material  supplies  I f t h e company has f o r e i g n raw m a t e r i a l s u p p l i e s , t h e t h r e e most i m p o r t a n t c o u n t r y s o u r c e s i n d e s c e n d i n g o r d e r a r e ( p l e a s e name t h e c o u n t r y ( i e s ) )  And t h e p e r c e n t a g e s h a r e o f s u c h raw m a t e r i a l coming f r o m a f f i l i a t e d c o m p a n i e s ( t h e p a r e n t , o r s i s t e r companies) i s %.  supplies subsidiary  28.  The number o f w o r k e r s employed by t h e company i n m a n u f a c t u r i n g o p e r a t i o n s d i r e c t l y (mannual w o r k e r s , f o r e m e n included) i s . T o t a l wage payments t o t h e s e w o r k e r s amount t o $ p e r month ( p l e a s e g i v e a p p r o x i m a t e figure).  29.  The number o f e x e c u t i v e s and o f f i c e e m p l o y e e s (managers i n c l u d e d ) employed by t h e company i s T o t a l s a l a r y payments t o t h e s e employees amount t o $ p e r month ( p l e a s e g i v e a p p r o x i m a t e figures).  30.  The a p p r o x i m a t e p e r c e n t a g e s o f mannual w o r k e r s i n t h e company b e i n g s k i l l e d , s e m i - s k i l l e d and u n s k i l l e d a r e (a) Skilled (b) Semi-skilled (c) Unskilled  31.  Has t h e company had s u b c o n t r a c t e d work t o o t h e r f i r m s i n the past f i v e years? (a) Yes (b) No  32.  I f y o u r answer t o q u e s t i o n (31) i s ' y e s ' , t h e m a i n r e a s o n ( s ) f o r s u b c o n t r a c t i o n i s / a r e ( p l e a s e mark a l l t h a t apply) (a) The company c o u l d n o t h a n d l e t h e s i z e o f t h e b u y e r s ' orders (b) The company c o u l d n o t h a n d l e some s p e c i f i c o r d e r requirements (e.g., design) (c) I t was more p r o f i t a b l e t o s u b c o n t r a c t (d) O t h e r s (-please d e s c r i b e b r i e f l y )  228  How many p r o d u c t i o n s t o p p a g e s ( p e r i o d s o f t h r e e w o r k i n g d a y s o r more w i t h no p r o d u c t i o n o p e r a t i o n s ) t h e company has h a d i n t h e p a s t f i v e y e a r s ? (a) 0 • _ _ (b) 1 to 3 (C) 4 to 6 (d) 7 to 9 (f) 10 o r more :  I f t h e company has had p r o d u c t i o n s t o p p a g e s i n t h e p a s t f i v e y e a r s , t h e c a u s e ( s ) was/were ( p l e a s e mark a l l t h a t apply) (a) l a b o u r d i s p u t e s (on wages, t e r m s o f employment, h o u r s o f work a n d w o r k i n g c o n d i t i o n s e t c . ) ' (b) m a c h i n e breakdowns (c) industrial accidents (d) i n s u f f i c i e n t work o r d e r s (e) others (please describe b r i e f l y )  The company's s a l e s i n t h e y e a r 1978 was f i g u r e i n a p p r o x i m a t e HK$'000) $  (please give .  E x p o r t s a l e s a s a p e r c e n t a g e o f t h e company's t o t a l i n 1978 was ' % approximately.  sales  The t h r e e most i m p o r t a n t f o r e i g n c o u n t r y m a r k e t s and t h e i r a p p r o x i m a t e p e r c e n t a g e s h a r e s o f t h e company's t o t a l s a l e s ( l o c a l and e x p o r t s a l e s ) i n 1978 were Country % Share (a) (b) (c) The a p p r o x i m a t e p e r c e n t a g e s h a r e s o f e x p o r t s a l e s ( e x c l u d i n g l o c a l s a l e s ) t o o v e r s e a s a f f i l i a t e d companies (the p a r e n t , s u b s i d i a r y o r s i s t e r c o m p a n i e s ) i n 1978 was _ %.  229  39.  The a p p r o x i m a t e p e r c e n t a g e s h a r e s o f t h e t h r e e most i m p o r t a n t c u s t o m e r o f t h e company ( l o c a l a n d f o r e i g n ) i n 1978 were (a) Most i m p o r t a n t (b) S e c o n d most i m p o r t a n t (c) T h i r d most i m p o r t a n t  % % %  40.  The m a r k e t i n g a c t i v i t i e s p e r f o r m e d by t h e company i n c l u d e ( p l e a s e mark a l l t h a t a p p l y ) (a) market and consumers r e s e a r c h (b) advertising (c) d i s t r i b u t i o n and w h o l e s a l i n g (d) retailing (e) export s a l e s promotion ' (f) after sales servising (g) others (please specify)  41.  The f o l l o w i n g i s a l i s t o f p o s s i b l e r e a s o n s f o r i n t e r n a t i o n a l c o r p o r a t i o n s t o manufacture i n a f o r e i g n country. Please mark a l l t h o s e w h i c h i n i t i a l l y i n d u c e d t h e company t o m a n u f a c t u r e i n Hong Kong. (a) To m a n u f a c t u r e a t o r n e a r s o u r c e s o f raw material supplies (b) To make u s e o f l o c a l l a b o u r (c) To make u s e o f l o c a l p r o d u c t i o n s k i l l a n d technology (d) To make u s e o f l o c a l c a p i t a l (e) To t a k e a d v a n t a g e o f l o w e r l o c a l t a x e s (f) To t a k e a d v a n t a g e o f t h e c o n c e s s i o n s g r a n t e d by t h e l o c a l g o v e r n m e n t t o f o r e i g n c o m p a n i e s (e.g., t a x h o l i d a y s , cheaper l a n d s i t e s , t a r i f f protection) (g) To e l i m i n a t e o r r e d u c e t h e c o s t o f t r a n s p o r t a t i o n i n s e l l i n g t o t h e l o c a l m a r k e t and i t s neighbouring markets (h) To