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UBC Theses and Dissertations

Japanese joint ventures in British Columbia Duval, Jean-Marc 1974

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JAPANESE JOINT VENTURES I N BRITISH  COLUMBIA  by JEAN-MARC DUVAL B.A.A., E c o l e des H a u t e s E t u d e s Montreal,  A THESIS SUBMITTED  Commerciales,  1973  I N PARTIAL FULFILMENT OF  THE REQUIREMENTS FOR THE DEGREE OF MASTER OF SCIENCE I N BUSINESS  ADMINISTRATION  i n the D i v i s i o n of INTERNATIONAL BUSINESS STUDIES Faculty of COMMERCE AND BUSINESS  ADMINISTRATION  We a c c e p t t h i s t h e s i s as c o n f o r m i n g t o t h e required standard;  THE UNIVERSITY OF BRITISH August,  1974  COLUMBIA  In  presenting  this  an a d v a n c e d  degree  the  shall  I  Library  further  for  scholarly  by h i s of  agree  this  thesis  in p a r t i a l  fulfilment  of  at  University  of  Columbia,  the  make  it  available  p u r p o s e s may be g r a n t e d  for  It  financial  is  gain  of  The U n i v e r s i t y o f B r i t i s h V a n c o u v e r 8, Canada  by  the  Columbia  shall  not  requirements  reference copying of  I  agree  and  copying or  be a l l o w e d  for  that  study.  this  thesis  Head o f my D e p a r t m e n t  understood that  written permission.  Department  for  that permission for extensive  representatives. thesis  freely  British  the  or  publication  without  my  PREFACE  J o i n t v e n t u r e s as a f o r m o f o v e r s e a s d i r e c t more and more a c u r r e n t t o p i c o f d i s c u s s i o n .  investment are  Arguments f o r and a g a i n s t  t h i s f o r m o f i n v e s t m e n t v a r y f r o m one extreme t o t h e o t h e r :  some  people t h i n k that 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 should not operate i n foreign countries without l o c a l p a r t i c i p a t i o n , while others state t h a t t h e s e c o m p a n i e s s h o u l d be f r e e t o c o n d u c t t h e i r o p e r a t i o n s as necessary. E v e n t h o u g h I f a v o r one p o s i t i o n , t h i s r e s e a r c h d i d n o t a n a l y s e Japanese view.  j o i n t v e n t u r e s i n B r i t i s h Columbia from such p o i n t s o f  An a c c o u n t o f t h e s t u d y and t h e f o r m a t o f t h e s t u d y  i n C h a p t e r 1.  appears  The method u s e d t o c a r r y o u t t h i s r e s e a r c h was t o e x -  amine d a t a c o l l e c t e d i n i n t e r v i e w s w i t h e x e c u t i v e s o f t w e n t y one j o i n t ventures i n B r i t i s h  Columbia.  None o f t h e w o r k w o u l d have been p o s s i b l e w i t h o u t t h e c o o p e r a t i o n o f t h e s e e x e c u t i v e s who gave o f t h e i r t i m e and who were ready t o d i s c l o s e c o n f i d e n t i a l i n f o r m a t i o n , i n r e t u r n f o r which, the anonymity  o f t h e i r f i r m s was g u a r a n t e e d .  Thanks a r e due t o V i r g i n i a and R o n a l d Monk, my e d i t o r s , who s p e n t many h o u r s i m p r o v i n g my E n g l i s h . I am p a r t i c u l a r l y i n d e b t e d t o D r . J.W.C. T o m l i n s o n , who r e a d and c r i t i c i z e d t h e f i r s t  draft of t h i s d i s s e r t a t i o n .  Without h i s  e n c o u r a g e merits and c r i t i c i s m s , t h i s s t u d y w o u l d have been more difficult  and c e r t a i n l y  Vancouver A u g u s t , 1974.  l e s s complete.  Jean-Marc  D.  iii  CONTENTS  Preface List  of Tables  List  of Figures  .  .  .  i v  .  .  . viii  1 . BACKGROUND OF THE STUDY A definition G e n e r a t i n g a sample Japanese investments i n t h e w o r l d J a p a n e s e i n v e s t m e n t s i n Canada T r a d e between Canada and J a p a n A brief outline of the presentation  . . . . . . .  . . . . . . .  . . . . . . .  1 2 3 5 16 20 24  2.  TFiE JOINT VENTURE DECISION D e c i s i o n t o i n v e s t i n B r i t i s h Columbia D e c i s i o n t o go i n t o a j o i n t v e n t u r e Size of projects Selection of associates Summary  . . . . . .  . . . . . .  . . . . . .  25 25 29 35 41 45  3.  THE ASSOCIATES I n i t i a l contact Selection of a specific associate P r i o r knowledge o f a s s o c i a t e s Availability of associates D r i v i n g f o r c e and d e c i d i n g body Importance o f a s s o c i a t e s Summary  . . .£.£ . . . . . . . . . . . . .  S I Z E OF THE JAPANESE PARENT COMPANY S i z e and v a l u e o f f o r e i g n i n v e s t m e n t s S i z e , c o n t r o l , and r e a s o n s f o r g o i n g i n t o a j o i n t venture S i z e and r e a s o n s f o r s e l e c t i n g a s p e c i f i c associate P a r e n t s i z e and p r o f i t s o f t h e j o i n t v e n t u r e P a r e n t s i z e and method o f e v a l u a t i o n Summary  . . . .6 7 . . . 67  4.  . . . . . . . .  46 46 52 55 57 59 62 65  . . .  69  . . . . . . . . . 36 . .  76 78 83 86  iv  5.  THE NATURE OF BUSINESS N a t u r e o f b u s i n e s s and r e a s o n s f o r g o i n g into j o i n t ventures N a t u r e o f b u s i n e s s and a t t i t u d e s t o w a r d s control N a t u r e o f b u s i n e s s and " d r i v i n g f o r c e " , " d e c i d i n g body" A t t i t u d e towards p o t e n t i a l a s s o c i a t e s Reasons f o r s e l e c t i n g a s p e c i f i c a s s o c i a t e S t r u c t u r a l dependence Evaluation of associates Summary  . . . 94 . . . 97 . . . 101 . . . 103 . . . I l l . . . 113  ATTITUDES TOWARDS CONTROL Ranking of p o t e n t i a l associates Structural c h a r a c t e r i s t i c s of j o i n t ventures P r o f i t a b i l i t y of j o i n t ventures Importance o f a s s o c i a t e s Summary  . . . . . . . . . . . . . . . . .  116 116 121 125 128 130  7. CONCLUSIONS Japanese c o n t r o l Selection of a s p e c i f i c associate Canadian businessmen  . . . . . . . . . . . .  132 135 136 1137  Bibliography  •  •  •  139  Appendix: Q u e s t i o n n a i r e form used i n t h e study  .  .  .  14J1  6.  . . .  38  . . .  90  . . .  90  L I S T OF TABLES  Table 1.1 Table 1.2 Table 1.3 Table 1 . 4  Table 1.5  Table 1.6 Table 1.7 Table 1 . 8 Table 1.9 Table 2 . 1 Table 2 . 2  Table 2 . 3 Table 2 . 4 Table 2 . 5  The amount 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 by m a j o r countries . . .  7  Breakdown o f J a p a n e s e i n v e s t m e n t s i n t h e w o r l d according to region . . .  9  Breakdown o f J a p a n e s e i n v e s t m e n t s i n t h e w o r l d a c c o r d i n g t o r e g i o n and s e c t o r , as o f end o f 1 9 7 1 Breakdown o f J a p a n e s e i n v e s t m e n t s i n t h e w o r l d a c c o r d i n g t o r e g i o n and m a n u f a c t u r i n g i n d u s t r y , as o f end o f 1 9 7 1 . .  •  10  .  12  Breakdown o f J a p a n e s e i n v e s t m e n t s i n t h e w o r l d a c c o r d i n g t o i n d u s t r i a l c a t e g o r y , as o f end o f March, 1 9 7 3 . . .  14  Breakdown o f J a p a n e s e i n v e s t m e n t s i n t h e w o r l d a c c o r d i n g t o f o r m , as o f end o f M a r c h , 1 9 7 3 . . .  15  Japanese overseas investments f o r major n a t i o n s , as o f end o f M a r c h , 1 9 7 3 . . .  17  Breakdown o f J a p a n e s e i n v e s t m e n t s i n Canada a c c o r d i n g t o i n d u s t r y , as o f end o f 1 9 7 2  . . .  19  Most i m p o r t a n t t r a d i n g p a r t n e r s o f Canada and Japan from 1 9 7 0 t o 1 9 7 3 . . .  21  Reasons c i t e d by J a p a n e s e p a r e n t c o m p a n i e s f o r t h e i r investment i n B r i t i s h Columbia . . .  27  Reasons c i t e d by J a p a n e s e f i r m s f o r c h o o s i n g t h e j o i n t v e n t u r e f o r m o f i n v e s t m e n t i n B.C. V a r i a t i o n s by n a t u r e o f b u s i n e s s i n r e a s o n s f o r going into j o i n t ventures S i z e o f p r o j e c t s and r e a s o n s f o r g o i n g i n t o j o i n t ventures S i z e o f p r o j e c t s and r e a s o n s f o r g o i n g i n t o j o i n t ventures  .  .  33  . . .  •  32  •  37  •  39  vi  T a b l e 2.6  C r i t e r i a f o r s e l e c t i n g a s s o c i a t e s and f o r going i n t o a j o i n t venture  T a b l e 3*1  I n i t i a t o r of f i r s t venture  reasons  a p p r o a c h t o s e t up a  43  joint 4 7  T a b l e 3*2  O r i g i n of i n i t i a l  contact w i t h chosen a s s o c i a t e  T a b l e 3»3  Reasons m e n t i o n e d by J a p a n e s e companies t o e x p l a i n the i n t e r e s t s o f t h e i r Canadian p a r t n e r s t o s e t up a JV .  .  4 9  50  T a b l e 3»4  Reasons c i t e d by J a p a n e s e p a r e n t c o m p a n i e s f o r t h e i r s e l e c t i o n of a s p e c i f i c JV a s s o c i a t e  53  T a b l e 3»5  R e a s o n s f o r s e l e c t i o n and p r i o r k n o w l e d g e o f a s s o c i a t e s by J a p a n e s e p a r e n t f i r m  56  T a b l e 3.6  Importance of a s s o c i a t e s a c c o r d i n g t o the reason f o r t h e i r s e l e c t i o n  6 4  T a b l e 4»1  C l a s s i f i c a t i o n o f J V s and J a p a n e s e f i r m s by t o t a l a s s e t s and s a l e s o f t h e f o r e i g n p a r e n t company  T a b l e 4*2  R e l a t i o n s between s i z e o f p a r e n t s and s i z e investments  T a b l e 4«3  S i z e o f p a r e n t s and  T a b l e 4*4  F o r e i g n p a r e n t s i z e i n a s s e t s and r e a s o n s f o r going i n t o a j o i n t venture  7 5  F o r e i g n p a r e n t s i z e i n a s s e t s and r e a s o n s f o r selecting a specific associate  7 7  T a b l e 4*5  of .  6 8  control  T a b l e 4.6  S i z e o f p a r e n t s and p r o f i t s o f J V s  T a b l e 4«7  F o r e i g n p a r e n t s i z e i n s a l e s and e v a l u a t i o n of JVs through performance a g a i n s t scheduled objectives  T a b l e 5»1  C l a s s i f i c a t i o n o f Japanese parent companies and a s s o c i a t e d J V s a c c o r d i n g t o t h e n a t u r e of business  71 72  8 0  8 4  8 9  vii  T a b l e 5-2  T a b l e 5*3  T a b l e 5*4  T a b l e 5-5  T a b l e 5*6  T a b l e 5«7 T a b l e 5*8 T a b l e 6.1  T a b l e 6.2  T a b l e 6.3  T a b l e 6.4  T a b l e 6.5  N a t u r e o f b u s i n e s s and a t t i t u d e o f J a p a n e s e parent f i r m s towards e f f e c t i v e c o n t r o l over a j o i n t venture . . .  92  N a t u r e o f b u s i n e s s and l o c a t i o n o f r e s p o n s i b i l i t y f o r d r i v i n g f o r c e and d e c i s i o n t o go i n t o a s p e c i f i c j o i n t venture . . .  95  R a n k i n g o f p o t e n t i a l a s s o c i a t e s by J a p a n e s e c o m p a n i e s a c c o r d i n g t o n a t u r e o f b u s i n e s s ofparent f i r m . . .  99  N a t u r e o f b u s i n e s s and r e a s o n s f o r s e l e c t i n g specific associates . S t r u c t u r a l dependence s c o r e s o f j o i n t  .  .  102  .  .  106  .  109  .  112  ventures  according to nature of business  .  R e l a t i o n s between a c t i v i t i e s / p o l i c i e s and nature of business  ...  N a t u r e o f b u s i n e s s and i m p o r t a n c e a t t r i b u t e d t o a s s o c i a t e s i n j o i n t v e n t u r e s i n B.C. .  .  Ranking of v a r i o u s types of p o t e n t i a l associates a c c o r d i n g t o J a p a n e s e company's a t t i t u d e towards e f f e c t i v e c o n t r o l o f a JV . . .  119  J a p a n e s e company's a t t i t u d e t o w a r d s c o n t r o l and some o t h e r f a c t o r s  122  effective . . .  S t r u c t u r a l dependence s c o r e s o f j o i n t v e n t u r e s according t o foreign partner's desire f o r effective control . .  .  124  A t t i t u d e s t o w a r d s c o n t r o l and p r o f i t a b i l i t y of j o i n t ventures .  .  126  .  J a p a n e s e p a r e n t company's a t t i t u d e t o w a r d s e f f e c t i v e c o n t r o l and t h e i r comments on a s s o c i a t e ' s importance t o the JV . . .  129  L I S T OF  FIGURES  Figure 2.1  S i z e o f p r o j e c t s and r e a s o n s f o r i n t o JVs  Figure 3 « 1  L o c a t i o n o f d r i v i n g f o r c e and d e c i d i n g body a c c o r d i n g t o r e a s o n f o r s e l e c t i o n of associate  Figure 4*1  R e l a t i o n s between s i z e o f p a r e n t s s i z e of investments  Figure 4*2  R e l a t i o n s h i p s between s i z e o f o f J V s , and o f J V s p r o f i t s  Figure 4*3  Parent  Figure 4*4  S i z e o f p a r e n t , and p e r f o r m a n c e scheduled o b j e c t i v e s  Figure 5*1  E q u i t y share of Japanese p a r e n t , Japanese p a r t n e r ' s r e s p o n s i b i l i t y , and j o i n t v e n t u r e s dependence  s i z e and p r o f i t s o f  1  going  and  parents,  JVs against  CHAPTER  1  BACKGROUND OF THE STUDY R e l a t i o n s h i p s between Canada and J a p a n a r e a n i n c r e a s i n g l y i m p o r t a n t t o p i c o f d i s c u s s i o n i n Canada, s i n c e J a p a n l a r g e s t t r a d i n g p a r t n e r o f Canada i n 1973, i n Canada r o s e t o o v e r  became t h e s e c o n d  and a s J a p a n e s e  investments  $300,000,000 i n 1973.  U n f o r t u n a t e l y , e v e n t h o u g h many p e o p l e a r e aware o f t h e comm e r c i a l r e l a t i o n s h i p s between t h e two c o u n t r i e s , few a r e c o n s c i o u s o f t h e impact  o f J a p a n e s e i n v e s t m e n t s i n Canada.  be t h a t C a n a d i a n s  who a r e c o n c e r n e d  One o f t h e r e a s o n s c o u l  over f o r e i g n investments i n t h e i r  c o u n t r y a r e m a i n l y p r e o c c u p i e d by American g e r t h a n t h o s e f r o m any o t h e r c o u n t r y .  investments, which are l a r -  N e v e r t h e l e s s , Japanese  ments i n Canada p r e s e n t two i n t e r e s t i n g f e a t u r e s : t h e form o f j o i n t v e n t u r e s , a n d a r e c h i e f l y Columbia  (two-thirds of the t o t a l value.  ventures i n B r i t i s h Columbia  invest-  they are mainly i n  concentrated i n B r i t i s h  T h e r e f o r e , Japanese  joint  p r o v i d e a good r e p r e s e n t a t i v e sample o f  J a p a n e s e i n v e s t m e n t s i n Canada.  The  m a i n o b j e c t i v e of t h i s s t u d y was to c l a r i f y t h e r e l a t i o n -  s h i p between t h e two c o u n t r i e s w i t h r e s p e c t to J a p a n e s e j o i n t i n B.C. and J a p a n e s e i n v e s t m e n t s i n C a n a d a .  ventures  The r e s e a r c h was w o r t h -  w h i l e s i n c e e v e n f o r an o r g a n i z a t i o n l i k e t h e " C a n a d a - J a p a n T r a d e Coun cil", this  i s s u e i s one o f t h e h a z i e s t a r e a s of  Japanese-Canadian  2  relationship. A second  o b j e c t i v e was t o s t u d y t h e i n f l u e n c e o f some v a r i a b l e s  on t h e s e l e c t i o n o f a s s o c i a t e s by J a p a n e s e c o m p a n i e s ; how f o r e x a m p l e , the reasons f o r going i n t o a j o i n t v e n t u r e , the nature o f business o f J a p a n e s e p a r e n t s , p r i o r knowledge o f a s s o c i a t e s , and t h e s i z e o f J a p a n e s e c o m p a n i e s was l i k e l y t o a f f e c t t h e s e l e c t i o n o f C a n a d i a n p a r t n e r s . It  c o u l d be v e r y i m p o r t a n t f o r C a n a d i a n b u s i n e s s m e n w i s h i n g t o e n t e r  i n t o j o i n t v e n t u r e s w i t h J a p a n e s e e n t e r p r i s e s t o be aware o f t h e i n fluence o f these  A  factors.  definition A j o i n t venture i s defined, i n the present study, as:  commitment, f o r more t h a n a v e r y s h o r t d u r a t i o n , o f f u n d s ,  "The  facilities,  and s e r v i c e s by two o r more l e g a l l y s e p a r a t e i n t e r e s t s , t o an e n t e r p r i s e f o r t h e i r mutual  benefit"." ' 1  J o i n t v e n t u r e s i n t h i s s t u d y were c l a s s i f i e d i n t o t h e f o l l o w i n g f o u r c a t e g o r i e s : ! . N a t i o n a l J o i n t V e n t u r e s , between i n t e r e s t s f r o m t h e same c o u n t r y .  Two j o i n t v e n t u r e s i n t h i s s t u d y were i n t h i s  group.  2. F o r e i g n I n t e r n a t i o n a l J o i n t V e n t u r e s , between i n t e r e s t s o f d i f f e r e n t n a t i o n a l i t i e s , e x c l u d i n g the host country.  1. F r i e d m a n n , W.G., and K a l m a n o f f , G.: J o i n t I n t e r n a t i o n a l V e n t u r e s , New Y o r k , C o l u m b i a U n i v e r s i t y P r e s s , 1961, p.6.  None  Business  3  o f t h e J a p a n e s e j o i n t v e n t u r e s i n B.C. b e l o n g t o t h i s 3«  group.  I n t e r n a t i o n a l J o i n t V e n t u r e s , when a t l e a s t one  p a r t n e r i s from t h e host c o u n t r y but i s not t h e host government.  The  b u l k o f J a p a n e s e j o i n t v e n t u r e s i n B.C., e i g h t e e n , were c l a s s i f i e d a s such. 4.  Mixed I n t e r n a t i o n a l J o i n t Ventures, i n which  a t l e a s t one p a r t n e r i s t h e h o s t government.  One J a p a n e s e company  went i n t o a j o i n t v e n t u r e w i t h a crown c o r p o r a t i o n . I t must be u n d e r l i n e d t h a t w h i l e t h e r e were no " f o r e i g n  inter-  n a t i o n a l j o i n t v e n t u r e s " , a l l p a r t n e r s f r o m Canada were c o n s i d e r e d a s Canadians,  e v e n t h o u g h some c o m p a n i e s were s u b s i d i a r i e s o f f o r e i g n  the l e g a l d e f i n i t i o n p r e v a i l e d . s i d e r e d as " f o r e i g n " t h e n , f i v e  firms;  I f t h e s e s u b s i d i a r i e s h a d been con4. j o i n t v e n t u r e s i n t h e sample w o u l d have  been c l a s s i f i e d a s " F o r e i g n I n t e r n a t i o n a l J o i n t  Ventures".  G e n e r a t i n g a sample T h e r e was no e x h a u s t i v e l i s t Canada when t h i s s t u d y was u n d e r t a k e n .  o f Japanese j o i n t v e n t u r e s i n The Department o f I n d u s t r y ,  T r a d e and Commerce i n O t t a w a , t h e Department o f I n d u s t r i a l D e v e l o p m e n t , T r a d e and Commerce i n V i c t o r i a , t h e J a p a n e s e Embassy, t h e "CanadaJ a p a n T r a d e C o u n c i l " , and t h e " C o n s u l a t e G e n e r a l o f J a p a n "  i n Vancouver,  were c o n t a c t e d b u t , u n f o r t u n a t e l y , none o f t h e s e o f f i c e s was a b l e t o  4  p r o v i d e a c o m p l e t e s e r i e s o f names.  N e v e r t h e l e s s , some p r o v i d e d  i n f o r m a t i o n w h i c h was r o u n d e d out i n t o a sample l i s t  partial  from d e t a i l s  pub-  2 lished i n articles i n different  newspapers.  From t h a t p o i n t , a l l companies were c o n t a c t e d and were a s k e d i f t h e y were i n v o l v e d i n o t h e r j o i n t v e n t u r e s . t h a t twenty seven Japanese e n t e r p r i s e s e n t e r e d B r i t i s h Columbia.  f i n a l l y established  i n t o j o i n t ventures i n  However, o n l y t w e n t y one c o m p l e t e d t h e q u e s t i o n n a i r e  u s e d t o c a r r y out t h i s All  I t was  study.  firms agreeing to d i s c l o s e information concerning  o p e r a t i o n s i n B r i t i s h C o l u m b i a were i n t e r v i e w e d . l e c t i n g d a t a was  T h i s method o f c o l -  p r e f e r r e d t o t h e method o f m a i l i n g q u e s t i o n n a i r e s  b e c a u s e e x e c u t i v e s a r e u s u a l l y w i l l i n g t o t a l k about t h e i r but d i s l i k e f i l l i n g out q u e s t i o n n a i r e s (none o f t h e t h r e e m a i l e d was  their  businesses, questionnaires  i n fact returned). ^  2. The P r o v i n c e , "B.C. companies l i n k e d t o J a p a n " , "B.C. h i t s No. 1 w i t h J a p a n e s e i n v e s t o r s " , M a r c h 20, 1974, p. 21 and 28. The G l o b e and M a i l , " J a p a n e s e p e n e t r a t i o n g r e a t e s t i n B.C. p u l p m i l l s " , "Loans f a v o r e d o v e r e q u i t i e s i n m i n i n g " , " I n d u s t r i a l i n v e s t ments v a r i e d " , F e b r u a r y 14, 1974, P« B9. The G l o b e and M a i l , " J a p a n e s e p r e f e r j o i n t v e n t u r e s i n B.C.", F e b r u a r y 15, 1974, p. B4. 3» The t h r e e o t h e r j o i n t v e n t u r e s , f r o m w h i c h i t has been i m p o s s i b l e t o o b t a i n i n f o r m a t i o n , had a t r a d i n g company as J a p a n e s e p a r e n t . This company has an. o f f i c e i n V a n c o u v e r , but t h e g e n e r a l manager r e f u s e d to r e c e i v e the author.  5  I n t e r v i e w s took p l a c e w i t h Japanese  executives i n  r a t h e r t h a n i n J a p a n , m a i n l y b e c a u s e o f t i m e and f i n a n c i a l  Vancouver limitations.  As some l o c a l e x e c u t i v e s c o u l d have been l e s s i n f o r m e d about t h e  oper-  a t i o n s o f t h e i r companies i n B r i t i s h Columbia, the d a t a s h o u l d p o s s i b l y be c o n s i d e r e d w i t h some r e s e r v a t i o n s . t h a t an e x e c u t i v e i n V a n c o u v e r  was  However, o n l y once was  i n this situation.  w e r e , n e v e r t h e l e s s , c o m p i l e d b e c a u s e h i s company was  i t clear  H i s answers a partner of a  j o i n t v e n t u r e i n t h e " m i n i n g g r o u p " w h i c h i n c l u d e d c l o s e t o $0% Japanese  joint ventures i n  B.C..  I n t e r v i e w s were c a r r i e d out o v e r a f o u r week p e r i o d , mid-May t o m i d - J u n e , 1974*  The  t u r e s i n t h e " p u l p and l u m b e r " six i n different sectors:  of  from  i n f o r m a t i o n concerned s i x j o i n t  ven-  industry, nine i n mining a c t i v i t i e s  restaurant, finance, steel,  and  marketing  agencies.  Japanese  investments i n the w o r l d " J u s t as t h e o u t f l o w o f c a p i t a l f r o m t h e c o u n t r i e s o f E u r o p e  and A m e r i c a has been e x p a n d i n g , d i r e c t o v e r s e a s i n v e s t m e n t s by  Japan  a l s o has been r i s i n g r a p i d l y a t a r a t e e x c e e d i n g t h e g r o w t h r a t e Japan's it  e x p o r t s and GNP.  D u r i n g t h e p e r i o d between 1960  i n c r e a s e d a t an a n n u a l r a t e o f 27.1  r e s p o n d i n g e x p o r t g r o w t h r a t e o f 16.2 15 p e r c e n t .  Between 1965  and. 1971,  and  of  1965,  per c e n t , s u r p a s s i n g the c o r p e r c e n t and GNP  growth r a t e  i t r o s e a t an a n n u a l r a t e o f  of 29.3  6  p e r c e n t , e x c e e d i n g t h e c o r r e s p o n d i n g e x p o r t and GNP g r o w t h  rates of  19.3 p e r c e n t and I 6 . 4 p e r c e n t , r e s p e c t i v e l y . " ^ As may b e e s e e n f r o m T a b l e 1 . 1 ,  the rate of increase i n Jap-  anese f o r e i g n i n v e s t m e n t s was 3 0 . 4 $ between I966 and 1971s higher than f o r other countries.  i t was  However, i n s c a l e , t h e v a l u e o f J a p -  anese f o r e i g n i n v e s t m e n t s was o n l y $ 4 , 4 8 1 , 0 0 0 , 0 0 0 i n 1 9 7 1 . " T h i s r e p r e s e n t e d o n l y 60.7 p e r cent o f t h e t o t a l  overseas investment  made  by West Germany t h a t y e a r , 2 0 . 5 p e r c e n t o f t h a t o f B r i t a i n , and 5 . 2 p e r c e n t o f t h a t o f t h e U.S.." " A l s o , t h e r a t i o o f t h e b a l a n c e ( o f J a p anese o v e r s e a s d i r e c t  i n v e s t m e n t s ) t o e x p o r t s and t o t h e GNP t h a t  was  l o w e r t h a n t h e o t h e r c o u n t r i e s a t 1 8 . 6 and 2 p e r c e n t  ly.  "  respective-  5  The Investments Japanese was  year  breakdown a c c o r d i n g t o r e g i o n i s p r e s e n t e d i n T a b l e  1.2.  i n advanced c o u n t r i e s rose from 32.2 p e r cent o f t h e t o t a l  o v e r s e a s i n v e s t m e n t t o 53-8 p e r c e n t , f r o m i 9 6 0 t o 1973• I t  i n t e r e s t i n g t o note t h e i n c r e a s i n g share o f Western Europe:  p e r c e n t i n i 9 6 0 compared t o 24*5 p e r c e n t i n 1973: where J a p a n e s e  i n v e s t m e n t s were t h e h i g h e s t .  ifihe d e c r e a s i n g i m p o r t a n c e  1.2  i t was t h e a r e a  Also i n t e r e s t i n g t o note,  o f L a t i n America f o r Japanese  investors.  T a b l e 1.3 p r e s e n t s t h e breakdown a c c o r d i n g t o r e g i o n and  4.  The C a n a d i a n Embassy, 1973, p . 3 . 5. Ibid.  Japanese  Investment ~~  Abroad , 1  Tokyo, September,  TABLE 1.1 THE AMOUNT OP DIRECT FOREIGN INVESTMENTS BY MAJOR COUNTRIES  1966 Amount o f foreign investments (unit: $1,000,000) Japan the U n i t e d S t a t e s Great B r i t a i n France West Germany Canada T o t a l o f DAC nations  Percentage a g a i n s t the t o t a l amount of f o r e i g n investments?; made by DAC nations  Percentage Percentage a g a i n s t the against t o t a l amount exports GNP  Per capita average  1,000 54,562 16,002 4,000 2,500 3,238  1.1 60.9 17.9 4.5 2.8 3.6  1.2 7.3 15.2 3.9 2.0 6.1  12.1 185.8 108.8 36.4 12.4 32.4  - 12 277 292 81 42 161  89,583  100.0  6.3  66.5  148  continued  TABLE 1.1 (cont.)  1971  Japan the U n i t e d States Great B r i t a i n Prance West Germany Canada T o t a l of DAC nations  Source:  Amount o f foreign investments (unit: $1,000,000)  Percentage against the t o t a l amount of foreign investments made by DAC nations  4,481  3.1  2.0  18.6  43  30.4  80,002 21,822 5,540 7,380  60.2 15.3 3.9 5.2 3.1  8.2 16.6 3-4 3.1 5.2  197.5 97.7 26.7 17.5 24.2  415 392 108 120 205  9.5 6.4 6.7 24.2 6.5  100.0  6.5  59.8  226  9.8  4,436  142,867  Percentage against GNP  Percentage a g a i n s t the Per t o t a l amount c a p i t a .af.exports average  M i n i s t r y o f I n t e r n a t i o n a l Trade, Overseas B u s i n e s s A c t i v i t i e s o f Japanese E n t e r p r i s e s , MITI I n f o r m a t i o n O f f i c e , Tokyo, October 1973, P. 15.  The r a t e o f increase i n foreign investments  TABLE 1.2 BREAKDOWN OF JAPANESE INVESTMENTS IN THE WORLD ACCORDING TO REGION  I960  1973 Advanced Nations Destined  Developing Natd-ons Destined  Advanced Nations Destined  Middle East 19.496  North America  North America Mo22/.,9$  L a t i n America 29.3$  Western Europe 1.2$  Middle East 8.9$ L a t i n America 14.6$  Southeast 18.9/°  Oceania 0.7%  Southeast A s i a 20.5$ - *  Developing Nations Destined  Asia  3 0 . 3 $  Africa 0.2$ Total 67.8$  Sources:  Total 3 2 . ;  •  ,  Western Europe 24.5$ Oceania - 6.4$  ^-  Africa 2.2$ Total 46.2$  Total 53.8$  The Canadian Embassy, Japanese Investment Abroad, Tokyo, September 1973 ( f o r I960). Consulate General o f Japan, Vancouver ( f o r 1973) (Bank o f Japan).  1Q;.  TABLE  1.3  BREAKDOWN OF JAPANESE INVESTMENTS I N THE WORLD ACCORDING TO REGION AND SECTOR, AS OF END OF 1971*  Sector Region North America Western  Europe  Oceania Southeast Latin  Asia  America  Middle East Africa  Manufacturing  Development Undertaking  Commerce  Others  23.5  17-4  48.6  10.5  1.0  15.5  75-6  8.0  25.8  66.7  6.9  1.5  44-5  37.2  9-8  8.4  47.1  24.5  14.4  13.8  1.5  98.0  0.5  0.0  22.9  69-9  0.9  6.4  F i g u r e s represent percentage o f the t o t a l . Source; 1973.  The C a n a d i a n Embassy, " J a p a n e s e  I n v e s t m e n t Abroad',' September  11  i n d u s t r i a l s e c t o r a s o f t h e end o f 1971•  I n North America, the major  p a r t o f J a p a n e s e i n v e s t m e n t s went i n t o "commerce": t o t a l Japanese i n v e s t m e n t s .  I n Western Europe,  48.6 p e r c e n t o f  75.6 p e r c e n t o f J a p -  anese i n v e s t m e n t s were i n t h e M o t h e r " c a t e g o r y , " i n c l u d i n g t h e h o t e l b u s i n e s s " . ^ "With r e g a r d t o d i r e c t Japanese investment  i n Oceania,  65.7 p e r c e n t , o r r o u g h l y t w o - t h i r d s , was made i n "development  under-  t a k i n g " , i n v o l v i n g f o r t h e most p a r t e x p l o i t a t i o n o f i r o n o r e , c o k i n g c o a l and n i c k e l o r e .  A f a i r l y l a r g e p r o p o r t i o n , 25.8 p e r c e n t , o f  7 i n v e s t m e n t s i n O c e a n i a was i n t h e m a n u f a c t u r i n g  sector."  " M a n u f a c t u r i n g " was t h e i n d u s t r i a l s e c t o r i n w h i c h  Japanese  i n v e s t m e n t s were t h e most i m p o r t a n t , i n S o u t h e a s t A s i a and L a t i n America:  44«5 p e r c e n t and 47.1 p e r c e n t , r e s p e c t i v e l y .  "Development  u n d e r t a k i n g " was a l s o a n i m p o r t a n t s e c t o r o f i n v e s t m e n t s i n b o t h a r e a s . T h i s s e c t o r was t h e most i m p o r t a n t one f o r J a p a n e s e • i n v e s t o r s i n t h e M i d d l e E a s t and A f r i c a . T a b l e 1.4 shows t h e 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 b y region f o r the manufacturing i n d u s t r i a l sector. t h r e e p e r cent o f Japanese investment  "Seventy  i n North America  seven p o i n t  i n t h e manufac-  t u r i n g s e c t o r was made i n t h e w o o d p u l p i n d u s t r y , i n t h e f o r m o f i n v e s t -  6. 