"Arts, Faculty of"@en . "Geography, Department of"@en . "DSpace"@en . "UBCV"@en . "Kurihara, Tamiko"@en . "2010-08-06T13:58:54Z"@en . "1986"@en . "Doctor of Philosophy - PhD"@en . "University of British Columbia"@en . "This thesis examines the spatial and sectoral characteristics of Japanese Direct Foreign Investment (DFI) since 1951 with particular attention to sogo shosha investment in the United States and Canada. The thesis presents five main conclusions.\r\nFirst, the internal conditions of Japan have considerably influenced Japanese DFI and the role of sogo shosha. Second, the investment climate of the United States has proved increasingly attractive to Japan. The United States has received the largest amount of postwar accumulated Japanese DFI. Canada with a smaller market and less favorable investment environment has received a smaller amount of investment ranking overall eleventh in total Japanese DFI in the world.\r\nThird, Japanese investment has been directed at securing a supply of natural resources. It has also sought a market for its manufactured products by increasing its investment in commerce and services. Throughout much of the period, manufacturing investment has concentrated in developing countries but this situation is changing with an increasing proportion in North America in the last ten years. Most significantly with the rising value of the yen, major financial investments are now occurring in North America. Fourth, sogo shosha investment long associated with commerce has locationally been flexible in the North American context, setting up new offices in the rapidly emerging information and transportation centers such as Los Angeles and Denver. However, except for single resource-based areas, sogo shosha investment has little effect on regional economies. While the sogo shosha proportion of total Japanese DFI is declining, they still practice a well established management style involving minority equity shareholding and long-term purchasing contracts in North American companies which give them access to information and management decision-making.\r\nFinally, the thesis shows the need for theoretical explanations of Japanese DFI to be revised in the light of the constantly changing empirical dimensions and an understanding of the importance of Japan in the contemporary world economy."@en . "https://circle.library.ubc.ca/rest/handle/2429/27123?expand=metadata"@en . "JAPANESE DIRECT FOREIGN INVESTMENT IN THE UNITED STATES AND CANADA BY SOGO SHOSHA SINCE 1951 by TAMIKO KURIHARA B.A., I n t e r n a t i o n a l C h r i s t i a n U n i v e r s i t y , 1977 M.A., Ochanomizu U n i v e r s i t y , 1980 A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY in THE FACULTY OF GRADUATE STUDIES Department of Geography We accept t h i s t h e s i s as conforming to the r e q u i r e d standard THE UNIVERSITY OF BRITISH COLUMBIA October 1986 \u00C2\u00A9 TAMIKO KURIHARA, 1986 In presenting t h i s thesis i n p a r t i a l f u l f i l m e n t of the requirements for an advanced degree at the University of B r i t i s h Columbia, I agree that the Library s h a l l make i t f r e e l y available for reference and study. I further agree that permission for extensive copying of t h i s thesis for scholarly purposes may be granted by the head of my department or by his or her representatives. I t i s understood that copying or publication of t h i s thesis for f i n a n c i a l gain s h a l l not be allowed without my written permission. Department O f Geography The University of B r i t i s h Columbia 1956 Main Mall Vancouver, Canada V6T 1Y3 Date October 14, 1986 DE - 6 n/sn ABSTRACT T h i s t h e s i s examines the s p a t i a l and s e c t o r a l c h a r a c t e r i s t i c s of Japanese D i r e c t F o r e i g n Investment (DFI) s i n c e 1951 w i t h p a r t i c u l a r a t t e n t i o n t o sogo shosha i n v e s t m e n t i n the U n i t e d S t a t e s and Canada. The t h e s i s p r e s e n t s f i v e main c o n c l u s i o n s . F i r s t , the i n t e r n a l c o n d i t i o n s of Japan have c o n s i d e r a b l y i n f l u e n c e d Japanese DFI and the r o l e of sogo shosha. Second, the inve s t m e n t c l i m a t e of the U n i t e d S t a t e s has p r o v e d i n c r e a s i n g l y a t t r a c t i v e t o Japan. The U n i t e d S t a t e s has r e c e i v e d the l a r g e s t amount of postwar a c c u m u l a t e d Japanese DFI. Canada w i t h a s m a l l e r market and l e s s f a v o r a b l e investment environment has r e c e i v e d a s m a l l e r amount of investment r a n k i n g o v e r a l l e l e v e n t h i n t o t a l J apanese DFI i n the w o r l d . T h i r d , Japanese i n v e s t m e n t has been d i r e c t e d a t s e c u r i n g a s u p p l y of n a t u r a l r e s o u r c e s . I t has a l s o sought a market f o r i t s manufactured p r o d u c t s by i n c r e a s i n g i t s i n v e s t m e n t i n commerce and s e r v i c e s . Throughout much of the p e r i o d , m a n u f a c t u r i n g i n v e s t m e n t has c o n c e n t r a t e d i n d e v e l o p i n g c o u n t r i e s but t h i s s i t u a t i o n i s c h a n g i n g w i t h an i n c r e a s i n g p r o p o r t i o n i n N o r t h America i n the l a s t t e n y e a r s . Most s i g n i f i c a n t l y w i t h the r i s i n g v a l u e of the yen, major f i n a n c i a l i n v e s t m e n t s a r e now o c c u r r i n g i n N o r t h A m e r i c a . i i F o u r t h , sogo shosha investment long a s s o c i a t e d with commerce has l o c a t i o n a l l y been f l e x i b l e i n the North American co n t e x t , s e t t i n g up new o f f i c e s i n the r a p i d l y emerging i n f o r m a t i o n and t r a n s p o r t a t i o n c e n t e r s such as Los Angeles and Denver. However, except f o r s i n g l e resource-based areas, sogo shosha investment has l i t t l e e f f e c t on r e g i o n a l economies. While the sogo shosha p r o p o r t i o n of t o t a l Japanese DFI i s d e c l i n i n g , they s t i l l p r a c t i c e a w e l l e s t a b l i s h e d management s t y l e i n v o l v i n g m i n o r i t y e q u i t y s h a r e h o l d i n g and long-term purchasing c o n t r a c t s i n North American companies which g i v e them access to i n f o r m a t i o n and management decision-making. F i n a l l y , the t h e s i s shows the need f o r t h e o r e t i c a l e x p l a n a t i o n s of Japanese DFI to be r e v i s e d i n the l i g h t of the c o n s t a n t l y changing e m p i r i c a l dimensions and an understanding of the importance of Japan i n the contemporary world economy. TABLE OF CONTENTS ABSTRACT i i TABLE OF CONTENTS i v LIST OF TABLES v i i LIST OF FIGURES i x LIST OF MAPS x ACKNOWLEDGEMENTS x i INTRODUCTION 1 CHAPTER 1: THEORETICAL FRAMEWORK 17 I . N e o c l a s s i c a l / N e o - K e y n e s i a n T h e o r i e s 18 I I . R a d i c a l T h e o r i e s 27 I I I . N e o - M e r c a n t i l i s t T h e o r i e s 39 IV. The T h e o r e t i c a l I m p l i c a t i o n s of Japanese Type of D i r e c t F o r e i g n Investment 43 CHAPTER 2: MULTINATIONAL CORPORATIONS 61 I . C h a r a c t e r i s t i c s of 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 61 I I . Comparison Between American-European M u l t i n a t i o n a l C o r p o r a t i o n s and Japanese 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 78 I I I . Japanese G e n e r a l T r a d i n g Companies: Sogo Shosha 90 CHAPTER 3: CHARACTERISTICS OF THE JAPANESE ECONOMY. 1 1 1 I . S c a r c i t y i n N a t u r a l R e s o u r c e s 113 I I . The Dua l Economic S t r u c t u r e and Kei retsu 125 I I I . Economic Growth S i n c e 1945 161 i v IV. CHAPTER 4: I . II . III . IV. CHAPTER 5: I . II . III . IV. V. CHAPTER 6: I . II . III . Co o p e r a t i v e Government-Business R e l a t i o n s h i p s and the I n d u s t r i a l P o l i c y of Japan AN OVERVIEW OF JAPANESE DIRECT FOREIGN INVESTMENT World.Trends i n D i r e c t F o r e i g n Investment R e s t r i c t i v e and L i b e r a l P o l i c i e s i n Japanese D i r e c t F o r e i g n Investment C h a r a c t e r i s t i c s of Japanese D i r e c t F o r e i g n Investment The Postwar H i s t o r y of Japanese D i r e c t F o r e i g n Investment JAPANESE DIRECT FOREIGN INVESTMENT IN NORTH AMERICA Japanese D i r e c t F o r e i g n Investment i n the U n i t e d S t a t e s The Investment Climate i n the U n i t e d S t a t e s Japanese D i r e c t F o r e i g n Investment i n Canada The Investment Climate i n Canada Comparison of Japanese D i r e c t F o r e i g n Investment i n the Un i t e d S t a t e s and Canada A CASE STUDY: JAPANESE DIRECT FOREIGN INVESTMENT IN NORTH AMERICA BY SOGO SHOSHA Sogo Shosha Investment i n the U n i t e d S t a t e s Sogo Shosha Investment i n Canada C h a r a c t e r i s t i c s of Sogo Shosha Investment Ventures and Comparison of Sogo Shosha Investment P a t t e r n s i n the U n i t e d S t a t e s and Canada 189 210 210 214 218 225 250 250 271 289 299 320 332 333 360 373 v IV. CONCLUSION O f f i c e L o c a t i o n s of Sogo Shosha i n the U n i t e d S t a t e s and Canada and t h e New I n t e r n a t i o n a l Urban H i e r a r c h y 3 8 6 41 1 BIBLIOGRAPHY APPENDICES APPENDIX A APPENDIX B APPENDIX C L i s t of Pe r s o n s and I n s t i t u t i o n s C o n t a c t e d Sogo Shosha Investment i n the U n i t e d S t a t e s and Canada: G e o g r a p h i c a l Area and I n d u s t r y Sogo Shosha Investment i n the U n i t e d S t a t e s and Canada: SPSS C r o s s t a b u l a t i o n s 4 1 9 4 4 9 4 4 9 4 5 6 4 7 2 v i LIST OF TABLES 1 Overseas Loans and Investment by Major C o r p o r a t i o n s 7 2 European, Japanese and U.S. F o r e i g n Investment P r o f i l e s 80-81 3 The C o n t r a s t of Japanese and American O r g a n i z a t i o n s 98 4 S a l e s of Japan's Nine Sogo Shosha (FY1984) 101 5 Number of E s t a b l i s h m e n t s i n M a n u f a c t u r i n g I n d u s t r y i n Japan 143 6 Number of P e r s o n s Engaged i n M a n u f a c t u r i n g I n d u s t r y i n Japan 144 7 Average Wages i n M a n u f a c t u r i n g I n d u s t r y i n Japan 145 8 Average Value-Added i n M a n u f a c t u r i n g I n d u s t r y i n Japan 146 9 H i s t o r y of Japanese Economic Development and I t s D i r e c t F o r e i g n Investment A c t i v i t y 162 10 Net Domestic P r o d u c t i n Japan 172 11 V a l u e of Shipments i n Japan 174 12 V a l u e of Japanese E x p o r t s by Commodity Group (1955-1983) 177 13 Japanese D i r e c t F o r e i g n Investment by Region 220 14 Outward and Inward D i r e c t Investment Flows ( P e r c e n t a g e D i s t r i b u t i o n Among 13 222 C o u n t r i e s ) 15 A c c u m u l a t e d Japanese D i r e c t F o r e i g n I n v e s t m e n t : 1951-1962 229 16 A c c u m u l a t e d Japanese D i r e c t F o r e i g n I n v e s t m e n t : 1963-1967 232 17 Ac c u m u l a t e d Japanese D i r e c t F o r e i g n I n v e s t m e n t : 1968-1971 235 v i 1 18 Accumulated Japanese D i r e c t F o r e i g n I n vestment: 1972-1977 240 19 Accumulated Japanese D i r e c t F o r e i g n I n vestment: 1978-1980 243 20 Accumulated Japanese D i r e c t F o r e i g n I n vestment: 1981-1983 246 21 Japanese D i r e c t F o r e i g n Investment i n the Worl d , t h e U n i t e d S t a t e s and Canada 254 22 F o r e i g n D i r e c t Investment P o s i t i o n i n the U n i t e d S t a t e s , by Year 256 23 ' D i r e c t F o r e i g n Investment P o s i t i o n i n the U n i t e d S t a t e s , by C o u n t r y 257 24 Japanese D i r e c t F o r e i g n Investment P o s i t i o n i n t he U n i t e d S t a t e s , by S e c t o r \" 259 25 Accumulated Japanese D i r e c t F o r e i g n Investment by S e c t o r , 1951-1983 261 26 Japanese D i r e c t F o r e i g n Investment i n the U n i t e d S t a t e s 262 27 Japanese D i r e c t F o r e i g n Investment i n Canada 292 28 L o c a t i o n of Sogo Shosha O f f i c e s i n N o r t h America 387 v i i i LIST OF FIGURES 1 D i r e c t F o r e i g n Investment P o s i t i o n of the U n i t e d S t a t e s , Japan and West Germany by Type of I n d u s t r y , Yearend, 1982 223 2 D i r e c t F o r e i g n Investment P o s i t i o n of the U n i t e d S t a t e s , Japan and West Germany by R e g i o n , Yearend, 1982 224 3 Japanese D i r e c t F o r e i g n Investment i n the World and the U n i t e d S t a t e s , 1951 t o 1983 228 i x LIST OF MAPS 1 L o c a t i o n of Sogo Shosha O f f i c e s i n N o r t h America i n the 1950's 388 2 L o c a t i o n of Sogo Shosha O f f i c e s i n N o r t h America i n t h e 1960's 389 3 L o c a t i o n of Sogo Shosha O f f i c e s i n N o r t h America i n the 1970's 390 4 L o c a t i o n of Sogo Shosha O f f i c e s i n N o r t h America i n the 1980's 391 x ACKNOWLEDGEMENTS I am deeply indebted to numerous o r g a n i z a t i o n s and i n d i v i d u a l s f o r the p r e p a r a t i o n of t h i s t h e s i s . I would e s p e c i a l l y l i k e to acknowledge with s i n c e r e g r a t i t u d e the c o n t r i b u t i o n s made by my p r o f e s s o r s at the U n i v e r s i t y of B r i t i s h Columbia. P r o f e s s o r T e r r y McGee, my present major s u p e r v i s o r i n the Department of Geography, has p r o v i d e d i n v a l u a b l e guidance and always w i l l i n g l y helped me. I am most g r a t e f u l to him. Emeritus P r o f e s s o r Frank Langdon i n the Department of P o l i t i c a l Science has generously spared h i s time f o r d i s c u s s i o n , i n c r e a s e d the accuracy of the c o n t e n t s , and p o l i s h e d my E n g l i s h . I am much beholden to him f o r h i s e x c e l l e n t l e a d e r s h i p and p a t i e n c e . P r o f e s s o r Walter Hardwick of the Department of Geography and P r o f e s s o r Malcolm Smith of the Law School gave me v a l u a b l e a d v i c e and comments, and I am e q u a l l y t h a n k f u l to them. Thanks are a l s o extended to P r o f e s s o r Olav Slaymaker, the Head of the Geography Department, f o r h i s a s s i s t a n c e , and to P r o f e s s o r Marwyn Samuels, my p r e v i o u s major s u p e r v i s o r , f o r h i s support at the i n i t i a l stage of my t h e s i s . Doctor Saburo O k i t a , a well-known economist and the former M i n i s t e r of F o r e i g n A f f a i r s of Japan, and Mr. A k i n o r i Marumo, Deputy D i r e c t o r - G e n e r a l at the Economic Pl a n n i n g Agency, deserve s p e c i a l r e c o g n i t i o n f o r opening many doors x i i n the Japanese government bureaus. Mr. S e i i c h i Omori, Commissioner, F a i r Trade Commission, Consul-General Kunio Katakura and P r o f e s s o r Keizo Nagatani i n t r o d u c e d government and business c o n t a c t s . I am deeply g r a t e f u l to them a l l . I n v a l u a b l e i n f o r m a t i o n was obtained through many i n t e r v i e w s , phone c a l l s and l e t t e r s of sogo shosha businessmen and government o f f i c i a l s i n Japan, Canada and the U n i t e d S t a t e s , without which the data set would have been incomplete. I am much o b l i g e d to those who are l i s t e d i n Appendix A f o r t h e i r a s s i s t a n c e . Ray T o r c h i n s k y p r o v i d e d t e c h n i c a l a s s i s t a n c e and Matt h i a s Roth prepared the maps. Shauna Stuber, John Fossum, A t s u s h i Yamakoshi, P a t t i Luniw, Sheena F r a s e r and Helena Adamowicz a l s o p r o v i d e d h e l p and understanding when I needed i t . F i n a l l y , Pam des Loges read the e n t i r e manuscript and checked my E n g l i s h . She has been a source of encouragement, and I am indebted to her f o r her support. My g r a t i t u d e to her goes beyond what t h i s acknowledgement can convey. The Government of Canada Awards f o r four years and three months and the U n i v e r s i t y of B r i t i s h Columbia Summer Graduate F e l l o w s h i p i n 1986 f i n a n c i a l l y supported t h i s p r o j e c t . A t r a v e l grant to Japan was pro v i d e d by the I n s t i t u t e of A s i a n Research, U n i v e r s i t y of B r i t i t s h Columbia. x i i 1 INTRODUCTION The economies of the w o r l d have become more i n t r i c a t e and i n t e r d e p e n d e n t 1 s i n c e World War I I . Japan has now become an i n c r e a s i n g l y i m p o r t a n t component of t h i s p r o c e s s . Emerging w i t h a s h a t t e r e d economy a f t e r W o r l d War I I , Japan has become the w o r l d ' s second l a r g e s t economy i n terms of the Gross N a t i o n a l P r o d u c t (GNP). T h i s t h e s i s examines the f e a t u r e s of Japanese g l o b a l d i r e c t f o r e i g n i n v e s t m e n t p a y i n g p a r t i c u l a r a t t e n t i o n t o sogo shosha i n v e s t m e n t i n the d e v e l o p e d c o u n t r i e s of the U n i t e d S t a t e s and Canada. Post World War I I changes i n the w o r l d economy have l e d t o a s i g n i f i c a n t r e s t r u c t u r i n g and r e d i s t r i b u t i o n of economic a c t i v i t y a t both the w o r l d and n a t i o n a l l e v e l . For example, the o l d \" I n d u s t r i a l H e a r t l a n d , \" t h e N o r t h e a s t and Midwest of the U n i t e d S t a t e s has e x p e r i e n c e d i n d u s t r i a l d e c l i n e . 2 S i m i l a r l y , the e x t r a o r d i n a r y o f f i c e - b u i l d i n g and i n d u s t r i a l boom i n Los A n g e l e s i s t r a n s f o r m i n g economic space of t h i s r e g i o n . 3 These phenomena a r e not l i m i t e d t o 1 B r o o k f i e l d p o p u l a r i z e d the concept \" i n t e r d e p e n d e n c e \" i n the domain of geography. He s t a t e s t h a t t h e r e i s o n l y one p r o c e s s of development i n an i n t e r c o n n e c t e d w o r l d ; a p r o c e s s which t a k e s numerous forms, which can y i e l d p o v e r t y and dependence as w e l l as w e a l t h and growth. (See H a r o l d B r o o k f i e l d , I n t e r d e p e n d e n t Development [London: Methuen, 1975], p. 189.) I n t e r d e p e n d e n c e , as a c c e p t e d by p o l i t i c a l s c i e n t i s t s , i s d e f i n e d as a c t o r s or e v e n t s i n one p a r t of the system have the a b i l i t y t o i n f l u e n c e a c t o r s or e v e n t s i n a n o t h e r p a r t of the system. 2N. J . G l i c k m a n , \"The I n t e r n a t i o n a l Economy and the C i t i e s , \" i n Urban Growth P o l i c i e s i n the 1980s ( P a r i s : O r g a n i s a t i o n f o r Economic C o - o p e r a t i o n and Development, 1983), p. 23. 3Edward S o j a , Rebecca M o r a l e s , and Goetz W o l f f , \"Urban R e s t r u c t u r i n g : An A n a l y s i s of S o c i a l and S p a t i a l Change i n 2 areas i n the developed c o u n t r i e s . As McGee noted, f o r e i g n and domestic investment i n the Southeast Asian c o u n t r i e s has a l t e r e d t h e i r economic a c t i v i t i e s and a l s o markedly i n f l u e n c e d the urban system i n the d e v e l o p i n g c o u n t r i e s . \" Thus, i t i s c r u c i a l to i n v e s t i g a t e i n t e r n a t i o n a l c a p i t a l movements as w e l l as i n t e r n a t i o n a l t r a d e , as one important determinant of the p r o s p e r i t y and d e c l i n e of c e r t a i n r e g i o n s . E s p e c i a l l y , i t can be s a i d that d i r e c t f o r e i g n investment should be a focus of examination, because i t has had an impact on l o c a l economies s u b j e c t e d to d e c i s i o n s made by f o r e i g n i n v e s t o r s . Def i n i t ions Three terms, d i r e c t f o r e i g n investment, m u l t i n a t i o n a l c o r p o r a t i o n , and sogo shosha are c l a r i f i e d . D i r e c t f o r e i g n investment ( D F I ) 5 i n v o l v e s the a c q u i s i t i o n of f o r e i g n s e c u r i t i e s by i n d i v i d u a l s or i n s t i t u t i o n s with c o n t r o l over, or p a r t i c i p a t i o n i n , the management of f o r e i g n o p e r a t i o n s . The F o r e i g n Exchange C o n t r o l Law i n Japan d e f i n e d d i r e c t f o r e i g n investment as 25 p e r c e n t , or more, of e q u i t y a c q u i s i t i o n i n f o r e i g n c o r p o r a t i o n s and loans to those c o r p o r a t i o n s . A l s o i n c l u d e d were investment, both i n e s t a b l i s h m e n t or expansion of branches, and r e a l e s t a t e . In December 1980, an amendment was i n t r o d u c e d that reduced the 3 ( c o n t ' d ) Los Angeles,\" Economic Geography v o l . 59, no. 2 ( A p r i l , 1983): 195-230. \"Te r r y G. McGee, \" C i r c u i t s and Networks of C a p i t a l : The I n t e r n a t i o n a l i z a t i o n of the World Economy and N a t i o n a l U r b a n i z a t i o n , \" paper presented at the Conference on Urban Growth and Economic Development i n the P a c i f i c Region, T a i p e i , Republic of China, 9-14 January 1984. 5 I n f u t u r e , the acronym DFI i s used. 3 e q u i t y a c q u i s i t i o n f i g u r e t o 10 p e r c e n t and e x c l u d e d r e a l e s t a t e i n v e s t m e n t . S i m i l a r l y , the U.S. Department of Commerce u n t i l the 1960's had d e f i n e d d i r e c t f o r e i g n i n v e s t m e n t as an i nvestment t h a t c o n t r o l l e d 25 p e r c e n t , or more, of the e q u i t y of an o v e r s e a s b u s i n e s s . S u b s e q u e n t l y , the f i g u r e was reduced t o 10 p e r c e n t . In a d d i t i o n t o c a p i t a l , a package of t e c h n o l o g i c a l and m a n a g e r i a l r e s o u r c e s i s t r a n s f e r r e d . Depending on the degree of d w n e r s h i p , wholly-owned s u b s i d i a r i e s may be founded, or j o i n t v e n t u r e agreements may be r e a c h e d where f o r e i g n - b a s e d f i r m s have a m a j o r i t y s h a r e , an e q u a l s h a r e , or a m i n o r i t y share i n the o w n e r ship of e n t e r p r i s e s a broad. These o p e r a t i o n s may be e s t a b l i s h e d by t h e t a k e - o v e r of e x i s t i n g l o c a l f i r m s or t hey may t a k e th e form of new v e n t u r e s . 6 The m u l t i n a t i o n a l c o r p o r a t i o n r e p r e s e n t s the major a c t o r of d i r e c t f o r e i g n i n v e s t m e n t . There a r e many d e f i n i t i o n s of the m u l t i n a t i o n a l c o r p o r a t i o n , depending on the emphasis a t t r i b u t e d t o the c h a r a c t e r i s t i c s of companies o p e r a t i n g i n t e r n a t i o n a l l y . In t h i s t h e s i s , an i n c l u s i v e d e f i n i t i o n i s adopted. A m u l t i n a t i o n a l c o r p o r a t i o n (MNC) 7 i s d e f i n e d as an e n t e r p r i s e which owns ( i n whole or i n p a r t ) , c o n t r o l s and manages i n c o m e - g e n e r a t i n g a s s e t s i n more than one c o u n t r y . S u r r o g a t e s of t h e MNC a r e the m u l t i n a t i o n a l e n t e r p r i s e (MNE) and the t r a n s n a t i o n a l c o r p o r a t i o n (TNC), which i s a term employed by the U n i t e d N a t i o n s . 6 N e i l Hood and Stephen Young, The Economics of M u l t i n a t i o n a l E n t e r p r i s e (London and New Y o rk: Longman, 1979), pp. 9-10. 7 I n f u t u r e the acronym MNC i s used. 4 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 are of a v a r i e t y of types of o p e r a t i o n and o r g a n i z a t i o n . In terms of o p e r a t i o n , they are engaged i n manufacturing, s e r v i c e - r e l a t e d , and/or r e s o u r c e - o r i e n t e d a c t i v i t i e s . With regard to o r g a n i z a t i o n , MNCs may be p r i v a t e l y owned, or p a r t i a l l y owned and managed by home and/or host country governments. 8 Since economic a c t i v i t i e s of MNCs extend over more than one country, MNCs i n f l u e n c e both home and host c o u n t r i e s with d i f f e r e n t l e v e l s of complexity and comprehensiveness. I n t e r e s t s of MNCs o f t e n c o n f l i c t with those of host and home c o u n t r i e s , because MNCs are g e n e r a l l y p r i v a t e ( p r o f i t - s e e k i n g ) i n s t i t u t i o n s while host and home c o u n t r i e s pursue the n a t i o n a l w e l l - b e i n g . In t h i s regard, the r o l e s of MNCs have sometimes been viewed i n a negative way, even though they enable t r a n s f e r of advanced technology as w e l l as c a p i t a l , and absorb the l a b o r f o r c e i n the host c o u n t r y . A t y p i c a l argument of t h i s view i s that these m u l t i n a t i o n a l s have promoted the formation of \" i s o l a t e d e n c l a v e s \" i n the de v e l o p i n g c o u n t r i e s , which are not i n t e g r a t e d i n t o the l o c a l economy of the host c o u n t r i e s . Only a few s c h o l a r s such as G a l b r a i t h have given the MNCs c r e d i t f o r being \" s k i l l e d , great o r g a n i z a t i o n s . \" 9 T h i r d , the sogo shosha are l a r g e Japanese g e n e r a l t r a d i n g companies, e s p e c i a l l y the nine l a r g e s t . In t h i s 8Hood and Young, og. c i t . , p. 3. 9John Kenneth G a l b r a i t h , \"The Defense of the M u l t i n a t i o n a l Company,\" The A t l a n t i c Community Q u a r t e r l y v o l . 16, no. 2 (Summer, 1978): 207, and Harvard Business Review v o l . 56, no. 2 (M a r c h - A p r i l , 1978): 93. 5 t h e s i s , sogo shosha a r e i d e n t i f i e d as Japanese-type m u l t i n a t i o n a l s , which c o n t r a s t t o American-type m u l t i n a t i o n a l s . The Importance of Japanese D i r e c t F o r e i g n Investment Postwar Japanese DFI s t a r t e d w i t h i n v e s t m e n t by sogo shosha,*0 a l o n g w i t h the i n v e s t m e n t p r o j e c t s promoted by the government. Sogo shosha e s t a b l i s h e d t h e i r o v e r s e a s t r a d i n g s u b s i d i a r i e s t o enhance c o m m e r c i a l a c t i v i t i e s . 