make t h e company's p r o d u c t s more a c c e p t a b l e by l o c a l c u s t o m e r s (i) To g e o g r a p h i c a l l y d i v e r s i f y t h e company's operations (j) To g e t o v e r i m p o r t restrictions (k) To m a t c h c o m p e t i t i o n by l o c a l f i r m s o r o t h e r foreign firms (1) To e n s u r e s u p p l i e s o f m a t e r i a l s e s s e n t i a l t o t h e company;s o p e r a t i o n s a t home ( c o u n t r y i n w h i c h t h e h e a d q u a r t e r company i s l o c a t e d ) (m) The company h a s a l r e a d y r e a c h e d i t s l i m i t o f e x p a n s i o n a t home  (Cont.) (h) The company i s b e i n g i n v i t e d by t h e l o c a l government (o) The company c a n b e t t e r meet l o c a l p r o d u c t s t a n d a r d s by m a n u f a c t u r i n g t h e r e i n (p) Others (please d e s c r i b e b r i e f l y )  The f o l l o w i n g i s a l i s t o f f a c t o r s w h i c h a f f e c t b u s i n e s s v i a b i l i t y and p r o f i t a b i l i ( B r i e f e x p l a n a t i o n s o f t h e s e f a c t o r s a r e g i v e n i n t h e Annex.) P l e a s e i n d i c a t e w i t h an 'X' t h e d e g r e e o f i m p o r t a n c e o f t h e s e f a c t o r s t o t h e company's o p e r a t i o n s . Factors (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (1) (m) (n) (o) (p) (q) (r) (s) (t)  A v a i l a b i l i t y of managerial s k i l l B u s i n e s s laws and r e g u l a t i o n s Corporate taxes C o s t o f l a n d , o f f i c e and f a c t o r y - space Currency s t a b i l i t y Domestic economic s t a b i l i t y Education standard of population Exchange c o n t r o l s Financial maturity G e n e r a l a t t i t u d e towards f o r e i g n e r s and f o r e i g n companies Geographical l o c a t i o n Government's i n t e g r i t y and efficiency in administration Government p o l i c y t o w a r d s f o r e i g n investment L a b o u r s u p p l y , c o s t and p r o d Labour-management r e l a t i o n s h i p L o c a l market p o t e n t i a l Political stability Raw m a t e r i a l s u p p l i e s S o c i a l overhead f a c i l i t i e s T r a d e r e s t r i c t i o n s on i m p o r t s and e x p o r t s .  Vitally Important  Important  Not Important  Completely Irrelevant  ' ' . '  '  ______.. I ' • ' ... . . u c ......  t  "  ^^^^^ i v i  t  ______ _________ _______  ' y  ' ' ' .  _______ _  P l e a s e i n d i c a t e w i t h an 'X' t h e d e g r e e t o w h i c h t h e s e f a c t o r s a r e f a v o u r a b l e o r u n f a v o u r a b l e i n Hong Kong. The s c a l e r a n g e s f r o m -5 w h i c h r e p r e s e n t s t h e most u n f a v o u r a b l e r a t i n g t o +5 w h i c h r e p r e s e n t s t h e most f a v o u r a b l e r a t i n g . ( P l e a s e u s e y o u r s u b j e c t i v e judgment and do n o t b o t h e r w i t h n u m e r i c a l a c c u r a c y . )  Factor A v a i l a b i l i t y of managerial s k i l l B u s i n e s s laws and r e g u l a t i o n s Corporate taxes C o s t o f l a n d , o f f i c e and f a c t o r y s o a c e Currency s t a b i l i t y D o m e s t i c economic s t a b i l i t y Education standard of population Exchange c o n t r o l s Financial maturity G e n e r a l a t t i t u d e towards f o r e i g n e r s and f o r e i g n c o m p a n i e s Geographical location Government's i n t e g r i t y and e f f i c i e n c y in administration Government p o l i c y t o w a r d s f o r e i g n investment L a b o u r s u p p l y , c o s t and p r o d u c t i v i t y Labour-management r e l a t i o n s h i p L o c a l market p o t e n t i a l Political stability Raw m a t e r i a l s u p p l i e s S o c i a l overhead facilities T r a d e r e s t r i c t i o n s on i m p o r t s and e x p o r t s  -5  Unfavourable -4 -3 -2  -1  +1  +2  Favourable +3 +4 +5  233  44.  What i s t h e a p p r o x i m a t e a v e r a g e r a t e o f r e t u r n on i n v e s t ment ( p a i d - u p c a p i t a l ) i n t h e p a s t f i v e y e a r s o r s i n c e t h e company's e s t a b l i s h m e n t ? % (annual, a f t e r tax)  45.  Compared t o t h e company's o r i g i n a l rate (a) higher (b) lower (c) a b o u t t h e same  46.  Do you t h i n k t h i s r a t e i s h i g h the b u s i n e s s r i s k involved? (a) Yes (b) No  47.  I n r e t r o s p e c t , do you t h i n k t h a t t h e company made t h e r i g h t d e c i s i o n i n e s t a b l i s h i n g manufacturing operations i n Hong Kong? (a) D e f i n i t e l y yes . (b) P r o b a b l y yes (c) P r o b a b l y no (d) D e f i n i t e l y no (e) I t i s too e a r l y t o t e l l  48.  Do y o u t h i n k t h a t t h e b u s i n e s s , .environment f o r f o r e i g n i n v e s t o r s as a w h o l e i n Hong Kong has i m p r o v e d i n t h e past ten years? (a) Has i m p r o v e d (b) Has d e t e r i o r a t e d (c) Has r e m a i n e d a b o u t t h e same  49.  I f t h e company has t h e c h a n c e t o r e l o c a t e w o u l d i t have c h o s e n Hong Kong a g a i n ? (a) Yes (b) No  50.  