7.  I b i d . p . 4. Ibid.  cvj  TABLE 1.4 BREAKDOWN OP JAPANESE INVESTMENTS IN THE WORLD ACCORDING  M  TO REGION AND MANUFACTURING  Manufacturing Food  Textiles  3.2  2.6  77..3  Europe  11.2  2.2  -  Oceania  4.4  0.8  7.9 3.2  Region North America  WoodPulp  Chemicals 4.3 '.  I r o n and NonFerrous Metals  INDUSTRY AS OF END OF 1971*  General Machinery  Electric Transport Machinery Equipment  Others  0.4  3-9  1.2  5.6  1.6  31-5  15.7  24.9  2.4  7.3  4.8  36.4  1.0  37.0  0.5  2.5  6.8  0.6  34.9  3.7  7.8  8.8  4.3  14.0  3.0  15.6  20.2  -  2.5  29.4  13-5  7.1  2-2.4  1.8  -  -  17.4  31.6  18.1  32.9  5-4  9.8  -  3.3  -  2.1  6.1  15.6  7.3  7.8  9.2  7.0  Western  Southeast Asia Latin America Middle East Africa Total  13.5  66.0  6.4  20.3  20.9  F i g u r e s r e p r e s e n t percentage o f the cbotal. Source;  The Canadian Embassy, Japanese Investment Abroad,  September 1973*  13  g ment f o r " d e v e l o p - a n d - i m p o r t " the " a l l a r e a s " average  purposes."  I t was r e a l l y h i g h e r t h a n  o f 20.9 p e r c e n t .  The b u l k 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 i n W e s t e r n E u r o p e was i n " c h e m i c a l s " :  31*5 p e r c e n t ; " g e n e r a l m a c h i n e r y " ,  " i r o n and n o n - f e r r o u s m e t a l s " , 1 5 « 7 $ «  24.9$; and  "Woodpulp" a n d " i r o n a n d n o n -  f e r r o u s m e t a l s " were e q u a l l y i m p o r t a n t i n O c e a n i a .  Southeast  A s i a and  A f r i c a were r e g i o n s where most o f J a p a n e s e i n v e s t m e n t s i n t h e m a n u f a c turing  s e c t o r were made i n " t e x t i l e s " :  respectively.  34«9 p e r cent and 66.0 p e r c e n t ,  " I r o n a n d n o n - f e r r o u s m e t a l s " was t h e most  important  s e c t o r i n L a t i n America w h i l e " t r a n s p o r t equipment", " e l e c t r i c and  machinery"  " o t h e r s " were t h e c h o i c e i n t h e M i d d l e E a s t . The breakdown a c c o r d i n g t o i n d u s t r i a l c a t e g o r y , as o f t h e  end  o f M a r c h 1973> i s p r e s e n t e d i n T a b l e  1.5•  U n f o r t u n a t e l y , i t has  been i m p o s s i b l e t o o b t a i n t h e breakdown a c c o r d i n g t o r e g i o n and industrial  sector.  When t a l k i n g about J a p a n e s e i n v e s t m e n t s , a d i s t i n c t i o n be made c o n c e r n i n g t h e f o r m o f i n v e s t m e n t s .  T a b l e 1.6 shows t h a t 52.7%  o f J a p a n e s e i n v e s t m e n t s were i n t h e f o r m o f " p u r c h a s e the l a r g e s t one,  8.  group.  "Branch  of securities":  o f f i c e o p e r a t i o n " was t h e l e a s t  r e p r e s e n t i n g o n l y 4«3$ o f Japanese i n v e s t m e n t s .  Ibid.  should  important  "Purchase o f  TABLE  14  1.5  BREAKDOWN OP JAPANESE INVESTMENTS I N THE WORLD ACCORDING -TO INDUSTRIAL' CATEGORY .'AS-OP END OP MARCH ,1-973  (Unit: $ m i l l i o n )  1 1 1  1 1 1 1  gourde:  I^Fishery - 49 (0.7$) " - A g r i c u l t u r e & F o r e s t r y - 83 (1-2%) • — T e x t i l e Industry - 416 (6.1%) Lumbering & Pulp Making - 296 (4.4$) Iron & Nonferrous Metals - 240 (3.6%) E l e c t r i c Machinery - 172 (3.6%) Transportation Equipment - 142 (2.5%) Machinery - 128 (1.9%) Chemicals - 132 (1.9%) F o o d s t u f f s - 99 (1-5/0 Others - 118 (l.8%) Consulate" General o f Japan, Vancouver (Bank o f Japan)  15  TABLE  1.6  BREAKDOWN OP JAPANESE INVESTMENTS I N THE WORLD  Purchase  ACCORDING TO FORM - AS OF END OF MARCH  1973  Form  ($ m i l l i o n )  Value o f Investment  of Securities  Acquisition of Credits D i r e c t Overseas Operations Branch O f f i c e Total  Source:  Business  Operation  3*571 2,441  (52.795) (36.1%)  470  ( 6.9%)  290 6*772  Consulate General o f Japan, Vancouver  (4.3%) (100%)  (Bank o f T o k y o ) .  '.16  s e c u r i t i e s " included d i r e c t investments i n m i n o r i t y operations.  J a p a n e s e i n v e s t m e n t s i n Canada  Canada was  n o t t h e c o u n t r y where J a p a n e s e i n v e s t e d t h e m o s t .  I n f a c t , i t come a f t e r t h e U n i t e d S t a t e s , B r a z i l , I n d o n e s i a Australia. one  and  F i g u r e s p r e s e n t e d i n T a b l e 1.7 i n d i c a t e t h a t Canada  was  o f t h e f o u r c o u n t r i e s where " c r e d i t i n v e s t m e n t s " were h i g h e r t h a n  9 " s e c u r i t y investments";  A u s t r a l i a , P h i l i p p i n e s and I n d o n e s i a were  t h e o t h e r c o u n t r i e s where s u c h a s i t u a t i o n e x i s t e d .  I t has been i m -  p o s s i b l e t o o b t a i n t h e breakdown o f J a p a n e s e i n v e s t m e n t s a c c o r d i n g t o i n d u s t r y f o r t h e s e c o u n t r i e s ; however, i t seemed t h a t where J a p a n e s e i n v e s t e d t o s e c u r e t h e i r s u p p l y o f raw m a t e r i a l s , t h e y p r e f e r r e d t h e " c r e d i t " form o f investment t o the " s e c u r i t y " form o f investment. I t seemed t o be a r e a s o n a b l e p o l i c y , a s t h e s i z e o f i n v e s t m e n t  in  "development u n d e r t a k i n g s " was q u i t e l a r g e , a v e r a g i n g 3,207,800 d o l l a r s per p r o j e c t ;  i t was 4*510,800 d o l l a r s p e r p r o j e c t i n w o o d p u l p , a n d  1,637,600 d o l l a r s p e r p r o j e c t i n i r o n and n o n - f e r r o u s m e t a l s .  When  9. The f o r m e r r a t i o w i l l be u s e d i n f u t u r e c h a p t e r s . 10. T h i s i s t h e a v e r a g e f o r J a p a n ' s i n v e s t m e n t on a w o r l d - w i d e b a s i s . The C a n a d i a n Embassy, J a p a n e s e I n v e s t m e n t A b r o a d , T o k y o , S e p t e m b e r , 1973, P. 5. 11. Ibid.  17  TABLE 1.7 JAPANESE OVERSEAS INVESTMENTS FOR MAJOR NATIONS AS OF END OF MARCH 1 9 7 3 *  Country  Security  Credit  Direct Business Operation  Branch Office  Total  U.S.  877,486  289,561  80,964  25,284  1,273,295  Canada  108,021  166,489  289  293  275,092  99,066  207,354  262  63  306,746  425,810  139,720  2,820  363  568,712  85,700  40,228  664  2,548  129,140  120,770  350,820  673  511  472,774  Philippine  28,582  58,444  936  87,962  Malaysia  49,907  23,651  897  1,048  75,504  Singapore  67,438  16,394  2,915  3,181  89,928  Hong Kong  71,860  24,148  60  3,491  99,557  Taiwan  89,173  15,795  2,810  107,778  194,669  4,792  518  6,720  206,699  Total (.Including other 3,571,480 countries)  2,441,129  469,836  290,400  6,772,845  Australia Brazil Thailand Indonesia  S. Korea  Aggregate Unit: ^thousand Source:  Consulate General of Japan, Vancouver  (Bank of Japan).  18  i n v e s t i n g l a r g e amounts o f money, J a p a n e s e made l o a n s i n s t e a d o f b u y i n g shares:  t h i s was p r o b a b l y i n o r d e r t o s e c u r e an i n v e s t m e n t more s a f e l y . I n 1971,  was $210,612,000.  t h e t o t a l v a l u e o f Japanese investment  I t r o s e t o $275,092,000 i n 1972 and t o $310,000,000  12 i n 1973»  i n Canada  " T h i s was an i n c r e a s e o f 47«6% o v e r a two y e a r  The  period.  d i s t r i b u t i o n o f J a p a n e s e i n v e s t m e n t s i n Canada a c c o r d i n g t o  i n d u s t r y i s p r e s e n t e d i n T a b l e 1.8.  Investments  s e c t o r r e p r e s e n t e d 49$ o f t h e s e i n v e s t m e n t s . ments was i n t h e " p u l p and l u m b e r "  i n the "manufacturing"  The b u l k o f s u c h  invest-  s e c t o r , w h i c h was r e s p o n s i b l e f o r  93% o f t h e i n v e s t m e n t s i n t h e m a n u f a c t u r i n g s e c t o r and r e p r e s e n t e d 46% o f t h e t o t a l i n v e s t m e n t s .  The a v e r a g e  v a l u e o f an i n v e s t m e n t i n  " p u l p and l u m b e r " was $11,640,000, w h i c h was h i g h e r t h a n t h e " w o r l d average" f o r s i m i l a r The  projects.  s e c o n d most i m p o r t a n t J a p a n e s e i n v e s t m e n t s were made i n  " m i n i n g " : $95,290,000, o r 34% o f t h e t o t a l v a l u e o f t h e s e i n Canada.  The a v e r a g e  investments  v a l u e o f an i n v e s t m e n t , h o w e v e r , $2,382,250,  was c o n s i d e r a b l y l o w e r t h a n t h a t f o r " p u l p and l u m b e r " . Investments  i n t h e s e two s e c t o r s , r e p r e s e n t e d 80% o f t h e t o t a l  v a l u e o f J a p a n e s e i n v e s t m e n t s i n Canada.  I t was i n t e r e s t i n g t o n o t e  t h e t o t a l a b s e n c e o f i n v e s t m e n t s i n " c h e m i c a l " and " t r a n s p o r t a t i o n " :  12. T h i s i s ' a n e v a l u a t i o n made by t h e v i c e - p r e s i d e n t o f t h e "CanadaJapan Trade C o u n c i l " i n Ottawa.  19'  TABLE 1 . 8 BREAKDOWN OF JAPANESE INVESTMENTS I N CANADA ACCORDING TO INDUSTRY, AS OF END OF 1 9 7 2  Industry  Value o f Investment (8000)  Number o f Cases  Foodstuff Textile P u l p and Lumber Chemical F e r r o u s and N o n - f e r r o u s Machinery Electronic Transportation Miscellaneous MANUFACTURING  1,227 2,514  2 4  Agriculture, Forestry Fisheries Mining Construction Trade Banking, Insurance Miscellaneous Branch O f f i c e s  Total  Source;  128,048  870 2,098  1,150 427 136,334  2,158 742  11  1 1  3 3 25_  3 4  95,290  40  21,690  45  16,998  15  275,092  143  1,059 528 293  Consulate General o f Japan, Vancouver  1 2  8  (Bank o f T o k y o ) .  20  there was " l i t t l e weight put on manufacturing"  i n Canada.  B r i t i s h Columbia was the p r o v i n c e where Japanese i n v e s t e d t h e most.  "The bulk o f l i m i t e d investment  i n Canada t o date has been i n  the resource i n d u s t r i e s , p a r t i c u l a r l y i n B r i t i s h Columbia,...". ^ 1  E x p e r t s extimated t h a t 66$ o f Japanese investments  i n Canada were made  i n B r i t i s h Columbia.  Trade between Canada and Japan "Japan accounts f o r 60 per cent o f Canadian exports t o the P a c i f i c and almost the same p r o p o r t i o n o f imports.  I t i s thus not o n l y  the dominant f a c t o r i n Canada's P a c i f i c t r a d e , but a t o p t r a d i n g p a r t n e r i n i t s own r i g h t .  Japan i s now Canada's t h i r d l a r g e s t export market 15  and w i l l probably soon overtake the U.K. f o r the second p l a c e . "  J  As  shown i n Table 1.9, i n 1972, Japan became Canada's second l a r g e s t p a r t n e r f o r imports, and i n 1973, Canada's second l a r g e s t market f o r e x p o r t s . On the other hand, Canada was a l s o the t h i r d l a r g e s t t r a d i n g p a r t n e r f o r Japan.  y  13. IDTC, The P a c i f i c Rim; An E v a l u a t i o n o f B r i t i s h Columbia Trade O p p o r t u n i t i e s , V i c t o r i a , 1972, p. 18. 14. P e r s o n a l commitments from personnel o f the Canada-Japan Trade Council. 15. The Standing Senate Committee on F o r e i g n A f f a i r s , Report on Canadian R e l a t i o n s w i t h the C o u n t r i e s of the P a c i f i c Region, I n f o r m a t i o n Canada, Ottawa, March 1972, p. 13.  TABLE 1.9  cvi  MOST IMPORTANT TRADING- PARTNERS OF CANADA AND JAPAN FROM 1970 TO 1973  CANADA E x p o r t s , F.O.B. ( M i l l i o n U.S.$)  Imports, F.O.B. ( M i l l i o n U.S.$) U.S.A. U.K. Japan Canada Australia  787.86 58.76 46.38  904.45 68.69 66.21  1087.92 79.76 93.03  878.20  1375.26 883^6  119.34 63.35  84.82  1006.74 112.29 65.32  1175.93 111.83 81.04  1425.64 132.34 149.94  633.21  747.52  795.65  63-30  63.94  104.13 83.24  JAPAN  U.S.A. U.K. Japan Canada Australia  463.69 77.38  127.71  415.13 83.66  147.80  Monthly averages. Source; OECD, O v e r a l l  488.05  772.95  501.25  95.74  167.91 310.23  52.30  189.48  46.94  73-00  :  Trade by C o u n t r i e s , P a r i s , A p r i l 1974.  92.00  22  Canadian trade with Japan had two i n t e r e s t i n g its distribution  and i t s composition. Canadian exports to Japan were  mainly from Western Canada. 80$  characteristics:  T h i s part of Canada "accounted f o r almost  of Canada's t o t a l exports to Japan, comprising B r i t i s h Columbia,  Yukon, and the Northwest T e r r i t o r i e s Alberta  (10.8$)  and Manitoba  replaced the U.K.  (52.5$),  (3.0$)."  1  6  Saskatchewan  In f a c t , " i n  (13.4$),  1967,  Japan  as B r i t i s h Columbia's second most important customer.  Japan's exports to Canada were mainly to E a s t e r n Canada: Ontario together took  67$,  while Western Canada r e c e i v e d  Quebec and  26.4$ of  the  total. "...More than 96 per cent of Japanese s a l e s to Canada are accounted f o r by a d i v e r s i f i e d range of processed and.manufactured  good  1 Pi  i n 1969.  F o r 1971,  1972,  and 1973,  the r a t i o was the same.  In  1971  exports to Canada of Japanese l i g h t and heavy i n d u s t r i a l products were  $844,733,000  of a t o t a l value of Japanese exports to Canada of  209,000.  1972,  In  the corresponding values were  $876,  $1,065,478,000  and  19  $1,103,994,000.  y  From January to September  1973,  the data were  16. I b i d . , p. 17. 17. IDTC, The P a c i f i c Rim: An E v a l u a t i o n of B r i t i s h Columbia Trade Opportunities , V i c t o r i a , 1972, p. 19» 18. The Standing Senate Committee,... op. c i t . p. 17. 19. Data from JETROIs o f f i c e i n Vancouver.  23  $706,000,000 a n d $732,000,000, r e s p e c t i v e l y . W h i l e J a p a n was m a i n l y e x p o r t i n g m a n u f a c t u r e d goods t o Canada, i t was b u y i n g v e r y few C a n a d i a n m a n u f a c t u r i n g goods i t s e l f : b u l k o f i t s C a n a d i a n p u r c h a s e s were raw m a t e r i a l s . 1973,  f r o m J a n u a r y t o September,  the  F o r example, i n  J a p a n i m p o r t e d f r o m Canada:  $312,  000,000 i n " f o o d and l i v e a n i m a l s " , $779,000,000 i n " c r u d e m a t e r i a l s " and  $151,000,000 i n " m i n e r a l f u e l s , l u b r i c a n t s , and r e l a t e d m a t e r i a l s " ,  w h i c h r e p r e s e n t e d 8ffo o f t h e t o t a l v a l u e o f J a p a n ' s i m p o r t s f r o m Canada.  ^ From a J a p a n e s e p o i n t o f v i e w , t r a d e . a w i t h Canada p r e s e n t e d  two d i f f i c u l t i e s :  f i r s t l y , t h e g e n e r a l b a l a n c e o f t r a d e was i n f a v o r  o f Canada; s e c o n d l y , t h e y c o m p l a i n e d about a c c e s s f o r s p e c i f i c p r o d u c t s , l i k e t e x t i l e s , i n Canada. From t h e C a n a d i a n p o i n t o f v i e w , t h e m a i n p r o b l e m was t h e comp o s i t i o n o f goods t r a d e d .  Canadians admitted t h a t t h e t r a d e balance  was i n t h e i r f a v o r , butdwondered  how J a p a n e s e c o u l d c o m p l a i n when  t h e y were e x p o r t i n g m a n u f a c t u r e d goods w h i c h c r e a t e d j o b s a t home, w h i l e i m p o r t i n g raw m a t e r i a l s f r o m Canada, w i t h l o w added v a l u e . One l a s t p o i n t o f i n t e r e s t a s b a c k g r o u n d t o t h i s s t u d y was  20. 21.  T r a d e by c o m m o d i t i e s , J a n u a r y - September 1973, Ibid.  0ECD, P a r i s ,  1974.  24  the importance e x p o r t s / G N P was  o f f o r e i g n t r a d e f o r each c o u n t r y . 21$  I n J a p a n , i n 1971,  I n 1973,  the  i n Canada, w h i l e t h e r a t i o i m p o r t s / G K P was t h e same r a t i o s were 9$  o t h e r w o r d s , e x t e r n a l t r a d e was  and 6$  respectively.  ratio 19$. In  more i m p o r t a n t f o r Canada t h a n f o r  Japan.  A b r i e f o u t l i n e of the p r e s e n t a t i o n  The  a n a l y s i s i n the f o l l o w i n g c h a p t e r s , i s s t r u c t u r e d i n  t e r m s o f e i g h t g r o u p s o f v a r i a b l e s , as  follows:  (1)  Reasons f o r i n v e s t i n g i n B r i t i s h C o l u m b i a  (2)  Reasons f o r d e c i d i n g t o go i n t o a j o i n t (Chapter  2)  Reasons f o r s e l e c t i n g a s p e c i f i c a s s o c i a t e  (4)  S i z e o f Japanese parent f i r m  (Chapter  (5)  Evaluation c r i t e r i a  4)  (6)  The  of the j o i n t venture  (8)  (Chapter  (Chapter  4)  nature of business of the Japanese parent (Chapter  and  5)  S t r u c t u r a l c h a r a c t e r i s t i c s of the j o i n t (Chapter  2)  venture  (3)  (7)  (Chapter  ventures  5)  A t t i t u d e s towards p a r e n t company  c o n t r o l on t h e p a r t o f t h e J a p a n e s e  (Chapter  6)  3)  .25  CHAPTER  The  2  J o i n t Venture D e c i s i o n  Three d e c i s i o n s are important i n t h i s s t u d y :  the  t a k e n by J a p a n e s e c o m p a n i e s t o i n v e s t i n B r i t i s h C o l u m b i a , i s i o n t o i n v e s t i n t o t h e f o r m o f j o i n t v e n t u r e s , and t h e  decision the  dec-  decision  t o s e l e c t an a s s o c i a t e .  Decision to Invest i n B r i t i s h  Columbia  As p o i n t e d out b e f o r e , t h e c o m m e r c i a l and Canada a r e v e r y i m p o r t a n t .  On one  l i n k s between J a p a n  h a n d , J a p a n i s t h e most  p o r t a n t t r a d i n g p a r t n e r o f Canada, a f t e r t h e U n i t e d S t a t e s .  im-  On  the  o t h e r h a n d , Canada i s t h e t h i r d l a r g e s t t r a d i n g p a r t n e r o f J a p a n , t h e U n i t e d S t a t e s and A u s t r a l i a .  after  However, t h e C a n a d i a n government  would l i k e t o i n c r e a s e e x p o r t s of manufactured  goods t o J a p a n ,  which  i s a t p r e s e n t m a i n l y i m p o r t i n g raw m a t e r i a l s , a c h a r a c t e r i s t i c o f t h e J a p a n e s e economy w h i c h n e e d s t h i s t y p e o f i m p o r t s t o o p e r a t e a t  full  capacity. I t i s t h e n r e a s o n a b l e t o e x p e c t t h a t t h e most  important  r e a s o n f o r Japanese companies t o i n v e s t i n B r i t i s h C o l u m b i a would t o s e c u r e t h e i r s u p p l y o f raw To f i n d out why  be  material.  J a p a n e s e f i r m s have i n v e s t e d i n B.C.,  executives  26.  o f t h e s e c o m p a n i e s were a s k e d t o o r d e r t h e f o u r most i m p o r t a n t e x p l a i n i n g the  The  d e c i s i o n s of t h e i r f i r m s .  They, had  1.  New  2.  Geographical  3.  P r o t e c t i n g e x i s t i n g market.  4.  Overcoming t a r i f f b a r r i e r s .  5.  Matching  6.  Using  7.  Lower c o s t  8.  To  obtain  materials.  9-  To  obtain  resources/facilities.  t o s e l e c t between:  market. diversification.  competition.  patents/licences. conditions.  10.  H o s t government i n c e n t i v e s .  11.  Political  12.  Other reasons.  stability.  r e s u l t s are p r e s e n t e d i n Table  2.1.  As e x p e c t e d , t h e most i m p o r t a n t r e a s o n f o r t h e J a p a n e s e c o m p a n i e s i n B.C.  was  m e n t i o n e d most o f t e n :  of the t i m e .  most o f t e n as t h e i t had was  the highest  25$  f i r s t reason: score:  54.  "to obtain m a t e r i a l s " .  62$.  as a t h i r d r e a s o n .  I t was  1  And  13  investment  times:  Seven t i m e s i t was  not  of  This reason  was  the reason s e l e c t e d  on a w e i g h t e d s c o r e  F u r t h e r m o r e , out  c h o s e n as t h e most i m p o r t a n t one  i t up  reasons  o f 14  mentions, i t  o n l y one cited:  basis,  company  picked  s i x companies  1. T h i s was not s u r p r i s i n g as o n e - t h i r d o f t h e J a p a n e s e companies i n v e s t i n g i n B.C. a r e i n t h e raw m a t e r i a l s e c t o r o f t h e J a p a n e s e economy.  27  TABLE  2.1  REASONS CITED BY JAPANESE PARENT COMPANIES FOR THEIR INVESTMENT I N B R I T I S H COLUMBIA  Order i n Which R e a s o n Was C i t e d Reason  12  3  4  Total Responses (Out o f 21)  Number o f C a s e s New market Geographical d i v e r s i f i cation Protecting existing market Overcoming t a r i f f barriers Matching Competition Using patents/licenses U s i n g equipment Lower c o s t c o n d i t i o n s To o b t a i n m a t e r i a l s To o b t a i n r e s o u r c e s / facilities H o s t government incentives P o l i t i c a l stabilityOther reasons T o t a l Responses  3 1 3  -  1 5 0  2  1 1 2  -1  —  13  -  -  1 1 4 1 1  -1 '- 7 2 2 - 2 1 —  21 18 12 5  P o s s i b l e Weighted No. o f Score* Cases i n Which t h e Response Was N o t Cited  7 8  14  21  13  21  4  17 21 21 21 21 19 7 15 20 12 16  11  —  2 14 6 1 9 5 56  — — — —  3 54 15 4 25 13  E a c h t i m e a r e a s o n was c i t e d a s f i r s t , i t was m u l t i p l i e d b y 4, a s s e c o n d i t was m u l t i p l i e d by 3, a s t h i r d i t was m u l t i p l i e d b y 2, and a s f o u r t h , b y 1. These w e i g h t e d v a l u e s were t h e n summed o v e r e a c h c a t e g o r y t o g i v e a t o t a l weighted score f o r that reason.  28  i n the " m i s c e l l a n e o u s group"  c  d i d n o t u n d e r l i n e t h i s r e a s o n as an  i m p o r t a n t one f o r them and one company i n t h e "raw m a t e r i a l g r o u p " ^ d i d t h e same.  T h e i r reasons w i l l  The s e c o n d to  be d i s c u s s e d l a t e r .  most i m p o r t a n t c r i t e r i o n u s e d b y J a p a n e s e f i r m s  d e c i d e upon i n v e s t m e n t  i n B.C. was " p o l i t i c a l s t a b i l i t y " .  This  r e a s o n was m e n t i o n e d 1 6 $ o f t h e t i m e and s e l e c t e d 4 0 $ o f t h e t i m e as a second  reason.  I t s c o r e d 2 5 on t h e w e i g h t e d  scale.  many e x e c u t i v e s e m p h a s i z e d t h a t i t was a s i g n i f i c a n t  Nevertheless, r e a s o n , and t h a t  i f t h e y h a d t o c o n s i d e r i n v e s t i n g t o d a y , t h e y w o u l d have t o r e evaluate t h i s  criterion.  The t h i r d and f o u r t h r e a s o n s were o f e q u a l i m p o r t a n c e : m a r k e t " and " g e o g r a p h i c a l d i v e r s i f i c a t i o n "  "new  s c o r e d 2 1 on t h e w e i g h t e d  c r i t e r i o n was m e n t i o n e d 7 t i m e s o f a t o t a l o f 5 6  scale.  The f i r s t  (12.5$)  and t h e s e c o n d  more o f t e n a s a f i r s t  one  8  times  (14$).  "New  m a r k e t " was m e n t i o n e d  c h o i c e ; i t was t h e n c l a s s i f i e d as t h e t h i r d  most i m p o r t a n t c r i t e r i o n f o r t h e p u r p o s e o f t h i s Of t h e t o t a l o f 1 5 m e n t i o n s ,  study.  f o r t h e two c r i t e r i a ,  1 3 came f r o m  the "miscellaneous c a t e g o r y " .  O n l y two c o m p a n i e s o f t h e "raw m a t e r i a l  group" mentioned these reasons  as i m p o r t a n t t o them i n t h e i r  t o i n v e s t i n B.C..  One f i r m p o i n t e d out " g e o g r a p h i c a l  decision  diversification"  as t h e most i m p o r t a n t r e a s o n and t h e o t h e r one, "new m a r k e t " as a  2. M i s c e l l a n e o u s group: companies c l a s s i f i e d a c c o r d i n g t o t h e n a t u r e of business o f the j o i n t v e n t u r e . Restaurant, f i n a n c e , s t e e l , marketing. 3 . P u l p , l u m b e r and m i n i n g c o m p a n i e s .  29  third  reason. I t i s i n t e r e s t i n g t o p o i n t out t h e a b s e n c e o f m e n t i o n  cerning four c r i t e r i a :  "overcoming  t a r i f f barriers",  "matching  c o m p e t i t i o n " , " u s i n g p a t e n t s / l i c e n c e s " , " u s i n g equipment". criteria  are mentioned  i n t h e l i t e r a t u r e as p o s s i b l e r e a s o n s  ing  f i r m s t o invest abroad.  was  e m p h a s i z e d o n l y t w i c e and was  con-  These motivat-  A l s o the f a c t t h a t "lower cost c o n d i t i o n s " t h e l o w e s t i t e m on t h e  weighted  scale.  D e c i s i o n t o go i n t o a .joint  venture  As Canada has been a v e r y l i b e r a l  country concerning foreign  i n v e s t m e n t s , i t w o u l d be r e a s o n a b l e t o e x p e c t t h a t no f o r e i g n i n v e s t o r s w o u l d have been f o r c e d i n t o a j o i n t v e n t u r e t h r o u g h or  "explicit  i m p l i c i t h o s t government p r e s s u r e s " . E n t e r p r i s e s might d e c i d e t o go i n t o a j o i n t v e n t u r e  reduce the l e v e l o f p o l i t i c a l stability"  was  one  "Political  t h e s e c o n d most i m p o r t a n t c r i t e r i o n f o r J a p a n e s e com-  p a n i e s t o i n v e s t i n B.C.. i n B.C.,  or/and f i n a n c i a l r i s k s " .  "to  S i n c e t h i s was  c o u l d not expect  into a joint venture.  a basic reason f o r i n v e s t i n g  i t t o be a f r e q u e n t r e a s o n f o r g o i n g  When a f i r m i n v e s t e d i n B.C.  because i t was  politically  s t a b l e , i t w i l l n o t go i n t o a JV t o s p r e a d  risks.  o f t h e j o i n t v e n t u r e s o f t h i s s t u d y have as J a p a n e s e p a r e n t  Ten  a " s h o j i k a i s h a " ( t r a d i n g company):  because o f t h e i r  political  financial  30  strength i t i s d i f f i c u l t  t o s e e t h e s e companies g o i n g i n t o  ventures merely i n order t o "spread f i n a n c i a l  joint  risks".  A f o r e i g n c o r p o r a t i o n might e s t a b l i s h a j o i n t v e n t u r e b e c a u s e it  "needs l o c a l r e s o u r c e s " .  Many e x e c u t i v e s , when t a l k i n g o f l o c a l  r e s o u r c e s , d i s t i n g u i s h e d between raw m a t e r i a l r e s o u r c e s on one hand, and m a n a g e r i a l and t e c h n i c a l r e s o u r c e s on t h e o t h e r h a n d .  "Obtaining  raw m a t e r i a l " was m e n t i o n e d a s an i m p o r t a n t r e a s o n f o r i n v e s t i n g i n B.C.. it  As " o b t a i n i n g raw m a t e r i a l " f r o m a c o u n t r y w i t h o u t p r o c e s s i n g  i n t h e h o s t c o u n t r y c o u l d r a i s e up tremendous n a t i o n a l i s t i c  objec-  t i o n s , a j u d i c i o u s p o l i c y f o r f o r e i g n companies w o u l d be t o go i n t o joint ventures with l o c a l i n t e r e s t s .  This assumption i s r e i n f o r c e d  by t h e f a c t t h a t n o t o n l y do J a p a n e s e d i s l i k e t o be s e e n a s f o r e i g n e r s but a l s o make many e f f o r t s t o p r o j e c t a good p i c t u r e o f t h e i r  bus-  i n e s s e s i n N o r t h America??, C o n c e r n i n g t h e s e c o n d r e a s o n , one c o u l d a r g u e t h a t i f t h e t r a d i n g companies do n o t "need l o c a l r e s o u r c e s " t h e y do n o t "need m a n a g e r i a l o r t e c h n i c a l  financial  resources".  N e v e r t h e l e s s , t h e Canadian b u s i n e s s environment i s q u i t e d i f f e r e n t t h e J a p a n e s e e n v i r o n m e n t , and one way t o cope w i t h t h i s  from  difference  i s t o go i n t o b u s i n e s s j o i n t l y w i t h C a n a d i a n s ; a s one e x e c u t i v e  said:  " I n Canada, C a n a d i a n b u s i n e s s m e n know how t o r u n t h e show." "Associate's project":  i f a Canadian business presented a  good p r o j e c t t o J a p a n e s e b u s i n e s s m e n , t h e y might be i n t e r e s t e d i n i n v e s t i n g i n i t and become p a r t n e r s . J a p a n e s e do n o t l i k e t o be s e e n a s J a p a n e s e and f o r e i g n e r s i n  31  Canada: was  t h e y p r e f e r t o be i d e n t i f i e d as l o c a l b u s i n e s s m e n and  this  e x p e c t e d t o be a r e a s o n f o r them t o become a s s o c i a t e d w i t h Can-  adians . "Other reasons":  t w i c e , companies mentioned  this  criterion  p a r t l y as a r e s i d u a l c a t e g o r y s i n c e t h e o t h e r r e a s o n s p r o v i d e d were n o t a d e q u a t e t o d e s c r i b e what t h e y had i n m i n d .  These r e a s o n s  will  be d i s c u s s e d l a t e r . As r e a s o n s may  v a r y w i t h the nature of business of the  v e n t u r e s , n a t u r e o f b u s i n e s s and r e a s o n f o r t h e j o i n t v e n t u r e w i l l be a n a l y s e d s i m u l t a n e o u s l y .  T a b l e s 2.2  and 2.3  joint decision  present the r e -  sults. "Need f o r l o c a l r e s o u r c e s , m a n a g e r i a l and t e c h n i c a l " , was most i m p o r t a n t r e a s o n f o r J a p a n e s e c o m p a n i e s t o go i n t o j o i n t I t was  the r e a s o n mentioned  h i g h e s t s c o r e on a w e i g h t e d only:  most o f t e n :  32%  basis:  I t was  t h e number o f t i m e s i t was  mentioned  companies p i c k e d i t f i r s t  second  as f i r s t  ventures.  I t had  i n one  reason.  the  way I t was  m a t e r i a l group" except i n  f o u r t i m e s and s e c o n d n i n e t i m e s .  