1 1 S i n c e Japan i s h i g h l y dependent on o v e r s e a s i m p o r t s of n a t u r a l r e s o u r c e s and f o o d s t u f f s as w e l l as on e x p o r t markets, w i t h o u t such e x c e l l e n t merchants, i t . w o u l d have been d i f f i c u l t t o a c c o m p l i s h economic growth i n Japan. Because of the v a r i o u s f u n c t i o n s of sogo shosha, t h e y have s e r v e d as an engine f o r Japan's economic development. The development of sogo shosha p a r a l l e l s t he development of t h e Japanese economy. In s h o r t , sogo shosha have proved t o be e x c e l l e n t t r a d e r s , a c t i n g as a vanguard of Japanese o v e r s e a s d i r e c t i n v e s t m e n t . B e f o r e c a p i t a l l i b e r a l i z a t i o n i n the l a t e 1960's when the Japanese m a n u f a c t u r i n g i n d u s t r y was m a t u r i n g , sogo shosha s u r p a s s e d Japanese m a n u f a c t u r e r s i n p r o m o t i n g o v e r s e a s i n v e s t m e n t . They s e t up wholly-owned t r a d i n g s u b s i d i a r i e s and were engaged i n j o i n t v e n t u r e s i n 1 0 I n the t h e s i s , the noun sogo shosha i s c o n s i d e r e d t o be p l u r a l i n form. Sogo shosha can be w r i t t e n as e i t h e r sogo shosha or sogoshosha. In t h i s t h e s i s , \"sogo shosha\" i s used, except f o r r e f e r e n c e s made t o book t i t l e s which u t i l i z e \"sogoshosha\". S i n c e some a u t h o r s w r i t i n g i n E n g l i s h do not use macrons over l o n g v o w e l s , the w r i t e r has f o l l o w e d the same manner. 1 1 S e e Chapter 2 f o r an e l a b o r a t i o n of the h i s t o r y and f u n c t i o n s of sogo shosha. 6 manufacturing and n a t u r a l resource development p r o j e c t s i n a number of companies. The Japanese j o i n t venture i s a unique investment formula, i n which sogo shosha have p a r t i c i p a t e d by e n t e r i n g i n t o long-term purchasing c o n t r a c t s . Under the development-and-import formula, c a p i t a l , technology and equipment are f u r n i s h e d to f o r e i g n c o u n t r i e s with Japan r e c e i v i n g n a t u r a l resources i n r e t u r n . Sogo shosha f u n c t i o n as v i t a l o r g a n i z e r s i n the arrangement. Of a t o t a l of 165 \"development import\" p r o j e c t s undertaken by Japanese, 39 are independent p r o j e c t s by s i n g l e t r a d i n g f i r m s or c o o p e r a t i v e p r o j e c t s i n v o l v i n g more than one [of them], while 42 p r o j e c t s represent c o o p e r a t i o n between t r a d i n g and manufacturing f i r m s ( a c c o r d i n g to the M i n i s t r y of I n t e r n a t i o n a l Trade and Industry as of December 1970). In other words, t r a d i n g f i r ms are i n v o l v e d i n 81 cases a l t o g e t h e r or [ i n ] about h a l f the t o t a l . 1 2 These f i g u r e s s u b s t a n t i a t e the s i g n i f i c a n t r o l e of sogo shosha, e s p e c i a l l y before 1970. With the development of Japanese manufacturing i n d u s t r i e s , the r e l a t i v e importance of sogo shosha i n Japanese DFI d e c l i n e d a f t e r 1970. Ne v e r t h e l e s s , sogo shosha remain as p r i n c i p a l i n v e s t o r s at pre s e n t , along with automobile manufacturers and e l e c t r i c machinery makers. T h i s i s i l l u s t r a t e d by Table 1. In 1973, among the top ten c o r p o r a t i o n s which had l a r g e overseas investment balances were the seven l a r g e s t sogo shosha. Between 1973 and 1983, the ranking of i n d i v i d u a l sogo shosha changed. However, i n 1983, among the top ten c o r p o r a t i o n s with predominant 1 2 S u e y u k i Wakasugi, \"Japanese Traders Face Tough G l o b a l Problems,\" P a c i f i c Community: An Asi a n Q u a r t e r l y Review v o l . 4, no. 2 (January, 1973): 233. T a b l e 1: Overseas Loans and Investment by Major C o r p o r a t i o n s (In \u00C2\u00A5100 Mi 11 ion) Ranking Company Name Balance Company Name Ba l a n c e Company Name B a l a n c e 1973 1978 1983 1. M i t s u b i s h i Corp. * 716 2. M i t s u i & Co. * 489 3. C. I t o h & Co. * 3G2 4. Nichimen * 361 5. Marubeni Corp. * 266 6. Nippon Usiminas 219 7. Sumitomo Corp. * 192 8. Toray I n d u s t r i e s 156 9. Nissho-Iwai Corp. * 147 10. Honda Motor 139 11. M a t s u s h i t a E l e c t r i c 110 In d u s t r i a l 12. Daishowa Paper Mfg. 109 13. M i t s u b i s h i Metal & 105 M i n i ng 14. Ishikawajima-Harima Heavy 103 I n d u s t r i e s 15. Sony 89 16. T e i j i n L t d . 89 17. Toyo Menka Kaisha * 85 18. M i t s u i Mining & S m e l t i n g 78 19. Honshu Paper 76 20. Toyota Motor 74 M i t s u i & Co. * 2,468 M i t s u b i s h i Corp. * 1,443 Marubeni Corp. * 1,253 C. It o h & Co. * 1,094 Sumitomo Corp. * 590 M a t s u s h i t a E l e c t r i c 524 Indus t r i a l Toray I n d u s t r i e s 505 Kawasaki S t e e l 408 T e i j i n L t d . 405 Toyo Menka K a i s h a * 394 Nissho-Iwai Corp. * 385 Nippon S t e e l Corp. 374 Honda Motor 347 M i t s u b i s h i Heavy 344 Indus t r i es N i s s a n Motor 326 Sony 317 Nippon Usiminas 297 Ishikawajima-Harima Heavy 253 Indus t r i es Kanematsu-Gosho * 249 Tosh i b a Corp. 216 Marubeni Corp. * 2,898 M i t s u b i s h i Corp. * 2,884 Nippon Asahan Aluminium 2,595 M i t s u i & Co. * 2,498 N i s s a n Motor 1,890 C. I t o h & Co. * 1,356 Sumitomo Corp. * 1,262 Japan Pe t r o l e u m 1,078 Development Nissho-Iwai Corp. * 1,017 U n i t e d Petroleum 857 Deve1opment Kawasaki S t e e l 854 Honda Motor 793 M a t s u s h i t a E l e c t r i c 774 I n d u s t r i a 1 Toyo Menka K a i s h a * 766 T o s h i b a Corp. 733 F u j i t s u , L t d . 632 Kawasaki Heavy I n d u s t r i e s 565 Toray I n d u s t r i e s 535 Sanyo E l e c t r i c 523 Kanematsu-Gosho * 480 * Sogo Shosha 8 ov e r s e a s l o a n s and investment remained the s i x l a r g e s t sogo s hosha . 1 3 S t a t i s t i c a l l y , as T a b l e 1 i n d i c a t e s , i n 1973 t h e ov e r s e a s l o a n s and inves t m e n t by the n i n e sogo shosha amounted t o \u00C2\u00A5261,800 m i l l i o n , which a c c o u n t e d f o r 66.0 pe r c e n t of the o v e r s e a s l o a n s and inves t m e n t made by the top twenty companies. D e s p i t e u n a d j u s t e d yen v a l u e , i n 1978, sogo shosha o v e r s e a s l o a n s and investment i n c r e a s e d t o \u00C2\u00A5787,600 m i l l i o n , c o m p r i s i n g 64.6 p e r c e n t of th o s e of the top twenty companies. In 1983, the amount of o v e r s e a s l o a n s and i n v e s t m e n t by sogo shosha f u r t h e r i n c r e a s e d t o \u00C2\u00A51,316,100 m i l l i o n ; however, i t s r e l a t i v e s h a r e d e c r e a s e d t o 52.7 p e r c e n t of the t o t a l o v e r s e a s l o a n s and in v e s t m e n t by the t o p twenty Japanese f i r m s . T h e r e f o r e , a t the e a r l y s t a g e , DFI by sogo shosha made up a l a r g e p a r t of Japan's o v e r a l l f o r e i g n i n v e s t m e n t , and s t i l l c o m p r i s e s i t s e s s e n t i a l component. C o n s e q u e n t l y , i t i s n e c e s s a r y t o stu d y DFI by sogo shosha i n o r d e r t o u n d e r s t a n d Japanese o v e r s e a s i n v e s t m e n t . Immediately a f t e r World War I I , the Japanese economy g r e a t l y depended on the U.S. economy, summarized by t h e phrase t h a t \"when the U n i t e d S t a t e s s n e e z e s , Japan w i l l c a t c h a c o l d . \" W i t h the development of the Japanese economy, 1 3 T a b l e 1 does not l i s t Nichimen i n 1983. I n the Japanese e d i t i o n of Shukan Toyo K e i z a i , Nichimen was ranked 2 5 t h w i t h 50,100 m i l l i o n yen, w h i l e Kanematsu-Gosho was ranked 2 4 t h w i t h 52,800 m i l l i o n yen i n 1983. However, t h i s Japanese e d i t i o n does not i n c l u d e Sumitomo. (Shukan Toyo K e i z a i , 1973 ed. [21 August 1973], p. 2; 1979 ed. [12 October 1978J , p. 4; and 1985 ed. [25 Ja n u a r y 1985], p. 14.) 9 Japan became a r i v a l and s t a r t e d t o t h r e a t e n some i n d u s t r i e s i n t he U n i t e d S t a t e s . P r e s e n t l y , DFI i s used as an a l l e v i a t i n g measure t o l e s s e n t r a d e f r i c t i o n between the two c o u n t r i e s , and as a means of r e v i t a l i z i n g some American i n d u s t r i e s which have l o s t t h e i r c o m p e t i t i v e edge i n the i n t e r n a t i o n a l market. C o n v e n t i o n a l l y , b i l a t e r a l f l o w s of t r a d e and inve s t m e n t a r e p e r t i n e n t b arometers used t o i n d i c a t e the s t r e n g t h of the economic r e l a t i o n s h i p c o n c e r n e d . In t h i s s ense, postwar Japanese DFI has been d e e p l y i n v o l v e d i n the U n i t e d S t a t e s s i n c e 1951 when sogo shosha resumed inve s t m e n t i n U.S. commerce. Moreover, the U n i t e d S t a t e s as a s i n g l e c o u n t r y has h o s t e d the l a r g e s t amount of Japanese DFI. Not o n l y i s c r o s s i n v e s t m e n t , e s p e c i a l l y between d e v e l o p e d c o u n t r i e s , a l o n g - s t a n d i n g f e a t u r e of DFI, but i t a l s o i n t e n s i f i e s the degree of p e n e t r a t i o n . The U n i t e d S t a t e s , once the w o r l d ' s c h i e f s o u r c e of c a p i t a l , became a net r e c i p i e n t c o u n t r y of c a p i t a l i n 1981. C o n v e r s e l y , Japan r e c e n t l y showed up as a net c r e d i t o r c o u n t r y i n o t h e r p a r t s of the i n t e r n a t i o n a l f i n a n c i a l a r e n a . Japan, once s u p p o r t e d by American a i d , nowadays g i v e s h e l p t o r e v i t a l i z e American i n d u s t r i e s t h r o u g h D FI. The changes i n the s i z e and m a t u r i t y of economies i s c r e a t i n g a new scene. In the U.S. market, made-in-the-U.S.A. t e l e v i s i o n s e t s w i t h Japanese brand names a r e competing w i t h American-brand s e t s produced a b r o a d . By the same t o k e n , Japanese a u t o m o b i l e m a n u f a c t u r e r s a r e s e t t i n g up p r o d u c t i o n f a c i l i t i e s i n the U n i t e d S t a t e s , w h i l e 10 F o r d i s b u i l d i n g a major p l a n t i n Mexico. T h i s s i t u a t i o n e n a b l e s American-made Japanese c a r s t o v i e w i t h foreign-made American c a r s . 1 4 Another example of the i n f l u e n c e of Japanese DFI may be o b s e r v e d i n Canada. A s l u g g i s h worldwide demand f o r s t e e l r e s u l t e d i n a d e c r e a s e d Japanese demand f o r Canadian c o k i n g c o a l . The l o w e r i n g of demand a f f e c t e d such s m a l l m i n i n g towns as Tumbler R i d g e , B r i t i s h C olumbia. In the c o n t e x t of such i n t e r d e p e n d e n c e , the p r o s p e r i t y of one p l a c e depends on the economic performance of e n t e r p r i s e i n a n o t h e r p l a c e i n the w o r l d . E x a m i n a t i o n of Japanese DFI i n the U n i t e d S t a t e s and Canada w i l l o f f e r an o p p o r t u n i t y t o e x p l o r e d i f f e r e n t i n v e s t m e n t p a t t e r n s , a t t r i b u t e d t o the i n v e s t m e n t c l i m a t e s of each h o s t c o u n t r y . Both the U n i t e d S t a t e s and Canada a r e r e s o u r c e - r i c h and i n d u s t r i a l i z e d c o u n t r i e s , but t h e i r economic, p o l i t i c a l , g e o g r a p h i c a l and s o c i a l f a c t o r s c r e a t e d i f f e r e n t i n v e s t m e n t c l i m a t e s . As a r e s u l t , t h e comparison of Japanese DFI between i n t h e U n i t e d S t a t e s and i n Canada d e p i c t s a c l e a r p i c t u r e of the c h a r a c t e r i s t i c s of Japanese DFI i n t h e advanced c o u n t r i e s . In sum, the impact of Japanese DFI on the w o r l d economy has become l a r g e enough t o i n f l u e n c e r e g i o n a l economic growth. Y e t , i n v e s t i g a t i o n on t h i s t o p i c , p a r t i c u l a r l y i n c o n j u n c t i o n w i t h i t s l o c a t i o n a l f e a t u r e s , has o n l y j u s t , a H a j i m e K a r a t s u , \"The D e i n d u s t r i a l i z a t i o n of A m e r i c a : A Tragedy f o r the World,\" KKC B r i e f no. 31 ( O c t o b e r , 1985), p. 2. 11 begun. Geo g r a p h i c a l S t u d i e s of 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 Economic and management s t u d i e s have s i g n i f i c a n t l y c o n t r i b u t e d to the e l u c i d a t i o n of the a c t i v i t i e s of m u l t i n a t i o n a l s , while the geographic l i t e r a t u r e has made only a modest c o n t r i b u t i o n . In s p i t e of t h i s , the o p e r a t i o n s of MNCs generate many l o c a t i o n a l q u e s t i o n s . Perhaps economic geographers have l i m i t e d t h e i r r e s e a r c h domain too much i n stu d y i n g r e g i o n a l and n a t i o n a l economies. As B r i t t o n i n d i c a t e s , the \"geography of e n t e r p r i s e \" f o c u s i n g on the behavior of i n d i v i d u a l f i r m s has not been enough to cope with the range and complexity of MNCs. 1 5 However, the geography of e n t e r p r i s e has i l l u s t r a t e d that the e n t e r p r i s e i s an important o r g a n i z i n g i n s t i t u t i o n , and that m u l t i p r o d u c t , m u l t i p l a n t e n t e r p r i s e s i n f l u e n c e i n d u s t r i a l l o c a t i o n change and r e g i o n a l economic development. While the behavior of m u l t i p l a n t f i r m s i s i n t e r p r e t e d w i t h i n a n e o c l a s s i c a l l o c a t i o n m o d e l , 1 6 the geography of e n t e r p r i s e i s rooted i n the c r i t i c i s m of the n e o c l a s s i c a l l o c a t i o n theory. In other words, the small f i r m s of the market can be t r e a t e d w i t h i n the t r a d i t i o n a l n e o c l a s s i c a l framework, while the l a r g e o r g a n i z a t i o n s which modify and adapt t h e i r o p e r a t i n g environments cannot be 1 5 J o h n N. H. B r i t t o n , review of The Geography and M u l t i n a t i o n a l s , ed. Michael J . T a y l o r and N i g e l J . T h r i f t , i n Economic Geography v o l . 61, no. 1 (January, 1985): 89. 1 6 P e t e r E. L l o y d and Peter Dicken, L o c a t i o n i n Space: A T h e o r e t i c a l Approach to Economic Geography 2nd ed. (New York: Harper & Row, P u b l i s h e r s , 1977). 1 2 f u l l y e x p l a i n e d by n e o c l a s s i c a l l o c a t i o n t h e o r y . 1 7 T h e r e f o r e , the r e s e a r c h t a s k of economic geography s h o u l d be expanded t o a d d r e s s the c h a n g i n g l o c a t i o n a l networks and o r g a n i z a t i o n a l s t r u c t u r e s of g l o b a l c o r p o r a t i o n s . 1 8 Y e t , the complex and d i f f i c u l t t a s k t o e x p l o r e MNCs has o n l y j u s t begun. In 1982, The Geography of M u l t i n a t i o n a l s e d i t e d by T a y l o r and T h r i f t , was p u b l i s h e d . Other s u c c e s s f u l a t t e m p t s a r e e x p e c t e d t o f o l l o w i n t h i s newly opened f i e l d of s t u d y . There has y e t been no g e o g r a p h i c a l s t u d y of the unique Japanese m u l t i n a t i o n a l f i r m s - - s 0 g 0 shosha\u00E2\u0080\u0094apart from the work of E d g i n g t o n on the e f f e c t of the Japanese inv e s t m e n t on A u s t r a l i a n r e g i o n a l economies, a l t h o u g h t h e r e i s a l a r g e l i t e r a t u r e on Japanese f o r e i g n i n v e s t m e n t . 1 9 R e s e a r c h Aims The purpose of t h i s r e s e a r c h i s t o d e s c r i b e , a n a l y z e and e x p l a i n the s p a t i a l and s e c t o r a l d i s t r i b u t i o n of Japanese d i r e c t f o r e i g n i n v e s t m e n t s i n c e 1951 w i t h p a r t i c u l a r r e f e r e n c e t o sogo shosha i n v e s t m e n t i n the U n i t e d S t a t e s and Canada. T h i s e x a m i n a t i o n a l s o e x p l o r e s how the 1 7 R o g e r H a y t e r and H. D. Watts, \"The Geography of E n t e r p r i s e : A R e a p p r a i s a l , \" P r o g r e s s i n Human Geography: An I n t e r n a t i o n a l Review of G e o g r a p h i c a l Work i n the S o c i a l S c i e n c e and H u m a n i t i e s v o l . 7, no. 2 (June, 1983): 173-174. 1 8 B r i t t o n , l o c . c i t . 1 9 S e e D a v i d . W. E d g i n g t o n , \"Some Urban and R e g i o n a l Consequences of Japanese T r a n s n a t i o n a l A c t i v i t y i n A u s t r a l i a , \" Environment and P l a n n i n g A: I n t e r n a t i o n a l J o u r n a l of Urban and R e g i o n a l R e s e a r c h v o l . 16, no. 8 (August, 1984): 1021-1040. T h i s i n c o r p o r a t e d some of the r e s u l t s of h i s t h e s i s p r e s e n t e d a t Monash U n i v e r s i t y , A u s t r a l i a . I t has not been p o s s i b l e t o o b t a i n a copy of the Ed g i n g t o n t h e s i s p r e s e n t e d t o Monash U n i v e r s i t y . 1 3 development and c h a r a c t e r i s t i c s of the Japanese economy have a f f e c t e d the p a t t e r n s of d i r e c t f o r e i g n investment, i n c o n n e c t i o n with investment c l i m a t e s of host c o u n t r i e s . F i v e main r e s e a r c h q u e s t i o n s are i n v e s t i g a t e d . (1) What are the main t h e o r e t i c a l e x p l a n a t i o n s of d i r e c t f o r e i g n investment? (2) What are the economic, p o l i t i c a l , g e o g r a p h i c a l and s o c i a l f a c t o r s i n Japan that have i n f l u e n c e d d i r e c t f o r e i g n -investment? (3) What are the f e a t u r e s of the i n t e r a c t i o n between host c o u n t r i e s and the Japanese d i r e c t f o r e i g n investment? (4) What are the motives and p a t t e r n s of Japanese DFI at a g l o b a l s c a l e ? (5) What_are the s p e c i f i c f e a t u r e s of sogo shosha investment a c t i v i t y and how has t h i s i n f l u e n c e d the n a t i o n a l and r e g i o n a l economies of the host c o u n t r i e s ? A v a i l a b i l i t y of Data In order to answer these r e s e a r c h q u e s t i o n s , e x t e n s i v e data were c o l l e c t e d by the w r i t e r from p u b l i c a t i o n s and through i n t e r v i e w s with government o f f i c i a l s and businessmen i n North America and Japan. The f i e l d work was conducted over the summer of 1984 i n Vancouver and Tokyo. In Tokyo, the w r i t e r v i s i t e d the M i n i s t r y of Finance, the M i n i s t r y of I n t e r n a t i o n a l Trade and Investment, the M i n i s t r y of F o r e i g n A f f a i r s , the Economic Planning Agency, the Bank of Japan, the Export-Import Bank of Japan, the I n d u s t r i a l Bank of Japan, L t d . , the Japan E x t e r n a l Trade O r g a n i z a t i o n , the 1 4 Keidanren, the Embassies of the U n i t e d S t a t e s and Canada. Government o f f i c i a l s were c o n t a c t e d i n the U.S. Department of Commerce, S t a t i s t i c s Canada and the F o r e i g n Investment Review Agency i n Canada (see Appendix A ) . The Bank of Japan p r o v i d e d t h e d a t a c o n c e r n i n g the amount of Japanese DFI i n the w o r l d and i n N o r t h A m e r i c a , 2 0 broken down by i n d u s t r i a l s e c t o r s . One of the d i f f i c u l t i e s i n p u r s u i n g t h i s t y pe of r e s e a r c h i s the l a c k of s u i t a b l e d a t a . None of the d a t a p r o v i d e d by t h e Bank of Japan, t h e U.S. Department of Commerce and S t a t i s t i c s Canada a r e broken down i n t o a r e a s by s t a t e or p r o v i n c e . A l t h o u g h t h e s e d a t a a r e broken down by the type of i n d u s t r y , c l a s s i f i c a t i o n of i n d u s t r i e s d i f f e r from one c o u n t r y t o a n o t h e r . T h e r e f o r e , the Bank of Japan d a t a , broken down by i n d u s t r i a l s e c t o r a n n u a l l y , a r e the most d e t a i l e d d a t a a v a i l a b l e f o r comparison of Japanese DFI i n the U n i t e d S t a t e s and Canada. In a d d i t i o n , f o u r i s s u e s of Z a i s e i K i n y u T o k e i Geppo p u b l i s h e d by the M i n i s t r y of F i n a n c e , Japan, supplemented t h e s e d a t a . In a d d i t i o n , Toyo K e i z a i S h i n p o - s h a , or the O r i e n t a l E c o n o m i s t , has c o m p i l e d f a c t s and f i g u r e s of Japanese m u l t i n a t i o n a l s s i n c e 1973, and s p e c i a l i s s u e s on t h i s t o p i c have been p u b l i s h e d a n n u a l l y . The 1973, 1979, and 1984 e d i t i o n s of Shukan Toyo K e i z a i were u t i l i z e d . The i n t e r v i e w s w i t h businessmen of the n i n e t o p sogo shosha i n Canada and Japan e n a b l e d an update of the i n f o r m a t i o n a v a i l a b l e i n the 2 0 N o r t h America r e f e r s o n l y t o t h e U n i t e d S t a t e s and Canada. 15 1984 e d i t i o n . These d a t a were p r o c e s s e d by u s i n g the s t a t i s t i c a l package f o r s o c i a l s c i e n c e a t the U n i v e r s i t y of B r i t i s h C o lumbia. In o r d e r t o p r e s e n t the d a t a c o l l e c t e d by t h i s method, t h i s t h e s i s has been d i v i d e d i n t o t h r e e p a r t s . P a r t I which forms Chapter 1 l a y s out the t h e o r e t i c a l arguments c o n c e r n i n g p r e v i o u s economic and management t h e o r i e s which have been u t i l i z e d t o e x p l a i n Japanese DFI and the economic r e l a t i o n s h i p s w i t h h o s t c o u n t r i e s . T h i s i n v o l v e s some comparison of t h e o r i e s r e g a r d i n g American and Japanese DFI. P a r t I I made of C h a p t e r s 2 and 3 d i s c u s s e s t h e c h a r a c t e r i s t i c s of MNCs i n o r d e r t o d e l i n e a t e the s p e c i a l f e a t u r e s of the sogo shosha. T h i s i s f o l l o w e d by a sur v e y of the n a t u r e and f e a t u r e s of the postwar Japanese economy, which i n i t i a t e s and m a i n t a i n s o v e r s e a s i n v e s t m e n t . The economic n e c e s s i t y t o p r o c u r e n a t u r a l r e s o u r c e s , the development of the Japanese economy and a s h i f t i n both i n d u s t r i a l s t r u c t u r e and governmental p o l i c i e s , a l l a r e m i r r o r e d i n d i s t i n c t Japanese DFI i n terms of inves t m e n t r e g i o n s and s e c t o r s . In a d d i t i o n , domestic Japanese o r g a n i z a t i o n a l l i n k a g e s between f i r m s a f f e c t e d the o r i g i n s of J a p a n e s e - t y p e MNCs and ar e r e f l e c t e d i n the o v e r s e a s i n v e s t m e n t f o r m u l a e . P a r t I I I of the t h e s i s , c o n s i s t i n g of C h a p t e r s 4, 5 and 6, a n a l y z e s the p a t t e r n s of Japanese f o r e i g n i nvestment a t the w o r l d l e v e l , i n N o r t h America and f i n a l l y by the sogo shosha i n N o r t h A m e r i c a . Chapter 4 t a k e s a b i r d ' s - e y e view 1 6 of the postwar Japanese DFI i n the w o r l d . F i r s t , the w o r l d t r e n d of DFI i s o u t l i n e d i n o r d e r t o p l a c e Japanese DFI p o s i t i o n i n a g l o b a l c o n t e x t . The c h a p t e r i n c l u d e s a survey of the changes i n Japanese government investment p o l i c i e s from r e s t r i c t i o n t o l i b e r a l i z a t i o n c o r r e s p o n d i n g t o the domestic economic development and i n t e r n a t i o n a l p r e s s u r e s . An h i s t o r i c a l r e v i e w of Japanese DFI i s p r e s e n t e d d a t i n g from 1951 t o 1983 which shows s i g n i f i c a n t i n v e s t m e n t i n N o r t h A m e r i c a . Major f e a t u r e s of p r e s e n t Japanese DFI a r e c l a r i f i e d . In o r d e r t o i d e n t i f y c h r o n o l o g i c a l and s e c t o r a l changes i n Japanese DFI, Chapter 5 t r a c e s postwar Japanese DFI i n the U n i t e d S t a t e s and Canada. Economic, p o l i t i c a l , g e o g r a p h i c a l and s o c i a l f a c t o r s f o r m i n g the inves t m e n t c l i m a t e of b o t h the U n i t e d S t a t e s and Canada a r e d i s c u s s e d . Then, the inv e s t m e n t c l i m a t e s of th e s e two c o u n t r i e s a r e compared t o d i s c e r n reasons why Japanese DFI i s a t t r a c t e d t o c e r t a i n a r e a s . Chapter 6 f o c u s e s on a case s t u d y of postwar Japanese DFI by sogo shosha i n the U n i t e d S t a t e s and Canada. Major q u e s t i o n s c o n c e r n i n which s e c t o r and r e g i o n sogo shosha i n v e s t e d and what i s the r e l a t i v e importance of the invest m e n t by sogo shosha t o t h e o v e r a l l Japanese DFI i n the U n i t e d S t a t e s and Canada. F i n a l l y , the c o n c l u s i o n summarizes the r e s u l t s of the a n a l y s i s . 1 7 C H A P T E R 1 T H E O R E T I C A L F R A M E W O R K I t i s a commonly h e l d view t h a t D i r e c t F o r e i g n Investment ( D F I ) , i s l a r g e l y c a r r i e d out by 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 . The reaso n s f o r investment and the i m p l i c a t i o n s of inve s t m e n t on home and ho s t c o u n t r i e s a r e complex. The n e o c l a s s i c a l / n e o - K e y n e s i a n , the r a d i c a l or ne o - M a r x i s t and the n e o - m e r c a n t i l i s t p e r s p e c t i v e s have been advanced as frameworks f o r u n d e r s t a n d i n g d i r e c t f o r e i g n i n v e s t m e n t . These approaches c o r r e s p o n d t o G i l p i n ' s c l a s s i f i c a t i o n of the t h r e e p r e v a i l i n g s c h o o l s of thought on economics: l i b e r a l i s m ( t h e Sovereignty-at-Bay m o d e l ) , Marxism ( t h e dependencia m o d e l ) , and economic n a t i o n a l i s m ( t h e m e r c a n t i l i s t m o d e l ) , r e s p e c t i v e l y . 2 1 The purpose of t h i s c h a p t e r i s t w o f o l d : f i r s t , t o d e s c r i b e and c r i t i c a l l y a n a l y z e the main arguments of each s c h o o l of p o l i t i c a l economic t h o u g h t , and second, t o examine t o what e x t e n t each s c h o o l a c c o u n t s f o r the p a s t and p r e s e n t p a t t e r n s of Japanese DFI i n b o t h the U n i t e d S t a t e s and Canada as w e l l as i n the w o r l d . The e x t e n t t o which each s c h o o l e x p l a i n s t he r e l a t i o n s h i p between the ho s t and home c o u n t r i e s i s a l s o examined. The f i r s t t h r e e s e c t i o n s d i s c u s s the t h r e e major t h e o r i e s . Then, s e c t i o n IV d e a l s w i t h t h e 2 1 R o b e r t G i l p i n , \"Three Models of the F u t u r e \" I n t e r n a t i o n a l O r g a n i z a t i o n v o l . 29, no. 1 ( W i n t e r , 1975): 37-60. A r e v i s e d v e r s i o n of t h i s a r t i c l e i s Chapter 9 i n Robert G i l p i n , U.S. Power and the M u l t i n a t i o n a l C o r p o r a t i o n : The P o l i t i c a l Economy of F o r e i g n D i r e c t Investment (New York: B a s i c Books, P u b l i s h e r s , 1975) The P o l i t i c a l Economy of I n t e r n a t i o n a l R e l a t i o n s S e r i e s ed. Benjamin J . Cohen. 