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UBC Theses and Dissertations

Japanese joint ventures in British Columbia 1974

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JAPANESE JOINT VENTURES IN BRITISH COLUMBIA by JEAN-MARC DUVAL B.A.A., E c o l e des Hautes Etudes Commerciales, M o n t r e a l , 1973 A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF SCIENCE IN BUSINESS ADMINISTRATION i n the D i v i s i o n o f INTERNATIONAL BUSINESS STUDIES F a c u l t y o f COMMERCE AND BUSINESS ADMINISTRATION We accept t h i s t h e s i s as conforming t o the r e q u i r e d s t a n d a r d ; THE UNIVERSITY OF BRITISH COLUMBIA August, 1974 In p r e s e n t i n g t h i s t h e s i s in p a r t i a l f u l f i l m e n t o f the r equ i r emen t s f o r an advanced degree at the U n i v e r s i t y o f B r i t i s h C o l u m b i a , I agree that the L i b r a r y s h a l l make i t f r e e l y a v a i l a b l e f o r r e f e r e n c e and s tudy . I f u r t h e r agree t h a t p e r m i s s i o n f o r e x t e n s i v e c o p y i n g o f t h i s t h e s i s f o r s c h o l a r l y purposes may be g r a n t e d by the Head o f my Department o r by h i s r e p r e s e n t a t i v e s . It i s u n d e r s t o o d that c o p y i n g o r p u b l i c a t i o n o f t h i s t h e s i s f o r f i n a n c i a l g a i n s h a l l not be a l l owed w i thou t my w r i t t e n p e r m i s s i o n . Department o f The U n i v e r s i t y o f B r i t i s h Co lumbia Vancouver 8, Canada PREFACE J o i n t v e n tures as a form of overseas d i r e c t investment are more and more a c u r r e n t t o p i c of d i s c u s s i o n . Arguments f o r and a g a i n s t t h i s form o f investment v a r y from one extreme t o the o t h e r : some people t h i n k t h a t 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 s h o u l d not operate i n f o r e i g n c o u n t r i e s w i t h o u t l o c a l p a r t i c i p a t i o n , w h i l e o t h e r s s t a t e t h a t these companies s h o u l d be f r e e t o conduct t h e i r o p e r a t i o n s as n e c e s s a r y . Even though 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 not an- a l y s e Japanese 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 view. An account o f the st u d y and the format o f the study appears i n Chapter 1. The method used t o c a r r y out t h i s r e s e a r c h was t o ex- 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 twenty one j o i n t v e n t u r e s i n B r i t i s h Columbia. None of the work would have been p o s s i b l e w i t h o u t the co- o p e r a t i o n o f these e x e c u t i v e s who gave o f t h e i r time 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 w h i c h , the anonymity o f t h e i r f i r m s was guaranteed. Thanks are due t o V i r g i n i a and Ronald Monk, my e d i t o r s , who spent many hours 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 Dr. J.W.C. Tomlinson, who read and c r i t i c i z e d the f i r s t d r a f t of t h i s d i s s e r t a t i o n . Without h i s encourage merits and c r i t i c i s m s , t h i s study would have been more d i f f i c u l t and c e r t a i n l y l e s s complete. Vancouver August, 1974. Jean-Marc D. i i i CONTENTS P r e f a c e . . . i L i s t of Ta b l e s v L i s t o f F i g u r e s . . . v i i i 1 . BACKGROUND OF THE STUDY . . . 1 A d e f i n i t i o n . . . 2 G e n e r a t i n g a sample . . . 3 Japanese investments i n the w o r l d . . . 5 Japanese investments i n Canada . . . 16 Trade between Canada and Japan . . . 2 0 A b r i e f o u t l i n e o f the p r e s e n t a t i o n . . . 2 4 2 . TFiE JOINT VENTURE DECISION . . . 2 5 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 . . . 2 5 D e c i s i o n t o go i n t o a j o i n t venture . . . 2 9 S i z e of p r o j e c t s . . . 3 5 S e l e c t i o n of a s s o c i a t e s . . . 4 1 Summary . . . 4 5 3 . THE ASSOCIATES . . . 4 6 I n i t i a l c o n t a c t .£.£ . . 4 6 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 . . . 5 2 P r i o r knowledge o f a s s o c i a t e s . . . 5 5 A v a i l a b i l i t y o f a s s o c i a t e s . . . 5 7 D r i v i n g f o r c e and d e c i d i n g body . . . 5 9 Importance of a s s o c i a t e s . . . 6 2 Summary . . . 6 5 4 . SIZE OF THE JAPANESE PARENT COMPANY . . . . 6 7 S i z e and v a l u e o f f o r e i g n investments . . . 6 7 S i z e , c o n t r o l , and reasons f o r g o i n g i n t o a j o i n t venture . . . 6 9 S i z e and 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 . . . 7 6 Parent s i z e and p r o f i t s o f the j o i n t venture . . . 7 8 Parent s i z e and method o f e v a l u a t i o n . . . 8 3 Summary 3 6 . . 8 6 i v 5. THE NATURE OF BUSINESS . . . 38 Nature o f busi n e s s and 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 . . . 90 Nature o f busi n e s s and a t t i t u d e s towards c o n t r o l - . . . 90 Nature o f busi 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" . . . 94 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 . . . 97 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 . . . 101 S t r u c t u r a l dependence . . . 103 E v a l u a t i o n of a s s o c i a t e s . . . I l l Summary . . . 113 6. ATTITUDES TOWARDS CONTROL . . . 116 Ranking of p o t e n t i a l a s s o c i a t e s . . . 116 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 j o i n t v e n t u r e s . . 121 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 . . . 125 Importance o f a s s o c i a t e s . . . 128 Summary . . . 130 7. CONCLUSIONS . . . 132 Japanese c o n t r o l . . . 135 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 . . . 136 Canadian businessmen . . . 1137 B i b l i o g r a p h y • • • 139 Appendix: Q u e s t i o n n a i r e form used i n the study . . . 14J1 LIST OF TABLES Table 1 . 1 The amount of d i r e c t f o r e i g n investments by major c o u n t r i e s . . . 7 Table 1 . 2 Breakdown of Japanese investments i n the w o r l d a c c o r d i n g t o r e g i o n . . . 9 Table 1 . 3 Breakdown of Japanese investments i n the 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 of end of 1 9 7 1 • 1 0 Table 1 . 4 Breakdown of Japanese investments i n the w o r l d a c c o r d i n g t o r e g i o n and manufacturing i n d u s t r y , as of end of 1 9 7 1 . . . 1 2 Table 1 . 5 Breakdown of Japanese investments i n the 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 of end of March, 1 9 7 3 . . . 1 4 Table 1 . 6 Breakdown of Japanese investments i n the w o r l d a c c o r d i n g t o form, as of end of March, 1 9 7 3 . . . 1 5 Table 1 . 7 Japanese overseas investments f o r major n a t i o n s , as of end of March, 1 9 7 3 . . . 1 7 Table 1 . 8 Breakdown of Japanese investments i n Canada a c c o r d i n g t o i n d u s t r y , as of end of 1 9 7 2 . . . 1 9 Table 1 . 9 Most important t r a d i n g p a r t n e r s of Canada and Japan from 1 9 7 0 t o 1 9 7 3 . . . 2 1 Table 2 . 1 Reasons c i t e d by Japanese parent companies f o r t h e i r investment i n B r i t i s h Columbia . . . 2 7 Table 2 . 2 Reasons c i t e d by Japanese f i r m s f o r c h o o s i n g the j o i n t venture form o f investment i n B.C. . . 3 2 Table 2 . 3 V a r i a t i o n s by nature of b u s i n e s s i n 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 . . . 3 3 Table 2 . 4 S i z e o f p r o j e c t s and 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 • • 3 7 Table 2 . 5 S i z e o f p r o j e c t s and 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 • 3 9 v i Table 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 reasons f o r g o i n g i n t o a j o i n t venture Table 3*1 I n i t i a t o r o f f i r s t approach t o set up a j o i n t venture Table 3*2 O r i g i n of i n i t i a l c o n t a c t w i t h chosen a s s o c i a t e Table 3»3 Reasons mentioned by Japanese 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 . . Table 3»4 Reasons c i t e d by Japanese parent companies 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 Table 3»5 Reasons f o r s e l e c t i o n and p r i o r knowledge of a s s o c i a t e s by Japanese parent f i r m Table 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 Table 4»1 C l a s s i f i c a t i o n o f JVs and Japanese 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 the f o r e i g n parent company Table 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 of investments . Table 4«3 S i z e o f p a r e n t s and c o n t r o l Table 4*4 F o r e i g n parent s i z e i n a s s e t s and reasons f o r g o i n g i n t o a j o i n t venture Table 4*5 F o r e i g n parent s i z e i n a s s e t s and 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 Table 4.6 S i z e of p a r e n t s and p r o f i t s of JVs Table 4«7 F o r e i g n parent s i z e i n s a l e s and e v a l u a t i o n o f JVs through performance a g a i n s t scheduled o b j e c t i v e s Table 5»1 C l a s s i f i c a t i o n of Japanese parent companies and a s s o c i a t e d JVs a c c o r d i n g t o the nature of b u s i n e s s 43 4 7 4 9 50 53 56 6 4 6 8 71 72 7 5 7 7 8 0 8 4 8 9 v i i T able 5-2 Nature o f bus i n e s s and a t t i t u d e o f Japanese 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 Table 5*3 Nature of business and l o c a t i o n o f re 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 Table 5*4 Ranking o f p o t e n t i a l a s s o c i a t e s by Japanese companies a c c o r d i n g t o nature o f bus i n e s s of- parent f i r m . . . 99 Table 5-5 Nature o f bus i n e s s and reasons f o r s e l e c t i n g s p e c i f i c a s s o c i a t e s . . . 102 Table 5*6 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 a c c o r d i n g t o nature of b u s i n e s s . . . 106 Table 5«7 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 o f bus i n e s s . . . . 109 Table 5*8 Nature of b u s i n e s s and importance 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. . . . 112 Table 6.1 Ranking o f v a r i o u s types o f p o t e n t i a l a s s o c i a t e s a c c o r d i n g t o Japanese 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 Table 6.2 Japanese 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 and some o t h e r f a c t o r s . . . 122 Table 6.3 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 a c c o r d i n g t o f o r e i g n p a r t n e r ' s 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 . . . 124 Table 6.4 A t t i t u d e s towards 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 v e n t ures . . . 126 Table 6.5 Japanese parent 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 and t h e i r comments on a s s o c i a t e ' s importance t o the JV . . . 129 LIST OF FIGURES F i g u r e 2 . 1 S i z e of p r o j e c t s and reasons f o r g o i n g i n t o JVs F i g u r e 3 « 1 L o c a t i o n of 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 reason f o r s e l e c t i o n o f a s s o c i a t e F i g u r e 4 * 1 R e l a t i o n s between s i z e of p a r e n t s and s i z e o f investments F i g u r e 4 * 2 R e l a t i o n s h i p s between s i z e of p a r e n t s , o f J V s , and of JVs p r o f i t s F i g u r e 4 * 3 Parent s i z e and p r o f i t s of JVs F i g u r e 4 * 4 S i z e of p a r e n t , and performance a g a i n s t scheduled o b j e c t i v e s F i g u r e 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 1 s dependence CHAPTER 1 BACKGROUND OF THE STUDY R e l a t i o n s h i p s between Canada and Japan are an i n c r e a s i n g l y important 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 Japan became the second 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, and as Japanese investments i n Canada rose t o over $300,000,000 i n 1973. U n f o r t u n a t e l y , even though many people are aware of the com- m e r c i a l r e l a t i o n s h i p s between the two c o u n t r i e s , few are c o n s c i o u s o f the impact o f Japanese investments i n Canada. One of the reasons c o u l be t h a t Canadians who are concerned over f o r e i g n investments i n t h e i r c o u n t r y are mainly p r e o c c u p i e d by American i n v e s t m e n t s , which are l a r - ger than those from any ot h e r c o u n t r y . N e v e r t h e l e s s , Japanese i n v e s t - ments i n Canada present two i n t e r e s t i n g f e a t u r e s : t h e y are m a i n l y i n the form o f j o i n t v e n t u r e s , and are c h i e f l y c o n c e n t r a t e d i n B r i t i s h Columbia ( t w o - t h i r d s of the t o t a l v a l u e . T h e r e f o r e , Japanese j o i n t v entures i n B r i t i s h Columbia 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 Japanese investments i n Canada. The main 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 the two c o u n t r i e s w i t h r e s p e c t to Japanese j o i n t v e n t u r e s in B.C. and Japanese i n v e s t m e n t s in Canada. 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 even f o r an o r g a n i z a t i o n l i k e t h e "Canada-Japan Trade Coun c i l " , t h i s i s s u e is one o f the h a z i e s t a r e a s of Japanese-Canadian 2 r e l a t i o n s h i p . A second o b j e c t i v e was t o st u d y the i n f l u e n c e o f some v a r i a b l e s on the s e l e c t i o n o f a s s o c i a t e s by Japanese companies; how f o r example, the reasons f o r g o i n g i n t o a j o i n t v e n t u r e , the nature o f busi n e s s o f Japanese 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 the s i z e o f Japanese companies was l i k e l y t o a f f e c t the s e l e c t i o n of Canadian p a r t n e r s . I t c o u l d be v e r y important f o r Canadian businessmen 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 Japanese e n t e r p r i s e s t o be aware o f the i n - f l u e n c e o f these f a c t o r s . A d e f i n i t i o n A j o i n t v e nture i s d e f i n e d , i n the present s t u d y , as: "The commitment, f o r more than a v e r y s h o r t d u r a t i o n , o f funds, f a c i l i t i e s , and s e r v i c e s by two or more l e g a l l y separate 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 tudy were c l a s s i f i e d i n t o the 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 from the 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 tudy 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 c o u n t r y . None 1. Friedmann, W.G., and Kalmanoff, 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 Ventures, New York, Columbia U n i v e r s i t y P r e s s , 1961, p.6. 3 of the Japanese j o i n t v e n t u r e s i n B.C. belong t o t h i s group. 3« I n t e r n a t i o n a l J o i n t V entures, when at l e a s t one p a r t n e r i s from the host c o u n t r y but i s not the host government. The b u l k of Japanese 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 as such. 4. Mixed I n t e r n a t i o n a l J o i n t V entures, i n which at l e a s t one p a r t n e r i s the host government. One Japanese company went i n t o a j o i n t venture 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 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 " , a l l p a r t n e r s from Canada were c o n s i d e r e d as Canadians, even though some companies were s u b s i d i a r i e s o f f o r e i g n f i r m s ; 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 . I f these s u b s i d i a r i e s had been con4. s i d e r e d as " f o r e i g n " t h e n , f i v e j o i n t v e n t u r e s i n the sample would have been c l a s s i f i e d as " 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 " . G e n e r a t i n g a sample There was no e x h a u s t i v e l i s t o f Japanese j o i n t v e n t u r e s i n Canada when t h i s s t u d y was undertaken. The Department o f I n d u s t r y , Trade and Commerce i n Ottawa, the Department o f I n d u s t r i a l Development, Trade and Commerce i n V i c t o r i a , the Japanese Embassy, the "Canada- Japan Trade C o u n c i l " , and the "Consulate General o f Japan" 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 these o f f i c e s was ab l e t o 4 p r o v i d e a complete 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 p a r t i a l i n f o r m a t i o n which was rounded out i n t o a sample l i s t from d e t a i l s pub- 2 l i s h e d i n a r t i c l e s i n d i f f e r e n t 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 asked 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 . I t was f i n a l l y e s t a b l i s h e d 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 i n t o j o i n t v e n tures i n B r i t i s h Columbia. However, o n l y twenty one completed the q u e s t i o n n a i r e used t o c a r r y out t h i s s t u d y . A l l f i r m s a g r e e i n g t o d i s c l o s e i n f o r m a t i o n c o n c e r n i n g t h e i r o p e r a t i o n s i n B r i t i s h Columbia were i n t e r v i e w e d . T h i s method of c o l - l e c t i n g d a t a was p r e f e r r e d t o the method of m a i l i n g q u e s t i o n n a i r e s because e x e c u t i v e s are 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 b u s i n e s s e s , 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 of the t h r e e q u e s t i o n n a i r e s m a i l e d was i n f a c t r e t u r n e d ) . ^ 2. The P r o v i n c e , "B.C. companies l i n k e d t o Japan", "B.C. h i t s No. 1 w i t h Japanese i n v e s t o r s " , March 20, 1974, p. 21 and 28. 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 " , "Loans f a v o r e d over 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 Globe and M a i l , "Japanese p r e f e r j o i n t v e n t u r e s i n B.C.", Febr 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 , from which 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 Japanese p a r e n t . T h i s company has an. o f f i c e i n Vancouver, but the g e n e r a l manager r e f u s e d t o r e c e i v e the a u t h o r . 5 I n t e r v i e w s took p l a c e w i t h Japanese e x e c u t i v e s i n Vancouver r a t h e r t han i n Japan, m a i n l y because o f time and f i n a n c i a l l i m i t a t i o n s . 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 informed about the 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 . However, o n l y once was i t c l e a r t h a t an e x e c u t i v e i n Vancouver was i n t h i s s i t u a t i o n . H i s answers were, n e v e r t h e l e s s , compiled because h i s company was a p a r t n e r of a j o i n t venture i n the "mining group" which i n c l u d e d c l o s e t o $0% of Japanese j o i n t v e n t u r e s i n B.C.. I n t e r v i e w s were c a r r i e d out over a f o u r week p e r i o d , from mid-May t o mid-June, 1974* The i n f o r m a t i o n concerned s i x j o i n t ven- t u r e s i n the "pulp and lumber" i n d u s t r y , nine i n m i n i n g a c t i v i t i e s and s i x i n d i f f e r e n t s e c t o r s : r e s t a u r a n t , f i n a n c e , s t e e l , m a r k e t i n g a g e n c i e s . Japanese investments i n the w o r l d " J u s t as the o u t f l o w o f c a p i t a l from the c o u n t r i e s o f Europe and America has been expanding, d i r e c t overseas investments by Japan a l s o has been r i s i n g r a p i d l y at a r a t e e x c e e d i n g the growth r a t e o f Japan's e x p o r t s and GNP. D u r i n g the p e r i o d between 1960 and 1965, i t i n c r e a s e d at an annual r a t e of 27.1 per c e n t , s u r p a s s i n g the c o r - r e s p o n d i n g export growth r a t e o f 16.2 per cent and GNP growth r a t e o f 15 per c e n t . Between 1965 and. 1971, i t rose at an annual r a t e o f 29.3 6 per c e n t , exceeding the c o r r e s p o n d i n g export and GNP growth r a t e s o f 19.3 p e r cent and I6 .4 per c e n t , r e s p e c t i v e l y . " ^ As may beeseen from Table 1 .1 , the r a t e of i n c r e a s e i n J a p - anese f o r e i g n investments was 30.4$ between I966 and 1971s i t was h i g h e r t h a n f o r o t h e r c o u n t r i e s . However, i n s c a l e , the v a l u e o f J a p - anese f o r e i g n investments was o n l y $4,481,000,000 i n 1971. " T h i s r e p r e s e n t e d o n l y 60.7 per cent o f the t o t a l overseas investment made by West Germany t h a t y e a r , 20.5 per cent o f t h a t o f B r i t a i n , and 5 .2 per cent o f t h a t o f the U.S.." " A l s o , the r a t i o of the balance( of J a p - anese overseas 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 the GNP t h a t y e a r was lower than the o t h e r c o u n t r i e s at 18.6 and 2 per cent r e s p e c t i v e - l y . " 5 The breakdown a c c o r d i n g t o r e g i o n i s pr e s e n t e d i n Table 1 . 2 . Investments i n advanced c o u n t r i e s rose from 32 . 2 per cent o f the t o t a l Japanese overseas investment t o 53-8 per c e n t , from i960 t o 1973• I t was i n t e r e s t i n g t o note the i n c r e a s i n g share o f Western Europe: 1.2 per cent i n i960 compared t o 24*5 per cent i n 1973: i t was the a r e a where Japanese investments were the h i g h e s t . A l s o i n t e r e s t i n g t o n o t e , ifihe d e c r e a s i n g importance of L a t i n America f o r Japanese i n v e s t o r s . Table 1.3 p r e s e n t s the breakdown a c c o r d i n g t o r e g i o n and 4 . The Canadian Embassy, Japanese Investment A b r o a d 1 , Tokyo, September, 1973, p. 3 . ~~ 5. I b i d . TABLE 1.1 THE AMOUNT OP DIRECT FOREIGN INVESTMENTS BY MAJOR COUNTRIES Japan the United States Great B r i t a i n France West Germany Canada Total of DAC nations Amount of foreign investments (unit: $1,000,000) 1,000 54,562 16,002 4,000 2,500 3,238 89,583 Percentage against the t o t a l amount of foreign investments?; made by DAC nations 1.1 60.9 17.9 4.5 2.8 3.6 100.0 1966 Percentage against GNP 1.2 7.3 15.2 3.9 2.0 6.1 6.3 Percentage against the t o t a l amount Per exports capita average 12.1 - 12 185.8 277 108.8 292 36.4 81 12.4 42 32.4 161 66.5 148 continued TABLE 1.1 (cont.) 1971 Percentage against the Amount of t o t a l amount foreign of foreign Percentage investments investments against (unit: made by DAC GNP $1,000,000) nations Japan 4,481 3.1 2.0 the United States 80,002 60.2 8.2 Great B r i t a i n 21,822 15.3 16.6 Prance 5,540 3.9 3-4 West Germany 7,380 5.2 3.1 Canada 4 , 4 3 6 3.1 5.2 Total of DAC nations 142,867 100.0 6.5 The rate of Percentage increase i n against the Per foreign t o t a l amount capita investments .af.exports average 18.6 43 30.4 197.5 415 9.5 97.7 392 6.4 26.7 108 6.7 17.5 120 24.2 24.2 205 6.5 59.8 226 9.8 Source: Ministry of International Trade, Overseas Business A c t i v i t i e s of Japanese Enterprises, MITI Information O f f i c e , Tokyo, October 1973, P. 15. TABLE 1.2 BREAKDOWN OF JAPANESE INVESTMENTS IN THE WORLD ACCORDING TO REGION I960 1973 Developing Nations Destined Advanced Nations Destined Developing Natd-ons Destined Advanced Nations Destined Middle East 19.496 L a t i n America 29.3$ Southeast Asia 18.9/° A f r i c a 0.2$ Total 67.8$ North America 3 0 . 3 $ Western Europe 1.2$ Oceania 0.7% Total 3 2 . ; Middle East 8.9$ Lati n America 14.6$ Southeast Asia 20.5$ - * • , ^- A f r i c a 2.2$ Total 46.2$ North America Mo22/.,9$ Western Europe 24.5$ Oceania - 6.4$ Total 53.8$ Sources: The Canadian Embassy, Japanese Investment Abroad, Tokyo, September 1973 (for I960). Consulate General of Japan, Vancouver (for 1973) (Bank of Japan). 1Q;. TABLE 1.3 BREAKDOWN OF JAPANESE INVESTMENTS IN THE WORLD ACCORDING TO REGION AND SECTOR, AS OF END OF 1971* S e c t o r Development Region M a n u f a c t u r i n g U n d e r t a k i n g Commerce Others N o r t h America 23.5 17-4 48.6 10.5 Western Europe 8.0 1.0 15.5 75-6 Oceania 25.8 66.7 6.9 1.5 Southeast A s i a 44-5 37.2 9-8 8.4 L a t i n America 47.1 24.5 14.4 13.8 Middle E a s t 1.5 98.0 0.5 0.0 A f r i c a 22.9 69-9 0.9 6.4 F i g u r e s r e p r e s e n t percentage o f the t o t a l . Source; The Canadian Embassy, "Japanese Investment Abroad',' September 1973. 11 i n d u s t r i a l s e c t o r as of the end of 1971• I n North America, the major p a r t o f Japanese investments went i n t o "commerce": 48.6 per cent o f t o t a l Japanese i n v e s t m e n t s . I n Western Europe, 75.6 per cent o f J a p - anese investments were i n the Mother" c a t e g o r y , " i n c l u d i n g the 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 per 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 the 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 per c e n t , o f 7 investments i n Oceania was i n the man u f a c t u r i n g s e c t o r . " " M a n u f a c t u r i n g " was the i n d u s t r i a l s e c t o r i n which Japanese investments were the most i m p o r t a n t , i n Southeast A s i a and L a t i n America: 44«5 per cent and 47.1 per 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 an important s e c t o r o f investments i n both a r e a s . T h i s s e c t o r was the most important one f o r J a p a n e s e • i n v e s t o r s i n the Middle E a s t and A f r i c a . Table 1.4 shows the d i s t r i b u t i o n of Japanese investments by r e g i o n f o r the man u f a c t u r i n g i n d u s t r i a l s e c t o r . "Seventy seven p o i n t t h r e e per cent o f Japanese investment i n N o r t h America i n the manufac- t u r i n g s e c t o r was made i n the woodpulp i n d u s t r y , i n the form o f i n v e s t - 6. I b i d . p. 4. 