I f y o u r answer t o q u e s t i o n (49) i s 'no', w h i c h o t h e r c o u n t r y ( i e s ) i n t h e r e g i o n t h e company w o u l d have c h o s e n ? ( P l e a s e name t h e country(ies))  Name o f  Company:  expectations,  is this  enough t o compensate  P o s i t i o n of  i n the  for  region,  Respondent:  P l e a s e i n d i c a t e whether o r not you are w i l l i n g to a c c e p t f o l l o w - u p i n t e r v i e w s i f s u c h a r e r e q u e s t e d : Yes ' ' No  234  Annex:  Exp l a r i a t i o n s  of  :  Investment  Factors  A v a i l a b i l i t y o f m a n a g e r i a l s k i l l : A v a i l a b i l i t y and q u a l i t y v a r i o u s t y p e s o f management and t e c h n i c a l s k i l l .  of  B u s i n e s s laws arid r e g u l a t i o n s : Q u a l i t y and d e g r e e o f e n f o r c e ment o f government laws and r e g u l a t i o n s r e l e v a n t t o b u s i n e s s s u c h as t h o s e c o n c e r n i n g r e g i s t r a t i o n , o w n e r s h i p , p a t e n t , f i n a n c i n g , p r i c i n g , employment, c o m p e n s a t i o n and r e p o r t i n g . C o r p o r a t e t a x e s : T y p e s o f t a x e s and business corporations. C o s t o f l a n d , o f f i c e and cost of land, o f f i c e operations.  tax  rates applicable  to  f a c t o r y space: Purchase or r e n t a l and f a c t o r y s p a c e u s e d f o r b u s i n e s s  Currency s t a b i l i t y : Extent of and r i s k o f d e v a l u a t i o n .  f l u c t u a t i o n s i n the  exchange  rate  D o m e s t i c e c o n o m i c s t a b i l i t y : V u l n e r a b i l i t y o f d o m e s t i c economy t o c y c l i c a l and e r r a t i c f l u c t u a t i o n s and f o r e i g n d e p r e s s i o n s ; d o m e s t i c p r i c e s t a b i l i t y and g r o w t h s t a b i l i t y . E d u c a t i o n standard of p o p u l a t i o n : Comprehension a b i l i t i e s p e o p l e , l i t e r a c y l e v e l and f o r e i g n l a n g u a g e ( E n g l i s h ) proficiency. E x c h a n g e c o n t r o l s : . R e s t r i c t i o n s on i n w a r d and r e m i t t a n c e s o f c a p i t a l and p r o f i t s . F i n a n c i a l m a t u r i t y : A v a i l a b i l i t y and i n s u r a n c e f a c i l i t i e s and c a p i t a l  q u a l i t y of markets.  of  outward banking  and  G e n e r a l a t t i t u d e t o w a r d s f o r e i g n e r s and f o r e i g n c o m p a n i e s : The c o l l e c t i v e p u b l i c f e e l i n g t o w a r d s f o r e i g n e r s and f o r e i g n c o m p a n i e s as e v i d e n c e d by o v e r t b e h a v i o u r . G e o g r a p h i c a l l o c a t i o n : L o c a t i o n i n r e g i o n and e a s e o f t o m a r k e t s and s o u r c e s o f m a t e r i a l s u p p l i e s .  access  Government's i n t e g r i t y and e f f i c i e n c y I n a d m i n i s t r a t i o n : A b i l i t i e s o f g o v e r n m e n t o f f i c i a l s , t h e i r work e f f i c i e n c y and e x t e n t o f b u r e a u c r a c y , c o r r u p t i o n , u n c e r t a i n t y o r c o n f u s i o n i n d e a l i n g s w i t h government.  235  Government p o l i c y t o w a r d s f o r e i g n i n v e s t m e n t : N a t u r e and e x t e n t o f o f f i c i a l i n c e n t i v e s and h e l p s g i v e n t o , o r r e s t r i c t i o n s on f o r e i g n owned o r c o n t r o l l e d c o m p a n i e s their operations.  and  L a b o u r s u p p l y , c o s t and p r o d u c t i v i t y : A v a i l a b i l i t y o f s k i l l e d and u n s k i l l e d l a b o u r ; t h e a b s o l u t e and r e l a t i v e wage l e v e l s and work e f f i c i e n c y o f i n d u s t r i a l w o r k e r s . Labour-management r e l a t i o n s h i p : E x t e n t and f r e q u e n c y o f l a b o u r management c o n f l i c t s , s t r i k e s and l a b o u r t u r n o v e r ; s t r e n g t h and a g g r e s s i v e n e s s o f u n i o n s . L o c a l market p o t e n t i a l : market.  Present  and  projected s i z e of  local  P o l i t i c a l s t a b i l i t y : Frequency o f changes i n the form o f government; v i o l e n c e o f coups; e x t e n t o f p o l i t i c a l s u b v e r s i o n and e f f e c t i v e n e s s o f i n t e r n a l s e c u r i t y . Raw  material supplies: materials. .  Availability  o r ease of access  to  raw  S o c i a l o v e r h e a d f a c i l i t i e s : A v a i l a b i l i t y and q u a l i t y o f commun i c a t i o n s e r v i c e s , t r a n s p o r t and w a r e h o u s i n g f a c i l i t i e s , h e a l t h and e d u c a t i o n , power and w a t e r s u p p l i e s e t c .  \  T r a d e r e s t r i c t i o n s on i m p o r t s and e x p o r t s : Number and c a t e g o r i e s o f c o m m o d i t i e s s u b j e c t t o i m p o r t t a r i f f s o r q u o t a s and e x p o r t d u t i e s and l e v e l o f d u t y r a t e s .  APPENDIX I I  STATISTICAL TESTS  237  Appendix  11-1.1:  R e s p o n s e r a t e by T y p e o f  Industry  Null hypothesis: (Hn)  The e f f e c t i v e r e s p o n s e by t y p e o f i n d u s t r y .  r a t e does not  Alternative hypothesis  The e f f e c t i v e of industry.  