18 v a l i d i t y of the t h e o r i e s to e l u c i d a t e the Japanese-type DFI as opposed to the American-type DFI. I . N e o c l a s s i c a l / N e o - K e y n e s i a n T h e o r i e s N e o c l a s s i c a l / n e o - K e y n e s i a n t h e o r i e s draw on c l a s s i c a l economics which at i t s core i s a market mechanism, through which optimal a l l o c a t i o n of resources i s a t t a i n e d by the economic a c t i v i t i e s of r a t i o n a l , i . e . s e l f - i n t e r e s t e d , i n d i v i d u a l s . These t h e o r i e s a l s o take i n t o account s i g n i f i c a n t governmental r o l e s i n the economy. I n t e r n a t i o n a l t r a d e i s i n s e p a r a b l e from i n t e r n a t i o n a l f o r e i g n investment. T r a d i t i o n a l t h e o r i s t s c l a i m that i n t e r n a t i o n a l t r a de can generate wealth, e i t h e r by improving the a l l o c a t i o n of r e s o u r c e s , or by i n c r e a s i n g the q u a n t i t y of a v a i l a b l e r e s o u r c e s . Improved a l l o c a t i o n i s d i r e c t and a c h i e v e s s t a t i c g a i n s through the theory of \"comparative advantage,\" while i n c r e a s i n g the q u a n t i t y of a good i s i n d i r e c t and cumulative as p o s t u l a t e d by p r o d u c t i v i t y t h e o r y . 2 2 The theory of comparative advantage i n i n t e r n a t i o n a l t r a d e , n o t a b l y developed by David Ricardo, assumes that each country w i l l export the goods that i t can produce at the lowest r e l a t i v e c o s t and w i l l b e n e f i t from the f r e e flow of trade between them. R i c a r d o ' s two-country, two-product, l a b o r - c o s t model i s too simple, s i n c e the theory emphasizes 2 2 A n t h o n y R. de Souza and J . Brady Foust, World Space-Economy (Columbus, Ohio: C h a r l e s E. M e r r i l l P u b l i s h i n g Co., and A B e l l & Howell Co., 1979), p. 516. 19 only one f a c t o r of p r o d u c t i o n : l a b o r . In response to t h i s c r i t i c i s m , two Swedish economists E l i Heckscher and B e r t i l O h l i n i n c l u d e d s e v e r a l f a c t o r s of pr o d u c t i o n i n another model, namely, land, l a b o r , c a p i t a l and e n t r e p r e n e u r s h i p , and showed how trade arose from i n t e r n a t i o n a l d i f f e r e n c e s i n these f a c t o r endowments. T h i s f a c t o r endowments approach to trade theory concludes that a country should s p e c i a l i z e i n the p r o d u c t i o n of goods which make the l i g h t e s t demands on i t s s carce f a c t o r s of p r o d u c t i o n . A country should export i t s s p e c i a l i t i e s i n order to o b t a i n goods which i t i s i l l - e q u i p p e d to produce. Behind a l l these trade t h e o r i e s , there i s an assumption that f r e e t r ade i s best because i t maximizes world economic output, and that through trade resources are a l l o c a t e d i n the most e f f i c i e n t manner. However, i n r e a l i t y , t r a d e does not take p l a c e i n a laissez-faire environment. V a r i o u s trade b a r r i e r s , such as p r o t e c t i v e t a r i f f s (import d u t i e s ) , quotas, commodity agreements, and n o n - t a r i f f b a r r i e r s e x i s t . Among n e o c l a s s i c a l / n e o - K e y n e s i a n economists, i t i s axiomatic to say that DFI i s the product of imperfect market c o m p e t i t i o n . As long as markets are imperfect under c a p i t a l i s m , there are d i f f i c u l t i e s i n p r e v e n t i n g a f i r m from t a k i n g advantage of the market i m p e r f e c t i o n s . 2 3 By encompassing v a r i o u s a s p e c t s and e x p l a n a t i o n s of m u l t i n a t i o n a l a c t i v i t y , the main s c h o o l s of economic thought 2 3 K i y o s h i Kojima, D i r e c t F o r e i g n Investment: A Japanese Model of M u l t i n a t i o n a l Business Operations (London: Croom Helm, 1978), p. 229. 20 view DFI as a p a r t i c u l a r response to imperfect and d i s t o r t e d markets. Before p r e s e n t i n g Ohlin-Heckscher's c l a s s i c a l t r a n s f e r theory and that of two monumental works by Hymer (1960) and Vernon (1966) as t y p i c a l models of n e o c l a s s i c a l / n e o - K e y n e s i a n thought, other t r a d i t i o n a l t h e o r i e s of DFI should be reviewed. For example, A l i b e r (1970) advocated the hard currency theory, i n which 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 of s o u r c e - c o u n t r i e s based i n hard curr e n c y areas have an advantage i n the c a p i t a l market over host country f i r m s . Caves (1971) i n t r o d u c e d product d i f f e r e n t i a t i o n advantages of 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 . He accepted that product d i f f e r e n t i a t i o n advantages are not only an i n d u s t r i a l a t t r i b u t e e x p l a i n i n g the i n c i d e n c e of d i r e c t investment, but a l s o , i n some of h i s l a t e r work, he a l s o d i s t i n g u i s h e d ownership advantages. In h i s most recent work, Caves (1982) uses the \" t r a n s a c t i o n a l approach.\" \". . . the m u l t i n a t i o n a l e n t e r p r i s e operates i n an i n t e r n a l market i n which t r a n s a c t i o n c o s t s are lower than they would be i n open arm's-lengths [ s i c ] m a r k e t s . \" 2 4 T h i s t r a n s a c t i o n a l approach i s a l s o the b a s i s of Hennart's work (1982). Magee (1977) proposed an a p p r o p r i a b i l i t y 2 5 theory, i n which 2 4 C h a r l e s P. K i n d l e b e r g e r , M u l t i n a t i o n a l E x c u r s i o n s (Cambridge, Mass.: MIT P r e s s , 1984), p. 181. 2 5Magee d e f i n e s \" a p p r o p r i a b i l i t y \" as the a b i l i t y of p r i v a t e o r i g i n a t o r s of ideas to o b t a i n f o r themselves the pecuniary value of the ideas to s o c i e t y . See Stephen P. Magee, \"Information and the M u l t i n a t i o n a l C o r p o r a t i o n : An A p p r o p r i a b i l i t y Theory of D i r e c t F o r e i g n Investment,\" i n The New, I n t e r n a t i o n a l Economic Order: The North-South Debate, ed. J a g d i s h N. Bhagwati. (Cambridge, Mass.: M.I.T. Pr e s s , 1977), p. 337. 21 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 p l a y a key r o l e of an i n t e r n a t i o n a l t r a d e r i n \" i n f o r m a t i o n \" ( t e c h n o l o g y ) . Dunning (1977), who leads the U n i v e r s i t y of Reading s c h o o l , advocated \" e c l e c t i c theory\" which encompasses d i r e c t investment theory and l o c a t i o n theory, by s t r e s s i n g both the /ocati o n - s p e c i f i c endowments of c o u n t r i e s and the ownership-specific endowments of e n t e r p r i s e s . However, K i n d l e b e r g e r c r i t i c i z e d Dunning i n t h a t l o c a t i o n theory was a l r e a d y p a r t of the theory of d i r e c t i n v e s t m e n t . 2 6 With regard to other DFI t h e o r i e s , e x c e l l e n t l i t e r a t u r e surveys are p r o v i d e d by Hood and Young (1979) and Parry (1980) and they w i l l not be f u r t h e r addressed here. Except f o r the p i o n e e r i n g work of Penrose (1959) who a s s o c i a t e d d i r e c t investment with the growth of the f i r m , the above-mentioned works stem from Hymer and Vernon's c o n t r i b u t i o n , even though Hymer's 1960 work was p u b l i s h e d as l a t e as 1976. Before the e v o l u t i o n of new t h e o r i e s of DFI i n the 1960's, DFI was l a r g e l y c o n s i d e r e d a form of i n t e r n a t i o n a l movement of c a p i t a l . The c l a s s i c a l t r a n s f e r theory of i n t e r n a t i o n a l c a p i t a l flows was e s s e n t i a l l y c l a s s i c a l investment theory which extended a c r o s s n a t i o n a l boundaries. Based on t h i s theory, investment w i l l occur up to the p o i n t where the marginal r a t e of r e t u r n on c a p i t a l equals the i n t e r e s t r a t e . In c o n v e n t i o n a l t r a n s f e r theory, there i s no d i s t i n c t i o n between p o r t f o l i o and d i r e c t investment flows, because p r i o r to the 1930's i n t e r n a t i o n a l c a p i t a l flows were 2 6 K i n d l e b e r g e r , op_. c i t . , p. 183. 22 synonymous with p o r t f o l i o i n v e s t m e n t . 2 7 A f t e r World War I I , DFI i n c r e a s e d , a s s o c i a t e d with a t r a n s f e r of technology and s k i l l s as w e l l as a t r a n s f e r of f i n a n c e s . Thus, i t was c l e a r t h a t i n t e r e s t - r a t e d i f f e r e n t i a l s of c l a s s i c a l t r a n s f e r t heory d i d not provide a f u l l e x p l a n a t i o n of a l l forms of i n t e r n a t i o n a l d i r e c t investment. I t i s necessary to d i s t i n g u i s h d i r e c t f o r e i g n investment from p o r t f o l i o investment. I f a c i t i z e n of one c o u n t r y makes an investment i n another country with the i n t e n t i o n of managing or c o n t r o l l i n g the p h y s i c a l a s s e t s and o r g a n i z a t i o n a c q u i r e d or c r e a t e d as a r e s u l t of the investment, then the investment i s d e f i n e d as f o r e i g n d i r e c t investment. In c o n t r a s t , i f the i n v e s t o r intends only to h o l d the f o r e i g n a s s e t s i n order to o b t a i n f i n a n c i a l g a i n and does not in t e n d to manage or c o n t r o l the investment, i t i s r e f e r r e d to as f o r e i g n p o r t f o l i o investment, or simply p o r t f o l i o i n v e s t m e n t . 2 8 Another explanatory h y p o t h e s i s c r i t i q u e d by Caves i s d e s c r i b e d as the r i s k a v e r s i o n assumption. In a d d i t i o n to normal business r i s k s which are accompanied by changes i n technology, market f a i l u r e and b u s i n e s s mismanagement, f o r e i g n investment encounters both a p o l i t i c a l and an exchange r i s k i n the host c o u n t r y . DFI r e q u i r e s a l a r g e amount of c o s t l y i n f o r m a t i o n i n order to minimize r i s k s . 2 7Thomas G. Parry, The M u l t i n a t i o n a l E n t e r p r i s e ; I n t e r n a t i o n a l Investment and Host-Country Impacts (Greenwich, Conn.: JAI Press, 1980), p. 19. 2 8 Y o s h i Tsurumi, M u l t i n a t i o n a l Management: Business S t r a t e g y and Government P o l i c y , 2nd ed. (Cambridge, Mass.: B a l l i n g e r P u b l i s h i n g Co., 1984), p. 184. 23 Reducing b u s i n e s s r i s k s c o u l d be a c c o m p l i s h e d by the d i v e r s i f i c a t i o n of the type of p r o d u c t items as w e l l as of investment i n d i f f e r e n t g e o g r a p h i c l o c a t i o n s . The MNC g e n e r a l l y must choose between i n v e s t m e n t s i n v o l v i n g g r e a t e r r i s k s and h i g h e r e x p e c t e d r e t u r n s and t h o s e i n v o l v i n g l e s s r i s k s and l o w e r e x p e c t e d r e t u r n s . A l t h o u g h managers g e n e r a l l y aim t o m i n i m i z e r i s k s , t h ey sometimes pursue more r i s k y i n v e s t m e n t s , i n hope of h i g h e r r e t u r n s t h r o u g h i n c r e a s e d r e v e n u e s , c a s h f l o w , p r o f i t s and market s h a r e . When a company makes a r i s k - a v o i d i n g c h o i c e of investment p r o j e c t s , i t g e n e r a l l y r e s u l t s i n a lower p r o f i t r a t e . Sometimes, when c o r p o r a t e management does not a c t i n a manner t h a t maximizes the i n t e r e s t s of w i d e l y s c a t t e r e d and p a s s i v e s h a r e h o l d e r s , the r a t e of r e t u r n t o the s h a r e h o l d e r s becomes a problem. A c c o r d i n g t o Caves, a MNC \" s h o u l d embrace f o r e i g n i n v e s t m e n t s o n l y i f t h e y o f f e r the h i g h e s t e x p e c t e d p r o f i t and s h o u l d s t a y away from t h o s e j u s t i f i e d s o l e l y f o r t h e i r d i v e r s i f i c a t i o n v a l u e . \" 2 9 T h i s i s because i n d i v i d u a l p o r t f o l i o h o l d e r s o f t e n f i n d i t d i f f i c u l t t o i n v e s t a c r o s s n a t i o n a l b o u n d a r i e s and the b u s i n e s s manager h i m s e l f f a c e s n o n d i v e r s i f i a b l e r i s k s i f h i s company does b a d l y . 3 0 In 1960 Stephen Hymer's d o c t o r a l d i s s e r t a t i o n The I n t e r n a t i o n a l O p e r a t i o n s of N a t i o n a l F i r m s : A Study of D i r e c t F o r e i g n Investment was a m i l e s t o n e i n the h i s t o r y of 2 9 R i c h a r d E. Caves, M u l t i n a t i o n a l E n t e r p r i s e and Economic A n a l y s i s , (Cambridge: Cambridge U n i v e r s i t y P r e s s , 1982), p. 26. 3 0 I b i d . 24 economic thought. Indeed, K i n d l e b e r g e r noted that \"the m u l t i n a t i o n a l c o r p o r a t i o n without Hymer i s Hamlet without the P r i n c e . \" 3 1 Hymer showed that DFI o c c u r r e d most prominently i n those i n d u s t r i e s with o l i g o p o l i s t i c s t r u c t u r e s . An o l i g o p o l i s t i c s t r u c t u r e r e f e r s to i n d u s t r i e s i n which a l i m i t e d number of f i r m s with s u p e r i o r product technology or manufacturing economies of s c a l e d o m i n a t e . 3 2 The o l i g o p o l i s t i c market s t r u c t u r e and behavior of m u l t i n a t i o n a l s are c l o s e l y l i n k e d with t e c h n o l o g i c a l advantages. F i r s t , l a r g e s i z e i s an important a t t r i b u t e f o r s u c c e s s f u l i n n o v a t i o n s i n c e r e s e a r c h and development c o s t s are s u b s t a n t i a l and the economies of s c a l e f a v o r s i t . Second, f i r m s p o s s e s s i n g a m o n o p o l i s t i c c o m p e t i t i v e advantage are ab l e to earn h i g h e r p r o f i t s . F i n a l l y , product d i f f e r e n t i a t i o n i s f r e q u e n t l y a s s o c i a t e d with an o l i g o p o l i s t i c market s t r u c t u r e , and the a b i l i t y to d i f f e r e n t i a t e products i s c r u c i a l where technology becomes s t a n d a r d i z e d . In s h o r t , Hymer's e a r l y approach, along with K i n d l e b e r g e r ' s , i s known as the i n d u s t r i a l o r g a n i z a t i o n approach with emphasis on the h o r i z o n t a l and v e r t i c a l i n t e g r a t i o n of economic a c t i v i t y w i t h i n a c o r p o r a t i o n a c r o s s n a t i o n a l boundaries. The next preeminent opus was presented by Raymond Vernon i n 1966, known as the product l i f e c y c l e theory. 3 1 K i n d l e b e r g e r , op_. c i t . , p. 180. 3 2 T s u r u m i , op_. c i t . , p. 180. 25 Vernon and the H a r v a r d B u s i n e s s S c h o o l group p o s t u l a t e d a t e c h n o l o g i c a l gap as the major advantage i n e x p l a i n i n g DFI and c o n s i d e r e d DFI as s t a g e s i n the p r o c e s s of the p e n e t r a t i o n of f o r e i g n m a r k e t s . F i r s t , a new p r o d u c t i s i n v e n t e d and manufactured on a l a r g e s c a l e i n a l e a d i n g i n d u s t r i a l i z e d c o u n t r y . As l o n g as a t e c h n o l o g i c a l gap e x i s t s between the p r o d u c t d e v e l o p i n g c o u n t r i e s and f o r e i g n c o u n t r i e s , e x p o r t s of t h i s p r o d u c t w i l l grow. The p r o d u c t i s m a t u r i n g as o t h e r companies i n o t h e r c o u n t r i e s compete i n p r o d u c i n g i t . The t e c h n o l o g y i s thus d i f f u s e d t o o t h e r i n d u s t r i a l i z e d c o u n t r i e s . Then, as the t r a d e advantage i s on the verge of b e i n g l o s t , DFI i s made t o s e c u r e f o r e i g n m a r k e t s . When the p r o d u c t i s s t a n d a r d i z e d and w i d e l y d i s s e m i n a t e d and economies of s c a l e r e a c h t h e i r l i m i t s , the m u l t i n a t i o n a l company i n the o r i g i n a l c o u n t r y of i n n o v a t i o n t u r n s t o import t h i s p r o d u c t from i t s s u b s i d i a r y i n the l e s s - d e v e l o p e d c o u n t r i e s which o f f e r c o m p e t i t i v e advantages as a p r o d u c t i o n l o c a t i o n . A c c o r d i n g t o Vernon, o l i g o p o l y was a n e a r - n e c e s s a r y c o n d i t i o n f o r b r e e d i n g m u l t i n a t i o n a l e n t e r p r i s e s , which was s i m p l y a r e a f f i r m a t i o n of a p o i n t made by Hymer. 3 3 The p r o d u c t l i f e c y c l e t h e o r y r e g a r d s t e c h n o l o g i c a l i n n o v a t i o n s as the main d e t e r m i n a n t of the s t r u c t u r e of w o r l d t r a d e and of the d i s t r i b u t i o n of p r o d u c t i o n among c o u n t r i e s . T h i s model e x p l a i n s the l o c a t i o n of m a n u f a c t u r i n g 3 3Raymond Vernon, \" S o v e r e i g n t y a t Bay Ten Years A f t e r \" I n t e r n a t i o n a l O r g a n i z a t i o n v o l . 35, no. 3 (Summer, 1981): 518. 26 f a c i l i t i e s , but not t h e i r o w n e r s h i p . Moreover, t h i s model d e s c r i b e s the main elements of U.S. d i r e c t i n v e s t m e n t , but i s not c o n s i d e r e d a g e n e r a l model of DFI a p p l i c a b l e t o o t h e r d e v e l o p e d c o u n t r i e s . In t h i s r e g a r d , Vernon h i m s e l f acknowledged i n h i s S o v e r e i g n t y a t Bay t h a t \"by 1970 the pr o d u c t c y c l e model was b e g i n n i n g i n some r e s p e c t s t o be inadequate as a way of l o o k i n g a t the U.S. c o n t r o l l e d m u l t i n a t i o n a l e n t e r p r i s e . \" 3 4 The u t i l i t y and l i m i t a t i o n of a \"Soverei gnt y-at-Bay model\" i d e n t i f i e d by G i l p i n were summarized by Vernon i n the f o l l o w i n g passage:.. . . . the p r o d u c t - c y c l e h y p o t h e s i s had p a r t i c u l a r a p p l i c a b i l i t y t o the c o n d i t i o n s o f , say, 1900 t o 1970; t h i s was a p e r i o d i n which the-income l e v e l s of U.S. r e s i d e n t s were h i g h e r than those i n any o t h e r major market i n the w o r l d , i n which U.Sv L ... h o u r l y l a b o r c o s t s were the h i g h e s t i n the w o r l d , a n d - i n which U.S. c a p i t a l and raw m a t e r i a l s were c o m p a r a t i v e l y c h e a p . 3 5 He f u r t h e r a p p r a i s e d t h a t \"the p r o d u c t - c y c l e concept c o n t i n u e d t o have some u t i l i t y , e x p l a i n i n g some of the t r a d e and i n v e s t m e n t p a t t e r n s v i s i b l e i n v a r i o u s c o u n t r i e s of the w o r l d ; but i t s u t i l i t y i n e x p l a i n i n g the b e h a v i o r of t h e U.S. economy had measurably d e c l i n e d . \" 3 6 The p r o d u c t l i f e c y c l e t h e o r y of Vernon has some r e l e v a n c e t o Japanese DFI, a l t h o u g h Japan has been an i m i t a t o r r a t h e r than an i n n o v a t o r . Japan may succeed i n making s u b s t a n t i a l p h y s i c a l improvements t o t h e p r o d u c t s 3\"Raymond Vernon, S o v e r e i g n t y a t Bay: The M u l t i n a t i o n a l Spread of U.S. E n t e r p r i s e s (New York: B a s i c Books, 1971);~p; 108. 3 5Raymond Vernon, \"Ten Ye a r s A f t e r , \" op_. c i t . , p. 519. 3 61 b i d . , p. 520. \u00E2\u0080\u00A2 27 concerned and i t may s u c c e s s f u l l y d i f f e r e n t i a t e i t s products through brand names and a d v e r t i s i n g . 3 7 Indeed, Tsurumi, a member of the Harvard Business group, a p p l i e d the product l i f e c y c l e theory to e x p l a i n the emerging p a t t e r n s of DFI by Japanese f i r m s . 3 8 However, Tsurumi r e c o g n i z e d the l i m i t s of t h i s theory and s t a t e d that \"a c l o s e r i n v e s t i g a t i o n of Japanese investments abroad i n both d e v e l o p i n g and developed n a t i o n s produced a new dimension to the product l i f e c y c l e theory of f o r e i g n d i r e c t i n v e s t m e n t . \" 3 9 D i r e c t f o r e i g n investment, as noted by Hymer and Vernon, was observed i n i n d u s t r i e s a s s o c i a t e d with o l i g o p o l y and with i n n o v a t i o n . T h i s type of DFI i s named the American-type of DFI by Kojima, which w i l l be d i s c u s s e d l a t e r i n t h i s chapter (see s e c t i o n I V ) . I I . R a d i c a l T h e o r i e s R a d i c a l t h e o r i e s have a l s o c o n t r i b u t e d to understanding the behavior of 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 . Three major t h e o r i e s w i l l be examined. The f i r s t two, the dependency theory whose l e a d i n g exponent i s Frank (1966), and the world system theory advocated by W a l l e r s t e i n (1974), analyze economies on a w o r l d - s c a l e and emphasize the change w i t h i n the g l o b a l d i v i s i o n of l a b o r . Both t h e o r i e s are g r e a t l y indebted to M a r x i s t i n t e l l e c t u a l thought. The t h i r d theory 3 7Hood and Young, ojo. c i t . , p. 67. 3 8 S e e Yoshi Tsurumi, \"Japanese M u l t i n a t i o n a l Firms\" J o u r n a l of World Trade Law v o l . 7, no. 1 (January/February, 1973): 74-90. 3 9 T s u r u m i , M u l t i n a t i o n a l Management, op. c i t . , p. 199. 28 i s a neo-Marxist theory, d i s c u s s e d by P a l l o i x and Hymer. L i k e John Freedmann, a planner, and David Harvey, a geographer, by 1969 Hymer was converted from a l i b e r a l p e r s p e c t i v e to Marxism. The f i r s t major p u b l i c a t i o n i n E n g l i s h of the dependency 4 0 or the L a t i n American s c h o o l , was a c o l l e c t i o n of essays i n 1967 by Andre Gunder Frank e n t i t l e d C a p i t a l i s m and Underdevelopment i n L a t i n America. D e r i v a t i o n of thought encompassed the works of L a t i n American s c h o l a r s p r e v i o u s l y p u b l i s h e d i n Spanish. Since then the dependency s c h o o l has been the s u b j e c t of much debate among s c h o l a r s . In Frank's theory of underdevelopment, he argues that \" h i s t o r i c a l r e s e a r c h demonstrates that contemporary underdevelopment i s i n l a r g e p a r t the h i s t o r i c a l product of past and c o n t i n u i n g economic and other r e l a t i o n s between the s a t e l l i t e underdeveloped and the now developed m e t r o p o l i t a n c o u n t r i e s . \" 4 1 Furthermore, \"underdevelopment was and i s 4 0 C a p o r a s o i n d i c a t e d that dependence and dependency are two q u i t e d i s t i n c t i v e s e t s of phenomena. Dependence i s the p a t t e r n of e x t e r n a l r e l i a n c e of w e l l - i n t e g r a t e d n a t i o n - s t a t e s on one another. The o p p o s i t e of dependence i s interdependence. Interdependence r e s t s on the the n o t i o n of mutual c o n t r o l . On the other hand, dependency, which i s c l o s e r to the dependenci a t r a d i t i o n , i n v o l v e s a more complex set of r e l a t i o n s c e n t e r i n g on the i n c o r p o r a t i o n of l e s s developed, l e s s homogeneous s o c i e t i e s i n t o the g l o b a l d i v i s i o n of l a b o r . See James A. Caporaso, \"Dependence, Dependency, and Power i n the G l o b a l System: A S t r u c t u r a l and B e h a v i o r a l A n a l y s i s \" I n t e r n a t i o n a l O r g a n i z a t i o n v o l . 32, no. 1 (1978): 13-43. 4 1 A n d r e Gunder Frank, \"The Development of Underdevelop-ment,\" Monthly Review: An Independent S o c i a l i s t Magazine v o l . 18, no. 4 (September, 1966): 18. T h i s a r t i c l e i s Chapter 1, i n Andre Gunder Frank, L a t i n America: Underdevelopment or R e v o l u t i o n , Essays on the Development of Underdevelopment and the Immediate Enemy, (New York and London: Monthly Review Press, 1969). 29 s t i l l generated by the very same h i s t o r i c a l process which a l s o generated economic development: the development of c a p i t a l i s m i t s e l f . \" 4 2 The g i s t of Frank's argument i s that by the expansion of the c a p i t a l i s t system, every area i s i n t e g r a t e d i n t o the world economic system on an i n t e r n a t i o n a l l e v e l . \". . . a whole c h a i n of c o n s t e l l a t i o n s of metropoles and s a t e l l i t e s r e l a t e s a l l p a r t s of the whole system from i t s m e t r o p o l i t a n c e n t e r i n Europe or the U n i t e d S t a t e s to the f a r t h e s t outpost i n the L a t i n American c o u n t r y s i d e . \" 4 3 Through t h i s c h a i n , c a p i t a l or economic s u r p l u s generated i n s a t e l l i t e s i s c h a n n e l l e d to the world m e t r o p o l i s at each stage of p r o d u c t i o n . As a r e s u l t , the s a t e l l i t e s are underdeveloped, or impoverished, while the metropoles develop, or grow. W a l l e r s t e i n ' s work on world-system a n a l y s i s i s o f t e n l i n k e d with or viewed as an e x t e n s i o n of Frank's work. Although the world-system theory emphasized d i f f e r e n t a s p e c t s of the s t r u c t u r e and growth of a world economy with h i s t o r i c a l d e t a i l s , the c a u s a l e x p l a n a t i o n of underdevelopment i s s i m i l a r . W a l l e r s t e i n i n s i s t e d t h a t \"the modern world-economy i s , and only can be, a c a p i t a l i s t world-economy.\" 4 4 W a l l e r s t e i n l i n k e d the emergence of the modern world-economy i n s i x t e e n t h - c e n t u r y Europe with the f u l l development and 4 2 I b i d . , p. 23. 4 3 I b i d . , p. 20. 4 4Immanuel W a l l e r s t e i n , The Modern World-System: C a p i t a l i s t A g r i c u l t u r e and the O r i g i n s of the European World-Economy in the S i x t e e n t h Century (New York and London: Academic Press, 1974), p. 350. 30 economic predominance of market t r a d e , t h a t i s , c a p i t a l i s m . A w o r l d - s y s t e m or world-economy i s d e f i n e d as a u n i t w i t h a s i n g l e d i v i s i o n of l a b o r but m u l t i p l e p o l i c i e s and c u l t u r e s . 