7. I b i d . cvj M TABLE 1.4 BREAKDOWN OP JAPANESE INVESTMENTS IN THE WORLD ACCORDING TO REGION AND MANUFACTURING INDUSTRY AS OF END OF 1971* Manufac- Iron and turin g Non- Tex- Wood- Chemi- Ferrous General E l e c t r i c Transport Region Food t i l e s Pulp cals Metals Machinery Machinery Equipment Others North America 3.2 2.6 77..3 4.3 '. 0.4 3-9 1.2 5.6 1.6 Western Europe 11.2 2.2 - 31-5 15.7 24.9 2.4 7.3 4.8 Oceania 4.4 0.8 36.4 1.0 37.0 0.5 2.5 6.8 0.6 Southeast A s i a 7.9 34.9 3.7 7.8 8.8 4.3 14.0 3.0 15.6 L a t i n America 3.2 20.2 - 2.5 29.4 13-5 7.1 2-2.4 1.8 Middle East - - - 17.4 31.6 18.1 32.9 A f r i c a 13.5 66.0 5-4 9.8 - 3 . 3 - 2.1 Total 6.4 20.3 20.9 6.1 15.6 7.3 7.8 9.2 7.0 Figures represent percentage of the cbotal. Source; The Canadian Embassy, Japanese Investment Abroad, September 1973* 13 g ment f o r "develop-and-import" purposes." I t was r e a l l y h i g h e r than the " a l l a r e a s " average o f 20.9 per c e n t . The b u l k o f investments i n manufacturing i n Western Europe was i n " c h e m i c a l s " : 31*5 per c e n t ; " g e n e r a l machinery", 24 .9$; and " i r o n and n o n - f e r r o u s m e t a l s " , 15«7$« "Woodpulp" and " i r o n and non- f e r r o u s m e t a l s " were e q u a l l y important i n Oceania. Southeast A s i a and A f r i c a were r e g i o n s where most o f Japanese investments i n the manufac- t u r i n g s e c t o r were made i n " t e x t i l e s " : 34«9 per cent and 66.0 per c e n t , r e s p e c t i v e l y . " I r o n and no n - f e r r o u s m e t a l s " was the 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 machinery" and " o t h e r s " were the ch o i c e i n the Middle 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 of the end o f March 1973> i s p r e s e n t e d i n Table 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 the breakdown a c c o r d i n g t o r e g i o n and i n d u s t r i a l s e c t o r . When t a l k i n g about Japanese i n v e s t m e n t s , a d i s t i n c t i o n s h o u l d be made c o n c e r n i n g the form o f i n v e s t m e n t s . Table 1.6 shows t h a t 52.7% of Japanese investments were i n the form o f "purchase o f s e c u r i t i e s " : the l a r g e s t group. "Branch o f f i c e o p e r a t i o n " was the l e a s t important one, r e p r e s e n t i n g o n l y 4 « 3 $ of Japanese i n v e s t m e n t s . "Purchase o f 8. I b i d . TABLE 1.5 14 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 ) I^Fishery - 49 (0.7$) "-Agriculture & Forestry - 83 (1-2%) • — T e x t i l e Industry - 416 (6.1%) 1 Lumbering & Pulp Making - 296 (4.4$) 1 Iron & Nonferrous Metals - 240 (3.6%) 1 E l e c t r i c Machinery - 172 (3.6%) Transportation Equipment - 142 (2.5%) 1 Machinery - 128 (1.9%) 1 Chemicals - 132 (1.9%) 1 Foodstuffs - 99 (1-5/0 1 Others - 118 (l.8%) gourde: Consulate" General of Japan, Vancouver (Bank of Japan) 15 TABLE 1.6 BREAKDOWN OP JAPANESE INVESTMENTS IN THE WORLD ACCORDING TO FORM - AS OF END OF MARCH 1973 Form Purchase o f S e c u r i t i e s A c q u i s i t i o n of C r e d i t s D i r e c t Overseas B u s i n e s s Operations Branch O f f i c e O p e r a t i o n T o t a l Value o f Investment ($ m i l l i o n ) 3*571 (52.795) 2,441 (36.1%) 470 ( 6.9%) 290 (4.3%) 6*772 (100%) Source: Consulate General o f Japan, Vancouver (Bank o f Tokyo). '.16 s e c u r i t i e s " i n c l u d e d d i r e c t investments i n m i n o r i t y o p e r a t i o n s . Japanese investments i n Canada Canada was not the c o u n t r y where Japanese i n v e s t e d the most. I n f a c t , i t come a f t e r the 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 and A u s t r a l i a . F i g u r e s p r e s e n t e d i n Table 1.7 i n d i c a t e t h a t Canada was one of the 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 than 9 " s e c u r i t y i n v e s t m e n t s " ; 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 the o t h e r c o u n t r i e s where such a s i t u a t i o n e x i s t e d . I t has been im- p o s s i b l e t o o b t a i n the breakdown of Japanese investments a c c o r d i n g t o i n d u s t r y f o r these c o u n t r i e s ; however, i t seemed t h a t where Japanese i n v e s t e d t o secure t h e i r s u p p l y of raw m a t e r i a l s , t h e y p r e f e r r e d the " 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 reasonable p o l i c y , as the s i z e of investment i n "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 p e r p r o j e c t ; i t was 4*510,800 d o l l a r s per p r o j e c t i n woodpulp, and 1,637,600 d o l l a r s p er 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 former r a t i o w i l l be used i n f u t u r e c h a p t e r s . 10. T h i s i s the average f o r Japan's investment on a world-wide b a s i s . The Canadian Embassy, Japanese Investment Abroad, Tokyo, September, 1973, P. 5. 11. I b i d . 17 TABLE 1.7 JAPANESE OVERSEAS INVESTMENTS FOR MAJOR NATIONS AS OF END OF MARCH 1973* 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 Australia 99,066 207,354 262 63 306,746 Brazil 425,810 139,720 2,820 363 568,712 Thailand 85,700 40,228 664 2,548 129,140 Indonesia 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 S. Korea 194,669 4,792 518 6,720 206,699 Total (.Inclu- ding other countries) 3,571,480 2,441,129 469,836 290,400 6,772,845 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 of money, Japanese made l o a n s i n s t e a d o f buying s h a r e s : t h i s was p r o b a b l y i n o r d e r t o secure an investment more s a f e l y . I n 1971, the t o t a l v a l u e o f Japanese investment i n Canada was $210,612,000. I t rose t o $275,092,000 i n 1972 and t o $310,000,000 12 " i n 1973» T h i s was an i n c r e a s e o f 47«6% over a two y e a r p e r i o d . The d i s t r i b u t i o n o f Japanese investments i n Canada a c c o r d i n g t o i n d u s t r y i s pr e s e n t e d i n Table 1.8. Investments i n the "manufacturing" s e c t o r r e p r e s e n t e d 49$ of these i n v e s t m e n t s . The b u l k o f such i n v e s t - ments was i n the "pulp and lumber" s e c t o r , which was r e s p o n s i b l e f o r 93% of the investments i n the manufacturing s e c t o r and r e p r e s e n t e d 46% of the t o t a l i n v e s t m e n t s . The average v a l u e o f an investment i n "pulp and lumber" was $11,640,000, which was h i g h e r t h a n the "world average" f o r s i m i l a r p r o j e c t s . The second most important Japanese investments were made i n "mining": $95,290,000, or 34% of the t o t a l v a l u e o f these investments i n Canada. The average v a l u e o f an investment, however, $2,382,250, was c o n s i d e r a b l y lower than t h a t f o r "pulp and lumber". Investments i n these two s e c t o r s , r e p r e s e n t e d 80% of the t o t a l v a l u e o f Japanese investments i n Canada. I t was i n t e r e s t i n g t o note the t o t a l absence o f investments i n " c h e m i c a l " and " t r a n s p o r t a t i o n " : 12. T h i s i s ' a n e v a l u a t i o n made by the v i c e - p r e s i d e n t o f the "Canada- Japan Trade C o u n c i l " i n Ottawa. 1 9 ' BREAKDOWN OF JAPANESE INVESTMENTS IN CANADA ACCORDING TO INDUSTRY, AS OF END OF 1 9 7 2 TABLE 1 . 8 I n d u s t r y Value o f Investment Number o f (8000) Cases F o o d s t u f f 1 , 2 2 7 2 T e x t i l e 2 , 5 1 4 4 P u l p and Lumber 1 2 8 , 0 4 8 1 1 Chemical - - Fe r r o u s and Non-ferrous 8 7 0 1 Machinery 2 , 0 9 8 1 E l e c t r o n i c 1 , 1 5 0 3 T r a n s p o r t a t i o n - - M i s c e l l a n e o u s 4 2 7 3 MANUFACTURING 1 3 6 , 3 3 4 25_ A g r i c u l t u r e , F o r e s t r y 2 , 1 5 8 3 F i s h e r i e s 7 4 2 4 M i n i n g 9 5 , 2 9 0 4 0 C o n s t r u c t i o n 1 , 0 5 9 1 Trade 2 1 , 6 9 0 4 5 B a n k i n g , Insurance 5 2 8 2 M i s c e l l a n e o u s 1 6 , 9 9 8 1 5 Branch O f f i c e s 2 9 3 8 T o t a l 2 7 5 , 0 9 2 1 4 3 Source; Consulate General o f Japan, Vancouver (Bank o f Tokyo). 20 there was " l i t t l e weight put on manufacturing" i n Canada. B r i t i s h Columbia was the province where Japanese invested the most. "The bulk of l i m i t e d investment i n Canada to date has been i n the resource i n d u s t r i e s , p a r t i c u l a r l y i n B r i t i s h Columbia,...". 1^ Experts extimated that 66$ of 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 of Canadian exports to the P a c i f i c and almost the same proportion of imports. I t i s thus not only the dominant f a c t o r i n Canada's P a c i f i c trade, but a top t r a d i n g partner i n i t s own r i g h t . Japan i s now Canada's t h i r d largest export market 15 and w i l l probably soon overtake the U.K. f o r the second place." J As shown i n Table 1.9, i n 1972, Japan became Canada's second largest partner f o r imports, and i n 1973, Canada's second lar g e s t market f o r exports. On the other hand, Canada was also the t h i r d l a r g e s t t r a d i n g partner f o r Japan. y 13. IDTC, The P a c i f i c Rim; An Evaluation of B r i t i s h Columbia Trade Opportunities, V i c t o r i a , 1972, p. 18. 14. Personal commitments from personnel of the Canada-Japan Trade Council. 15. The Standing Senate Committee on Foreign A f f a i r s , Report on Can- adian Relations w i t h the Countries of the P a c i f i c Region, Information Canada, Ottawa, March 1972, p. 13. cvi TABLE 1.9 MOST IMPORTANT TRADING- PARTNERS OF CANADA AND JAPAN FROM 1970 TO 1973 U.S.A. U.K. Japan Canada A u s t r a l i a Imports, F.O.B. 787.86 904.45 58.76 46.38 68.69 66.21 CANADA (M i l l i o n U.S.$) 1087.92 79.76 9 3 . 0 3 1375.26 8 8 3 ^ 6 84.82 Exports, F.O.B. ( M i l l i o n U.S.$) 878.20 1006.74 1175.93 1425.64 1 1 9 . 3 4 6 3 . 3 5 1 1 2 . 2 9 6 5 . 3 2 1 1 1 . 8 3 8 1 . 0 4 132.34 149.94 JAPAN U.S.A. U.K. Japan Canada A u s t r a l i a 463.69 415.13 488.05 772.95 501.25 633.21 747.52 795.65 77 .38 83.66 95.74 167.91 52 .30 63 -30 63.94 104 .13 127.71 147.80 189.48 3 1 0 . 2 3 46.94 73-00 92.00 8 3 . 2 4 : Monthly averages. Source; OECD, Overall Trade by Countries, Paris, A p r i l 1974. 22 Canadian trade with Japan had two interesting characteristics: i t s d istribution and i t s composition. Canadian exports to Japan were mainly from Western Canada. This part of Canada "accounted for almost 80$ 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 (52.5$), Saskatchewan (13.4$), Alberta (10.8$) and Manitoba (3.0$)." 1 6 In fact, " i n 1967, Japan replaced the U.K. as B r i t i s h Columbia's second most important customer. Japan's exports to Canada were mainly to Eastern Canada: Quebec and Ontario together took 67$, while Western Canada received 26.4$ of the t o t a l . "...More than 96 per cent of Japanese sales to Canada are accounted for by a d i v e r s i f i e d range of processed and.manufactured good 1 Pi i n 1969. For 1971, 1972, and 1973, the ra t i o was the same. In 1971 exports to Canada of Japanese ligh 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 $876, 209,000. In 1972, the corresponding values were $1,065,478,000 and 19 $1,103,994,000. y From January to September 1973, the data were 16. Ibid., p. 17. 17. IDTC, The P a c i f i c Rim: An Evaluation 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 office i n Vancouver. 23 $706,000,000 and $732,000,000, r e s p e c t i v e l y . While Japan was m a i n l y e x p o r t i n g manufactured goods t o Canada, i t was buying v e r y few Canadian manufacturing goods i t s e l f : the bu l k o f i t s Canadian purchases were raw m a t e r i a l s . F o r example, i n 1973, from January t o September, Japan imported from Canada: $312, 000,000 i n "food and l i v e a n i m a l s " , $779,000,000 i n "crude m a t e r i a l s " and $151,000,000 i n " m i n e r a l f u e l s , l u b r i c a n t s , and r e l a t e d m a t e r i a l s " , which r e p r e s e n t e d 8ffo of the t o t a l v a l u e o f Japan's imports from Canada. ^ From a Japanese p o i n t of view, trade.awith Canada p r e s e n t e d two d i f f i c u l t i e s : f i r s t l y , the g e n e r a l balance of t r a d e was i n f a v o r of Canada; s e c o n d l y , t h e y complained about access f o r s p e c i f i c p r o d u c t s , l i k e t e x t i l e s , i n Canada. From the Canadian p o i n t o f view, the main problem was the com- p o s i t i o n o f goods t r a d e d . Canadians admitted t h a t the t r a d e balance was i n t h e i r f a v o r , butdwondered how Japanese c o u l d complain when they were e x p o r t i n g manufactured goods which c r e a t e d jobs at home, w h i l e i m p o r t i n g raw m a t e r i a l s from Canada, w i t h low added v a l u e . One l a s t p o i n t o f i n t e r e s t as background t o t h i s s tudy was 20. Trade by commodities, January - September 1973, 0ECD, P a r i s , 1974. 21. I b i d . 24 the importance of f o r e i g n t r a d e f o r each c o u n t r y . I n 1973, the r a t i o exports/GNP was 21$ i n Canada, w h i l e the r a t i o imports/GKP was 19$. I n Japan, i n 1971, the same r a t i o s were 9$ and 6$ r e s p e c t i v e l y . I n o t h e r words, e x t e r n a l t r a d e was more important f o r Canada than 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 terms o f e i g h t groups of v a r i a b l e s , as f o l l o w s : (1) Reasons f o r i n v e s t i n g i n B r i t i s h Columbia (Chapter 2) (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 venture (Chapter 2) (3) 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 (Chapter 3) (4) S i z e o f Japanese parent f i r m (Chapter 4) (5) E v a l u a t i o n c r i t e r i a (Chapter 4) (6) The nature of b u s i n e s s of the Japanese parent and of the j o i n t venture (Chapter 5) (7) 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 o f the j o i n t v e n t u r e s (Chapter 5) (8) A t t i t u d e s towards c o n t r o l on the p a r t o f the Japanese parent company (Chapter 6) .25 CHAPTER 2 The 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 d e c i s i o n t aken by Japanese companies t o i n v e s t i n B r i t i s h Columbia, the dec- i s i o n t o i n v e s t i n t o the form of j o i n t v e n t u r e s , and the d e c i s i o n t o s e l e c t an a s s o c i a t e . 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 As p o i n t e d out b e f o r e , the commercial l i n k s between Japan and Canada are v e r y i m p o r t a n t . On one hand, Japan i s the most im- p o r t a n t t r a d i n g p a r t n e r of Canada, a f t e r the U n i t e d S t a t e s . On the o t h e r hand, Canada i s 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 o f Japan, a f t e r the U n i t e d S t a t e s and A u s t r a l i a . However, the Canadian 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 Japan, which i s at present 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 of the Japanese economy which needs t h i s type of i m p orts t o operate at f u l l c a p a c i t y . I t i s then reasonable t o expect t h a t the most important reason f o r Japanese companies t o i n v e s t i n B r i t i s h Columbia would be t o secure t h e i r s u p p l y of raw m a t e r i a l . To f i n d out why Japanese f i r m s have i n v e s t e d i n B.C., e x e c u t i v e s 26. of these companies were asked t o o r d e r the f o u r most important reasons e x p l a i n i n g the d e c i s i o n s of t h e i r f i r m s . They, had t o s e l e c t between: 1. New market. 2. 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 . 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 c o m p e t i t i o n . 6. U s i n g p a t e n t s / l i c e n c e s . 7. Lower c o s t c o n d i t i o n s . 8. To o b t a i n m a t e r i a l s . 9- To o b t a i n r e s o u r c e s / f a c i l i t i e s . 10. Host government i n c e n t i v e s . 11. P o l i t i c a l s t a b i l i t y . 12. Other r e a s o n s . The r e s u l t s are p r e s e n t e d i n Table 2.1. As expected, the most important reason f o r the investment of Japanese companies i n B.C. was " t o o b t a i n m a t e r i a l s " . T h i s reason was mentioned most o f t e n : 25$ o f the t i m e . 1 I t was the r eason s e l e c t e d most o f t e n as the f i r s t r e a s o n : 62$. And on a weighted sco r e b a s i s , i t had the h i g h e s t s c o r e : 54. Furthermore, out o f 14 mentions, i t was chosen as the most important one 13 t i m e s : o n l y one company p i c k e d i t up as a t h i r d r e a s o n . Seven times i t was not c i t e d : 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 the Japanese companies i n v e s t i n g i n B.C. are i n the raw m a t e r i a l s e c t o r of the Japanese economy. 27 TABLE 2.1 REASONS CITED BY JAPANESE PARENT COMPANIES FOR THEIR INVESTMENT IN BRITISH COLUMBIA Order i n Which T o t a l P o s s i b l e Weighted Reason Was C i t e d Responses No. o f S c o r e * (Out o f Cases i n Reason 1 2 3 4 21) Which the Response Was Not Number of Cases C i t e d New market 3 1 3 - 7 14 21 G e o g r a p h i c a l d i v e r s i f i - 8 c a t i o n 1 5 0 2 13 21 P r o t e c t i n g e x i s t i n g market 1 1 2 - 4 17 11 Overcoming t a r i f f 21 b a r r i e r s - - - - — — Matching C o m p e t i t i o n - - - - - 21 — U s i n g p a t e n t s / l i c e n s e s - - - - 21 — U s i n g equipment - - - 21 — Lower c o s t c o n d i t i o n s — - 1 1 2 19 3 To o b t a i n m a t e r i a l s 13 - 1 - 14 7 54 To o b t a i n r e s o u r c e s / f a c i l i t i e s - 4 1 1 6 15 15 Host government 20 i n c e n t i v e s 1 - - — 1 4 P o l i t i c a l s t a b i l i t y - - ' 7 2 - 9 12 25 Other reasons 2 - 2 1 5 16 13 T o t a l Responses 21 18 12 5 56 Each time a reason was c i t e d as f i r s t , i t was m u l t i p l i e d by 4, as second i t was m u l t i p l i e d by 3, as t h i r d i t was m u l t i p l i e d by 2, and as f o u r t h , by 1. These weighted v a l u e s were then summed over 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 r e a s o n . 2 8 i n the " m i s c e l l a n e o u s group" c d i d not u n d e r l i n e t h i s reason as an important one f o r them and one company i n the "raw m a t e r i a l group" ^ d i d the same. T h e i r reasons w i l l be d i s c u s s e d l a t e r . The second most important c r i t e r i o n used by Japanese f i r m s t o decide upon investment i n B.C. was " p o l i t i c a l s t a b i l i t y " . T h i s reason was mentioned 1 6 $ of the time and s e l e c t e d 4 0 $ of the time as a second r e a s o n . I t s c o r e d 2 5 on the weighted s c a l e . N e v e r t h e l e s s , many e x e c u t i v e s emphasized t h a t i t was a s i g n i f i c a n t r e a s o n , and t h a t i f t h e y had t o c o n s i d e r i n v e s t i n g today, t h e y would have t o r e - e v a l u a t e t h i s c r i t e r i o n . The t h i r d and f o u r t h reasons were o f e q u a l importance: "new market" 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 " s c o r e d 2 1 on the weighted s c a l e . The f i r s t c r i t e r i o n was mentioned 7 times o f a t o t a l o f 5 6 ( 1 2 . 5 $ ) and the second one 8 times ( 1 4 $ ) . "New market" was mentioned more o f t e n as a f i r s t c h o i c e ; i t was then c l a s s i f i e d as the t h i r d most important c r i t e r i o n f o r the purpose o f t h i s s t u d y . Of the t o t a l o f 1 5 mentions, f o r the two c r i t e r i a , 1 3 came from the " m i s c e l l a n e o u s c a t e g o r y " . Only two companies o f the "raw m a t e r i a l group" mentioned these reasons as important t o them i n t h e i r d e c i s i o n 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 d i v e r s i f i c a t i o n " as the most important reason and the o t h e r one, "new market" 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 the nature of b u s i n e s s o f the j o i n t v e n t u r e . R e s t a u r a n t , f i n a n c e , s t e e l , m a r k e t i n g . 3 . P u l p , lumber and mining companies. 29 t h i r d r e a s o n . I t i s i n t e r e s t i n g t o p o i n t out the absence of mention con- c e r n i n g f o u r c r i t e r i a : "overcoming t a r i f f b a r r i e r s " , "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". These c r i t e r i a are mentioned i n the l i t e r a t u r e as p o s s i b l e reasons m o t i v a t - i n g f i r m s t o i n v e s t abroad. 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 " was emphasized o n l y t w i c e and was the lowest i t e m on the weighted s c a l e . 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 c o u n t r y c o n c e r n i n g f o r e i g n i n v e s t m e n t s , i t would be reasonable t o expect t h a t no f o r e i g n i n - v e s t o r s would have been f o r c e d i n t o a j o i n t venture through " e x p l i c i t or i m p l i c i t host government p r e s s u r e s " . E n t e r p r i s e s might decide t o go i n t o a j o i n t venture " t o reduce the l e v e l o f p o l i t i c a l or/and f i n a n c i a l r i s k s " . " P o l i t i c a l s t a b i l i t y " was the second most important c r i t e r i o n f o r Japanese com- pani e s t o i n v e s t i n B.C.. S i n c e t h i s was a b a s i c reason f o r i n v e s t i n g i n B.C., one c o u l d not expect i t t o be a f r e q u e n t reason f o r g o i n g i n t o a j o i n t v e n t u r e . When a f i r m i n v e s t e d i n B.C. because i t was p o l i t i c a l l y s t a b l e , i t w i l l not go i n t o a JV t o spread p o l i t i c a l r i s k s . Ten o f the j o i n t v e n t u r e s of t h i s s tudy have as Japanese parent a " s h o j i k a i s h a " ( t r a d i n g company): because of t h e i r f i n a n c i a l 30 s t r e n g t h i t i s d i f f i c u l t t o see these companies g o i n g i n t o j o i n t v e n t u r e s merely i n o r d e r t o "spread f i n a n c i a l r i s k s " . 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 venture because i t "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 managerial and t e c h n i c a l r e s o u r c e s on the o t h e r hand. " O b t a i n i n g raw m a t e r i a l " was mentioned as an important reason f o r i n v e s t i n g i n B.C.. As " o b t a i n i n g raw m a t e r i a l " from 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 t i n the host 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 o b j e c - 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 would be t o go i n t o j o i n t v e n t u r e s w i t h l o c a l i n t e r e s t s . T h i s assumption i s r e i n f o r c e d by the f a c t t h a t not o n l y do Japanese d i s l i k e t o be seen as 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??, Concerning the second r e a s o n , one c o u l d argue t h a t i f the t r a d i n g companies do not "need l o c a l f i n a n c i a l r e s o u r c e s " t h e y do not "need managerial o r t e c h n i c a l r e s o u r c e s " . N e v e r t h e l e s s , the 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 from the Japanese environment, and one way t o cope w i t h t h i s d i f f e r e n c e 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 Canadians; as one e x e c u t i v e s a i d : " I n Canada, Canadian businessmen know how t o run the show." " A s s o c i a t e ' s p r o j e c t " : i f a Canadian b u s i n e s s p r e s e n t e d a good p r o j e c t t o Japanese businessmen, they 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 . Japanese do not l i k e t o be seen as Japanese and f o r e i g n e r s i n 31 Canada: the 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 businessmen and t h i s was expected t o be a reason 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 t h i s c r i t e r i o n 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 the o t h e r reasons p r o v i d e d were not adequate t o d e s c r i b e what they had i n mind. These reasons w i l l be d i s c u s s e d l a t e r . As reasons may v a r y w i t h the nature of b u s i n e s s of the j o i n t v e n t u r e s , nature of b u s i n e s s and reason f o r the j o i n t venture d e c i s i o n 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 present the r e - s u l t s . "Need f o r l o c a l r e s o u r c e s , managerial and t e c h n i c a l " , was the most important reason f o r Japanese companies t o go i n t o j o i n t v e n t u r e s . I t was the reason mentioned most o f t e n : 32% o f the t i m e . I t had the h i g h e s t score on a weighted b a s i s : 54' I t was second i n one way o n l y : the number of times i t was mentioned as f i r s t r e a s o n . I t was mentioned by a l l the companies i n the "raw m a t e r i a l group" except i n two cases: companies p i c k e d i t f i r s t f o u r t i m e s and second n i n e t i m e s . Table 2.3 i n d i c a t e s t h a t the m i n i n g companies were the companies u s i n g t h i s as the f i r s t r e a s o n . The " m i s c e l l a n e o u s group" chose i t t w i c e as the most important f a c t o r . The f i r s t r e ason, a c c o r d i n g t o the number of times i t was c i t e d , was "need f o r l o c a l r e s o u r c e s : raw m a t e r i a l " . . As might be expected, i t was mentioned by a l l the companies i n the p u l p and lumber 32 TABLE 2.2 REASONS CITED BY JAPANESE FIRMS FOR CHOOSING THE JOINT VENTURE FORM OF INVESTMENT IN B. C. Reason Order i n Which Reason Was C i t e d T o t a l Responses (Out o f 21) Number of Cases Weighted S c o r e * P o s s i b l e No. o f Cases i n Which T h i s Response Not Made E x p l i c i t host govern- ment p r e s s u r e s - — — - 0 0 21 I m p l i c i t host govern- ment p r e s s u r e s — — - — 0 0 21 S p r e a d i n g r i s k ( P o l i - t i c a l - F i n a n c i a l - Other) 1 2 — 1 4 11 17 Need f o r l o c a l r e s o u r c e s : -raw m a t e r i a l 9 9 36 12 -managerial - t e c h n i c a l 6 9 -J 1 X 1 17 ! j 4 4 A s s o c i a t e ' s p r o j e c t 3 1 4 1 9 24 12 L o c a l i d e n t i t y - 1 3 6 3 13 28 8 Other reasons 1 — 1 — 2 6 19 T o t a l responses 21 15 12 66 54 * Same method as the one used i n Table 2.1 TABLE 2.3 VARIATIONS BY NATURE OP BUSINESS IN REASONS FOR GOING INTO JOINT VENTURES Reasons f o r Going into Joint Venture Host Government Pressures . Nature of JV Business Pulp and Lumber Miscellaneous Mining (Opera- tion) Mining (Explo- ration) Totals No Spreading Risk No 1 1 20 4 Need f o r Local Resources Managers and Associate's Local Raw Material Technicians Project Identity- Number of Cases and C e l l i Based on Row Sum* No 6 100 75 42 No, 2 1 3 6 io No 33 3 25 60 28 3 i No 50 io Other Total No. i No. 14 17 - 1 1 20 4 6 6 5 21 Percentages do not a l l add up to 100 because of rounding. 