rate d i f f e r s  (Ha):  response  Number o f Population  Industry Electronics Textiles Metal products Watches, c l o c k s & accessories E l e c t r i c a l products . Chemical products Printing & publishing Food manufactures Metal r o l l i n g , extrusion & fabrication Toys Building & construction materials Others  square  =  by  type  R e j e c t (Hn) and a c c e p t (Ha) i f c h i s q u a r e i s g r e a t e r t h a n 19.675. ' ( L e v e l o f s i g n i f i c a n c e = 0 . 0 5 ; d e g r e e o f f r e e d o m = 11)  Criterion for decision:  Chi  differ  Firms  A c t u a l (A) E x p e c t e d (E) Responses Responses  (A-E)  o  VE  70 95 30  25 19 13  19.3 26.2 8.3  1.68 1.98 2.66  28  8  7.7  0.01  26 19 10 17  6 5 5 2  7.2 5.2 2.8 4.7  0.20 0.01 1.73 1. 55  5  2  1.4  0.26  11  2  3.0  0.33  5  1  1.4  0.26  75 391  20 108  20.7 108.0  0.02 10.69  10.69.  T h e r e f o r e , the e f f e c t i v e of industry.  response  r a t e does not d i f f e r  by  type  Note:  The p o p u l a t i o n f i g u r e s r e p r e s e n t t h e number o f f i r m s a t F e b r u a r y 28, 1979.  Sources:  T a b l e 71-2 and D e p a r t m e n t o f T r a d e , Customs, Hong Kong g o v e r n m e n t .  Industry  and  238  Appendix  I I - l . 2:  Response r a t e by Country  Source o f  Investment  Null hypothesis: (Hn)  The e f f e c t i v e r e s p o n s e r a t e d o e s n o t by c o u n t r y s o u r c e o f i n v e s t m e n t .  Alternative hypothesis  The e f f e c t i v e r e s p o n s e r a t e d i f f e r s country source of investment.  (Ha)  Country  Population  United States U n i t e d Kingdom Japan West Germany Australia Switzerland Thailand Others  square =  124 37 98 16 24 16 19 92 426  A c t u a l (A) E x p e c t e d (E) 2 Responses Responses ••(A-E) . 41 17 15 8 7 3 3 18 112  2,16 5.49 4. 52 3.44 0.08 0.34 0.80 1.59 18.42  32.6 9.7 25.8 4.2 6.3 4.2 5.0 24.2 112.0  18.42.  Therefore, the e f f e c t i v e response r a t e d i f f e r s source of investment. Note:  by  R e j e c t (Hn) and a c c e p t (Ha) i f c h i s q u a r e i s g r e a t e r t h a n 14.067. (Level of s i g n i f i c a n c e = 0.05; d e g r e e o f f r e e d o m = 7)  Criterion for decision:  Chi  differ  by  country  The p o p u l a t i o n f i g u r e s r e p r e s e n t t h e number o f f i r m s a t F e b r u a r y 28, 1979. The a c t u a l t o t a l number was 391 and t o t a l r e s p o n s e s 108. The a p p a r e n t d i s c r e p a n c y a r o s e b e c a u s e some e s t a b l i s h m e n t s were j o i n t v e n t u r e s i n v o l v i n g more t h a n one f o r e i g n o w n e r s h i p i n t e r e s t .  S o u r c e s : T a b l e 1-2 and D e p a r t m e n t o f T r a d e , Hong Kong g o v e r n m e n t .  I n d u s t r y and  Customs,  Appendix TI-5.1:  Percent Shares o f Investment % Share o f Investment ( X )  Country United States Japan United Kingdom Switzerland West Germany France Australia Netherlands Others  46.5 19.9 7.5 3.3 2.5 1.2 4.6 5.2 9.3 100.0  % Share of Patents ( Y )  x  47.1 11.5 14.1 6.6 8.9 2.1 0.1 2.6 7. 0 100. 0  Jin.1  (t) =  o  7  z  Y_  x  2  -  (Ix)  )  z  XY  2, 218.41 132.25 198.81 43.56 79.21 4.41 0.01 6.76 49.00 2, 732.42  2,162.25 396.01 56.25 10.89 6.25 1.44 21.16 27.04 8 6.49 2,767.78  n.IxY -  C o e f f i c i e n t o f c o r r e l a t i o n (r)  S i g n i f i c a n c e o f observed c o r r e l a t i o n  arid P a t e n t s R e g i s t e r e d  IX.IY (n.LY  Z  2,190.15 228.85 105.75 21.78 22.25 2.52 0.46 13.52 65.10 2,650.38  = 0.939 -  (IY) ) Z  = 7.232.  Notes:  In c a l c u l a t i n g the percent share o f patents r e g i s t e r e d , patents whose home country o f grantee was Hong Kong had been excluded, t = 2.365 a t l e v e l o f s i g n i f i c a n c e 0.05 and degree o f freedom 7.  Sources:  Table IV-3 and Table V-9.  240  Appendix  II-6.1:  :  Amount Of C a p i t a l  Investment  1  N u l l hypothesis (Hn)  The p r o p o r t i o n o f r e s p o n d i n g f i r m s i n t h e d i f f e r e n t c a p i t a l investment s i z e groups does n o t d i f f e r f r o m t h a t o f t h e p o p u l a t i o n .  Alternative hypothesis  The p r o p o r t i o n o f r e s p o n d i n g f i r m s i n t h e d i f f e r e n t c a p i t a l investment s i z e groups d i f f e r s from t h a t o f t h e p o p u l a t i o n .  (Ha)  Criterion for decision:  R e j e c t (Hn) and a c c e p t (Ha) i f c h i s q u a r e i s g r e a t e r t h a n 11.070. (Level o f s i g n i f i c a n c e = 0.05; d e g r e e o f f r e e d o m =5) Number o f F i r m s  Amount o f C a p i t a l I n v e s t m e n t i n HK$'000 500 o r l e s s 501 1,000 1,001 5,000 5,001 - 10,000 10,001 - 20,000 More t h a n 20,000  Chi  square  Actual Responses  Expected (A) R e s p o n s e s (E)  (A-E) V E  17.6 16.3 35. 6 10.5 9.2 9.6 99.0  0. 384 0.006 1.982 0.214 0.004 4,538 7,128  15 16 44 12 9 3 99  = 7,128.  Therefore, the proportion of responding firms i n the d i f f e r e n t c a p i t a l i n v e s t m e n t s i z e g r o u p s does n o t d i f f e r f r o m t h a t of the population. Note:  The e x p e c t e d r e s p o n s e s were c a l c u l a t e d p e r c e n t a g e s g i v e n i n T a b l e V-2.  