4 5 C a p i t a l i s m and a world-economy a r e i n e x t r i c a b l y l i n k e d and i n s e p a r a b l e . A w o r l d - s y s t e m i s based on e x t e n s i v e d i v i s i o n of l a b o r , and t h i s d i v i s i o n i s b o t h f u n c t i o n a l , namely o c c u p a t i o n a l , and t e r r i t o r i a l . In o t h e r words, the w o r l d - s y s t e m r e s t s on the s p e c i a l i z a t i o n of d i f f e r e n t r e g i o n s a t d i f f e r e n t s t a g e s and under d i f f e r e n t a s p e c t s of the p r o d u c t i o n p r o c e s s . The p r o c e s s of development of a world-economy b r i n g s about t e c h n o l o g i c a l advances which make i t p o s s i b l e t o expand the b o u n d a r i e s of the world-economy. The i n t e g r a t i o n of v a s t new a r e a s as the p e r i p h e r y of the expanding world-economy may r e s u l t i n a s h i f t i n r o l e of some r e g i o n s of the w o r l d . A l t h o u g h t e c h n o l o g i c a l advances sometimes change the s t r u c t u r a l r o l e s of some r e g i o n s i n the world-economy, the s t r u c t u r a l p o s i t i o n s i n the world-economy were d i v i d e d i n t o c o r e - s t a t e s , s e m i p e r i p h e r a l a r e a s and p e r i p h e r a l a r e a s , which became s t a b i l i z e d by about 1 6 4 0 . 4 6 S l i g h t l y d i f f e r e n t s t a r t i n g - p o i n t s l e d t o the development of a s t r o n g e r s t a t e mechamism i n the c o r e a r e a s of t h e world-economy. Once a d i f f e r e n c e i n s t r e n g t h s of s t a t e - m a c h i n e r i e s e x i s t s , 4 5Immanuel W a l l e r s t e i n , \"The R i s e and F u t u r e Demise of the World C a p i t a l i s t System: Concepts f o r Comparative A n a l y s i s \" Comparative S t u d i e s i n S o c i e t y and H i s t o r y : An I n t e r n a t i o n a l Q u a r t e r l y v o l . 16 (1974): 390-391. 4 6 W a l l e r s t e i n , \"The R i s e and F u t u r e Demise,\" op_. c i t . , p. 401 . 31 \"unequal e x c h a n g e \" 4 7 o p e r a t e s . \"Thus c a p i t a l i s m i n v o l v e s not o n l y a p p r o p r i a t i o n of the s u r p l u s - v a l u e by an owner from a l a b o r e r , but an a p p r o p r i a t i o n of s u r p l u s of the whole world-economy by c o r e a r e a s . \" 4 8 Moreover, the o p e r a t i o n s of the world-market f o r c e s a c c e n t u a t e the d i f f e r e n c e s between c o r e a r e a s and p e r i p h e r a l r e g i o n s . A l t h o u g h F r a nk, W a l l e r s t e i n and A m i n 4 9 s t a t e d the w o r l d - s y s t e m p e r s p e c t i v e i n s l i g h t l y d i f f e r e n t ways, they s h are a common assumption. \"The essence of t h e i r e x p l a n a t i o n was t h a t t h e i n t e g r a t i o n of the w o r l d system l e d t o a t r a n s f e r of economic s u r p l u s from the c o l o n i s e d and, l a t e r , u n d e r d e v e l o p e d r e g i o n s t o the c o l o n i s e r or c o r e r e g i o n s and n a t i o n - s t a t e s . \" 5 0 \". . . the c o r e - p e r i p h e r y d i v i s i o n of l a b o u r was the c e n t r a l s t r u c t u r a l f e a t u r e of w o r l d c a p i t a l i s m , and t h a t the unequal exchange of commodities between i t s c o r e and p e r i p h e r a l zones a c c o u n t e d f o r uneven w o r l d d e v e l o p m e n t . \" 5 1 4 7 S e e A r g h i r i Emmanuel, Unequal Exchange: A Study of the I m p e r i a l i s m of Trade, w i t h A d d i t i o n a l comments by C h a r l e s B e t t e l h e i m , t r a n s . B r i a n Pearce (London: New L e f t Books, 1972) . 4 8 W a l l e r s t e i n , \"The R i s e and F u t u r e Demise,\" l o c . c i t . 4 9 A m i n made a s u b s t a n t i a l c o n t r i b u t i o n t o underdevelopment t h e o r y . He d i s t i n g u i s h e d between c a p i t a l i s t development a t the c e n t e r and i n the p e r i p h e r y . The c e n t e r i s \" s e l f - c e n t e r e d \" and l i n k s the p r o d u c t i o n of mass consumption and c a p i t a l goods, w h i l e the p e r i p h e r y has t h e \" d i s a r t i c u l a t e d \" p r o d u c t i o n which c o n c e n t r a t e s on e x p o r t s and l u x u r y goods. See Samir Amin, \" A c c u m u l a t i o n and Development: A T h e o r e t i c a l Model\" Review of A f r i c a n P o l i t i c a l Economy v o l . 1 (1974): 9-26. 5 0D. K. F o r b e s , The Geography of Underdevelopment: A C r i t i c a l Survey (London: Croom Helm, 1984), p. 71 . 5 A l b e r t B e r g e s e n , \"The Emerging S c i e n c e of the World-System\" I n t e r n a t i o n a l S o c i a l S c i e n c e J o u r n a l v o l . 34, no. 1 (1982): 26. 32 A g a i n s t these dependency and world-system t h e o r i e s , c r i t i c i s m has come from both the dependency t h e o r i s t s such as Leys and Palma as w e l l as from o u t s i d e the s c h o o l . The dependency t h e o r i s t s ' argument was l o c a t e d i n the h i s t o r i c a l dynamics of the expanding c a p i t a l i s t mode of p r o d u c t i o n . T h i s i n t e g r a t i o n of the world-economy l e d to both development at the cent e r (core areas) and underdevelopment i n the p e r i p h e r y . Thus, f i r s t , the c r i t i q u e was d i r e c t e d towards an attempt to e x p l a i n the u n i t y of development and underdevelopment w i t h i n a c a p i t a l i s t world system. Second, dependency t h e o r i e s emphasize the impact of e x t e r n a l f a c t o r s and i n t e r n a t i o n a l r e l a t i o n s to which underdevelopment of the d e v e l o p i n g c o u n t r i e s was a s c r i b e d , but these t h e o r i e s do not grasp the s i g n i f i c a n c e of autonomous h i s t o r i e s of the d e v e l o p i n g c o u n t r i e s . These c o u n t r i e s are regarded as \"p a s s i v e v i c t i m s \" 5 2 of t h e i r p l a c e i n the world c a p i t a l i s t economy. However, they have the a b i l i t y to a d j u s t themselves to the world-system, and the emergence of newly i n d u s t r i a l i z i n g c o u n t r i e s exemplify t h i s s i t u a t i o n . In a d d i t i o n , the mechanical underdevelopment of n a t i o n s as a r e s u l t of t h e i r p l a c e i n the world system has never s a t i s f a c t o r i l y been able to e x p l a i n why c o l o n i a l i s m , and the c r e a t i o n of a dependent economy based on the export of primary p r o d u c t s , l e d to underdevelopment of some c o u n t r i e s (Indonesia) but to the development of o t h e r s ( A u s t r a l i a ) . 5 3 5 2 F o r b e s , l o c . c i t . 5 3 I b i d . , p. 72. 33 I t should be n o t i c e d that W a l l e r s t e i n i n c l u d e d Indonesia and A u s t r a l i a together i n the semi-periphery a r e a s . T h i s argument a p p l i e s , to a c e r t a i n e x t e n t , to Canada as w e l l . F i n a l l y , a c c o r d i n g to Leys, the t h e o r i e s are unable to f u l l y e x p l a i n d i f f e r e n t l e v e l s of development and underdevelopment, or l e v e l s of e x p l o i t a t i o n , between n a t i o n s . Furthermore, the t h e o r i e s l o c a t e d underdevelopment as a product of the l o s s of economic s u r p l u s i n exchange r e l a t i o n s but not i n c l a s s formation or c l a s s s t r u g g l e . S e v e r a l c r i t i c i s m s n o t w i t h s t a n d i n g , i t i s widely accepted t h a t the dependency and world-system t h e o r i e s c o n t r i b u t e d to a. f u l l e r understanding of p e r i p h e r a l s o c i e t i e s . Most M a r x i s t t h e o r i e s of underdevelopment are concerned with c i r c u l a t i o n of commodity-capital and money-capital i n the process of e x t r a c t i n g s u r p l u s value from the p e r i p h e r y to s u s t a i n accumulation at the c e n t e r . However, Hymer and P a l l o i x focused on how lab o r i s e x p l o i t e d on a world s c a l e i n the process of p r o d u c t i o n i t s e l f , t h a t i s , the i n t e r n a t i o n a l i z a t i o n of p r o d u c t i v e c a p i t a l , u s u a l l y c a l l e d the i n t e r n a t i o n a l i z a t i o n of p r o d u c t i o n . P a l l o i x argues that the emergence of 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 only expresses more fundamental changes: the i n t e r n a t i o n a l d i f f u s i o n of c a p i t a l , the new i n t e r n a t i o n a l mode of accumulation and the i n t e n s i f i e d nature of c l a s s s t r u g g l e . T h i s new i n t e r n a t i o n a l mode of accumulation l i n k s most n a t i o n s more c l o s e l y to the i n t e r n a t i o n a l d i v i s i o n of l a b o r which makes i t more d i f f i c u l t f o r them to adopt 34 independent economic p o l i c i e s . A new mode of accumulation of c a p i t a l i s a l s o c h a r a c t e r i z e d by the important r o l e of n a t i o n - s t a t e s i n a l i g n i n g i n t e r n a l , n a t i o n a l c o n d i t i o n s of p r o d u c t i o n and exchange to new i n t e r n a t i o n a l c o n d i t i o n s through the use of a monetary standard. During the process of the i n t e r n a t i o n a l i z a t i o n of c a p i t a l , groupings of i n d u s t r i a l branches are e s t a b l i s h e d at the n a t i o n a l l e v e l and the f i n a n c i a l f u n c t i o n becomes c e n t r a l to the f u n c t i o n of n a t i o n - s t a t e s . At the same time, an i n t e r n a t i o n a l d i f f e r e n t i a t i o n of the working c l a s s occurs through d i f f e r e n t i a t i o n of the l a b o r p r o c e s s , and the p r o d u c t i o n and r e p r o d u c t i o n of l a b o r power as w e l l as the value of l a b o r power d i f f e r e n t i a t i o n . As a r e s u l t , c o n f l i c t f u r t h e r i n c r e a s e s among i n t e r e s t groups and c l a s s e s . 5 4 M a r x i s t s maintain that DFI i n manufacturing i s disadvantageous to the host c o u n t r y with regard to economic growth and i n d u s t r i a l development. T h i s statement r e v e a l s only one f a c e t of r e a l i t y . I t i s a l s o t r u e that DFI b r i n g s b e n e f i t s to both m u l t i n a t i o n a l c o r p o r a t i o n s and host c o u n t r i e s at a c o s t to home co u n t r y : i n c r e a s e i n the expense of p r o d u c t i o n t h e r e . Hence, \"though the M a r x i s t s may be r i g h t i n s a y i n g that there i s an imperative f o r c a p i t a l i s m to go abroad, the e f f e c t i s not to e x p l o i t but to b e n e f i t the r e c i p i e n t economy--a c o n c l u s i o n , by the way, that Marx 5 4 C h r i s t i a n P a l l o i x , \"The S e l f - E x p a n s i o n of C a p i t a l on a World S c a l e \" Review of R a d i c a l P o l i t i c a l Economics v o l . 9, no. 2 (Summer, 1977): 24-27. 35 h i m s e l f would have a c c e p t e d . \" 5 5 Hymer r e i t e r a t e d two laws of M a r x i s t economic development: the Law of I n c r e a s i n g Firm S i z e and the Law of Uneven Development. 5 6 The law of i n c r e a s i n g f i r m s i z e i s the tendency, a p p l i c a b l e s i n c e the beginning of the I n d u s t r i a l R e v o l u t i o n , f o r the r e p r e s e n t a t i v e f i r m to i n c r e a s e i t s s i z e s e r i a l l y from the workshop to the factory to the national corporation to the mul ti-div/si onal corporation and, p r e s e n t l y , to the multinational corporation.57 The law of uneven development i s the tendency of the system to produce poverty as w e l l as wealth; underdevelopment as w e l l as development. 5 8 Together, these two economic laws c r e a t e the f o l l o w i n g scene: . . . a regime of North A t l a n t i c 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 would tend to produce a h i e r a r c h i c a l d i v i s i o n of l a b o r between g e o g r a p h i c a l regions c o r r e s p o n d i n g to the v e r t i c a l d i v i s i o n of l a b o r w i t h i n the f i r m . I t would tend to c e n t r a l i z e h i g h - l e v e l decision-making occupations i n a few key c i t i e s i n the advanced c o u n t r i e s , surrounded by a number of r e g i o n a l s u b - c a p i t a l s , and c o n f i n e the r e s t of the world to lower l e v e l s of a c t i v i t y and income, i.e. , to the s t a t u s of towns and v i l l a g e s i n a new Imperial system. Income, s t a t u s , a u t h o r i t y , and consumption p a t t e r n s would r a d i a t e out from these c e n t e r s along a d e c l i n i n g curve, and the e x i s t i n g p a t t e r n of i n e q u a l i t y and dependency would be perpetuated. The p a t t e r n would be complex, j u s t as the s t r u c t u r e of the c o r p o r a t i o n i s complex, but the b a s i c r e l a t i o n s h i p between d i f f e r e n t c o u n t r i e s would be one of s u p e r i o r and subordinate, head o f f i c e and branch p l a n t . 5 9 5 S G i l p i n , \"Three Models,\" op_. c i t . , p. 54. 5 6 S t e p h e n Hymer, \"The M u l t i n a t i o n a l C o r p o r a t i o n and the Law of Uneven Development,\" i n Economics and World Order from the 1970's to the 1990's, ed. J a g d i s h N. Bhagwati (London: Macmillan Co., 1972), p. 113. 5 7 I b i d . 5 8 I b i d . , p. 114. 5 9 I b i d . 36 As Fagan p o i n t e d out, the major c o n t r i b u t i o n of Hymer's work was \"the i n s i g h t p r o v i d e d i n t o the new i n t e r n a t i o n a l d i v i s i o n of labour through TNCs [ t r a n s n a t i o n a l c o r p o r a t i o n s ] , and i n t o the i m p l i c a t i o n f o r s p a t i a l l y uneven development of c o r p o r a t e s t r a t e g y and of the h i e r a r c h i c a l r e l a t i o n s h i p between c e n t r e s and p e r i p h e r i e s (both g l o b a l l y and w i t h i n n a t i o n s ) . \" 6 0 From an even e a r l i e r (1961) work which p a r a l l e l e d Hymer's thoughts, Chandler and R e d l i c h put f o r t h the concept that \"there are three l e v e l s of business a d m i n i s t r a t i o n , three h o r i z o n s , three l e v e l s of t a s k s , and three l e v e l s of decision-making, so there are three l e v e l s of p o l i c y . \" 6 1 The o p e r a t i o n (managerial) l e v e l , the lowest l e v e l , i s concerned with managing the day-to-day o p e r a t i o n s of the e n t e r p r i s e i n order to c a r r y out a s i n g l e b a s i c f u n c t i o n , f o r example, manufacturing, s a l e s , p u r c h a s i n g , or r e s e a r c h . The \" l o c u m - t e n e n t i a l \" l e v e l , the second l e v e l , which f i r s t made i t s appearance with the s e p a r a t i o n of the head o f f i c e from the body of the e n t e r p r i s e , i s r e s p o n s i b l e f o r c o o r d i n a t i n g the managers at the o p e r a t i o n a l l e v e l . The f u n c t i o n s of the top team (the entrepreneur) are g o a l - d e t e r m i n a t i o n and 6 0 R o b e r t H. Fagan, \"The I n t e r n a t i o n a l i z a t i o n of C a p i t a l : A P e r s p e c t i v e on Stephen Hymer's Work on T r a n s n a t i o n a l C o r p o r a t i o n s , \" i n An I n t r o d u c t i o n to M a r x i s t T h e o r i e s of Underdevelopment, ed. R i c h a r d Peet, Department of Human Geography Monograph 14 (Canberra: A u s t r a l i a N a t i o n a l U n i v e r s i t y , 1980), p. 175. 6 1 A l f r e d D. Chandler, J r . , and F r i t z R e d l i c h , \"Recent Development i n American Business A d m i n i s t r a t i o n and t h e i r C o n c e p u t u a l i z a t i o n , \" Business H i s t o r y Review v o l . 35, no. 1 (1961): 24. 3 7 p l a n n i n g . 6 2 Hymer a p p l i e d l o c a t i o n t h e o r y t o the C h a n d l e r - R e d l i c h scheme a t an i n t e r n a t i o n a l s c a l e . Based on l o c a t i o n t h e o r y , the l o w e s t l e v e l a c t i v i t i e s would spr e a d t h e m s e l v e s over the gl o b e a c c o r d i n g t o the p u l l of l a b o r f o r c e , m a r k e t s , and raw m a t e r i a l s . The m u l t i n a t i o n a l c o r p o r a t i o n , because of i t s power t o command c a p i t a l and t e c h n o l o y and i t s a b i l i t y t o r a t i o n a l i z e t h e i r use on a g l o b a l s c a l e , w i l l p r o b a b l y s p r e a d p r o d u c t i o n more e v e n l y over the w o r l d ' s s u r f a c e than i s now the c a s e . Thus, i n the f i r s t i n s t a n c e , i t may w e l l be a f o r c e f o r d i f f u s i n g i n d u s t r i a l i z a t i o n t o the l e s s d e v e l o p e d c o u n t r i e s and c r e a t i n g new c e n t e r s of p r o d u c t i o n . 6 3 S i n c e the second l e v e l a c t i v i t i e s need w h i t e - c o l l a r w o r k e r s , communications systems, and i n f o r m a t i o n , they t e n d t o c o n c e n t r a t e i n l a r g e c i t i e s . As t h e i r demands a r e s i m i l a r , the o f f i c e s of the m u l t i n a t i o n a l c o r p o r a t i o n s from d i f f e r e n t i n d u s t r i e s a r e prone t o l o c a t e i n the same c i t y . C o n s e q u e n t l y , t h e second l e v e l a c t i v i t i e s a r e f a r more g e o g r a p h i c a l l y c o n c e n t r a t e d than the l o w e s t l e v e l a c t i v i t i e s . The t o p l e v e l a c t i v i t i e s a r e apt t o be more c o n c e n t r a t e d than the second l e v e l a c t i v i t i e s , because t h e y have t o be l o c a t e d c l o s e t o the c a p i t a l market, t h e media, and the government. The need t o f a c e - t o - f a c e c o n t a c t a t h i g h e r l e v e l s of d e c i s i o n - m a k i n g becomes c r u c i a l . When t h i s scheme i s a p p l i e d t o the w o r l d economy, the h i g h e s t o f f i c e s of the m u l t i n a t i o n a l c o r p o r a t i o n s a r e ex p e c t e d t o be l o c a t e d and c o n c e n t r a t e d i n the w o r l d ' s major \" I b i d . 6 3 Hymer, op_. c i t . , p. 124. 38 c i t i e s such as New Y o r k , London, P a r i s and Tokyo. Other c i t i e s t h roughout the w o r l d w i l l d e a l w i t h e i t h e r lower s t r a t e g i c p l a n n i n g or the day-to-day o p e r a t i o n s of s p e c i f i c l o c a l p roblems, depending on f u n c t i o n s of the o r g a n i z a t i o n p l a c e d . As a r e s u l t , an i n t e r n a t i o n a l urban h i e r a r c h y a p p e a r s . S i n c e b u s i n e s s i s u s u a l l y the c o r e of the c i t y , g e o g r a p h i c a l s p e c i a l i z a t i o n w i l l come t o r e f l e c t the h i e r a r c h y of c o r p o r a t e d e c i s i o n - m a k i n g , and the o c c u p a t i o n a l d i s t r i b u t i o n of l a b o r i n a c i t y or r e g i o n w i l l depend upon i t s f u n c t i o n i n the i n t e r n a t i o n a l economic s y s t e m . 6 4 Hence, Hymer i n d i c a t e d the new i n t e r n a t i o n a l d i v i s i o n of l a b o r t h r o u g h the m u l t i n a t i o n a l c o r p o r a t i o n s , which promoted s p a t i a l l y uneven development and shaped h i e r a r c h i c a l r e l a t i o n s h i p s among c i t i e s g l o b a l l y as w e l l as n a t i o n a l l y . Cohen a l s o e x p l o r e d the new i n t e r n a t i o n a l d i v i s i o n of l a b o r i n the c a p i t a l i s t system and urban h i e r a r c h y , and i n d i c a t e d t h a t changes i n the i n t e r n a t i o n a l \" c o m p e t i t i v e n e s s \" of a number of w o r l d i n d u s t r i e s have been a major f a c t o r i n t h e r e s h a p i n g of urban h i e r a r c h y t h roughout the w o r l d . 6 5 Changes i n the c o r p o r a t i o n and i n the s t r u c t u r e of the advanced c o r p o r a t e s e r v i c e s have l e d t o the emergence of g l o b a l c i t i e s , which s e r v e as i n t e r n a t i o n a l c e n t e r s f o r b u s i n e s s d e c i s i o n - m a k i n g and c o r p o r a t e s t r a t e g y f o r m u l a t i o n . These g l o b a l c i t i e s a r e synonymous w i t h \" w o r l d 6 4 I b i d . 6 5 R . B. Cohen, \"The New I n t e r n a t i o n a l D i v i s i o n of L a b o r , M u l t i n a t i o n a l C o r p o r a t i o n s and Urban H i e r a r c h y , \" i n U r b a n i z a t i o n and Urban P l a n n i n g i n C a p i t a l i s t S o c i e t y , ed. M i c h a e l Dear and A l l e n J . S c o t t (London and New Y ork: Methuen, 1981), p. 303. 39 c i t i e s \" as d e f i n e d by Friedmann and W o l f f . 6 6 I I I . N e o - M e r c a n t i l i s t T h e o r i e s The n e o c l a s s i c a l / n e o - K e y n e s i a n a p p r o a c h emphasizes the t e n e t s of c o m p e t i t i v e market a l l o c a t i o n and en d o r s e s laissez-faire c a p i t a l i s m , w h i l e r a d i c a l a p p r o a c h e s a c c e p t Marx's fundamental c r i t i q u e of c a p i t a l i s m w i t h a s t r o n g p r e d i l e c t i o n t o d i s m i s s market f o r c e s as bases f o r r e s o u r c e a l l o c a t i o n . The t h i r d t h e o r y i n c o n t r a s t i n c o r p o r a t e s the i n c r e a s i n g r o l e of government w h i c h p r o t e c t s n a t i o n a l i n t e r e s t s t h r o u g h a d j u s t m e n t p o l i c i e s and mechanisms w i t h i n t h e c u r r e n t i n t e r n a t i o n a l c a p i t a l i s t system. S t r u c t u r a l i s m and n e o - m e r c a n t i l i s m b e l o n g t o t h i s c a t e g o r y . The \" s t r u c t u a l i s t \" a p p r o a c h i n i t i a l l y blossomed i n L a t i n A m e r i c a w i t h R a u l P r e b i s c h ' s c o n t r i b u t i o n s as the base f o r i t s t h e o r e t i c a l d e v e l o p m e n t . 6 7 The t h e o r y has been s h a r e d and expanded upon by t h e Cambridge S c h o o l e c o n o m i s t s as w e l l as t h e I n t e r n a t i o n a l Labor O r g a n i z a t i o n . I t s key element i s an e x p a n s i o n of the governments' r o l e i n managing f o r e i g n and do m e s t i c f i n a n c i a l f l o w s i n o r d e r t o f a c i l i t a t e c a p i t a l a c c u m u l a t i o n and i n p r o t e c t i n g \" i n f a n t i n d u s t r y \" by g o v e r n m e n t \u00E2\u0080\u00A2 p o l i c i e s . Even w i t h t h e i n t r o d u c t i o n of h i g h e r income j o b s and income d i s t r i b u t i o n p o l i c i e s i n o r d e r t o 6 6 J o h n Friedmann and Goetz W o l f f , \" F u t u r e of t h e World C i t y , \" paper p r e s e n t e d a t the C o n f e r e n c e of U r b a n i z a t i o n and N a t i o n a l Development, H o n o l u l u , H a w a i i , 25-29 J a n u a r y 1982. 6 7 S e e U n i t e d N a t i o n s , Department of Economic A f f a i r s , Economic Commission f o r L a t i n A m e r i c a , The Economic Development of L a t i n A m e r i c a and I t s P r i n c i p a l P r o b l e m s , by R a u l P r e b i s c h (E/CN.12/89/Rev.1), 1950. 40 s t i m u l a t e the growth of the domestic market, most economic a l l o c a t i o n i s l e f t t o the f r e e market mechanism. 6 8 N e o - m e r c a n t i l i s m , p r e s e n t l y i n i t s f o u r t h r e v i v a l s i n c e the 17th c e n t u r y , a l s o s h a r e s t h i s common base of the s t r u c t u r a l i s t a p p r o a c h . M e r c h a n t i l i s m f i r s t f l o u r i s h e d i n 1 7 t h - c e n t u r y F r a n c e . I d e n t i f i e d as C o l b e r t i s m , i t s main c o n c e r n s were t o enhance the u n i t y , power, and w e a l t h of the s t a t e by means of p r o t e c t i o n i s t and b u l l i o n - a t t r a c t i n g p o l i c i e s . These a r e by d e f i n i t i o n p o l i c i e s of c l o s u r e . The second wave appeared i n F r i e d r i c h L i s t ' s Z o l l v e r e i n p o l i c y i n 1 9 t h - c e n t u r y Germany. In a d d i t i o n t o the advocacy of p r o t e c t i o n i s t p o l i c i e s , the argument f u r t h e r encompassed the \" n a t i o n - s t a t e \" as t h e d e t e r m i n a n t of a l l o r g a n i z e d s o c i a l a c t i v i t y , m a t e r i a l and n o n - m a t e r i a l , i n o r d e r t o i n c r e a s e p r o d u c t i o n c a p a b i l i t y . The economic n a t i o n a l i s m of the 1930's c o m p r i s e d the t h i r d surge of m e r c a n t i l i s m , which i s o f t e n a s s o c i a t e d w i t h Keynes. The most r e c e n t v e r s i o n i s p r e d i c a t e d on t h e p o t e n t i a l i t y of p o l i t i c a l m a n i p u l a t i o n of economic a c t i v i t i e s . The a d v o c a t e s of t h i s t h e s i s i n c l u d e B l o c k , G i l p i n and K r a s n e r . 6 9 A c c o r d i n g t o G i l p i n , the n e o - m e r c a n t i l i s t model views the n a t i o n - s t a t e and the i n t e r p l a y of n a t i o n a l i n t e r e s t , which a r e d i s t i n c t from c o r p o r a t e i n t e r e s t s , as t h e p r i m a r y d e t e r m i n a n t s of t h e f u t u r e r o l e of the w o r l d economy. G i l p i n 6 8 M i c h a e l E. Conroy, \" F a l s e P o l a r i s a t i o n ? D i f f e r i n g P e r s p e c t i v e on t h e Economic S t r a t e g i e s of P o s t - R e v o l u t i o n a r y N i c a r a g u a . \" T h i r d W o r l d Q u a r t e r l y v o l . 6, no. 4 ( O c t o b e r , 1984): 1006-1007. 6 9 D a v i d J . S y l v a n , \"The Newest M e r c h a n t i l i s m , \" I n t e r n a t i o n a l O r g a n i z a t i o n v o l . 35, no. 2 ( S p r i n g , 1981): 381-382. 41 d e f i n e s neo-mercantilism as \"the attempt of governments to manipulate economic arrangements i n order to maximize t h e i r own i n t e r e s t s , whether or not t h i s i s at the expense of o t h e r s . \" 7 0 In s h o r t , the essence of n e o - m e r c a n t i l i s m i s the p r i o r i t y of national economic and p o l i t i c a l o b j e c t i v e s over c o n s i d e r a t i o n s of global economic e f f i c i e n c y . 7 1 \"Each n a t i o n w i l l pursue economic p o l i c i e s t h a t r e f l e c t domestic economic needs and e x t e r n a l p o l i t i c a l ambitions without much concern for the e f f e c t s of these p o l i c i e s on other c o u n t r i e s or on the i n t e r n a t i o n a l economic system as a w h o l e . \" 7 2 In c o n t r a s t to the l i b e r a l view that f r e e trade has f o s t e r e d economic growth, i n neo-mercantilism p r o t e c t i o n i s t measures are o f t e n pursued. G i l p i n assumes that s i n c e the 17th c e n t u r y i n t e r n a t i o n a l t rade has served p o l i t i c a l l y s t r o n g , i f not hegemonic, n a t i o n s i n managing and s t a b i l i z i n g the i n t e r n a t i o n a l system. He argues t h a t s i n c e World War I I , U.S. m u l t i n a t i o n a l c o r p o r a t i o n s have t r a n s f e r r e d c a p i t a l and advanced technology abroad, thereby c a u s i n g U.S. i n d u s t r y to d e c l i n e r e l a t i v e to other c o u n t r i e s and to weaken i t s systemic r o l e . 7 3 M u l t i n a t i o n a l s a l s o brought about c e r t a i n disadvantages f o r American w o r k e r s . 