34 group as the most important reason, and by t h r e e of the f o u r mining 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 o t h e r companies i n the mining group were i n v o l v e d i n e x p l o r a t i o n . Three of them p o i n t e d out the "need f o r l o c a l r e s o u r c e s : managerial and t e c h n i c a l " as the f i r s t r e a son, one p r e f e r r e d " t o spread the r i s k s " and the f i f t h was con- cerned w i t h c a p i t a l a v a i l a b i l i t y . " L o c a l i d e n t i t y " was the t h i r d most important f a c t o r a c c o r d i n g t o the weighted s c o r e . However, i t ranked second a c c o r d i n g t o the number of times i t was u n d e r l i n e d as..an important r e a s o n . The o n l y time i t was mentioned f i r s t was by a f i n a n c e company which wished t o be seen as a Canadian company i n t h i s d e l i c a t e f i e l d . Three companies mentioned i t as a second reason 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 a t h i r d r e a s o n . " A s s o c i a t e ' s p r o j e c t " was c i t e d as the most important reason by t h r e e companies of the " m i s c e l l a n e o u s group". One Japanese company was 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 which gave i t the o p p o r t u n i t y t o get i n v o l v e d more deeply i n Western Canada c a r r y i n g out the same type of b u s i n e s s as at home. Another one judged t h a t the p r o p o s i t i o n of i t s a s s o c i a t e was good and f u l f i l l e d a p a r t of i t s worldwide mar- k e t i n g p o l i c y . The t h i r d j o i n t v e n t u r e , set up between two Japanese f i r m s , was a good o c c a s i o n f o r one of the p a r t n e r s t o i n c r e a s e i t s knowledge of the Western Canadian market. The " m i s c e l l a n e o u s group" i n v e s t e d i n B.C. f o r reasons d i f f e r e n t from the one mentioned by the 35 " r a w m a t e r i a l g r o u p " . F u r t h e r m o r e , i t a l s o w e n t i n t o j o i n t v e n t u r e f o r d i f f e r e n t r e a s o n s . T h e m a i n e x p l a n a t i o n f o r t h i s d i f f e r e n c e o f b e h a v i o r i s s u r e l y due t o t h e n a t u r e o f b u s i n e s s o f e a c h g r o u p . " O t h e r r e a s o n s " w e r e p o i n t e d o u t t w i c e : ' . . . o n c e b y a c o m p a n y i n t h e " r a w m a t e r i a l g r o u p " w h i c h i n v e s t e d i n a j o i n t v e n t u r e " t o o b t a i n a d d i t i o n a l c a p i t a l " a n d " t o s p r e a d r i s k s " . The o t h e r c o m p a n y w a s i n t h e " m i s c e l l a n e o u s g r o u p " a n d i n d i c a t e d a s a t h i r d r e a s o n t h e n e e d t o e s t a b l i s h b e t t e r b u s i n e s s l i n k s w i t h i t s C a n a d i a n p a r t n e r . S i z e o f P r o j e c t s The s i z e o f p r o j e c t s h a s b e e n d e f i n e d a s t h e t o t a l v o t i n g e q u i t y c a p i t a l ^ . I n t h e c a s e o f t h e ' " p u l p a n d l u m b e r g r o u p ' , ' a n d i n t h e c a s e o f t h e " m i s c e l l a n e o u s g r o u p " , t h e v a l u e o f t h e i n v e s t m e n t o f t h e J a p a n e s e p a r e n t i n s h a r e s ( i n $ ) a n d t h e p e r c e n t a g e o f e q u i t y i t owned w a s u s e d t o e v a l u a t e t h e t o t a l v a l u e o f t h e p r o j e c t a s d e f i n e d h e r e . F o r t h e m i n i n g g r o u p , t h e f o l l o w i n g m e t h o d w a s u s e d : n u m b e r o f s h a r e s i s s u e d a n d f u l l y p a i d , a c c o r d i n g t o t h e a n n u a l r e p o r t o f e a c h 4 . V o t i n g e q u i t y c a p i t a l i n $ m i l l i o n s : C a t e g o r y N o . o f J V s 0.9 a n d u n d e r VS 6 1.0 t o 3«9 S 4 4 .0 t o 9 .9 ' M 4 o v e r 10.0 L 6 5. 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 w e r e r e l u c t a n t t o d i s c l o s e 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 . 3 6 company m u l t i p l i e d by t h e market v a l u e . I t was 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 between t h e s i z e o f t h e j o i n t v e n t u r e and t h e s i z e o f i t s J a p a n e s e p a r e n t . J a p a n e s e p a r e n t s were n o r m a l l y l a r g e r t h a n t h e i r C a n a d i a n p a r t n e r s . 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 "medium" and " l a r g e " j o i n t v e n - t u r e s w o u l d be c l o s e r t o t h e s i z e o f t h e f o r e i g n p a r e n t . " S m a l l " and " v e r y s m a l l " J V s s h o u l d be c l o s e r t o t h e s i z e o f t h e i r C a n a d i a n 7 p a r t n e r s . P a c t s s u s t a i n e d t h i s a s s u m p t i o n . What i s t h e r e l a t i o n s h i p between 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 v e n t u r e s ? The r e s u l t s a r e shown i n T a b l e 2.4, where t h e l a s t f o u r r e a s o n s o f T a b l e 2.2 have been r e g r o u p e d u n d e r one r e a s o n : "need f o r l o c a l r e s o u r c e s " . As one c o u l d e x p e c t , " 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 m a i n l y e s t a b l i s h e d t o p r o f i t f r o m l o c a l r e s o u r c e s : p a r e n t s o f 83$ o f t h e " v e r y s m a l l " j o i n t v e n t u r e s and 100$ o f " s m a l l " j o i n t v e n - t u r e s p o i n t e d t h i s c r i t e r i o n as t h e i r f i r s t 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 . 6. As p u b l i s h e d i n The V a n c o u v e r Sun, June 14, 1974* 7. C a t e g o r y J V s J a p a n e s e P a r e n t 3 C a n a d i a n P a r t n e r VS 6 2VS 4L 2VS IS 1L l P r i v a t e s 4 IS 3L 2S IM I w i t h J a p a n M 4 1VS IM 2L 3VS IM L 6 6L 3L IM l P r i v a t e 1VS a) C l a s s i f i e d a c c o r d i n g t o v a l u e 6'f s a l e s : 37 TABLE 2.4 SIZE OF PROJECT AND REASONS FOR GOING INTO JOINT VENTURES S i z e of J o i n t Venture Very Small Small Medium Large T o t a l Reasons f o r Going i n t o JV No. Host government p r e s s u r e s - Spre a d i n g r i s k 1 Need f o r l o c a l r e s o u r c e s 5 T o t a l and $ based - on row sum 6 No. of Cases and C e l l fo Based on Column Sum % No. % No. 16 83 30 4 4 100 20 4 4 P No. 100 20 6 6 100 30 19 20J Percentages do not a l l add up t o 100 because of 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 get the f i n a n c i a l d a t a r e q u i r e d f o r one company. 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 " j o i n t 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 the same rea s o n . On the ot h e r hand, as 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 not expect t h a t t h i s reason would be mentioned v e r y o f t e n . Furthermore, a l l the Japanese parent companies o f those j o i n t v e n t u r e s 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: the y do not go i n t o j o i n t v e n t u r e s t o "spread f i n a n c i a l r i s k s " . When these companies p o i n t e d out 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 had i n mind, as i n d i c a t e d i n Table 2 . 5 , raw m a t e r i a l i n 83% of the c a s e s . 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 c o u l d expect such an answer, as the s i x parent companies were p a r t n e r s of j o i n t v e n t u r e s i n the "raw m a t e r i a l group". 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 the 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 under Very S m a l l | t o 1 b i l l i o n 1 t o 4 b i l l i o n s over 4 b i l l i o n s S m a l l Medium Large b) C l a s s i f i e d a c c o r d i n g t o v a l u e o f s a l e s under $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 § O 0 i i h i l l i o n s Very S m a l l S m a l l Medium Large 39 TABLE 2.5 SIZE OF PROJECTS AND REASONS FOR GOING INTO JOINT VENTURES S i z e o f J o i n t Venture Very Small S m a l l Medium Large T o t a l Reasons f o r Going i n t d JV Host government p r e s s u r e s S p r e a d i n g r i s k ( P o l i t i c a l - Other) Need f o r l o c a l r e s o u r c e s : - raw m a t e r i a l - managerial - t e c h n i c a l A s s o c i a t e 1 s p r o j e c t L o c a l i d e n t i t y Other reasons T o t a l and fo Based on row sum No. of Cases and C e l l Based on Column Sum No. fo No. fo No. fo No. $ 2 1 16 33 16 33 1 1 1 1 30 25 25 25 25 20 1 2 25 50 25 5 l 83 16 No. 20 30 8 5 2 2 .1 20 ] Percentages do not 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 get the f i n a n c i a l d a t a r e q u i r e d f o r one company. 40 terested by lo c a l resources, i t was mainly for something else than for raw material. "Very small" enterprises were interested by "l o c a l managerial and technical resources", " l o c a l identity" and "associate's project" 60$ of the time. "Small" firms were looking for the same factors 75$ of the time. As far as the "medium?! joint ventures are concerned, i t i s one of the two occasions when companies i n the "raw material category" cited "need of l o c a l managerial and technical resources" as a reason for going into joint ventures. This was the c r i t e r i o n they mentioned most often: 50$ of the cases. The two firms mentioning this c r i t e r i o n were involved i n mining exploration. The two companies i n the category of "very small" joint ventures which pointed out the "need for l o c a l resources: raw material", should not r e a l l y be c l a s s i f i e d as "very small" but rather as "large" joint ventures. The method to c l a s s i f y the joint ventures was chosen as a compromise so that a l l joint ventures could be analysed on the same scale. Nevertheless these two companies were special cases. Very often Japanese companies would invest i n shares and make a loan. The general Canadian average r a t i o of Debt/Equity i s 3/l« When companies were w i l l i n g to disclose this information, i t was realized that most of them were near this average^ except for the two companies mentioned e a r l i e r . The-ir ratio was r e a l l y much higher than the Canadian average and therefore they should s t r i c t l y be c l a s s i f i e d as "large" joint ventures. •41 Thus a p a t t e r n emerges: as the s i z e of a j o i n t venture in£- c r e a s e s , the main reason f o r Japanese companies 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 nagerial 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 m a t e r i a l " , as shown i n F i g u r e 2.1. S e l e c t i o n o f A s s o c i a t e s The reasons c i t e d by Japanese companies f o r t h e i r investments under the form of 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 Table 2.2» How can these reasons i n f l u e n c e the s e l e c t i o n o f an a s s o c i a t e ? I f t h e y 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 because the y "needed l o c a l r e - s o u r c e s : raw m a t e r i a l , managerial and t e c h n i c a l " , t h e y would 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 venture w i t h a p a r t n e r i n the "same l i n e of b u s i n e s s " . The c r i t e r i a c i t e d by Japanese companies t o s e l e c t t h e i r a s s o c i a t e s are p r e s e n t e d i n Table 2.6. The company which went i n t o a j o i n t venture i n o r d e r " t o spread 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 the b a s i s of the "convenience of f a c i l i t i e s / r e s o u r c e s " : t h i s i s a c l e v e r way t o spread r i s k . I f your p a r t n e r has the r e s o u r c e s and f a c i l i t i e s t h a t you need i n your b u s i - ness and you want t o reduce r i s k s , then you form a team w i t h him. I n s t e a d of u s i n g o n l y your f a c i l i t i e s you enjoy the r e s o u r c e s of a- n o t h e r company which may 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 - p r i s e . 42 FIGURE 2.1 SIZE OF PROJECTS AND REASONS FOR GOING INTO JVs Reasons f o r i n g i n t o J v s Sm a l l Medium Large Very Large S i z e o f P r o j e c t s 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 managerial 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 r e s o u r c e s ro TABLE 2.6 CRITERIA FOR SELECTING ASSOCIATES AND REASONS FOR GOING INTO A JOINT VENTURE Reasons for Selecting a S p e c i f i c Associate Forced Choice Reasons f o r Going into Joint Venture No Host government pressures - Spreading r i s k - Need f o r l o c a l resources: - raw material - - managerial - - technical Associate's project - Local i d e n t i t y - Other reasons - Totals Same Line of Business Conveni- e n c e of F a c i l i t i e s / Resources Past As- soci a t i o n Status Identity Number of Cases and C e l l fo Based on Row Sum No. 1 5 fo 11 83 33 33 No. 5 1 1 1 9 100 55 16 100 100 42 No. 3 1 4 fo No. 33 33 1 18 1 33 4 Other Total No . f> No. 9 6 3 1 1 21 Percentages do not a l l add up to 100 because of rounding. 44 Most of the companies, 80%, which c i t e d "need f o r l o c a l r e - sources" as the reason f o r going i n t o j o i n t ventures, chose t h e i r partners because they were i n the "same l i n e of business", 40%, or f o r t h e i r " f a c i l i t i e s and resources", 40%. "Convenience of f a c i l i t i e s / r e s o u r c e s " was the c r i t e r i o n men- ti o n e d 5 times out of 9 by companies which went i n t o j o i n t ventures because of "need f o r l o c a l resources: raw m a t e r i a l " . The "same l i n e of business" was c i t e d 5 times out of 6 by companies which chose the j o i n t venture form of investment f o r managerial and t e c h n i c a l r e s o u r c e s . The partners were s e l e c t e d according to the nature of the l o c a l r e - sources i n which the Japanese parents were i n t e r e s t e d . The remaining 20% used "past 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 c h o i c e . In such a case the Japanese i n v e s t o r s would have p r i o r know- ledge of the p o t e n t i a l of the Canadian partner and t h e i r resources and f a c i l i t i e s . One company chose i t s partner f o r the "convenience of i t s f a c i l i t i e s / r e s o u r c e s " and went i n t o a j o i n t venture f o r " l o c a l i d e n - t i t y " . A v a l i d assumption would have been that t h i s company would a l s o have s e l e c t e d i t s par t n e r f o r " s t a t u s / i d e n t i t y " . However, the f a c i l i t i e s provided by the Canadian partner allow t h i s Japanese company to p r o f i t from i t s " f a c i l i t i e s / r e s o u r c e s " , and a l s o to be seen as Canadian. " I d e n t i t y " was the second c r i t e r i a used by the f i r m f o r the s e l e c t i o n of i t s p a r t n e r . 45 Summary Japanese companies have 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 i n the p a s t : " t o o b t a i n m a t e r i a l " , f o r " p o l i t i c a l s t a b i l i t y " , "new market" 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 " . However, th e r e i s a d i f f e r e n c e i n the importance of the reasons mentioned a c c o r d i n g t o the nature of b u s i n e s s of the j o i n t v e n t u r e . T h e i r investments took the form of a j o i n t venture because the Japanese "needed l o c a l managerial and t e c h n i c a l r e s o u r c e s " . T h i s c r i t e r i o n was chosen by companies which were n o t , w i t h one e x c e p t i o n , i n the "raw m a t e r i a l o p e r a t i n g group". These l a t t e r companies con- s i d e r e d t h e i r "need f o r l o c a l m a t e r i a l " as the main reason f o r g o i n g i n t o a j o i n t v e n t u r e . As the 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 the importance o f need f o r l o c a l m a t e r i a l , as the reason 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 of p a r t n e r s was determined by s i m i l a r i t y o f the l i n e o f b u s i n e s s f o r companies l o o k i n g f o r managerial and t e c h n i c a l r e s o u r c e s . Companies needing l o c a l raw m a t e r i a l chose them f o r the "convenience of f a c i l i t i e s / r e s o u r c e s " . 8. B i g g e r p r o j e c t s are i n the p u l p ] lumber and m i n i n g i n d u s t r y . Thus, i t i s not s u r p r i s i n g t o reach such a c o n c l u s i o n . The i n f l u e n c e of nature of b u s i n e s s on 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 would be d i s c u s s e d i n Chapter 5» 46 CHAPTER 3 THE ASSOCIATES T h i s chapter w i l l review d i f f e r e n t aspects of Japanese and Canadian p a r t n e r s h i p , mainly from the Japanese point of view. How d i d they s e l e c t t h e i r a s s o c i a t e s ? Before e n t e r i n g i n t o a j o i n t ven- t u r e , how much knowledge d i d they have of each other? Was the choice of partners f l e x i b l e ? And f i n a l l y , how much could Canadians c o n t r i b u t e to the p a r t n e r s h i p ? I n i t i a l contact G e n e r a l l y speaking, i n v e s t o r s 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 f o l l o w s : (1) Invest i n B r i t i s h Columbia. (2 ) Invest through a j o i n t venture. (3) Look f o r a p o t e n t i a l a s s o c i a t e . n e v e r t h e l e s s , t h i s may not always be the case. For example, Japanese i n v e s t o r s may wish to in v e s t i n B.C. and then be contacted by a Canadian part n e r who would l i k e to enter i n t o a j o i n t venture w i t h them. Table 3*1 i n d i c a t e s t h a t f o r 66% of the j o i n t ventures Can- adians asked Japanese i n v e s t o r s to become t h e i r p a r t n e r s : i n other words, the p a t t e r n was reve r s e d . These j o i n t ventures 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 Japanese 8 33*33 Totals 24* 100 24 instead of 21 because three companies indicated that contact was simultaneously initiated by Canadians and Japanese. 48 investment v a l u e o f $182,893,000 or 89$ of the t o t a l Japanese i n v e s t - ments i n B.C.. Wit h one e x c e p t i o n , a l l o f the companies concerned were i n the "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 the method used 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 the Japanese f i r m s 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 then approached by the a s s o c i a t e s . T h i s seems t o c o n f i r m the b a s i c p a t t e r n above, Japanese f i r m s wished t o i n v e s t i n B.C. through j o i n t v e n t u r e s , and w h i l e l o o k - i n g 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 Canadians. The r e s u l t s are pre s e n t e d i n Table 3 « 2 . S i x t y nine per cent o f the t i m e , the " i n i t i a l c o n t a c t " was made t h i s way by Canadians : a l l these j o i n t v e n t u r e s were i n the "raw m a t e r i a l group". I n a f u r t h e r 15$, i n v o l v i n g companies from the "m i s c e l l a n e o u s group", the " c o l d canvas" method was used. I n the o t h e r c a s e s , the p a r t n e r s were informed by a p r i v a t e t h i r d p a r t y . When Japanese companies made the " i n i t i a l c o n t a c t " , 80$ of the time 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 . The " c o l d canvas" approach was used o n l y once. E x e c u t i v e s o f these companies were asked t o u n d e r l i n e the 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 ven- t u r e w i t h them. The r e s u l t s are pr e s e n t e d i n Table 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 by both s i d e s sim- u l t a n e o u s l y . T h i s f a c t then reduces the number o f JVs 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 INITIAL CONTACT WITH CHOSEN ASSOCIATE Method/Origin o f I n i t i a l Contact Number o f JVs % o f Sample Japanese f i r m was known t o be i n t e = r e s t e d and was approached by the A s s o c i a t e . 12 42 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 approached by the Japanese f i r m . 7 - 24.5 C o l d Canvass: Japanese f i r m c o n t a c t e d by A s s o c i a t e . 2 7 C o l d Canvass: A s s o c i a t e c o n t a c t e d by Japanese f i r m . 1 3*5 P a r t n e r s put i n touch by a p r i v a t e t h i r d p a r t y . 2 7 P a r t n e r s put i n touch by host govern- ment . - - I n i t i a l c o n t a c t s made at p e r s o n a l l e v e l . 3 10.5 P a r t n e r s a l r e a d y JV A s s o c i a t e s '.1 3*5 T o t a l s 28* 28 i n s t e a d o f 21 J V s . 4 companies mentioned 2 methods and one, t h r e e . 50 TABLE 3.3 REASONS MENTIONED BY JAPANESE COMPANIES TO EXPLAIN THE INTERESTS OP THEIR CANADIAN PARTNERS TO SET UP A JV Reason Know - How C a p i t a l P r o f i t Growth-Demand Do not know Other T o t a l s Order i n Which T o t a l Reason Was C i t e d Responses 1 2 3 (Out of 21) Number o f Cases 4 14 1 2 12 21 13 6 15 1 14 36 P o s s i b l e No. of Cases i n Which The Response Was Hot C i t e d 15 6 20 7 21 21 Weighted Score 14 44 3 30 Each time a reason was c i t e d as f i r s t , i t was m u l t i p l i e d by 3 , as second i t was m u l t i p l i e d by 2 , and as t h i r d , by 1. These weighted v a l u e s were then summed over 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 r e a s o n . 51 Seventy one per cent of them p o i n t e d out t h a t Canadians were p r i m a r i l y i n t e r e s t e d i n c a p i t a l . T h i s was the c r i t e r i o n c i t e d most o f t e n as the f i r s t r eason: 14 times out of 21 . I t s c o r e d h i g h e s t on a weighted s c a l e : 44- The v a l u e o f investments o f the Japanese com- panies i n these j o i n t v e n t u r e s was $196,355,000 or 95$ o f the t o t a l v a l u e of Japanese investments i n B.C.. With two e x c e p t i o n s , a l l of these j o i n t v e n t u r e s were set up i n the "raw m a t e r i a l group". The importance of the f a c t o r "growth-strengthen demand-profit" was r e v e a l e d u s i n g a weighted score method. Even i f i t was mentioned o n l y t h r e e times as the f i r s t r e a s o n , i t was c i t e d 12 times as a second reason f o r a weighted score o f 33- Canadian f i r m s went i n t o j o i n t v e n t u r e s w i t h Japanese companies, f i r s t t o b e n e f i t from the c a p i t a l of these 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 the demand which a l l o w e d them t o l o o k ahead f o r growth and p r o f i t . A t y p i c a l example 2 would be a company i n the "raw m a t e r i a l group" which needed money t o expand o r s t a r t p r o d u c t i o n . Japanese f i r m s p r o v i d e d c a p i t a l and 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 . The Canadian company then r e a l i z e d i t s o b j e c t i v e s : c a p i t a l and a secure market f o r i t s p r o d u c t s . Know-how was s e l e c t e d as the main reason 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 by the " m i s c e l l a n e o u s group". I t r e p r e s e n t e d a t o t a l v a l u e 2. Only two companies i n the " m i s c e l l a n e o u s group" p o i n t e d out t h i s r e a s o n , and i t was as a. second one. 52 o f investments o f l e s s than a m i l l i o n d o l l a r s o r 0.44% o f the t o t a l Japanese investments i n B.C.. Only t w i c e was i t mentioned by companies i n the "raw m a t e r i a l group", and i n each case i t was s t a t e d as the t h i r d r e a s o n . 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 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 the most important c r i t e r i o n used t o s e l e c t t h e i r a s s o c i a t e s . T h i s c r i t - e r i o n was mentioned 52% of the t i m e , and scored 28 on the weighted s c a l e . I t r e p r e s e n t e d 35% of the t o t a l v a l u e o f investments and was c i t e d s i x times as the f i r s t r e a s o n . 