i n d i c a t e s t h a t t h e m i n i n g companies were t h e c o m p a n i e s u s i n g  t h i s as t h e f i r s t  reason.  as t h e most i m p o r t a n t The c i t e d , was  mentioned  by a l l t h e c o m p a n i e s i n t h e "raw  two c a s e s : T a b l e 2.3  54'  of the time.  the  first  The  " m i s c e l l a n e o u s group"  factor.  r e a s o n , a c c o r d i n g t o t h e number o f t i m e s i t was  "need f o r l o c a l r e s o u r c e s :  e x p e c t e d , i t was  chose i t t w i c e  mentioned  raw m a t e r i a l " . . As might  by a l l t h e c o m p a n i e s i n t h e p u l p and  be lumber  32  TABLE  2.2  REASONS CITED BY JAPANESE FIRMS FOR CHOOSING THE JOINT VENTURE FORM OF INVESTMENT I N B. C.  Order i n Which R e a s o n Was C i t e d  Total Responses (Out o f  Weighted Score*  21)  Reason Number o f C a s e s E x p l i c i t host government p r e s s u r e s I m p l i c i t host government p r e s s u r e s Spreading r i s k ( P o l i tical-FinancialOther) Need f o r l o c a l resources: -raw m a t e r i a l -managerial -technical Associate's project Local identityOther reasons T o t a l responses  *  -  —  —  —  1  2  9 6 3 1 1 21  9 -J  1 3 —  15  Possible No. o f Cases i n Which T h i s Response Not Made  —  -  0  0  21  -  —  0  0  21  1  4  11  17  9  36  12  1  17  !j4  1 3  9 13 2 54  —  1 X  4 6 1 12  —  66  Same method a s t h e one u s e d i n T a b l e  2.1  24 28 6  4 12 8 19  TABLE 2.3 VARIATIONS BY NATURE OP BUSINESS IN REASONS FOR GOING INTO JOINT VENTURES  Reasons f o r Going i n t o J o i n t  . Nature o f JV Business  Host Government Pressures  Spreading Risk  No  No  Pulp and Lumber  Need f o r L o c a l Resources Managers and A s s o c i a t e ' s Local Raw M a t e r i a l T e c h n i c i a n s Project IdentityNumber o f Cases and C e l l i Based on Row Sum* i No io No No, io No 6  (Opera-  Mining (Exploration)  1  20  Totals  1  4  Other T o t a l No.  i  No. 6  100 2  33  75  1  25 60  42  3 6  Miscellaneous Mining tion)  Venture  Percentages do not a l l add up to 100 because o f rounding.  28  3  3  50  14  17  6  -  1  20  5  1  4  21  34  g r o u p as t h e most i m p o r t a n t r e a s o n , and by t h r e e o f t h e f o u r m i n i n g companies i n v o l v e d i n m i n i n g o p e r a t i o n s .  The  m i n i n g g r o u p were i n v o l v e d i n e x p l o r a t i o n . t h e "need f o r l o c a l r e s o u r c e s : m a n a g e r i a l r e a s o n , one  and t e c h n i c a l " as t h e  the weighted  score.  number o f t i m e s i t was  However, i t r a n k e d s e c o n d  a c c o r d i n g t o the  u n d e r l i n e d as..an i m p o r t a n t r e a s o n .  m e n t i o n e d f i r s t was  m e n t i o n e d i t as a s e c o n d  to  Three companies  reason. c i t e d as t h e most i m p o r t a n t  i n t e r e s t e d by i t s p a r t n e r ' s p r o j e c t w h i c h  One  reason  J a p a n e s e company  gave i t t h e o p p o r t u n i t y  get i n v o l v e d more d e e p l y i n W e s t e r n Canada c a r r y i n g out t h e same  t y p e o f b u s i n e s s as a t home. of  only  r e a s o n t o e s t a b l i s h a j o i n t v e n t u r e , s i x as  by t h r e e c o m p a n i e s o f t h e " m i s c e l l a n e o u s g r o u p " .  to  The  by a f i n a n c e company w h i c h w i s h e d  " A s s o c i a t e ' s p r o j e c t " was  was  con-  t h e t h i r d most i m p o r t a n t f a c t o r a c c o r d i n g  be s e e n as a C a n a d i a n company i n t h i s d e l i c a t e f i e l d .  a third  first  availability.  " L o c a l i d e n t i t y " was  t i m e i t was  T h r e e o f them p o i n t e d out  p r e f e r r e d " t o s p r e a d t h e r i s k s " and t h e f i f t h was  cerned w i t h c a p i t a l  to  o t h e r companies i n the  i t s a s s o c i a t e was  keting policy. f i r m s , was  The  Another  one  good and f u l f i l l e d third  a part of i t s worldwide  j o i n t v e n t u r e , s e t up between two  a good o c c a s i o n f o r one  mar-  Japanese  of the p a r t n e r s t o i n c r e a s e i t s  knowledge o f t h e W e s t e r n C a n a d i a n m a r k e t . i n v e s t e d i n B.C.  judged t h a t the p r o p o s i t i o n  The  " m i s c e l l a n e o u s group"  f o r r e a s o n s d i f f e r e n t f r o m t h e one  m e n t i o n e d by  the  35  "raw m a t e r i a l  group".  Furthermore,  for  reasons.  The  different  behavior  is  surely  "Other the  reasons"  "raw m a t e r i a l  additional the  capital"  Size  of  better  size  the  was u s e d t o  of  invested  spread  links  in a  its  into this of  joint The  joint  each  by a company  other  "to  the  in  obtain  company was  reason  Canadian  of  group.  venture  a third  venture  difference  twice:'...once  risks".  with  for  business  p o i n t e d out  shares  projects  I n the  the  Voting equity  ( i n $) total  and f u l l y  capital  of  been  in  need  to  partner.  the  value  and the  value  , the  paid,  d e f i n e d as  the  total  voting  t h e ' " p u l p and l u m b e r group',' and i n  group",  mining group  issued  has  case  i n shares  evaluate  F o r the  5. to  nature  g r o u p " and i n d i c a t e d as  "miscellaneous  Japanese parent  4.  were  and " t o  of  equity capital^. of  the  business  went  Projects  The  case  also  main e x p l a n a t i o n  group" which  "miscellaneous  establish  of  due t o  it  of  of  the  percentage the  project  investment of  equity  as  defined  of it  f o l l o w i n g method was u s e d :  according to  in $ millions:  the  annual report  Category  0.9 and u n d e r VS 1.0 t o 3 « 9 S 4.0 t o 9.9 ' M over 10.0 L T h i s m e t h o d h a s t o be u s e d b e c a u s e some c o m p a n i e s d i s c l o s e the value of t h e i r investments.  the owned  here. number of  No. of  were  the  each  JVs  6 4 4 6 reluctant  3  company  multiplied It  the  size  "very  were  reasonable  tures would and  joint  parents  i s then  be  the  market  impossible to  of the  Japanese It  was  by  closer  s m a l l " JVs  value  .  establish  a  venture  and  normally to  expect  to  the  should  relationship  the  size  of  larger  than  their  that  size be  clear  i t s Japanese Canadian  "medium" and  of the  closer  to  foreign the  between parent.  partners.  "large"  joint  parent.  size  6  ven-  "Small"  of t h e i r  Canadian  7 partners.  Pacts  What for  going  where  the  reason:  83$  i s the joint  last  f o u r reasons  "need one  mainly of the  established  joint  ventures.  6.  As  7.  Category  JVs  VS  6  s  M L  Classified  to  4 4 6  "very  profit  criterion  p u b l i s h e d i n The  The  size  results 2.2  of projects  are  have  and  reasons  shown i n T a b l e  been  regrouped  2.4,  under  one  resources".  small" joint  pointed this  between  o f Table  could expect,  tures  a)  ventures?  for local  "very  assumption.  relationship  into  As were  sustained this  2VS IS  1VS 6L  from  local  ventures as  their  Vancouver  Japanese  s m a l l " and  Sun,  Parent  and first  June  IM  according to value  2L 6'f  resources:  100$  of  reason  parents  f o r going  of ven-  into  14, 1974* Partner 1L lPrivate  2S  IM  Iwith  3VS  IM IM  lPrivate  3L sales:  ventures  "small" joint  Canadian 2VS I S  3  4L  3L  "small" joint  Japan 1VS  37  TABLE S I Z E OF PROJECT AND  2.4  REASONS FOR  GOING INTO JOINT VENTURES  Size of J o i n t Venture Very Small Reasons f o r Going i n t o JV Host  Small  Large  Medium  No. o f C a s e s and C e l l fo B a s e d on Column No.  %  Total  Sum  No.  %  No.  83  4  100  4  100  6  100  19  30  4  20  4  20  6  30  20  P  No.  government  pressures  -  Spreading r i s k  1  Need f o r l o c a l resources T o t a l and $ b a s e d on row sum  5 -  6  16  P e r c e n t a g e s do n o t a l l add up t o 100  because o f r o u n d i n g .  20 i n s t e a d o f 21 J V s . I t has been i m p o s s i b l e t o g e t t h e d a t a r e q u i r e d f o r one company.  financial  J  38-  However,  i t i s s u r p r i s i n g t o r e a l i z e t h a t many " l a r g e "  v e n t u r e s have "been e s t a b l i s h e d p a r t l y f o r t h e same r e a s o n .  joint  On t h e  o t h e r h a n d , a s t h e r e i s no government p r e s s u r e s i n Canada t o f o r c e f o r e i g n e r s t o go i n t o j o i n t v e n t u r e s , one c o u l d n o t e x p e c t r e a s o n w o u l d be m e n t i o n e d v e r y o f t e n . p a r e n t companies o f t h o s e  Furthermore,  that  this  a l l t h e Japanese  j o i n t ventures are " l a r g e " companies, a c c o r -  d i n g t o c r i t e r i a d e s c r i b e d above: to "spread f i n a n c i a l r i s k s " .  t h e y do n o t go i n t o j o i n t  ventures  When t h e s e companies p o i n t e d o u t t h e i r  "need f o r l o c a l r e s o u r c e s " t h e y h a d i n m i n d , a s i n d i c a t e d i n T a b l e raw m a t e r i a l i n 83% o f t h e c a s e s . c o u l d expect  2.5,  On a r e s i d u a l b a s i s t h e r e f o r e , one  s u c h an a n s w e r , a s t h e s i x p a r e n t companies were p a r t n e r s  o f j o i n t v e n t u r e s i n t h e "raw m a t e r i a l g r o u p " . T h i s t a b l e a l s o i n d i c a t e s t h a t i f " v e r y s m a l l " and " s m a l l " j o i n t v e n t u r e s were e s t a b l i s h e d because t h e f o r e i g n p a r t n e r s were i n -  a) c o n t . $•§• b i l l i o n and u n d e r | to 1 billion 1 to 4 billions over 4 b i l l i o n s b)  Very Small Small Medium Large  C l a s s i f i e d according t o value of sales u n d e r $100 m i l l i o n s 100 t o 250 m i l l i o n s 250 t o 500 m i l l i o n s over §O0iihillions  Very Small Small Medium Large  39  TABLE S I Z E OF PROJECTS AND  2.5  REASONS FOR  GOING INTO JOINT VENTURES  Size of Joint Very Small Reasons f o r Going i n t d JV  No. No.  Small  Medium  o f C a s e s and C e l l B a s e d fo  No.  Venture  fo  No.  Large  on Column fo  Total  Sum  No.  $  No.  H o s t government pressures Spreading r i s k (Political Other) Need f o r l o c a l resources: - raw m a t e r i a l - managerial - technical Associate s project  16  2  33  1  25  1  25  5  83  8  1  16  1  25  2  50  l  16  5  1  Local  identity  Other  reasons  T o t a l and fo B a s e d on row sum  33  30  2  25 1  25  2  1  25  .1  20  P e r c e n t a g e s do n o t a l l add up t o 100  20  30  20  ]  because o f r o u n d i n g .  20 i n s t e a d o f 21 J V s . I t has been i m p o s s i b l e d a t a r e q u i r e d f o r one company.  t o get t h e  financial  40  t e r e s t e d by l o c a l resources, i t was mainly f o r something e l s e than f o r raw m a t e r i a l .  "Very s m a l l " e n t e r p r i s e s were i n t e r e s t e d by " l o c a l  managerial and t e c h n i c a l resources", " l o c a l i d e n t i t y " p r o j e c t " 60$ of the time.  and " a s s o c i a t e ' s  "Small" firms were l o o k i n g f o r the same  f a c t o r s 75$ of the time. As f a r as the "medium?! j o i n t ventures are concerned,  i t i s one  of the two occasions when companies i n the "raw m a t e r i a l category" c i t e d "need of l o c a l managerial and t e c h n i c a l resources" as a reason f o r going i n t o j o i n t ventures. most o f t e n :  50$ of the cases.  T h i s was the c r i t e r i o n they mentioned The two firms mentioning t h i s  criterion  were i n v o l v e d i n mining e x p l o r a t i o n . The two companies i n the category of "very s m a l l " j o i n t which pointed out the "need f o r l o c a l resources:  raw m a t e r i a l " , should  not r e a l l y be c l a s s i f i e d as "very s m a l l " but r a t h e r as " l a r g e " ventures.  ventures  joint  The method t o c l a s s i f y the j o i n t ventures was chosen as a  compromise so that a l l j o i n t ventures could be analysed on the same scale.  Nevertheless these two companies were s p e c i a l  cases.  Very  often Japanese companies would invest i n shares and make a l o a n . general Canadian average  r a t i o o f Debt/Equity i s 3/l«  The  When companies  were w i l l i n g t o d i s c l o s e t h i s information, i t was r e a l i z e d  that most  of them were near t h i s average^ except f o r the two companies mentioned earlier.  The-ir r a t i o was r e a l l y much higher than the Canadian  and t h e r e f o r e they should s t r i c t l y be c l a s s i f i e d as " l a r g e " ventures.  average  joint  •41  Thus a p a t t e r n emerges:  as t h e s i z e o f a j o i n t v e n t u r e  in£-  c r e a s e s , t h e main r e a s o n f o r J a p a n e s e c o m p a n i e s t o become p a r t n e r s s h i f t s from " a s s o c i a t e ' s p r o j e c t " , " l o c a l i d e n t i t y " ,  "need f o r l o c a l  m a n a g e r i a l and t e c h n i c a l r e s o u r c e s " , t o "need f o r l o c a l raw as shown i n F i g u r e  material",  2.1.  Selection of Associates The  reasons c i t e d by Japanese companies f o r t h e i r  investments  u n d e r t h e f o r m o f j o i n t v e n t u r e s were p r e s e n t e d i n T a b l e 2.2» c a n t h e s e r e a s o n s i n f l u e n c e t h e s e l e c t i o n o f an a s s o c i a t e ?  How I f they  were g o i n g i n t o j o i n t v e n t u r e s m a i n l y b e c a u s e t h e y "needed l o c a l r e sources:  raw m a t e r i a l , m a n a g e r i a l and t e c h n i c a l " , t h e y w o u l d p r o b a b l y  s e l e c t a p a r t n e r because o f the "convenience  of i t s f a c i l i t i e s  and  r e s o u r c e s " , o r go i n t o a j o i n t v e n t u r e w i t h a p a r t n e r i n t h e "same l i n e of business".  The  c r i t e r i a c i t e d by J a p a n e s e c o m p a n i e s t o s e l e c t  t h e i r a s s o c i a t e s are presented i n Table The  2.6.  company w h i c h went i n t o a j o i n t v e n t u r e i n o r d e r " t o s p r e a d  r i s k s " , s e l e c t e d i t s a s s o c i a t e on t h e b a s i s o f t h e " c o n v e n i e n c e facilities/resources":  t h i s i s a c l e v e r way  to spread r i s k .  I f your  p a r t n e r has t h e r e s o u r c e s and f a c i l i t i e s t h a t y o u n e e d i n y o u r n e s s and y o u want t o r e d u c e r i s k s , t h e n y o u f o r m a team w i t h  of  busi-  him.  I n s t e a d o f u s i n g o n l y y o u r f a c i l i t i e s you e n j o y the r e s o u r c e s o f an o t h e r company w h i c h may prise.  a l s o p r o f i t from i t s l i n k w i t h your e n t e r -  42  FIGURE 2.1 S I Z E OF PROJECTS AND REASONS FOR GOING INTO J V s  Reasons f o r ing into Jvs  Small  Medium  Large  Very  Large  Size of Projects  L o c a l i d e n t i t y , A s s o c i a t e ' s p r o j e c t , Need f o r l o c a l m a n a g e r i a l and t e c h n i c a l r e s o u r c e s Need f o r raw m a t e r i a l  resources  TABLE 2.6 CRITERIA FOR SELECTING ASSOCIATES AND REASONS  ro  FOR GOING INTO A JOINT VENTURE  Reasons f o r S e l e c t i n g a S p e c i f i c A s s o c i a t e  Forced Choice Reasons f o r Going i n t o J o i n t Venture Host government pressures Spreading r i s k Need f o r l o c a l resources: - raw m a t e r i a l - managerial - technical Associate's project Local identity Other reasons Totals  Same Line of Business  Convenie n c e of Facilities/ Resources  Past A s sociation  Status Identity  Other  Total  Number o f Cases and C e l l fo Based on Row Sum No  No.  fo  No.  -  No.  fo  No.  No .  f>  No.  100 1 5  11  83 33 33  5 1  55 16  1 1 9  100 100 42  Percentages do not a l l add up to 100 because  3  33  1  33  1  33  18  1  4  4  of rounding.  9 6  3  1 1 21  44  Most o f t h e companies,  80%, w h i c h  s o u r c e s " as t h e r e a s o n f o r g o i n g i n t o p a r t n e r s because for their  "facilities  and r e s o u r c e s " ,  joint The  cited  was  or  t h e c r i t e r i o n men-  w h i c h went i n t o  joint ventures  material".  The  "same l i n e  w h i c h chose t h e  v e n t u r e f o r m o f i n v e s t m e n t f o r m a n a g e r i a l and t e c h n i c a l  resources.  p a r t n e r s were s e l e c t e d a c c o r d i n g t o t h e n a t u r e o f t h e l o c a l r e -  The choice.  r e m a i n i n g 20%  p a r e n t s were  used "past  In such a case the Japanese  ledge o f the p o t e n t i a l  interested.  a s s o c i a t i o n " as a c r i t e r i o n f o r i n v e s t o r s would  have p r i o r  know-  o f t h e C a n a d i a n p a r t n e r and t h e i r r e s o u r c e s  facilities. One  company chose i t s p a r t n e r f o r t h e " c o n v e n i e n c e o f i t s  facilities/resources" tity".  A valid  facilities profit  and went i n t o a j o i n t v e n t u r e f o r " l o c a l  assumption would  a l s o have s e l e c t e d  to  o f b u s i n e s s " , 40%,  5 t i m e s out o f 6 by companies  s o u r c e s i n which the Japanese  and  their  40%.  o f "need f o r l o c a l r e s o u r c e s : raw  b u s i n e s s " was  "need f o r l o c a l r e -  v e n t u r e s , chose  of f a c i l i t i e s / r e s o u r c e s "  t i o n e d 5 t i m e s out o f 9 by companies  of  joint  t h e y were i n t h e "same l i n e  "Convenience  because  cited  have been t h a t  this  company w o u l d  i t s partner f o r "status/identity".  p r o v i d e d by t h e C a n a d i a n p a r t n e r a l l o w t h i s from i t s " f a c i l i t i e s / r e s o u r c e s " ,  Canadian.  " I d e n t i t y " was  selection  of i t s partner.  iden-  However, t h e Japanese  company  and a l s o t o be s e e n as  t h e s e c o n d c r i t e r i a u s e d by t h e f i r m  f o r the  45  Summary  Japanese  c o m p a n i e s have i n v e s t e d i n B r i t i s h C o l u m b i a f o r f o u r  major reasons i n the p a s t : stability",  "new  market"  "to obtain material", f o r " p o l i t i c a l  and " g e o g r a p h i c a l d i v e r s i f i c a t i o n " .  there i s a d i f f e r e n c e i n the importance of the reasons  However,  mentioned  a c c o r d i n g t o the nature of business of the j o i n t v e n t u r e . T h e i r i n v e s t m e n t s t o o k t h e f o r m o f a j o i n t v e n t u r e because Japanese  "needed l o c a l m a n a g e r i a l and t e c h n i c a l r e s o u r c e s " .  c r i t e r i o n was i n t h e "raw  This  c h o s e n by c o m p a n i e s w h i c h were n o t , w i t h one e x c e p t i o n ,  m a t e r i a l o p e r a t i n g group".  sidered their  the  These l a t t e r c o m p a n i e s c o n -  "need f o r l o c a l m a t e r i a l " as t h e main r e a s o n f o r g o i n g  into a joint venture. As t h e s i z e o f a p r o j e c t i n c r e a s e s , so does t h e i m p o r t a n c e  of  need f o r l o c a l m a t e r i a l , as t h e r e a s o n f o r g o i n g i n t o j o i n t v e n t u r e s . The  c h o i c e o f p a r t n e r s was  d e t e r m i n e d by s i m i l a r i t y o f t h e  l i n e o f b u s i n e s s f o r c o m p a n i e s l o o k i n g f o r m a n a g e r i a l and resources.  technical  Companies n e e d i n g l o c a l raw m a t e r i a l chose them f o r t h e  "convenience of  facilities/resources".  8. B i g g e r p r o j e c t s a r e i n t h e p u l p ] l u m b e r and m i n i n g i n d u s t r y . T h u s , i t i s not s u r p r i s i n g t o r e a c h s u c h a c o n c l u s i o n . The i n f l u e n c e o f n a t u r e o f b u s i n e s s on r e a s o n s f o r g o i n g i n t o j o i n t v e n t u r e s w o u l d be d i s c u s s e d i n C h a p t e r 5»  46 CHAPTER  3  THE ASSOCIATES  This chapter w i l l  review d i f f e r e n t  aspects  o f Japanese and  C a n a d i a n p a r t n e r s h i p , m a i n l y from t h e J a p a n e s e p o i n t did they  select  their associates?  Before  flexible?  And f i n a l l y ,  How  entering into a joint  t u r e , how much knowledge d i d t h e y have o f e a c h o t h e r ? of partners  o f view.  ven-  Was t h e c h o i c e  how much c o u l d C a n a d i a n s  contribute  to the partnership?  Initial  contact  Generally  speaking,  investors w i l l  p a t t e r n t h e i r d e c i s i o n as  follows: (1)  Invest  i n British  (2)  Invest  through a j o i n t  (3)  Look f o r a p o t e n t i a l  nevertheless,  Columbia. venture.  associate.  t h i s may n o t always be t h e c a s e .  F o r example, J a p a n e s e  i n v e s t o r s may w i s h t o i n v e s t i n B.C. and t h e n be c o n t a c t e d C a n a d i a n p a r t n e r who w o u l d l i k e  to enter  into a joint  by a  venture  with  them. Table adians  3*1  i n d i c a t e s t h a t f o r 66% o f t h e j o i n t  ventures  a s k e d J a p a n e s e i n v e s t o r s t o become t h e i r p a r t n e r s :  words, t h e p a t t e r n was r e v e r s e d .  These  joint  ventures  Can-  i n other  had a t o t a l  47  TABLE 3.1 INITIATOR OP FIRST APPROACH TO SET UP A JOINT VENTURE  Origin of Approach (initiator)  Number of JVs  % of Sample  Canadians  16  66.66  8  33*33  Japanese Totals  24*  100  24 instead of 21 because three companies indicated that contact was simultaneously i n i t i a t e d by Canadians and Japanese.  48  i n v e s t m e n t v a l u e o f $182,893,000 o r 89$ o f t h e t o t a l J a p a n e s e ments i n B.C..  invest-  W i t h one e x c e p t i o n , a l l o f t h e c o m p a n i e s c o n c e r n e d  were i n t h e "raw m a t e r i a l  group".  However, when e x e c u t i v e s d e s c r i b e d t h e method u s e d t o e s t a b l i s h the " i n i t i a l  c o n t a c t " , t h e y i n d i c a t e d t h a t t h e Japanese  firms  were v e r y o f t e n known t o be i n t e r e s t e d and were t h e n a p p r o a c h e d associates.  T h i s seems t o c o n f i r m t h e b a s i c p a t t e r n a b o v e ,  by t h e  Japanese  f i r m s w i s h e d t o i n v e s t i n B.C. t h r o u g h j o i n t v e n t u r e s , and w h i l e ing  f o r a p a r t n e r , t h e y were c o n t a c t e d by C a n a d i a n s .  look-  The r e s u l t s a r e  presented i n Table 3 « 2 . S i x t y nine p e r cent o f the t i m e , the " i n i t i a l made t h i s way by C a n a d i a n s "raw m a t e r i a l g r o u p " .  :  c o n t a c t " was  a l l t h e s e j o i n t v e n t u r e s were i n t h e  I n a f u r t h e r 15$, i n v o l v i n g c o m p a n i e s f r o m t h e  " m i s c e l l a n e o u s g r o u p " , t h e " c o l d c a n v a s " method was u s e d .  I n the  o t h e r c a s e s , t h e p a r t n e r s were i n f o r m e d b y a p r i v a t e t h i r d  party.  When J a p a n e s e c o m p a n i e s made t h e " i n i t i a l the  c o n t a c t " , 80$ o f  t i m e t h e y knew t h a t t h e i r a s s o c i a t e s were i n t e r e s t e d .  c a n v a s " a p p r o a c h was u s e d o n l y  The " c o l d  once.  E x e c u t i v e s o f t h e s e c o m p a n i e s were a s k e d t o u n d e r l i n e t h e reasons which i n c i t e d Canadian businessmen t o e s t a b l i s h a j o i n t t u r e w i t h them.  ven-  The r e s u l t s a r e p r e s e n t e d i n T a b l e 3 * 3 *  1. On 3 o c c a s i o n s j o i n t v e n t u r e s were i n i t i a t e d b y b o t h s i d e s s i m u l t a n e o u s l y . T h i s f a c t t h e n r e d u c e s t h e number o f J V s f o r t h i s d i s c u s s i o n t o 18.  49  TABLE 3.2 ORIGIN OP I N I T I A L CONTACT WITH CHOSEN ASSOCIATE  Method/Origin o f I n i t i a l Contact J a p a n e s e f i r m was known t o be i n t e = r e s t e d a n d was a p p r o a c h e d b y t h e Associate. A s s o c i a t e was known t o be i n t e r e s t e d and was a p p r o a c h e d b y t h e J a p a n e s e firm. Cold Canvass:  Japanese f i r m  Number o f J V s  % o f Sample  12  7  42  -  24.5  contacted 2  7  1  3*5  2  7  -  -  3  10.5  Partners already JV Associates  '.1  3*5  Totals  28*  by A s s o c i a t e . Cold Canvass:  A s s o c i a t e contacted by  Japanese f i r m . P a r t n e r s put i n t o u c h by a p r i v a t e third party. P a r t n e r s put i n touch by host government . I n i t i a l c o n t a c t s made a t p e r s o n a l level.  28 i n s t e a d o f 21 J V s . 4 c o m p a n i e s m e n t i o n e d 2 methods and o n e , t h r e e .  50  TABLE 3.3 REASONS MENTIONED BY JAPANESE COMPANIES TO E X P L A I N THE INTERESTS OP THEIR CANADIAN PARTNERS TO SET UP A J V  Order i n Which R e a s o n Was C i t e d Reason  1  2  3  Total Responses (Out o f 21)  Number o f C a s e s Know - How  P o s s i b l e No. of Cases i n W h i c h The Response Was Hot C i t e d  Weighted Score  4  6  15  14  14  15  6  44  Profit  1  1  20  3  Growth-Demand  2  14  7  30  Capital  12  Do n o t know  21  Other  21  Totals  21  13  36  E a c h t i m e a r e a s o n was c i t e d a s f i r s t , i t was m u l t i p l i e d by 3 , a s s e c o n d i t was m u l t i p l i e d by 2 , and a s t h i r d , by 1. These w e i g h t e d v a l u e s were t h e n summed o v e r e a c h c a t e g o r y t o g i v e a t o t a l w e i g h t e d s c o r e f o r that reason.  51  Seventy  one p e r c e n t o f them p o i n t e d out t h a t C a n a d i a n s  primarily interested i n capital.  T h i s was  were  the c r i t e r i o n c i t e d  most  o f t e n as t h e f i r s t  reason:  14 t i m e s out o f 21.  a weighted  44-  v a l u e o f i n v e s t m e n t s o f t h e J a p a n e s e com-  scale:  The  p a n i e s i n t h e s e j o i n t v e n t u r e s was  $ 1 9 6 , 3 5 5 , 0 0 0 o r 95$  v a l u e o f J a p a n e s e i n v e s t m e n t s i n B.C..  W i t h two  t h e s e j o i n t v e n t u r e s were s e t up i n t h e "raw The was  importance  I t scored highest  o f the  total  exceptions, a l l of  material  group".  of the f a c t o r "growth-strengthen  demand-profit"  revealed u s i n g a weighted  s c o r e method.  E v e n i f i t was  o n l y t h r e e t i m e s as t h e f i r s t  r e a s o n , i t was  c i t e d 12 t i m e s as a  reason f o r a weighted  s c o r e o f 33-  Canadian  v e n t u r e s w i t h Japanese companies, f i r s t  on  f i r m s went i n t o  t o b e n e f i t from the  mentioned second  joint capital  o f t h e s e e n t e r p r i s e s , and s e c o n d l y t o s t r e n g t h e n t h e demand w h i c h a l l o w e d them t o l o o k ahead f o r g r o w t h  and p r o f i t .  A typical  example  2  w o u l d be a company i n t h e "raw t o expand o r s t a r t  production.  m a t e r i a l group"  Japanese f i r m s p r o v i d e d c a p i t a l  asked f o r a l o n g term p u r c h a s i n g c o n t r a c t . realized  i t s objectives: Know-how was  w h i c h needed money  capital  The  Canadian  and  company t h e n  and a s e c u r e market f o r i t s p r o d u c t s .  s e l e c t e d as t h e main r e a s o n f o r g o i n g i n t o  v e n t u r e s by t h e " m i s c e l l a n e o u s g r o u p " .  joint  I t represented a t o t a l value  2. O n l y two c o m p a n i e s i n t h e " m i s c e l l a n e o u s g r o u p " p o i n t e d out r e a s o n , and i t was as a. s e c o n d one.  this  52  of  i n v e s t m e n t s o f l e s s t h a n a m i l l i o n d o l l a r s o r 0.44%  Japanese  i n v e s t m e n t s i n B.C..  of the t o t a l  O n l y t w i c e was i t m e n t i o n e d by c o m p a n i e s  i n t h e "raw m a t e r i a l g r o u p " , and i n e a c h c a s e i t was s t a t e d a s t h e t h i r d reason.  Selection of a specific  associate  E x e c u t i v e s ranked "convenience o f f a c i l i t i e s / r e s o u r c e s " as t h e most i m p o r t a n t c r i t e r i o n u s e d t o s e l e c t t h e i r a s s o c i a t e s .  This  crit-  e r i o n was m e n t i o n e d 52% o f t h e t i m e , and s c o r e d 28 on t h e w e i g h t e d scale.  I t r e p r e s e n t e d 35% o f t h e t o t a l v a l u e o f i n v e s t m e n t s and was  c i t e d s i x t i m e s as t h e f i r s t  reason.  'The r e s u l t s a r e shown i n T a b l e  The s e c o n d most i m p o r t a n t r e a s o n m e n t i o n e d by J a p a n e s e in  3-4'  companies  s e l e c t i n g an a s s o c i a t e was t h e s i m i l a r i t y o f t h e i r b u s i n e s s e s .  I t was v e r y c l o s e t o " c o n v e n i e n c e o f f a c i l i t i e s / r e s o u r c e s " a c c o r d i n g to  t h r e e d i f f e r e n t methods o f e v a l u a t i n g t h e i m p o r t a n c e o f t h e c r i t e r i a  used.  However, i t r e p r e s e n t e d o n l y 12% o f t h e t o t a l v a l u e o f J a p a n -  ese i n v e s t m e n t s i n B.C.. I t w o u l d be more a p p r o p r i a t e t o c l a s s i f y " p a s t a s s o c i a t i o n " as t h e s e c o n d most i m p o r t a n t r e a s o n .  I t was q u i t e c l o s e t o " c o n v e n -  i e n c e o f f a c i l i t i e s / r e s o u r c e s " as f a r as t h e t h r e e f i r s t e v a l u a t i o n were c o n c e r n e d .  