7 4 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 have a l s o p l a y e d a c r u c i a l r o l e i n m a i n t a i n i n g America's share of the world's markets, i n s e c u r i n g a strong 7 0 G i l p i n , op_. c i t . , p. 45. 7 ' I b i d . 7 2 I b i d . , p. 46. 7 3 G i l p i n , U.S. Power, op. c i t . , pp. 183-189. 7 \" I b i d . , pp. 171-174. 42 p o s i t i o n i n f o r e i g n economies, i n s p r e a d i n g American economic and p o l i t i c a l v a l u e s , and i n c o n t r o l l i n g a c c e s s t o v i t a l raw m a t e r i a l s , e s p e c i a l l y p e t r o l e u m . 7 5 By comparing t r a d e w i t h i n v e s t m e n t , \" d i r e c t i n v e s t m e n t , more than t r a d e , tends t o have u n f o r t u n a t e economic and p o l i t i c a l consequences f o r both home and h o s t c o u n t r i e s . \" 7 6 Thus, G i l p i n c o n c l u d e s t h a t the U n i t e d S t a t e s s h o u l d emphasize a t r a d e r a t h e r than a f o r e i g n i n v e s t m e n t s t r a t e g y , and t h a t such a s t r a t e g y would s e r v e b o t h the n a t i o n a l i n t e r e s t of the U n i t e d S t a t e s and a w o r l d i n t e r e s t . 7 7 A p a r t from whether the judgement of t h i s c o n c l u s i o n i s r i g h t or wrong, the s c a l e , d i v e r s i t y and dynamics of the American economy w i l l c o n t i n u e t o p l a c e the U n i t e d S t a t e s a t the c e n t e r of the i n t e r n a t i o n a l economic system, even though the power of the U n i t e d S t a t e s has d e c l i n e d r e l a t i v e l y . As l o n g as t h e n e o - m e r c a n t i l i s t model i s based on the c u r r e n t economic system, as G i l p i n i n d i c a t e s , i t s fundamental weak p o i n t i s t h e absence of a c o n v i n c i n g a l t e r n a t i v e t o a U . S . - c e n t e r e d w o r l d economy. 7 8 Moreover, S y l v a n e v a l u a t e s n e o - m e r c a n t i l i s m as \"a d e c r e a s i n g l y u s e f u l model i n an i n c r e a s i n g l y complex w o r l d . \" 7 9 In o t h e r words, the n a t u r e of t h i s model i s the c o m b i n a t i o n of e x p l a n a t o r y f a i l u r e and d e s c r i p t i v e s u c c e s s . 8 0 7 s I b i d . , p. 147. 7 6 I b i d . , p. 214. 7 7 I b i d . 7 \" G i l p i n , \"Three Model,\" op_. c i t . , p. 55. 7 9 S y l v a n , op_. c i t . , p. 392. 8 0 I b i d . 43 IV. The T h e o r e t i c a l I m p l i c a t i o n s of Japanese Type of D i r e c t F o r e i g n Investment From the p o i n t of view of t h i s t h e s i s the c e n t r a l q u e s t i o n i s t o what e x t e n t t he f o r e g o i n g t h e o r i e s , e x p l a i n Japanese DFI i n the U n i t e d S t a t e s and Canada. I n t e r e s t i n g l y , K ojima and Ozawa p o s t u l a t e a Japanese t y p e or a Japanese s t y l e of DFI. C h a r a c t e r i s t i c s of t h i s t y p e i n c l u d e s m a l l - s c a l e i n v e s t m e n t , l a r g e l y i n d e v e l o p i n g c o u n t r i e s , c o n c e n t r a t i n g i n r e s o u r c e development and l a b o r - i n t e n s i v e m a n u f a c t u r i n g i n d u s t r i e s . I t i s i n s t a r k c o n t r a s t t o the U.S. type of DFI, which i s l a r g e - s c a l e , m o s t l y i n d e v e l o p e d c o u n t r i e s , f o c u s i n g on m a n u f a c t u r i n g w i t h much g r e a t e r c o n t r o l . 8 1 K o j i m a ' s argument i s founded i n th e neo-Keynesian t h e o r i e s , and p r o v i d e s an i n t e r e s t i n g p e r s p e c t i v e t o s c r u t i n i z e t he n e o c l a s s i c a l / n e o - K e y n e s i a n approaches and the n e o - m e r c a n t i l i s t a p p r o a c h e s , and w i l l be d i s c u s s e d l a t e r . Hymer and Rowthorn examine the r e l a t i o n s h i p between the s i z e of f i r m s and t h e i r performance from 1957 t o 1967, and note t h a t t he \"European merger movement i s l i k e l y t o r e s u l t i n a c r u c i a l qualitative change i n t h e n a t u r e of European b u s i n e s s . \" 8 2 They then c o n c l u d e t h a t s i z e i s a major 8 1 See K o j i m a , D i r e c t F o r e i g n I n v e s t m e n t ( 1 9 7 8 ) , and Terutomo Ozawa, M u l t i n a t i o n a l i s m , Japanese S t y l e : The P o l i t i c a l Economy of Outward Dependency ( P r i n c e t o n , New J e r s e y : P r i n c e t o n U n i v e r s i t y P r e s s , 1979). 8 2 S t e p h e n Hymer and Robert Rowthorn, \" M u l t i n a t i o n a l C o r p o r a t i o n s and I n t e r n a t i o n a l O l i g o p o l y : The Non-American C h a l l e n g e , \" i n The I n t e r n a t i o n a l C o r p o r a t i o n : A Symposium, ed. C h a r l e s P. K i n d e r b e r g e r (Cambridge, Mass.: MIT P r e s s , 1970), p. 74. 44 d e t e r m i n a n t of o v e r s e a s i n v e s t m e n t . 8 3 The s i z e of a f i r m i s a l s o examined by Komiya (1967). He d i s c u s s e d DFI not s i m p l y from a v i e w p o i n t of the t r a n s f e r of c a p i t a l among n a t i o n s , but from t h e approach toward the t r a n s f e r of \" m a n a g e r i a l r e s o u r c e s \" of a f i r m . A c c o r d i n g t o Komiya, a f i r m i s an a g g r e g a t i o n of m a n a g e r i a l r e s o u r c e s , w h i c h i n c l u d e the m a n a g e r i a l knowledge and e x p e r i e n c e s , the p a t e n t s and know-how, the t e c h n i c a l and p r o f e s s i o n a l knowledge r e g a r d i n g m a r k e t i n g methods, the a b i l i t i e s f o r s a l e s , p u r c h a s e of raw m a t e r i a l s and r a i s i n g funds i n t h e market, brands and c r e d i t s , i n f o r m a t i o n g a t h e r i n g a b i l i t i e s , and o r g a n i z a t i o n a l c a p a b i l i t y f o r r e s e a r c h and development, c e n t e r i n g on e n t r e p r e n e u r s . 8 4 A f i r m ' s a c t i v i t y i s a f u n c t i o n t o c o n v e r t t h e s e m a n a g e r i a l r e s o u r c e s t o p r o f i t s t h r o u g h maximum u t i l i z a t i o n of t h e s c a r c e m a n a g e r i a l r e s o u r c e s by p r o d u c i n g goods or p r o v i d i n g s e r v i c e s . Thus, the growth of a f i r m i s a t t r i b u t e d t o t h e a c c u m u l a t i o n of the s c a r c e m a n a g e r i a l r e s o u r c e s i n the p r o c e s s of f i r m a c t i v i t y . T h i s Komiya t h e s i s r e l i e s on the t h e o r y of the growth of f i r m by Pe n r o s e , l e a d i n g t o H y m e r - K i n d l e b e r g e r ' s i n d u s t r i a l o r g a n i z a t i o n approach. Thus, i t i s s a f e t o say t h a t the a c c u m u l a t i o n of m a n a g e r i a l r e s o u r c e s i s a s s o c i a t e d an the i n c r e a s e i n the s i z e of a f i r m . T h i s p r o c e s s n o u r i s h e s c o n d i t i o n s which 8 3 I b i d . , p. 75. 8 4 R y u t a r o Komiya, \"Shihon J i y u k a no K e i z a i g a k u : Kanmin no M e i s h i n t o Gobyu o toku , \" ( E c o n o m i c s of C a p i t a l L i b e r a l i z a t i o n : An A t t a c k on the S u p e r s t i t i o n s and M i s t a k e s of t h e Government and the P e o p l e ) Ekonomisuto (Economist) 25 J u l y 1967, p. 24. 45 enable a f i r m to grow from a n a t i o n a l c o r p o r a t i o n to a m u l t i n a t i o n a l one. These are necessary c o n d i t i o n s f o r a f i r m to go abroad, but are not s u f f i c i e n t to e x p l a i n the reasons why a f i r m goes abroad. T h e r e f o r e , motives of DFI should be i d e n t i f i e d . Often, these motives can be d e r i v e d from K i n d l e b e r g e r ' s a n a l y s i s of l o c a t i o n theory. K i n d l e b e r g e r i n t r o d u c e s t r a n s p o r t c o s t s i n t o the a n a l y s i s of i n t e r n a t i o n a l t r ade and emphasizes that these a l s o c o n s t i t u t e a p r o d u c t i o n f a c t o r as w e l l as land, l a b o r and c a p i t a l . In h i s theory of the l o c a t i o n of i n d u s t r y , he argues that there are three broad types of i n d u s t r i e s emanating from t r a n s p o r t c o s t s . S u p p l y - o r i e n t e d i n d u s t r i e s are those i n which weight and bulk of f u e l or m a t e r i a l a re l a r g e i n r e l a t i o n to value and p r o d u c t i o n i n v o l v e s w e i g h t - l o o s i n g p r o c e s s e s . These are g e n e r a l l y the e a r l y stages of manufacture. The l a t e r stages of manufacture tend to be market o r i e n t e d , because assembly b u i l d s up bulk without adding weight. Goods which are v a l u a b l e i n r e l a t i o n to weight or i n which weight and bulk do not change i n processes are l i k e l y to be l o o s e - f o o t e d . T r a n s p o r t c o s t s do l e s s to determine t h e i r l o c a t i o n than do the p r o c e s s i n g c o s t s . . . . 8 5 K i n d l e b e r g e r ' s c l a s s i f i c a t i o n a p p l i e s to c a t e g o r i z a t i o n of DFI based on motives: n a t u r a l r e s o u r c e - o r i e n t e d ( s u p p l y - o r i e n t e d ) , m a r k e t - o r i e n t e d , and f a c t o r - o r i e n t e d , that i s , l a b o r - o r i e n t e d ( f o o t l o o s e ) investment. Hamada added the f o u r t h category, or envir o n m e n t - o r i e n t e d i n v e s t m e n t . 8 6 8 5 C h a r l e s P. K i n d l e b e r g e r , I n t e r n a t i o n a l Economics 5th ed. (Homewood, I l l i n o i s : R i c h a r d D. I rwin, 1973), p~i i\"03. 8 6 K o i c h i Hamada, \" T a i g a i T o s h i no Mondaiten,\" (Problems of D i r e c t F o r e i g n Investment) i n Gendai no Keizaigaku 3, ed. Tatemoto and Watabe, quoted i n \"Takokuseki Kigyo no R i r o n , \" ( T h e o r i e s of 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 ) Shukan Toyo K e i z a i , 11 J u l y 1973, p. 171. 46 The f i r s t type of n a t u r a l r e s o u r c e - o r i e n t e d investment i s the c l a s s i c a l type. I t s purposes are to e x p l o i t and develop n a t u r a l resources such as o i l and other m i n e r a l r e s o u r c e s , and to develop water (hydro) r e s o u r c e s . M a r k e t - o r i e n t e d investment r e f e r s to DFI through which fi r m s are set up by f o r e i g n i n v e s t o r s i n order to produce and s e l l goods i n a host c o u r t r y . T h i s type of investment i s f u r t h e r d i v i d e d i n t o two c a t e g o r i e s : t r a d e - b a r r i e r - i n d u c e d investment and o l i g o p o l i s t i c d i r e c t f o r e i g n i n v e s t m e n t . 8 7 A c c o r d i n g to Kojima, the t r a d e - b a r r i e r - i n d u c e d investment i s present when the s u b s t i t u t i o n of home produced goods f o r exports from an i n v e s t i n g country as w e l l as t a r i f f s and n o n - t a r i f f b a r r i e r s e x i s t i n a host country. For example, the m o t i v a t i o n f o r market p r e s e r v a t i o n played a c r u c i a l r o l e i n the m u l t i n a t i o n a l i z a t i o n of U.S. e n t e r p r i s e s i n the l a t e 1950's. They were concerned about a boycott a g a i n s t U.S. goods i n the European market f o l l o w i n g the formation of the European Economic Community (at present, European Community [E.C.]) i n 1959. Thus, American f i r m s i n v e s t e d i n Western Europe before the E.C. c o u l d b u i l d up a r i g i d t a r i f f b a r r i e r . O l i g o p o l i s t i c DFI i s t y p i c a l l y found i n U.S. investment i n new manufacturing product i n d u s t r i e s , which possess t e c h n o l o g i c a l supremacy. A p p l i c a t i o n of the economies of s c a l e i n a r e c i p i e n t country i s another f a c t o r 8 7 K i y o s h i Kojima, \" I n t e r n a t i o n a l Impact of F o r e i g n D i r e c t Investment: A Japanese vs. American Type,\" The O r i e n t a l Economist v o l . 41, no. 758 (December, 1973): 29. T h i s a r t i c l e a l s o appears as Chapter 4, i n Kojima, D i r e c t F o r e i g n Investment (1978). 47 to encourage market-oriented investment. The t h i r d category of investment i s the f a c t o r - o r i e n t e d investment. Among p r o d u c t i o n f a c t o r s , there i s no m o b i l i t y i n l a n d , and la b o r i n g e n e r a l i s l e s s mobile than c a p i t a l because of v a r i o u s l e g i s l a t i v e r e g u l a t i o n s . Consequently, c a p i t a l moves i n t e r n a t i o n a l l y i n seeking f o r advantageous p r o d u c t i o n f a c t o r s , e s p e c i a l l y a cheap labor f o r c e . I t i s p r o f i t a b l e and r a t i o n a l f o r the developed c o u n t r i e s where high l a b o r c o s t s p r e v a i l to t r a n s f e r through DFI t h e i r l a b o r - i n t e n s i v e i n d u s t r i e s to the dev e l o p i n g c o u n t r i e s where abundant, cheap l a b o r i s a v a i l a b l e . The f o u r t h motive of investment i s environment-oriented. During the r a p i d economic growth p e r i o d i n Japan, the e x t e r n a l i z a t i o n of c o s t s by fi r m s r e s u l t e d i n environmental d e t e r i o r a t i o n and caused p o l l u t i o n . With the i n t r o d u c t i o n of government p o l i c i e s f o r a n t i - p o l l u t i o n measures, f i r m s s t a r t e d to r e l o c a t e t h e i r p l a n t s abroad. In a d d i t i o n , they a l s o experienced a shortage of lands f o r p l a n t s i t e s at home. Thus, investment occurs i n quest f o r ample lands with l e s s r e g u l a t i o n s toward environmental p r o t e c t i o n . D i r e c t f o r e i g n investment i s c a r r i e d out to conform to p o t e n t i a l advantages i n n a t u r a l r e s o u r c e s , market, l a b o r and the environment. Based on these motives, Kojima d i s t i n g u i s h e s two types of DFI: t r a d e - o r i e n t e d (the Japanese type) and a n t i - t r a d e o r i e n t e d (the American t y p e ) . 8 8 The 8 8 K o j i m a , i b i d . , p. 28. 48 Japanese type of DFI i s o f t e n found i n the r e s o u r c e - o r i e n t e d and l a b o r - o r i e n t e d investments, while the American type of DFI i s i n most of cases r e l a t e d to market-oriented investment. Kojima argues that the Japanese type of investment i s t r a d e - o r i e n t e d , mainly made i n areas where the home country i s l o s i n g and a host country i s g a i n i n g a comparative advantage. T h i s type of investment i s manifested both i n the r e s o u r c e - o r i e n t e d investment i n order to e x p l o i t n a t u r a l resources not a v a i l a b l e i n d i g e n o u s l y and i n the l a b o r - o r i e n t e d investment, through which l a b o r - i n t e n s i v e i n d u s t r i e s are s h i f t e d from h i g h l a b o r c o s t to low l a b o r c o s t l o c a t i o n s . On the c o n t r a r y , the t y p i c a l American type of DFI i s w e l l c h a r a c t e r i z e d by Hymer and Vernon. Investment of t h i s type makes f o r i n n o v a t i v e and o l i g o p o l i s t i c i n d u s t r i e s , f e a t u r e d by l a r g e f i r m s , h i g h c a p i t a l i n t e n s i t y , advanced technology, d i f f e r e n t i a t e d p r o d u c t s , and so on. In order to p r o t e c t an o l i g o p o l i s t i c p o s i t i o n i n the.world market and to overcome trade b a r r i e r s , those i n d u s t r i e s are t r a n s f e r r e d from an i n v e s t i n g country i n which i t has a comparative advantage over a r e c i p i e n t c o untry, i n which i t has a disadvantage. Kojima c a l l s the American type a n t i - t r a d e o r i e n t e d investment, s i n c e i t i s a g a i n s t the p r i n c i p l e of comparative advantage. The American type of investment r e s u l t s i n \"balance of payment d i f f i c u l t i e s , the export of jobs, the p r e v e n t i o n of s t r u c t u r a l adjustment, and trade 49 p r o t e c t i o n i sm.\"8 9 In sum, the Japanese type of DFI i s predominantly t r a d e - o r i e n t e d and d i r e c t e d to those a c t i v i t i e s i n which Japan i s disadvantaged, whereas the American type of DFI has been l a r g e l y i n those s e c t o r s i n which the U.S. economy has a comparative advantage. In a d d i t i o n , Japanese DFI i s s m a l l - s c a l e while U.S. DFI i s l a r g e - s c a l e . Kojima concludes that DFI should be t r a d e - o r i e n t e d because t h i s i s most b e n e f i c i a l f o r both home and host c o u n t r i e s . Home c o u n t r i e s can supplement shortcomings of t h e i r economies, while host c o u n t r i e s , mainly d e v e l o p i n g c o u n t r i e s , are ab l e to expect such s p i l l o v e r e f f e c t s as t r a n s f e r of technology and job c r e a t i o n . Kojima f u r t h e r proposes that t h i s type of investment should be encouraged so as to c o n t r i b u t e to the r e o r g a n i z a t i o n of the i n t e r n a t i o n a l d i v i s i o n of labor and the growth of trade i n the w o r l d . 9 0 C e r t a i n l y , Kojima's c o n t e n t i o n attempts to e x p l a i n Japanese DFI i n n a t u r a l r e s o u r c e s and i n the manufacturing i n d u s t r i e s i n d e v e l o p i n g c o u n t r i e s . As Hood and Young p o i n t out, some type of Japanese d i r e c t investment such as overseas investment i n e x t r a c t i v e i n d u s t r i e s cannot be e x p l a i n e d by the n e o c l a s s i c a l / n e o - K e y n e s i a n t h e o r i e s , s i n c e the purposes of such investment are to a l l e v i a t e Japan's resource dependency and to reduce e x t e r n a l v u l n e r a b i l i t y . 9 1 Thus, there i s some b a s i s f o r su p p o r t i n g Kojima's a s s e r t i o n . \" I b i d . 9 0 K o j i m a , D i r e c t F o r e i g n Investment, op. c i t . , p. 96. 9 1Hood and Yound, op_. c i t . , p. 68. 50 N e v e r t h e l e s s , t h i s a s s e r t i o n does not e l u c i d a t e the recent phenomenon of Japanese DFI i n developed c o u n t r i e s c h a r a c t e r i z e d by matured manufacturers. S t o p f o r d and Dunning argue that Kojima's view i s too s i m p l i s t i c as an e x p l a n a t i o n of the c o u n t r y - s p e c i f i c d i f f e r e n c e s i n the s t r u c t u r e of m u l t i n a t i o n a l s ' a c t i v i t i e s . 9 2 P r e c i s e l y , Dunning c r i t i c i z e s the d i s t i n c t i o n between t r a d e - g e n e r a t i n g and t r a d e - d e s t r o y i n g investment. He f u r t h e r argues t h a t Kojima's approach tends to be s t a t i c and a l s o f a i l s to c o n s i d e r v e r t i c a l s p e c i a l i z a t i o n within i n d u s t r i a l s e c t o r s . 9 3 In a d d i t i o n , S t o p f o r d and Dunning f o r s e e that the outward t h r u s t of Japanese DFI may w e l l change i n the 1980's, p a r t i c u l a r l y , investment i n the i n d u s t r i a l i z e d c o u n t r i e s may be more i m p o r t - s u b s t i t u t i o n o r i e n t e d , f o r the Japanese understand and are f a m i l i a r with f o r e i g n c u l t u r e s and Japanese domestic l a b o r c o s t s and trade b a r r i e r s make exports l e s s p r o f i t a b l e . 9 4 The Japanese type or Japanese s t y l e of investment advocated by Kojima and Ozawa i s v a l i d f o r e x p l a i n i n g investment i n n a t u r a l r e s o u r c e s and i n manufacturing i n de v e l o p i n g c o u n t r i e s . The two types of c l a s s i f i c a t i o n may 9 2 J o h n M. S t o p f o r d , and John H. Dunning, M u l t i n a t i o n a l s : Company Performance and G l o b a l Trend (London: Macmillan P u b l i s h e r s , 1983) , p. 32. 9 3 J o h n H. Dunning, \"Trade, L o c a t i o n of Economic A c t i v i t y and the MNE: A Search f o r an E c l e c t i c Approch,\" i n The I n t e r n a t i o n a l A l l o c a t i o n of Economic A c t i v i t y , ed. B e r t i l O h l i n , Per-Ove Hasselborn, and Per Magnus Wijkman (New York: Holmes and Meier P u b l i s h e r s , 1977), p.412. A l a t e r v e r s i o n of t h i s a r t i c l e i s Chapter 2, i n John H. Dunning, I n t e r n a t i o n a l P r o d u c t i o n and the M u l t i n a t i o n a l E n t e r p r i s e (London: George A l l e n and Unwin P u b l i s h e r s , 1981). 9 4 S t o p f o r d and Dunning, l o c . c i t . 51 imply t h a t the a c c u m u l a t i o n l e v e l of the m a n a g e r i a l r e s o u r c e s of Japanese f i r m s i s lower than t h a t of U.S. f i r m s . W i t h th e appearance of f u l l - f l e d g e d m u l t i n a t i o n a l s i n aut o m o t i v e i n d u s t r y , t he \"Japanese t y p e \" comes i n t o q u e s t i o n and r e q u i r e s a l t e r n a t i v e approaches i n c l u d i n g t he Hy m e r - K i n d l e b e r g e r ' s i n d u s t r i a l o r g a n i z a t i o n a p p r o a c h . The \" r i s k - a v e r s i o n \" argument has r e c e n t l y g a i n e d a c c e p t a n c e ; however, i t does not f u l l y e x p l a i n sogo shosha o v e r s e a s i n v e s t m e n t s . F i r s t , the major s h a r e h o l d e r s of sogo shosha a r e the main banks w i t h i n t h e same keiretsu group (see Chapter 3 ) ; t h u s , c o r p o r a t e management does not need t o pay so much a t t e n t i o n t o i n d i v i d u a l s h a r e h o l d e r s . Second, sogo shosha d e r i v e p r o f i t s from a p r o j e c t over a l o n g e r p e r i o d than most American MNCs. The l i f e t i m e employment system and the c o l l e c t i v e d e c i s i o n - m a k i n g and r e s p o n s i b i l i t y m a i n t a i n the company's, as w e l l as the p r o j e c t ' s , l o n g e v i t y . Sogo shosha managers a r e not e v a l u a t e d by t h e i r work d u r i n g a s h o r t p e r i o d of t i m e , but by t h e i r l o n g - t e r m c o n t r i b u t i o n t o the company. T h e r e f o r e , d e s p i t e a low r a t e of r e t u r n , t h e s e o r g a n i z a t i o n a l c h a r a c t e r i s t i c s and g o a l s e n a b l e sogo shosha t o pursue a p r o j e c t as l o n g as i t g e n e r a t e s p r o f i t s i n the l o n g r u n . F i n a l l y , sogo shosha a r e not i n t e r e s t e d s o l e l y i n monetary r e t u r n from the i nvestment p r o j e c t s . Companies p a r t i c i p a t e i n p r o j e c t s because they can p r a c t i c e economic i n f l u e n c e t h r o u g h b o a r d d e c i s i o n s and i n f o r m a t i o n c o l l e c t i o n . A l s o , t h e y can earn commissions based on 52 e x c l u s i v e c o m m e r c i a l t r a n s a c t i o n s . Thus, the as s u m p t i o n t h a t the sogo shosha p r a c t i c e \" r i s k a v e r s i o n \" i s c o r r e c t but the reasons f o r t h e s e d e c i s i o n s a r e f a r more complex than suggested by Caves. As p r e v i o u s l y mentioned, K o j i m a ' s argument i s used t o i n v e s t i g a t e the n e o - m e r c a n t i l i s t approach as w e l l . The n e o - m e r c a n t i l i s t argument s t a t e s 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 a r e not independent a c t o r s but i n s t r u m e n t s of t h e i r home governments, a l t h o u g h under c e r t a i n c i r c u m s t a n c e s m u l t i n a t i o n a l c o r p o r a t i o n s , such as i n t e r n a t i o n a l p e t r o l e u m companies, have c o n s i d e r a b l e i n f l u e n c e over d o m e s t i c and i n t e r n a t i o n a l economic and p o l i t i c a l r e l a t i o n s . The paradox a r i s e s i n t h a t the i n t e r n a t i o n a l i z a t i o n of p r o d u c t i o n promoted by 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 c a l l s f o r more p o w e r f u l s t a t e s t o c o u n t e r b a l a n c e t h o s e l a r g e c o r p o r a t i o n s . In the i n c r e a s i n g i n t e r d e p e n d e n c e among n a t i o n a l economies, 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 a r e s u b j e c t t o s o v e r e i g n t y of governments, or n a t i o n - s t a t e s . 9 5 G i l p i n has found some s u p p o r t i n Koj i m a ' s w r i t i n g s . U.S. d i r e c t o v e r s e a s i n v e s t m e n t has c o n c e n t r a t e d on t e c h n o l o g i c a l l y advanced s e c t o r s , t h e r e b y t r a n s f e r r i n g American c o m p a r a t i v e advantage but k e e p i n g n o n - c o m p e t i t i v e t r a d i t i o n a l s e c t o r s a t home, which have ended up r e q u i r i n g p r o t e c t i o n i s t t a r i f f s . On the c o n t r a r y , Japan has r e t a i n e d advanced s e c t o r s a t home and \"the l a b o r - i n t e n s i v e , 9 5 R o b e r t G i l p i n , \"The P o l i t i c s of T r a n s n a t i o n a l Economic R e l a t i o n s , \" i n G l o b a l i s m V e r s u s R e a l i s m : I n t e r n a t i o n a l R e l a t i o n s ' T h i r d Debate, ed. Ray M a g h r o o r i and Benn e t t Ramberg ( B o u l d e r , C o l o r a d o : Westview P r e s s , 1982), p. 192. 53 l o w - p r o d u c t i v i t y end of d u a l i n d u s t r i a l s t r u c t u r e [see Chapter 3] i s b e i n g g r a d u a l l y pushed out of Japan and sent t o more l a b o r - a b u n d a n t n e i g h b o r i n g c o u n t r i e s t h r o u g h d i r e c t f o r e i g n i n v e s t m e n t . \" 9 6 In t h i s p r o c e s s , the Japanese government has p l a y e d a key r o l e i n s c r e e n i n g investment p r o j e c t s t h r o u g h a p p r o v a l p r o c e d u r e s as w e l l as t h r o u g h the p r o v i s i o n of i n c e n t i v e s and d i s i n c e n t i v e s . T h i s has i n f l u e n c e d the p r i v a t e - s e c t o r d e c i s i o n - m a k i n g i n t h i s f i e l d . Thus, government-business r e l a t i o n s (see Chapter 3) i n Japan a r e r e f l e c t e d i n o v e r s e a s i n v e s t m e n t , w h i c h i s seen as a p a r t of n a t i o n a l p o l i c y and i s i n r e l a t i v e harmony w i t h n a t i o n a l i n t e r e s t s . C o n s e q u e n t l y , as Ozawa commented, d e s p i t e some e x c e p t i o n s i n i n d i v i d u a l c a s e s , \"the t r e n d of Japan's DFI, on the whole, r e f l e c t s more the a d a p t i v e b e h a v i o u r of the e n t i r e Japanese economy t o c h a n g i n g w o r l d economic c o n d i t i o n s than the random market b e h a v i o u r s of i t s i n d i v i d u a l f i r m s . \" 9 7 G i l p i n assumes t h a t the t r a n s f e r of t e c h n o l o g y t h r o u g h DFI has c o n s i d e r a b l e d i p l o m a t i c or s t r a t e g i c r e l e v a n c e f o r the U n i t e d S t a t e s i n o r d e r t o m a i n t a i n the American hegemonial power whose i n t e r e s t s t h e c u r r e n t system s e r v e s . G i l p i n h i m s e l f acknowledes t h a t h i s argument i s f r e q u e n t l y , d i s c u s s e d from the s t a n d p o i n t of dependency t h e o r y , namely, t h a t American m u l t i n a t i o n a l e n t e r p r i s e s a r e i n s t r u m e n t s i n 9 60zawa, op_. c i t . , P. 28. 