'The r e s u l t s are shown i n Table 3 -4 ' The second most important reason mentioned by Japanese companies i n s e l e c t i n g an a s s o c i a t e was the 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 "convenience 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 t o t h r e e d i f f e r e n t methods of e v a l u a t i n g the importance o f the 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% of the t o t a l v a l u e o f Japan- ese investments i n B.C.. I t would be more a p p r o p r i a t e t o c l a s s i f y "past a s s o c i a t i o n " as the second most important r e a s o n . I t was q u i t e c l o s e t o "conven- ienc 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 the t h r e e f i r s t methods of e v a l u a t i o n were concerned. Furthermore, as f a r as v a l u e o f i n v e s t - ments was concerned, i t was c l o s e r t o "convenience o f f a c i l i t i e s / r e s o u r c e s " than "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 s u b s t a n t i a l TABLE 3 . 4 REASONS CITED BY JAPANESE PARENT COMPANIES FOR THEIR SELECTION OF A SPECIFIC JV ASSOCIATE Reasons Forced Choice Same Line of Business Convenience of F a c i l i t i e s / Resources Past Association Status/Identity Other Totals Order i n Which Reason Was Cited Total Responses Weighted Score* F i r s t 6 6 2 21 Second Third (Out of 21) Number of Cases 0 2 - 9 5 2 11 8 2 30 0 25 28 22 6 Possible Number of Cases i n Which This Response Was Not Made 21 12 10 13 19 21 Value of Investments $ 2 5 , 9 5 5 , 0 0 0 $ 7 1 , 8 5 8 , 0 0 0 $ 5 6 , 7 7 5 , 0 0 0 $ 5 0 , 2 5 0 , 0 0 0 $ 2 0 4 , 8 3 8 , 0 0 0 Same method as the one used i n Table 3 . 3 54 amounts o f money, Japanese p r e f e r r e d "past a s s o c i a t i o n " t o "same l i n e o f 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 . Japanese investments were regarded t o be more secure u s i n g t h i s c r i t e r i o n . Even though " s t a t u s / i d e n t i t y " came l a s t i n the o r d e r o f mention o f the 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 second i n terms o f the value o f the investment i n v o l v e d . I n f a c t , i t i n c l u d e d the second l a r g e s t Japanese investment, which 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 . "Past 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 " , even i f mentioned l e s s o f t e n than "convenience o f f a c i l i t i e s / r e s o u r c e s " , r e p r e s e n t e d more than h a l f o f the t o t a l v a l u e o f Japanese investments i n B.C.. Only those investments i n excess o f one m i l l i o n d o l l a r s are c o n s i d e r e d f o r the purposes o f t h i s d i s c u s s i o n . T h e r e f o r e , the average valu e o f an investment 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 : $12,500,000 - "same l i n e o f business'.'. $14,355,600 - "convenience o f f a c i l i t i e s / r e s o u r c e s " . $18,858,333 - "past a s s o c i a t i o n " . $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 , as the average v a l u e o f an investment i n c r e a s e d , a p a t t e r n o f be h a v i o r was emerging. Japanese i n v e s t o r 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 " , f o r the s m a l l e s t i n v e s t m e n t s ; 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 " , f o r s l i g h t l y l a r g e r i n v e s t - ments; f o r "past 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 l a r g e s t i n v e s t m e n t s . ^ 55 P r i o r knowledge of a s s o c i a t e s More than 50% of Japanese investments i n Canada are i n B r i t i s h Columbia. B.C. 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 . The abundant n a t u r a l r e s o u r c e s of B.C. are v e r y important t o the Japanese economy. I t i s t h e r e f o r e reasonable t o assume t h a t many companies which 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 Columbians had a p r e v i o u s knowledge of t h e i r a s s o c i a t e s . R e s u l t s p r e s e n t e d i n Table 3*5 i n d i c a t e t h a t 75% of the Japan- ese companies knew t h e i r Canadian p a r t n e r s through p r e v i o u s commercial l i n k s . Furthermore, i n 90% of the c a s e s , the Canadian r e p u t a t i o n s were known i n the Japanese e n t e r p r i s e s . Only f i v e 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 l i n k s . However, of these f i v e p a r t n e r s , o n l y two were unknown t o the Japanese f i r m . I n one c a s e , the p a r t n e r s were put i n t o u c h w i t h each 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 the r e m a i n i n g i n s t a n c e , Japanese and Canadian businessmen i n i t i a t e d the n e g o t i a t i o n s . 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 would 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 of money. Table 3«5 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 : 87% of the t o t a l v a l u e of investments was made when the Canadian 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 from averages, and does not n e c e s s a r i l y r e p r e s e n t t r u t h i n a l l c a s e s . TABLE 3.5 REASONS FOR SELECTION AND PRIOR KNOWLEDGE OF ASSOCIATES BY JAPANESE PARENT FIRM Manner i n Which Associate Was Known By People i n Japanese Firm No Previous Known As Commercial . Previous Links Associates Several One Nobody Totals Number of Cases and C e l l i Based on * Column Sum Reasons f o r Selection No. * No. No. i No. i No.. i No Forced Choice - ' - - - - - - - - - - Same Line of Business 2 40 .. 5 31 6 31 - 1 50 7 Convenience of F a c i l i t i e s / Resources 2 40 4 25 5 26 1 50 6 Past Association - - 6 37 6 31 - - - - 6 Status/Identity 1 20 1 6 2 10 - - - 2 Other - - - - _ - - - - - Totals and i 9f Row Sum 5 23 16 75 19 89 - 2 9 21 Percentages do not a l l add up to 100 because of rounding. 57 people i n Japan. The f o u r t h l a r g e s t Japanese investment i n B.C. was concluded w i t h a Canadian p a r t n e r not p r e v i o u s l y known i n the Japanese f i r m . T h i s c o n t r a d i c t s the assumption above. N e v e r t h e l e s s , i t must be em- ph a s i z e d t h a t the Japanese companies c o n t r o l the great m a j o r i t y o f the e q u i t y , thus s e c u r i n g t h e i r i nvestment. Concerning the o t h e r i n v e s t - ment made wi t h o u t p r e v i o u s knowledge o f the a s s o c i a t e , the Japanese f i r m owns s l i g h t l y l e s s t han 50$ of the s h a r e s . The re m a i n i n g shares are c o n t r o l l e d by f i v e Canadian p a r t n e r s , the l a r g e s t c o n t r o l l i n g 20$ of the t o t a l e q u i t y . I t appears t h a t these companies have found a way t o m i t i g a t e the consequences o f t h e i r l a c k o f p r e v i o u s knowledge. They reduced 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 e q u i t y 4 s h a r e . A v a i l a b i l i t y o f a s s o c i a t e s E x e c u t i v e s o f th r e e companies 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 o f o t h e r a s s o c i a t e s . Of the remain- 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 not c o n s i d e r any o t h e r p o t e n t i a l 4 . Reducing 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 mentioned by: Tomlinson, J.W.C, The J o i n t Venture 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 , Cambridge, Massachusetts and London, England, 1970, p. 181. 5«2 23$ of the t o t a l v a l u e o f Japanese investments 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 they 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 the reasons mentioned were: (1) s i m i l a r type of b u s i n e s s . (2) l i t t l e o r no i n t e r e s t by o t h e r companies. (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 . The v a l u e of investments of these companies r e p r e s e n t e d 26$ of the t o t a l v a l u e of Japanese investments i n B.C.. 28$ of 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 a s s o c i a t e s and 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 o f f e r s . U n f o r t u n a t e l y , Japanese companies d i d not d i s c l o s e why t h e i r p o t e n t i a l p a r t n e r s behaved t h i s way. A p o t e n t i a l a s s o c i a t e was r e j e c t e d by one Japanese company f o r i t s l a c k of r e l i a b i l i t y . Another one was e l i m i n a t e d because the chosen p a r t n e r had a b e t t e r g e o g r a p h i c a l s i t - u a t i o n . These companies i n v e s t e d c l o s e t o 51$ of the t o t a l v a l u e of Japanese investment i n B.C.. The s i z e o f the investment appears t o have no b e a r i n g on whether "Japanese companies l o o k o r not f o r p a r t n e r s . ^ The f o r e g o i n g examples 6. N e i t h e r d i d the reasons mentioned by these 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 of the 13 companies which d i d not 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$ chose t h e i r 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 " , 15$ f o r "past 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 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 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 "convenience of f a c i l i t i e s / r e s o u r c e s " , 20$ f o r "past 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 c o n f i r m t h i s f a c t . D r i v i n g f o r c e and d e c i d i n g body Some i n d i v i d u a l s o r groups of i n d i v i d u a l s i n a company may f o c u s t h e i r a t t e n t i o n on the p o s s i b i l i t i e s o f investment abroad and 7 devote time and r e s o u r c e s t o the i n v e s t i g a t i o n of such p o s s i b i l i t i e s . I t i s the " d r i v i n g f o r c e " . Once t h e i r s t u d i e s are completed, someone i n the e n t e r p r i s e w i l l have t o decide i f the f i r m w i l l i n v e s t or n o t . The " d r i v i n g f o r c e " w i l l submit i t s p r o p o s i t i o n t o the " d e c i d i n g body". The d r i v i n g f o r c e and the d e c i d i n g body may i n f l u e n c e the c r i t - e r i a used t o s e l e c t an a s s o c i a t e . C oncerning Japanese companies, how were the d r i v i n g f o r c e t o set up a j o i n t venture and the c r i t e r i a f o r s e l e c t i n g an a s s o c i a t e r e l a t e d ? What was the r e l a t i o n s h i p between the d e c i d i n g body and the c r i t e r i a t o s e l e c t an a s s o c i a t e ? The r e s u l t s are p r e s e n t e d i n F i g u r e 3»1» When the c r i t e r i o n f o r s e l e c t i o n was "same l i n e of b u s i n e s s " , the d r i v i n g f o r c e was an " i n d i v i d u a l " i n 70% of the c a s e s , whereas the d e c i s i o n was t a k e n through "normal c h a n n e l s " 57% of the t i m e . An i n t e r e s t i n g f a c t t o note here i s t h a t "normal ch a n n e l s " were never 7. A h a r o n i , Y a i r , The F o r e i g n Investment 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 , Boston, 1966, p. 49• FIGURE 3.11 LOCATION OF DRIVING FORCE AND DECIDING BODY ACCORDING! TO REASON FOR SELECTION OF ASSOCIATE 60 L o c a t i o n I n d i v i d u a l Group Normal Channels I n d i v i d u a l Group Normal Channels I n d i v i d u a l Group Normal Channels I n d i v i d u a l Group Normal Channels D r i v i n g Force A D e c i s i o n by 100' 100 S e l e c t i o n C r i t e r i o n Same l i n e o f b u s i n e s s (33% o f JVs) Convenience o f f a c i l i t i e s (28% of JVs) Past A s s o c i a t i o n (28% of JVs) S t a t u s / I d e n t i t y (10% of JVs) I n F i g u r e 3«1 the h o r i z o n t a l axes are c a l i b r a t e d i n percentage. Each o f the f o u r major 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 the p r o - p o r t i o n o f J V s , over the sample as a whole, i n which a s s o c i a t e s had been s e l e c t e d f o r the reason g i v e n . The l e n g t h o f the bars r u n n i n g r i g h t o r l e f t from the 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 the p r o p o r - t i o n o f cases w i t h i n each major v e r t i c a l segment i n which 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 the c a t e g o r y of i n d i v i d u a l s o r groups d e s c r i b e d at the l e f t - h a n d margin. Bars r u n n i n g t o the l e f t r e p r e s e n t 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 r e p r e s e n t the l o c a t i o n o f the 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 importance o f an " i n d i v i d u a l " i s the k i n d of s i t u a t i o n t h a t one c o u l d expect when the 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 than an e x e c u t i v e i n Japan who knows l i t t l e about the a s s o c i a t e . N e v e r t h e l e s s , when "past a s s o c i a t i o n " was the c r i t e r i o n f o r s e l e c t i o n , an " i n d i v i d u a l " was the d r i v i n g f o r c e o n l y 35$ of the t i m e . I n these c a s e s , "group" was the most important d r i v i n g f o r c e whereas "normal ch a n n e l s " were the most important d e c i d i n g body. " S t a t u s / i d e n t i t y " was the o n l y case where "normal ch a n n e l s " d i d not take more than 50$ of the d e c i s i o n s : i t i s e a s i e r t o e v a l u a t e such a c r i t e r i o n when you are more f a m i l i a r w i t h the 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 of "normal cha n n e l s " , as d r i v i n g f o r c e and de- c i d i n g body, was g r e a t e r when "convenience of f a c i l i t i e s / r e s o u r c e s " was the c r i t e r i o n used t o s e l e c t an a s s o c i a t e . When Japanese companies went i n t o j o i n t v e n t u r e s and s e l e c t e d t h e i r a s s o c i a t e s a c c o r d i n g t o t h i s c r i t e r i o n , the i n f o r m a t i o n had t o t r a v e l through the "normal ch a n n e l s " of the companies t o be examined and s t u d i e d by many pe o p l e . T h i s c a t e - gory i n v o l v e s 35$ of the t o t a l v a l u e of Japanese investment i n B.C.. As f a r as the nature of b u s i n e s s of the j o i n t v e n t u r e s them- s e l v e s i s concerned, "normal ch a n n e l s " were the d r i v i n g f o r c e i n the f o l l o w i n g groups: l ) m i s c e l l a n e o u s - 50$ 2) mining - 33$ 62 3) p u l p and lumber - 0$ While d e c i s i o n was taken by "normal c h a n n e l s " i n 50$, 100$ and 66$ of the cases r e s p e c t i v e l y . I n the mining i n d u s t r y , d e s p i t e the im- portance 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 , the d e c i s i o n was always taken by "normal', c h a n n e l s " . As the t o t a l v a l u e s o f i n v e s t - g ments o f one group i n c r e a s e d , the importance of "normal c h a n n e l s " as g d r i v i n g f o r c e decreased. However, "normal c h a n n e l s " was the d e c i d i n g body 50$ of the time i n the " m i s c e l l a n e o u s group", 100$ of the time i n the "mining group", and 66$ of the time i n the "pulp and lumber group", because u s u a l l y l a r g e investments are c a r e f u l l y screened. Importance of A s s o c i a t e s One method o f e v a l u a t i n g the importance o f an a s s o c i a t e i n a j o i n t venture i s t o ask 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 Canadian 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 as " e f f e c t i v e " i f he i s not c o n t r i b u t i n g t o the r e l a t i o n s h i p . As Japanese e x e c u t i v e s e v a l - 8. Group Value of Investments D r i v i n g Force M i s c e l l a n e o u s $ '2 ,590,000 50$ normal c h a n n e l s . M i n i n g $ 60 ,865,000 33$ normal c h a n n e l s . P u l p and lumber $141,383,000 0$ normal c h a n n e l s . 9. 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 companies from the "m i s c e l l a n e o u s group" have l e s s human r e s o u r c e s t h a n the two o t h e r groups, which i n c l u d e the " s h o j i k a i s h a " . 10 . 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 " i n 90% of the c a s e s , even i f a c e r t a i n number o f j o i n t v e n t u r e s were t o o young t o permit 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 the importance o f the Canadian p a r t n e r s was abandoned. One reason f o r t h i s b e h a v i o r c o u l d be due t o the f a c t t h a t Japanese are 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 broader c h o i c e o f e v a l u a t i n g the importance o f t h e i r p a r t n e r s was pr e s e n t e d t o them, t h e i r answers were more r e a d i l y and a c c u r a t e l y g i v e n . These answers are summarized i n Table 3 . 6 . 12 P a r t n e r s were always c l a s s i f i e d as " i m p o r t a n t " when the c r i t e r i o n f o r s e l e c t i o n was "convenience o f f a c i l i t i e s / r e s o u r c e s " . These cases r e p r e s e n t e d 60% o f the " i m p o r t a n t " c a t e g o r y . "Normal ch a n n e l s " was always the d e c i d i n g body. When "past a s s o c i a t i o n " was the c r i t e r i o n o f s e l e c t i o n , 33% of the p a r t n e r s were c l a s s i f i e d as " i m p o r t a n t " . The d e c i s i o n t o go i n t o a j o i n t v e nture was ta k e n by "normal c h a n n e l s " 87% of the t i m e . There appears t o be no r e l a t i o n - s h i p between the d e c i d i n g body and the importance o f the p a r t n e r s . P a r t n e r s were "necessary" i n 85% of the j o i n t v e n t u r e s when 11. Schwind, H.F. and P e t e r s o n , R.B.: P e r s o n n e l problems i n i n t e r - n a t i o n a l companies i n Japan, 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 had t o c l a s s i f y t h e i r p a r t n e r s as: 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 . Necessary was mentioned by companies which 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 keep p l a n t s oper- a t i n g . 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 as important i f he c o u l d h e l p the Japanese p a r t n e r t o manage the p l a n t p r o p e r l y , and c o n t r i b u t e t o the g e n e r a l success o f the j o i n t v e n t u r e . TABLE 3.6 IMPORTANCE OF ASSOCIATES ACCORDING TO THE REASON FOR THEIR SELECTION Reasons f o r Selecting an Associate Forced Choice Same l i n e of Business Convenience of Facilities/Resources Past Association Status/Identity Other Totals and % Based on Row Sum Stated Importance of Associates Important Useful Necessary Useless No, 6 2 1 10 Total , x Number of Cases and C e l l % Based on Column Sum 10 60 20 10 47 No, 2 1 66 33 14 No 84 14 No 100 No. 33 6 6 2 21 Percentages do not a l l add up to 100 because of rounding. 65 "same l i n e of b u s i n e s s " was the c r i t e r i o n used t o s e l e c t them. I t was the c r i t e r i o n o f s e l e c t i o n which had the fewest " i m p o r t a n t " p a r t n e r s , i n a b s o l u t e terms: 1 , and i n percentage: 14%. I t i s i n t e r e s t i n g t o note t h a t the o n l y time 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 case when "past a s s o c i a t i o n " was the c r i t e r i o n mentioned. The a s s o c i a t e was chosen f o r s u c c e s s f u l and happy past r e l a t i o n s . However, a c t u a l l y the Japanese company i s no l o n g e r happy w i t h the managerial e x p e r t i s e p r o v i d e d by i t s Canadian p a r t n e r . Summary The " i n i t i a l c o n t a c t " t o set up a j o i n t venture between Canadian and Japanese businessmen i n B r i t i s h Columbia was made 66% of the time by Canadians who u s u a l l y knew t h a t the Japanese f i r m was i n t e r e s t e d . Canadians 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 p r o d u c t s . Japanese made the " i n i t i a l c o n t a c t " i n 33% of the cases and knew t h a t Canadians, who were l o o k i n g f o r the know-how of 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% of the t i m e . The most important c r i t e r i o n used by Japanese companies t o s e l e c t t h e i r a s s o c i a t e s was "convenience 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 " investments were made i n j o i n t v e n t u r e s when the 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 " . Seventy s i x p er cent of the chosen Canadian p a r t n e r s had p r e - v i o u s commercial l i n k s w i t h the Japanese companies, and 90$ of them were known by s e v e r a l people i n Japanese f i r m s . The v a l u e o f i n v e s t - ments by Japanese 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 Canadians known i n t h e i r companies r e p r e s e n t e d 87$ o f the t o t a l v a l u e o f these i n v e s t - ments i n B.C.. Only 28$ of the Japanese companies l o o k e d f o r more than one a s s o c i a t e . Most o f the j o i n t v e n tures were set up w i t h the f i r s t p a r t n e r c o n t a c t e d . " I n d i v i d u a l s " were the most important 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 the c r i t e r i o n used 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 the b a s i s o f s e l e c t i o n . T h e i d r i v i n g f o r c e and the d e c i d i n g body were "normal cha n n e l s " when the c r i t e r i o n o f s e l e c t i o n was "convenience of f a c i l i t i e s / r e s o u r c e s " . "Normal c h a n n e l s " were not the d e c i d i n g f a c t o r more than 50$ of the time when " s t a t u s / i d e n t i t y " was the c r i t e r i o n used. When the p a r t n e r was s e l e c t e d f o r i t s "convenience o f 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 v e n t u r e s . Most p a r t n e r s were c o n s i d e r e d as "necessary" 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 the Japanese Parent Company I t i s i n t e r e s t i n g t o analyse how the s i z e o f Japanese parent 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 in v e s t m e n t s , 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 , c o n t r o l o f j o i n t v e n t u r e s , 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 v e n t u r e s . S i z e and valu e o f f o r e i g n investments Japanese parent companies and j o i n t v e n t u r e s were c l a s s i f i e d 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 Table 4»1» There was no l i n e a r r e l a t i o n s h i p between the s i z e i n a s s e t s of f o r e i g n parent companies and the v a l u e o f t h e i r investments i n j o i n t v e n t u r e s . The l a t t e r d i d not n e c e s s a r i l y i n c r e a s e when the former d i d ; some " s m a l l " investments were made by " v e r y l a r g e " com- p a n i e s . I n f a c t , o n l y 33% of the " s m a l l " investments were made by " s m a l l " companies; the 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&arge" and "ve r y l a r g e " companies: 33% from each c a t e g o r y . How- ev e r , as might be expected 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 , i t i s i n t e r e s t i n g t o note t h a t " s m a l l " companies never made " l a r g e " o r " v e r y l a r g e " i n v e s t m e n t s . S e v e n t y - f i v e per cent of these i n v e s t - 68 TABLE 4-1 CLASSIFICATION OF JVs AND JAPANESE FIRMS BY TOTAL ASSETS AND SALES OF THE FOREIGN PARENT COMPANY Value o f Parent Company A s s e t s o r S a l e s ( i n 5 B i l l i o n ) Value of J o i n t Ven- t u r e A s s e t s . o r S a l e s ( i n $ # m i l l i o n ) Category Number of Cases S i z e i n A s s e t s S i z e i n S a l e s Japanese Firms JVs Japanese Firms JVs under i t o I 1 t o 4 over 4 under 1 1 t o 10 10 t o 50 over 50 S m a l l 2 Medium 2 Large 2 Very 5 Large Not A p p l i c a b l e - T o t a l s 11 3 6 3 5 4 21 4 0 1 6 11 2 2 7 2 8 21 Two d i f f e r e n t s c a l e s were used otherwise a l l the JVs would have been i n the same c a t e g o r y . 6 9 merits were made by "very large" companies, 1 2 % by "large" firms and 1 2 % by "medium" corporations. The results are presented i n Table 4 . 2 and Figure 4 . 1 . Size, control, and reasons for going into a .joint venture It i s generally assumed that when the size of a foreign company increases, i t tends to control the joint venture i n which i t invests. Furthermore, when these companies are organized on an i n t e r - national basis, as the shoji kaisha are, the trend should be stronger, " . . . i f the foreign investor i s a large internationally aggressive company, with ample resources to expand outside the home market... i t feels i n a position to demand majority ownership i n a joint venture..." Japanese companies did not behave this way. None of the three methods used to st.udy the relationship control-size supported the assumption of the l i t e r a t u r e . Larger assets did not mean greater control. The results are presented i n Table 4 * 3 • The "ownership equity" method was the opposite of what could be expected: as the size of.Japanese companies increased, t h e i r 1 . Bivens, K.K. and Lovel l , E.B. Joint Ventures with Foreign Partners, International Survey of Business Opinion and Experience, National Industrial Conference Board, New York, 1 9 6 6 . 70 FIGURE 4 . 1 RELATIONS BETWEEN SIZE OF PARENTS AND SIZE OF INVESTMENTS F o r e i g n Parent S i z e ($ m i l l i o n ) 18 17 + 11 9 7 ft + 4 3 4 + + + + 4-. 