methods o f  F u r t h e r m o r e , as f a r as v a l u e o f i n v e s t -  ments was c o n c e r n e d , i t was c l o s e r t o " c o n v e n i e n c e o f  facilities/  r e s o u r c e s " t h a n "same l i n e o f b u s i n e s s " . When i n v e s t i n g  substantial  TABLE 3 . 4 REASONS CITED BY JAPANESE PARENT COMPANIES FOR THEIR SELECTION OF A SPECIFIC JV ASSOCIATE  Order i n Which Reason Was C i t e d First Reasons Forced Choice Same L i n e o f Business Convenience o f Facilities/ Resources Past A s s o c i a t i o n Status/Identity Other Totals  Second  Third  Total Responses  Weighted Score*  (Out o f 2 1 )  Possible Number o f Cases i n Which T h i s Response Was Not Made  Value o f Investments  Number o f Cases  2  6 6 2  -  5 2  21  Same method as the one used i n Table 3 . 3  0  0  21  9  25  12  $25,955,000  11 8 2  28 22 6  10 13 19 21  $71,858,000 $56,775,000 $50,250,000  30  $204,838,000  54  amounts o f money, J a p a n e s e p r e f e r r e d " p a s t a s s o c i a t i o n " t o "same l i n e of b u s i n e s s " as a c r i t e r i o n f o r s e l e c t i n g t h e i r a s s o c i a t e s . i n v e s t m e n t s were r e g a r d e d t o be more s e c u r e u s i n g t h i s  Japanese  criterion.  E v e n t h o u g h " s t a t u s / i d e n t i t y " came l a s t i n t h e o r d e r o f m e n t i o n o f t h e f i r s t t h r e e ways o f e v a l u a t i o n , i t was s e c o n d value o f the investment  involved.  i n terms o f t h e  I n f a c t , i t i n c l u d e d t h e second  l a r g e s t J a p a n e s e i n v e s t m e n t , w h i c h was r e s p o n s i b l e f o r a p p r o x i m a t e l y the e n t i r e  $50,250,000.  " P a s t a s s o c i a t i o n " and " s t a t u s / i d e n t i t y " , e v e n i f m e n t i o n e d l e s s o f t e n than "convenience  of facilities/resources",  represented  more t h a n h a l f o f t h e t o t a l v a l u e o f J a p a n e s e i n v e s t m e n t s Only those investments c o n s i d e r e d f o r t h e purposes v a l u e o f an i n v e s t m e n t  i n B.C..  i n e x c e s s o f one m i l l i o n d o l l a r s a r e  of this discussion.  T h e r e f o r e , t h e average  f o r each c a t e g o r y i s e s t a b l i s h e d as f o l l o w s :  $ 1 2 , 5 0 0 , 0 0 0 - "same l i n e o f business'.'. $14,355,600 - "convenience $18,858,333 - "past  of facilities/resources".  association".  $50,000,000 - " s t a t u s / i d e n t i t y " . I t i s c l e a r t h a t , a s t h e a v e r a g e v a l u e o f an i n v e s t m e n t p a t t e r n o f b e h a v i o r was e m e r g i n g . partners:  increased, a  J a p a n e s e i n v e s t o r s chose  their  f o r "same l i n e o f b u s i n e s s " , f o r t h e s m a l l e s t i n v e s t m e n t s ;  f o r "convenience  of facilities/resources", f o r s l i g h t l y larger  invest-  ments; f o r " p a s t a s s o c i a t i o n " , f o r " l a r g e " i n v e s t m e n t s ; and f o r " s t a t u s / i d e n t i t y " f o r the largest investments. ^  55  P r i o r knowledge o f a s s o c i a t e s More t h a n 50% Columbia.  B.C.  o f J a p a n e s e i n v e s t m e n t s i n Canada a r e i n B r i t i s h  i s the c l o s e s t p r o v i n c e t o Japan g e o g r a p h i c a l l y .  abundant n a t u r a l r e s o u r c e s o f B.C. economy.  The  are v e r y important t o the Japanese  I t i s t h e r e f o r e r e a s o n a b l e t o assume t h a t many c o m p a n i e s  w h i c h went i n t o j o i n t v e n t u r e s w i t h B r i t i s h C o l u m b i a n s had a p r e v i o u s knowledge o f t h e i r  associates.  R e s u l t s p r e s e n t e d i n T a b l e 3*5 ese c o m p a n i e s knew t h e i r C a n a d i a n links.  Furthermore,  i n 90%  were known i n t h e J a p a n e s e Only f i v e  i n d i c a t e t h a t 75%  of the  partners through previous  Japan-  commercial  of the cases, the Canadian r e p u t a t i o n s enterprises.  j o i n t v e n t u r e s were s e t up between p a r t n e r s w i t h o u t  p r e v i o u s commercial  links.  However, o f t h e s e f i v e p a r t n e r s , o n l y  were unknown t o t h e J a p a n e s e f i r m .  I n one c a s e , t h e p a r t n e r s were put  i n t o u c h w i t h e a c h o t h e r by a p r i v a t e t h i r d p a r t y . i n s t a n c e , J a p a n e s e and C a n a d i a n  two  I n the  businessmen i n i t i a t e d the  remaining negotiations.  I t i s r e a s o n a b l e , t h e n , t o assume t h a t p r e v i o u s e x p e r i e n c e w o u l d be b e n e f i c i a l  when i n v e s t i n g l a r g e sums o f money.  c o n f i r m s Japanese t h i n k i n g i n t h i s r e g a r d : i n v e s t m e n t s was  made when t h e C a n a d i a n  87%  Table  3«5  of the t o t a l value of  p a r t n e r s were known t o s e v e r a l  3. T h i s c o n c l u s i o n i s drawn f r o m a v e r a g e s , and does n o t represent t r u t h i n a l l cases.  necessarily  TABLE 3.5 REASONS FOR SELECTION AND PRIOR KNOWLEDGE OF ASSOCIATES BY JAPANESE PARENT FIRM  Manner i n Which A s s o c i a t e Was Known By People No Previous Known As Commercial . Previous Links Associates Number of Reasons f o r S e l e c t i o n  No.  No.  -  '-  Same L i n e o f Business  2  40  Convenience of F a c i l i t i e s / Resources 2  40  One  No.  i  No.  -  -  -  -  ... 5  31  6  31  4  25  5  26 -  -  Past A s s o c i a t i o n  -  -  6  37  6  Status/Identity  1  20  1  6  2  31 10  -  -  -  -  _  -  23  16  75  19  89  -  Other T o t a l s and i 9 f Row Sum  Percentages  5  Nobody  *  Cases and C e l l i Based on  *  Forced Choice  Several  i n Japanese Firm  do not a l l add up to 100 because o f rounding.  Column Sum i No..  -  -  Totals  i  No  -  -  1  50  7  1  50  6  -  -  6  -  -  2  9  21  -  -  2  57  people i n Japan. The  f o u r t h l a r g e s t J a p a n e s e i n v e s t m e n t i n B.C. was c o n c l u d e d  w i t h a C a n a d i a n p a r t n e r n o t p r e v i o u s l y known i n t h e J a p a n e s e f i r m . T h i s c o n t r a d i c t s t h e assumption above. phasized  Nevertheless,  i t must be em-  t h a t t h e Japanese companies c o n t r o l t h e great m a j o r i t y o f t h e  equity, thus securing t h e i r investment. ment made w i t h o u t  Concerning the other i n v e s t -  p r e v i o u s knowledge o f t h e a s s o c i a t e , t h e Japanese  f i r m owns s l i g h t l y l e s s t h a n 50$ o f t h e s h a r e s .  The r e m a i n i n g  a r e c o n t r o l l e d by f i v e C a n a d i a n p a r t n e r s , t h e l a r g e s t 20$ o f t h e t o t a l e q u i t y .  shares  controlling  I t a p p e a r s t h a t t h e s e c o m p a n i e s have f o u n d  a way t o m i t i g a t e t h e c o n s e q u e n c e s o f t h e i r l a c k o f p r e v i o u s They r e d u c e d t h e i r l e v e l o f u n c e r t a i n t y by i n c r e a s i n g t h e i r  knowledge. equity  4  share.  A v a i l a b i l i t y of associates Executives  o f t h r e e c o m p a n i e s r e f u s e d t o answer a q u e s t i o n 5  i n v e s t i g a t i n g the a v a i l a b i l i t y of other associates.  Of t h e r e m a i n -  i n g 18,72$ i n d i c a t e d t h a t t h e y d i d n o t c o n s i d e r any o t h e r p o t e n t i a l  4 . R e d u c i n g u n c e r t a i n t y by i n c r e a s i n g c o n t r o l was m e n t i o n e d by: T o m l i n s o n , J.W.C, The J o i n t V e n t u r e P r o c e s s i n I n t e r n a t i o n a l B u s i n e s s : I n d i a and P a k i s t a n , The M.I.T. P r e s s , C a m b r i d g e , M a s s a c h u s e t t s and L o n d o n , E n g l a n d , 1970, p . 1 8 1 . 5 « 2 23$ o f t h e t o t a l v a l u e o f J a p a n e s e i n v e s t m e n t s i n B.C. i s a t t r i b u t e d t o these companies.  58  a s s o c i a t e w i t h whom t h e y c o u l d e s t a b l i s h a j o i n t v e n t u r e .  Some o f t h e  reasons mentioned were:  The  (1)  s i m i l a r type  (2)  little  (3)  s a t i s f a c t o r y past a s s o c i a t i o n .  value of investments  of  o r no i n t e r e s t by o t h e r c o m p a n i e s .  o f these companies r e p r e s e n t e d  t o t a l value of Japanese investments 28$ and  business.  in  of the  B.C..  o f the companies l o o k e d f o r p o t e n t i a l a l t e r n a t i v e  associates  s t a t e d t h a t most o t h e r p o t e n t i a l a s s o c i a t e s r e f u s e d t h e i r  U n f o r t u n a t e l y , J a p a n e s e c o m p a n i e s d i d n o t d i s c l o s e why p a r t n e r s behaved t h i s way. one  26$  A p o t e n t i a l a s s o c i a t e was  J a p a n e s e company f o r i t s l a c k o f r e l i a b i l i t y .  e l i m i n a t e d b e c a u s e t h e c h o s e n p a r t n e r had uation.  The  in  potential  r e j e c t e d by  A n o t h e r one  a better geographical  These c o m p a n i e s i n v e s t e d c l o s e t o 51$  Japanese investment  their  offers.  was sit-  of the t o t a l value  of  B.C..  s i z e o f the investment  a p p e a r s t o have no  "Japanese c o m p a n i e s l o o k o r n o t f o r p a r t n e r s . ^  The  b e a r i n g on w h e t h e r  f o r e g o i n g examples  6. N e i t h e r d i d t h e r e a s o n s m e n t i o n e d by t h e s e e x e c u t i v e s f o r s e l e c t i n g an a s s o c i a t e . Out o f t h e 13 c o m p a n i e s w h i c h d i d n o t l o o k f o r any o t h e r p o t e n t i a l a s s o c i a t e , 46$ c h o s e t h e i r p a r t n e r s f o r " c o n v e n i e n c e o f f a c i l i t i e s / r e s o u r c e s " , 15$ f o r " p a s t a s s o c i a t i o n " , and 38$ f o r "same l i n e o f b u s i n e s s " . F i v e c o m p a n i e s l o o k e d f o r p o t e n t i a l a l t e r n a t i v e a s s o c i a t e s ; 40$ s e l e c t e d t h e i r a c t u a l p a r t n e r f o r " c o n v e n i e n c e o f f a c i l i t i e s / r e s o u r c e s " , 20$ f o r " p a s t a s s o c i a t i o n " , and 40$ f o r "same l i n e o f b u s i n e s s " .  59  confirm t h i s  Driving  fact.  force  and  d e c i d i n g body  Some i n d i v i d u a l s o r g r o u p s o f i n d i v i d u a l s i n a company focus t h e i r a t t e n t i o n  on t h e  may  p o s s i b i l i t i e s of investment abroad  and 7  d e v o t e t i m e and It  i s the  r e s o u r c e s t o the  "driving  have t o d e c i d e i f t h e  force" w i l l The  were t h e  d r i v i n g force  the  the  invest  t o the  d r i v i n g f o r c e was  the  d e c i s i o n was  an  The  "driving  " d e c i d i n g body".  d e c i d i n g body may  influence  the  crit-  C o n c e r n i n g Japanese companies, a j o i n t v e n t u r e and  related?  What was  c r i t e r i a to select  the  the  criteria  relationship  an a s s o c i a t e ?  between  The  3»1»  c r i t e r i o n f o r s e l e c t i o n was  the  or not.  t o s e t up  presented i n Figure  When t h e  An  enterprise  firm w i l l  and  d r i v i n g force  d e c i d i n g body and  r e s u l t s are  c o m p l e t e d , someone i n t h e  an a s s o c i a t e .  f o r s e l e c t i n g an a s s o c i a t e the  are  submit i t s p r o p o s i t i o n  e r i a used t o s e l e c t how  possibilities.  force".  Once t h e i r s t u d i e s will  i n v e s t i g a t i o n of such  " i n d i v i d u a l " i n 70%  "same l i n e o f of the  t a k e n t h r o u g h " n o r m a l c h a n n e l s " 57%  i n t e r e s t i n g f a c t to note here i s that  business",  c a s e s , whereas of the  time.  " n o r m a l c h a n n e l s " were n e v e r  7. A h a r o n i , Y a i r , The 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 P r o c e s s , D i v i s i o n of Research, Graduate School of B u s i n e s s A d m i n i s t r a t i o n , Harvard U n i v e r s i t y , B o s t o n , 1966, p. 49•  FIGURE  60  3.11  LOCATION OF DRIVING FORCE AND DECIDING BODY ACCORDING! TO REASON FOR SELECTION OF ASSOCIATE Location  D r i v i n g Force 100'  A  Decision  by 100  Selection Criterion  Individual Group Normal Channels  Same l i n e of business (33% o f JVs)  Individual Group Normal Channels  Convenience of f a c i l i t i e s (28% o f J V s )  Individual Group Normal Channels  Past Association (28% o f J V s )  Individual Group Normal Channels  Status/ Identity (10% o f J V s )  I n F i g u r e 3«1 t h e h o r i z o n t a l a x e s a r e c a l i b r a t e d i n p e r c e n t a g e . E a c h o f t h e f o u r m a j o r v e r t i c a l l y d i v i d e d segments r e p r e s e n t s t h e p r o p o r t i o n o f J V s , o v e r t h e sample a s a w h o l e , i n w h i c h a s s o c i a t e s h a d been s e l e c t e d f o r t h e r e a s o n g i v e n . The l e n g t h o f t h e b a r s r u n n i n g r i g h t o r l e f t from t h e c e n t r a l v e r t i c a l a x i s r e p r e s e n t s t h e p r o p o r t i o n o f c a s e s w i t h i n e a c h m a j o r v e r t i c a l segment i n w h i c h r e s p o n s i b i l i t y was a t t r i b u t e d t o t h e c a t e g o r y o f i n d i v i d u a l s o r g r o u p s d e s c r i b e d a t the l e f t - h a n d margin. Bars running t o t h e l e f t represent p r o p o r t i o n s i n t h e " d r i v i n g f o r c e " v a r i a b l e , w h i l e those t o the r i g h t represent the l o c a t i o n o f t h e f i n a l d e c i s i o n .  61  the d r i v i n g f o r c e .  The  s i t u a t i o n t h a t one  importance  o f an " i n d i v i d u a l " i s t h e k i n d o f  c o u l d e x p e c t when t h e c r i t e r i o n o f s e l e c t i o n i s  "past a s s o c i a t i o n " .  Then f a m i l i a r i n d i v i d u a l s may  make a b e t t e r e v a l u -  a t i o n o f a p o t e n t i a l p a r t n e r t h a n an e x e c u t i v e i n J a p a n who little  knows  about t h e a s s o c i a t e . N e v e r t h e l e s s , when " p a s t a s s o c i a t i o n " was  s e l e c t i o n , an " i n d i v i d u a l " was I n t h e s e c a s e s , " g r o u p " was  t h e d r i v i n g f o r c e o n l y 35$  of the  time.  t h e most i m p o r t a n t d r i v i n g f o r c e w h e r e a s  " n o r m a l c h a n n e l s " were t h e most i m p o r t a n t " S t a t u s / i d e n t i t y " was d i d not t a k e more t h a n 50$  the c r i t e r i o n f o r  d e c i d i n g body.  t h e o n l y c a s e where " n o r m a l  of the d e c i s i o n s :  channels"  i t i s e a s i e r to evaluate  s u c h a c r i t e r i o n when y o u a r e more f a m i l i a r w i t h t h e c o u n t r y ,  which  i s the normal p a t t e r n of b e h a v i o r . The  importance  c i d i n g body, was  o f " n o r m a l c h a n n e l s " , as d r i v i n g f o r c e and  g r e a t e r when " c o n v e n i e n c e  de-  of f a c i l i t i e s / r e s o u r c e s "  was  t h e c r i t e r i o n u s e d t o s e l e c t an a s s o c i a t e . When J a p a n e s e c o m p a n i e s went i n t o j o i n t v e n t u r e s and  selected t h e i r associates according to  this  c r i t e r i o n , t h e i n f o r m a t i o n had t o t r a v e l t h r o u g h t h e " n o r m a l  channels"  o f t h e c o m p a n i e s t o be examined and s t u d i e d by many p e o p l e .  This cate-  g o r y i n v o l v e s 35$  of the t o t a l value of Japanese investment  in  B.C..  As f a r as t h e n a t u r e o f b u s i n e s s o f t h e j o i n t v e n t u r e s thems e l v e s i s concerned, f o l l o w i n g groups:  " n o r m a l c h a n n e l s " were t h e d r i v i n g f o r c e i n t h e  l ) miscellaneous -  50$  2)  33$  mining  -  62  3) p u l p and l u m b e r - 0$ W h i l e d e c i s i o n was t a k e n by " n o r m a l of  the cases r e s p e c t i v e l y .  c h a n n e l s " i n 5 0 $ , 100$ and 66$  I n the mining industry, despite the im-  p o r t a n c e o f " i n d i v i d u a l " and "group"  as d r i v i n g f o r c e , t h e d e c i s i o n  was  a l w a y s t a k e n b y "normal', c h a n n e l s " . As t h e t o t a l v a l u e s o f i n v e s t g ments o f one g r o u p i n c r e a s e d , t h e i m p o r t a n c e o f " n o r m a l c h a n n e l s " a s g  d r i v i n g force decreased.  However, " n o r m a l  c h a n n e l s " was t h e d e c i d i n g  body 50$ o f t h e t i m e i n t h e " m i s c e l l a n e o u s g r o u p " , i n t h e "mining group", group",  100$ o f t h e t i m e  and 66$ o f t h e t i m e i n t h e " p u l p and l u m b e r  because u s u a l l y l a r g e i n v e s t m e n t s a r e c a r e f u l l y  Importance One  screened.  of Associates method o f e v a l u a t i n g t h e i m p o r t a n c e  o f an a s s o c i a t e i n a  j o i n t v e n t u r e i s t o a s k i t s f o r e i g n p a r t n e r how e f f e c t i v e i t s C a n a d i a n a s s o c i a t e t o be.  N o r m a l l y , i f a p a r t n e r i s " e f f e c t i v e " he w i l l be  " i m p o r t a n t " ; no a s s o c i a t e w i l l  be c l a s s i f i e d  not c o n t r i b u t i n g t o t h e r e l a t i o n s h i p .  8.  9.  10.  a s " e f f e c t i v e " i f he i s  As J a p a n e s e  executives eval-  Group Value o f Investments D r i v i n g Force Miscellaneous $ '2,590,000 50$ n o r m a l c h a n n e l s . Mining $ 60,865,000 33$ n o r m a l c h a n n e l s . P u l p and lumber $141,383,000 0$ n o r m a l c h a n n e l s . One e x p l a n a t i o n f o r t h i s s i t u a t i o n may be t h a t c o m p a n i e s f r o m t h e " m i s c e l l a n e o u s g r o u p " have l e s s human r e s o u r c e s t h a n t h e two o t h e r groups, which i n c l u d e t h e " s h o j i k a i s h a " . I t seems t o f o l l o w t h e " P a r k i n s o n Law".  63  uated t h e i r a s s o c i a t e s as " e f f e c t i v e " certain  i n 90% o f t h e c a s e s , e v e n i f a  number o f j o i n t v e n t u r e s were t o o y o u n g t o p e r m i t e v a l u a t i o n ,  t h i s method o f e v a l u a t i n g t h e i m p o r t a n c e abandoned.  o f t h e C a n a d i a n p a r t n e r s was  One r e a s o n f o r t h i s b e h a v i o r c o u l d be due t o t h e f a c t  that  Japanese a r e r e l u c t a n t t o admit a poor c h o i c e o f p a r t n e r s . When a b r o a d e r c h o i c e o f e v a l u a t i n g t h e i m p o r t a n c e  of their  p a r t n e r s was p r e s e n t e d t o them, t h e i r a n s w e r s were more r e a d i l y a n d accurately given.  These a n s w e r s a r e summarized i n T a b l e  3.6.  12 P a r t n e r s were a l w a y s criterion f o rselection  c l a s s i f i e d as " i m p o r t a n t "  was " c o n v e n i e n c e  of  facilities/resources".  These c a s e s r e p r e s e n t e d 60% o f t h e " i m p o r t a n t " c a t e g o r y . c h a n n e l s " was a l w a y s t h e d e c i d i n g body. the c r i t e r i o n o f s e l e c t i o n , "important".  when t h e  "Normal  When " p a s t a s s o c i a t i o n " was  33% o f t h e p a r t n e r s were c l a s s i f i e d a s  The d e c i s i o n t o go i n t o  " n o r m a l c h a n n e l s " 87% o f t h e t i m e .  a j o i n t v e n t u r e was t a k e n b y  T h e r e a p p e a r s t o be no r e l a t i o n -  s h i p between t h e d e c i d i n g body a n d t h e i m p o r t a n c e  of the partners.  P a r t n e r s were " n e c e s s a r y " i n 85% o f t h e j o i n t v e n t u r e s when  11. S c h w i n d , H.F. and P e t e r s o n , R.B.: P e r s o n n e l p r o b l e m s i n i n t e r n a t i o n a l c o m p a n i e s i n J a p a n , U.B.C. u n p u b l i s h e d r e s e a r c h . 12. E x e c u t i v e s h a d t o c l a s s i f y t h e i r p a r t n e r s a s : i m p o r t a n t , u s e f u l , n e c e s s a r y , u s e l e s s . N e c e s s a r y was m e n t i o n e d by c o m p a n i e s w h i c h needed t h e i r l o c a l p a r t n e r s who s u p p l i e d raw m a t e r i a l s t o k e e p p l a n t s o p e r ating. The same p a r t n e r c o u l d have been c l a s s i f i e d a s i m p o r t a n t i f he c o u l d h e l p t h e J a p a n e s e p a r t n e r t o manage t h e p l a n t p r o p e r l y , a n d c o n t r i b u t e t o the general success o f the j o i n t venture.  TABLE 3.6 IMPORTANCE OF ASSOCIATES ACCORDING TO THE REASON FOR THEIR SELECTION  Stated Importance  Total Necessary Useless , x Number o f Cases and C e l l % Based on Column Sum  Important Reasons f o r S e l e c t i n g an A s s o c i a t e  of Associates  Useful  No  No,  No,  No.  No  Forced Choice 10  Same l i n e o f Business  84  Convenience o f Facilities/Resources  6  60  Past A s s o c i a t i o n  2  20  2  66  Status/Identity  1  10  1  33  10  47  6 14  100  6 2  Other T o t a l s and % Based on Row Sum  14  33  Percentages do not a l l add up to 100 because o f rounding.  21  65  "same l i n e o f b u s i n e s s " was t h e c r i t e r i o n u s e d t o s e l e c t them. the in  I t was  c r i t e r i o n o f s e l e c t i o n w h i c h had t h e fewest " i m p o r t a n t " p a r t n e r s , absolute terms: It  1 , and i n p e r c e n t a g e :  14%.  i s i n t e r e s t i n g t o n o t e t h a t t h e o n l y t i m e a p a r t n e r was  e v a l u a t e d as u s e l e s s , a c t u a l l y i s i n a c a s e when " p a s t a s s o c i a t i o n " was t h e c r i t e r i o n m e n t i o n e d . and happy p a s t r e l a t i o n s .  The a s s o c i a t e was c h o s e n f o r s u c c e s s f u l  However, a c t u a l l y t h e J a p a n e s e company i s  no l o n g e r happy w i t h t h e m a n a g e r i a l e x p e r t i s e p r o v i d e d b y i t s C a n a d i a n partner.  Summary The  "initial  c o n t a c t " t o s e t up a j o i n t v e n t u r e between  C a n a d i a n and J a p a n e s e b u s i n e s s m e n i n B r i t i s h C o l u m b i a was made of  66%  t h e t i m e by C a n a d i a n s who u s u a l l y knew t h a t t h e J a p a n e s e f i r m was  interested.  C a n a d i a n s were i n t e r e s t e d i n o b t a i n i n g c a p i t a l and s e -  c u r i n g a market  f o r t h e i r products.  J a p a n e s e made t h e " i n i t i a l  c o n t a c t " i n 33% o f t h e c a s e s and  knew t h a t C a n a d i a n s , who were l o o k i n g f o r t h e know-how o f t h e i r J a p anese a s s o c i a t e s , were i n t e r e s t e d 80% o f t h e t i m e . The most i m p o r t a n t c r i t e r i o n u s e d by J a p a n e s e c o m p a n i e s t o s e l e c t t h e i r a s s o c i a t e s was " c o n v e n i e n c e o f f a c i l i t i e s / r e s o u r c e s " . The  " l a r g e s t " i n v e s t m e n t s were made i n j o i n t v e n t u r e s when t h e p a r t n e r  66  was s e l e c t e d f o r " s t a t u s / i d e n t i t y " . S e v e n t y s i x p e r c e n t o f t h e c h o s e n C a n a d i a n p a r t n e r s had p r e v i o u s c o m m e r c i a l l i n k s w i t h t h e J a p a n e s e c o m p a n i e s , and 90$ o f them were known b y s e v e r a l p e o p l e  i n Japanese f i r m s .  The v a l u e o f i n v e s t -  ments by J a p a n e s e f i r m s i n j o i n t v e n t u r e s s e t up w i t h C a n a d i a n s known i n t h e i r c o m p a n i e s r e p r e s e n t e d 87$ o f t h e t o t a l v a l u e o f t h e s e  invest-  ments i n B.C.. O n l y 28$ o f t h e J a p a n e s e c o m p a n i e s l o o k e d f o r more t h a n one associate.  Most o f t h e j o i n t v e n t u r e s were s e t up w i t h t h e f i r s t  partner contacted. " I n d i v i d u a l s " were t h e most i m p o r t a n t  d r i v i n g f o r c e when "same  l i n e o f b u s i n e s s " was t h e c r i t e r i o n u s e d t o s e l e c t an a s s o c i a t e and when " s t a t u s / i d e n t i t y " was t h e b a s i s o f s e l e c t i o n .  Theidriving force  and t h e d e c i d i n g body were " n o r m a l c h a n n e l s " when t h e c r i t e r i o n o f s e l e c t i o n was " c o n v e n i e n c e  of f a c i l i t i e s / r e s o u r c e s " .  "Normal  channels"  were n o t t h e d e c i d i n g f a c t o r more t h a n 50$ o f t h e t i m e when " s t a t u s / i d e n t i t y " was t h e c r i t e r i o n  used.  When t h e p a r t n e r was s e l e c t e d f o r i t s " c o n v e n i e n c e  of f a c i l i -  t i e s / r e s o u r c e s " , i t was a l s o c l a s s i f i e d as " i m p o r t a n t " i n a l l j o i n t ventures.  Most p a r t n e r s were c o n s i d e r e d as " n e c e s s a r y " when s e l e c t e d  f o r "same l i n e o f b u s i n e s s " .  67  CHAPTER  4  S i z e o f t h e J a p a n e s e P a r e n t Company  It  i s i n t e r e s t i n g t o a n a l y s e how t h e s i z e o f J a p a n e s e p a r e n t  companies c o u l d a f f e c t v a r i a b l e s l i k e : ; s i z e o f i n v e s t m e n t s ,  reasons  f o r going into j o i n t ventures, control of j o i n t ventures, s e l e c t i o n o f a s p e c i f i c a s s o c i a t e , p r o f i t a b i l i t y o f j o i n t v e n t u r e s , and method o f e v a l u a t i n g j o i n t  ventures.  S i z e and v a l u e o f f o r e i g n  investments  J a p a n e s e p a r e n t c o m p a n i e s and j o i n t v e n t u r e s were  classified  i n t o f o u r c a t e g o r i e s a c c o r d i n g t o t h e i r s i z e s i n a s s e t s and s a l e s . T h i s c l a s s i f i c a t i o n i s shown i n T a b l e  4»1»  T h e r e was no l i n e a r r e l a t i o n s h i p between t h e s i z e i n a s s e t s o f f o r e i g n p a r e n t c o m p a n i e s and t h e v a l u e o f t h e i r i n v e s t m e n t s i n joint ventures.  The l a t t e r d i d n o t n e c e s s a r i l y i n c r e a s e when t h e  f o r m e r d i d ; some " s m a l l " i n v e s t m e n t s were made by " v e r y l a r g e " companies.  I n f a c t , o n l y 33% o f t h e " s m a l l " i n v e s t m e n t s were made by  " s m a l l " companies; t h e r e m a i n i n g investments r e s u l t e d from p r o j e c t s o f y & a r g e " and " v e r y l a r g e " c o m p a n i e s : 33% f r o m e a c h c a t e g o r y .  How-  e v e r , a s might be e x p e c t e d because o f l i m i t a t i o n s i n t h e i r r e s o u r c e s , it  i s i n t e r e s t i n g t o n o t e t h a t " s m a l l " c o m p a n i e s n e v e r made  or "very large" investments.  S e v e n t y - f i v e p e r cent o f these  "large" invest-  68  TABLE  4-1  CLASSIFICATION OF J V s AND JAPANESE FIRMS BY TOTAL ASSETS AND SALES OF THE FOREIGN PARENT COMPANY  Value o f Parent Company Assets or Sales ( i n 5 Billion)  Value of J o i n t Venture Assets. or Sales (in $ million)  Number o f C a s e s  #  Category  Size i n Assets  Size i n Sales  Japanese Firms  Japanese Firms  JVs  JVs  under  under 1  Small  2  3  4  2  i  1 t o 10  Medium  2  6  0  2  1 to 4  10 t o 50  Large  2  3  1  7  over 4  o v e r 50  Very Large  5  5  6  2  to I  Not Applicable Totals  11  8  4 21  11  21  Two d i f f e r e n t s c a l e s were u s e d o t h e r w i s e a l l t h e J V s w o u l d have b e e n i n t h e same c a t e g o r y .  6 9  merits were made by "very l a r g e " companies, 1 2 % 1 2 % by "medium" c o r p o r a t i o n s .  by " l a r g e " firms and  The r e s u l t s are presented i n Table  4 . 2 and Figure 4 . 1 .  S i z e , c o n t r o l , and reasons f o r going i n t o a .joint venture  I t i s g e n e r a l l y assumed that when the s i z e of a f o r e i g n company i n c r e a s e s , i t tends to c o n t r o l the j o i n t venture i n which i t invests.  Furthermore,  when these companies are organized on an i n t e r -  n a t i o n a l b a s i s , as the s h o j i k a i s h a are, the trend should be stronger, " . . . i f the f o r e i g n i n v e s t o r i s a large i n t e r n a t i o n a l l y aggressive company, with ample resources to expand outside the home market... i t f e e l s i n a p o s i t i o n to demand m a j o r i t y ownership i n a j o i n t venture..." Japanese companies d i d not behave t h i s way.  None of the three  methods used to st.udy the r e l a t i o n s h i p c o n t r o l - s i z e supported the assumption control.  of the l i t e r a t u r e .  Larger assets d i d not mean greater  The r e s u l t s are presented i n Table The "ownership e q u i t y " method was  be expected:  as the s i z e of.Japanese  4 * 3 •  the opposite of what could  companies increased, t h e i r  1 . Bivens, K.K. and L o v e l l , E.B. J o i n t Ventures with F o r e i g n P a r t n e r s , I n t e r n a t i o n a l Survey of Business Opinion and Experience, N a t i o n a l I n d u s t r i a l Conference Board, New York, 1 9 6 6 .  70  FIGURE 4 . 1 RELATIONS BETWEEN S I Z E OF PARENTS AND SIZE OF INVESTMENTS  Foreign Parent Size ($ m i l l i o n )  +  18 17 11  9 7  +  ft  4 +  4 3  + + + 4-. 