9 7 T e r u t o m o Ozawa, \" P e c u l i a r i t i e s of Japan's M u l t i n a t i o n a l i s m : F a c t s and T h e o r i e s , \" Banca N a t i o n a l e d e l L a v o r o Q u a r t e r l y Review v o l . 28, no. 115 (December, 1975): 426. 54 p r o c u r i n g raw m a t e r i a l s and m a i n t a i n i n g U.S. m i l i t a r y and p o l i t i c a l p r e s e n c e . 9 8 I t i s a l s o t r u e t h a t Japanese DFI g e n e r a l l y i s i n a c c o r d w i t h n a t i o n a l i n t e r e s t . However, i t i s o b v i o u s t h a t the p r i m a r y motive f o r Japan's o v e r s e a s i n v e s t m e n t i s economic. T h i s d i f f e r s from t h a t of the U.S. which i s b o t h p o l i t i c a l l y and e c o n o m i c a l l y m o t i v a t e d . 9 9 In a d d i t i o n , a f t e r the l i b e r a l i z a t i o n of c a p i t a l movement government p o l i c y was changed from d i r e c t c o n t r o l t o i n d i r e c t c o n t r o l of i n t e r n a t i o n a l t r a n s a c t i o n s . Thus, the n e o - m e r c a n t i l i s t approach a l s o has l i m i t a t i o n s i n f u l l y e x p l a i n i n g Japanese DFI a c t i v i t i e s . The dependency and w o r l d - s y s t e m t h e o r i e s a r e founded on the premise t h a t e v e r y r e g i o n has been and remains i n t e g r a t e d i n t o the w o r l d economy t h r o u g h the g l o b a l e x p a n s i o n and development of c a p i t a l i s m , and t h a t the m e t r o p o l e s a t the c o r e have d e v e l o p e d a t t h e expense of the s a t e l l i t e s i n the p e r i p h e r y . Japan and Canada p r e s e n t p a r a d o x i c a l s i t u a t i o n s not f u l l y e x p l a i n e d by t h e s e t h e o r i e s . S t i l l the dependency and w o r l d - s y s t e m t h e o r i e s g i v e a d i f f e r e n t p e r s p e c t i v e from t h o s e of t h e n e o c l a s s i c a l / n e o - K e y n e s i a n and n e o - m e r c a n t i l i s t t h e o r y . Japan was i n t e g r a t e d i n t o the w o r l d economic system d u r i n g t h e M e i j i p e r i o d , i n the l a t e 19th c e n t u r y . S i n c e then t h i s r e s o u r c e - p o o r c o u n t r y p u r s u e d economic development t h r o u g h i n d u s t r i a l i z a t i o n and a t t a i n e d t h e second most p o w e r f u l economic p o s i t i o n i n the w o r l d . Japan rose from the 9 8 G i l p i n , U.S. Power, op. c i t . , pp. 147-1 50. 9 9Schmiegelow, op_. c i t . , p. 278. 55 semi-periphery to a p l a c e i n the c a p i t a l i s t c o r e . Thus, a q u e s t i o n a r i s e s why Japan was a b l e to develop so q u i c k l y without being e x p l o i t e d by other i n d u s t r i a l i z e d c o u n t r i e s . Toward t h i s q u e s t i o n , Frank argues that the fundamental reason f o r Japan's a b i l i t y to develop i s that Japan was not turned i n t o a s a t e l l i t e economy e i t h e r d u r i n g the Tokugawa or the M e i j i p e r i o d and t h e r e f o r e d i d not have i t s development s t r u c t u r a l l y l i m i t e d as d i d the c o u n t r i e s which were so s a t e l l i z e d . 1 0 0 Throughout i t s h i s t o r y , Japan has never been c o l o n i z e d by f o r e i g n c o u n t r i e s although i t d i d face American occupation a f t e r World War I I . N e v e r t h e l e s s , the argument whether a country has a c o l o n i a l experience or not i s not p e r s u a s i v e , s i n c e among past c o l o n i a l c o u n t r i e s some c o u n t r i e s such as A u s t r a l i a developed while others d i d not. Thus, a l a c k of c o l o n i a l e xperience i s not the s i n g l e determinant which c o n t r i b u t e d to Japanese development. Rather, from the onset of modernization p e r i o d d u r i n g M e i j i e r a , a f a v o r a b l e p o l i t i c a l system f o s t e r e d the development of the Japanese economy. The government supported domestic e n t r e p r e n e u r s , from which four eminent zaibatsu, M i t s u i , M i t s u b i s h i , Sumitomo, and Yasuda, emerged. At the same time, n a t i o n a l p o l i c i e s were designed to e l i m i n a t e f o r e i g n c a p i t a l as w e l l as f o r e i g n undertakings. The s t a t e - l e d c a p i t a l i s m i n Japan n u r t u r e d the domestic i n f a n t i n d u s t r i e s while i t excluded the p e n e t r a t i o n of f o r e i g n c a p i t a l . Consequently, the e x p l o i t a t i o n by 1 0 0 F r a n k , op_. c i t . , p. 25. 56 f o r e i g n e r s was m i n i m i z e d , which would o t h e r w i s e have d e t e r r e d the development of the Japanese economy. In a d d i t i o n , the second p o i n t t h a t the c o r e a r e a s d e v e l o p e d a t the expenses of the p e r i p h e r a l a r e a s comes i n t o q u e s t i o n w i t h r e g a r d t o the Japanese c a s e . T h e o r e t i c a l l y , t h i s c o n t r a d i c t s the r e a l i t y t h a t l a t e c o m e r Japan has been a b l e t o e x p l o i t o t h e r more-advanced c o u n t r i e s such as the U n i t e d S t a t e s t h r o u g h DFI, because th e argument i s based p u r e l y on economics, thus e l i m i n a t i n g p o l i t i c a l f a c t o r s , which form the c o r e of the n e o - m e r c a n t i l i s t approach. Japan's s t a t e - l e d c a p i t a l i s m l o o k s t o the n e o - m e r c a n t i l i s t approach f o r e x p l i c a t i o n . Japan's major o b j e c t i v e has been n a t i o n a l growth, t o which both the government and b u s i n e s s community have d e d i c a t e d t h e i r e f f o r t s , and i s d i f f e r e n t from t h o s e of o t h e r d e v e l o p e d c o u n t r i e s . K a t z e n s t e i n p o i n t e d out t h a t \" U n l i k e G a u l l i s t F r a n c e , Japan's o b j e c t i v e i n the i n t e r n a t i o n a l p o l i t i c a l economy never smacked of s t a t u s d i p l o m a c y , but r e v e a l e d a s i n g l e - m i n d e d e x p o r t ' a t a v i s m ' i n s t e a d . \" 1 0 1 A l t h o u g h the n a t i o n a l i n t e r e s t s of Japan s t i l l e n v i s i o n economic p r o s p e r i t y , t o which p a s t import r e s t r i c t i o n s , an u n d e r v a l u a t i o n of the yen, and a t i g h t r e g u l a t i o n of f o r e i g n i n v e s t m e n t have c o n t r i b u t e d , the changes i n i n t e r n a t i o n a l and d o m e s t i c economic c o n d i t i o n s f o r c e d Japan t o 1 0 1 P e t e r J . K a t z e n s t e i n , \" C o n c l u s i o n : Domestic S t r u c t u r e s and S t r a t e g i e s of F o r e i g n Economic P o l i c y , \" i n Between Powers and P l e n t y : F o r e i g n Economic P o l i c i e s of Advanced I n d u s t r i a l S t a t e s , ed. P e t e r J . K a t z e n s t e i n (Madison, W i s c o n s i n : U n i v e r s i t y of W i s c o n s i n P r e s s , 1978), p. 314. 57 i n t e r n a t i o n a l i z e i t s economy and t o l i b e r a l i z e t r a d e and i n v e s t m e n t . T h i s meant l e s s government i n t e r v e n t i o n i n the p r i v a t e economic s e c t o r , w h i c h , i n t u r n , undermined the b a s i s of n e o - m e r c a n t i l i s m . T u r n i n g t o Canada's c a s e , the dependency and w o r l d - s y s t e m t h e o r i e s c a s t a d i f f e r e n t l i g h t on i t s economic p o s i t i o n . The t h e o r i e s e x p l a i n the r e l a t i o n s h i p s between Canada and o t h e r d e v e l o p e d c o u n t r i e s as w e l l as between r e g i o n s w i t h i n the c o u n t r y . D e s p i t e i t s l e v e l of development, Canada has been kept i n a s a t e l l i t e s t a t u s f i r s t by Great B r i t a i n and l a t e r by the U n i t e d S t a t e s . Canada as a r e g i o n has never had a w o r l d m e t r o p o l i s , w h i c h , by d e f i n i t i o n , cannot e x i s t i n a s a t e l l i t e , and i t b e l o n g s t o the s e m i - p e r i p h e r y . Thus, the t h e o r i e s i n d i c a t e t h a t Canada has been e x p l o i t e d by o t h e r d e v e l o p e d c o u n t r i e s of the w o r l d . Moreover, even w i t h i n a c o u n t r y the p e r i p h e r a l a r e a s a r e e x p l o i t e d by the c o r e a r e a s . In Canada, Western r e s o u r c e - b a s e d p r o v i n c e s have been e x p l o i t e d by the more advanced, i n d u s t r i a l i z e d C e n t r a l p r o v i n c e s , which has c r e a t e d an \" i n t e r n a l c o l o n i a l \" s i t u a t i o n . 1 0 2 T h e r e f o r e , the t h e o r i e s p r o v i d e f u l l e x p l a n a t i o n i n r e g a r d t o the e x p l o i t a t i o n p r o c e s s , i n which m e t r o p o l e s e x p l o i t s t a t e l l i t e s a t each l e v e l by f o r m i n g a whole c h a i n of c o n s t e l l a t i o n s . N e v e r t h e l e s s , t h i s argument p o s t u l a t e s t h a t 1 0 2 S e e M i c h a e l H e c h t e r , I n t e r n a l C o l o n i a l i s m : The C e l t i c F r i n g e i n B r i t i s h N a t i o n a l Development, 1 536-1 966~, ( B e r k e l e y and Los A n g e l e s : U n i v e r s i t y of C a l i f o r n i a P r e s s , 1975). 58 Canada i s \"underdeveloped,\" j u s t l i k e the Canadian n a t i o n a l i s t L e v i t t p e r c e i v e d : Canada i s \" r i c h , i n d u s t r i a l i z e d [and] u n d e r d e v e l o p e d . \" 1 0 3 However, a c o n t r a d i c t i o n appears i n t h a t Canada i s d e v e l o p e d d e s p i t e i t s s a t e l l i t e s t a t u s . C o n c e r n i n g t h i s p o i n t , c r i t i c s c o n c l u d e t h a t t h e s e t h e o r i e s do not d i s t i n g u i s h d i f f e r e n t t y p e s of underdevelopment. Thus, b o t h Japan and Canada a r e i n t e r e s t i n g c a s e s i n the e x a m i n a t i o n of the a p p l i c a b i l i t y of t h e s e approaches. Japanese economic development cannot be f u l l y e x p l a i n e d w i t h i n t h e framework of t h e dependency and w o r l d - s y s t e m t h e o r i e s f o r the r o l e of government s h o u l d be c o n s i d e r e d . These approaches, however, e x p l i c a t e the i n t e r n a t i o n a l and d o m e s t i c economic r e l a t i o n s h i p of Canada. Y e t , Canada's s t a t u s as a d e v e l o p e d c o u n t r y seems ambiguous. To c o n c l u d e , t h e v a r i o u s t h e o r e t i c a l approaches o f f e r a v a r i e t y of i n s i g h t s w hich h e l p i n e x p l a i n i n g Japanese d i r e c t f o r e i g n i n v e s t m e n t . The n e o c l a s s i c a l / n e o - K e y n e s i a n t h e o r i e s p a r t l y e x p l a i n American DFI, p a r t i c u l a r l y , s i n c e i t i s a s s o c i a t e d w i t h an o l i g o p o l i s t i c s t r u c t u r e and advanced t e c h n o l o g y p l a c i n g i t i n the i n t e r n a t i o n a l c a p i t a l i s t economy. The i n d u s t r i a l o r g a n i z a t i o n approach and the p r o d u c t l i f e c y c l e t h e o r y a r e such examples. Kojima's n o t i o n t h a t a t r a d e - o r i e n t e d Japanese s t y l e of DFI i s a l s o based on the neo-Keynesian t h e o r i e s a l t h o u g h 1 0 3 K a r i L e v i t t , S i l e n t S u r r e n d e r : The M u l t i n a t i o n a l C o r p o r a t i o n i n Canada, w i t h a p r e f a c e by Mel Watkin ( T o r o n t o : M a c m i l l a n of Canada, 1970), p. 127. 59 Japanese type of DFI l a c k e d t h o s e f e a t u r e s of an American type of DFI. T h i s Japanese s t y l e of DFI was a f a i r l y a p p r o p r i a t e e x p l a n a t o r y d e v i c e u n t i l t he e a r l y 1970's. W i t h i n c r e a s e s i n inve s t m e n t by mature Japanese m a n u f a c t u r e r s and f i n a n c i e r s , the new type of Japanese DFI can be e x p l a i n e d i n p a r t by the approaches t o the above-mentioned American t y p e of DFI as w e l l as by new e x p l a n a t o r y frameworks which need t o be c o n s t i t u t e d . ' In a d d i t i o n , the o b j e c t i v e s of the Japanese DFI have been i n a c c o r d w i t h t h o s e economic g o a l s of the government. For example, the motive of inve s t m e n t i n n a t u r a l r e s o u r c e development i s t o s e c u r e a s u p p l y of n a t u r a l r e s o u r c e s f o r Japan, which i s c l o s e l y l i n k e d w i t h n a t i o n a l o b j e c t i v e s . T h i s phenomenon was m a n i f e s t e d e s p e c i a l l y u n t i l t he l a t e 1960's when Japan e x p e r i e n c e d s e v e r e b a l a n c e - o f - p a y m e n t s c o n s t r a i n t s . Thus, the n e o - m e r c a n t i l i s t approach has been p e r s u a s i v e i n u n d e r s t a n d i n g the n a t u r e of the Japanese DFI, and i s even now more a p p l i c a b l e compared t o DFI by o t h e r d e v e l o p e d c o u n t r i e s , because of Japan's h i s t o r y of economic development (see Chapter 3 ) . The dependency and w o r l d - s y s t e m t h e o r i e s p r o v i d e a p r o p e r p e r s p e c t i v e t o s t u d y Canada as a h o s t c o u n t r y f o r i n v e s t m e n t . In a d d i t i o n , the n o t i o n of an i n t e r n a t i o n a l urban h i e r a r c h y based on the new i n t e r n a t i o n a l d i v i s i o n of l a b o r , which i s d e r i v e d from the r a d i c a l t h e o r y , i s u s e f u l t o l o o k a t w i t h r e g a r d t o the r e l a t i o n s h i p between the f u n c t i o n s of m u l t i n a t i o n a l c o r p o r a t i o n s and t h e i r l o c a t i o n s . 60 Any s i n g l e approach by i t s e l f cannot f u l l y e x p l a i n Japanese DFI. Each approach c o n t r i b u t e s to a p a r t i a l u nderstanding. Even Kojima's u s e f u l explanatory concept has p a r t l y l o s t i t s v a l i d i t y over the years because of changes i n the p a t t e r n of Japanese DFI and changes i n i n t e r n a t i o n a l economic environments. A c o r o l l a r y of these statements i m p l i e s that more r e s e a r c h has to be done i n order to c l a r i f y the c h a r a c t e r i s t i c s of and reasons f o r Japanese DFI, s i n c e Japan has become and w i l l c ontinue to be one of the major c a p i t a l e x p o r t i n g c o u n t r i e s with great impact on the world economy. 61 CHAPTER 2 MULTINATIONAL CORPORATIONS S i n c e d i r e c t f o r e i g n i n v e s t m e n t i s c l o s e l y a s s o c i a t e d w i t h the a c t i v i t y of 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 (MNCs), i t i s n e c e s s a r y t o i n v e s t i g a t e t he c h a r a c t e r i s t i c s of MNCs as w e l l as t h e i r economic and p o l i t i c a l impacts on the home and host c o u n t r y . The predominant l i t e r a t u r e on MNCs i s based on the American/European e x p e r i e n c e which was d e v e l o p e d e a r l i e r than Japanese m u l t i n a t i o n a l s . However, t h e \" J a p a n e s e - s t y l e \" MNCs, r e f e r r i n g t o the n i n e l a r g e s t Japanese g e n e r a l t r a d i n g companies, or sogo shosha, a r e d i s t i n c t i v e and can be c o n t r a s t e d and compared t o the American/European MNCs. In comparing MNCs, i t i s more c o n v e n i e n t t o adopt the i d e a of American/European and Japanese m u l t i n a t i o n a l s r a t h e r than t r a d i n g m u l t i n a t i o n a l s and m a n u f a c t u r i n g MNCs. The main d i f f e r e n c e between American/European and Japanese MNCs i s not o n l y t he type of economic a c t i v i t y but a l s o the r o l e of c u l t u r a l and p o l i t i c a l f a c t o r s . I. C h a r a c t e r i s t i c s of 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 The h i s t o r y of MNCs goes back t o the n i n e t e e n t h c e n t u r y . However, the p r o l i f e r a t i o n of MNCs o c c u r r e d o n l y a f t e r World War I I w i t h most o r i g i n a t i n g i n the U n i t e d S t a t e s . The development of European and Japanese n a t i o n a l c o r p o r a t i o n s a l s o began t o be more i n t e r n a t i o n a l l y i m p o r t a n t i n t he 1950's. These q u i c k l y became m u l t i n a t i o n a l and 62 blossomed i n the 1970's. A l s o , during the 1970's, the number of home c o u n t r i e s f o r m u l t i n a t i o n a l s i n c r e a s e d s i g n i f i c a n t l y . At p r e s e n t , m u l t i n a t i o n a l s are predominantly American, European or Japanese, although some o r i g i n a t e i n d e v e l o p i n g c o u n t r i e s , such as B r a z i l and Mexico. The m u l t i n a t i o n a l i z a t i o n of fi r m s i s e s s e n t i a l l y a phenomenon growing out of i n d u s t r i a l i z e d c o u n t r i e s where head o f f i c e s are now l o c a t e d . T h i s i s the r e s u l t of r a p i d postwar economic growth, t e c h n o l o g i c a l advances, the i n t e n s i f i c a t i o n of the search f o r raw m a t e r i a l resources and market o u t l e t s , and s h i f t s i n the r e l a t i v e economic power of the major i n d u s t r i a l c o u n t r i e s . 1 0 4 The MNC, the main v e h i c l e through which DFI m a t e r i a l i z e s , r e q u i r e s examination i n a l l DFI s t u d i e s . T h e r e f o r e , the f o l l o w i n g d i s c u s s i o n focuses on a d e s c r i p t i o n of MNC c h a r a c t e r i s t i c s , e s p e c i a l l y those of American- and European-based MNCs, and the i d e n t i f i c a t i o n of p o s i t i v e and negative economic, p o l i t i c a l and s o c i a l e f f e c t s of MNCs on both home and host c o u n t r i e s . The r e l a t i o n s h i p between the modernization stage of a host country and the degree of p e n e t r a t i o n of MNCs i s a l s o i n v e s t i g a t e d . The emergence of MNCs changes the n o t i o n of the i n t e r n a t i o n a l d i v i s i o n of l a b o r . The o r i g i n a l d i v i s i o n of lab o r concept was arranged h o r i z o n t a l l y : i n d u s t r y versus 1 0 4 U n i t e d N a t i o n s , Department of Economic and S o c i a l A f f a i r s , M u l t i n a t i o n a l C o r p o r a t i o n s i n World Development (New York:'Praeger P u b l i s h e r s , 1974), p. 28. 63 a g r i c u l t u r e . The i n t e r n a t i o n a l d i v i s i o n of l a b o r r e f l e c t e d d i f f e r e n c e s i n s e c t o r s , f o r example, t r a d e between manufactured goods and raw m a t e r i a l s i n d i f f e r e n t n a t i o n s . In o t h e r words, t h e d i v i s i o n of l a b o r was founded upon \"the sourcing of raw material i n p u t s \" l a r g e l y from d e v e l o p i n g c o u n t r i e s by d e v e l o p e d c o u n t r i e s . 1 0 5 However, the new i n t e r n a t i o n a l d i v i s i o n of l a b o r i s a v e r t i c a l d i v i s i o n of l a b o r w i t h i n a c o r p o r a t i o n based on the i n t e r n a l i z e d system of p r o d u c t i o n and i n t e r n a t i o n a l exchange of goods. A 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 p r eads c a p i t a l and t e c h n o l o g y , w h i l e i t c e n t r a l i z e s c o n t r o l by e s t a b l i s h i n g a v e r t i c a l l y i n t e g r a t e d network i n which d i f f e r e n t f u n c t i o n s t a k e p l a c e i n d i f f e r e n t a r e a s . Hymer c a l l s t h i s phenomenon \" d e c e n t r a l i z a t i o n and c e n t r a l i z a t i o n , d i f f e r e n t i a t i o n and i n t e g r a t i o n . \" 1 0 6 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 a r e c h a r a c t e r i z e d by t h e i r g i a n t s i z e and o l i g o p o l i s t i c mode of p r o d u c t d i f f e r e n t i a t i o n and m a r k e t i n g . Most h e a d q u a r t e r s of MNCs a r e l o c a t e d i n the de v e l o p e d c o u n t r i e s ( p a r e n t companies) and t h e i r s u b s i d i a r i e s and a f f i l i a t e s s p r e a d over s e v e r a l c o u n t r i e s . T h e i r s a l e s , amounting t o b i l l i o n s of d o l l a r s and p r o f i t s from o v e r s e a s o p e r a t i o n s , a r e s i g n i f i c a n t . MNCs adopt a g l o b a l s t r a t e g y by r e g a r d i n g the whole w o r l d as t h e i r economic a r e n a and p r a c t i c e \"worldwide s o u r c i n g . \" 1 0 7 The 1 0 5 R . B. Cohen, op_. c i t . , p. 288. 1 0 6 S t e p h e n H. Hymer, The M u l t i n a t i o n a l C o r p o r a t i o n : A R a d i c a l Approach, ed. Robert B. Cohen, e t a l . (Cambridge: Cambridge U n i v e r s i t y P r e s s , 1979), p. 248. 1 0 7 G y 6 r g y Adam, \" M u l t i n a t i o n a l C o r p o r a t i o n s and Worldwide S o u r c i n g , \" i n I n t e r n a t i o n a l F i r m s and Modern I m p e r i a l i s m , 64 a e r o n a u t i c a l and e l e c t r o n i c r e v o l u t i o n s have made g l o b a l o p e r a t i o n p o s s i b l e . \" G l o b a l i s m \" i s summarized as f o l l o w s . The [ g l o b a l ] company views the world as a s i n g l e e n t i t y . I t s p e r s p e c t i v e s transcend a l l n a t i o n a l boundaries. D e c i s i o n s are made not i n terms of what i s best f o r the home country or any p a r t i c u l a r product group, but i n terms of what i s best f o r the c o r p o r a t i o n as a whole on an i n t e r n a t i o n a l b a s i s . The b a s i c p r i n c i p l e on which these c o r p o r a t i o n s operate i s t h i s : t a k i n g the e n t i r e world as t h e i r market, they tend to organize p r o d u c t i o n , ' d i s t r i b u t i o n and s e l l i n g a c t i v i t i e s with as l i t t l e r egard f o r n a t i o n a l [ p o l i t i c a l ] boundaries as the r e a l i t i e s of time and space p e r m i t . 1 0 8 Instead of d i v i d i n g the world i n t o spheres of i n t e r e s t s observed i n the o l d i m p e r i a l i s m e r a , contemporary m u l t i n a t i o n a l s i n t e r p e n e t r a t e among other markets. They o v e r t l y or t a c i t l y c o l l u d e to achieve common g o a l s on a g l o b a l b a s i s . 1 0 9 By u t i l i z i n g the developed i n f o r m a t i o n and t r a n s p o r t a t i o n networks, the MNCs move t h e i r funds and commodities f r e e l y i n order to maximize t h e i r p r o f i t s . D i v i d e n d s , r o y a l t y payments, t r a n s f e r p r i c i n g and other p r a c t i c e s are used to achieve t h i s purpose. A c c o r d i n g to G o l d s t e i n , no matter whether the MNC i s American, European, or Japanese i n o r i g i n , the s a l i e n t c h a r a c t e r i s t i c s are the f o l l o w i n g : 1 . The fundamental d e c i s i o n s of the MNC are g l o b a l l y and o r g a n i c a l l y c o n t r o l l e d by the home headquarters, even though i t s l o c a l s u b s i d i a r y o p e r a t i o n s are thoroughly d e c e n t r a l i z e d . 1 0 7 ( c o n t ' d ) ed. Hugo Radice (Harmondsworth: Penguin, 1975), p. 90. 1 0 8 I b i d . B r a c k e t s are i n o r i g i n a l . 1 0 9Hymer, op_. c i t . , p. 243. 65 2. The i n v e s t m e n t s and a f f i l i a t e o p e r a t i o n s of the MNC a r e c o n c e n t r a t e d i n o n l y a few i n d u s t r i a l s e c t o r s . They a r e not found i n the p r i m a r y p r o d u c t or i n the l a b o r - i n t e n s i v e s e c t o r s of d e v e l o p e d economies. They c o n g r e g a t e t h i c k l y where c a p i t a l or e x p e n s i v e t e c h n o l o g i e s a r e r e q u i r e d i n l a r g e a g g r e g a t i o n s . Thus MNCs p l a y a prominent r o l e i n those v a l u e - a d d e d i n d u s t r i e s t h a t c o n t r i b u t e a d i s p r o p o r t i o n a t e s t r e n g t h t o the growth c a p a b i l i t i e s and t o t h e c o m p e t i t i v e s t a n d i n g of a d e v e l o p e d economy. 3. The most p r o f i t a b l e MNCs have p e n e t r a t e d i n t o t h o s e i n d u s t r i e s t h a t a r e s u b j e c t t o 'monopoly c o m p e t i t i o n ' or t o o l i g o p o l y c o n t r o l s . These i n c l u d e c a p i t a l - i n t e n s i v e i n d u s t r i e s ( f o r example, a u t o m o b i l e s , p e t r o c h e m i c a l s , and o i l ) ; s c i e n c e - b a s e d i n d u s t r i e s (such as computers, e l e c t r o n i c s , and n u c l e a r e n g i n e e r i n g ) ; and g i a n t c h a i n s i n the s e r v i c e s e c t o r ( f o r i n s t a n c e , h o t e l s , b a n k i n g , and food p r o c e s s i n g ) . Each of thes e i n d u s t r i e s r e l i e s upon an o l i g o p o l y e q u i l i b r i u m . Thus: e n t r y i n t o t h e i r markets i s a r b i t r a r i l y l i m i t e d ; o r p r i c e s a r e e f f e c t i v e l y s t a b i l i z e d and a d m i n i s t e r e d by a few l e a d i n g f i r m s ; or the s i z e of the f i r m and i t s p r o d u c t d i f f e r e n t i a t i o n expand t o meet the m a r k e t i n g r e q u i r e m e n t s of i m p e r f e c t c o m p e t i t i o n . 4. O r g a n i z a t i o n a l \" s i z e \" i s e s s e n t i a l t o the g l o b a l e x p a n s i o n of the MNC i n i t s p r o d u c t i o n p l a n n i n g a t home and i n i t s s t r a t e g i c p l a n n i n g o v e r s e a s . The m u l t i p r o d u c t companies t h a t p l a y a mammoth r o l e i n the home market a r e t h o s e t h a t a l s o e x e r t the l a r g e s t i n f l u e n c e i n h o s t economies a b r o a d . 1 1 0 However, t h e f o r e g o i n g c h a r a c t e r i s t i c s r e a l l y o n l y f i t U.S.-and Europe-based MNCs. Compared w i t h t h o s e MNCs, Japanese MNCs p r e s e n t a somewhat d i f f e r e n t d i s t i n g u i s h i n g s e t of c h a r a c t e r i s t i c s , which w i l l be d i s c u s s e d i n the next s e c t i o n . 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 c o n t r o l p h y s i c a l economic a s s e t s - - f a c t o r i e s , mines, s a l e s and o t h e r o f f i c e s \u00E2\u0080\u0094 i n more 1 1 0 W a l t e r G o l d s t e i n , \"The M u l t i n a t i o n a l C o r p o r a t i o n and World Trade: The Case of the Developed Economies,\" i n The M u l t i n a t i o n a l C o r p o r a t i o n and S o c i a l Change, ed. D a v i d E. A p t e r and L o u i s Wolf Goodman (New York: P r a e g e r P u b l i s h e r s , 1976), pp. 150 and 152. 