2 3 3 3 4 3 5 3 S i z e o f Investment ($ m i l l i o n ) 71 TABLE 4.2 RELATIONS BETWEEN SIZE OF PARENTS AND SIZE OP INVESTMENTS Value o f Parent Company i n A s s e t s ( i n $ B i l l i o n ) Category Value o f No. of Investments Cases ( i n $ M i l l i o n ) No. of Category Cases under -g- i t o 1 1 t o 4 over 4 S m a l l Medium Large V. Large 2 2 2 5 under -J- i t o i 1 t o 4 over 4 Small Medium Large V. Large 1 3 8 72 TABLE 4.3 SIZE OE PARENTS AND CONTROL . Parent P a r e n t s ' # D e s i r e f o r D e s i r e f o r E f f e c t i v e Category E q u i t y Share C o n t r o l * C o n t r o l * S m a l l 3.5 2.50 2.00 Medium 2.5 2.50 2.00 Large 2.5 3.00 3.00 V. Large 2.27 2.55 2.55 The v a l u e s a s s i g n e d i n the t h r e e measures were as f o l l o w s : Parent Share i n J o i n t Venture E q u i t y : under 25% -=:i 25% t o 49% = 2 50% =33 over 50% = 4 C o n t r o l and e f f e c t i v e c o n t r o l : Necessary = 4 D e s i r a b l e =J3 A c c e p t a b l e = 2 Unnecessary = 1 The v a l u e s were then aggregated and averaged f o r each catego r y . 73 degree o f ownership of j o i n t v e n t u r e s decreased. T h i s s i t u a t i o n was a f a c t o f l i f e , whereas the o t h e r two methods, d i s c u s s e d below, des- c r i b e what Japanese e x e c u t i v e s would p r e f e r . I n the second method used t o determine t h e i r p r e f e r e n c e s , Japanese e x e c u t i v e s were asked how important c o n t r o l was f o r them: was i t n e c e s s a r y , d e s i r e a b l e , a c c e p t a b l e , unnecessary? T h i s showed 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 "medium" companies were s i m i l a r l y concerned over c o n t r o l . "Large" and not " v e r y l a r g e " f i r m s were i n t e r e s t e d i n the g r e a t e s t degree of c o n t r o l . 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 j u s t s l i g h t l y more t h a n " s m a l l " and "medium" e n t e r p r i s e s . The t h i r d method was s i m i l a r t o the second w i t h the e x c e p t i o n t h a t i t t r i e d t o assess the importance of " e f f e c t i v e c o n t r o l " r a t h e r than " c o n t r o l " . T h i s confirmed the stand of " l a r g e " companies. However, c o n t r a r y t o the two f i r s t methods, i t i n d i c a t e d t h a t " v e r y l a r g e " c o r p o r a t i o n s behaved as expected. They wanted t o e x e r c i s e " e f f e c t i v e c o n t r o l " more than " s m a l l " and " v e r y s m a l l " f i r m s . T h i s phenomenon of l a c k of d e s i r e f o r c o n t r o l by " v e r y l a r g e " companies was a r e a l s u r p r i s e . No t h e o r y of 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 the s i z e o f the company was concerned. I n most cas e s , Japanese e n t e r p r i s e s were b i g g e r than t h e i r Canadian 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 used t h i s s u p e r i o r i t y t o i n c r e a s e t h e i r c o n t r o l . Furthermore, most of the t i m e , Canadians were a t t r a c t e d by the 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. ^ The l a t t e r could there- fore have used these two factors to increase t h e i r control, but they did not. It seems that the level of control i s d i f f i c u l t to explain i n terms of the size of foreign companies and of the nature of con- t r i b u t i o n . One potential explanation to this situation could be the reasons mentioned by Japanese for t h e i r investments through joint ventures. I f "very large" Japanese companies entered into joint ven- tures because they needed l o c a l resources, then th e i r advantages over t h e i r Canadian partner i n terms of size i n assets and nature of contribution would be weakened during the negotiations. Results presented i n Table 4*4 indicate that 6 3 % of the "very large" companies went into joint ventures because they needed l o c a l resources. ^ In negotiations, when a foreign partner needed l o c a l resources, a Canadian firm could be more reluctant to permit i t to control any possible joint venture. Considering the actual situation, i t seems that raw material was more important to Japanese interests than capital was to Canadians.. Results were not clear enough to explain the overall control 2 . Sixty-four per cent of the companies providing capital and secure markets were of greater size than th e i r Canadian partners. 3 . Sixty-three per cent of the "very large" companies which entered into joint ventures for this reason were of greater size than t h e i r Canadian partners. 75 TABLE 4 .4 FOREIGN PARENT SIZE IN ASSETS AND REASONS FOR GOING INTO A JOINT VENTURE 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 $ Based on Column Sum Reasons f o r Going I n t o J o i n t Venture No. S m a l l $ Medium No. fo No. Large $ V. No. Large Tota] No. Host government p r e s s u r e s S p r e a d i n g R i s k ( P o l i t i c a l - Other) 1 50 1 Need f o r l o c a l r e - s o u r c e s : - raw m a t e r i a l - m anagerial - t e c h n i c a l - - 1 50 1 1 50 50 3 2 38 25 5 3 A s s o c i a t e ' s p r o j e c t 1 50 - - - - 2 25 3 Other - - 1 50 - - 1 12 2 T o t a l and $ Based on row sum 2 14 2 14 2 14 8 56 H 1 Percentages do not a l l add up t o 100 because o f r o u n d i n g . 14 i n s t e a d o f 11 because t h r e e v. l a r g e f o r e i g n parent companies 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 then had more than one reason f o r g o i n g i n t o JV. 76 s i t u a t i o n £ 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 which were able t o get the 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 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 . I t was not the s i z e o f the parent company o r the nature o f 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 the reasons why i t went i n t o a j o i n t v e n t u r e . S i z e and 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 I f 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 , i t seems reasonable t o expect t h a t t h e y would s e l e c t t h e i r 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 " . Table 4«5 shows t h a t 50% of the "ve r y l a r g e " companies based t h e i r s e l e c t i o n on t h i s c r i t e r i o n whereas 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 r e s o u r c e s . Out of the e i g h t j o i n t v e n tures set up f o r l o c a l r e s o u r c e s by the f i v e " 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 "convenience o f 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 chosen f o r "same l i n e of b u s i n e s s " and the o t h e r two f o r "past a s s o c i a t i o n " . ' i Even i f two " l a r g e " Japanese c o r p o r a t i o n 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 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 "conven- 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 c r i t e r i a mentioned were "past a s s o c i a t i o n " and same l i n e of b u s i n e s s " . The s i t u a t i o n was the same 4 . I f 63% of the "ve 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% of the " 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 the same reason and had more c o n t r o l t han 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 Foreign Parent Size i n Assets Number of Cases and C e l l fo Based on Column Sum Reasons for Selecting an Small Medium Large V. Large Total Associate No. $ No. fo No. fo No. fo No. Forced Choice - - — — — — — — — Same Line of Business 1 .50 1 50 1 50 1 12 4 Convenience of F a c i l i t i e s / Resources _ — — — — — 4 50 4 Past Association 1 50 1 50 1 50 2 25 5 Status/Identity - - - - - - 1 12 1 Other - - - - - - - - - Total and fo Based on Row Sum 2 14 2 14 2 14 8 56 14 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 venture f o r " o t h e r r e a - sons" and chose i t s p a r t n e r f o r "past a s s o c i a t i o n " , whereas the o t h e r e n t e r e d 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 "very l a r g e " companies which 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 which d i d not 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 "past a s s o c i a t i o n " r a t h e r than "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 the c r i t e r i o n mentioned by these f i r m s when they 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 managerial r e s o u r c e s . I t was i n t e r e s t i n g t o note t h a t the o n l y time " s t a t u s / i d e n t i t y " was mentioned as the 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 "ver y l a r g e " c o r p o r a t i o n . You c o u l d u s u a l l y expect t h i s from " s m a l l " companies l o o k i n g f o r a well-known and e s t a b l i s h e d p a r t n e r i n the c o u n t r y o f t h e i r i n v e s t m e n t s . T h i s " v e r y l a r g e " e n t e r p r i s e set up a j o i n t venture i n the " m i s c e l l a n e o u s group" and i t was v e r y important f o r i t t o o b t a i n a Canadian i d e n t i t y . A l s o important was the s t a t u s o f i t s p a r t n e r . Parent s i z e and p r o f i t s of the .joint venture I f the Japanese 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 secure market, and some managerial e x p e r t i s e , one would expect t h a t the j o i n t venture would 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 large ones, i t i s reasonable to expect that the l a r g e r the Japanese f i r m i s , the higher the p r o f i t s of the associated 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 si z e and p r o f i t did not include a l l the j o i n t ventures of t h i s study. Some were too young, while others were involved 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 . They are i d e n t i f i e d as N.A. (not applicable) i n Table 4.6 and Figures 4.2 and 4*3• Two "small" Japanese companies r e c e n t l y entered i n t o two separate j o i n t ventures. Due to t h e i r lack of experience, few s t a t - i s t i c s were worth analyzing. Two other Japanese companies of greater prominence also entered i n t o two j o i n t ventures. One venture i s s t i l l i n i t s infancy, and'the other had not enjoyed f i n a n c i a l success. Consequently, n e i t h e r one could be discussed with any degree of accuracy. The two "large" parent companies set up f i v e j o i n t ventures; one showed "small" 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 exploration f i e l d . The f i v e "very l a r g e " f o r e i g n firms got involved i n twelve j o i n t ventures: one had "small" p r o f i t s , one showed "medium" p r o f i t s , four "large p r o f i t s " , and three "very large 5. Only three companies want in 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 B i l l i o n ) Category No. of ICases Value of JV Profit ( i n Million) No. of Weighted Category Cases ^ Score* under i to 1 1 to 4 over 4 Small Medium Large V. Large 2 2 2 5 under -J- i to I 1 to 4 over 4 Small Medium Large V. Large 3 1 4 4 0 0.5 1.0 2.25 When a parent was partner of a JV showing very large p r o f i t s , i t was multiplied by 4 , when the JV showed large p r o f i t s , i t was multiplied 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 to give a t o t a l weighted score for that parent. 1 12 instead of 21 JVs. 9 JVs are too young to show p r o f i t s . FIGURE 4-2 RELATIONSHIPS: SIZE OF PARENTS, OF JVs, OF JVs' PROFITS Size of Parents JVs JVs P r o f i t s y —2L> 3 4 4 Not Applicable 4 Totals 21 •9 21 FIGURE 4 - 3 PARENT SIZE AND PROFITS OF JVs P r o f i t s 4s" Small Medium V.Large Size of Parents * R e s u l t s from Table 4 - 6 weighted sc o r e s . 83 p r o f i t s " . T h r e e w e r e i n t h e c a t e g o r y N . A . I t i s c l e a r t h e r e f o r e t h a t a s t h e s i z e o f f o r e i g n p a r e n t c o m - p a n i e s i n c r e a s e d , s o d i d t h e p r o f i t 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 . P a r e n t s i z e a n d m e t h o d o f e v a l u a t i o n E x e c u t i v e s o f J a p a n e s e c o m p a n i e s w e r e a s k e d w h i c h m e t h o d t h e y u s e d t o e v a l u a t e t h e p e r f o r m a n c e o f t h e i r j o i n t v e n t u r e s . Was i t i n t e r m s o f p r o f i t s , r e t u r n o n i n v e s t m e n t , o r i n t e r m s o f t h e a c h i e v e m e n t o f s c h e d u l e d o b j e c t i v e s ? S i x t y s e v e n p e r c e n t ^ o f t h e m u s e d " a c h i e v e m e n t o f s c h e d u l e d o b j e c t i v e s " a s t h e f i r s t c r i t e r i o n , w h e r e a s " p r o f i t a b i l i t y " w a s t h e i r s e c o n d c r i t e r i o n most o f t h e t i m e . I n f a c t , o n l y t w o c o m p a n i e s d i d n o t p r i m a r i l y e v a l u a t e t h e i r j o i n t v e n t u r e s a c c o r k i n g t o " a c h i e v e m e n t o f s c h e d u l e d o b j e c t i v e s " . T h e s c h e d u l e d o b j e c t i v e s o f a l l c o m p a n i e s i n t h e " r a w m a t e r i a l g r o u p " w e r e r e l a t e d t o s e c u r i n g t h e i r s u p p l y o f r a w m a t e r i a l . O b - j e c t i v e s 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 g r o u p " w e r e d i f f e r e n t ; i t v a r i e d f r o m t h e f u l f i l l m e n t o f a w o r l d w i d e m a r k e t i n g p o l i c y t o a g r e a t e r p e n e t r a t i o n 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 . E x e c u t i v e s w e r e t h e n a s k e d t o e v a l u a t e t h e p e r f o r m a n c e o f t h e i r j o i n t v e n t u r e s . T h e 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 4»7 a n d F i g u r e 4«4« 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 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 o n t h i s t o p i c a r e e l i m i n a t e d . 84 TABLE 4.7 FOREIGN PARENT SIZE IN SALES AND EVALUATION OF JVs THROUGH PERFORMANCE AGAINST SCHEDULED OBJECTIVES F o r e i g n Parent S i z e i n S a l e s Number of Cases and C e l l % Bases on Column Sum Sm a l l No. % Medium No. • % . Large No. % V. No. Large 1° T o t a l No. % B e t t e r t h a n expected mm mm •mm mm 1 25 4 33 5 23 About the same as - ' - _ - 3 75 1 8 4 18 Less then 2 40 - - - - 3 25 5 23 Too soon t o judge 3 60 - - - - 4 33 7 32 T o t a l and % Based on row sum 5 23 mm. mm 4 18 12 56 21 Weighted s c o r e * 0.4 2.25 1.41 * Percentages do not a l l add up t o 100 because o f r o u n d i n g . Each time the performance was " b e t t e r t han expected", i t was mul- t i p l i e d by 3; "about the same" as", 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 weighted v a l u e s were then summed over 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 the s i z e of the f o r e i g n parent companies increased, so d i d the f u l f i l l m e n t of t h e i r scheduled o b j e c t i v e s . However, " l a r g e " Japanese companies were, g e n e r a l l y speaking, more s u c c e s s f u l than "very l a r g e " c o r p o r a t i o n s . I t i s a f a c t that "very l a r g e " companies r e a l i z e d t h e i r o b j e c t i v e s , " b e t t e r then expected", 33$ of the time compared to 25$ f o r " l a r g e e n t e r p r i s e s " . Nevertheless, t h e i r general performance i s weakened by the f a c t that i n 25$ of the cases, 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 There was no l i n e a r r e l a t i o n s h i p between the s i z e i n assets of f o r e i g n parent companies and the value of t h e i r investments. Furthermore, t h i s c h a r a c t e r i s t i c of f o r e i g n companies had a very small i n f l u e n c e on t h e i r degree of c o n t r o l of t h e i r j o i n t ventures. Nevertheless, 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 of t h e i r j o i n t ventures: s i z e of the Japanese parent and p r o f i t s i n c r e a s e d simultaneously. I t a l s o had an impact on the achievement of scheduled o b j e c t i v e s of the Japanese company, by the j o i n t venture. "Very l a r g e " companies chose t h e i r partners mainly f o r 7. I f j o i n t ventures from the."miscellaneous group" were e l i m i n a t e d from the category "very l a r g e " , . i t was more s u c c e s s f u l than the " l a r g e " group. 87 "convenience o f 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 of b u s i n e s s " and "past a s s o c i a t i o n " : both c r i t e r i a were mentioned once by each c a t e g o r y . 88 CHAPTER 5 THE NATURE OF THE BUSINESS It seems reasonable to expect that the nature of business of Japanese foreign companies w i l l influence the nature of business of joint ventures i n which they invested. As already pointed out, more than half of the Japanese parents were trading companies, and most Japanese joint ventures i n B.C. were involved i n raw material operation. Was the situation i n B.C. an exception to the general pattern? At f i r s t sight, results presented i n Table 5»1 appeared to confirm this exception. Eleven joint ventures, when c l a s s i f i e d accord- ing to the nature of business of foreign firms, were i n the trading category. There was no joint venture i n this group when joint ventures were c l a s s i f i e d according to the i r nature of business. The explanation to this situation, however, concerned the organization of the trading companies. Within each company, there were different divisions as follows: t e x t i l e d i v i s i o n , machinery divis i o n , chemical division, etc.. In fact, investments were made on a di v i s i o n a l rather than on company basis. Thus, the nature of business of joint ventures was similar to the nature of business of both partners. The six trading companies invested i n eleven joint ventures: five i n the "pulp and lumber"group", three i n the "miscellaneous cat- egory", and three i n the "mining group". A l l other parents invested 89 TABLE 5.1 CLASSIFICATION OF JAPANESE PARENT COMPANIES AND ASSOCIATED JVs ACCORDING TO THE NATURE OF BUSINESS Number of Cases Joint Ventures Classified by- Business of the Nature of the Business Japanese Parent Firm Parent JV Trading 6 11 0 Pulp and Lumber 1 1 6 Miscellaneous 2 3 6 Mining (Operating) 3 6 4 Mining Exploration 0 0 5 Totals . 12 21 21 90 i n j o i n t v e n t u r e s i n the same l i n e of b u s i n e s s as t h e i r own. Nature of bu s i n e s s and 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 Table 2.3 p r e v i o u s l y i n d i c a t e d how the nature o f b u s i n e s s o f j o i n t v e n tures * i n f l u e n c e d the reasons mentioned by Japanese companies 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 . 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 the "pulp and lumber c a t e g o r y " were set up f o r purposes of o b t a i n i n g raw m a t e r i a l s . Seventy f i v e per cent o f the companies i n the "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 "mining 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 the most i m p o r t a n t , w h i l e 33% of j o i n t v e n t u r e s i n the " m i s c e l l a n e o u s c a t e g o r y " were set up f o r t h i s r e a s o n . 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 the e q u i t y share 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 the power of n e g o t i a t i o n o f each p a r t n e r . As t h i s i s s u e was covered i n the p r e v i o u s c h a p t e r , i t w i l l not be re-examined. Nature o f b u s i n e s s and a t t i t u d e s towards 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 nature o f b u s i n e s s of the j o i n t venture and of the Japanese parent 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 Japanese e x e c u t i v e s and t h e y were then asked t o comment on the importance o f " e f f e c t i v e c o n t r o l " . T h e i r o p i n i o n s were t a b u l a t e d and the r e s u l t s i n d i c 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 d i f f e r e n c e between the two. A c t u a l l y , o n l y 9$ of the 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 the two. The r e s u l t s are present e d i n Table 5.2. Be f o r e examination o f Table 5'2, i t seemed reasonable t o assume t h a t the d e s i r e f o r i n 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 w i t h the value o f in v e s t m e n t s . The s i g n i f i c a n c e o f the p a r t n e r s c o u l d a l s o i n f l u e n c e the d e s i r e d degree o f " e f f e c t i v e c o n t r o l " . I t seemed a l s o r easonable t o assume t h a t the Japanese 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 " was i n - f l u e n c e d by the shares owned by the f o r e i g n company. The g r e a t e r the former, the g r e a t e r the l a t t e r s h o u l d be. When owning a c e r t a i n number of s h a r e s , f o r e i g n i n v e s t o r s u s u a l l y d e s i r e not o n l y t o e x e r c i s e c o n t r o l , but a l s o " e f f e c t i v e c o n t r o l " . E i g h t y t h r e e p e r cent o f the t i m e , companies i n the "pulp and lumber group", i n d i c 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 "ne c e s s a r y " . T h e i r investments r e p r e s e n t e d 69$ of the t o t a l v a l u e o f Japanese i n v e s t - 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 " , Japanese e x e c u t i v e s had t o choose between: "necessary", " d e s i r a b l e " , " a c c e p t a b l e " and "unnecessary". When the Japanese f i r m made " e f f e c t i v e c o n t r o l " a c o n d i t i o n of i t s p a r t i c i p a t i o n i n t o a j o i n t v e n t u r e , " 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 as "necessary". When the Japanese e n t e r - p r i s e asked f o r " e f f e c t i v e c o n t r o l " , but was ready 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 as " 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 as " 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 not an i s s u e f o r the Japanese e n t e r p r i s e , i t was c l a s s i f i e d as "unnecessary". ON TABLE 5 . 2 NATURE OP BUSINESS AND ATTITUDES OP JAPANESE PARENT FIRMS TOWARDS EFFECTIVE CONTROL OVER A JOINT VENTURE Number of Cases and C e l l i Described i n Row Sum Eff e c t i v e Control Described As: Necessary Desirable Acceptable Unnecessary Value of Weighte| Totals Investment Scores Nature of Business No. * No. 1o No. .No. * No. io Pulp and Lumber 5 83 - - - - 1 16 S 31 ( 3 . 8 3 ) 141 , 3 8 3 , 0 0 0 3 . 5 0 Miscellaneous - - 1 25 3 75 — — 4 20 ( 2 . 7 5 ) 2,590 ,000 2 . 2 5 Mining (Operating) — - - - 1 25 3 75 4 20 ( 1 . 0 0 ) 60 , 5 3 0 , 0 0 0 1 . 2 5 Mining (Exploration) - - 1 20 4 80 - — 5 26 (1.40) 3 3 5 , 0 0 0 2 . 2 0 Totals 5 26 2 10 8 41 4 21 1 9 1 Percentages do not a l l add up to 100 because of rounding. Percentages i n the l a s t column are based on the column sum. 1 . Two companies did not provide information. 2 . Each time ^ e f f e c t i v e control" was described as "necessary", i t was mul t i p l i e d by 4 ; as "desirable", by 3 ; as "acceptable", by 2 ; and as "unnecessary", by 1 . These weighted values were then summed over each group to give a t o t a l weighted score f o r that group. () The number indicates $he equity share of the Japanese parent. It was calculated i n the same manner as i n Table 4 . 3 93' ments i n B.C.. F i f t y per cent of 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 " i m p o r t a n t " . T h i s group a l s o had the h i g h e s t " e q u i t y - s h a r e " : 3 . 8 3 . T h i s was the group f o r which " e f f e c t i v e c o n t r o l " was the most "necessary": 3 . 5 0 , on a weighted s c a l e . The "pulp and lumber group" p a r a l l e l e d the above assumptions. The " m i s c e l l a n e o u s group" which ranked i t s p a r t n e r s as the most i m p o r t a n t , ^ c o n s i d e r e d " e f f e c t i v e c o n t r o l " as " a c c e p t a b l e " 7 5 $ of the t i m e . D e s p i t e the s m a l l v a l u e of i t s i n v e s t m e n t s , t h e i r " e q u i t y - s h a r e " was the second h i g h e s t one: t h i s c o u l d e x p l a i n the f a c t t h a t " e f f e c t i v e c o n t r o l " was q u i t e "necessary" f o r t h i s group: i t scored 2 . 2 5 on a weighted s c a l e . The s i t u a t i o n c o n c e r n i n g companies from the "mining group" d i d not p a r a l l e l the accepted t h e o r y . The "mining group" investments were h i g h e r than the investments from the " m i s c e l l a n e o u s group". T h e i r p a r t n e r s were l e s s e f f e c t i v e than those i n the " m i s c e l l a n e o u s group". F o r these two 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 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 , t h a n companies from the " m i s c e l - laneous group". However, t h e i r low l e v e l of " e q u i t y share" was the lowest one, and c o u l d e x p l a i n t h i s s i t u a t i o n . Companies from the "mining e x p l o r a t i o n group", even w i t h the s m a l l v a l u e of t h e i r i n v e s t m e n t s , s t r e s s e d t h a t " e f f e c t i v e c o n t r o l " was q u i t e "necessary" f o r them: maybe i t was because t h e i r p a r t n e r s were the l e a s t important ones. 3 . See Table 5 . 8 . 