Sources:  T a b l e V-2 and T a b l e V I - 3 .  from t h e  241  Appendix  II-7.1:  Rank O r d e r o f i m p o r t a n c e (X)  I m p o r t a n c e and F a v o u r a b i l i t y Factors •  Rank O r d e r o f F a v o u r a b i l i t y (Y)  C o e f f i c i e n t o f rank c o r r e l a t i o n  Significance  (r„)  of observed c o r r e l a t i o n  Note:  t = 2.101 a t l e v e l o f f r e e d o m 18.  Source:  Table VII-3.  X-Y  (X-Y)  -18 -18 - 7 -14 -12 - 5 5 5 - 5 3 6.5 11.5 6.5 5 - 1 1 9 13.5 6 8  19 20 10 18 17 11 2.5 2.5 14 7 4.5 1 6 9 16 15 8 4.5 13 12 210  1 2 3 4 5 6 7.5 7.5 9 10 n: , 12.5 12.5 14 15 16 17 18 19 20 210  o f Investment  1 -  =  -0.318.  (t)  324 324 49 196 144 25 25 25 25 9 42. 25 132. 25 42. 25 25 1 1 81 182. 25 36 64 1,753. 00  6_(X-Y)  =  n(n  2  -1)  =  r  =  1.423,  of significance  2  0.05 and d e g r e e  Appendix  Factor  IT.7.2;  Average Importance Score  Groups  Production factors  I m p o r t a n c e arid F a v o u r a b i l i t y  input  Rank O r d e r o f I m p o r t a n c e (X)  o f Investment F a c t o r Average Favourability Score -  161.25  Groups  Rank O r d e r o f F a v o u r a b i l i t y (Y)  (X-Y)  16  0.225  Stability  factors  124.25  2  1.625  4  4  Incentive  factors  105.50  3  3.225  1  4  Marketing  factors  99. 33  4  2. 367  2  4  82. 20  5  2.140  3  4  Indirect  factors  C o e f f i c i e n t o f rank c o r r e l a t i o n Significance  (r )  of observed c o r r e l a t i o n  = 0.600, (t)  Note:  See t e x t  Source:  T a b l e V I I - 1 and T a b l e V I I - 2 .  = 3.182,  page 135-7 f o r g r o u p i n g o f i n v e s t m e n t f a c t o r s ,  to  243  Appendix I1-8.1:  Industry D i s t r i b u t i o n  N u l l hypothesis: (Hn)  The i n d u s t r y d i s t r i b u t i o n o f J a p a n e s e i n v e s t m e n t s does n o t d i f f e r f r o m t h a t o f t h e U.S.  Alternative hypothesis  The i n d u s t r y d i s t r i b u t i o n o f J a p a n e s e i n v e s t m e n t s d i f f e r s f r o m t h a t o f t h e U.S.  (Ha)  Criterion for decision:  R e j e c t (Hn) and a c c e p t (Ha) i f c h i s q u a r e i s g r e a t e r than 19.675. (Level of s i g n i f i c a n c e = 0.05; d e g r e e o f f r e e d o m = 11) Number o f  Industry.  U.S.  Electronics Textiles Metal products E l e c t r i c a l products Chemical products Food manufactures Watches, c l o c k s & accessories Toys Printing & publishing Metal r o l l i n g , extrusion & fabrication Building & construction materials Others  Chi  square  =  42 19 10 9 8 1  (34. 6) (22. 3) (12. 8) ( 8.4) ( 5.6) ( 5.0)  Firms  Japan  Total  (27. 4) (17. 7) (10. 2) ( 6.6) ( 4.1) ( 4.0)  62 40 23 15 10 9  3 ( 3.9)  4 ( 3.1)  7  8 ( 4.5) 2 ( 3.4)  0 ( 3.5) 4 ( 2.6)  8 6  2 ( 2.2)  2 ( 1.8)  4  0 ( 0.0)  0 ( o.0)  0  (16. 8)  38 222  20 124  (21. 2)  20 21 13 6 2 8  18 98  23.685.  T h e r e f o r e , the i n d u s t r y d i s t r i b u t i o n o f Japanese d i f f e r s f r o m t h a t o f t h e U.S.  investments  Note:  F i g u r e s i n b r a c k e t s r e p r e s e n t the expected f r e q u e n c i e s used t o c a l c u l a t e the c h i square.  Source:  Table VIII-1.  24 4  Appendix  II-8.2:  Technology  Level  N u l l hypothesis: (Hh)  The i n d u s t r i e s i n w h i c h J a p a n i n v e s t e d a r e not t e c h n o l o g i c a l l y l e s s advanced than t h o s e o f t h e U.S.  Alternate hypothesis  The i n d u s t r i e s i n w h i c h J a p a n t e c h n o l o g i c a l l y l e s s advanced o f t h e U.S.  (Ha)  Criterion for decision:  invested are than those ;  R e j e c t (Hn) a n d a c c e p t (Ha) i f c h i s q u a r e i s g r e a t e r t h a n 3.841. (Level o f s i g n i f i c a n c e = 0.05; d e g r e e o f f r e e d o m = 1) Number o f F i r m s  Industry  Japan  U.S.  Total  Technologically advanced  59  (48.6)  28  (38.4)  87  Others  65  (75.4)  70  (59.6)  135  124  Chi  98  222  s q u a r e = 8.300.  Therefore, the i n d u s t r i e s g i c a l l y l e s s advanced Notes:  Source:  i n which Japan i n v e s t e d t h a n t h o s e o f t h e U.S.  are technolo-  F i g u r e s i n brackets represent the expected frequencies used t o c a l c u l a t e t h e c h i square. The t e c h n o l o g i c a l l y a d v a n c e d i n d u s t r i e s a r e ' e l e c t r o n i c s ' e l e c t r i c a l p r o d u c t s ' and ' c h e m i c a l p r o d u c t s ' . Table VIII-1.  1  245  Appendix 11-8.3:  S k i l l e d Workers Employed  N u l l hypothesis (Hn)  The p r o p o r t i o n o f s k i l l e d workers employed by Japanese manufacturing f i r m s does not d i f f e r from t h a t o f the U.S.  Alternate hypothesis  The p r o p o r t i o n o f s k i l l e d workers employed by Japanese manufacturing f i r m s d i f f e r s from t h a t o f the U.S.  (Ha)  Criterion for decision:  R e j e c t (Hn) and accept (Ha) i f c h i square i s g r e a t e r than 11.070. (Level of s i g n i f i cance = 0.05; degree of freedom = 5) Number o f Firms  S k i l l e d Workers as a % of T o t a l Workers Employed 0%  U.S. 0 (  0.7)  Japan  Total  1 (0.3)  1  1 -  20%  21 -  40%  9 (  9.5)  4 (3.5)  41 -  60%  4 (  3.7)  1  (1.3)  61 -  80%  13 ' (12.4)  4  (4.i6) '  17  80 -  100%  (1.3)  _5  11  _4 41  Chi  (11.0)  (  3.7)  4  _1 15  (4-0)..;  15 13 5  56  square = 2.723.  T h e r e f o r e , the p r o p o r t i o n o f s k i l l e d workers employed by Japanese manufacturing f i r m s does not d i f f e r from t h a t of the U.S. Note:  F i g u r e s i n b r a c k e t s r e p r e s e n t the expected f r e q u e n c i e s used t o c a l c u l a t e the c h i square.  Source:  Table V I I I - 2 .  246  Appendix IT-8.4:  Production A c t i v i t i e s  Performed  Number- o f F i r m s U. S •  Japan  16 (15.4) 25 (25.6) 41  5 ( 5.6) 10 ( 9.4 15  :  (A)  Assembly No a s s e m b l y  (B)  P a c k a g i n g & package design No p a c k a g i n g & package d e s i g n  11  (10.2)  30  (30.8)  (C)  Product design No p r o d u c t d e s i g n  (D)  Production research & development No p r o d u c t i o n r e s e a r c h & development Quality testing & control No q u a l i t y t e s t i n g & control  C h i s q u a r e = 0.152. C h i s q u a r e = 1.122. C h i s q u a r e = 9.957.  (11.2)  42  56"  ( 9.5) (31.5)  2 ( 3.5) ' 13 "(11.5) 15  13 43 56  15  (12.4)  2 ( 4.6)  17  26  (28.6)  13  (10.4)  39  56"  15  30  (24.9)  4  ( 9.1)  34  11  (16.1)  11  ( 5.9)  22  4T (A) (C) (E)  12  14  11 30 41  41 (E)  21 35 56  3 ( 3.7).  15  41  Total  15  56"  (B) C h i s q u a r e = 0.273. (D) C h i s q u a r e = 2.808.  T h e r e f o r e , t h e p r o p o r t i o n o f J a p a n e s e m a n u f a c t u r i n g f i r m s engaged i n ' q u a l i t y t e s t i n g a n d c o n t r o l ' d i f f e r s f r o m t h a t o f t h e U.S. The p r o p o r t i o n s do n o t d i f f e r f o r t h e o t h e r f o u r a c t i v i t i e s . Note:  Source:  The h y p o t h e s i s t o be t e s t e d i n e a c h c a s e i s t h a t t h e . p r o p o r t i o n o f J a p a n e s e m a n u f a c t u r i n g f i r m s does n o t d i f f e r f r o m t h a t o f t h e U.S. The c r i t e r i o n f o r d e c i s i o n i s to r e j e c t the hypothesis i f c h i square i s g r e a t e r t h a n 3.841. ( l e v e l o f s i g n i f i c a n c e = 0.05; d e g r e e o f f r e e d o m = 1) Table  VIII-3.  247  Appendix  II-8.5;  Workers  Employed  Null hypothesis: (Hn)  The number o f w o r k e r s employed i n J a p a n e s e m a n u f a c t u r i n g f i r m s does n o t d i f f e r f r o m t h a t o f t h e U.S.  Alternative hypothesis  The number o f w o r k e r s employed i n J a p a n e s e m a n u f a c t u r i n g f i r m s d i f f e r s from t h a t o f t h e U.S.  (Ha):  Criterion for decision:  R e j e c t (Hn) and a c c e p t (Ha) i f c h is q u a r e i s g r e a t e r t h a n 15.507 (Level o f signif. c a n c e = 0.05; d e g r e e o f f r e e d o m = 8)  Number o f W o r k e r s Employed 1 10 20 50 100 200 500 1,000 2,000  Chi  9 19 49 99 199 499 999 - 1, 999 and o v e r  Number o f U.S. 0 1 2 9 17 8 1 2 1 41  ( 0.0) ( 2.2) ( 3.7) ( 8.8) (15.4) ( 7.3) ( 0.7) ( 2.2) ( 0.7)  Firms  Japan 0 2 3 3 4 2 0 1 0 15  (0.0) (0.8) (1.3) (3.2) (5.6) (2.7) (0.3) (0.8) (0.3)  Total 0 3 5 12 21 10 1 3 1 56  s q u a r e = 6.722.  T h e r e f o r e , t h e number o f w o r k e r s employed i n J a p a n e s e m a n u f a c t u r i n g f i r m s does n o t d i f f e r f r o m t h a t o f t h e U.S. Note:  Figures i n brackets represent the expected frequencies used t o c a l c u l a t e the c h i square.  Source:  Table  VIII-4.  248  Appendix  II-8.6;  Capital  Investment  N u l l hypothesis (Hn)  The c a p i t a l investment by Japanese manufact u r i n g f i r m s does not d i f f e r from t h a t of the U.S.  Alternative hypothesis  The c a p i t a l investment by Japanese manufact u r i n g f i r m s d i f f e r s from t h a t o f the U.S.  (Ha)  Criterion for decision:  R e j e c t (Hn) and accept (Ha) i f c h i square i s g r e a t e r than 11.070. (level of s i g n i f i cance = 0.05; degree o f freedom = 5)  C a p i t a l Investment i n HK$'000 Less than 500 501 1,000 1,000 - 5,000 5,001 - 10,000 10,001 - 20,000 More than 20,000  Number o f Firms U .S. 1 6 14 11 7 2 41  ( 2.9) (10.3) (12.5) ( 8.8) ( 5.1) ( l.i5)  Japan 3 8 3 1 0 0 15  Total  (1.1) (3.7) (4.5) (3.2) (1.9) (0.5)  4 14 17 12 7 2 56  Chi square = 17.4 22. T h e r e f o r e , the c a p i t a l investmentby Japanese f i r m s d i f f e r s . f r o m t h a t o f the U.S.  manufacturing  Note:  F i g u r e s i n b r a c k e t s r e p r e s e n t the expected f r e q u e n c i e s used t o c a l c u l a t e the c h i square.  Source:  Table V I I I - 4 .  249  Appendix  I I - 8 . 7:  Export  1  Sales  Null hypothesis: (Hn)  The s h a r e o f e x p o r t s a l e s by J a p a n e s e m a n u f a c t u r i n g f i r m s does n o t d i f f e r f r o m t h a t o f t h e U.S.  Alternative hypothesis  The s h a r e o f e x p o r t s a l e s by J a p a n e s e m a n u f a c t u r i n g f i r m s d i f f e r s from t h a t o f t h e U.S.  (Ha).:  Criterion for decision:  R e j e c t (Hn) and a c c e p t (Ha) i f c h i s q u a r e i s g r e a t e r t h a n 11.070. (Level of s i g n i f i c a n c e = 0.05; d e g r e e o f f r e e d o m = 5) Number o f  E x p o r t S a l e s as a % of Total Sales 0% 1-20% 21 40% 4 1 - 6 0 % 61 80% 81 - 100%  Chi  U.S. 2 ( 2.2) 3(2.9) 5 ( 3.7) 7 ( 6.6) 4 ( 4.4) 20 (21.2) 41  square  =  Firms  Japan 1 1 0 2 2 _9 15  Total  (0.8) (1.1) (1.3) (2.4) (1.6) (7.8)  3 4 5 9 6 29 56  2.226.  Therefore, the share of export f i r m s does n o t d i f f e r from  s a l e s by J a p a n e s e t h a t o f t h e U.S.  manufacturing  Note:  F i g u r e s i n b r a c k e t s r e p r e s e n t the expected used t o c a l c u l a t e the c h i square.  Source:  Table  VIII-5.  frequencies  250  Appendix  11-8 .8 :  E x p o r t s t o Home C o u n t r y 1  Null hypothesis (Hn)  The d e g r e e o f i m p o r t a n c e o f t h e home c o u n t r y as a f o r e i g n market t o Japanese m a n u f a c t u r i n g f i r m s does n o t d i f f e r f r o m t h a t o f t h e U.S.  Alternative h y p o t h e s i s (Ha)  The d e g r e e o f i m p o r t a n c e o f t h e home c o u n t r y asua f o r e i g n market t o Japanese m a n u f a c t u r i n g f i r m s d i f f e r s from t h a t o f t h e U.S.  Criterion for decision:  R e j e c t (Hn) and a c c e p t (Ha) i f c h i s q u a r e i s g r e a t e r t h a n 7.815. (Level o f s i g n i f i cance 0.05; d e g r e e o f f r e e d o m = 3) Number o f  Home C o u n t r y a s a F o r e i g n Market The most i m p o r t a n t  U .S. 13  (16. 9)  Firms  Japan 10  Total  (6.1)  23  The s e c o n d most important  7 ( 6.6)  2 (2.4)  9  The  2 ( 2.9)  2 (1.1)  4  (12. 5)  0 (0.0)  17  t h i r d most i m p o r t a n t  Not among t h e t h r e e most i m p o r t a n t  17 41  Chi  15  56  s q u a r e = 10.619.  T h e r e f o r e , t h e d e g r e e o f i m p o r t a n c e o f t h e home c o u n t r y a s a f o r e i g n market t o Japanese m a n u f a c t u r i n g f i r m s d i f f e r s f r o m t h a t o f t h e U.S. Notes:  Figures i n brackets represent the expected frequencies used t o c a l c u l a t e t h e c h i square. The t h r e e f i r m s (two U.S. and one J a p a n e s e ) w i t h no e x p o r t s a l e s were e x c l u d e d i n t h e c a l c u l a t i o n s .  Source:  Table VIII-5.  251  Appendix  TP-8.9:  Import  o f C a p i t a l Equipment and Machinery  (A) Home C o u n t r y a s a S u p p l y Source f o r C a p i t a l E q u i p m e n t arid M a c h i n e r y  i •  The most i m p o r t a n t Not t h e most i m p o r t a n t  Number o f F i r m s "U.S.  24 17  (27.1) (13.9)  Japan  13 _2  41  15  15 ( 1 9 . 0 ) _26 ( 2 2 . 0 )  11 __4  41  15  (9.9) (5.1)  Total  37 19  56  (B) S h a r e o f F o r e i g n C a p i t a l E q u i p m e n t and M a c h n i e r y S u p p l i e d by O v e r s e a s Af f 1 1 i a t e s More t h a n 50% 50% o r l e s s  (A)  C h i square = 3 . 8 7 7 .  (B)  C h i square = 5 . 9 6 3 .  (7.0) (8.0)  26 3J)  56  T h e r e f o r e , t h e d e g r e e o f i m p o r t a n c e o f t h e home c o u n t r y and o f o v e r s e a s a f f i l i a t e s as a s u p p l y s o u r c e f o r c a p i t a l equipment and m a c h i n e r y f o r J a p a n e s e m a n u f a c t u r i n g ' f i r m s d i f f e r s f r o m t h a t o f t h e U.S. Note:  The h y p o t h e s i s t o be t e s t e d i n e a c h c a s e i s t h a t t h e degree o f importance f o r Japanese manufacturing f i r m s d o e s n o t d i f f e r f r o m t h a t o f t h e U.S. The c r i t e r i o n for decision i s to reject the hypothesis i fthe c h i square i s g r e a t e r than 3 . 8 4 1 . (Level o f s i g n i f i c a n c e = 0 . 0 5 ; d e g r e e o f f r e e d o m = 1)  Source: Table V I I I - 6 .  252  Appendix (A)  11-8.10:  I m p o r t o f Raw  Home C o u n t r y as a S u p p l y S o u r c e f o r Raw M a t e r i a l s The most i m p o r t a n t Not t h e most i m p o r t a n t  (B)  Materials Number o f  :  U.S.  Firms  Japan  Total  15 (18.3) 2€_ (22.7) 41  10 _5 15  (6.7) (8.0)  25 31_ 56  13 28 41  12 _3 15  (6.7) (8.3)  25 31 56  S h a r e o f F o r e i g n Raw M a t e r i a l s S u p p l i e d by Overseas A f f i l i a t e s More t h a n 50% 50% o r l e s s  (A)  Chi square =  4.021.  (B)  C h i square =  10.364.  (18.3) (22.7)  T h e r e f o r e , t h e d e g r e e o f i m p o r t a n c e o f t h e home c o u n t r y and o f o v e r s e a s a f f i l i a t e s as a s u p p l y s o u r c e o f raw m a t e r i a l s f o r Japanese m a n u f a c t u r i n g f i r m s d i f f e r s from t h a t o f the U.S.  *  Note:  The h y p o t h e s i s t o be t e s t e d i n e a c h c a s e i s t h a t t h e degree o f importance f o r Japanese manufacturing f i r m s d o e s n o t d i f f e r f r o m t h a t o f t h e U.S. The c r i t e r i o n f o r d e c i s i o n i s to r e j e c t the hypothesis i f the c h i s q u a r e i s g r e a t e r t h a n 3.841. (Level of s i g n i f i c a n c e = 0.05; d e g r e e o f f r e e d o m = 1)  Source:  Table VIII-6.  