66 than two c o u n t r i e s . T h e r e f o r e , they a r e r e s p o n s i b l e f o r most DFI and such investment i s used as one of the measurements of t he s i z e of MNC a c t i v i t i e s . The r o l e of MNCs i s not c o n f i n e d t o the t r a n s f e r of c a p i t a l , \" f o r the essence of d i r e c t f o r e i g n investment i s the t r a n s m i s s i o n t o the 'host' c o u n t r y of a 'package' of c a p i t a l , m a n a g e r i a l s k i l l , and t e c h n i c a l k n o w l e d g e . \" 1 1 1 The d i s t r i b u t i o n of investment i n the d e v e l o p i n g c o u n t r i e s s t i l l r e f l e c t s h i s t o r i c a l t i e s based on former c o l o n i a l c o u n t r i e s . The MNCs were a c t i v e i n the e x t r a c t i v e , a g r i c u l t u r a l and p u b l i c u t i l i t y s e c t o r s , where i n the e a r l y 1970's t h e s e s t i l l a c c o u n t e d f o r n e a r l y t w o - t h i r d s of the s t o c k of d i r e c t i n v e s t m e n t . I n the d e v e l o p i n g c o u n t r i e s , the MNCs' sh a r e of m a n u f a c t u r i n g was no more than a q u a r t e r , w h i l e i n t h e de v e l o p e d c o u n t r i e s , i t r e p r e s e n t e d h a l f of the t o t a l i n v e s t m e n t i n m a n u f a c t u r i n g and i n the s e r v i c e s e c t o r s . 1 1 2 In t he 1970's, the p r o p o r t i o n of DFI i n the m a n u f a c t u r i n g s e c t o r and s e r v i c e s e c t o r i n c r e a s e d , i n bo t h d e v e l o p e d and d e v e l o p i n g c o u n t r i e s , w h i l e the share i n the e x t r a c t i v e s e c t o r d e c l i n e d . I n the s e r v i c e s e c t o r , i n v e s t m e n t i s made m a i n l y i n b a n k i n g and i n s u r a n c e but a l s o r e l a t e s t o t o u r i s m , a d v e r t i s i n g , m a r k e t i n g and d i s t r i b u t i o n . 1 1 3 D i r e c t f o r e i g n i n v e s t m e n t i n the 1 1 1 H a r r y G. Johnson, \"Survey of I s s u e s , \" i n D i r e c t F o r e i g n Investment i n A s i a and the P a c i f i c , ed. P e t e r D r y s d a l e ( T o r o n t o : U n i v e r s i t y of To r o n t o P r e s s , 1972), p. 2. 1 1 2 U n i t e d N a t i o n s , Department of Economic and S o c i a l A f f a i r s , i b i d . 1 1 3 U n i t e d N a t i o n s , C e n t r e on T r a n s n a t i o n a l C o r p o r a t i o n s , 67 m a n u f a c t u r i n g s e c t o r has been made p r i m a r i l y i n the f o o d , c h e m i c a l , p h a r m a c e u t i c a l , a u t o m o b i l e and e n g i n e e r i n g ( i n c l u d i n g machinery) i n d u s t r i e s . 1 1 \" A l t h o u g h t h e r e a r e c o n s i d e r a b l e s i m i l a r i t i e s between d e v e l o p e d and d e v e l o p i n g c o u n t r i e s i n the i n d u s t r i a l p a t t e r n of d i r e c t i n v e s t m e n t , t h e r e a r e d i f f e r e n c e s . For i n s t a n c e , i n some d e v e l o p i n g c o u n t r i e s , t h e r e i s i m p o r t a n t d i r e c t i n v e s t m e n t i n the t e x t i l e , i r o n , s t e e l and n o n - f e r r o u s m e t a l i n d u s t r i e s . 1 1 5 Investment i n the e x t r a c t i v e s e c t o r i s m o s t l y i n the p e t r o l e u m , copper and b a u x i t e / a l u m i n u m i n d u s t r i e s . Because of t h e i r c a p a c i t y t o move c a p i t a l , t e c h n o l o g y and m a n a g e r i a l s k i l l s a c r o s s n a t i o n a l b o u n d a r i e s , the MNCs have become the main v e h i c l e f o r the i n t e r n a t i o n a l i z a t i o n of p r o d u c t i o n . Thus, MNCs can a f f e c t i n t e r n a t i o n a l r e l a t i o n s and economic development, and have g r e a t impact on bo t h the home and host c o u n t r i e s ' economies. As l o n g as MNCs a r e c o m p e t i t i v e , p r o f i t - s e e k i n g i n s t i t u t i o n s , t h e i r i n t e r e s t s c o n f l i c t w i t h those of the home and h o s t c o u n t r i e s . Home C o u n t r y I s s u e s Obvious economic problems f o r t h e home c o u n t r y i n v o l v e d i n DFI by MNCs a r e the l o s s of revenue from p r o f i t t a x on the e a r n i n g s of t h e i r c a p i t a l and the t r a n s f e r of t e c h n o l o g y and know-how. However, t h e s e problems d i d not become major 1 1 3 ( c o n t ' d ) S a l i e n t F e a t u r e s and Trends i n F o r e i g n D i r e c t Investment (ST/CTC/14), 1983, p. 3. 1 1 \" U n i t e d N a t i o n s , C e n t r e on T r a n s n a t i o n a l C o r p o r a t i o n s , T r a n s n a t i o n a l C o r p o r a t i o n s i n World Development: T h i r d Survey (ST/CTC/46), 1983, p. 23. 1 1 5 U n i t e d N a t i o n s , C e n t r e on T r a n s n a t i o n a l C o r p o r a t i o n s , S a l i e n t F e a t u r e s , l o c . c i t . 68 i s s u e s f o r the U n i t e d S t a t e s , the major sou r c e of DFI, because t a x e s a r e not always a s i g n i f i c a n t s o u r c e of revenue t o t h e i n d i v i d u a l s t a t e s of t h e U n i t e d S t a t e s as opposed t o income, p r o p e r t y and s a l e s t a x e s . In a d d i t i o n , t h r o u g h most of t h e postwar e r a u n t i l r e c e n t l y , the U n i t e d S t a t e s has been a n x i o u s t o encourage DFI i n o r d e r t o a s s i s t postwar economic r e c o n s t r u c t i o n , and has g e n e r o u s l y d i s s e m i n a t e d advanced t e c h n o l o g y t o the w o r l d . For o t h e r c o u n t r i e s , such as the U n i t e d Kingdom which i s bo t h a r e c i p i e n t and a sour c e of DFI, t h e s e problems were not major i s s u e s . R a t h e r , a major c o n c e r n w i t h r e g a r d t o DFI has been the b a l a n c e of payments of the home c o u n t r y . The b a l a n c e of payments i s an a c c o u n t i n g t o o l which measures a l l the t r a n s a c t i o n s between the r e s i d e n t s of one c o u n t r y and th o s e of o t h e r c o u n t r i e s f o r a g i v e n p e r i o d , u s u a l l y one y e a r . Thus, the b a l a n c e of payments r e c o r d s not s t o c k s , but f l o w s . The b a l a n c e of payments e s s e n t i a l l y c o n s i s t s of the t r a d e b a l a n c e and the b a l a n c e of f i n a n c i a l o p e r a t i o n s . The t r a d e b a l a n c e i s composed of i m p o r t s and e x p o r t s of t a n g i b l e goods and s e r v i c e s . The b a l a n c e of f i n a n c i a l t r a n s a c t i o n s c o m p r i s e s e x t e r n a l a s s e t s and l i a b i l i t i e s , i n d e n o t i n g d i r e c t i n v e s t m e n t , s e c u r i t i e s , and l o a n s . E x p o r t s improve the b a l a n c e of payments s i n c e they b r i n g f o r e i g n c u r r e n c i e s i n t o t h e c o u n t r y ; i m p o r t s lower the b a l a n c e of payments s i n c e they l e a d t o an o u t f l o w of c u r r e n c y . MNCs p l a y a s i g n i f i c a n t r o l e i n expanding d i r e c t f o r e i g n investment and i n t e r n a t i o n a l t r a d e . MNCs g e n e r a t e 69 i n f l o w s of r e p a t r i a t e d d i v i d e n d s , l i c e n s i n g f e e s , r o y a l t i e s and e a r n i n g s i n the form of i n t e r e s t . Meanwhile, outflows of c a p i t a l to the developed c o u n t r i e s are l i m i t e d i n expanding or supplementing necessary funds because MNCs tend to borrow money i n the i n t e r n a t i o n a l c a p i t a l market or to r a i s e money l o c a l l y , r a t h e r than to procure funds from t h e i r head o f f i c e s . In the d e v e l o p i n g c o u n t r i e s , the m u l t i n a t i o n a l s r a r e l y have access to l o c a l loans and must p r o v i d e c a p i t a l from* t h e i r home base or the i n t e r n a t i o n a l c a p i t a l market. The balance of payments c o n s t r a i n t u n t i l the l a t e 1960's d e p r i v e d Japan of the expansion of f o r e i g n investment, s i n c e the domestic c a p i t a l supply was sca r c e and f o r e i g n c u r r e n c y was s o r e l y needed to pay for the imports of raw m a t e r i a l s and f o o d s t u f f s . Furthermore, the pre-1973 i n t e r n a t i o n a l c a p i t a l market was r e l a t i v e l y undeveloped. S u f f i c e i t to say that the f l o r e s c e n c e of the i n t e r n a t i o n a l c a p i t a l market, e s p e c i a l l y E u r o d o l l a r markets, took p l a c e a f t e r the o i l p r i c e h ike of 1973 by the O r g a n i z a t i o n of Petroleum E x p o r t i n g C o u n t r i e s (OPEC). The in c r e a s e i n o i l p r i c e s m u l t i p l i e d the pool of l i q u i d c a p i t a l , which l e d to the development of E u r o d o l l a r markets. Thus, the balance of payments becomes a major impediment to investment to the home country, u n l e s s i t s economy has an i n t e r n a t i o n a l c o m p e t i t i v e edge. In a d d i t i o n , MNCs a c t i v a t e i n t e r n a t i o n a l t r a d e . As a r e s u l t , \"Intracompany t r a n s f e r s (between home or a f f i l i a t e p l a n t s ) account f o r one-quarter to o n e - t h i r d of the e n t r i e s 70 t h a t appear i n home n a t i o n ' s t r a d i n g p o s i t i o n . \" 1 1 6 T h e r e f o r e , MNCs a r e v i t a l t o c a p i t a l t r a n s f e r as w e l l as i n t e r n a t i o n a l t r a d e , b oth of which a r e r e f l e c t e d i n the b a l a n c e of payments of the home c o u n t r y . The l a b o r movements i n home c o u n t r i e s have v o i c e d c r i t i c i s m s c o n c e r n i n g DFI f o c u s i n g on two major i s s u e s . The f i r s t i s s u e i s the \"e x p o r t of j o b s \" i m p l i c i t i n DFI. Through the p r o c e s s of DFI some of s e c t o r s were t r a n s f e r r e d t o the lower wage r a t e c o u n t r i e s , which r e s u l t e d i n the l o s s of jo b s and the p r e v e n t i o n of r a i s i n g wages i n the home c o u n t r i e s . The second i s s u e of the c r i t i c i s m s r a i s e d c o n c e r n s the i m p l i c a t i o n f o r c o l l e c t i v e b a r g a i n i n g based on the emergence of a w o r l d of m u l t i n a t i o n a l p r o d u c t i o n . MNCs a r e a b l e t o reduce l o s s e s i n a domesti c s t r i k e , t o expand o v e r s e a s p r o d u c t i o n , and even t o c l o s e down domestic p r o d u c t i o n f a c i l i t i e s u n l e s s l a b o r u n i o n s moderate t h e i r wage and o t h e r d e m a n d s . 1 1 7 In a d d i t i o n t o t h e s e economic i s s u e s , p o l i t i c a l c o n s i d e r a t i o n s a l s o a r e i n v o l v e d i n DFI. Johnson has sugg e s t e d t h a t the home c o u n t r y e x p e r i e n c e s c h a l l e n g e s t o n a t i o n a l p o l i c y t h r o u g h t h e e v o l u t i o n of i t s domestic c o r p o r a t i o n s i n t o 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 a l t h o u g h the home c o u n t r y government i n f r i n g e s upon the s o v e r e i g n t y of the h o s t c o u n t r y t h r o u g h p o l i t i c a l i n t e r v e n t i o n i n the a f f a i r s of MNCs' s u b s i d i a r i e s . There a r e c o n f l i c t s of i n t e r e s t between MNCs and home governments: MNC e x e c u t i v e s 1 1 6 G o l d s t e i n , op_. c i t . , p. 162. 1 1 7 J o h n s o n , op_. c i t . , p. 8. 71 p e r c e i v e the i n t e r n a t i o n a l economy as the sphere of t h e i r o p e r a t i o n s while the p o l i t i c i a n s and o f f i c i a l s of n a t i o n a l governments are concerned about the t e r r i t o r i a l domain of a p a r t i c u l a r n a t i o n - s t a t e . 1 1 8 The MNCs home coun t r y a l s o faces t h i s \"boomerang e f f e c t , \" which addresses the phenomenon of \"imports i n r e v e r s e . \" 1 1 9 DFI accompanied by t e c h n o l o g i c a l t r a n s f e r from the developed c o u n t r i e s has c o n t r i b u t e d to the i n d u s t r i a l i z a t i o n of d e v e l o p i n g c o u n t r i e s to a c e r t a i n e x t e n t . As a r e s u l t , f i n i s h e d and h a l f - f i n i s h e d i n d u s t r i a l goods produced by overseas e n t e r p r i s e s are imported back i n t o the home cou n t r y . T h i s boomerang e f f e c t provokes the need f o r a readjustment of the domestic i n d u s t r i a l s t r u c t u r e of the home country, s i n c e some i n d u s t r i e s , p a r t i c u l a r l y those l a b o r - i n t e n s i v e i n d u s t r i e s , are g r a d u a l l y l o s i n g t h e i r c o m p e t i t i v e edge i n i n t e r n a t i o n a l markets due to higher wage r a t e s . Host Country Issues The MNCs have p r o v i d e d c a p i t a l , technology and s k i l l s , and have c o n t r i b u t e d to the c r e a t i o n of job o p p o r t u n i t i e s and economic development i n the host c o u n t r i e s . However, some host c o u n t r i e s are s k e p t i c a l about the economic behavior of f o r e i g n s u b s i d i a r i e s and the e x e r c i s e of s o v e r e i g n t y by the home government over the f o r e i g n o p e r a t i o n s of s u b s i d i a r i e s of i t s n a t i o n a l c o r p o r a t i o n s . 1 1 \" I b i d . 1 1 9 M i y o h e i Shinohara, I n d u s t r i a l Growth, Trade, and Dynamic P a t t e r n s i n the Japanese Economy (Tokyo: U n i v e r s i t y of Tokyo Press, 1982), p. 72. 72 One of the i s s u e s i s the p u b l i c d i s c l o s u r e of f i n a n c i a l i n f o r m a t i o n as t o p r o f i t s made and t a x e s p a i d by s u b s i d i a r i e s . MNCs a r e a b l e t o escape from t h e i r f a i r s h a r e of t a x e s by u t i l i z i n g a t r a n s f e r - p r i c e mechanism, which e n a b l e s t h e i r f o r e i g n a f f i l i a t e s t o charge l i t t l e s a l e s t o p u r c h a s e s . In most c a s e s , MNCs c a r r y out c r u c i a l r e s e a r c h and development i n t h e i r home c o u n t r i e s . Thus, f o r e i g n s u b s i d i a r i e s and a f f i l i a t e s p l a y a minor r o l e i n r e s e a r c h and development, which means i n d u s t r i a l c o m p e t i t i v e n e s s and supremacy of h o s t c o u n t r i e s a r e s u p p r e s s e d . From the e x e r c i s e of s o v e r e i g n t y by the government of the home c o u n t r i e s over t h e s u b s i d i a r i e s , p o l i t i c a l problems a c c r u e t o the h o s t c o u n t r y r e g a r d i n g the c o n f l i c t over i t s s o v e r e i g n t y c l a i m s . The r e l a t i o n s h i p between the U n i t e d S t a t e s and Canada e x e m p l i f i e s t h i s c a s e . U.S. a n t i t r u s t l a w s, u n i o n l a w s , and laws r e l a t i n g t o e x p o r t s t o communist c o u n t r i e s a p p l y e x t r a t e r r i t o r i a l l y t o U.S. s u b s i d i a r i e s i n Canada. U.S. b a l a n c e of payments g u i d e l i n e s a l s o a p p l y t o the f i n a n c i a l o p e r a t i o n s of such s u b s i d i a r i e s . 1 2 0 MNCs a r e a c t i v e p l a y e r s i n the i n t e r n a t i o n a l economic a r e n a , but governments of the host c o u n t r i e s do not need t o a c t p a s s i v e l y , s i n c e governments have u l t i m a t e l e g i s l a t i v e and j u r i d i c a l a u t h o r i t y w i t h i n n a t i o n - s t a t e s . The governments of t h e h o s t c o u n t r i e s have u l t i m a t e power t o d e c i d e t o l e v y t a x e s on MNCs and de t e r m i n e the t a x l e v e l 1 2 0 I b i d . , p. 1 1 . 73 which c a t a l y z e s the a c t i v i t i e s of MNCs. Tax c o n c e s s i o n s , p r e s e n t a t most t a x havens, p u l l i n MNCs, w h i l e a u n i t a r y t a x , as i n the U n i t e d S t a t e s (see Chapter 5 ) , pushes out MNCs t o lower t a x a r e a s . The governments of t h e host c o u n t r i e s can a l s o c r e a t e b o t h f a v o r a b l e and u n f a v o r a b l e investment c l i m a t e s by e x e r t i n g v a r i o u s p o l i c i e s . P r o v i s i o n of s u b s i d i e s , t a x exemption f o r c o r p o r a t i o n s , and a d o p t i o n of l e s s r e g u l a t o r y measures c o n t r i b u t e t o the f o r m a t i o n of f a v o r a b l e i n v e s t m e n t c l i m a t e f o r MNCs. The e x i s t e n c e of a l o c a l c o n t e n t a c t , which e n t a i l s the p u r c h a s e of l o c a l i n p u t s as e x e r c i s e d i n the U n i t e d S t a t e s , or i n Canada under the former F o r e i g n Investment Review A c t , d i s c o u r a g e s economic a c t i v i t y of MNCs to a c e r t a i n e x t e n t . W h i l e a l l t h e s e i s s u e s might a r i s e i n c o n n e c t i o n w i t h DFI i n t h e d e v e l o p i n g c o u n t r i e s , s p e c i a l i s s u e s a r e l i k e l y t o a r i s e i n t h a t c o n t e x t . S e v e r a l MNCs a r e g r e a t e r i n magnitude than some d e v e l o p i n g c o u n t r i e s . Thus, i n a d e v e l o p i n g c o u n t r y c o n t e x t , a hos t c o u n t r y ' s e x p e r t i s e i n n e g o t i a t i n g w i t h f o r e i g n companies i s l i k e l y t o be l i m i t e d . Dependency t h e o r i s t s espouse t h r e e main p o i n t s r e l e v a n t t o the r e l a t i o n s h i p between the MNCs and host c o u n t r i e s i n the T h i r d World: (1) t h e h o s t c o u n t r i e s r e c e i v e t oo few b e n e f i t s , (2) f o r e i g n i n v e s t m e n t causes d i s t o r t i o n s i n the l o c a l economies, and (3) f o r e i g n i nvestment d i s t o r t s h o s t c o u n t r i e s ' p o l i t i c a l p r o c e s s e s . 1 2 1 1 2 1 T h e o d o r e H. Moran, \" M u l t i n a t i o n a l C o r p o r a t i o n s and Dependency: A D i a l o g u e f o r D e p e n d e n t i s t a s and 74 F i r s t , the b e n e f i t s of f o r e i g n investment a r e \" p o o r l y \" d i s t r i b u t e d between the MNCs and the ho s t c o u n t r y and economic s u r p l u s e s t h a t c o u l d o t h e r w i s e be used t o f i n a n c e i n t e r n a l development a r e s i p h o n e d o f f t o the home c o u n t r y . Second, MNCs c r e a t e d i s t o r t i o n s w i t h i n the l o c a l economy. MNCs skew the development of an i n d i g e n e o u s economic base by s h u t t i n g out l o c a l e n t r e p r e n e u r s i n the most dynamic s e c t o r s of the ho s t c o u n t r y ' s economy. MNCs employ c a p i t a l - i n t e n s i v e t e c h n o l o g i e s which c r e a t e l e s s j o b o p p o r t u n i t i e s than l a b o r - i n t e n s i v e t e c h n o l o g i e s . The a c t i v i t i e s of MNCs i n t e n s i f y uneven income d i s t r i b u t i o n i n the h o s t c o u n t r y . I n a d d i t i o n , they i n f l u e n c e consumer t a s t e s , a l t e r i n g t h e c u l t u r e of the ho s t c o u n t r y . T h i r d , MNCs cause p o l i t i c a l d i s t o r t i o n s of the host c o u n t r y by c o - o p t i n g l o c a l e l i t e s . They a l s o use the i n f l u e n c e of t h e i r home c o u n t r i e s t o b r i n g p r e s s u r e t o keep host governments i n o r d e r . MNCs a r e a b l e t o s t r u c t u r e the i n t e r n a t i o n a l system t o th w a r t the a c t i v i t i e s of economic n a t i o n a l i s t s . L eonard v a l u e s A p t e r ' s a r t i c l e as an e l a b o r a t e attempt t o l a y out the r o l e of MNCs w i t h i n the c o n t e x t of m o d e r n i z a t i o n s t a g e s of a h o s t c o u n t r y . 1 2 2 A p t e r b e g i n s w i t h the MNC as an e x c e p t i o n a l l y dynamic p o l i t i c a l i n s t r u m e n t , because economic f a c t o r s induce s o c i a l t r a n s f o r m a t i o n of 1 2 1 ( c o n t ' d ) N o n - D e p e n d e n t i s t a s , \" I n t e r n a t i o n a l O r g a n i z a t i o n v o l . 32, no. 1 (1978): 79. 1 2 2 H . J e f f r e y L e o n a r d , \" M u l t i n a t i o n a l C o r p o r a t i o n s and P o l i t i c s i n D e v e l o p i n g C o u n t r i e s , \" World P o l i t i c s v o l . 32 (1980): 462. 75 s o c i e t i e s . (1) In contemporary l i f e , m o d e r n i z a t i o n f a c i l i t a t e s r o l e t r a n s f e r s from m e t r o p o l e t o p e r i p h e r y . (2) Ro l e s g e n e r a t e i n s t i t u t i o n a l l i n k a g e s . (3) In the more advanced s t a g e s of m o d e r n i z a t i o n one of the most i m p o r t a n t forms of r o l e t r a n s f e r and i n s t i t u t i o n - b u i l d i n g i s the m u l t i n a t i o n a l c o r p o r a t i o n . (4) T h i s s t i m u l a t e s o t h e r r o l e and i n s t i t u t i o n a l n etworks, e d u c a t i o n a l , c o m m e r c i a l , f i s c a l , and t e c h n i c a l . (5) Such s t i m u l a t i o n r e i n f o r c e s h o s t c o u n t r y - m e t r o p o l e n e t w o r k s . 1 2 3 Then, A p t e r argues t h a t the s p e c i f i c p o l i t i c a l impact of MNCs depends on the stage of development of a h o s t c o u n t r y , and he p r e s e n t s a t h r e e - s t a t e u n i l i n e a r m o d e l . 1 2 4 The p e n e t r a t i o n of MNCs i n t o h o s t c o u n t r i e s i s c h a r a c t e r i z e d by \" e n c l a v i n g , \" \" s e c t o r i n g , \" and \" i n t e g r a t i n g , \" c o r r e s p o n d i n g w i t h each l e v e l of m o d e r n i z a t i o n . At the p r i m a r y s t a g e of m o d e r n i z a t i o n where a l a r g e p r o p o r t i o n of economic a c t i v i t y and s o c i a l l i f e remains i n the t r a d i t i o n a l s e c t o r , 1 2 5 MNCs c r e a t e economic and p o l i t i c a l e n c l a v e s . C o u n t r i e s , a t t h i s s t a g e , a r e o n l y s l i g h t l y i n t e g r a t e d i n t o w o r l d commercial markets f o r commodities o r i n d u s t r i a l p r o d u c t s . B angladesh i s such an 1 2 3 D a v i d E. A p t e r , \" C h a r t e r s , C a r t e l s , and M u l t i n a t i o n a l s - - S o m e C o l o n i a l and I m p e r i a l Q u e s t i o n s , \" i n The M u l t i n a t i o n a l C o r p o r a t i o n and S o c i a l Change, ed. D a v i d E. A p t e r and L o u i s Wolf Goodman (New York: P r a e g e r P u b l i s h e r s , 1976), p. 8. 1 2 \" A p t e r p e r c e i v e s development as a u n i l i n i e a r p r o c e s s . A c c o r d i n g l y , t h e i n d u s t r i a l p r o c e s s has e v o l v e d i n s e v e r a l s t a g e s . The p r i m a r y s t a g e marked the b e g i n n i n g of t h e i n d u s t r i a l r e v o l u t i o n . The i n t e r m e d i a t e s t a g e , r e p r e s e n t e d by the outward s h i f t of m e t r o p o l i t a n t r a d e i n t o c o l o n i a l i s m and i m p e r i a l i s m , c r e a t e d a s t a b l e environment f o r i n c r e a s i n g l y i n t e r n a t i o n a l i z e d c a p i t a l i s m . The m u l t i n a t i o n a l c o r p o r a t i o n i s t h e t h i r d - s t a g e phenomenon. I b i d . , p. 6. 1 2 5 \" T r a d i t i o n a l \" i s d e f i n e d as z e r o i n d u s t r i a l i z a t i o n . T r a d i t i o n a l r o l e s and networks i n c l u d e t r i b a l systems or any o t h e r forms which p r e d a t e i n d u s t r i a l e n t r y . I b i d . , p. 20. 76 example. MNCs p r o v i d e t e c h n o l o g y and e x p e r t i s e as w e l l as e f f i c i e n t methods of i n f r a s t r u c t u r e development. A p t e r m a i n t a i n s t h a t MNCs do not enormously i n f l u e n c e s o c i e t i e s because \"a l a r g e p a r t of the p o p u l a t i o n remains i n the t r a d i t i o n a l s e c t o r , [and] i t i s r e l a t i v e l y u n a f f e c t e d by the e n c l a v e s . \" 1 2 6 T h i s view i s i n s h a r p c o n t r a s t t o the dependency and w o r l d - s y s t e m t h e o r i s t s who see e n c l a v e s i n the p e r i p h e r y t h o r o u g h l y i n t e g r a t e d i n t o n e t w o r k s of m e t r o p o l e s . MNCs t r a n s p l a n t t h e modern s e c t o r i n t o d e v e l o p i n g c o u n t r i e s , which r e s u l t s i n r e i n f o r c i n g the e x i s t i n g d u a l i s m i n t h e . s o c i e t y . At the sta g e of i n t e r m e d i a t e m o d e r n i z a t i o n , t o which most d e v e l o p i n g c o u n t r i e s b e l o n g , the impact of MNCs i s more p e r v a s i v e . The e f f e c t s of MNCs a r e g r e a t e r than economic e n c l a v e s but t h e s e a r e not y e t f u l l y i n t e g r a t e d i n t o the networks of domestic p r o d u c t i v e r o l e s . C o n s e q u e n t l y , they a r e i n v o l v e d i n a few s e c t o r s of the economy. A p t e r sees the MNC as an i n s t r u m e n t of underdevelopment, s i n c e i t produces v a s t i n e q u a l i t i e s i n income, w e a l t h , l i f e s t y l e , and power. The a c t i v i t i e s of MNCs skew t h e economic as w e l l as p o l i t i c a l development of host c o u n t r i e s . The o n l y s o l u t i o n i s more m o d e r n i z a t i o n , more i n d u s t r y , and more t e c h n o l o g i c a l i n f r a s t r u c t u r e . 1 2 7 C o u n t r i e s i n the t e r t i a r y s t a g e of m o d e r n i z a t i o n a r e most v u l n e r a b l e t o MNCs. At the same t i m e , they a r e a b l e t o t o l e r a t e t h e i r p r e s ence due t o t h e i r h i g h e r l e v e l of 1 2 6 I b i d . , p. 22. 1 2 7 I b i d . , p. 23. 77 t e c h n o l o g i c a l development and i n f r a s t r u c t u r e growth. Through s o c i a l i s t r e v o l u t i o n , they c o u l d escape from the c u r r e n t market system. However, the c o u n t r i e s u s u a l l y do not seek t h i s s o l u t i o n , because \"a h i g h l e v e l of m o d e r n i z a t i o n a l s o c r e a t e s a l a r g e m i d d l e c l a s s which i s dependent on the i n t e r m e d i a t e l e v e l r o l e s s u p p o r t e d by m u l t i n a t i o n a l s . \" 1 2 8 The m i d d l e c l a s s r a t h e r than w o r k i n g c l a s s i s the i n s t r u m e n t of MNC i n t e g r a t i o n , s i n c e most m u l t i n a t i o n a l e n t e r p r i s e s a r e c a p i t a l - i n t e n s i v e r a t h e r than l a b o r - i n t e n s i v e , which produces few semi- and u n s k i l l e d j o b s . 