94 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 s h i p be- tween the "importance" of Canadian p a r t n e r s f o r Japanese e x e c u t i v e s , and 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 " . As the t o t a l v a l u e of i n v e s t - ments of one group r o s e , so d i d 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 " , w i t h the e x c e p t i o n of the "mining o p e r a t i n g group". ^ N e v e r t h e l e s s , as the Japanese " e q u i t y - s h a r e " 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 tures i n - c r e a s e d , " e f f e c t i v e c o n t r o l " was i n c r e a s i n g l y "necessary" f o r Japanese e x e c u t i v e s . Nature of 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" The d r i v i n g f o r c e and t h e d e c i d i n g body were the same f o r a l l j o i n t v e n t u r e s setuup i n the "miscellaneous'^'and the "mining group", Both were d i f f e r e n t i n 20$ of the cases s t u d i e d i n the "mining e x p l o r - a t i o n group", and 33$ of the time i n the "pulp and lumber group". The r e s u l t s are p r e s e n t e d i n Table 5«3« I t would seem s e n s i b l e f o r companies i n the "mining e x p l o r a t i o n group" 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 d e c i d i n g body s i n c e t h e y c o u l d make a more ac c u r a t e e v a l u a t i o n of the l o c a l p o s s i b i l i t i e s . However, the f o u r companies which had "normal 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, had a l l been p r e v i o u s l y 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 i n B.C.. T h i s p r e v i o u s e x perience c o u l d compensate 4. " C o n t r o l " was not an i s s u e f o r Japanese companies i n v o l v e d i n JVs i n the "mining o p e r a t i n g group": 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 . ON TABLE 5.3 NATURE OP BUSINESS AND LOCATION OP RESPONSIBILITY FOR DRIVING FORCE AND DECISION TO GO INTO A SPECIFIC JOINT VENTURE Nature of Business . Pulp and Lumber Miscellaneous Mining (Operating) Mining (Exploration) Totals Number of Cases and C e l l fo Based on Row Sum Pinal Decision Taken By: Familiar ^Special Normal Individual Individual Group Channels Total No. * No. fo No. * No. fo No. * 1 16 _ — 3 50 2 33 6 28 Driving Force i 16 — — 1 16 4 66 6 28 Decision 1 16 — — 2 33 3 50 6 28 Driving Force l 16 — — 2 33 3 50 6. 28 Decision — — — — — — 4 100 4 18 Driving Force — — — — — 4 100 4 18 Decision l 20 — — — — 4 80 5 23 Driving Force ' — — — — — — 5 100 5 23 Decision 3 14 — — 5 23 13 61 21 2 9 - — 3 14 16 75 21 Percentages do not a l l add up to 100 because of rounding. Percentages i n the l a s t column are based on the column sum. 96 f o r p o s s i b l e lower 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 these companies used "normal 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 companies of each group h e l p s t o e x p l a i n t h e i r s i m i l a r b e h a v i o r . The " m i s c e l l a n e o u s group" was the o n l y group where no more than 50% of the 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 through "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 i n v e s t m e n t s , the s m a l l e s t of a l l groups; nature of b u s i n e s s of the j o i n t v e n t u r e s : the o n l y j o i n t v e n t u r e s o u t s i d e the "raw m a t e r i a l c a t e g o r y " ; the s m a l l number of Japanese p a r e n t s which were t r a d i n g companies. "Bulp and lumber" was the group where the d i f f e r e n c e between d r i v i n g f o r c e and d e c i d i n g body was the most s i g n i f i c a n t . A " s p e c i a l group" was more o f t e n the d r i v i n g f o r c e t h a n "normal c h a n n e l s " . I n 66% of the c a s e s , the d e c i d i n g body was "normal c h a n n e l s " . I t was the o n l y group i n the "raw 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 Table 5.2 t h a t the b e h a v i o r of "pulp and lumber" companies d i f f e r e d from the b e h a v i o r of "mining" e n t e r p r i s e s . 5. One company was i n v o l v e d i n a j o i n t venture i n the "mining oper- a t i o n group" 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 the "mining e x p l o r a t i o n group". 9 7 A s i m i l a r s i t u a t i o n e x i s t e d i n t h i s i n s t a n c e . A t t i t u d e towards p o t e n t i a l associate's E n t e r i n g i n t o j o i n t v e n tures w i t h " f e l l o w n a t i o n a l " i s o b v i o u s - l y more convenient than w i t h s t r a n g e r s . C u l t u r a l b a r r i e r s and language d i f f e r e n c e s do not e x i s t . Furthermore, t r a d e customs and busi n e s s h a b i t s are more f a m i l i a r than those o f a f o r e i g n e r . These f a c t s may not be a major concern because a p o t e n t i a l a s s o c i a t e c o u l d be a l o c a l c o m p e t i t o r , and because of a d e s i r e f o r l o c a l i d e n t i t y . To e n t e r i n t o a j o i n t venture w i t h " o t h e r f o r e i g n " , o t h e r than Canadians, p r e s e n t s few advantages. Unless t h e r e 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 . Canadian s u b s i d i a r i e s w i t h e x t e r n a l c o n t r o l , u s u a l l y American, were c o n s i d e r e d as Canadian owned f o r the purposes o f t h i s r e p o r t . J o i n t v e n t u r e s can be more e a s i l y c o n t r o l l e d i f the 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 " r a t h e r than " l o c a l p r i v a t e " . " L o c a l p u b l i c i n v e s t o r s " are u s u a l l y s a t i s f i e d t o r e c e i v e 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 seldom i n the management of the j o i n t v e n t u r e s . N e v e r t h e l e s s , i f the need f o r l o c a l management, l o c a l t e c h n i - c i a n s and l o c a l i d e n t i t y i s g r e a t e r than the need f o r l o c a l raw m a t e r i a l , i t i s more convenient t o n e g o t i a t e w i t h " l o c a l p r i v a t e " . 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 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 the host 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: 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 power o f n e g o t i a t i o n , p o l i t i c a l involvement, e t c . . The s e l e c t i o n o f a p o t e n t i a l p a r t n e r , i n d e c r e a s i n g o r d e r o f c h o i c e , s h o u l d then be as f o l l o w s : " f e l l o w n a t i o n a l " , " l o c a l p u b l i c i n v e s t o r s " , " l o c a l p r i v a t e " , " o t h e r f o r e i g n " , "host government". The pr e f e r e n c e s o f Japanese e x e c u t i v e s are shown i n Table 5«4« N e i t h e r the g l o b a l r e s u l t s o r any o t h e r group f o l l o w e d the p r e d i c t e d p a t t e r n . I n g e n e r a l , the p r e f e r e n c e was f o r " l o c a l p r i v a t e " , and t h e r e was a t o t a l agreement between each group t o choose t h i s po- t e n t i a l a s s o c i a t e f i r s t . F o l l o w i n g " l o c a l p r i v a t e " the c h o i c e s , i n descending o r d e r o f importance, were as f o l l o w s : " l o c a l p u b l i c i n v e s t - o r s " , " 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 "host government". Ex- cept f o r the " m i s c e l l a n e o u s group", "host government", was always chosen\ l a s t . An 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 w i l l be d i s c u s s e d l a t e r . I t was a l s o i n t e r e s t i n g t o note the s t r o n g p r e f e r e n c e i n d i - c a t e d f o r " l o c a l p r i v a t e " . Only 31% of a l l o t h e r cases scored l e s s than 3.0, ^ w i t h the lowest one at 2.50. F i f t y s i x p e r cent o f the answers were between 3.0 and 3«99» w h i l e 12.5% were over 3«99« On the average, when the score o f " l o c a l p a r t n e r " was e l i m - i n a t e d , the 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 from the 6. The lower the s c o r e , the s t r o n g e r was the 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 of Po t e n t i a l JV Associates Nature of Business Fellow Other Local Host Local Public of Japanese Parent National Foreign Private Government Investors 1 Average Pulp and Lumber 3.50 3.50 1.00 3.50 2.50 3.25 Miscellaneous 3.20 3.60 1.00 3.40 3.00 3.40 Mining (Operating) 2.66 2.66 1.00 3.00 3.00 2.83 Mining (Exploration) 2.80 4.00 1.00 4.40 2.80 3-50 A l l Industry Score 3.04 3.44 1.00 3.57 2.82 — Responses were given a value from 1 (for a f i r s t place ranking) to 5 (for a f i f t h place ranking). These values were multiplied by fthe frequency of occurence f o r each group of parent companies by nature of business, and then summed over each group. This sum was then divided by the number of responses made by the related group, to give a weighted average score which represented the group's responses to that type of associate. A l l potential associates with the exception of Local Private. 1 0 0 "mining e x p l o r a t i o n group" which s c o r e d 3 . 5 0 . I t was f o l l o w e d by the " m i s c e l l a n e o u s group" at 3 • 4 0 , "the "pulp and lumber group" at 3 . 2 5 , and the "mining group" at 2 . 8 3 . T h i s g e n e r a l b e h a v i o r r e f l e c t e d the great importance f o r com- panies from the "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 f a m i l i a r w i t h the l o c a l environment. I t a l s o i n d i c a t e d t h a t m i n i n g companies d i d not 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 . They needed raw m a t e r i a l s , and d i d not mind o b t a i n i n g i t through a j o i n t v e n ture w i t h o r w i t h o u t " l o c a l p r i v a t e " . The p r e f e r e n c e s o f the "pulp and lumber group" c l o s e l y p a r a l - l e l e d the g e n e r a l r e s u l t s . T h i s group showed the 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 " s c o r e d 2 . 5 0 ) . C o n s i d e r i n g 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 " d i s c u s s e d p r e v i o u s l y , t h i s c h o i c e was not a s u r p r i s e . D i s c o v e r i n g t h a t these f i r m s made no d i s t i n c t i o n 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 "host government", was something unexpected. Procurement o f l o c a l raw m a t e r i a l would be e a s i e r when the p a r t n e r of a j o i n t venture i s the "host government" r a t h e r than the 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 c o u l d 7 . I f a second p a r t n e r s c o r e d 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 would have been c l o s e t o the 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 scored 4 . 0 0 , the p r e f e r e n c e would 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 the s c o r e , the g r e a t e r the 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 interests i n doing business with government bodies. Firms from the "miscellaneous group" were the only ones which did not choose a potential partner i n the 2.0 range. Also important to note was their choice of "host government" as a fourth, rather than a f i f t h potential associate. It was the only case where this partner was not the last choice. An executive of an enterprise from thi s group was surprised to realize that Canadian businessmen were reluctant to deal with the government or crown corporations. The Japanese company did not concur with these thoughts. The mining companies were the only ones to prefer "fellow national" and "other foreign" to "local public investors". They f e l t i t was to their advantage to be involved i n mining operations with the f i r s t two partners mentioned, rather than with "local 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, their behavior patterns differed. Reasons for selecting a specific associate Results presented i n Table 5«5 indicate that the "pulp and lumber group", when selecting i t s associates, behaved once again d i f - ferently from the "mining group". However, this distinction 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 Selecting an Associate Nature of Conveni- Same ence of Forced Line of F a c i l i t i e s / Past As- Status Choice Business Resources sociation Identity Number of Cases and C e l l $ Based on Row Sum* Other Totals Business No. * No. * No. No. * No. fo No. No. * Pulp and Lumber - — 1 16 2 33 2 33 1 16 — 6 28 Miscellaneous - — 2 33 2 33 1 16 1 16 — 6 28 Mining (O.pera- t ing; — 1 25 2 50 1 25 — - — - 4 18 Mining (Ex- ploration) - - 3 60 - — 2 40 — - - - 5 23 Totals - 7 33 6 28 6 28 2 9 21 Percentages do not a l l add up are based on the column sum. to 100 because of rounding. Percentages i n the l a s t column 103 the "pulp and lumber group" 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 " , whereas none d i d i n the "mining group". Two companies i n the f i r s t group i n s t e a d o f one i n the second group chose i t f o r "past a s s o c i a t i o n " . One f i r m i n s t e a d o f two set up a j o i n t venture w i t h a p a r t n e r 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 " . They were the minor d i f f e r e n c e s o f b e h a v i o r . The major one was t h a t the "mining group" used o n l y one main c r i t e r i o n f o r s e l e c t i n g i t s a s s o c i a t e s : "convenience o f f a c i l i t i e s / r e s o u r c e s " , whereas the "pulp and lumber group" used two c r i t e r i o n : "convenience of f a c i l i t i e s / r e s o u r c e s " and "past a s s o c i a t i o n " . The " m i s c e l l a n e o u s group" b e h a v i o r was not v e r y d i f f e r e n t from the f i r s t two groups mentioned above. Companies i n v o l v e d i n "mining 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 : t h e y never s e l e c t e d t h e i r p a r t n e r s 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 " , the most important c r i t e r i o n o f a l l o t h e r groups. T h e i r main c r i t e r i o n o f s e l e c t i o n was "same l i n e o f b u s i n e s s " : t h e y mentioned i t 60% of the t i m e . These cases r e p r e s e n t e d 43% of "same l i n e of b u s i n e s s " c a t e g o r y , t a k e n over a l l i n d u s t r i e s . "Past a s s o c i a t i o n " was t h e i r second c r i t e r i o n . S t r u c t u r a l dependence To e v a l u a t e the independence o f a j o i n t venture v i s - a - v i s i t s parent company, the t h r e e f o l l o w i n g methods were used: (1) Percentage o f e q u i t y o f the f o r e i g n f i r m s . (2) R e s p o n s i b i l i t i e s o f the a s s o c i a t e . 104 (3) Independence o f the j o i n t venture r e g a r d i n g some p o l i c i e s . To judge the degree o f r e s p o n s i b i l i t y o f the a s s o c i a t e , J a p - anese e x e c u t i v e s were asked 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 r e s p o n s i b i l i t y , f u l l t o j o i n t r e s p o n s i b i l i t y , 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 the conduct o f the f o l l o w i n g a c t i v i t i e s : ( i f ) 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 procurement. (3) 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 . (4) P r o d u c t i o n . (5) A d m i n i s t r a t i o n and c o n t r o l . (6) F i n a n c e . (7) Recruitment and p e r s o n n e l . (8) 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 . (9) P u b l i c r e l a t i o n s . The independence o f the j o i n t venture v i s - a - v i s i t s parent company was e v a l u a t e d f o r the f o l l o w i n g p o l i c i e s : (1) C a p i t a l e x p e n d i t u r e . (2) P r i c i n g . (3) D i v i d e n d p o l i c y . (4) O r g a n i z a t i o n . (5) Product s e l e c t i o n , d e s i g n and p l a n n i n g . (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) Q u a l i t y c o n t r o l . (8) M a r k e t i n g and s a l e s . (9) P u r c h a s i n g . (10) Wages and l a b o r p o l i c y . (11) S e l e c t i o n , promotion and compensation o f e x e c u t i v e s . 105 The r e s u l t s are presented i n Table 5*6. The lower the score, the lower the number of shares owned by Japanese companies, the higher the l e v e l of r e s p o n s i b i l i t y of the a s s o c i a t e , the lower the l e v e l of dependence of the j o i n t venture. These r e s u l t s i n d i c a t e d that the most independent j o i n t ventures, i n d e c reasing order, were from the: "mining group", "mining e x p l o r a t i o n group", "miscellaneous group", and "pulp and lumber group". Once again, j o i n t ventures from the "mining" and the "pulp and lumber group" behaved d i f f e r e n t l y . When the eq u i t y share of Japanese parents i n c r e a s e d , so d i d t h e i r r e s p o n s i b i l i t i e s and the dependence of t h e i r a s s o c i a t e d j o i n t ventures. In f a c t , out of the s i x j o i n t ventures i n i t h e "pulp and lumber group", the most dependent j o i n t ventures, f i v e were m a j o r i t y owned by Japanese, whereas the s i x t h one was a 50-50 j o i n t venture. No mining company entered i n t o JVs, the l e a s t dependent j o i n t ventures, i n which they owned more than 25% of the shares. F i g u r e 5«1 i l l u s t r a t e s t h i s s i t u a t i o n . g When the Japanese e q u i t y share i n c r e a s e d from 1.0 to 2.33, the dependence of the j o i n t venture i n c r e a s e d r a p i d l y , whereas the a s s o c i a t e ' s r e s p o n s i b i l i t y decreased. However, any f u r t h e r increase 8. These numbers represented the e x t r e m i t i e s of the l e f t s t r a i g h t l i n e i n Fi g u r e 5-l« 106 TABLE 5*6 STRUCTURAL DEPENDENCE SCORES OP JOINT 'VENTURE ACCORDING TO NATURE OP BUSINESS Ass o c i a t e 1 s Equity Share of R e s p o n s i b i l i t y J V s IndependenC' „ , Foreign Parent* For Operations! i n P o l i c y Areas Number 13 ^ of JVs Pulp and Lumber 6 3.83(4) 2.33(4) 2.34(4) Miscellaneous 6 2.33(3). 2.29(3) 2.03(3) Mining (^Operating) 4 1.00(1) 1.28(1) 1.25(1) Mining (Ex- plo r a t i o n ) 5 1.40(2) 1.63(2) 1.70(1) A l l Industry Average Score 2.14 1.88 1.83 Nature of Business Same method as the one used i n Table 4«3 The values assigned i n these two measures were as fol l o w s : Associate's R e s p o n s i b i l i t y f o r Joint Venture's Operations: F u l l R e s p o n s i b i l i t y = 1 F u l l to j o i n t r e s p o n s i b i l i t y = 2 J o i n t r e s p o n s i b i l i t y =33 J o i n t to 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: Highly independent = 1 Independent = 2 J o i n t 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 FIGURE 5.1 EQUITY SHARE OF JAPANESE PARENT, JAPANESE PARTNER RESPONSIBILITY, AND JOINT VENTURES DEPENDENCE Japanese Parent R e s p o n s i b i l i t y J o i n t Venture»s Dependence • — — — ; : — ? E q u i t y Share Dependence R e s p o n s i b i l i t y 108 would have a s m a l l e r i n f l u e n c e on these 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 share w i t h the s o l e purpose o f i n c r e a s i n g i t s power over the 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 , a f t e r a c e r t a i n l e v e l o f ownership: the m a r g i n a l c o s t i s g r e a t e r than the m a r g i n a l g a i n . Data on the 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 nature of b u s i n e s s are shown i n a more e x p l i c i t form i n Table 5«7« I n g e n e r a l , Japanese companies were r e l u c t a n t t o d e l e g a t e r e s p o n s i b i l i t - 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 : ( l ) en- 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 ; (2) f i n a n c e ; (3) m a r k e t i n g and d i s - t r i b u t i o n . J o i n t v e n t u r e s were dependent on t h e i r Japanese p a r e n t s over the f o l l o w i n g p o l i c i e s : ( l ) c a p i t a l e x p e n d i t u r e ; (2) s e l e c t i o n , promotion and compensation of e x e c u t i v e s ; (3) product s e l e c t i o n , 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 s a l e s . A s s o c i a t e s i n the "pulp and lumber" 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 p r o - d u c t i o n . However, f o r each a c t i v i t y , t h e y had l e s s r e s p o n s i b i l i t i e s t h a n the o v e r a l l i n d u s t r y average. Japanese companies 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 . T h e i r r o l e was more important than i t was f o r companies of o t h e r 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 the host government and 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 an the "pulp and lumber" 109 TABLE 5.7 RELATIONS BETWEEN ACTIVITIES/POLICIES AND NATURE OP BUSINESS A c t i v i t i e s / C a t e g o r i e s 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 Procurement 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 P r o d u c t i o n A d m i n i s t r a t i o n and C o n t r o l Finance Recruitment and P e r s o n n e l R e l a t i o n s w i t h Host Government/ 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 P 1 Mis Min Minex Aver. 2.83 2.20 2.00 1.00 2.00 2.16 2.60 1.50 1.60 1.96 2.16 2.60 1.50 1.80 2.01 2.00 2.40 1.50 1.00 1.72 2.66 1.80 1.00 1.40 1.71 3.00 2.60 1.00 1.40 2.00 2.00 2.80 1.00 1.80 1.90 2.00 1.60 1.00 1.80 1.60 1.66 1.60 1.00 1.80 1.51 P o l i c i e s / C a t e g o r i e s C a p i t a l E x p e n d i t u r e P r i c i n g D i v i d e n d P o l i c y O r g a n i s a t i o n Product S e l e c t i o n , Design, P l a n n i n g 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 Q u a l i t y C o n t r o l M a r k e t i n g and S a l e s P u r c h a s i n g Wages and Labor P o l i c y S e l e c t i o n , Promotion, Compen- s a t i o n o f E x e c u t i v e s p Mis Min Minex Aver. 3.50 2.80 1.00 1.80 2 .27 2.00 1.60 1 .50 1.00 1 .52 2.80 2 .25 1.00 1.00 1.76 1.83 2.00 1.00 1.80 1.65 3.33 2 .25 1.00 1.00 1.93 2.00 1.00 1.50 1.00 1.37 1.33 2 .25 2.00 1.00 1.64 3.00 2.00 1.75 1.00 1.93 1.33 1 .25 1.00 1.25 1.20 1.16 1 .40 1.00 1.20 1 .19 3 .50 2 .40 1.00 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 the 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 lumber group Minex: M i n i n g e x p l o r a t i o n Mis: 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 1 1 0 p a r t n e r s , whereas they had few r e s p o n s i b i l i t i e s to r e c r u i t personnel. As Japanese companies provided mainly know-how i n s t e a d of c a p i t a l and secure market as i n the other c a t e g o r i e s , i t seemed obvious that they would e x e r c i s e more c o n t r o l over personnel s e l e c t i o n . Parents of the "mining group" u s u a l l y delegated more respon- s i b i l i t i e s than the average. However, t h i s was not the case f o r market- i n g a c t i v i t i e s . As f o r p o l i c i e s of 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 , and q u a l i t y c o n t r o l , they p r e f e r r e d to supervise them c l o s e l y . Secur- i n g t h e i r supply of raw m a t e r i a l s was t h e i r most important o b j e c t i v e and i n f l u e n c e d t h e i r behavior. A s s o c i a t e ' s r e s p o n s i b i l i t y i n the "mining e x p l o r a t i o n group", was low concerning 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 and p u b l i c r e l a t i o n s . I t was the only case where Japanese partners 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. For these companies, o b t a i n i n g government a u t h o r i z a t i o n to operate i f t h e i r ex- p l o r a t i o n was s u c c e s s f u l , was very important. Good r e l a t i o n s were t h e r e f o r e very important, and Japanese partners p r e f e r r e d to be r e s - p o n s i b l e f o r them. Each group behaving d i f f e r e n t l y , i t was impossible to elaborate a general v a l i d statement concerning the a s s o c i a t e s ' r e s p o n s i b i l i t y over the a c t i v i t i e s s t u d i e d . Concerning the p o l i c i e s , a l l groups ex- e r c i s e d c l o s e c o n t r o l on the most important ones, as the average r e s u l t s showed. I l l E v a l u a t i o n o f a s s o c i a t e s N o r m a l l y , when the 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 , so does i t s importance. Was i t so f o r Japanese j o i n t v e n t u r e s i n B r i t i s h Columbia? The r e s u l t s are pr e s e n t e d i n Table 5*8. There was no c l e a r r e l a t i o n between the a s s o c i a t e ' s respon- s i b i l i t y and i t s l e v e l o f importance e v a l u a t e d on an average weighted s c o r e . A s s o c i a t e s i n the "mining group" assumed the most r e s p o n s i b i l - i t i e s , and ranked second on the s c a l e . However, even i f the y r e p r e - sented o n l y 27% of the cases 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 Japanese p a r t n e r s 75% o f the c a s e s . A s s o c i a t e s i n the "mining e x p l o r a t i o n c a t e g o r y " , who assumed the second 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 , ranked f o u r t h on the same s c a l e . Furthermore, no one was mentioned as " i m p o r t a n t " . J o i n t venture a s s o c i a t e s i n the " m i s c e l l a n e o u s group" were ranked t h i r d on an a s s o c i a t e ' s r e s p o n s i b i l i t y s c a l e . N e v e r t h e l e s s , t h e y were the most " i m p o r t a n t " p a r t n e r s . T h e i r average weighted score was the h i g h e s t : 2.66,©arid 83% of them were c l a s s i f i e d as " i m p o r t a n t " . Furthermore, t h e y r e p r e s e n t e d 45% o f the " i m p o r t a n t " cases taken over a l l groups. "Pulp and lumber" companies d e l e g a t e d l e s s r e s p o n s i b i l i t i e 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 companies. I t would 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 not "ve r y TABLE 5.8 NATURE OF BUSINESS AND IMPORTANCE ATTRIBUTED TO ASSOCIATES IN JOINT VENTURES IN B.C. Importance Attributed to Associates Important Useful Necessary Useless Totals Number of Cases and C e l l fo Based on Column Sum . ' Wei Nature of Business No. No. * No. fo No. fo No. Score 1 Pulp and Lumber 3 27 1 33 1 . 