253  Appendix  I1-8.11:  Share o f  Ownership  Null hypothesis: (Hn)  The s h a r e o f o w n e r s h i p i n J a p a n e s e manufact u r i n g f i r m s does n o t d i f f e r f r o m t h a t o f t h e U.S.  Alternative hypothesis  The s h a r e o f o w n e r s h i p i n J a p a n e s e manufact u r i n g f i r m s d i f f e r s f r o m t h a t o f t h e U.S.  (Ha)  Criterion for decision:  R e j e c t (Hn) and a c c e p t (Ha) i f c h i s q u a r e i s g r e a t e r t h a n 3.841. (Level o f s i g n i f i c a n c e = 0.05; d e g r e e o f f r e e d o m = 1) Number o f F i r m s  Share o f  Ownership  L e s s t h a n 50% 50% o r more  Chi  U.S. 2 (2.2) 39 (38.8) 41  Japan 1 14 15  (-10.8) (14.2)  Total 3 5_3 56  s q u a r e = 0.069.  T h e r e f o r e , t h e share o f ownership i n Japanese manufacturing f i r m s does n o t d i f f e r f r o m t h a t o f t h e U.S. Note:  Figures i n brackets represent the expected frequencies used t o c a l c u l a t e t h e c h i square.  Source:  Table VIII-7.  254  Appendix TI-8.12:  Use o f J o i n t  Ventures  Null hypothesis: (Hn)  The p r o p o r t i o n o f j o i n t v e n t u r e s i n J a p a n ese m a n u f a c t u r i n g f i r m s does n o t d i f f e r f r o m t h a t o f t h e U.S.  Alternative hypothesis  The p r o p o r t i o n o f j o i n t v e n t u r e s i n J a p a n ese m a n u f a c t u r i n g f i r m s d i f f e r s from t h a t o f t h e U.S.  (Ha):  Criterion for decision:  R e j e c t (Hn) a n d a c c e p t (Ha) i f c h i s q u a r e i s g r e a t e r t h a n 3.841. (Level o f s i g n i f i c a n c e = 0.05; d e g r e e o f f r e e d o m = 1) Number o f F i r m s  Company S t a t u s A j o i n t venture Not a j o i n t v e n t u r e  Chi  U.S. 10 (11, 7) 31 (29, 3) 41  Japan 6 ( 4, 3) _9 (10, 7) 15  Total 16 40 56  s q u a r e = 1.311.  T h e r e f o r e , the p r o p o r t i o n o f j o i n t ventures i n Japanese m a n u f a c t u r i n g f i r m s does n o t d i f f e r f r o m t h a t o f t h e U.S, Note:  F i g u r e s i n brackets represent the expected frequencies used t o c a l c u l a t e t h e c h i square.  Source:  Table VIII-7.  255  Appendix  (A)  II-8.13:  :  Management C o n t r o l  N a t i o n a l i t y of Chief Executive Local Foreign  (B)  Number o f Firms U.S.  Total  17 (13.9) 24 (27.1) 41  2 (5.1) 13 (9.9) 15  19 37 56  14 (18.3)  11 (6.7)  25  27 (22.7)  4 (8.3)  31  Status o f Chief Executive An outposted e x e c u t i v e of headquarter company Not an outposted executive of headquarter company  41 (C)  Japan  15  56  10 (5.9)  22  5 (9.1)  34  Appointments a t Management L e v e l Require a p p r o v a l by 12 (16.1) headquarter company Do not r e q u i r e a p p r o v a l by headquarter company 29 (24.9) 41  (A)  C h i square = 3.877  (B)  C h i square = 6.824,  (C)  C h i square = 6.440.  15  56  T h e r e f o r e , ( i ) the n a t i o n a l i t y o f c h i e f e x e c u t i v e , ( i i ) the s t a t u s o f c h i e f e x e c u t i v e and ( i i i ) the d e c i s i o n autonomy i n appointments a t management l e v e l i n Japanese manufacturing f i r m s d i f f e r from those o f the U.S. Notes:  F i g u r e s i n b r a c k e t s r e p r e s e n t the expected f r e q u e n c i e s used i n c a l c u l a t i n g the c h i square. The h y p o t h e s i s to be t e s t e d i n each case i s t h a t the p r o p o r t i o n o f Japanese manufacturing f i r m s does not d i f f e r from t h a t o f the U.S. The c r i t e r i o n f o r d e c i s i o n i s t o r e j e c t the h y p o t h e s i s i f the c h i square i s g r e a t e r than 3.841. (Level o f s i g n i f i c a n c e = 0.05; degree o f freedom = 1)  Source:  Table V I I I - 9 .  APPENDIX I I I E x c h a n g e V a l u e o f t h e Hong Kong  End  Source:  of Year  Dollar  Approximate Value o f HK$1 i n US$  1970  0.165  1971  0.179  1972  0.177  1973  0.197  1974  0.203  1975  0.198  1976  0.214  1977  0.216  1978  0.209  D e p a r t m e n t o f C e n s u s and S t a t i s t i c s , Hong Kong Government, Hong Kong M o n t h l y Digest of S t a t i s t i c s , various issues.  

Cite

Citation Scheme:

        

Citations by CSL (citeproc-js)

Usage Statistics

Share

Embed

Customize your widget with the following options, then copy and paste the code below into the HTML of your page to embed this item in your website.
                        
                            <div id="ubcOpenCollectionsWidgetDisplay">
                            <script id="ubcOpenCollectionsWidget"
                            src="{[{embed.src}]}"
                            data-item="{[{embed.item}]}"
                            data-collection="{[{embed.collection}]}"
                            data-metadata="{[{embed.showMetadata}]}"
                            data-width="{[{embed.width}]}"
                            async >
                            </script>
                            </div>
                        
                    
IIIF logo Our image viewer uses the IIIF 2.0 standard. To load this item in other compatible viewers, use this url:
http://iiif.library.ubc.ca/presentation/dsp.831.1-0095386/manifest

Comment

Related Items