23  Size  o f Investment ($  million)  33  43  53  71  TABLE 4.2 RELATIONS BETWEEN S I Z E OF PARENTS AND S I Z E OP INVESTMENTS  Value o f Parent Company i n Assets ( i n $ Billion)  Category  u n d e r -g-  Small  2  Medium  1 to 4 over 4  i  to 1  No. o f Cases  Value o f Investments ( i n$ Million)  Category  No. o f Cases  Small  2  u n d e r -Ji t o i  Medium  1  Large  2  1 to 4  Large  3  V. L a r g e  5  over 4  V. L a r g e  8  72  TABLE  4.3  S I Z E OE PARENTS AND CONTROL  . Parent Category  Parents' E q u i t y Share  #  Desire f o r Control*  Desire f o r E f f e c t i v e Control*  Small  3.5  2.50  2.00  Medium  2.5  2.50  2.00  Large  2.5  3.00  3.00  V. L a r g e  2.27  2.55  2.55  The v a l u e s a s s i g n e d i n t h e t h r e e measures were a s f o l l o w s : Parent Share i n J o i n t Venture u n d e r 25% - = : i to  25% 50%  Equity:  49% = 2 =33  o v e r 50%  = 4  C o n t r o l and e f f e c t i v e Necessary = 4 Desirable =J3 Acceptable = 2 Unnecessary = 1  control:  The v a l u e s were t h e n a g g r e g a t e d  and a v e r a g e d f o r e a c h  category.  73  degree o f ownership o f j o i n t v e n t u r e s decreased. a f a c t o f l i f e , w h e r e a s t h e o t h e r two  This situation  was  methods, d i s c u s s e d b e l o w , d e s -  c r i b e what J a p a n e s e e x e c u t i v e s w o u l d p r e f e r . I n t h e s e c o n d method u s e d t o d e t e r m i n e J a p a n e s e e x e c u t i v e s were a s k e d how was  i t necessary,  important  their  preferences,  c o n t r o l was  d e s i r e a b l e , acceptable, unnecessary?  t h a t d e s p i t e t h e i r d i f f e r e n c e s i n s i z e , " s m a l l " and were s i m i l a r l y c o n c e r n e d  over c o n t r o l .  f o r them: T h i s showed  "medium" c o m p a n i e s  " L a r g e " and n o t  "very  f i r m s were i n t e r e s t e d i n t h e g r e a t e s t d e g r e e o f c o n t r o l .  large"  Furthermore,  " v e r y l a r g e " companies wanted t o c o n t r o l t h e i r j o i n t v e n t u r e s s l i g h t l y more t h a n " s m a l l " and The  t h i r d method was  "medium" e n t e r p r i s e s .  s i m i l a r t o the second w i t h the  t h a t i t t r i e d t o assess the importance than " c o n t r o l " .  first  exception  of " e f f e c t i v e c o n t r o l " r a t h e r  T h i s confirmed the stand of " l a r g e "  However, c o n t r a r y t o t h e two  just  companies.  methods, i t i n d i c a t e d t h a t  l a r g e " c o r p o r a t i o n s behaved as e x p e c t e d . " e f f e c t i v e c o n t r o l " more t h a n " s m a l l " and  "very  They wanted t o e x e r c i s e "very small" firms.  T h i s phenomenon o f l a c k o f d e s i r e f o r c o n t r o l by " v e r y c o m p a n i e s was  a real surprise.  No  t h e o r y o f b i l a t e r a l power o f  n e g o t i a t i o n c o u l d e x p l a i n i t as f a r as t h e s i z e o f t h e company concerned.  large"  was  I n most c a s e s , J a p a n e s e e n t e r p r i s e s were b i g g e r  than  t h e i r C a n a d i a n a s s o c i a t e s and c o u l d t h e o r e t i c a l l y have u s e d  this  superiority to increase t h e i r control.  Furthermore,  most o f t h e  t i m e , C a n a d i a n s were a t t r a c t e d by t h e a v a i l a b i l i t y o f c a p i t a l  and  74  the secure market Japanese could provide. ^ fore have used these two d i d not.  The  l a t t e r could t h e r e -  f a c t o r s to increase t h e i r c o n t r o l , but  they  It seems that the l e v e l of c o n t r o l i s d i f f i c u l t to e x p l a i n  i n terms of the s i z e of f o r e i g n companies and of the nature  of con-  tribution. One  p o t e n t i a l explanation to t h i s s i t u a t i o n could be the  reasons mentioned by Japanese f o r t h e i r investments through j o i n t ventures.  I f "very l a r g e " Japanese companies entered i n t o j o i n t ven-  tures because they needed l o c a l resources, then t h e i r advantages over t h e i r Canadian partner i n terms of s i z e i n assets and nature  of  c o n t r i b u t i o n would be weakened during the n e g o t i a t i o n s . Results presented  i n Table 4 * 4 i n d i c a t e that 6 3 % of the  l a r g e " companies went i n t o j o i n t ventures resources. ^  "very  because they needed l o c a l  In n e g o t i a t i o n s , when a f o r e i g n partner needed l o c a l  resources, a Canadian f i r m could be more r e l u c t a n t to permit c o n t r o l any p o s s i b l e j o i n t venture. i t seems that raw m a t e r i a l was than c a p i t a l was  i t to  Considering the a c t u a l s i t u a t i o n ,  more important  to Japanese i n t e r e s t s  to Canadians..  Results were not c l e a r enough to e x p l a i n the o v e r a l l c o n t r o l  2. S i x t y - f o u r per cent of the companies p r o v i d i n g c a p i t a l and secure markets were of greater s i z e than t h e i r Canadian p a r t n e r s . 3. Sixty-three per cent of the "very l a r g e " companies which entered i n t o j o i n t ventures f o r t h i s reason were of greater s i z e than t h e i r Canadian p a r t n e r s .  75  TABLE  4.4  FOREIGN PARENT S I Z E I N ASSETS AND  REASONS  FOR  GOING INTO A JOINT VENTURE  F o r e i g n Parent Size i n Assets Number o f C a s e s and C e l l $ B a s e d on Column Reasons f o r G o i n g I n t o J o i n t Venture  Small No.  $  Medium No. fo  Large No.  $  V. L a r g e No.  Sum Tota] No.  H o s t government pressures Spreading Risk (Political Other) Need f o r l o c a l r e sources: - raw m a t e r i a l -managerial - technical Associate's project  1  1  Other  -  T o t a l and $ B a s e d on row sum  2  1  50  50  -  14  1  -  50  -  1  50  2  14  P e r c e n t a g e s do n o t a l l add up t o 100  1  50  3  38  5  1  50  2  25  3  2  25  3  1  12  2  8  56  2  14  H  1  because o f r o u n d i n g .  14 i n s t e a d o f 11 b e c a u s e t h r e e v . l a r g e f o r e i g n p a r e n t c o m p a n i e s were i n v o l v e d i n more t h a n one j o i n t v e n t u r e . They t h e n had more t h a n one reason f o r going i n t o JV.  76  situation £  N e v e r t h e l e s s , t h e y i n d i c a t e t h a t " s m a l l " companies w h i c h  were a b l e t o g e t t h e h i g h e r l e v e l o f c o n t r o l went l e s s o f t e n i n t o ventures f o r l o c a l resources. company o r t h e n a t u r e  I t was n o t t h e s i z e o f t h e p a r e n t  of i t s c o n t r i b u t i o n which i n f l u e n c e d i t s l e v e l  o f c o n t r o l , but m a i n l y t h e r e a s o n s why i t went i n t o a j o i n t  S i z e and r e a s o n s  f o r selecting a specific  seems r e a s o n a b l e  f o r "convenience  t o expect  resources,  t h a t they would s e l e c t t h e i r  of f a c i l i t i e s / r e s o u r c e s " .  venture.  associate  I f c o m p a n i e s went i n t o j o i n t v e n t u r e s f o r l o c a l it  partners  T a b l e 4«5 shows t h a t 50%  o f t h e " v e r y l a r g e " c o m p a n i e s based t h e i r s e l e c t i o n on t h i s w h e r e a s 63% o f them went i n t o j o i n t v e n t u r e s f o r l o c a l Out o f t h e e i g h t j o i n t v e n t u r e s by t h e f i v e "convenience  joint  criterion  resources.  s e t up f o r l o c a l  resources  " v e r y l a r g e p a r e n t s " , 63% s e l e c t e d t h e i r p a r t n e r s f o r of f a c i l i t i e s / r e s o u r c e s " .  One p a r t n e r was c h o s e n f o r  "same l i n e o f b u s i n e s s " and t h e o t h e r two f o r " p a s t  association".  'i E v e n i f two " l a r g e " J a p a n e s e c o r p o r a t i o n s went i n t o  joint  v e n t u r e s f o r l o c a l r e s o u r c e s , n e i t h e r chose i t s p a r t n e r f o r "convenience of f a c i l i t i e s / r e s o u r c e s " .  The c r i t e r i a m e n t i o n e d were  a s s o c i a t i o n " and same l i n e o f b u s i n e s s " .  "past  The s i t u a t i o n was t h e same  4. I f 63% o f t h e " v e r y l a r g e " companies went i n t o j o i n t v e n t u r e s f o r l o c a l r e s o u r c e s , 100% o f t h e " l a r g e " e n t e r p r i s e s u n d e r l i n e d t h e same r e a s o n and h a d more c o n t r o l t h a n v e r y l a r g e f i r m s .  TABLE 4.5 FOREIGN PARENT SIZE IN ASSETS AND REASONS FOR SELECTING A SPECIFIC ASSOCIATE  F o r e i g n Parent S i z e i n A s s e t s Number of Cases and C e l l fo Based on Column Sum Reasons f o r S e l e c t i n g an Associate  Small No.  $  Forced Choice  -  -  Same L i n e o f Business  1  .50  Convenience Resources  _  Past A s s o c i a t i o n  Medium No. fo  Large No. fo  V. Large No. fo —  Total No. —  —  —  —  —  —  1  50  1  50  1  12  4  —  —  —  —  4  50  4  1  50  1  50  1  50  2  25  5  Status/Identity  -  -  -  1  -  -  -  12  -  -  1  Other  -  -  -  -  -  14  2  14  2  14  8  56  14  of F a c i l i t i e s /  T o t a l and fo Based on Row Sum  2  Percentages do not a l l add up to 100 because  -  —  of rounding.  78  w i t h "medium" f i r m s .  One went i n t o a j o i n t v e n t u r e  f o r "other rea-  s o n s " and c h o s e i t s p a r t n e r f o r " p a s t a s s o c i a t i o n " , w h e r e a s t h e o t h e r entered i n t o a j o i n t venture  f o r " l o c a l r e s o u r c e s " and s e l e c t e d i t s  p a r t n e r f o r "same l i n e o f b u s i n e s s " .  T h i s f i r m was l o o k i n g f o r l o c a l  raw m a t e r i a l . A l l i ! l a r g e " and " v e r y l a r g e " companies w h i c h were a l s o i n t e r e s t e d i n raw m a t e r i a l s and w h i c h d i d n o t choose t h e i r p a r t n e r f o r "convenience  o f f a c i l i t i e s / r e s o u r c e s " , s e l e c t e d them f o r " p a s t  a s s o c i a t i o n " r a t h e r t h a n "same l i n e o f b u s i n e s s " .  "Same l i n e o f  b u s i n e s s " was t h e c r i t e r i o n m e n t i o n e d by t h e s e f i r m s when t h e y were l o o k i n g f o r l o c a l t e c h n i c a l and m a n a g e r i a l  resources.  I t was i n t e r e s t i n g t o n o t e t h a t t h e o n l y t i m e  "status/identity"  was m e n t i o n e d a s t h e c r i t e r i o n o f s e l e c t i o n , i t was by a " v e r y corporation.  You c o u l d u s u a l l y expect  large"  t h i s from " s m a l l " companies  l o o k i n g f o r a w e l l - k n o w n and e s t a b l i s h e d p a r t n e r i n t h e c o u n t r y o f t h e i r investments.  T h i s " v e r y l a r g e " e n t e r p r i s e s e t up a j o i n t  i n t h e " m i s c e l l a n e o u s g r o u p " and i t was v e r y i m p o r t a n t a Canadian i d e n t i t y .  Parent  venture  f o ri t to obtain  A l s o i m p o r t a n t was t h e s t a t u s o f i t s p a r t n e r .  s i z e and p r o f i t s o f t h e .joint  venture  I f t h e J a p a n e s e p a r t n e r was a w e l l e s t a b l i s h e d e n t e r p r i s e  5 p r o v i d i n g c a p i t a l , a s e c u r e m a r k e t , and some m a n a g e r i a l e x p e r t i s e , one w o u l d e x p e c t  t h a t t h e j o i n t v e n t u r e w o u l d be p r o f i t a b l e .  As  79  companies f u l f i l l i n g these c h a r a c t e r i s t i c s are u s u a l l y l a r g e ones, i t i s reasonable t o expect t h a t the l a r g e r the Japanese f i r m i s , the h i g h e r the p r o f i t s of the a s s o c i a t e d j o i n t venture should be. The a n a l y s i s of the r e l a t i o n s h i p between s i z e and p r o f i t d i d not i n c l u d e a l l the j o i n t ventures of t h i s study.  Some were too young,  w h i l e others were i n v o l v e d i n mining e x p l o r a t i o n , and n e i t h e r group showed p r o f i t s . 4.6  They are i d e n t i f i e d as N.A.  and F i g u r e s 4.2 Two  (not a p p l i c a b l e ) i n Table  and 4*3•  " s m a l l " Japanese companies r e c e n t l y entered i n t o  separate j o i n t v e n t u r e s .  Due t o t h e i r l a c k of e x p e r i e n c e , few  i s t i c s were worth a n a l y z i n g .  Two  stat-  other Japanese companies of g r e a t e r  prominence a l s o entered i n t o two j o i n t v e n t u r e s .  One venture i s s t i l l  i n i t s i n f a n c y , and'the other had not enjoyed f i n a n c i a l Consequently,  two  success.  n e i t h e r one c o u l d be d i s c u s s e d w i t h any degree of  accuracy. The two " l a r g e " parent companies set up f i v e j o i n t v e n t u r e s ; one showed " s m a l l " p r o f i t s , one had "very l a r g e " p r o f i t s , and three were i n the e x p l o r a t i o n f i e l d .  The f i v e "very l a r g e " f o r e i g n f i r m s  got i n v o l v e d i n twelve j o i n t ventures: one had " s m a l l " p r o f i t s ,  one  showed "medium" p r o f i t s , f o u r " l a r g e p r o f i t s " , and three "very l a r g e  5.  Only three companies want i n t o j o i n t ventures f o r l o c a l managers.  80  TABLE 4 . 6 SIZE OP PARENTS AND PROFITS OF JVs  Value of Parent Company i n Assets ( i n Billion)  Category  No. of ICases  Value of JV P r o f i t (in Million)  under  Small  2  under -J-  i  Medium  2  i  1 to 4  Large  2  over 4  V. Large  5  to 1  Category  No. of Cases ^  Weighted Score*  Small  3  0  Medium  1  0.5  1 to 4  Large  4  1.0  over 4  V. Large  4  2.25  to I  When a parent was partner of a JV showing very large p r o f i t s , i t was m u l t i p l i e d by 4 , when the JV showed large p r o f i t s , i t was m u l t i p l i e d by 3; medium p r o f i t s , by 2 ; and small p r o f i t s , by 1 . These weighted values were then summed over each category t o give a t o t a l weighted score f o r that parent. 1  12 instead of 21 JVs. 9 JVs are too young t o show p r o f i t s .  FIGURE 4-2 RELATIONSHIPS:  SIZE OF PARENTS, OF JVs, OF JVs' PROFITS  S i z e o f Parents  JVs  JVs  Profits 3  y  4  —2L>  Not  Applicable  Totals  4  4  •9  21  21  FIGURE 4 - 3 PARENT SIZE AND  Profits  PROFITS OF J V s  4" s  Small  Medium  V.Large  Size of Parents  *  R e s u l t s from T a b l e 4 - 6 weighted  scores.  83  profits".  Three were  It  is  clear  panies  increased,  Parent  size  so d i d t h e  and method o f  terms of  evaluate  of  The  as  the  first  evaluate  joint  com-  ventures.  of t h e i r  asked w h i c h method  joint  ventures.  or i n terms  they  Was i t  of the  ^ o f them used "achievement  c r i t e r i o n , whereas  of the  time.  their  joint  scheduled objectives  jectives  joint  to  in  achievement  ventures  of  scheduled  " p r o f i t a b i l i t y " was  In fact,  i n the  f u l f i l l m e n t of  greater penetration  of  of  o n l y two companies accorking to  a l l companies  securing their  ventures  v a r i e d from the  ventures.  The  supply of  their did  "achievement  a worldwide  i n the  "raw  material  raw m a t e r i a l .  "miscellaneous  group" were  Obdifferent;  marketing policy to  a  the Western Canadian market.  E x e c u t i v e s were t h e n asked t o joint  f o r e i g n parent  objectives".  related  it  of  associated  companies were  r e t u r n on i n v e s t m e n t ,  g r o u p " were of  of  size  objectives?  primarily scheduled  the  evaluation  performance  s e c o n d c r i t e r i o n most not  as  profits  S i x t y seven per cent objectives"  that  of Japanese  the  of p r o f i t s ,  scheduled  category N . A .  therefore  Executives used to  i n the  results  are  evaluate  presented  the  i n Table  6. N i n e t y t h r e e p e r c e n t , i f c o m p a n i e s w h i c h m a t i o n on t h i s t o p i c are e l i m i n a t e d .  performance 4»7  d i d not  of  their  a n d F i g u r e 4«4«  disclose  infor-  84  TABLE 4.7 FOREIGN PARENT S I Z E I N SALES AND EVALUATION OF J V s THROUGH PERFORMANCE AGAINST SCHEDULED OBJECTIVES Foreign Parent Size i n Sales Number o f C a s e s and C e l l % B a s e s on Column Sum Small No. % Better than expected About t h e same a s  3  75  1  8  4  18  -  -  -  3  25  5  23  4  33  7  32  4  18  12  56  21  -  -  T o t a l and % B a s e d on row sum  5  23  Weighted  0.4  P e r c e n t a g e s do  23  3  *  5  -  _  60  score*  33  mm  s o o n t o judge  Too  mm.  Total No. %  4  •mm  40  then  V. L a r g e No. 1°  25  mm  '  . Large No. % 1  mm  2  Less  Medium No. • %  -  mm  2.25  1.41  n o t a l l add up t o 100 b e c a u s e o f r o u n d i n g .  E a c h t i m e t h e p e r f o r m a n c e was " b e t t e r t h a n e x p e c t e d " , i t was m u l t i p l i e d by 3; "about t h e same" a s " , i t was m u l t i p l i e d by 2; " l e s s t h a n " , i t was m u l t i p l i e d by 1. These w e i g h t e d v a l u e s were t h e n summed o v e r each c a t e g o r y t o g i v e a t o t a l weighted score f o r t h a t s i z e .  85  FIGURE 4.4 SIZE OF PAHENT:.AND*.PBHPGRMANCE AGAINST SCHEDULED OBJECTIVES  Performance  Small  Large  V. Large  Size of Parent  Results from Table 4*7 weighted scores,  86  As t h e s i z e the f u l f i l l m e n t  of the f o r e i g n parent  of t h e i r scheduled  companies i n c r e a s e d , so d i d  objectives.  J a p a n e s e companies were, g e n e r a l l y s p e a k i n g , "very large" corporations. realized their objectives, compared t o 25$  It i s a fact  However,  more s u c c e s s f u l t h a n  that "very l a r g e "  " b e t t e r then expected",  f o r "large enterprises".  p e r f o r m a n c e i s weakened by t h e f a c t  "large"  33$  companies  of the  Nevertheless, t h e i r  t h a t i n 25$  time general  o f the c a s e s ,  they  7 r e a l i z e d t h e i r o b j e c t i v e s " l e s s than  expected".  Summary T h e r e was  no  l i n e a r r e l a t i o n s h i p between t h e  of f o r e i g n parent  companies and t h e v a l u e o f t h e i r  Furthermore,  characteristic  this  of t h e i r  N e v e r t h e l e s s , i t i n f l u e n c e d the p r o f i t a b i l i t y  It  of the Japanese parent  a l s o had  an impact  on t h e achievement  t h e J a p a n e s e company, by the "Very  and p r o f i t s  joint  i n assets  investments.  o f f o r e i g n companies had  s m a l l i n f l u e n c e on t h e i r degree o f c o n t r o l  size  size  joint  of t h e i r  a very ventures.  joint  ventures:  increased simultaneously. of scheduled  o b j e c t i v e s of  venture.  l a r g e " companies chose t h e i r p a r t n e r s m a i n l y f o r  7. I f j o i n t v e n t u r e s from t h e . " m i s c e l l a n e o u s g r o u p " were e l i m i n a t e d f r o m t h e c a t e g o r y " v e r y l a r g e " , . i t was more s u c c e s s f u l t h a n the " l a r g e " group.  87  "convenience  of f a c i l i t i e s / r e s o u r c e s " .  A l l o t h e r c a t e g o r i e s chose  t h e i r p a r t n e r s f o r "same l i n e o f b u s i n e s s " and " p a s t b o t h c r i t e r i a were m e n t i o n e d once by e a c h  category.  association":  88 CHAPTER  5  THE NATURE OF THE BUSINESS It seems reasonable to expect that the nature of business of Japanese f o r e i g n companies w i l l influence the nature of business of j o i n t ventures i n which they i n v e s t e d . As already pointed out, more than h a l f of the Japanese parents were t r a d i n g companies, and most Japanese j o i n t ventures i n B.C. were involved i n raw m a t e r i a l o p e r a t i o n .  Was the s i t u a t i o n i n B.C. an  exception to the general pattern? At f i r s t s i g h t , r e s u l t s presented i n Table 5»1 appeared to confirm t h i s exception.  Eleven j o i n t ventures, when c l a s s i f i e d accord-  i n g t o the nature of business of f o r e i g n f i r m s , were i n the t r a d i n g category.  There was no j o i n t venture i n t h i s group when j o i n t ventures  were c l a s s i f i e d according t o t h e i r nature of business.  The explanation  to t h i s s i t u a t i o n , however, concerned the o r g a n i z a t i o n of the t r a d i n g companies. follows: etc..  W i t h i n each company, there were d i f f e r e n t d i v i s i o n s as t e x t i l e d i v i s i o n , machinery d i v i s i o n , chemical d i v i s i o n ,  In f a c t , investments were made on a d i v i s i o n a l r a t h e r than on  company b a s i s .  Thus, the nature of business of j o i n t ventures was  s i m i l a r t o the nature of business of both p a r t n e r s . The s i x t r a d i n g companies invested i n eleven j o i n t ventures: f i v e i n the "pulp and lumber"group", three i n the "miscellaneous c a t egory", and three i n the "mining group".  A l l other parents i n v e s t e d  8  9  TABLE 5.1 CLASSIFICATION OF JAPANESE PARENT COMPANIES AND ASSOCIATED JVs ACCORDING TO THE NATURE OF BUSINESS  Number of Cases Joint Ventures Classified byBusiness of the Nature of the Business  Japanese Parent Firm  Parent  Trading  6  11  0  Pulp and Lumber  1  1  6  Miscellaneous  2  3  6  Mining (Operating)  3  Mining Exploration  0  0  5  . 12  21  21  Totals  JV  6  4  90  i n j o i n t v e n t u r e s i n t h e same l i n e o f b u s i n e s s a s t h e i r own.  Nature  o f b u s i n e s s and r e a s o n s  f o rgoing into joint  ventures  T a b l e 2.3 p r e v i o u s l y i n d i c a t e d how t h e n a t u r e o f b u s i n e s s o f j o i n t v e n t u r e s * i n f l u e n c e d t h e r e a s o n s m e n t i o n e d by J a p a n e s e c o m p a n i e s f o r going into j o i n t ventures.  I t was e s t a b l i s h e d t h a t a l l j o i n t  v e n t u r e s i n t h e " p u l p and l u m b e r c a t e g o r y " were s e t up f o r o f o b t a i n i n g raw m a t e r i a l s .  Seventy  purposes  f i v e p e r cent o f t h e companies  i n t h e "mining c a t e g o r y " a l s o used t h i s p h i l o s o p h y .  Companies  from  the " m i n i n g e x p l o r a t i o n group" u s u a l l y mentioned t h i s c r i t e r i o n as t h e most i m p o r t a n t , w h i l e 33% o f j o i n t v e n t u r e s i n t h e " m i s c e l l a n e o u s c a t e g o r y " were s e t up f o r t h i s  reason.  I n some c a s e s , t h i s s i t u a t i o n i n f l u e n c e d t h e e q u i t y s h a r e t h a t Japanese companies o b t a i n e d i n t h e i r a s s o c i a t e d j o i n t v e n t u r e s , i n i n f l u e n c i n g t h e power o f n e g o t i a t i o n o f e a c h p a r t n e r . was c o v e r e d  Nature  As t h i s i s s u e  i n t h e p r e v i o u s c h a p t e r , i t w i l l n o t be r e - e x a m i n e d .  o f b u s i n e s s and a t t i t u d e s t o w a r d s c o n t r o l  The  d i f f e r e n c e between " c o n t r o l " and " e f f e c t i v e c o n t r o l " was  1. The n a t u r e o f b u s i n e s s o f t h e j o i n t v e n t u r e and o f t h e J a p a n e s e p a r e n t company were u s u a l l y s i m i l a r and c l o s e l y r e l a t e d .  91  e x p l a i n e d t o J a p a n e s e e x e c u t i v e s and t h e y were t h e n a s k e d t o comment on t h e i m p o r t a n c e o f " e f f e c t i v e c o n t r o l " . and  the r e s u l t s indicated,  T h e i r o p i n i o n s were t a b u l a t e d  i n e f f e c t , t h e r e was v e r y l i t t l e  between t h e t w o . A c t u a l l y ,  difference  o n l y 9$ o f t h e e x e c u t i v e s d i f f e r e n t i a t e d  2 between t h e t w o . The r e s u l t s a r e p r e s e n t e d i n T a b l e B e f o r e e x a m i n a t i o n o f T a b l e 5'2, that  the desire  investments. the  desired  i t seemed r e a s o n a b l e t o assume  f o r ineffective c o n t r o l " increased w i t h the value o f  The s i g n i f i c a n c e  o f the partners could also  degree o f " e f f e c t i v e c o n t r o l " .  t o assume t h a t  5.2.  t h e Japanese d e s i r e  I t seemed a l s o  influence reasonable  f o r ^ e f f e c t i v e c o n t r o l " was i n -  f l u e n c e d b y t h e s h a r e s owned b y t h e f o r e i g n  company.  The g r e a t e r t h e  f o r m e r , t h e g r e a t e r t h e l a t t e r s h o u l d b e . When o w n i n g a c e r t a i n  number  of shares, f o r e i g n  control,  but  also  "effective  investors  usually  desire  not only t o exercise  control".  E i g h t y t h r e e p e r cent o f t h e t i m e , companies i n t h e " p u l p and  lumber group", i n d i c a t e d  that  " e f f e c t i v e c o n t r o l " was " n e c e s s a r y " .  T h e i r i n v e s t m e n t s r e p r e s e n t e d 69$ o f t h e t o t a l v a l u e o f J a p a n e s e  invest-  2. I n o r d e r t o d e s c r i b e a l e v e l o f n e c e s s i t y f o r " e f f e c t i v e c o n t r o l " , J a p a n e s e e x e c u t i v e s h a d t o choose between: " n e c e s s a r y " , " d e s i r a b l e " , " a c c e p t a b l e " a n d " u n n e c e s s a r y " . When t h e J a p a n e s e f i r m made " e f f e c t i v e control" a condition of i t s p a r t i c i p a t i o n into a joint venture, " e f f e c t i v e c o n t r o l " was c l a s s i f i e d a s " n e c e s s a r y " . When t h e J a p a n e s e e n t e r p r i s e a s k e d f o r " e f f e c t i v e c o n t r o l " , b u t was r e a d y t o r e - e v a l u a t e i t s d e c i s i o n on t h i s p o i n t , i t was c l a s s i f i e d a s " d e s i r a b l e " . I f a Japanese company c o u l d o b t a i n " e f f e c t i v e c o n t r o l " and was i n t e r e s t e d , i t was c l a s s i f i e d a s " a c c e p t a b l e " . When " e f f e c t i v e c o n t r o l " was n o t an i s s u e f o r t h e J a p a n e s e e n t e r p r i s e , i t was c l a s s i f i e d a s " u n n e c e s s a r y " .  TABLE 5 . 2 NATURE OP BUSINESS AND ATTITUDES OP JAPANESE PARENT FIRMS  ON  TOWARDS EFFECTIVE CONTROL OVER A JOINT VENTURE  Number o f Cases and C e l l i D e s c r i b e d i n Row Sum E f f e c t i v e C o n t r o l D e s c r i b e d As: Necessary Nature  o f Business  No.  Pulp and Lumber  5  Miscellaneous  -  Mining  —  (Operating)  * 83  Desirable  Acceptable  Unnecessary  No.  No.  .No.  -  - 1 - -  1o  - 25  -  -  1  3  75  —  1  25  3  Mining (Exploration)  -  -  1  20  4  80  -  Totals  5  26  2  10  8  41  4  *  Totals No.  Value o f Investment  Weighte| Scores  io  S  141,383,000  3.50  —  4  2,590,000  2.25  75  4  20 (1.00)  60,530,000  5 26 (1.40)  335,000  16  —  21  31 (3.83) 20 (2.75)  19  1.25 2.20  1  Percentages do not a l l add up t o 1 0 0 because o f r o u n d i n g . Percentages i n the l a s t column are based on the column sum. 1. Two companies d i d not provide i n f o r m a t i o n . 2. Each time ^ e f f e c t i v e c o n t r o l " was d e s c r i b e d as "necessary", i t was m u l t i p l i e d by 4 ; as " d e s i r a b l e " , by 3 ; as " a c c e p t a b l e " , by 2 ; and as "unnecessary", by 1 . These weighted v a l u e s were then summed over each group t o g i v e a t o t a l weighted score f o r t h a t group. () The number i n d i c a t e s $he e q u i t y share o f the Japanese p a r e n t . I t was c a l c u l a t e d i n the same manner as i n Table 4 . 3  93'  ments i n B.C..  F i f t y p e r c e n t o f t h e i r p a r t n e r s were c l a s s i f i e d o t h e r  than "important". 3.83.  T h i s was  the group f o r which  3 . 5 0 , on a w e i g h t e d  "necessary": paralleled  T h i s g r o u p a l s o had t h e h i g h e s t " e q u i t y - s h a r e " :  t h e above  The  was  scale.  The  c o n t r o l " was  t h e most  " p u l p and l u m b e r g r o u p "  assumptions.  " m i s c e l l a n e o u s group" which  important, ^ considered "effective time.  "effective  ranked  control"  i t s p a r t n e r s as t h e most  as " a c c e p t a b l e " 7 5 $ o f t h e  Despite the small value of i t s investments, t h e i r "equity-share"  t h e s e c o n d h i g h e s t one:  c o n t r o l " was weighted  t h i s c o u l d e x p l a i n the f a c t  q u i t e "necessary" f o r t h i s group:  that  "effective  i t s c o r e d 2 . 2 5 on  a  scale. The  s i t u a t i o n c o n c e r n i n g companies f r o m t h e " m i n i n g g r o u p " d i d  not p a r a l l e l the a c c e p t e d t h e o r y . h i g h e r than the investments p a r t n e r s were l e s s e f f e c t i v e F o r t h e s e two  The  " m i n i n g g r o u p " i n v e s t m e n t s were  from the "miscellaneous group".  Their  than those i n the "miscellaneous group".  r e a s o n s , t h e y s h o u l d have g r e a t e r " e f f e c t i v e  control"  over t h e i r a s s o c i a t e d j o i n t v e n t u r e s , t h a n companies from the " m i s c e l laneous group". l o w e s t one,  However, t h e i r low l e v e l o f " e q u i t y s h a r e " was  and c o u l d e x p l a i n t h i s  the  situation.  Companies f r o m t h e " m i n i n g e x p l o r a t i o n g r o u p " , e v e n w i t h t h e small value of t h e i r investments, stressed that " e f f e c t i v e q u i t e " n e c e s s a r y " f o r them: the l e a s t  3.  important  See T a b l e 5 . 8 .  