16 1 100 6 28 1.83 Miscellaneous 5 45 - - 1 16 - - 6 28 2.66 Mining (Operating) 3 27 - - 1 16 - - 4 18 2.50 Mining (Exploration^ - - 2 66 3 50 - - 5 23 1.40 Totals and fo Based on Row Sum i . i 52 3 14 6 28 1 5 21 - Percentages do not a l l add up to 100 because of rounding. Each time a partner was c i t e d as important, i t was mu l t i p l i e d by 3, as usefu l i t was multiplied by 2, as necessary i t was mu l t i p l i e d by 1, as useless by -1. These weighted values were then summed over each category to give a t o t a l weighted score f o r that group. 113 i m p o r t a n t " i n g e n e r a l . N e v e r t h e l e s s , 50% of t h e i r p a r t n e r s were con- s i d e r e d as " i m p o r t a n t " . However, i t was the o n l y c a t e g o r y i n which a case arose 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 important f o r e i g n p a r e n t s were the t r a d i n g companies. S i x o f them had 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 the "pulp and lumber", and " m i s c e l l a n e o u s group", and nine i n the "mining s e c t o r " . The nature o f busi 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 o f busi n e s s o f 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 . O b t a i n i n g raw m a t e r i a l was the reason mentioned 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 by more than 50% of the companies i n the raw m a t e r i a l c a t e g o r y . " E f f e c t i v e c o n t r o l " was "ve r y i m p o r t a n t " f o r the "pulp and lumber group". I t was more " a c c e p t a b l e " than " d e s i r a b l e " f o r the " m i s c e l l a n e o u s " and "mining e x p l o r a t i o n group". Seventy f i v e p e r cent o f the companies i n the "mining group" d e s c r i b e d i t as "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 venture were always t a k e n by "normal c h a n n e l s " i n the companies i n v o l v e d i n the "mining 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 " took such a d e c i s i o n 16% of the time i n the "pu 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 the same i n these two groups 16% and 33% of the time r e s p e c t i v e l y . 114 "Pulp and lumber group" was the 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 from the " 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 would 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 . " L o c a l p u b l i c i n v e s t o r s " was the second c h o i c e of a l l c a t e g o r i e s except m i n i n g . "Host government" was c l a s s i f i e d as the l e a s t d e s i r a b l e p o t e n t i a l a s s o c i a t e by a l l groups except the " m i s c e l l a n e o u s group". "Convenience of f a c i l i t i e s / r e s o u r c e s " was the most important 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 almost a l l groups. The "mining group" was the o n l y e x c e p t i o n , i n t h i s case "same l i n e o f b u s i n e s s " was the most s i g n i f i c a n t c r i t e r i o n . J o i n t v e n t u r e s i n t h i s group were the most independent. They a l s o were the JVs i n which the a s s o c i a t e s assumed the 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 . J o i n t v e n t u r e s from the "pulp and lumber" companies were at the o p p o s i t e end of the 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 the Japanese e q u i t y , share i n c r e a s e d , so d i d the dependence of the 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 r e c r u i t - ment and p e r s o n n e l . Japanese p a r t n e r s kept a u t h o r i t y over areas such as: 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 . J o i n t v e n t ures were under the c o n t r o l o f Japanese p a r e n t s f o r c a p i t a l 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 , promotion and compen- s a t i o n o f e x e c u t i v e s . 115 A s s o c i a t e s ' i n the " m i s c e l l a n e o u s group" were the most " i m p o r t - a n t " . 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 the l e v e l o f r e s p o n s i b i l i t y and the importance of the a s s o c i a t e s . 116 CHAPTER 6 ATTITUDES TOWARDS CONTROL T h i s c h a p t e r s t u d i e d some of the 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 towards 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 v e n t u r e s . How, f o r example, c o u l d t h e i r a t t i t u d e s towards c o n t r o l i n f l u e n c e t h e i r r a n k i n g of the f o l l o w i n g p o t e n t i a l a s s o c i a t e s : " 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 " , " l o c a l p r i v a t e " , "host government", and " l o c a l p u b l i c i n v e s t o r s " ? What was the 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 towards c o n t r o l and the dependence of 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 ? 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 they e x e r c i s e d c l o s e c o n t r o l ? D i d they i n c r e a s e t h e i r c o n t r o l when the p e r c e i v e d l e v e l of importance of t h e i r p a r t n e r s decreased? These are some of the q u e s t i o n s a n a l y s e d . Ranking o f p o t e n t i a l a s s o c i a t e s A t t i t u d e s 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 s h o u l d i n f l u e n c e t h e i r c h o i c e o f p o t e n t i a l a s s o c i a t e s . I f a f o r e i g n i n v e s t o r wished t o c o n t r o l the j o i n t v enture he was s e t t i n g up i n a f o r e i g n c o u n t r y , the 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 venture w i t h " l o c a l p u b l i c i n v e s t o r s " . "...Les l i e n s q u i l e s u n i s s e n t sont purement p e c u n i a i r e s . L 1 a c t i o n n a i r e t y p i q u e ne s ' i d e n t i f i e pas aux buts de 1 ' e n t r e p r i s e : i l n'esp^re pas l e s i n f l u e n c e r . I I d e t i e n t une p a r t 117 de l a p r o p r i e t e ; normallemerrt son s e u l s o u c i e s t q u ' e l l e l u i r a p p o r t e l e p l u s p o s s i b l e . " ^ T h i s was one of the s i m p l e s t methods through which' t o c o n t r o l a j o i n t v e n t u r e . Furthermore, the f o r e i g n i n v e s t o r d i d 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 j o i n t v e n t u r e . I t i s a w e l l known f a c t t h a t i n p u b l i c companies, an e n t e r p r i s e can take c o n t r o l even though i t a c q u i r e s l e s s than 50$ of the s h a r e s . T h e r e f o r e , t h i s p o t e n t i a l a s - s o c i a t e not o n l y would not i n t e r f e r e i n the management of the j o i n t v e n t u r e , but would a l s o present t o the f o r e i g n i n v e s t o r s the o p p o r t u n i t y t o c o n t r o l a f i r m w i t h o u t i n v e s t i n g too great an amount of money i n i t , o r at l e a s t r a t h e r l e s s perhaps than i f the j o i n t venture was t o be set up w i t h another p o t e n t i a l a s s o c i a t e . A reasonable second c h o i c e f o r companies d e s i r i n g t o e x e r c i s e c o n t r o l of a j o i n t v e n t u r e , would be " l o c a l p r i v a t e " p a r t n e r s . Theo- r e t i c a l l y , the f o r e i g n i n v e s t o r s can use, d u r i n g the n e g o t i a t i o n s w i t h i t s f u t u r e p a r t n e r , i t s s u p e r i o r i t y i n s i z e and the n a t u r e o f i t s con- t r i b u t i o n t o the j o i n t venture t o i n c r e a s e i t s e q u i t y s h a r e . F u r t h e r - 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 the " l o c a l p a r t n e r " c o u l d be so r e s t r i c t e d , t h a t the 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 over the 1. G a l b r a i t h , J . K . : Le Houvel E t a t I n d u s t r i e l , G a l l i m a r d , F r a n c e , 1968, p. 158. 118 p r i n c i p a l a c t i v i t i e s o f the j o i n t v e n t u r e . F o r companies w i t h no marked p r e f e r e n c e s f o r c o n t r o l , t h e r e s h o u l d be no 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 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 . However, "host government" would most l i k e l y be the l a s t c h o i c e of a l l companies. F o r a l l e n t e r p r i s e s , "host government" was not a f a v o u r e d p a r t n e r : such a p a r t n e r s h i p would 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 companies because of the f e a r t h a t the 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 p o l i t i c a l p r e s s u r e s . A t t i t u d e s toxvards c o n t r o l of Japanese e x e c u t i v e s and t h e i r 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 p r e s e n t e d i n Table 6.1, where the lower the s c o r e , the more p r e f e r a b l e the a s s o c i a t e . These r e s u l t s d i d not v e r i f y a l l the p r e v i o u s assumptions. F i r s t l y , " l o c a l p r i v a t e " and not " l o c a l p u b l i c i n v e s t o r s " was always the f i r s t c h o i c e and 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 over 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 " . As a Canadian i d e n t i t y i s e a s i e r t o o b t a i n through a p a r t n e r s h i p w i t h " l o c a l p r i v a t e " than w i t h " l o c a l 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 the f a c t t h a t t o be seen as Canadian was more important t han " e f f e c t i v e c o n t r o l " f o r Japanese companies. They were ready 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 o r d e r t o a c q u i r e a Canadian i d e n t i t y . Secondly, "host government" was not always the l a s t p a r t n e r chosen: the o n l y time i t was not happened when " e f f e c t i v e c o n t r o l " was mentioned as "necessary". 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 mentioning 119 TABLE 6.1 RANKING OP VARIOUS TYPES OF POTENTIAL ASSOCIATES ACCORDING TO JAPANESE COMPANY'S ATTITUDE TOWARD EFFECTIVE CONTROL OF A JV S t a t e d L e v e l Rank O r d e r i n g o f P o t e n t i a l JV A s s o c i a t e s of N e c e s s i t y f o r E f f e c t i v e F e l l o w Other L o c a l Host L o c a l P u b l i c C o n t r o l N a t i o n a l F o r e i g n P r i v a t e Government I n v e s t o r s •X- Weighted Average Score and ( 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) D e s i r a b l e * 3.00(2) 4.00(4) 1.00(1) 5.00(5) 3.00(2) A c c e p t a b l e 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) A l l - G r o u p Score 3.05(3) 3.42(4) 1.00(1) 4 .14(5) 2.88(2) Scores c a l c u l a t e d i n the same manner as i n Table 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 "effective control" as "necessary" were i n the "pulp and lumber group"; for these firms, who were basically looking for raw materials, "host government" was a better potential associate than "other foreign" or "fellow national". The assumption stating that " l o c a l public investors" are the best partners for enterprises wishing to exercise close "effective control" was p a r t i a l l y v e r i f i e d . Companies in the "control-conscious 2 group" mentioned " l o c a l public investors" as t h e i r second choice, whereas firms i n the "control unstressed group" ^ mentioned them as t h i r d choice. It was interesting to note that companies mentioning "effective control" as "unnecessary", selected "other foreign" as t h e i r second choice while i t was the fourth choice of a l l other companies in other groups. A potential reason could be that 75$ of these companies were involved i n mining operations and that these companies had a special interest i n this group of potential associates. As this issue was examined in the previous chapter, i t w i l l not be discussed again i n ' 4 detailb.. 2. Companies mentioning "effective control" as "necessary" or "desirable". 3 . Companies mentioning "effective control" 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 of Japanese p a r e n t s , scheduled o b j e c t i v e s , and reasons f o r s e l e c t i n g an a s s o c i a t e , were examined i n r e l a t i o n s h i p w i t h the 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 " . The r e s u l t s are pr e s e n t e d i n Table 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 m a t e r i a l s " f o r a l l companies c o n s i d e r i n g c o n t r o l as "necessary" and "unnecessary": t h e r e was no r e l a t i o n s h i p between these reasons and the 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 " . I t was the same s i t u a t i o n when a n a l y z i n g the r e l a t i o n s h i p s between the s i z e o f Japanese p a r e n t s , scheduled o b j e c t i v e s , and the Japanese 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 " . However, reasons f o r s e l e c t i n g an a s s o c i a t e e x p l a i n e d , t o a c e r t a i n e x t e n t , t h i s 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 " . The " 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 s , most o f the t i m e , f o r "con- venience of f a c i l i t i e s / r e s o u r c e s " , whereas most of the companies i n the " 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 b u s i n e s s " . 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 j o i n t v e n tures I f " e f f e c t i v e c o n t r o l " was important f o r Japanese companies i n v e s t i n g i n B.C., they would t r y t o i n c r e a s e t h e i r e q u i t y share 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 t would a l s o be reasonable t o expect t h a t t h e y would i n c r e a s e the 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 Necessity f o r E f f e c t i v e Control Necessary Desirable Acceptable Unnecessary Reasons for Going Into Joint Ventures Need f o r l o c a l raw material -100$ Need f o r l o c a l managers Other reasons -50$ Need f o r l o c a l managers Associate's project -40$ Spreading r i s k -20$ Size of Japanese Parent Very Large - 60$ Large -020$ Small - 20$ Scheduled Objectives Secure supply of raw material - 100$ Very Large - 50$ Exploration Medium - 50$ Miscellaneous Very Large - 25$ Large -350$ Small - 25$ Supply raw material Exploration Miscellaneous - 50$ 12$ 50$ 38$ Need f o r l o c a l Very Large - 75$ Secure supply of raw materials-100$ Medium - 25$ raw material - 100$ Percentages based on the number of companies i n each sub-sample. Reasons f o r Selec- t i n g an Associate Convenience of f a c i l i t i e s / resources - 60$ Past a s s o c i - ation - 40$ Convenience of f a c i l i t i e s / resources - 100$ Convenience of f a c i l i t i e s / resources - 12.5$ Past a s s o c i - a t i o n - 12.5$ Same,, l i n e of b'usin.3ss - 75$ Convenience of f a c i l i t i e s / resources - 50$ Past a s s o c i - ation - 25$ Same l i n e of business - 25$ 123 v i s - a - v i s the Japanese parents, and l i m i t the l e v e l of r e s p o n s i b i l i t i e s of t h e i r p a r t n e r s . To own more than 50% of the shares of a j o i n t venture, to r e s t r i c t the r e s p o n s i b i l i t i e s of a p a r t n e r and to i n f l u e n c e the p o l i c i e s of a s p e c i f i c j o i n t venture, r e a l l y seemed to be the best ways o f c o n t r o l l i n g a j o i n t venture. R e s u l t s presented i n Table 6.3 p a r a l l e l e d the above e x p e c t a t i o n s . As the.tstated 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 " went from "unnecessary" to "necessary", the e q u i t y share of Japanese companies and t h e i r l e v e l of r e s p o n s i b i l i t i e s i n c r e a s e d . There was, however, one exception: when " e f f e c t i v e c o n t r o l " was described as " d e s i r a b l e " , the p a t t e r n was not f o l l o w e d . Not only d i d these companies have a lower e q u i t y share than companies f o r which " e f f e c t i v e c o n t r o l " was "unnecessary", but a l s o t h e i r l e v e l of r e s p o n s i b i l i t i e s was higher than f o r the most " c o n t r o l - c o n s c i o u s " companies. Three reasons could e x p l a i n such a s i t u a t i o n : f i r s t l y , there were only two companies i n t h i s c a t - egory, which could b i a s the r e s u l t s ; secondly, one of the two companies entered i n t o a j o i n t venture w i t h other Japanese companies, which could 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 or l e s s shares and i t s 5 w i l l i n g n e s s to delegate more or l e s s r e s p o n s i b i l i t i e s to i t s a s s o c i a t e s ; 5. In t h i s p a r t i c u l a r case, the Japanese company that i n i t i a t e d the j o i n t venture owned few shares, but assumed a high l e v e l of respon- s i b i l i t y . 124 TABLE 6.3 STRUCTURAL DEPENDENCE SCORES OP JOINT VENTURES ACCORDING TO FOREIGN PARTNER'S DESIRE FOR EFFECTIVE CONTROL 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 Number of JVs E q u i t y Share o f F o r e i g n Parent A s s o c i a t e ' s R e s p o n s i b i l i t y J V s Independence i n P o l i c y Areas Weighted Average Score and (Group Order Rank) Necessary 5 D e s i r a b l e 2 A c c e p t a b l e 8 Unnecessary 4 A l l - G r o u p Average Score 3.80(4) 1.50(1) 2.00(3) 1.75(2) 2.26 2.59(3) 3.13(4) 1.66(2) 1.28(1) 2.16 2.36(4) 2.22(3) 1.78(2) 1.57(1) 1.98 Scores c a l c u l a t e d i n the same manner as i n Table 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 . 125 t h i r d l y , n e i t h e r company was i n the " o p e r a t i n g raw m a t e r i a l group": one was i n the " m i s c e l l a n e o u s group" whereas the o t h e r was 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 . Concerning the " j o i n t v e n t u r e ' s independence i n p o l i c y a r e a s " , Japanese j o i n t v e n t u r e s i n B.C. f o l l o w e d the assumption: as the ne- 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 the dependence of j o i n t v e n t u r e s . The " 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 v e n tures t han d i d " a l l companies" i n g e n e r a l , w h i l e the " c o n t r o l - u n s t r e s s e d group" 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 v e n t u r e s R e l a t i o n s h i p s between the 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 " mentioned by Japanese e x e c u t i v e s , and the p r o f i t a b i l i t y o f 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 are p r e s e n t e d i n Table 6 . 4 « The r e s u l t s i n d i c a t e d t h a t 44% of j o i n t v e n t u r e s set up by the " c o n t r o l - u n s t r e s s e d group" showed "very l a r g e " ^ p r o f i t s , w h i l e t h i s was o n l y t r u e f o r 6. P r o f i t s were c l a s s i f i e d 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 : Very l a r g e Large Medium Small Over $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 $•§• m i l l i o n . 126 TABLE 6.4 ATTITUDES TOWARD CONTROL AND PROFITABILITY OF JOINT VENTURES C o n t r o l - C o n s c i o u s C o n t r o l - U n s t r e s s e d E q u i t ; S i z e o f P r o f i t s Group Group Share Very Large 1 2 0 % ( l ) 4<2> 3 44% 12 1.56 Large 3 60% 9 1 14% 3 3.25 Medium - - - 1 14% 2 2.00 Small 1 20% 1 2 28% 2 3.66 T o t a l s 5 100% 14(2.8) 7 100% 19(2 .71) - Percentages based on column sum. (2) Each time a j o i n t venture showed v e r y l a r g e p r o f i t s , i t was a t - t r i b u t e d 4 p o i n t s ; l a r g e p r o f i t s , 3; medium p r o f i t s , 2; and s m a l l p r o - f i t s , 1 p o i n t . These v a l u e s were summed over each group and d i v i d e d by the number of JVs i n each group t o g i v e an average weighted score f o r t h a t group. (Value shown i n () ) (3) * v When the parent share i n JV e q u i t y was under 25%, i t was a t t r i b u t e d 1 p o i n t ; between 25% and 49%, 2 p o i n t s ; 50%, 3 p o i n t s ; and over 50%, 4 p o i n t s . These v a l u e s were added and d i v i d e d by the number of com- pani e s w i t h i n each c a t e g o r y , t o g i v e an average val u e f o r each c a t e g o r y . 127 20$ of those from the "control-conscious group". One group seemed to be involved in joint ventures showing larger profits than those of the other. Nevertheless, when the average weighted scores were compared, the latter 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 in 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 profitability of joint ventures. If the Japanese equity share was taken as representing the desire for "effective control" by Japanese companies over their assoc- iated 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 in 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 in the "miscellaneous group" which represented less than l$"of Japanese investments in B.C.. If the other JV from this group was eliminated from the "small" profits category, this category would have shown 4*0 instead of 3.6. 128 Importance o f a s s o c i a t e s U s u a l l y , when f o r e i g n i n v e s t o r s d i d not e v a l u a t e i t s p a r t n e r s as i m p o r t a n t , t h e y t r i e d t o i n c r e a s e t h e i r c o n t r o l over j o i n t v e n t u r e s i n o r d e r t o i n c r e a s e the chances of s u c c e s s . A t t i t u d e s of Japanese e x e c u t i v e s s h o u l d be a n a l y s e d w i t h a c e r t a i n prudence, f o r two reasons f i r s t , "a poor o p i n i o n may be s a i d t o r e f l e c t a poor l e v e l o f com- petence ( i n s e l e c t i o n o f a s s o c i a t e s ) , and respondents may t h e r e f o r e t r y not t o r e c o g n i z e o r p u b l i c i z e such an o p i n i o n . " Secondly, as p o i n t e d out p r e v i o u s l y , Japanese do not l i k e t o con f e s s t h e i r mistakes T h e r e f o r e , i t would be reasonable t o expect t h a t , d e s p i t e t h e i r p r e f e r ences f o r " e f f e c t i v e c o n t r o l " , Japanese e x e c u t i v e s would not c l a s s i f y t h e i r p a r t n e r s as "unimportant". R e s u l t s p r e s e n t e d i n Table 6.5 confirmed our e x p e c t a t i o n s : o n l y one p a r t n e r was c l a s s i f i e d as "use- l e s s " and s i x as "necessary". S i x t y per cent o f the p a r t n e r s o f Japanese companies c o n s i d e r i n g " e f f e c t i v e c o n t r o l " as "necessary" were c l a s s i f i e d as " i m p o r t a n t " : i t was the h i g h e s t percentage t a k e n over a l l c a t e g o r i e s . The " c o n t r o l c o n s c i o u s group" c l a s s i f i e d 85$ of i t s p a r t n e r s as " i m p o r t a n t " o r 8. Tomlinson, J.W.C.: The J o i n t Venture Process 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 , Cambridge, Mas- s a c h u s e t t s and London, England, 1970, p. 148. 9. See Chapter 3. 129 TABLE 6.5 JAPANESE PARENT COMPANIES * ATTITUDES TOWARD. EFFECTIVE CONTROL AND THEIR COMMENTS ON ASSOCIATES' IMPORTANCE TO THE JV 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 Importance o f A s s o c i a t e s t o t h i s JV Important U s e f u l Necessary U s e l e s s Row T o t a l Necessary D e s i r a b l e A c c e p t a b l e Unnecessary Column T o t a l 3 1 3 2 1 1 1 4 2 5 2 8 4 194 Two JVs d i d not d i s c l o s e i n f o r m a t i o n . 130 " u s e f u l " , w h i l e the " c o n t r o l - u n s t r e s s e d group" c l a s s i f i e d 50$ of t h e i r p a r t n e r s i n the 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 towards c o n t r o l tended 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 importance of p a r t n e r s . Summary Japanese e x e c u t i v e s always ranked " l o c a l p r i v a t e " as t h e i r f i r s t c h o i c e f o r a p o t e n t i a l a s s o c i a t e , d e s p i t e 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 . " L o c a l p u b l i c 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 the second c h o i c e of the " c o n t r o l - c o n s c i o u s group", and the t h i r d c h o i c e o f the " c o n t r o l - u n s t r e s s e d group". Out of f o u r c r i t e r i a used t o e x p l a i n the b e h a v i o r of Japanese e x e c u t i v e s c o n c e r n i n g " 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 the most a c c u r a t e . J o i n t venture 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 " i n c r e a s e d s i m u l t a n e o u s l y . However, i t has been i m p o s s i b l e t o f i n d 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 the r e l a t i o n s h i p between a t t i t u d e s towards " 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 of j o i n t v e n t u r e s , n e v e r t h e l e s s , i t was noted 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 v e n t u r e s i n c r e a s e d as the Japanese share i n these j o i n t v e n t u r e s decreased. While 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 the p a r t of 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 Japanese e x e c u t i v e s , i n d e s c r i b i n g the l e v e l of importance of 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 Japanese 1 3 1 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 the most important p a r t n e r s . 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 reaso n s ; 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, as f o l l o w s : " t o o b t a i n raw m a t e r i a l " , " p o l i t i c a l s t a b i l i t y " , "raw market", 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 " . The two f i r s t reasons were mentioned by companies 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 the o t h e r two were mentioned by f i r m s i n the " m i s c e l l a n e o u s group". F o r the b e n e f i t o f the p r o v i n c i a l and f e d e r a l government, i t must be s t r e s s e d thathJapanese mentioned t h a t the p o l i t i c a l e n v i r o n - ment had been more s t a b l e i n the past than i t was at the time t h i s r e s e a r c h was c a r r i e d o u t . Si n c e c l o s e t o h a l f o f Japanese j o i n t v e n t u r e s i n B r i t i s h Columbia were i n v o l v e d i n mining o p e r a t i o n s o r mi n i n g e x p l o r a t i o n , and because " B i l l 3 1 " was b e i n g debated i n V i c t o r i a when t h i s s tudy was conducted, i t was reasonable t o expect such a nuance from Japanese i n v e s t o r s . The p r o v i n c i a l government c l e a r l y does not 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 because f o r e i g n i n v e s t o r s do not a p p r e c i a t e i t . However, t h e y s h o u l d be aware of the consequences o f these p o l i c i e s and should 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 the b u s i n e s s community i n g e n e r a l . Any a c t i o n s e l e c t e d , and i t was not the purpose of t h i s s t u d y t o suggest some, t o keep " p o l i t i c a l s t a b i l i t y " as important as 133 i t was i n the p a s t , would c e r t a i n l y p l e a s e Japanese and o t h e r f o r e i g n i n v e s t o r s . Japanese e x e c u t i v e s a l s o c r i t i c i z e d the absence of c l e a r r u l e s r e g a r d i n g f o r e i g n investments i n Canada: q u i t e o f t e n t h e y a d m i t t e d t h a t t h e i r problem was not w i t h the p o t e n t i a l changes i n the law t h a t Ottawa might make, p r o b a b l y towards more r e s t r i c t i v e r e g u l a t i o n s , but 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 a mplitudes of these changes, and t h e i r t i m i n g . As i n v e s t o r s i n g e n e r a l t r y t o l e s s e n the l e v e l of u n c e r t a i n t y , i t h e Japanese have reduced t h e i r l e v e l by f r e e z i n g , or at l e a s t r e d u c i n g , t h e i r investments i n Canada. Sin c e Japanese investments are v e r y l a r g e i n B r i t i s h Columbia and important t o the economy of the p r o v i n c e , the sooner t h i s s i t u a t i o n i s c l a r i f i e d , the b e t t e r f o r B.C.. One 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 Japanese f i r m s need raw m a t e r i a l s , t h e y w i l l i n v e s t i n B.C. d e s p i t e t h e i r e v a l u a t i o n of low " p o l i t i c a l s t a b i l i t y " . Furthermore, one c o u l d a l s o 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 s t a b i l i t y " i s even lower than i n Canada, and second t h a t the two c o u n t r i e s main- t a i n good r e l a t i o n s h i p s . Then, why be w o r r i e d ? One reason c o u l d be t h a t " p o l i t i c a l s t a b i l i t y " c o u l d be a more important f a c t o r i n the f u t u r e i f Canadians want t o o b t a i n l a r g e r Japanese investments o u t s i d e the raw m a t e r i a l s i n d u s t r y . Japanese i n v e s t o r s u s u a l l 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 be- 134 cause 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 m a t e r i a l s " and "need f o r localiananagers and t e c h n i c i a n s " were the most important reasons mentioned by Japanese companies f o r e x p l a i n i n g t h e i r i n v e s t - ments i n the form of j o i n t v e n t u r e s . E n t e r p r i s e s i n the "raw m a t e r i a l group" mentioned the f i r s t reason as the most important one, and the second reason as t h e i r second 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 v e n t u r e s . A l l j o i n t v e n t u r e s i n the "pulp and lumber group" were set up because Japanese 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 j o i n t v e n t u r e s i n the "mining group" were set up t o s a t i s f y the same needs. Pour j o i n t v e n t u r e s from the l a t t e r group were set up by Japanese 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 j o i n t v e n t u r e s from these two groups mentioned "need f o r l o c a l managers and t e c h - n i c i a n s " as the second reason 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 . H a l f o f the companies i n the " m i s c e l l a n e o u s group" went i n t o j o i n t v e n t u r e s because of t h e i r " a s s o c i a t e ' s p r o j e c t " . As the s i z e o f 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 r e a sons, i n descending o r d e r o f importance: "need 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 t e c h n i c i a n s " , " l o c a l i d e n t i t y " , and " a s s o c i a t e ' s p r o j e c t " . Canadian businessmen, a c c o r d i n g t o Japanese 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 r e a - sons: " a v a i l a b i l i t y of c a p i t a l " , and "growth-strengthen demand- p r o f i t " . Most Canadian businessmen were i n t e r e s t e d by the f i r s t 135 r e a s o n : the v a l u e of j o i n t v e n tures s et up f o r t h i s reason r e p r e - sented 95$ of the t o t a l v a l u e of Japanese investments i n B r i t i s h Columbia. "Growth-strengthen demand-profit" was u s u a l l y the second reason mentioned. "Know-how" was the reason mentioned as the most important one, by most j o i n t v e n t u r e s i n the " m i s c e l l a n e o u s group": even though these 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$ of Japanese j o i n t v e n t u r e s i n B r i t i s h Columbia, they accounted f o r l e s s than 1$ of the t o t a l v a l u e o f Japanese investments i n B.C.. Japanese c o n t r o l 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 not i n f l u e n c e d by the s i z e o f the Japanese parent o r by the nature o f i t s c o n t r i b u t i o n . I t was, however, i n f l u e n c e d by the reasons mentioned by Japanese f i r m 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 : when t h e y e n t e r e d i n t o j o i n t v e n tures 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 weaker than when they 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 of b u s i n e s s of a s s o c i a t e d j o i n t v e n t u r e s was the main c r i t e r i o n f o r e v a l u a t i n g 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 " f o r Japanese p a r e n t s . J o i n t v e n t u r e s i n the "pulp and lumber group" 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 "necessary" f o r them, those i n the " m i s c e l l a n e o u s " and "mining e x p l o r a t i o n group" d e s c r i b e d i t as "ac- 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" s t a t e d t h a t i t was "unnecessary". U s u a l l y , as the s i z e o f investments i n - 136 c r e a s e d , the 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 the same; the " e q u i t y share" of Japanese par e n t s a l s o i n c r e a s e d s i m - 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 c o n t r o l " . As the l e v e l of dependence of j o i n t v e n t u r e s v i s - a - v i s t h e i r 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 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 o i n t v e n t u r e s i n the "pulp and lumber group" were the most dependent ones, 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"'were the most independent ones. I n g e n e r a l , J a p - 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 over the f o l l o w i n g a c t i v i t i e s : " 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 " , "marketing and d i s t r i b u t i o n " . J o i n t v e n t u r e s were under 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 the f o l l o w i n g p o l i c i e s : " c a p i t a l e x p e n d i t u r e " , " s e l e c t i o n , promotion, and compensation of e x e c u t i v e s " , "product s e l e c t i o n , d e s i g n , and p l a n n i n g " , "marketing and s a l e s " . 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 used by Japanese 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 o f a s p e c i f i c a s s o c i a t e : "convenience of f a c i l i t i e s / r e - s o u r c e s " , and "same l i n e o f b u s i n e s s " . . Japanese companies which 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 of l o c a l raw m a t e r i a l " s e l e c t e d t h e i r 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 " , w h i l e those 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 b u s i n e s s " . 137 As the l a r g e s t investments were made i n raw m a t e r i a l i n d u s t r i e s , which i n c l u d e d "pulp and lumber" and "mining group", Japanese i n v e s t - i n g 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 "convenience of f a c i l i t i e s / r e s o u r c e s " . Furthermore, as "very l a r g e " e n t e r p r i s e s 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 chosen f o r "convenience of f a c i l i t i e s / r e s o u r c e s " . F i n a l l y , as the s i z e o f investments i n c r e a s e d , the 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 the same; t h u s , the " 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 the " 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 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 " . Canadian businessment Canadian businessmen 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 Japanese i n v e s t o r s s h o u l d t r y , f i r s t , t o e s t a b l i s h commercial l i n k s w i t h Japanese companies; the " s h o j i k a i s h a " would c e r t a i n l y be a good s t a r t . Even i f t h e y are not s u c c e s s f u l i n the e s t a b l i s h m e n t of such l i n k s , t h e y 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 are 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 the f u t u r e , i f p o s s i b l e . T h i s study made i t v e r y c l e a r t h a t p r i o r knowledge o f Canadian businessmen by Japanese companies was i m p o r t a n t . Secondly, Canadian businessmen s h o u l d make the i n i t i a l c o n t a c t 138 when they want t o set up a j o i n t v e n t u r e . Most o f the t i m e , the i n - i t i a l c o n t a c t s i n t h i s study were made hy Canadians, who knew t h a t Japanese f i r m s were i n t e r e s t e d . When Japanese made the i n i t i a l c o n t a c t , t h e y i n t u r n knew t h a t Canadians were i n t e r e s t e d . One of the best ways t o f i n d out i f Japanese are 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 would be i n t e r e s t e d i n a j o i n t venture 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 r e l a t i o n s h i p w i t h them. 139 BIBLIOGRAPHY Books: A h a r o n i , Y a i r . The F o r e i g n Investment 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 Research, Graduate School 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, I 9 6 6 . B i v e n s , K.K. and L o v e l l , E.B. J o i n t Ventures 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 Survey 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 . Na- t i o n a l I n d u s t r i a l Conference Board, New York, I 9 6 6 . Friedmann, W.G. and Kalmanoff, 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 Ventures, New York, Columbia 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. Le Nouvel 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 , 1968. Schwind, H.F. and P e t e r s o n , R.B. P e r s o n n e l Problems i n I n t e r n a t i o n a l Companies i n Japan. U.B.C, Unpublished r e s e a r c h . Tomlinson, J.tf.C. The J o i n t Venture Process 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 , Cambridge, Massachusetts and London, England, 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. pu l p m i l l s " , Toronto, F e b r u a r y 14, 1974. , "Loans f a v o r e d over e q u i t i e s i n mining", Toronto, F e b r u a r y 14, 1974* , " I n d u s t r i a l investment v a r i e d " , Toronto, February 14, 1974. "Japanese p r e f e r j o i n t v e n t u r e s i n B.C.", Toronto, 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 Japan", Vancouver, March 20, 1974. 140 __, "B.C. h i t s No. 1 with Japanese investors", Vancouver, March 20, 1974. The Vancouver Sun, "Stock Markets", June 14, 1974- Government Publications: 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 Evaluation of B r i t i s h Columbia Trade Opportunities, V i c t o r i a , 1972. Ministry of International Trade, Overseas Business A c t i v i t i e s of J Japanese Enterprises, MITI Information Office, Tokyo, October 1973. OECD, Overall Trade by Countries, Paris, A p r i l 1974. , Trade by Commodities, January-September 1973, Paris, 1974. The Standing Senate Committee on Foreign Affairs'^ Report on Canadian Relations with the Countries of the P a c i f i c Rim, Information Canada, Ottawa, March 1972. APPENDIX QUESTIONNAIRE FORM USED IN THE STUDY 142 SECTION 1 GENERAL AND FINANCIAL INFORMATION 1. What i s the nature of business of your company? 2. Would you please specify f o r the f o l l o w i n g years: Year Assets Sales P r o f i t NRI NPCE NPGS I960 1965 1970 1971 1972 1973 NRI : net return on investment. NPCE: net p r o f i t on c a p i t a l employed. NPGS: net p r o f i t on group s a l e s . 3. For each goint venture i n which you are involved i n B r i t i s h Columbia, please spe c i f y : (a) Nature of business: (b) Date of commitment agreement: (c) Date operations commenced: (d) Assets: (e) Sales: ( f ) T o t a l c a p i t a l employed: (m) Net Worth: (h) P r o f i t a b i l i t y : 143 4. P l e a s e p r o v i d e as f a r as p o s s i b l e , the 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: F i n a n c i a l E a r n i n g s before E a r n i n g s Net Income Income R e p a t r i a t e d Year L o c a l T a x a t i o n o f L o c a l Tax D i s t r i b u t e d t o Your Company 1965 1970 1971 1972 1973 5. P l e a s e s p e c i f y f o r each j o i n t v e n t u r e : (a) Name,(;s) of p a r t n e r ( s ) : (b) Value o f h i s investment: (c) H i s % o f e q u i t y : (d) H i s % o f debt: (e) Value o f your investment: ( f ) Your % of e q u i t y : (g) Your % of debt: (h) I f " c " and " f " are not equ a l t o 100%, who h o l d s the r e m a i n i n g p a r t ? ( i ) I f "d" and "g" are not equ a l t o 100%, who assumes the r e m a i n i n g p a r t ? 6. Who was the d r i v i n g f o r c e i n your company f o r the 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 from your 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 your f i r m ( c ) A s p e c i a l i n t e r e s t group (d) Normal channels 7. How l o n g d i d the commitment d e c i s i o n t a k e ? (number o f months) a( ); b( ); c( ). 144 8. Who t o o k t h e f i n a l d e c i s i o n ? ( A p a r t f r o m f i n a l b o a r d a p p r o v a l ) ( a ) A n 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 C a n a d a / B . C . ( b ) A n i n d i v i d u a l i n y o u r f i r m ( c ) A s p e c i a l i n t e r e s t g r o u p ( d ) N o r m a l c h a n n e l s 9 . 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 c a p i t a l o f t h e J V w a s i n t h e f o r m o f : i n i t i a l l y S u b s e q u e n t l y Comments ( a ) M a c h i n e r y , p l a n t e q u i p m e n t ? ( b ) T e c h n i c a l s e r v i c e s ? ( c ) P a t e n t s , l i c e n c e s , i n f o r m a t i o n ? ( d ) C a s h ? ( e ) O t h e r ? ( P l e a s e s p e c i f y ) 10 . What w e r e t h e m o s t 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 c o m p a n y , i n e a c h J V ? ( P l e a s e r a n k i n i m p o r t a n c e f r o m l = m o s t 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 ) C a s h : (h) E q u i p m e n t : ( c ) P a t e n t s a n d t e c h n i c a l a s s i s t a n c e : (d) P r o d u c t i o n know h o w : ( e ) M a r k e t : (f) M a n a g e m e n t : (g) O t h e r ( P l e a s e s p e c i f y ) : 11 . P l e a s e i n d i c a t e how much y o u r c o m p a n y r e c e i v e d u n d e r f o l l o w i n g i t e m s , f o r : ( f o r e a c h j o i n t v e n t u r e ) Y e a r I n t e r e s t R o y a l t i e s P e e s : m a n a g e - C a p i t a l ment , know how r e p a t r i a t e d 1st y e a r o f o p e r a t i o n 5th y e a r o f o p e r a t i o n 1970 1971 1972 1973 145 12. How many Canadians and Japanese were employed at t h e f o l l o w i n g l e v e l s ? (a) Board of d i r e c t o r s : (b) E x e c u t i v e s : (c) D i r e c t o r s : (d) M a n a g e r i a l : (e) S u p e r v i s o r s : ( f ) Other: (g) T o t a l : SECTION 2 DECISION TO INVEST IN BRITISH COLUMBIA 1. P l e a s e i n d i c a t e what reasons encouraged you 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=least important reason) (a) New market (b) 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 (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 c o m p e t i t i o n ( f ) U s i n g p a t e n t s / l i c e n c e s (g) U s i n g equipment (h) Lower c o s t c o n d i t i o n s ( i ) To o b t a i n m a t e r i a l s ( j ) To o b t a i n r e s o u r c e s / f a c i l i t i e s (k) Host government i n c e n t i v e s ( l ) P o l i t i c a l s t a b i l i t y (m) Other reasons ( p l e a s e d e s c r i b e ) 2. Were these investments made a f t e r : (a) An i n t e r n a t i o n a l survey of o p p o r t u n i t i e s ? (b) A p r i o r survey of the p r o v i n c e of B.C.? ( P l e a s e i n d i c a t e who c a r r i e d t h i s survey a f t e r " a " and "b") (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) Other source or method (P l e a s e d e s c r i b e ) 146 How l o n g d i d any surveys t a k e ? (Number o f months) How l o n g d i d the d e c i s i o n t o i n v e s t take a f t e r f i r s t c o n s i d e r a t i o n of the o p p o r t u n i t y ? (Number of months) Pl e a s e i n d i c a t e why you opted f o r a j o i n t venture i n B r i t i s h Columbia. ( l = most important r e a s o n ; 4=least important reason) (a) E x p l i c i t host government p r e s s u r e (b) I m p l i c i t host government p r e s s u r e (c) S p r e a d i n g r i s k ( P o l i t i c a l - F i n a n c i a l - O t h e r ) (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 - M a n a g e r i a l - T e c h n i c a l (e) A s s o c i a t e ' s p r o j e c t ( f ) L o c a l i d e n t i t y (g) Other reasons ( p l e a s e d e s c r i b e ) 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? Why? ( P l e a s e i n d i c a t e f o r each j o i n t v e n t u r e ) . What c r i t e r i o n d i d your f i r m use f o r the s e l e c t i o n o f your a s s o c i a t e (l=most i m p o r t a n t ; 4=least i m p o r t a n t ) (a) Forced c h o i c e (b) Same l i n e o f busi n e s s (c) Convenience o f f a c i l i t i e s / r e s o u r c e s (d) Past a s s o c i a t i o n s ( l i c e n c e , customer, d i s t r i b u t o r , purchaser) ( P l e a s e i n d i c a t e ) . (e) S t a t u s , I d e n t i t y ( f ) Other reasons ( p l e a s e d i s c u s s ) Why, do you t h i n k , your 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 v enture w i t h your f i r m ? (a) Know how (b) C a p i t a l ( c ) P r o f i t a b i l i t y (d) Growth (e) Do not know ( f ) To s t r e n g t h e n demand (g) Other ( P l e a s e d i s c u s s ) 147 SECTION 3 ASSOCIATES 1. Did you have a previous knowledge of your associate? (Please indicate for each joint venture.) Know by people i n JV Name of the company None Past associates several one nobody 2. How long did you look for your partner? (Number of months) 3. Who made the original contact, regarding a joint venture? (a) Canadians (b) Japanese 4. Please indicate which of the following methods was used: (a) Japanese firm was known to be interested and was approached by the associate (b) Associate was known to be interested and was approached by the Japanese firm (c) Cold canvas: Japanese firm contacted by associate (d) Cold canvas: Associate contacted by Japanese firm (e) Partners put i n touch by a private 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 associates 5. Would you say that your partner i s : (please indicate for each joint venture) (a) Important (b) Useful (c) Necessary (d) Useless 148 6. Would you evaluate your partner as: (please indicate for each joint venture) (a) Effective (b) Non-effective (c) Neutral 7. Did you consider other potential associates? If not, why? If yes, why were they rejected? 8. If you could have a complete freedom in the choice of your associate for a joint venture in B.C., who will 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 4 EVALUATION 1. How does your company evaluate the performance of the joint ventures? (a) In terms of return on investment: (b) What is the minimum acceptable level: (c) In terms of fo overall profit (before or after local taxes): (d) What is the minimum acceptable level: (e) Achievement of other scheduled objectives: (Please describe) 2. Are the acceptable levels indicated in l(b) or l(d) or implied in l(e) higher/lower, or the same as in: (a) Your company's parent country? (b) Other developed countries? 1 4 9 3. Has the j o i n t venture reached these o b j e c t i v e s ? (For each j o i n t venture) (Please comment) (a) B e t t e r than expected (b) About the same as (c) Less than (d) Too soon to judge (e) Unclear 4 . Is your company s a t i s f i e d with the manner i n which the j o i n t ventures were set up and developed, and i t s present operations? 5. What was the importance of your partner i n rea c h i n g these o b j e c t i v e s ? (Please i n d i c a t e f o r each j o i n t venture and d i s c u s s . ) (a) Very important (b) Important (c) Necessary (d) Useless 6. Would your company p a r t i c i p a t e i n other JVs? (a) In the province of t h i s study? (bi) In the country of t h i s study? (c) In other developed c o u n t r i e s ? (d) In less-developed c o u n t r i e s ? SECTION 5 CONTROL 1. Does your company~(or parent company) c o n s i d e r c o n t r o l as: (a) Necessary (b) D e s i r a b l e (c) Acceptable (d) Unnecessary 150 2. Does your company ( o r parent 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 as: (a) Necessary (b) D e s i r a b l e (c) A c c e p t a b l e (d) Unnecessary 3. P l e a s e 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 v e n t u r e . (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 res p o n - s a b i l i t y . ) Hj'For each 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 procurement. (c) 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 . (d) P r o d u c t i o n . (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 ( i n c l u d i n g o b t a i n i n g c a p i t a l ) . (g) Recruitment and p e r s o n n e l . (h) 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 . ( i ) P u b l i c r e l a t i o n s . 4. P l e a s e i n d i c a t e the J V s independence i n the f o l l o w i n g p o l i c i e s : (H: h i g h l y independent; I : independent; C: c o n s i d e r a b l e c o n t r o l by Japanese p a r e n t ; CC: c l o s e c o n t r o l by Japanese p a r e n t . ) ( F o r each JV) (a) C a p i t a l e x p e n d i t u r e . (b) P r i c i n g . (c) D i v i d e n d p o l i c y . (d) O r g a n i z a t i o n . (e) Product s e l e c t i o n , d e s i g n , and p l a n n i n g . ( 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) Q u a l i t y c o n t r o l . (h) M a r k e t i n g and s a l e s . ( i ) P u r c h a s i n g . ( 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 compensation o f e x e c u t i v e s . 151 5. Have c o n f l i c t s arisen with your associates over the following issues? (Please discuss) (a) Reinvestment: (b) Increasing -investment: (c) Growth rate of sales: (d) . Growth rate of p r o f i t s : (e) Transfer p r i c i n g of materials: (f) Other sources of return to your company: (g) Other issues: 6. How were these c o n f l i c t s resolved?

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