ones.  maybe i t was  control"  was  b e c a u s e t h e i r p a r t n e r s were  94  I t has tween t h e and  been i m p o s s i b l e  t o e s t a b l i s h a c l e a r r e l a t i o n s h i p be-  "importance" of Canadian partners  t h e i r desire for "effective control".  ments o f one w i t h the  g r o u p r o s e , so d i d t h e  exception  of the  of i n v e s t -  "necessity" for "effective control", group". ^ N e v e r t h e l e s s ,  i n t h e i r associated  " e f f e c t i v e c o n t r o l " was  executives,  As t h e t o t a l v a l u e  "mining operating  the Japanese " e q u i t y - s h a r e " creased,  f o r Japanese  as  j o i n t ventures i n -  i n c r e a s i n g l y "necessary" f o r Japanese  executives.  N a t u r e o f b u s i n e s s and The  "driving force", "deciding  d r i v i n g f o r c e and  j o i n t v e n t u r e s setuup i n the B o t h were d i f f e r e n t i n 20$ a t i o n g r o u p " , and  33$  body"  t h e d e c i d i n g body were t h e  "miscellaneous'^'and the  "mining group",  of the cases s t u d i e d i n the  of the time i n the  " p u l p and  same f o r a l l  "mining  explor-  lumber group".  The  r e s u l t s a r e p r e s e n t e d i n T a b l e 5«3« I t w o u l d seem s e n s i b l e f o r c o m p a n i e s i n t h e g r o u p " t o use  a " f a m i l i a r i n d i v i d u a l " as d r i v i n g f o r c e and  body s i n c e t h e y c o u l d make a more a c c u r a t e possibilities.  "mining e x p l o r a t i o n  However, t h e  e v a l u a t i o n of the  f o u r c o m p a n i e s w h i c h had  as d r i v i n g f o r c e and  d e c i d i n g body, had  i n mining operations  i n B.C..  deciding  "normal c h a n n e l s "  a l l been p r e v i o u s l y  This previous  local  involved  experience could  compensate  4. " C o n t r o l " was n o t an i s s u e f o r J a p a n e s e c o m p a n i e s i n v o l v e d i n J V s i n t h e " m i n i n g o p e r a t i n g g r o u p " : i t was s t r e s s e d v e r y o f t e n by Japanese e x e c u t i v e s i n these f i r m s .  TABLE  ON  5.3  NATURE OP BUSINESS AND LOCATION OP RESPONSIBILITY FOR DRIVING FORCE AND DECISION TO GO INTO A SPECIFIC JOINT VENTURE  Number o f Cases and C e l l fo Based on Row Sum P i n a l D e c i s i o n Taken By: Familiar Individual Nature  o f Business  .  No.  Pulp and Lumber  1  Miscellaneous  1  Mining  (Operating)  Mining  (Exploration)  Totals  i l  —  l ' —  3 2  * 16 16 16 16  Individual No.  fo  _  —  —  —  Normal Channels  ^Special Group No.  3 1 2 2  *  — —  —  —  —  —  —  —  —  —  —  14 9  —  —  —  —  —  —  —  —  —  5  -  Percentages do not a l l add up to 100 column are based on the column sum.  3  3 3 4 4 4 5  —  —  —  4  33 33  —  20  2  50 16  —  —  No.  23  14  13  16  because o f r o u n d i n g .  Total fo  33  66 50 50  100 100 80 100 61 75  No. 6 6 6 6. 4 4 5 5  21 21  Percentages  * 28 28 28 28  18 18 23 23  D r i v i n g Force Decision D r i v i n g Force Decision D r i v i n g Force Decision D r i v i n g Force Decision  i n the l a s t  96  f o r p o s s i b l e l o w e r l e v e l s o f a c c u r a t e l o c a l i n f o r m a t i o n a v a i l a b l e when t h e s e c o m p a n i e s u s e d " n o r m a l c h a n n e l s " as d r i v i n g f o r c e and d e c i d i n g body.  The  r e l a t i o n s between c o m p a n i e s o f e a c h g r o u p h e l p s t o e x p l a i n  their similar The 50%  behavior. " m i s c e l l a n e o u s g r o u p " was  t h e o n l y g r o u p where no more t h a n  o f t h e d e c i s i o n s t o go i n t o j o i n t v e n t u r e s were made t h r o u g h  "normal c h a n n e l s " .  The  f o l l o w i n g f a c t s c o u l d c o n t r i b u t e t o an e x p l a n -  a t i o n ; s i z e of investments, the s m a l l e s t of a l l groups; nature business of the j o i n t ventures: "raw  of  the o n l y j o i n t ventures outside the  m a t e r i a l c a t e g o r y " ; t h e s m a l l number o f J a p a n e s e p a r e n t s  which  were t r a d i n g c o m p a n i e s . " B u l p and l u m b e r " was  t h e g r o u p where t h e d i f f e r e n c e  d r i v i n g f o r c e and d e c i d i n g body was g r o u p " was 66%  t h e most s i g n i f i c a n t .  A  between "special  more o f t e n t h e d r i v i n g f o r c e t h a n " n o r m a l c h a n n e l s " .  o f t h e c a s e s , t h e d e c i d i n g body was  o n l y g r o u p i n t h e "raw  "normal c h a n n e l s " .  In  I t was  the  m a t e r i a l c a t e g o r y " not always u s i n g "normal  c h a n n e l s " as d e c i d i n g body. I t was  u n d e r l i n e d i n T a b l e 5.2  t h a t the behavior of "pulp  lumber" companies d i f f e r e d from the b e h a v i o r o f " m i n i n g "  and  enterprises.  5. One company was i n v o l v e d i n a j o i n t v e n t u r e i n t h e " m i n i n g o p e r a t i o n g r o u p " and was a l s o a p a r t n e r i n t h r e e j o i n t v e n t u r e s i n t h e "mining e x p l o r a t i o n group".  97  A similar situation existed i n this  A t t i t u d e towards p o t e n t i a l Entering  associate's  i n t o j o i n t ventures with  l y more c o n v e n i e n t t h a n w i t h differences habits not  instance.  do n o t e x i s t .  strangers.  "fellow n a t i o n a l " i s obvious-  C u l t u r a l b a r r i e r s and l a n g u a g e  F u r t h e r m o r e , t r a d e customs and b u s i n e s s  a r e more f a m i l i a r t h a n t h o s e o f a f o r e i g n e r .  These f a c t s  be a m a j o r c o n c e r n because a p o t e n t i a l a s s o c i a t e  c o m p e t i t o r , and because o f a d e s i r e  be a l o c a l  f o rlocal identity.  To e n t e r i n t o a j o i n t v e n t u r e w i t h t h a n C a n a d i a n s , p r e s e n t s few a d v a n t a g e s .  "other foreign",  other  Unless there i s a s p e c i f i c  need, t h i s p r a c t i c e i s h i g h l y d i s c o u r a g e d . external  could  may  Canadian s u b s i d i a r i e s  with  c o n t r o l , u s u a l l y A m e r i c a n , were c o n s i d e r e d as C a n a d i a n owned  f o r the purposes o f t h i s  report.  J o i n t v e n t u r e s c a n be more e a s i l y c o n t r o l l e d i f t h e p a r t n e r i s " l o c a l p u b l i c i n v e s t o r s " rather than " l o c a l p r i v a t e " . public investors" are u s u a l l y s a t i s f i e d t o receive  "Local  t h e i r d i v i d e n d s and  i n t e r f e r e v e r y s e l d o m i n t h e management o f t h e j o i n t  ventures.  N e v e r t h e l e s s , i f t h e need f o r l o c a l management, l o c a l cians it  and l o c a l i d e n t i t y i s g r e a t e r  i s more c o n v e n i e n t t o n e g o t i a t e  techni-  t h a n t h e need f o r l o c a l raw m a t e r i a l , with  "local  private".  I t i s not a.popular p r a c t i c e f o r e n t e r p r i s e s  to enter into  j o i n t v e n t u r e s w i t h t h e h o s t government and crown c o r p o r a t i o n s , f o r  93  the f o l l o w i n g reasons: negotiation, The  b u r e a u c r a t i c c o m p l i c a t i o n s , unbalanced  p o l i t i c a l involvement,  etc..  s e l e c t i o n o f a p o t e n t i a l partner, i n decreasing order o f  c h o i c e , s h o u l d t h e n be a s f o l l o w s : investors",  power o f  "fellow national", "local  " l o c a l p r i v a t e " , "other f o r e i g n " ,  " h o s t g o v e r n m e n t " . The  p r e f e r e n c e s o f J a p a n e s e e x e c u t i v e s a r e shown i n T a b l e Neither the global predicted pattern.  public  5«4«  r e s u l t s o r any o t h e r group f o l l o w e d t h e  I n g e n e r a l , t h e p r e f e r e n c e was f o r " l o c a l  private",  and t h e r e was a t o t a l agreement between e a c h g r o u p t o choose t h i s p o t e n t i a l associate f i r s t . descending ors",  Following " l o c a l private" the choices,i n  order o f importance,  were a s f o l l o w s :  "local public  invest-  " f e l l o w n a t i o n a l " , " o t h e r f o r e i g n " , and " h o s t g o v e r n m e n t " . E x -  c e p t f o r t h e " m i s c e l l a n e o u s g r o u p " , " h o s t government", was a l w a y s c h o s e n \ last.  An e x p l a n a t i o n f o r t h i s  situation w i l l  be d i s c u s s e d  later.  I t was a l s o i n t e r e s t i n g t o n o t e t h e s t r o n g p r e f e r e n c e cated f o r " l o c a l private". 3.0,  indi-  O n l y 31% o f a l l o t h e r c a s e s s c o r e d l e s s  ^ w i t h t h e l o w e s t one a t 2.50.  than  F i f t y s i x p e r cent o f t h e answers  were between 3.0 a n d 3«99» w h i l e 12.5% were o v e r 3«99« On t h e a v e r a g e , when t h e s c o r e o f " l o c a l p a r t n e r " was e l i m inated,  6.  t h e s t r o n g e s t p r e f e r e n c e f o r " l o c a l p r i v a t e " was f r o m t h e  The l o w e r t h e s c o r e , t h e s t r o n g e r was t h e p r e f e r e n c e .  TABLE 5.4 RANKING OP POTENTIAL ASSOCIATES BY JAPANESE COMPANIES ACCORDING TO NATURE OP BUSINESS OP PARENT FIRM  Rank Ordering o f P o t e n t i a l JV A s s o c i a t e s Nature o f Business of Japanese Parent  Fellow National  Other Foreign  Local Private  Host Government  Local Public Investors  1 Average 3.25  Pulp and Lumber  3.50  3.50  1.00  3.50  2.50  Miscellaneous  3.20  3.60  1.00  3.40  3.00  3.40  Mining  2.66  2.66  1.00  3.00  3.00  2.83  2.80  4.00  1.00  4.40  2.80  3-50  3.04  3.44  1.00  3.57  2.82  Mining All  (Operating) (Exploration)  Industry  Score  —  Responses were g i v e n a value from 1 ( f o r a f i r s t p l a c e ranking) to 5 ( f o r a f i f t h p l a c e r a n k i n g ) . These v a l u e s were m u l t i p l i e d by fthe frequency o f occurence f o r each group o f parent companies by nature o f business, and then summed over each group. T h i s sum was then d i v i d e d by the number o f responses made by the r e l a t e d group, to g i v e a weighted average score which represented the group's responses t o t h a t type of a s s o c i a t e . All  p o t e n t i a l a s s o c i a t e s with the exception o f L o c a l P r i v a t e .  100  "mining e x p l o r a t i o n group" which scored 3 . 5 0 . the " m i s c e l l a n e o u s group" at  3•40,  I t was f o l l o w e d by  "the " p u l p and l u m b e r g r o u p " a t  3.25,  and t h e " m i n i n g g r o u p " a t 2 . 8 3 . T h i s g e n e r a l behavior r e f l e c t e d the great importance panies from t h e "mining e x p l o r a t i o n group" t o f i n d p a r t n e r s w i t h the l o c a l environment.  I t also i n d i c a t e d that mining  f o r comfamiliar  companies  d i d n o t c o n s i d e r " l o c a l p r i v a t e " t o be s i g n i f i c a n t l y i m p o r t a n t . needed raw m a t e r i a l s , and d i d n o t mind o b t a i n i n g i t t h r o u g h venture w i t h or without The  "local  a joint  private".  p r e f e r e n c e s o f t h e " p u l p and l u m b e r g r o u p " c l o s e l y  l e l e d the general r e s u l t s .  paral-  T h i s g r o u p showed t h e most p r e f e r e n c e f o r  a second p a r t n e r ( " l o c a l p u b l i c i n v e s t o r s " scored 2 . 5 0 ) .  Considering  t h e i r desire f o r "effective control" discussed previously, t h i s was n o t a s u r p r i s e .  They  D i s c o v e r i n g t h a t t h e s e f i r m s made no  choice  distinction  between " f e l l o w n a t i o n a l " , " o t h e r f o r e i g n " , and " h o s t g o v e r n m e n t " , was something unexpected.  P r o c u r e m e n t o f l o c a l raw m a t e r i a l w o u l d be e a s i e r  when t h e p a r t n e r o f a j o i n t v e n t u r e  i s t h e " h o s t government" r a t h e r  t h a n t h e two o t h e r p o t e n t i a l a s s o c i a t e s .  An e x p l a n a t i o n f o r t h i s  could  7. I f a second p a r t n e r scored 1 . 5 0 , the p r e f e r e n c e f o r t h i s p a r t n e r w o u l d have been c l o s e t o t h e p r e f e r e n c e f o r " l o c a l p r i v a t e " . I f he s c o r e d 4 . 0 0 , t h e p r e f e r e n c e w o u l d c l e a r l y have been f o r " l o c a l p r i v a t e " . The h i g h e r t h e s c o r e , t h e g r e a t e r t h e p r e f e r e n c e f o r " l o c a l p r i v a t e " .  101  be lack of i n t e r e s t s i n doing business with government bodies. Firms from the "miscellaneous group" were the only ones which did not choose a p o t e n t i a l partner i n the 2.0 range.  Also important  to note was t h e i r choice of "host government" as a fourth, rather than a f i f t h p o t e n t i a l associate. was not the l a s t choice.  I t was the only case where t h i s partner  An executive of an enterprise from t h i s group  was surprised to r e a l i z e that Canadian businessmen were reluctant to deal with the government or crown corporations. did not concur with these  The Japanese company  thoughts.  The mining companies were the only ones to prefer "fellow national" and "other foreign" to " l o c a l public investors". They f e l t i t was to t h e i r advantage to be involved i n mining operations with the f i r s t two partners mentioned, rather than with " l o c a l public investors", due to the ease of procurement of raw material. Why they did not choose "host government" can not be i n t e l l i g e n t l y explained. Companies from the lipulp and lumber", and "mining group", both have asneed of raw materials; however, t h e i r behavior patterns d i f f e r e d .  Reasons f o r s e l e c t i n g a s p e c i f i c associate Results presented i n Table 5«5 indicate that the "pulp and lumber group", when s e l e c t i n g i t s associates, behaved once again d i f f e r e n t l y from the "mining group".  However, t h i s d i s t i n c t i o n was less  pronounced than the other ones previously mentioned.  One company i n  TABLE 5.5 w  NATURE OP BUSINESS AND REASONS POR SELECTING SPECIFIC ASSOCIATES  o  Reasons f o r S e l e c t i n g an A s s o c i a t e Same Line o f Business  Forced Choice Nature o f Business Pulp and Lumber Miscellaneous M i n i n g (O.perat ing; M i n i n g (Exploration) Totals  Convenience o f Facilities/ Resources  Past Association  Status Identity  Other  Totals  Number of Cases and C e l l $ Based on Row Sum* No. -  -  * —  No.  No.  No.  *  2  33  No.  fo  No.  No.  33  2 2  33 33  1  16  1  25  2  50  1  25  —  -  —  -  3  60  -  2  40  —  -  -  -  2  9  1  —  2  —  -  *  7  16  33  6  —  28  6  28  Percentages do not a l l add up to 100 because o f rounding. are based on the column sum.  1 1  16 16  Percentages  — —  i n the l a s t  *  6 6  28 28  4  18  5 21  23  column  103  t h e " p u l p and l u m b e r g r o u p " chose i t s p a r t n e r f o r " s t a t u s / i d e n t i t y " , w h e r e a s none d i d i n t h e " m i n i n g g r o u p " . g r o u p i n s t e a d o f one i n t h e s e c o n d  Two c o m p a n i e s i n t h e f i r s t  g r o u p chose i t f o r " p a s t  association".  One f i r m i n s t e a d o f two s e t up a j o i n t v e n t u r e w i t h a p a r t n e r s e l e c t e d for  "same l i n e o f b u s i n e s s " .  They were t h e m i n o r d i f f e r e n c e s o f b e h a v i o r .  The  m a j o r one was t h a t t h e " m i n i n g g r o u p " u s e d o n l y one m a i n c r i t e r i o n  for  selecting i t s associates:  "convenience  of facilities/resources",  w h e r e a s t h e " p u l p and l u m b e r g r o u p " u s e d two c r i t e r i o n : of  f a c i l i t i e s / r e s o u r c e s " and " p a s t The  the f i r s t  "convenience  association".  " m i s c e l l a n e o u s g r o u p " b e h a v i o r was n o t v e r y d i f f e r e n t  two g r o u p s m e n t i o n e d a b o v e .  Companies i n v o l v e d i n " m i n i n g  e x p l o r a t i o n " have a s p e c i a l c h a r a c t e r i s t i c : p a r t n e r s f o r "convenience  "same l i n e o f b u s i n e s s " :  they never s e l e c t e d t h e i r  o f f a c i l i t i e s / r e s o u r c e s " , t h e most  c r i t e r i o n o f a l l other groups.  important  T h e i r m a i n c r i t e r i o n o f s e l e c t i o n was  t h e y m e n t i o n e d i t 60% o f t h e t i m e .  These  c a s e s r e p r e s e n t e d 43% o f "same l i n e o f b u s i n e s s " c a t e g o r y , t a k e n a l l industries.  Structural  from  " P a s t a s s o c i a t i o n " was t h e i r s e c o n d  over  criterion.  dependence  To e v a l u a t e t h e i n d e p e n d e n c e o f a j o i n t v e n t u r e v i s - a - v i s i t s p a r e n t company, t h e t h r e e f o l l o w i n g methods were  used:  (1)  Percentage  of equity of the foreign  (2)  R e s p o n s i b i l i t i e s of the associate.  firms.  104  (3)  Independence o f t h e j o i n t v e n t u r e r e g a r d i n g some policies.  To  judge t h e degree o f r e s p o n s i b i l i t y o f t h e a s s o c i a t e , J a p -  anese e x e c u t i v e s were a s k e d t o p o i n t out i f t h e i r a s s o c i a t e s had f u l l responsibility, full  to joint responsibility,  j o i n t t o no r e s p o n s i b i l i t y ,  o r no r e s p o n s i b i l i t y , r e g a r d i n g t h e c o n d u c t o f t h e f o l l o w i n g  The  (if)  M a r k e t i n g and d i s t r i b u t i o n .  (2)  P u r c h a s i n g and p r o c u r e m e n t .  (3)  E n g i n e e r i n g and t e c h n i c a l  (4)  Production.  (5)  A d m i n i s t r a t i o n and c o n t r o l .  (6)  Finance.  (7)  Recruitment  (8)  R e l a t i o n s w i t h t h e h o s t government and l o c a l  (9)  Public  activities:  matters.  and p e r s o n n e l . authorities.  relations.  independence o f t h e j o i n t venture v i s - a - v i s  company was e v a l u a t e d f o r t h e f o l l o w i n g  i t s parent  policies:  (1)  Capital  expenditure.  (2)  Pricing.  (3)  Dividend  (4)  Organization.  (5)  Product  (6)  P r o d u c t i o n , p l a n n i n g and c o n t r o l .  (7)  Quality  (8)  M a r k e t i n g and s a l e s .  (9)  Purchasing.  policy.  selection,  d e s i g n and p l a n n i n g .  control.  (10)  Wages and l a b o r p o l i c y .  (11)  Selection,  promotion  and c o m p e n s a t i o n o f e x e c u t i v e s .  105  The  results  are presented  t h e number o f s h a r e s of  responsibility  of  the joint  i n T a b l e 5*6.  owned by J a p a n e s e companies, t h e h i g h e r t h e l e v e l  o f t h e a s s o c i a t e , t h e lower t h e l e v e l  i n d i c a t e d t h a t t h e most i n d e p e n d e n t  i n d e c r e a s i n g o r d e r , were from group", " m i s c e l l a n e o u s joint  behaved  ventures  the:  "mining  from  the "mining"  ventures,  group", "mining e x p l o r a t i o n Once  and t h e " p u l p and lumber g r o u p "  differently.  responsibilities  ventures.  In fact,  o f J a p a n e s e p a r e n t s i n c r e a s e d , so d i d  and t h e dependence o f t h e i r  out o f t h e s i x j o i n t  lumber g r o u p " , t h e most dependent  joint  owned by J a p a n e s e , whereas t h e s i x t h No m i n i n g  ventures  associated joint inithe  " p u l p and  v e n t u r e s , f i v e were m a j o r i t y  one was a  company e n t e r e d i n t o J V s , t h e l e a s t  50-50  joint  dependent  i n w h i c h t h e y owned more t h a n 25% o f t h e s h a r e s . this  joint  g r o u p " , and " p u l p and lumber g r o u p " .  When t h e e q u i t y s h a r e their  o f dependence  venture.  These r e s u l t s  again,  The l o w e r t h e s c o r e , t h e l o w e r  venture.  joint  F i g u r e 5«1  ventures, illustrates  situation.  g When t h e J a p a n e s e e q u i t y s h a r e t h e dependence o f t h e j o i n t associate's responsibility  venture  i n c r e a s e d from  1.0  to  2.33,  i n c r e a s e d r a p i d l y , whereas t h e  decreased.  However, any f u r t h e r i n c r e a s e  8. These numbers r e p r e s e n t e d t h e e x t r e m i t i e s o f t h e l e f t l i n e i n F i g u r e 5-l«  straight  106  TABLE 5*6 STRUCTURAL DEPENDENCE SCORES OP JOINT 'VENTURE ACCORDING TO NATURE OP BUSINESS Associate s E q u i t y Share of R e s p o n s i b i l i t y J V s IndependenC' F o r e i g n P a r e n t * F o r O p e r a t i o n s ! i n P o l i c y Areas ^ 1  Nature o f Business  „ , Number of JVs  P u l p and Lumber  6  Miscellaneous  13  6  3.83(4) 2.33(3).  2.33(4) 2.29(3)  2.34(4) 2.03(3)  Mining (^Operating)  4  1.00(1)  1.28(1)  1.25(1)  M i n i n g (Exploration)  5  1.40(2)  1.63(2)  1.70(1)  2.14  1.88  1.83  A l l Industry Average Score  Same method as the one used i n Table 4«3 The values assigned i n these two measures were as f o l l o w s : A s s o c i a t e ' s R e s p o n s i b i l i t y f o r J o i n t Venture's Operations: F u l l Responsibility = 1 F u l l to joint responsibility = 2 Joint responsibility =33 J o i n t t o no r e s p o n s i b i l i t y = 4 No r e s p o n s i b i l i t y = 5 J o i n t Venture's Independence: H i g h l y independent = 1 Independent = 2 Joint decisions = 3 Considerable c o n t r o l by Japanese parent =4 Close c o n t r o l by Japanese parent = 5 5 These values were then aggregated and averaged f o r each category.  107  5.1  FIGURE  EQUITY SHARE OF JAPANESE PARENT, JAPANESE PARTNER RESPONSIBILITY, AND JOINT VENTURES DEPENDENCE  Japanese Parent Responsibility J o i n t Venture»s Dependence  •  —  —  —  ;  :  E q u i t y Share  Dependence Responsibility  —  ?  108  w o u l d have a s m a l l e r i n f l u e n c e on t h e s e two v a r i a b l e s .  F o r a Japanese  company, t o l o o k f o r a g r e a t e r e q u i t y s h a r e w i t h t h e s o l e p u r p o s e o f i n c r e a s i n g i t s power o v e r t h e j o i n t v e n t u r e , c o u l d be f r u i t l e s s ,  after  a c e r t a i n l e v e l of ownership:  the marginal cost i s g r e a t e r than  the  D a t a on t h e r e l a t i o n s between a c t i v i t i e s , p o l i c i e s , and  the  marginal gain.  n a t u r e o f b u s i n e s s a r e shown i n a more e x p l i c i t  f o r m i n T a b l e 5«7«  I n g e n e r a l , J a p a n e s e companies were r e l u c t a n t t o d e l e g a t e  responsibilit-  i e s t o t h e i r a s s o c i a t e s r e g a r d i n g the f o l l o w i n g a c t i v i t i e s : g i n e e r i n g a n d t e c h n i c a l m a t t e r s ; (2) tribution.  m a r k e t i n g and  J o i n t v e n t u r e s were dependent on t h e i r J a p a n e s e  over the f o l l o w i n g p o l i c i e s : promotion  f i n a n c e ; (3)  (l)  (l)  d e s i g n and p l a n n i n g ; (4)  m a r k e t i n g and  product  dis-  parents  c a p i t a l e x p e n d i t u r e ; (2)  and c o m p e n s a t i o n o f e x e c u t i v e s ; (3)  en-  selection,  selection,  sales.  A s s o c i a t e s i n t h e " p u l p and l u m b e r " j o i n t v e n t u r e s were h i g h l y r e s p o n s i b l e c o n c e r n i n g p u b l i c r e l a t i o n s , r e l a t i o n s w i t h the  host  government and l o c a l a u t h o r i t i e s , r e c r u i t m e n t and p e r s o n n e l , and duction.  However, f o r e a c h a c t i v i t y , t h e y had l e s s  than the o v e r a l l i n d u s t r y average.  responsibilities  J a p a n e s e c o m p a n i e s assumed  h i g h r e s p o n s i b i l i t y i n f i n a n c e , m a r k e t i n g and d i s t r i b u t i o n . was  more i m p o r t a n t t h a n i t was  pro-  f o r companies o f o t h e r  Their role  groups.  I n the " m i s c e l l a n e o u s group", p a r t n e r s o f Japanese f i r m s assumed more r e s p o n s i b i l i t i e s i n r e l a t i o n s w i t h t h e h o s t government l o c a l a u t h o r i t i e s and p u b l i c r e l a t i o n s t h a n t h e " p u l p and  lumber"  and  109  TABLE 5 . 7 RELATIONS BETWEEN A C T I V I T I E S / P O L I C I E S AND NATURE OP BUSINESS  A c t i v i t i e s / Categories M a r k e t i n g and D i s t r i b u t i o n P u r c h a s i n g and P r o c u r e m e n t E n g i n e e r i n g and T e c h n i c a l Matters Production A d m i n i s t r a t i o n and C o n t r o l Finance R e c r u i t m e n t and P e r s o n n e l R e l a t i o n s w i t h H o s t Government/ Local Authorities Public Relations  Policies/Categories Capital Expenditure Pricing Dividend P o l i c y Organisation Product S e l e c t i o n , Design, Planning P r o d u c t i o n P l a n n i n g and C o n t r o l Quality Control M a r k e t i n g and S a l e s Purchasing Wages and L a b o r P o l i c y S e l e c t i o n , P r o m o t i o n , Compensation of Executives  P  Aver.  Mis  Min  Minex  2.83 2.16  2.20 2.60  2.00 1.50  1.00  2.16 2.00 2.66 3.00 2.00  2.60  1.50 1.50 1.00 1.00 1.00  1.80  1.80  2.01 1.72 1.71 2.00 1.90  2.00 1.66  1.60  1.00 1.00  1.80  1.60  1.60  1.80  1.51  Mis  Min  Minex  2.80 1.60  1.00  2.25  2.00  1.00 1.00  3.33 2.00 1.33 3.00 1.33 1.16  2.25  1.00  3.50  1  p 3.50  2.00 2.80 1.83  2.40  1.80 2.60 2.80  1.50  1.00  1.50  2.25 1.25 1.40  2.00 1.75 1.00 1.00  2.40  1.00  2.00  1.60  1.00 1.40 1.40  2.00 1.96  Aver.  1.80 1.00 1.00 1.80  2.27 1.52  1.00 1.00 1.00 1.00  1.93 1.37  1.76 1.65  1.64  1.25  1.93 1.20  1.20  1.19  1.75  2.16  Low s c o r e s i n d i c a t e a h i g h l e v e l o f r e s p o n s i b i l i t y f o r t h e A s s o c i a t e s , o r an independent j o i n t v e n t u r e . 1. P: P u l p and l u m b e r g r o u p Minex: M i n i n g e x p l o r a t i o n M i s : M i s c e l l a n e o u s group Aver: Average Min: M i n i n g O p e r a t i n g group  110  p a r t n e r s , whereas t h e y had few As Japanese  r e s p o n s i b i l i t i e s to recruit  companies p r o v i d e d m a i n l y know-how i n s t e a d  s e c u r e market as i n t h e o t h e r c a t e g o r i e s ,  sibilities  " m i n i n g group"  than the average.  ing a c t i v i t i e s .  not the case f o r market-  o f p r o d u c t i o n p l a n n i n g and  and  influenced their  m a t e r i a l s was  control,  low  t h e i r most i m p o r t a n t  objective  i n the "mining e x p l o r a t i o n  c o n c e r n i n g r e l a t i o n s w i t h t h e h o s t government and  a u t h o r i t i e s and p u b l i c  relations.  I t was  companies, o b t a i n i n g government s u c c e s s f u l , was  group",  local  t h e o n l y c a s e where  p a r t n e r s f u l l y e x e r c i s e d such r e s p o n s i b i l i t i e s themselves.  p l o r a t i o n was  Secur-  behavior.  Associate's responsibility was  they  u s u a l l y d e l e g a t e d more r e s p o n -  and q u a l i t y c o n t r o l , t h e y p r e f e r r e d t o s u p e r v i s e them c l o s e l y . i n g t h e i r s u p p l y o f raw  and  selection.  However, t h i s was  As f o r p o l i c i e s  of c a p i t a l  i t seemed o b v i o u s t h a t  w o u l d e x e r c i s e more c o n t r o l o v e r p e r s o n n e l Parents of the  personnel.  Japanese  For these  a u t h o r i z a t i o n to operate i f t h e i r  very important.  t h e r e f o r e v e r y i m p o r t a n t , and Japanese  ex-  Good r e l a t i o n s were  p a r t n e r s p r e f e r r e d t o be  res-  p o n s i b l e f o r them. Each  group  a general v a l i d  statement  over the a c t i v i t i e s ercised close results  behaving  showed.  i t was  impossible to elaborate  c o n c e r n i n g the a s s o c i a t e s '  studied.  control  differently,  responsibility  Concerning the p o l i c i e s ,  on t h e most i m p o r t a n t  ones,  a l l groups  as t h e  average  ex-  Ill  Evaluation of associates  N o r m a l l y , when t h e l e v e l o f r e s p o n s i b i l i t y  o f an a s s o c i a t e  i n c r e a s e s , s o does i t s i m p o r t a n c e . Was i t so f o r J a p a n e s e j o i n t i n B r i t i s h Columbia?  The r e s u l t s  are presented i n Table  ventures  5*8.  T h e r e was no c l e a r r e l a t i o n between t h e a s s o c i a t e ' s r e s p o n s i b i l i t y and i t s l e v e l o f i m p o r t a n c e score.  e v a l u a t e d on an a v e r a g e  A s s o c i a t e s i n t h e " m i n i n g g r o u p " assumed t h e most  i t i e s , and r a n k e d  s e c o n d on t h e s c a l e .  weighted  responsibil-  However, e v e n i f t h e y r e p r e -  s e n t e d o n l y 27% o f t h e c a s e s when an a s s o c i a t e was c l a s s i f i e d as " i m p o r t a n t " , t h e y were c i t e d as " i m p o r t a n t " by t h e i r J a p a n e s e p a r t n e r s 75% o f t h e c a s e s . A s s o c i a t e s i n t h e " m i n i n g e x p l o r a t i o n c a t e g o r y " , who assumed t h e s e c o n d h i g h e s t l e v e l o f r e s p o n s i b i l i t i e s , r a n k e d f o u r t h on t h e same scale.  Furthermore, Joint  no one was m e n t i o n e d as " i m p o r t a n t " .  v e n t u r e a s s o c i a t e s i n t h e " m i s c e l l a n e o u s g r o u p " were  r a n k e d t h i r d on a n a s s o c i a t e ' s r e s p o n s i b i l i t y t h e y were t h e most " i m p o r t a n t " p a r t n e r s . was t h e h i g h e s t : Furthermore, all  scale.  Nevertheless,  T h e i r average weighted  score  2.66,©arid 83% o f them were c l a s s i f i e d as " i m p o r t a n t " .  t h e y r e p r e s e n t e d 45% o f t h e " i m p o r t a n t " c a s e s t a k e n  over  groups. " P u l p and l u m b e r " companies d e l e g a t e d l e s s  t o t h e i r a s s o c i a t e s t h a n any o t h e r c o m p a n i e s .  responsibilities  I t w o u l d have been  n a t u r a l t h e r e f o r e f o r them t o c l a s s i f y t h e i r p a r t n e r s as n o t " v e r y  TABLE 5.8 NATURE OF BUSINESS AND IMPORTANCE ATTRIBUTED  TO  ASSOCIATES IN JOINT VENTURES IN B.C.  Importance A t t r i b u t e d t o A s s o c i a t e s Important  Useful  Necessary  Useless  Totals  Number of Cases and C e l l fo Based on Column Sum Nature  of Business  No.  No.  *  No.  '  fo  No.  fo  . Wei  No.  Score 1  Pulp and Lumber  3  27  1  33  1  . 16  1  100  6  28  1.83  Miscellaneous  5  45  16  2.66  27  1  16  4  18  2.50  Mining  (Exploration^  -  -  2  66  3  50  -  28  3  -  6  (Operating)  -  1  Mining  -  5  1.40  T o t a l s and fo Based on Row Sum i.i  23  52  3  14  6  28  1  5  21  -  Percentages do not a l l add up to 100 because o f rounding. Each time a p a r t n e r was c i t e d as important, i t was m u l t i p l i e d by 3, as u s e f u l i t was m u l t i p l i e d by 2, as necessary i t was m u l t i p l i e d by 1, as u s e l e s s by - 1 . These weighted v a l u e s were then summed over each c a t e g o r y to g i v e a t o t a l weighted score f o r that group.  113  important" i n general. s i d e r e d as " i m p o r t a n t " .  N e v e r t h e l e s s , 50%  o f t h e i r p a r t n e r s were  con-  However, i t was t h e o n l y c a t e g o r y i n w h i c h  a c a s e a r o s e where an a s s o c i a t e was c o n s i d e r e d " u s e l e s s " .  Summary The  most i m p o r t a n t  f o r e i g n p a r e n t s were t h e t r a d i n g c o m p a n i e s .  S i x o f them h a d i n t e r e s t s i n e l e v e n j o i n t v e n t u r e s i n B.C..  There  were s i x j o i n t v e n t u r e s i n t h e " p u l p and l u m b e r " , and " m i s c e l l a n e o u s g r o u p " , and n i n e i n t h e " m i n i n g s e c t o r " .  The n a t u r e o f b u s i n e s s o f  f o r e i g n f i r m s i n f l u e n c e d the nature of business of t h e i r associated joint  ventures. O b t a i n i n g raw m a t e r i a l was t h e r e a s o n m e n t i o n e d f o r g o i n g  j o i n t v e n t u r e s by more t h a n 50%  into  o f t h e c o m p a n i e s i n t h e raw m a t e r i a l  category. " E f f e c t i v e c o n t r o l " was " v e r y i m p o r t a n t " f o r t h e " p u l p a n d lumber group".  I t was more " a c c e p t a b l e " t h a n " d e s i r a b l e " f o r t h e  " m i s c e l l a n e o u s " and " m i n i n g e x p l o r a t i o n g r o u p " .  Seventy  o f t h e companies i n t h e " m i n i n g group" d e s c r i b e d i t as  f i v e p e r cent "unnecessary".  D e c i s i o n s t o e n t e r i n t o a j o i n t v e n t u r e were a l w a y s t a k e n by "normal c h a n n e l s " i n t h e companies i n v o l v e d i n t h e " m i n i n g s e c t o r " . A " f a m i l i a r i n d i v i d u a l " t o o k s u c h a d e c i s i o n 16% o f t h e t i m e i n t h e " p u l p and lumber" and " m i s c e l l a n e o u s group".  A " s p e c i a l group" d i d  t h e same i n t h e s e two g r o u p s 16% and 33% o f t h e t i m e  respectively.  114  " P u l p and l u m b e r g r o u p " was  t h e group where " d r i v i n g f o r c e " was  the  most o f t e n d i s t i n c t f r o m t h e " d e c i d i n g body". " L o c a l p r i v a t e " was  the p o t e n t i a l a s s o c i a t e t h a t a l l groups  w o u l d l i k e t o have as a p a r t n e r i n a j o i n t v e n t u r e . i n v e s t o r s " was  "Local  public  the second c h o i c e o f a l l c a t e g o r i e s except m i n i n g .  "Host government" a s s o c i a t e by a l l  was  c l a s s i f i e d as t h e l e a s t d e s i r a b l e  potential  groups except the " m i s c e l l a n e o u s group".  "Convenience  o f f a c i l i t i e s / r e s o u r c e s " was  t h e most i m p o r t a n t  c r i t e r i o n f o r s e l e c t i n g an a s s o c i a t e f o r a l m o s t a l l g r o u p s . " m i n i n g g r o u p " was b u s i n e s s " was  The  t h e o n l y e x c e p t i o n , i n t h i s c a s e "same l i n e  t h e most s i g n i f i c a n t c r i t e r i o n .  g r o u p were t h e most i n d e p e n d e n t .  of  Joint ventures i n t h i s  They a l s o were t h e J V s i n w h i c h t h e  a s s o c i a t e s assumed t h e h i g h e s t l e v e l o f r e s p o n s i b i l i t y .  Joint ventures  f r o m t h e " p u l p and l u m b e r " companies were a t t h e o p p o s i t e end o f t h e spectrum.  T h i s s i t u a t i o n i l l u s t r a t e d t h a t when t h e J a p a n e s e  equity,  s h a r e i n c r e a s e d , so d i d t h e dependence o f t h e j o i n t v e n t u r e s . A s s o c i a t e s were r e s p o n s i b l e f o r :  r e l a t i o n s w i t h the host  government and l o c a l a u t h o r i t i e s , p u b l i c r e l a t i o n s and u s u a l l y ment and p e r s o n n e l . as:  recruit-  Japanese p a r t n e r s kept a u t h o r i t y over areas such  f i n a n c e , m a r k e t i n g and d i s t r i b u t i o n , and t e c h n i c a l m a t t e r s .  v e n t u r e s were u n d e r t h e c o n t r o l o f J a p a n e s e p a r e n t s f o r c a p i t a l  Joint ex-  p e n d i t u r e , m a r k e t i n g and s a l e s , and s e l e c t i o n , p r o m o t i o n and compensation of executives.  115  A s s o c i a t e s ' i n the "miscellaneous ant".  g r o u p " were t h e most  "import-  U n f o r t u n a t e l y , i t has been i m p o s s i b l e t o e s t a b l i s h a c l e a r  r e l a t i o n between t h e l e v e l o f r e s p o n s i b i l i t y and t h e i m p o r t a n c e o f t h e associates.  116  CHAPTER  6  ATTITUDES TOWARDS CONTROL  This chapter studied  some o f t h e r e l a t i o n s h i p s between J a -  panese a t t i t u d e s t o w a r d s c o n t r o l and c e r t a i n a s p e c t s o f t h e i r a s s o c i ated j o i n t ventures. control influence  How, f o r e x a m p l e , c o u l d  t h e i r ranking of the f o l l o w i n g p o t e n t i a l  "fellow n a t i o n a l " , "other foreign", and  "local public  their attitudes  investors"?  " l o c a l p r i v a t e " , "host  towards  associates: government",  What was t h e r e l a t i o n s h i p between t h e i r  a t t i t u d e s t o w a r d s c o n t r o l and t h e dependence o f t h e i r a s s o c i a t e d ventures? close  Were t h e i r j o i n t v e n t u r e s more p r o f i t a b l e when t h e y  control?  D i d they increase  These a r e some o f t h e  analysed.  Ranking of p o t e n t i a l  Attitudes  associates  towards c o n t r o l o f f o r e i g n i n v e s t o r s  t h e i r choice of p o t e n t i a l associates.  should  I f a foreign investor  t o c o n t r o l t h e j o i n t v e n t u r e he was s e t t i n g up i n a f o r e i g n the  exercised  t h e i r c o n t r o l when t h e p e r c e i v e d l e v e l  of importance o f t h e i r p a r t n e r s decreased? questions  joint  investors".  pecuniaires.  L actionnaire  1'entreprise:  1  wished country,  e a s i e s t way was t o go i n t o t h i s p a r t i c u l a r j o i n t v e n t u r e  "local public  influence  with  " . . . L e s l i e n s q u i l e s u n i s s e n t s o n t purement t y p i q u e ne s ' i d e n t i f i e p a s aux b u t s de  i l n'esp^re pas l e s i n f l u e n c e r .  I I detient  une p a r t  117  de  l a p r o p r i e t e ; normallemerrt son  le plus possible." ^  T h i s was  to c o n t r o l a j o i n t venture.  seul souci est qu'elle l u i rapporte  one  of the  simplest  Furthermore, the  methods t h r o u g h w h i c h '  foreign investor did  not  have t o i n v e s t as much money as " l o c a l p u b l i c i n v e s t o r s " i n o r d e r t o have " e f f e c t i v e c o n t r o l " of the  joint venture.  i n p u b l i c c o m p a n i e s , an e n t e r p r i s e acquires  l e s s t h a n 50$  s o c i a t e not  of the  o n l y would not  can  shares.  I t i s a w e l l known f a c t  take c o n t r o l even though i t Therefore, t h i s potential  i n t e r f e r e i n t h e management o f t h e  v e n t u r e , but w o u l d a l s o p r e s e n t t o t h e  be  opportunity  an amount o f money i n  or at l e a s t r a t h e r l e s s perhaps t h a n i f the s e t up w i t h a n o t h e r p o t e n t i a l  j o i n t v e n t u r e was  f o r companies d e s i r i n g t o  c o n t r o l o f a j o i n t v e n t u r e , w o u l d be  "local private" partners.  r e t i c a l l y , the  use,  f o r e i g n i n v e s t o r s can  t r i b u t i o n t o the  i t s s u p e r i o r i t y i n s i z e and  j o i n t venture to increase  so r e s t r i c t e d , t h a t t h e  1. 1968,  Galbraith, J.K.: p. 158.  exercise Theo-  d u r i n g the n e g o t i a t i o n s  with  the nature o f i t s con-  i t s equity share.  more, v e r y o f t e n , r e s p o n s i b i l i t i e s assumed by t h e be  to  associate.  A reasonable second choice  i t s future partner,  as-  joint  f o r e i g n i n v e s t o r s the  to c o n t r o l a f i r m without i n v e s t i n g too great it,  that  Further-  " l o c a l partner"  could  f o r e i g n i n v e s t o r w i l l have, c o n t r o l o v e r  Le H o u v e l E t a t  I n d u s t r i e l , Gallimard,  France,  the  118  p r i n c i p a l a c t i v i t i e s of the j o i n t  venture.  F o r c o m p a n i e s w i t h no marked p r e f e r e n c e s s h o u l d be no sociates. choice not  d i f f e r e n c e i n t h e i r c h o i c e s and  However, " h o s t  of a l l companies.  a favoured  for control,  r a n k i n g of p o t e n t i a l as-  government" w o u l d most l i k e l y be t h e F o r a l l e n t e r p r i s e s , "host  partner:  there  last  government"  was  s u c h a p a r t n e r s h i p w o u l d have gone a g a i n s t  the  " f r e e e n t e r p r i s e " p o l i c y o f most c o m p a n i e s b e c a u s e o f t h e f e a r t h a t t h e f o r e i g n i n v e s t o r c o u l d be s u b j e c t e d t o a l l k i n d s o f pressures.  political  A t t i t u d e s toxvards c o n t r o l o f J a p a n e s e e x e c u t i v e s and  r a n k i n g of p o t e n t i a l a s s o c i a t e s are presented  i n T a b l e 6.1,  their  where  the  l o w e r t h e s c o r e , t h e more p r e f e r a b l e t h e a s s o c i a t e . These r e s u l t s d i d n o t v e r i f y a l l t h e p r e v i o u s Firstly, the f i r s t  " l o c a l p r i v a t e " and n o t choice  and  assumptions.  " l o c a l p u b l i c i n v e s t o r s " was  always  t h i s , d e s p i t e the d i f f e r e n c e s o f o p i n i o n s  the n e c e s s i t y f o r " e f f e c t i v e c o n t r o l " .  over  As a C a n a d i a n i d e n t i t y i s e a s i e r  to obtain through a partnership w i t h " l o c a l p r i v a t e " than w i t h  "local  p u b l i c i n v e s t o r s " , t h i s c h o i c e c o u l d be e x p l a i n e d by t h e f a c t t h a t be s e e n as C a n a d i a n was Japanese companies.  more i m p o r t a n t  than " e f f e c t i v e c o n t r o l " f o r  They were r e a d y t o r e s t r a i n t h e i r d e s i r e f o r  " e f f e c t i v e c o n t r o l " i n order t o acquire a Canadian i d e n t i t y . "host  government" was  t i m e i t was "necessary".  to  not  always the l a s t p a r t n e r chosen:  n o t happened when " e f f e c t i v e c o n t r o l " was  Secondly,  the  mentioned  only as  However, i t must be s t r e s s e d t h a t a l l f i r m s m e n t i o n i n g  119  TABLE 6.1 RANKING OP VARIOUS TYPES OF POTENTIAL ASSOCIATES ACCORDING TO JAPANESE COMPANY'S ATTITUDE TOWARD EFFECTIVE CONTROL OF A J V  Stated Level of Necessity for Effective Control  Rank O r d e r i n g  of Potential JV Associates  Fellow National  Other Foreign  Local Private  Host Government  Local Public Investors •XW e i g h t e d A v e r a g e S c o r e a n d ( O v e r a l l Rank) f o r Groups  Necessary  3.60(4)  3.60(4)  1.00(1)  3.20(3)  2.60(2)  Desirable*  3.00(2)  4.00(4)  1.00(1)  5.00(5)  3.00(2)  Acceptable  2.62(2)  3-75(4)  1.00(1)  4.37(5)  3.25(3)  Unnecessary*  3.00(4)  2.33(2)  1.00(1)  4.00(5)  2.66(3)  All-Group Score  3.05(3)  3.42(4)  1.00(1)  4.14(5)  2.88(2)  S c o r e s c a l c u l a t e d i n t h e same manner a s i n T a b l e 5 « 4 *  One company r e f u s e d t o d i s c l o s e i n f o r m a t i o n .  120  " e f f e c t i v e c o n t r o l " as "necessary" were i n the "pulp and lumber group"; f o r these f i r m s , who government" was  were b a s i c a l l y l o o k i n g f o r raw  materials,  "host  a b e t t e r p o t e n t i a l associate than "other f o r e i g n " or  "fellow n a t i o n a l " . The  assumption s t a t i n g that " l o c a l p u b l i c i n v e s t o r s " are  best partners c o n t r o l " was  the  f o r e n t e r p r i s e s wishing to exercise close " e f f e c t i v e partially verified.  Companies i n the  "control-conscious  2 group"  mentioned " l o c a l p u b l i c i n v e s t o r s " as t h e i r second choice,  whereas firms i n the " c o n t r o l unstressed third  group" ^ mentioned them as  choice. It was  i n t e r e s t i n g to note that companies mentioning " e f f e c t i v e  c o n t r o l " as "unnecessary", s e l e c t e d "other f o r e i g n " as t h e i r second choice while i t was groups.  the f o u r t h choice of a l l other  A p o t e n t i a l reason could be that 75$  involved i n mining operations  of these companies were  and that these companies had a s p e c i a l  i n t e r e s t i n t h i s group of p o t e n t i a l a s s o c i a t e s . examined i n the previous  companies i n other  chapter,  As t h i s issue  was  i t w i l l not be discussed again i n  '4 detailb..  2. Companies mentioning " e f f e c t i v e c o n t r o l " as "necessary" or " d e s i r a b l e " . 3. Companies mentioning " e f f e c t i v e c o n t r o l " as "acceptable" or "unnecessary". 4. Table 5.4.  121  Reasons f o r g o i n g i n t o j o i n t v e n t u r e s , s i z e o f Japanese p a r e n t s , scheduled objectives,  and r e a s o n s f o r s e l e c t i n g an a s s o c i a t e ,  examined i n r e l a t i o n s h i p w i t h t h e s t a t e d control".  level of necessity  were  f o r "effective  The r e s u l t s a r e p r e s e n t e d i n T a b l e 6.2. Reasons f o r g o i n g i n t o j o i n t v e n t u r e s were "need f o r l o c a l  raw  materials"  f o r a l l companies c o n s i d e r i n g  and  "unnecessary":  and  the stated  control  t h e r e was no r e l a t i o n s h i p between t h e s e r e a s o n s  level of necessity  for "effective control".  same s i t u a t i o n when a n a l y z i n g t h e r e l a t i o n s h i p s Japanese p a r e n t s , scheduled o b j e c t i v e s , "effective  as " n e c e s s a r y "  I t was t h e  between t h e s i z e o f  and t h e J a p a n e s e d e s i r e f o r  control".  However, r e a s o n s f o r s e l e c t i n g an a s s o c i a t e certain extent, t h i s desire conscious group" s e l e c t e d  f o r"effective control".  explained, to a The  "control-  i t s p a r t n e r s , most o f t h e t i m e , f o r " c o n -  v e n i e n c e o f f a c i l i t i e s / r e s o u r c e s " , w h e r e a s most o f t h e c o m p a n i e s i n t h e " c o n t r o l u n s t r e s s e d group" s e l e c t e d  t h e i r p a r t n e r s f o r "same l i n e o f  business".  Structural  c h a r a c t e r i s t i c s of j o i n t ventures  I f " e f f e c t i v e c o n t r o l " was i m p o r t a n t f o r J a p a n e s e c o m p a n i e s investing  i n B.C., t h e y w o u l d t r y t o i n c r e a s e t h e i r e q u i t y  t h e i r associated joint ventures. that  share i n  I t w o u l d a l s o be r e a s o n a b l e t o e x p e c t  t h e y w o u l d i n c r e a s e t h e l e v e l o f dependence o f t h e i r j o i n t v e n t u r e s  TABLE 6.2 JAPANESE COMPANY'S ATTITUDE TOWARD EFFECTIVE CONTROL AND SOME OTHER FACTORS*  Stated Level of N e c e s s i t y for Effective Control  Reasons f o r Going Into J o i n t Ventures  Size o f Japanese Parent  Necessary  Need f o r l o c a l raw m a t e r i a l -100$  Very Large - 60$ Large -020$ Small - 20$  Desirable  Need f o r l o c a l managers Other reasons -50$  Very Large - 50$ E x p l o r a t i o n Medium - 50$ M i s c e l l a n e o u s - 50$  Acceptable  Need f o r l o c a l managers Associate's project -40$ Spreading risk -20$  Very Large - 25$ Large -350$ Small - 25$  Supply raw material Exploration Miscellaneous  Unnecessary  Need f o r l o c a l raw materials-100$  Very Large - 75$ Medium - 25$  Secure supply o f raw m a t e r i a l - 100$  Scheduled O b j e c t i v e s Secure supply o f raw m a t e r i a l - 100$  Percentages based on the number o f companies i n each sub-sample.  12$ 50$ 38$  Reasons f o r S e l e c t i n g an A s s o c i a t e Convenience o f facilities/ r e s o u r c e s - 60$ Past a s s o c i ation - 40$ Convenience o f facilities/ r e s o u r c e s - 100$ Convenience o f facilities/ r e s o u r c e s - 12.5$ Past a s s o c i ation - 12.5$ Same,, l i n e o f b'usin.3ss - 75$ Convenience o f facilities/ r e s o u r c e s - 50$ Past a s s o c i ation - 25$ Same l i n e o f b u s i n e s s - 25$  123  vis-a-vis  the  Japanese p a r e n t s ,  of t h e i r p a r t n e r s . venture, the  To  own  to r e s t r i c t the  policies  more t h a n 50%  shares  of a partner  6.3  i n Table  the  their  one  exception:  when " e f f e c t i v e  the  p a t t e r n was  not  paralleled  e q u i t y share  of r e s p o n s i b i l i t i e s  followed.  increased.  control" Not  was  the  described  only d i d these  best  a j o i n t venture  with  from  companies however,  as " d e s i r a b l e " ,  control"  a was  higher  Three reasons could  t h e r e were o n l y two results;  expectations.  went  l e v e l o f r e s p o n s i b i l i t i e s was  " c o n t r o l - c o n s c i o u s " companies.  egory, which c o u l d b i a s the into  the  companies have  also their  firstly,  above  T h e r e was,  " u n n e c e s s a r y " , but  entered  joint to influence  o f Japanese  t h a n companies f o r w h i c h " e f f e c t i v e  such a s i t u a t i o n :  and  control"  lower e q u i t y share  most  of a  r e a l l y seemed t o be  of n e c e s s i t y f o r " e f f e c t i v e  and  f o r the  responsibilities  venture.  "unnecessary" to "necessary", level  l e v e l of  o f the  j o i n t venture,  a joint  Results presented As t h e . t s t a t e d l e v e l  l i m i t the  responsibilities  of a s p e c i f i c  ways o f c o n t r o l l i n g  and  secondly,  explain  companies i n t h i s one  o f the  two  shares  cat-  companies  o t h e r J a p a n e s e companies, w h i c h  s u r e l y i n f l u e n c e i t s d e s i r e f o r owning more o r l e s s  than  could  and i t s 5  w i l l i n g n e s s to delegate  more o r l e s s  r e s p o n s i b i l i t i e s to i t s associates;  5. I n t h i s p a r t i c u l a r c a s e , t h e J a p a n e s e company t h a t i n i t i a t e d t h e j o i n t v e n t u r e owned few s h a r e s , but assumed a h i g h l e v e l o f r e s p o n sibility.  124  TABLE 6 . 3 STRUCTURAL DEPENDENCE SCORES OP JOINT VENTURES ACCORDING TO FOREIGN PARTNER'S DESIRE FOR EFFECTIVE CONTROL  Stated Level of Necessity for Effective Control  Number of JVs  E q u i t y Share o f Foreign Parent  Associate's Responsibility  J V s Independence i n P o l i c y Areas  W e i g h t e d A v e r a g e S c o r e a n d (Group O r d e r Rank)  Necessary  5  3.80(4)  2.59(3)  2.36(4)  Desirable  2  1.50(1)  3.13(4)  2.22(3)  Acceptable  8  2.00(3)  1.66(2)  1.78(2)  Unnecessary  4  1.75(2)  1.28(1)  2.26  2.16  All-Group Average Score  S c o r e s c a l c u l a t e d i n t h e same manner a s i n T a b l e 5*6 2 JVs d i d not d i s c l o s e i n f o r m a t i o n .  1.57(1) 1.98  125  t h i r d l y , n e i t h e r company was one was  i n the "miscellaneous  i n t h e " o p e r a t i n g raw  m a t e r i a l group":  g r o u p " w h e r e a s t h e o t h e r was  involved  i n mining e x p l o r a t i o n . Concerning the " j o i n t venture's Japanese j o i n t ventures  i n B.C.  independence i n p o l i c y  f o l l o w e d the assumption:  areas",  as t h e  c e s s i t y f o r " e f f e c t i v e c o n t r o l " i n c r e a s e d , so d i d t h e dependence joint ventures.  The  neof  " c o n t r o l - c o n s c i o u s " companies e x e r c i s e d c l o s e r  c o n t r o l over t h e i r a s s o c i a t e d j o i n t ventures i n g e n e r a l , w h i l e the  than did " a l l  companies"  " c o n t r o l - u n s t r e s s e d g r o u p " c o n t r o l l e d them l e s s  than " a l l companies" i n g e n e r a l .  P r o f i t a b i l i t y of j o i n t  ventures  R e l a t i o n s h i p s between t h e d e s i r e f o r " e f f e c t i v e  control"  m e n t i o n e d by J a p a n e s e e x e c u t i v e s , and t h e p r o f i t a b i l i t y o f t h e i r sociated j o i n t ventures i n d i c a t e d t h a t 44%  are presented  of j o i n t ventures  i n T a b l e 6.4« s e t up by t h e  g r o u p " showed " v e r y l a r g e " ^ p r o f i t s , w h i l e t h i s was  6.  P r o f i t s were c l a s s i f i e d Very l a r g e Large Medium Small  The  as-  results  "control-unstressed only true f o r  a c c o r d i n g t o the f o l l o w i n g s c a l e : O v e r $4 m i l l i o n s . $1 t o $4 m i l l i o n s . S-g- t o S l m i l l i o n . Under $•§• m i l l i o n .  126  6.4  TABLE ATTITUDES TOWARD CONTROL AND  Size of  Profits  4< >  3  44%  12  1.56  60%  9  1  14%  3  3.25  -  -  1  14%  2  2.00  2  28%  2  3.66  7  100%  20%  Large  3  Medium  -  Small  1  20%  Totals  5  100%  Large  Percentages  Equit; Share  Control-Unstressed Group  Control-Conscious Group 1  Very  PROFITABILITY OF JOINT VENTURES  ( l )  2  1  14(2.8)  b a s e d on c o l u m n  19(2  .71)  -  sum.  (2)  E a c h t i m e a j o i n t v e n t u r e showed v e r y l a r g e p r o f i t s , i t was a t t r i b u t e d 4 p o i n t s ; l a r g e p r o f i t s , 3; medium p r o f i t s , 2; and s m a l l p r o f i t s , 1 p o i n t . These v a l u e s were summed o v e r e a c h g r o u p and d i v i d e d by t h e number o f J V s i n e a c h g r o u p t o g i v e an a v e r a g e w e i g h t e d s c o r e f o r t h a t g r o u p . ( V a l u e shown i n ( ) ) (3)  *  When t h e p a r e n t s h a r e i n JV e q u i t y was u n d e r 25%, i t was a t t r i b u t e d 1 p o i n t ; between 25% and 49%, 2 p o i n t s ; 50%, 3 p o i n t s ; and o v e r 50%, 4 p o i n t s . These v a l u e s were added and d i v i d e d by t h e number o f comp a n i e s w i t h i n e a c h c a t e g o r y , t o g i v e an a v e r a g e v a l u e f o r e a c h c a t e g o r y . v  127  20$ of those from the "control-conscious group".  One group seemed to  be involved i n joint ventures showing larger profits than those of the other.  Nevertheless, when the average weighted scores were compared,  the l a t t e r scored 2.80 and the former 2 . 7 1 :  i t was impossible to state  that joint ventures from one group showed significantly larger profits than those from the other group.  However, i f "very large" and "large"  profits categories were regrouped, then 80$ of joint ventures from the "control-conscious" compared with only 58$ from the "control-unstressed group" were i n the "very large-large" profits category.  It was  obvious  that different conclusions were possible according to the method of analysis used.  Therefore, the general conclusion was that there was no  clear relationship between the stated level of necessity for "effective control" and the p r o f i t a b i l i t y of joint ventures. I f the Japanese equity share was taken as representing the desire for "effective control" by Japanese companies over their associated joint ventures, then a pattern of behavior emerged:  as the equity  share of Japanese parents decreased, profits of joint ventures increased. Joint ventures showing medium profits did not follow the pattern. However, there was only one joint venture i n this category, and i t could be omitted for the purpose of this discussion because i t was not a 7 typical joint venture.  7« This joint venture was i n the "miscellaneous group" which represented less than l$"of Japanese investments i n B.C.. I f the other JV from this group was eliminated from the "small" profits category, this category would have shown 4*0 instead of 3.6.  128  Importance o f a s s o c i a t e s  U s u a l l y , when f o r e i g n i n v e s t o r s d i d n o t e v a l u a t e i t s p a r t n e r s as i m p o r t a n t , t h e y t r i e d t o i n c r e a s e t h e i r c o n t r o l o v e r j o i n t i n o r d e r t o i n c r e a s e t h e chances o f s u c c e s s .  ventures  A t t i t u d e s o f Japanese  e x e c u t i v e s s h o u l d be a n a l y s e d w i t h a c e r t a i n p r u d e n c e , f o r two first,  reasons  " a p o o r o p i n i o n may be s a i d t o r e f l e c t a p o o r l e v e l o f com-  p e t e n c e ( i n s e l e c t i o n o f a s s o c i a t e s ) , and r e s p o n d e n t s t r y n o t t o r e c o g n i z e o r p u b l i c i z e s u c h an o p i n i o n . "  may t h e r e f o r e Secondly,  p o i n t e d o u t p r e v i o u s l y , J a p a n e s e do n o t l i k e t o c o n f e s s t h e i r T h e r e f o r e , i t w o u l d be r e a s o n a b l e  t o expect  as  mistakes  that, despite t h e i r prefer  ences f o r " e f f e c t i v e c o n t r o l " , Japanese e x e c u t i v e s would not c l a s s i f y t h e i r p a r t n e r s as " u n i m p o r t a n t " . confirmed  our expectations:  l e s s " and s i x as  Results presented  i n Table  6.5  o n l y one p a r t n e r was c l a s s i f i e d as " u s e -  "necessary".  S i x t y p e r cent o f t h e p a r t n e r s o f Japanese companies c o n s i d e r i n g " e f f e c t i v e c o n t r o l " as " n e c e s s a r y " were c l a s s i f i e d as " i m p o r t a n t " : i t was t h e h i g h e s t p e r c e n t a g e  taken over a l l c a t e g o r i e s .  The  "control  c o n s c i o u s g r o u p " c l a s s i f i e d 85$ o f i t s p a r t n e r s as " i m p o r t a n t " o r  8. T o m l i n s o n , J.W.C.: The J o i n t V e n t u r e P r o c e s s i n I n t e r n a t i o n a l Business: I n d i a and P a k i s t a n , The M.I.T. P r e s s , C a m b r i d g e , Mass a c h u s e t t s and L o n d o n , E n g l a n d , 1970, p . 148. 9. See C h a p t e r 3.  129  TABLE  6.5  JAPANESE PARENT COMPANIES * ATTITUDES TOWARD. EFFECTIVE CONTROL AND THEIR COMMENTS ON ASSOCIATES' IMPORTANCE TO THE J V  Stated Level of Necessity for Effective Control  Importance o f A s s o c i a t e s t o t h i s J V Important  Useful  Necessary  Useless  Row T o t a l  Necessary  3  1  5  Desirable  1  1  2  Acceptable  3  1  Unnecessary  2  4  8  2  4  Column Total  Two J V s d i d n o t d i s c l o s e i n f o r m a t i o n .  19  4  130  " u s e f u l " , w h i l e t h e " c o n t r o l - u n s t r e s s e d g r o u p " c l a s s i f i e d 50$ o f t h e i r partners  i n t h e same c a t e g o r i e s .  I t seemed t h a t a s t r i c t a t t i t u d e  t o w a r d s c o n t r o l t e n d e d t o be r e l a t e d t o a h i g h e r s t a t e d i m p o r t a n c e of  partners.  Summary  Japanese e x e c u t i v e s first  choice  a l w a y s r a n k e d " l o c a l p r i v a t e " as t h e i r  f o r a p o t e n t i a l associate, despite t h e i r d i f f e r e n t  a t t i t u d e s towards c o n t r o l .  "Local public i n v e s t o r s " , the p o t e n t i a l  p a r t n e r t h e o r e t i c a l l y p e r m i t t i n g g r e a t e r c o n t r o l , was t h e s e c o n d of the "control-conscious unstressed  group".  g r o u p " , and t h e t h i r d c h o i c e  choice  of the " c o n t r o l -  Out o f f o u r c r i t e r i a u s e d t o e x p l a i n t h e b e h a v i o r  of Japanese e x e c u t i v e s  concerning  " e f f e c t i v e c o n t r o l " , reasons f o r  s e l e c t i n g an a s s o c i a t e was t h e most  accurate.  J o i n t v e n t u r e dependence and n e c e s s i t y f o r " e f f e c t i v e c o n t r o l " increased simultaneously.  However, i t h a s been i m p o s s i b l e  to find a  c l e a r p a t t e r n o f c a u s a l i t y t o e x p l a i n t h e r e l a t i o n s h i p between a t t i t u d e s t o w a r d s " e f f e c t i v e c o n t r o l " and p r o f i t a b i l i t y o f j o i n t nevertheless,  ventures,  i t was n o t e d t h a t p r o f i t s o f a s s o c i a t e d j o i n t  ventures  i n c r e a s e d as t h e J a p a n e s e s h a r e i n t h e s e j o i n t v e n t u r e s d e c r e a s e d . W h i l e a l l o w i n g f o r c e r t a i n c o n s t r a i n t s on t h e p a r t o f f o r e i g n i n v e s t o r s , and e s p e c i a l l y f o r J a p a n e s e e x e c u t i v e s , i n d e s c r i b i n g t h e l e v e l o f i m p o r t a n c e o f t h e i r p a r t n e r s , i t was e s t a b l i s h e d t h a t J a p a n e s e  131  companies p r e o c c u p i e d by " e f f e c t i v e c o n t r o l " had t h e most partners.  important  1 3 2  CHAPTER  7  CONCLUSIONS Japanese e n t e r p r i s e s i n v e s t e d i n B r i t i s h Columbia f o r f o u r major reasons; t h e y were, i n d e c r e a s i n g o r d e r o f importance, "to  o b t a i n raw m a t e r i a l " , " p o l i t i c a l  "geographical d i v e r s i f i c a t i o n " .  stability",  The two f i r s t  as f o l l o w s :  "raw m a r k e t " , and  r e a s o n s were m e n t i o n e d  by c o m p a n i e s l o o k i n g f o r raw m a t e r i a l s , w h i l e t h e o t h e r two were m e n t i o n e d by f i r m s i n t h e " m i s c e l l a n e o u s g r o u p " . F o r t h e b e n e f i t o f t h e p r o v i n c i a l and f e d e r a l g o v e r n m e n t , i t must be s t r e s s e d t h a t h J a p a n e s e  mentioned t h a t the p o l i t i c a l  environ-  ment had been more s t a b l e i n t h e p a s t t h a n i t was a t t h e t i m e r e s e a r c h was c a r r i e d o u t . S i n c e c l o s e t o h a l f o f J a p a n e s e  this  joint  v e n t u r e s i n B r i t i s h C o l u m b i a were i n v o l v e d i n m i n i n g o p e r a t i o n s o r m i n i n g e x p l o r a t i o n , and b e c a u s e " B i l l when t h i s s t u d y was c o n d u c t e d , nuance f r o m J a p a n e s e i n v e s t o r s .  3 1 " was b e i n g d e b a t e d  i t was r e a s o n a b l e t o e x p e c t The p r o v i n c i a l government  i n Victoria such a clearly  does n o t have t o change i t s p o l i c y on n a t u r a l r e s o u r c e s , j u s t f o r e i g n i n v e s t o r s do n o t a p p r e c i a t e i t . of  because  However, t h e y s h o u l d be aware  t h e c o n s e q u e n c e s o f t h e s e p o l i c i e s and s h o u l d t r y t o m i t i g a t e  them by e s t a b l i s h i n g c l o s e r c o n t a c t s w i t h t h e b u s i n e s s community i n general.  Any a c t i o n s e l e c t e d , and i t was n o t t h e p u r p o s e o f t h i s  study t o suggest  some, t o k e e p " p o l i t i c a l  stability"  as i m p o r t a n t as  133  i t was  i n the p a s t , would c e r t a i n l y please  J a p a n e s e and  other  foreign  investors. Japanese e x e c u t i v e s rules regarding  also c r i t i c i z e d  f o r e i g n i n v e s t m e n t s i n Canada:  a d m i t t e d t h a t t h e i r p r o b l e m was the  law  quite often  not w i t h t h e p o t e n t i a l changes i n  r a t h e r t h e i r d i f f i c u l t i e s i n e s t i m a t i n g the  o f t h e s e c h a n g e s , and l e s s e n the  their timing.  As  amplitudes  investors i n general  t r y to  l e v e l o f u n c e r t a i n t y , i t h e J a p a n e s e have r e d u c e d t h e i r  by f r e e z i n g , o r a t l e a s t r e d u c i n g ,  Japanese investments are v e r y l a r g e i n B r i t i s h Columbia  i s c l a r i f i e d , the One  better for  the  sooner t h i s  materials, they w i l l  situation  i n v e s t i n B.C.  Japanese  despite  their  F u r t h e r m o r e , one  could  e v a l u a t i o n o f low  "political stability".  argue t h a t f i r s t ,  t h e y i n v e s t i n c o u n t r i e s where " p o l i t i c a l  i s e v e n l o w e r t h a n i n Canada, and t a i n good r e l a t i o n s h i p s .  s e c o n d t h a t t h e two  Then, why  "political stability"  c o u l d be  be w o r r i e d ?  One  raw  materials  also  stability"  countries  main-  reason could  be  a more i m p o r t a n t f a c t o r i n t h e  f u t u r e i f C a n a d i a n s want t o o b t a i n l a r g e r J a p a n e s e i n v e s t m e n t s the  and  B.C..  o b j e c t i o n t o t h i s c o n c l u s i o n c o u l d be t h a t as  f i r m s need raw  level  t h e i r i n v e s t m e n t s i n Canada.  i m p o r t a n t t o t h e economy o f t h e p r o v i n c e ,  that  they  t h a t O t t a w a might make, p r o b a b l y t o w a r d s more r e s t r i c t i v e  r e g u l a t i o n s , but  Since  the absence o f c l e a r  outside  industry.  Japanese i n v e s t o r s u s u a l l y entered  i n t o j o i n t ventures  be-  134  c a u s e t h e y needed l o c a l r e s o u r c e s .  "Need f o r l o c a l raw  materials"  and "need f o r l o c a l i a n a n a g e r s and t e c h n i c i a n s " were t h e most i m p o r t a n t r e a s o n s m e n t i o n e d by J a p a n e s e companies f o r e x p l a i n i n g t h e i r ments i n t h e f o r m o f j o i n t v e n t u r e s . group" mentioned the f i r s t  invest-  E n t e r p r i s e s i n t h e "raw  r e a s o n as t h e most i m p o r t a n t one, and t h e  s e c o n d r e a s o n as t h e i r s e c o n d j u s t i f i c a t i o n t o go i n t o j o i n t All  material  ventures.  j o i n t v e n t u r e s i n t h e " p u l p and l u m b e r g r o u p " were s e t up  J a p a n e s e f i r m s needed l o c a l raw m a t e r i a l s , w h i l e onlry t h r e e  because  joint  v e n t u r e s i n t h e " m i n i n g g r o u p " were s e t up t o s a t i s f y t h e same n e e d s . P o u r j o i n t v e n t u r e s f r o m t h e l a t t e r g r o u p were s e t up by J a p a n e s e f i r m s l o o k i n g f o r l o c a l managers and t e c h n i c i a n s .  Most  joint ventures  f r o m t h e s e two g r o u p s m e n t i o n e d "need f o r l o c a l managers and n i c i a n s " as t h e s e c o n d r e a s o n f o r g o i n g i n t o j o i n t  tech-  ventures.  H a l f o f t h e companies i n t h e " m i s c e l l a n e o u s g r o u p " went j o i n t v e n t u r e s because o f t h e i r " a s s o c i a t e ' s p r o j e c t " .  into  As t h e s i z e  of a p r o j e c t i n c r e a s e d , Japanese i n v e s t o r s e n t e r e d i n t o j o i n t v e n t u r e s f o r the f o l l o w i n g reasons, i n descending order of importance: f o r l o c a l raw m a t e r i a l s " , "need f o r l o c a l managers and "local identity",  and " a s s o c i a t e ' s  "need  technicians",  project".  C a n a d i a n b u s i n e s s m e n , a c c o r d i n g t o J a p a n e s e e x e c u t i v e s , were i n t e r e s t e d i n s e t t i n g up j o i n t v e n t u r e s w i t h them f o r two main sons:  " a v a i l a b i l i t y of c a p i t a l " ,  profit".  rea-  and " g r o w t h - s t r e n g t h e n demand-  Most C a n a d i a n b u s i n e s s m e n were i n t e r e s t e d by t h e  first  135  reason:  t h e v a l u e o f j o i n t v e n t u r e s s e t up f o r t h i s r e a s o n r e p r e -  s e n t e d 95$ o f t h e t o t a l v a l u e o f J a p a n e s e i n v e s t m e n t s i n B r i t i s h Columbia.  "Growth-strengthen  reason mentioned.  d e m a n d - p r o f i t " was u s u a l l y t h e s e c o n d  "Know-how" was t h e r e a s o n m e n t i o n e d  as t h e most  i m p o r t a n t o n e , by most j o i n t v e n t u r e s i n t h e " m i s c e l l a n e o u s  group":  e v e n t h o u g h t h e s e j o i n t v e n t u r e s r e p r e s e n t e d 28$ o f J a p a n e s e  joint  ventures i n B r i t i s h Columbia,  they accounted  f o r l e s s t h a n 1$ o f t h e  t o t a l v a l u e o f J a p a n e s e i n v e s t m e n t s i n B.C..  Japanese  control The  Japanese l e v e l o f c o n t r o l over t h e i r a s s o c i a t e d j o i n t  v e n t u r e s was n o t i n f l u e n c e d by t h e s i z e o f t h e J a p a n e s e p a r e n t o r by the nature o f i t s c o n t r i b u t i o n . reasons mentioned  I t was, however, i n f l u e n c e d by t h e  by J a p a n e s e f i r m s f o r g o i n g i n t o j o i n t  ventures:  when t h e y e n t e r e d i n t o j o i n t v e n t u r e s f o r "need f o r l o c a l r e s o u r c e s " , t h e i r l e v e l o f c o n t r o l was w e a k e r t h a n when t h e y d i d f o r o t h e r r e a s o n s . The  n a t u r e o f b u s i n e s s o f a s s o c i a t e d j o i n t v e n t u r e s was t h e  main c r i t e r i o n f o r e v a l u a t i n g t h e " n e c e s s i t y " f o r ^ e f f e c t i v e  control"  f o r Japanese p a r e n t s .  group"  J o i n t v e n t u r e s i n t h e " p u l p and l u m b e r  s t a t e d t h a t " e f f e c t i v e c o n t r o l " was " n e c e s s a r y " f o r them, t h o s e i n t h e " m i s c e l l a n e o u s " and " m i n i n g e x p l o r a t i o n g r o u p "  d e s c r i b e d i t as " a c -  c e p t a b l e " , w h i l e j o i n t v e n t u r e s i n the "mining o p e r a t i o n group" t h a t i t was " u n n e c e s s a r y " .  stated  U s u a l l y , as t h e s i z e o f i n v e s t m e n t s i n -  136  c r e a s e d , the s t a t e d l e v e l of " n e c e s s i t y " f o r " e f f e c t i v e c o n t r o l " d i d t h e same; t h e " e q u i t y s h a r e " o f J a p a n e s e p a r e n t s a l s o i n c r e a s e d u l t a n e o u s l y w i t h the importance  of " e f f e c t i v e  sim-  control".  As t h e l e v e l o f dependence o f j o i n t v e n t u r e s v i s - a - v i s  their  Japanese p a r e n t s i n c r e a s e d w i t h the s t a t e d l e v e l of " n e c e s s i t y " f o r " e f f e c t i v e c o n t r o l " , j o i n t ventures  i n t h e " p u l p and  were t h e most dependent o n e s , w h i l e j o i n t v e n t u r e s o p e r a t i o n group"'were t h e most i n d e p e n d e n t o n e s .  lumber group"  i n the  "mining  In general, Jap-  anese e x e c u t i v e s assumed a h i g h l e v e l o f r e s p o n s i b i l i t i e s o v e r following activities: "marketing  and  " e n g i n e e r i n g and t e c h n i c a l m a t t e r s " , " f i n a n c e " ,  distribution".  J o i n t v e n t u r e s were u n d e r c l o s e J a p -  anese c o n t r o l r e g a r d i n g t h e f o l l o w i n g p o l i c i e s : " s e l e c t i o n , promotion,  the  "capital  and c o m p e n s a t i o n o f e x e c u t i v e s " ,  s e l e c t i o n , d e s i g n , and p l a n n i n g " , " m a r k e t i n g  and  expenditure", "product  sales".  S e l e c t i o n of a s p e c i f i c a s s o c i a t e  Two  main c r i t e r i a were u s e d by J a p a n e s e i n v e s t o r s i n t h e i r  s e l e c t i o n of a s p e c i f i c associate: s o u r c e s " , and  those  of  facilities/re-  "same l i n e o f b u s i n e s s " . . J a p a n e s e c o m p a n i e s w h i c h  entered i n t o j o i n t ventures their  "convenience  f o r "need o f l o c a l raw m a t e r i a l " s e l e c t e d  p a r t n e r s f o r "convenience  of f a c i l i t i e s / r e s o u r c e s " , while  l o o k i n g f o r l o c a l managers and t e c h n i c i a n s s e l e c t e d t h e i r s  f o r "same l i n e o f  business".  137  As t h e l a r g e s t i n v e s t m e n t s were made i n raw m a t e r i a l w h i c h i n c l u d e d " p u l p and l u m b e r " and " m i n i n g g r o u p " , J a p a n e s e ing of  industries, invest-  l a r g e amounts o f money s e l e c t e d t h e i r p a r t n e r s f o r " c o n v e n i e n c e facilities/resources".  F u r t h e r m o r e , as " v e r y l a r g e "  enterprises  made " l a r g e " i n v e s t m e n t s , t h e i r p a r t n e r s were c h o s e n f o r " c o n v e n i e n c e of  facilities/resources". F i n a l l y , as t h e s i z e o f i n v e s t m e n t s i n c r e a s e d , t h e s t a t e d  l e v e l o f " n e c e s s i t y " f o r " e f f e c t i v e c o n t r o l " d i d t h e same; t h u s , t h e " c o n t r o l - c o n s c i o u s group" s e l e c t e d i t s p a r t n e r f o r "convenience o f f a c i l i t i e s / r e s o u r c e s " , w h i l e t h e " c o n t r o l - u n s t r e s s e d group" its  p a r t n e r f o r "same l i n e o f b u s i n e s s " .  Canadian  businessment  Canadian businessmen w i t h Japanese  a good s t a r t .  i n t e r e s t e d i n s e t t i n g up j o i n t v e n t u r e s  investors should t r y , f i r s t ,  l i n k s w i t h Japanese companies;  of  to establish  commercial  t h e " s h o j i k a i s h a " w o u l d c e r t a i n l y be  Even i f they are not s u c c e s s f u l i n the establishment  such l i n k s , they s h o u l d , n e v e r t h e l e s s , s t a y i n touch w i t h these  companies  and l e t them know t h a t t h e y e x i s t and a r e i n t e r e s t e d i n  e s t a b l i s h i n g such l i n k s i n t h e f u t u r e , i f p o s s i b l e . it  selected  v e r y c l e a r t h a t p r i o r knowledge  T h i s s t u d y made  o f Canadian businessmen  by J a p a n e s e  companies was i m p o r t a n t . Secondly, Canadian businessmen  s h o u l d make t h e i n i t i a l c o n t a c t  138  when t h e y want t o s e t up a j o i n t v e n t u r e . itial  Most o f t h e t i m e , t h e i n -  c o n t a c t s i n t h i s s t u d y were made hy C a n a d i a n s , who knew t h a t  J a p a n e s e f i r m s were i n t e r e s t e d .  When J a p a n e s e made t h e i n i t i a l  t h e y i n t u r n knew t h a t C a n a d i a n s were i n t e r e s t e d .  contact,  One o f t h e b e s t  ways t o f i n d out i f J a p a n e s e a r e i n t e r e s t e d , o r t o l e t them know t h a t a l o c a l f i r m w o u l d be i n t e r e s t e d i n a j o i n t v e n t u r e i s c l e a r l y t o e s t a b l i s h some p r e l i m i n a r y  relationship with  them.  139  BIBLIOGRAPHY  Books: A h a r o n i , Y a i r . The 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 P r o c e s s . D i v i s i o n o f R e s e a r c h , Graduate S c h o o l o f B u s i n e s s A d m i n i s t r a t i o n , Harvard U n i v e r s i t y , Boston, I966. B i v e n s , K.K. and L o v e l l , E.B. J o i n t V e n t u r e s w i t h F o r e i g n P a r t n e r s , I n t e r n a t i o n a l S u r v e y o f B u s i n e s s O p i n i o n and E x p e r i e n c e . N a t i o n a l I n d u s t r i a l C o n f e r e n c e B o a r d , New Y o r k , I 9 6 6 . F r i e d m a n n , W.G. and K a l m a n o f f , G. J o i n t I n t e r n a t i o n a l B u s i n e s s V e n t u r e s , New Y o r k , C o l u m b i a U n i v e r s i t y P r e s s , I 9 6 I . G a l b r a i t h , J.K.  1968.  Le N o u v e l E t a t I n d u s t r i e l , G a l l i m a f i d , F r a n c e ,  S c h w i n d , H.F. and P e t e r s o n , R.B. P e r s o n n e l P r o b l e m s i n I n t e r n a t i o n a l Companies i n J a p a n . U . B . C , U n p u b l i s h e d r e s e a r c h . T o m l i n s o n , J . t f . C . The J o i n t V e n t u r e P r o c e s s i n I n t e r n a t i o n a l B u s i n e s s : I n d i a and P a k i s t a n . The M.I.T. P r e s s , C a m b r i d g e , M a s s a c h u s e t t s and L o n d o n , E n g l a n d , 1970.  A r t i c l e sion?: The Globe and M a i l , "Japanese p e n e t r a t i o n g r e a t e s t i n B.C. p u l p m i l l s " , T o r o n t o , F e b r u a r y 14, 1974. , "Loans f a v o r e d o v e r e q u i t i e s i n m i n i n g " , T o r o n t o , F e b r u a r y 14, 1974* F e b r u a r y 14,  , " I n d u s t r i a l investment v a r i e d " , 1974.  Toronto,  "Japanese p r e f e r j o i n t v e n t u r e s i n B.C.", T o r o n t o , F e b r u a r y 15, 1974. The P r o v i n c e , "B.C. companies l i n k e d t o J a p a n " , March 20, 1974.  Vancouver,  140  __, March 20,  "B.C. h i t s No. 1 with Japanese i n v e s t o r s " ,  Vancouver,  1974.  The Vancouver Sun, "Stock Markets", June 14,  1974-  Government P u b l i c a t i o n s : The Canadian Embassy, Japanese Investment Abroad. Tokyo. September  1973.  Consulate General of Japan, Vancouver (Bank of Japan) IDTC, The P a c i f i c Rim: An E v a l u a t i o n o f B r i t i s h Columbia Trade Opportunities, V i c t o r i a , 1972. M i n i s t r y of I n t e r n a t i o n a l Trade, Overseas Business A c t i v i t i e s of J Japanese E n t e r p r i s e s , MITI Information O f f i c e , Tokyo, October  1973.  OECD, O v e r a l l Trade by Countries, P a r i s , A p r i l , Trade by Commodities, January-September  1974. 1973,  Paris,  The Standing Senate Committee on Foreign Affairs'^ Report on Canadian R e l a t i o n s with the Countries of the P a c i f i c Rim, Information Canada, Ottawa, March 1972.  1974.  APPENDIX  QUESTIONNAIRE FORM USED I N THE STUDY  142  SECTION 1 GENERAL AND FINANCIAL INFORMATION  1.  What i s the nature of business of your company?  2.  Would you please s p e c i f y f o r the f o l l o w i n g y e a r s : Year  Assets  Sales  Profit  NRI  NPCE  NPGS  I960 1965 1970 1971 1972 1973 NRI : NPCE: NPGS: 3.  net r e t u r n on investment. net p r o f i t on c a p i t a l employed. net p r o f i t on group s a l e s .  F o r each g o i n t venture i n which you are i n v o l v e d i n B r i t i s h Columbia, please s p e c i f y : (a)  Nature of b u s i n e s s :  (b)  Date of commitment agreement:  (c)  Date o p e r a t i o n s commenced:  (d)  Assets:  (e)  Sales:  (f)  T o t a l c a p i t a l employed:  (m)  Net Worth:  (h)  Profitability:  143  4.  P l e a s e p r o v i d e as f a r a s p o s s i b l e , t h e p r o f i t a b i l i t y f i g u r e s f o r the J V s a c t i v i t i e s i n the y e a r s l i s t e d below: Financial Year  Earnings before Local Taxation  E a r n i n g s Net o f L o c a l Tax  Income Distributed  Income R e p a t r i a t e d t o Y o u r Company  1965 1970 1971 1972 1973 5.  P l e a s e s p e c i f y f o r each  joint  venture:  (a)  Name,(;s) o f p a r t n e r ( s ) :  (b)  Value o f h i s investment:  (c)  His % of equity:  (d)  H i s % o f debt:  (e)  Value o f your  (f)  Your % of e q u i t y :  (g)  Your % o f debt:  (h)  I f " c " and " f " a r e n o t e q u a l t o 100%, who h o l d s t h e r e m a i n i n g  investment:  part? (i)  I f " d " and " g " a r e n o t e q u a l t o 100%, who assumes t h e r e m a i n i n g part ?  6.  7.  Who was t h e d r i v i n g f o r c e i n y o u r company f o r t h e d e c i s i o n t o go i n JV? (a)  An i n d i v i d u a l f r o m y o u r f i r m who was f a m i l i a r w i t h Canada/B.C.  (b)  An i n d i v i d u a l i n y o u r  (c)  A special interest  (d)  Normal  firm  group  channels  How l o n g d i d t h e commitment d e c i s i o n t a k e ? (number o f months) a(  );  b(  );  c(  ).  144  8.  9.  Who t o o k  the  f i n a l decision?  (Apart from f i n a l board  (a)  An i n d i v i d u a l  f r o m y o u r f i r m who w a s f a m i l i a r w i t h  (b)  An i n d i v i d u a l  i n your  (c)  A special  (d)  Normal  interest  11.  Canada/B.C.  firm  group  channels  How much o f y o u r p a r t i c i p a t i o n i n t h e the form o f :  capital initially  10.  approval)  (a)  Machinery, plant  (b)  Technical  (c)  Patents,  (d)  Cash?  (e)  Other?  of  the  J V was  in  Subsequently  Comments  equipment?  services? licences,  (Please  information?  specify)  What w e r e t h e most i m p o r t a n t c o n t r i b u t i o n s o f y o u r company, i n JV? ( P l e a s e r a n k i n i m p o r t a n c e from l=most i m p o r t a n t , 4 = l e a s t important reason) (a)  Cash:  (h)  Equipment:  (c)  Patents  (d)  P r o d u c t i o n know h o w :  (e)  Market:  (f)  Management:  (g)  Other  and t e c h n i c a l  (Please  Please indicate for: ( f o r each  assistance:  specify):  how m u c h y o u r c o m p a n y r e c e i v e d joint venture)  Year  Interest  Royalties  under f o l l o w i n g  Pees:  manage-  m e n t , k n o w how 1st  year  of  operation  5th  year  of  operation  1970 1971 1972 1973  each  items,  Capital repatriated  145  12.  How  many C a n a d i a n s and  J a p a n e s e were e m p l o y e d a t t h e  (a)  Board of d i r e c t o r s :  (b)  Executives:  (c)  Directors:  (d)  Managerial :  (e)  Supervisors:  (f)  Other:  (g)  Total:  following levels?  SECTION 2 DECISION TO 1.  2.  INVEST IN B R I T I S H COLUMBIA  P l e a s e i n d i c a t e what r e a s o n s e n c o u r a g e d y o u t o i n v e s t i n B r i t i s h Columbia. (Choose f o u r ; l=most i m p o r t a n t , 4 = l e a s t i m p o r t a n t r e a s o n ) (a)  New  market  (b)  Geographical  (c)  P r o t e c t i n g e x i s t i n g market  (d)  Overcoming t a r i f f b a r r i e r s  (e)  Matching  (f)  Using  patents/licences  (g)  Using  equipment  (h)  Lower c o s t  (i)  To  obtain  materials  (j)  To  obtain  resources/facilities  (k)  H o s t government i n c e n t i v e s  (l)  Political  (m)  Other reasons (please  diversification  competition  conditions  stability describe)  Were t h e s e i n v e s t m e n t s made a f t e r : (a)  An  i n t e r n a t i o n a l survey of  (b)  A p r i o r survey of the province ( P l e a s e i n d i c a t e who  opportunities? of  B.C.?  c a r r i e d t h i s s u r v e y a f t e r " a " and  (c)  U n s o l i c i t e d i n f o r m a t i o n r e c e i v e d from e x t e r n a l source?  (d)  O t h e r s o u r c e o r method ( P l e a s e  describe)  "b")  146  How l o n g d i d any s u r v e y s t a k e ?  (Number o f months)  How l o n g d i d t h e d e c i s i o n t o i n v e s t t a k e a f t e r f i r s t c o n s i d e r a t i o n o f t h e o p p o r t u n i t y ? (Number o f months) P l e a s e i n d i c a t e why y o u o p t e d f o r a j o i n t v e n t u r e i n B r i t i s h Columbia. ( l = most i m p o r t a n t r e a s o n ; 4 = l e a s t i m p o r t a n t r e a s o n ) (a)  E x p l i c i t h o s t government p r e s s u r e  (b)  I m p l i c i t h o s t government p r e s s u r e  (c)  Spreading r i s k  (d)  Need f o r l o c a l r e s o u r c e s - F i n a n c i a l - Managerial - Technical  (e)  Associate's project  (f)  Local identity  (g)  Other reasons  (Political-Financial-Other)  (please describe)  D i d you take a m i n o r i t y o r a m a j o r i t y ownership? i n d i c a t e f o r each j o i n t v e n t u r e ) .  Why?  (Please  What c r i t e r i o n d i d y o u r f i r m u s e f o r t h e s e l e c t i o n o f y o u r a s s o c i a t e (l=most i m p o r t a n t ; 4 = l e a s t i m p o r t a n t ) (a)  Forced choice  (b)  Same l i n e o f b u s i n e s s  (c)  Convenience  (d)  Past a s s o c i a t i o n s ( l i c e n c e , customer, (Please i n d i c a t e ) .  (e)  Status, Identity  (f)  Other reasons (please d i s c u s s )  of facilities/resources distributor,  purchaser)  Why, do y o u t h i n k , y o u r p a r t n e r was i n t e r e s t e d i n s e t t i n g up a j o i n t venture w i t h your f i r m ? (a)  Know how  (b)  Capital  (c)  Profitability  (d)  Growth  (e)  Do n o t know  (f)  To s t r e n g t h e n demand  (g)  Other  (Please discuss)  147 SECTION  3  ASSOCIATES  1.  D i d you have a previous knowledge of your a s s o c i a t e ? (Please i n d i c a t e f o r each j o i n t venture.) Know by people Name of the company  None  Past a s s o c i a t e s  several  2.  How long d i d you look f o r your partner?  3.  Who made the o r i g i n a l contact, regarding a j o i n t (a) Canadians (b)  4.  5.  one  i n JV nobody  (Number of months) venture?  Japanese  Please i n d i c a t e which of the f o l l o w i n g methods was used: (a)  Japanese f i r m was known to be i n t e r e s t e d and was approached by the associate  (b)  Associate was known t o be i n t e r e s t e d and was approached by the Japanese f i r m  (c)  Cold canvas:  Japanese f i r m contacted by a s s o c i a t e  (d)  Cold canvas:  Associate contacted by Japanese f i r m  (e)  Partners put i n touch by a p r i v a t e t h i r d party  (f)  Partners put i n touch by host government  (g)  I n i t i a l contact made at personal l e v e l  (h)  Partners already JV a s s o c i a t e s  Would you say that your partner i s : j o i n t venture) (a)  Important  (b)  Useful  (c)  Necessary  (d)  Useless  (please i n d i c a t e f o r each  148  6. Would you evaluate your partner as: joint venture) (a)  Effective  (b)  Non-effective  (c)  Neutral  (please indicate for each  7.  Did you consider other potential associates? why were they rejected?  8.  I f you could have a complete freedom i n the choice of your associate for a joint venture i n B.C., who w i l l you select? (l=first choice; 5=last choice) (Please comment) (a)  Fellow national  (b)  Other foreign  (c)  Local private  (d)  Host government  (e)  Local public investors SECTION  I f not, why?  I f yes,  4  EVALUATION  1.  2.  How does your company evaluate the performance of the joint  ventures?  (a)  In terms of return on investment:  (b)  What i s the minimum acceptable level:  (c)  In terms of fo overall profit (before or after local taxes):  (d)  What i s the minimum acceptable l e v e l :  (e)  Achievement of other scheduled objectives:  (Please describe)  Are the acceptable levels indicated i n l(b) or l(d) or implied i n l(e) higher/lower, or the same as i n : (a)  Your company's parent  country?  (b)  Other developed countries?  149  3.  Has t h e j o i n t v e n t u r e r e a c h e d t h e s e o b j e c t i v e s ? v e n t u r e ) ( P l e a s e comment) (a)  B e t t e r than  (b)  About t h e same as  (c)  Less  (d)  Too soon t o judge  (e)  Unclear  ( F o r each  joint  expected  than  4.  I s y o u r company s a t i s f i e d w i t h t h e manner i n w h i c h t h e j o i n t were s e t up and d e v e l o p e d , and i t s p r e s e n t o p e r a t i o n s ?  5.  What was t h e i m p o r t a n c e o f y o u r p a r t n e r i n r e a c h i n g t h e s e ( P l e a s e i n d i c a t e f o r e a c h j o i n t v e n t u r e and d i s c u s s . ) (a)  6.  Very  important  (b)  Important  (c)  Necessary  (d)  Useless  Would y o u r company p a r t i c i p a t e  i n o t h e r JVs?  (a)  I n the province o f t h i s  study?  (bi)  In the country of t h i s  (c)  In other developed c o u n t r i e s ?  (d)  In less-developed countries?  study?  SECTION  5  CONTROL  1.  Does y o u r company~(or p a r e n t company) c o n s i d e r c o n t r o l a s : (a)  Necessary  (b)  Desirable  (c)  Acceptable  (d)  Unnecessary  ventures  objectives?  150  2.  3.  4.  Does y o u r company ( o r p a r e n t (a)  Necessary  (b)  Desirable  (c)  Acceptable  (d)  Unnecessary  company) c o n s i d e r e f f e c t i v e c o n t r o l a s :  Please i n d i c a t e your a s s o c i a t e ' s r e s p o n s a b i l i t y f o r the f o l l o w i n g a c t i v i t i e s i n the j o i n t venture. ( P : f u l l r e s p o n s a b i l i t y ; PR: f u l l t o j o i n t r e s p o n s a b i l i t y ; J : j o i n t t o no r e s p o n s a b i l i t y ; N: no r e s p o n s a b i l i t y . ) Hj'For e a c h j o i n t v e n t u r e ) (a)  M a r k e t i n g and d i s t r i b u t i o n .  (b)  P u r c h a s i n g and p r o c u r e m e n t .  (c)  E n g i n e e r i n g and t e c h n i c a l  (d)  Production.  (e)  A d m i n i s t r a t i o n and c o n t r o l .  (f)  Finance  (g)  Recruitment  (h)  R e l a t i o n s w i t h t h e h o s t government and l o c a l  (i)  Public  matters.  (including obtaining capital). and p e r s o n n e l . authorities.  relations.  P l e a s e i n d i c a t e t h e J V s independence i n t h e f o l l o w i n g p o l i c i e s : (H: h i g h l y i n d e p e n d e n t ; I : i n d e p e n d e n t ; C: c o n s i d e r a b l e c o n t r o l b y J a p a n e s e p a r e n t ; CC: c l o s e c o n t r o l by J a p a n e s e p a r e n t . ) ( F o r e a c h J V ) (a)  Capital  expenditure.  (b)  Pricing.  (c)  Dividend p o l i c y .  (d)  Organization.  (e)  Product  (f)  P r o d u c t i o n p l a n n i n g and c o n t r o l .  (g)  Quality  (h)  M a r k e t i n g and s a l e s .  (i)  Purchasing.  s e l e c t i o n , d e s i g n , and p l a n n i n g .  control.  (j)  Wages and l a b o r p o l i c y .  (k)  S e l e c t i o n , promotion,  and c o m p e n s a t i o n o f e x e c u t i v e s .  151  5.  Have c o n f l i c t s a r i s e n with your associates over the f o l l o w i n g issues? (Please discuss) (a)  Reinvestment:  (b)  Increasing -investment:  (c)  Growth rate of s a l e s :  (d) . Growth rate of p r o f i t s :  6.  (e)  T r a n s f e r p r i c i n g of m a t e r i a l s :  (f)  Other sources of r e t u r n t o your company:  (g)  Other i s s u e s :  How were these c o n f l i c t s  resolved?  

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