1 2 9 Both MNCs and governments d e s i r e s t a b i l i t y of t h e p o l i t i c a l environment by h a v i n g a s t a k e i n the c o n t r o l of s o c i e t i e s f o r d i f f e r e n t r e a s o n s . The MNCs have t o p r o t e c t t h e i r i n v e s t m e n t , p r o p e r t y and m a r k e t s . I n t h i s s t a g e , \" t h e r e i s an e l a b o r a t i o n of the MNC so g r e a t t h a t i t i s i n t e r l e a v e d w i t h t h e e n t i r e network of economic and s o c i a l r o l e s t o an e x t e n t where i t i s u n i v e r s a l i z e d , v i r t u a l l y i n v i s i b l e , and o f t e n t aken f o r g r a n t e d as f o r example U.S. m u l t i n a t i o n a l s i n C a n a d a . \" 1 3 0 To summarize A p t e r ' s argument, impact and i n t e g r a t i o n of the MNCs a r e d i f f e r e n t , depending on the st a g e of development i n a host c o u n t r y . The more the host c o u n t r y has d e v e l o p e d , t h e g r e a t e r the MNCs' impact. A p p l y i n g the dependency and w o r l d - s y s t e m t h e o r i e s t o t h i s scheme, e s s e n t i a l l y t he same phenomenon e x i s t s : MNCs e x t r a c t s u r p l u s e s g e n e r a t e d i n a l l h o s t c o u n t r i e s w i t h the l e v e l of 1 2 8 I b i d . , p. 25. 1 2 9 I b i d . 1 3 0 I b i d . , p. 20. 78 e x p l o i t a t i o n d i f f e r i n g o n l y i n de g r e e . S i n c e s e r i o u s c o n f l i c t s between MNCs and home as w e l l as h o s t c o u n t r i e s e x i s t , h o s t c o u n t r i e s , e s p e c i a l l y d e v e l o p i n g c o u n t r i e s , have c a l l e d f o r t h e e s t a b l i s h m e n t of g u i d e l i n e s f o r MNC a c t i v i t i e s . The i n s t r u m e n t d e a l i n g w i t h MNCs and t h e q u e s t i o n s p e r t a i n i n g t o them, i n a co m p r e h e n s i v e manner and on a g l o b a l s c a l e , i s t h e p r o p o s e d U n i t e d N a t i o n s Code of Conduct of T r a n s n a t i o n a l C o r p o r a t i o n s . I t s o b j e c t i v e i s the c r e a t i o n of a comp r e h e n s i v e i n t e r n a t i o n a l framework c o v e r i n g a l l i m p o r t a n t i s s u e s r e l a t e d t o MNCs i n o r d e r t o enhance t h e p o s i t i v e c o n t r i b u t i o n from them t o t h e c o u n t r i e s where t h e y o p e r a t e . 1 3 1 I I . C o m p a r i s o n B e t w e e n A m e r i c a n - E u r o p e a n 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 a n d J a p a n e s e M u l t i n a t i o n a l C o r p o r a t i o n s I t i s m e a n i n g f u l t o compare American/European MNCs w i t h Japanese MNCs i n o r d e r t o u n d e r s t a n d t h e c h a r a c t e r i s t i c s of Japanese DF I , s i n c e J a panese MNCs a r e t h e main v e h i c l e f o r c a r r y i n g out DFI. Japan's p a t t e r n of o v e r s e a s i n v e s t m e n t shows many d i s t i n c t i v e c h a r a c t e r i s t i c s when compared w i t h t h o s e p a t t e r n s of t h e U n i t e d S t a t e s and Europe. T h i s c o n t r a s t between t h e J a p a n e s e - t y p e and A m e r i c a n - t y p e of DFI i s a l r e a d y i l l u s t r a t e d i n Ch a p t e r 1. These d i f f e r e n t t y p e s of DFI a r e a l s o r e f l e c t e d i n the development of d i f f e r e n t t y p e s of m u l t i n a t i o n a l s : J a p a n e s e - t y p e and A m e r i c a n - t y p e 1 3 1 U n i t e d N a t i o n s , C e n t r e on T r a n s n a t i o n a l C o r p o r a t i o n s , T r a n s n a t i o n a l C o r p o r a t i o n s , op. c i t . , p. 15. 79 MNCs. \"Japanese-type MNCs\" r e f e r t o Japan's n i n e l a r g e s t g e n e r a l t r a d i n g companies, or sogo shosha. These sogo shosha r a n k e d by s a l e s d u r i n g f i s c a l y e a r 1984 a r e : M i t s u b i s h i C o r p o r a t i o n ; M i t s u i & Co., L t d . ; C. I t o h & Co., L t d . ; Marubeni C o r p o r a t i o n ; Sumitomo C o r p o r a t i o n ; N i s s o - I w a i Co., L t d . ; Toyo Menka K a i s h a , L t d . ( o r Tomen); Nichimen Company, L i m i t e d ; and Kanematsu-Gosho L t d . T h i s s e c t i o n d e a l s w i t h the c h a r a c t e r i s t i c s of the Ja p a n e s e - t y p e of DFI i n c o n j u n c t i o n w i t h the Jap a n e s e - t y p e MNCs. G.B. R i c h a r d s o n ' s t h e o r y i s i n t r o d u c e d t o e x p l a i n j o i n t v e n t u r e s i n o v e r s e a s i n v e s t m e n t . As e a r l y as 1972, Tsurumi i n d i c a t e d the c o m p a r a t i v e p r o f i l e s of U.S.- and Japan-based d i r e c t f o r e i g n i n v e s t m e n t . M c M i l l a n f u r t h e r e l a b o r a t e s Tsurumi's work and p r e s e n t s t h r e e f o r e i g n investment p r o f i l e s : European, Japanese and American (see T a b l e 2 ) . 1 3 2 The f o l l o w i n g d i s c u s s i o n i s f o c u s e d on the comparison between Japan- and U.S.-based o v e r s e a s i n v e s t m e n t , s i n c e European and American investment p a t t e r n s r e v e a l l e s s d i s s i m i l a r i t i e s than the Japanese p a t t e r n . On the one hand, by s i z e of f i r m , s m a l l - and medium-sized companies i n Japan have been major p l a y e r s i n o v e r s e a s i n v e s t m e n t , a c c o u n t i n g f o r about h a l f the number of companies a c t i v e i n f o r e i g n i n v e s t m e n t i n the e a r l y 1 9 7 0 ' s . 1 3 3 On the o t h e r hand, f o r t h e same p e r i o d American 1 3 2 C h a r l e s J . M c M i l l a n , The Japanese I n d u s t r i a l System (New Yor k : W a l t e r de G r u y t e r , 1984), p. 259. 1 3 3 0 r i g i n a l d a t a a r e from White Paper on S m a l l B u s i n e s s by the M i n i s t r y of I n t e r n a t i o n a l Trade and Investment of Japan, T a b l e 2: European, Japanese and U.S. F o r e i g n Investment P r o f i l e s E urope-Based 4 (1) T r a d i t i o n a l l y In former c o l o n i e s by l a r g e f i r m s (2) Large f i r m s i n v e s t i n European C o n t i n e n t and non-U.S. markets Japan-Based 1 ( 1) 40 p e r c e n t of investments by s m a l l , [and] medium s i z e f i r m s (2) Large R & D f i r m s go abroad o f t e n w i t h s m a l l s u b c o n t r a c t o r s S t o c k of D F I 5 1971 $57.2 b i l l i o n $98 .8 bi'l 1 i o n $4.4 bi11 i o n $19.4 b i l l i o n R a t i o of FDI t o M a n u f a c t u r i n g E x p o r t s 2 34% 30% Where I n v e s t e d G l o b a l markets, s h a r e d between d e v e l o p e d and d e v e l o p i n g c o u n t r i e s D e v e l o p i n g n a t i o n s 75% i n A s i a S e c t o r s 3 Pr i raary M a n u f a c t u r i ng T e r t i a r y 5.6 72 .6 21.8 32.0 31.8 36 . 2 O r g a n i z a t i o n of S u b s i d i a r i e s Many j o i n t v e n t u r e s M a j o r i t y owner J o i n t v e n t u r e Many m i n o r i t y dom i nant i n t e r e s t s P a r t n e r i f Any, of S u b s i d i a r i e s L o c a l p a r t n e r s and governments (1) L o c a l p a r t n e r s and t r a d i n g f i r m s (2) Japanese f i r m s i n some i n d u s t r i a l group U.S.-Based' (1) Large R S D i n t e n s i v e f i r m s dominate o v e r s e a s 1nvestments (2) Small t o medium s i z e f 1 rms may have s u b c o n t r a c t i n g r e l a t i o n s w i t h f o r e i g n m a n u f a c t u r e s $82.3 b i l l i o n $137.2 b i l l i o n 177% T w o - t h i r d s i n d e v e l o p e d c o u n t r i e s 34 . 5 42 . 7 22.8 F u l l y owned o r m a j o r i t y c o n t r o l 1ed On i t s own or l o c a l p a r t n e r s P a r e n t s C o n t r o l Over S u b s i d i a r y Loose Loose C1 ose Parent S u b s i d i a r y R e l a t i o n s h i p Local market o r i e n t e d Local o r i e n t e d G l o b a l l y i n t e g r a t e d ( S o u r c e : M c M i l l a n , The Japanese I n d u s t r i a l System [New York: Walter de G r u y t e r , 1984], p. 259.) O r i g i n a l n o t e s : 1 Adapted from Tsurumi (1976) 2 U.S. Department of Commerce (1980) 3 MITI, White Paper on International Trade 4 Dyas and Th a n h e i s e r (1976), Franco (1979), [and] Hymer and Rowthorne (1970) 5 U.N. Center on T r a n s a t i o n a l [ s i c ] C o r p o r a t i o n oo 82 i n v e s t m e n t was f o r the most p a r t c a r r i e d out by g i a n t m u l t i n a t i o n a l s . 1 3 \" By d e s t i n a t i o n , Japan has i n v e s t e d more i n the d e v e l o p i n g c o u n t r i e s than i n d e v e l o p e d c o u n t r i e s , e s p e c i a l l y i n A s i a , w h i l e t h e U n i t e d S t a t e s has i n v e s t e d more i n d e v e l o p e d , i n d u s t r i a l i z e d c o u n t r i e s . By type of o r g a n i z a t i o n , Japan has f r e q u e n t l y used a j o i n t v e n t u r e arrangement, o f t e n w i t h m i n o r i t y c o n t r o l . U.S. f i r m s have p r e f e r r e d wholly-owned or m a j o r i t y c o n t r o l l e d s u b s i d i a r i e s . In Japanese DFI, sogo shosha or l a r g e g e n e r a l t r a d i n g companies a r e o f t e n i n c l u d e d as i n d i v i s i b l e p a r t n e r s of j o i n t v e n t u r e s i n both m a n u f a c t u r i n g o p e r a t i o n s and n a t u r a l r e s o u r c e development a b r o a d . In the l i g h t m a n u f a c t u r i n g i n d u s t r y i n d e v e l o p i n g c o u n t r i e s , j o i n t v e n t u r e s e x h i b i t the f o l l o w i n g c a p i t a l o w n e r s h i p p a t t e r n : \"The t r a d i n g company i n v o l v e d owns from 25 t o 30 p e r c e n t ; the a f f i l i a t e d Japanese m a n u f a c t u r e r s , about the same; and l o c a l i n t e r e s t , the b a l a n c e . \" 1 3 5 In the case of n a t u r a l r e s o u r c e development, l o n g - t e r m purchase c o n t r a c t s a r e s i g n e d i n o r d e r t o guarantee a s t e a d y s u p p l y of i m p o r t s t o Japan. Japanese f i r m s as p a r t n e r s i n j o i n t v e n t u r e s a r e chosen w i t h i n keiretsu, or the same \" i n d u s t r i a l group,\" t o which the t r a d i n g company b e l o n g s . Japanese DFI u n t i l the e a r l y 1970's i s i l l u s t r a t e d i n T a b l e 2, where i t i s c o n t r a s t e d w i t h American and European DFI. D i f f e r e n c e s a r e n o t a b l e not j u s t i n g e o g r a p h i c a l 1 3 3 ( c o n t ' d ) and i s c i t e d by M c M i l l a n , op_. c i t . , p. 260. 1 3 \" l b i d . 1 3 50zawa, M u l t i n a t i o n a l ism, op. c i t . , pp. 31-32. 83 c o n c e n t r a t i o n but i n o r g a n i z a t i o n a l s t r a t e g y , t e c h n o l o g i c a l s o p h i s t i c a t i o n , and m a n a g e r i a l c o n t r o l . These d i f f e r e n c e s p a r t l y stem from d i v e r s e h i s t o r i e s of economic development of the i n d i v i d u a l c o u n t r i e s . Major American e n t e r p r i s e s became m u l t i n a t i o n a l s i n the l a t e 1950's, European f i r m s i n the mid 1960's, and f i n a l l y , Japanese c o r p o r a t i o n s i n the 1970's. The c h r o n o l o g i c a l d i f f e r e n c e s among t h e s e t h r e e r e f l e c t d i f f e r e n c e s i n t h e i r development s t a g e s i n the w o r l d ' s postwar e c o n o m y . 1 3 6 Long e s t a b l i s h e d h i s t o r i c a l p a t t e r n s a r e a l s o r e f l e c t e d i n d i f f e r e n t t y p e s of DFI. For example, the European l i n k a g e s between home markets and o v e r s e a s c o l o n i e s a r e s t r o n g l y e v i d e n t as a r e the economic t i e s of Japan based i n Southe a s t A s i a . 1 3 7 M u l t i n a t i o n a l i s m of Japanese companies has been c o n f i n e d m a i n l y t o the g e n e r a l t r a d i n g companies, which a r e o f t e n r e f e r r e d t o as \"Japane s e - t y p e \" m u l t i n a t i o n a l s . 1 3 8 Spearheads of m u l t i n a t i o n a l i z a t i o n among Japanese f i r m s a r e sogo shosha, which a r e n o t h i n g but p l a n n i n g complexes of \" c o l l e c t i v e i n t e l l i g e n c e . \" 1 3 9 However, the r i s e of major Japanese b a n k i n g and s e r v i c e f i r m s , as w e l l as mature m a n u f a c t u r e r s w i t h g l o b a l s u b s i d i a r i e s , 1 3 6 S a d a y u k i S a t o , \"Japanese M u l t i n a t i o n a l E n t e r p r i s e s : P o t e n t i a l and L i m i t s , \" Japanese Economic S t u d i e s : A J o u r n a l of T r a n s l a t i o n s v o l . 9, no. 1 ( F a l l , 1980): 69. 1 3 ' M c M i l l a n , op. c i t . , p. 260. 1 3 8 S e e K i y o s h i Yamazaki, N o r i t a k e K o b a y a s h i , and Teruo D o i , \"Toward Japanese-Type 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 , \" Japanese Economic S t u d i e s : A J o u r n a l of T r a n s l a t i o n s v o l . 5, no. 4 (Summer, 1977):42, and T o s h i k a z u Nakase, \"Some C h a r a c t e r i s t i c s of Japanese-Type M u l t i n a t i o n a l E n t e r p r i s e s Today,\" C a p i t a l and C l a s s no. 13 (1981): 71. 1 3 9 0 z a w a , \" P e c u l i a r i t i e s of Japan's M u l t i n a t i o n a l i s m , \" op. c i t . , p. 418. 84 widened the spectrum of Japanese o v e r s e a s i n v e s t m e n t . Sogo shosha, backed by bank c a p i t a l , a r e re g a r d e d as huge c o n g l o m e r a t e - t y p e u n i o n s of commercial and i n d u s t r i a l c a p i t a l , many of which have grown from the t r a d i n g companies of the former zaibatsu c o n c e r n s . 1 \" 0 Kojima and Ozawa have summarized the f e a t u r e s of ov e r s e a s i n v e s t m e n t a c t i v i t i e s by sogo s hos ha: (1) a h i g h p r o p e n s i t y t o form j o i n t v e n t u r e s ; (2) a h i g h i n c i d e n c e of m i n o r i t y o wnership; (3) a v e r y \u00E2\u0080\u00A2 a c t i v e use of d i r e c t o v e r s e a s l o a n s ; (4) a s i g n i f i c a n t i n v o l v e m e n t i n t u r n k e y p r o j e c t s of p l a n t e x p o r t s and, more r e c e n t l y , l e a s i n g arrangements f o r thes e p l a n t f a c i l i t i e s ; (5) an a c t i v e p r o m o t i o n of t r a n s f e r s of l a b o u r - i n t e n s i v e , s t a n d a r d i z e d (or \" i n t e r m e d i a t e \" ) t e c h n o l o g i e s t o d e v e l o p i n g c o u n t r i e s ; and (6) the p r o v i s i o n of f a i r l y comprehensive b u s i n e s s i n f r a s t r u c t u r e s ( e . g . f i n a n c i a l , t r a d i n g , w a r e h o u s i n g , t r a n s p o r t , and i n s u r a n c e s e r v i c e s ) f o r l o c a l b u s i n e s s . 1 \" 1 These f e a t u r e s permeate o v e r s e a s v e n t u r e s a f f i l i a t e d w i t h sogo shosha. I n t e r - f i r m c o o p e r a t i o n and a f f i l i a t i o n c a s t a l i g h t on the u n d e r s t a n d i n g of the Japanese-type m u l t i n a t i o n a l s . The n o t i o n s of market p l a c e and the b e h a v i o r of the i n d i v i d u a l f i r m a r e i m p o r t a n t i n any st u d y of MNCs and DFI. The essence of the market i s spontaneous c o o r d i n a t i o n , w h i l e the essence of the f i r m i s c o n s c i o u s p l a n n i n g . In a d d i t i o n , a n o t h e r concept n e c e s s a r y t o e x p l a i n c o o r d i n a t i o n a c t i v i t i e s between 1*\u00C2\u00B0Nakase, l o c . c i t . 1 4 1 K i y o s h i Kojima and Terutomo Ozawa, Japan's G e n e r a l T r a d i n g Companies; Merchants of Economic Development ( P a r i s : O r g a n i s a t i o n f o r Economic C o - o p e r a t i o n and Development, 1984), p. 80. A Japanese e d i t i o n was p u b l i s h e d as Sogo Shosha no Chosen: K e i z a i K a i h a t s u no Machanto (The C h a l l e n g e of Sogo Shosha: The Merc h a n t s of Economic Development) (Tokyo: Sangyo N o r i t s u D a i g a k u Shuppan-bu, 1984). 85 the i n d i v i d u a l f i r m s which comprise a g i v e n i n d u s t r y i s the dense network of c o o r d i n a t i o n and a f f i l i a t i o n i n i n d u s t r y . G.B. R i c h a r d s o n made t h i s t r i p l e d i s t i n c t i o n c l e a r . The o r g a n i z a t i o n of i n d u s t r y has t o adapt i t s e l f t o t h e f a c t t h a t a c t i v i t i e s may be complementary. A c t i v i t i e s a r e complementary when they r e p r e s e n t d i f f e r e n t phases of a p r o c e s s of p r o d u c t i o n and r e q u i r e , i n some way or a n o t h e r , c o o r d i n a t i o n . 1 4 2 Now t h i s c o - o r d i n a t i o n can be e f f e c t e d i n t h r e e ways; by direction, by co-operation or t h r o u g h market transactions. D i r e c t i o n i s employed when the a c t i v i t i e s a r e s u b j e c t t o a s i n g l e c o n t r o l and f i t t e d i n t o one c o h e r e n t p l a n . . . . C o - o r d i n a t i o n i s a c h i e v e d t h r o u g h c o - o p e r a t i o n when two or more independent o r g a n i s a t i o n s agree t o match t h e i r r e l a t e d p l a n s i n advance. The i n s t i t u t i o n a l c o u n t e r p a r t s t o t h i s form of c o - o r d i n a t i o n a r e the complex p a t t e r n s of c o - o p e r a t i o n and a f f i l i a t i o n which t h e o r e t i c a l f o r m u l a t i o n s t o o o f t e n t e n d t o i g n o r e . And, f i n a l l y , c o - o r d i n a t i o n may come about s p o n t a n e o u s l y t h r o u g h market t r a n s a c t i o n s , . . . as an i n d i r e c t consequence of s u c c e s s i v e i n t e r a c t i n g d e c i s i o n s t a k e n i n response t o c h a n g i n g p r o f i t o p p o r t u n i t i e s . 1 4 3 R i c h a r d s o n ' s t r i p l e d i s t i n c t i o n i s r e l e v a n t t o e x p l i c a t e the t r a n s f e r of c o r p o r a t e r e s o u r c e s a c r o s s n a t i o n a l b o u n d a r i e s . A wide range of i n t e r n a t i o n a l b u s i n e s s a c t i v i t i e s a r e c a r r i e d out not o n l y by the i n t r a - f i r m h i e r a r c h i c a l d e c i s i o n s of a s i n g l e m u l t i n a t i o n a l c o r p o r a t i o n but a l s o by c o o p e r a t i o n and a f f i l i a t i o n of f i r m s . J o i n t v e n t u r e s , l i c e n s i n g , m a n a g e r i a l and market c o n t r a c t s , t u r n k e y p r o j e c t s , p r o d u c t i o n s h a r i n g , and the Ja p a n e s e - t y p e of DFI 1 4 2G.B. R i c h a r d s o n , \"The O r g a n i s a t i o n of I n d u s t r y , \" The Economic J o u r n a l ; The Q u a r t e r l y J o u r n a l of th e R o y a l Economic S o c i e t y v o l . 82, no. 327 (September, 1972) : 889. , l t 3 I b i d . , p. 890. 86 are c o n c r e t e forms of t h i s c o o p e r a t i o n / a f f i l i a t i o n . \" . . . c o - o p e r a t i o n i s the i n c r e a s i n g l y popular mode of m u l t i n a t i o n a l i s m , whereas i n t e r n a l i s a t i o n i s the mode l e s s favoured by the host c o u n t r i e s , n o t a b l y i n the T h i r d W o r l d . \" 1 4 4 However, the major concern of the host c o u n t r i e s i s the development of t h e i r own domestic i n d u s t r i e s with the h e l p of f o r e i g n c a p i t a l and technology, but not the development of m u l t i n a t i o n a l s i n t h e i r own markets. Hence, the e s t a b l i s h m e n t of i n d u s t r y through the networks of co o p e r a t i o n and a f f i l i a t i o n conforms to the i n t e r e s t s of the host c o u n t r i e s . Sogo shqsha's group-investment a c t i v i t i e s t y p i f y these c o o p e r a t i v e , a f f i l i a t e d networks. Sogo shosha embarked i n overseas investment i n order to e s t a b l i s h t h e i r wholly-owned s u b s i d i a r i e s f o r t r a d i n g a c t i v i t i e s i n the 1950's. Because of sca r c e domestic c a p i t a l , no accumulation of f i r m managerial resources and a lac k of overseas market i n f o r m a t i o n , Japanese DFI took p l a c e i n the form of j o i n t ventures i n manufacturing and resource development p r o j e c t s u n t i l the e a r l y 1970's. T h i s j o i n t venture scheme s t i l l p r e v a i l s , although mature Japanese manufacturers have become m u l t i n a t i o n a l s with an o l i g o p o l i s t i c s t r u c t u r e observed i n American-type MNCs. These American-type manufacturing MNCs opt f o r i n t r a - f i r m i n t e g r a t i o n , which c o n t r a s t s with the Japanese-type MNCs, sogo shosha, o r i e n t e d to i n t r a - g r o u p i n t e g r a t i o n i n order to c a r r y out overseas i n v e s t m e n t . 1 4 5 1 4 \"Kojima and Ozawa, op_. c i t . , p. 80. 1 4 5 I b i d . , pp. 80-84. 87 In an OECD s t u d y , new forms of in v e s t m e n t a r e d e f i n e d a s : a) j o i n t i n t e r n a t i o n a l b u s i n e s s v e n t u r e s i n which f o r e i g n - h e l d e q u i t y does not exceed 50 per c e n t ; [and] b) v a r i o u s i n t e r n a t i o n a l c o n t r a c t u a l arrangements which i n v o l v e a t l e a s t an element of i n v e s t m e n t from the f o r e i g n f i r m ' s v i e w p o i n t b u t which may i n v o l v e no e q u i t y p a r t i c i p a t i o n by t h a t f i r m w h a t s o e v e r , as i s f r e q u e n t l y the case w i t h l i c e n s i n g agreements, management, s e r v i c e and p r o d u c t i o n - s h a r i n g c o n t r a c t s , and o c c a s i o n a l l y w i t h s u b - c o n t r a c t i n g and t u r n k e y o p e r a t i o n s . 1 \" 6 Oman d i s t i n g u i s h e s new forms of investment from t r a d i t i o n a l forms of DFI, which r e f e r t o the inve s t m e n t i n m a j o r i t y or w h o l l y f o r e i g n - o w n e d s u b s i d i a r i e s , as w e l l as bank l e n d i n g or o t h e r p u r e l y f i n a n c i a l o p e r a t i o n s . 1 \" 7 Hence, Kojima and Ozawa adv o c a t e t h a t t h e R i c h a r d s o n i a n o p e r a t i o n mode of c o o p e r a t i o n and l o o s e i n t e g r a t i o n i s the hew form of in v e s t m e n t i d e n t i f i e d by an OECD s t u d y , and t h a t the R i c h a r d s o n i a n t r i p l e d i s t i n c t i o n of i n t e r n a t i o n a l r e s o u r c e a l l o c a t i o n i s a key concept i n a n a l y z i n g the Jap a n e s e - t y p e m u l t i n a t i o n a l s . 1 \" 8 D i f f e r e n c e s between Japanese-type and Am e r i c a n - t y p e m u l t i n a t i o n a l s can be p a r t l y a t t r i b u t e d t o t h e d i f f e r e n c e s i n t he s t a g e of development, namely, Japanese MNCs a r e l a t e c o m e r s . T h e r e f o r e , they have t o squeeze i n t o the w o r l d market, which has been e s t a b l i s h e d by the a l r e a d y e x i s t i n g f o r e i g n MNCs, i n o r d e r t o o b t a i n any f o o t h o l d . I n a d d i t i o n , 1 4 6 C h a r l e s Oman, New Forms of I n t e r n a t i o n a l Investment i n D e v e l o p i n g C o u n t r i e s ( P a r i s : O r g a n i s a t i o n f o r Economic C o - o p e r a t i o n and Development, 1984), p. 12. 1 \" 7 I b i d . 1 4 8 K o j i m a and Ozawa, i b i d . , p. 87. 88 d i f f e r e n c e s a r e a l s o a s c r i b e d t o the c h a r a c t e r i s t i c s of the Japanese'economy, i . e . , h i g h dependence on i m p o r t e d foods and raw m a t e r i a l s , and keiretsu groups w i t h many s m a l l f i r m s (see C h a p t e r 3 ) . Some Japanese m u l t i n a t i o n a l s w i l l converge w i t h the A m e r i c a n - t y p e m u l t i n a t i o n a l s as Japan's d i r e c t i n v e s t m e n t i n c r e a s e s , but some w i l l remain Japanese. F u r t h e r change w i l l be i n h i b i t e d u n l e s s t h e i n d u s t r i a l and o r g a n i z a t i o n a l s t r u c t u r e of the Japanese economy changes, s i n c e i t r e f l e c t s o v e r s e a s i n v e s t m e n t . Opposed t o t h i s argument, Sato p r o c l a i m e d t h a t \" J u s t as c a p i t a l i s m i n Japan w i t h a l l i t s Japanese p e c u l i a r i t i e s i s not J a p a n e s e - t y p e c a p i t a l i s m but Japanese c a p i t a l i s m , Japanese m u l t i n a t i o n a l e n t e r p r i s e s , now emerging, a r e not Jap a n e s e - t y p e m u l t i n a t i o n a l e n t e r p r i s e s but Japan-based m u l t i n a t i o n a l e n t e r p r i s e s . \" 1 \" 9 Another n e g a t i v e c o n t e n t i o n as t o whether the major Japanese t r a d i n g companies emerge as a d i s t i n c t form of MNCs was p r e s e n t e d by Y o s h i n o . He s t a t e s t h a t a l t h o u g h sogo shosha have p l a y e d and w i l l c o n t i n u e t o p l a y s i g n i f i c a n t and v a r i e d r o l e s i n the m u l t i n a t i o n a l i z a t i o n of Japanese i n d u s t r i e s , the p r o s p e c t of these companies themselves becoming MNCs w i t h s t r o n g c e n t r a l system-wide c o o r d i n a t i o n are l i m i t e d . 1 5 0 A c c o r d i n g t o Y o s h i n o , t h e p r i m a r y r o l e of sogo shosha i s l i k e l y t o be c o n f i n e d t o f a c i l i t a t i n g m u l t i n a t i o n a l moves by o t h e r s . 1 5 1 1 4 9 S a t o , op_. c i t . , p. 82. 1 5 0M.Y. Y o s h i n o , Japan's M u l t i n a t i o n a l E n t e r p r i s e s (Cambridge, Mass.: H a r v a r d U n i v e r s i t y P r e s s , 1976), p. 95. 1 5 1 I b i d . 89 Y e t , i f the Japanese-type m u l t i n a t i o n a l s a r e i d e n t i f i e d as sogo shosha, then t h i s t y pe of m u l t i n a t i o n a l w i l l p e r s i s t s i n c e sogo shosha a r e i n d i s p e n s a b l e t o Japan's i n t e r n a t i o n a l t r a d e and o v e r s e a s i n v e s t m e n t . The o b j e c t i v e of sogo shosha i n v e s t m e n t i s the e x p a n s i o n of t h e i r t r a d e volume and the s t r e n g t h e n i n g of t h e i r c ommercial t i e s w i t h m a n u f a c t u r e r s . D e s p i t e more f o c u s on j o i n t v e n t u r e s as a d i s t i n c t form, sogo shosha's l a r g e s t i n v e s t m e n t , by f a r , abroad i s i n wholly-owned t r a d i n g s u b s i d i a r i e s . 1 5 2 J o i n t v e n t u r e s of DFI i n m a n u f a c t u r i n g and n a t u r a l r e s o u r c e development o f t e n t a k e on a \" t r o i k a s t y l e , \" namely, a co n c e r n e d Japanese company, a t r a d i n g f i r m , and a l o c a l b u s i n e s s , 1 5 3 a l t h o u g h the \" d e p a r t u r e - f r o m - t r a d e r s ' \" phenomenon has a p p e a r e d . 1 5 8 T h i s r e f e r s t o the changes t h a t have t a k e n p l a c e w i t h the development of more s o p h i s t i c a t e d and h i g h l y d i f f e r e n t i a t e d consumer goods i n d u s t r i e s such as a u t o m o t i v e and e l e c t r o n i c s , t h e s e m a n u f a c t u r e r s began t o s e t up t h e i r own m a r k e t i n g f i r m s and s a l e s networks a b r o a d , and became l e s s dependent on the t r a d i n g companies. A l t h o u g h l e s s dependency by mature Japanese m a n u f a c t u r e r s i s o b s e r v e d , sogo shosha remain as imp o r t a n t p a r t i c i p a n t s and o r g a n i z e r s i n j o i n t v e n t u r e s . I t s h o u l d be s t r e s s e d t h a t sogo shosha and t h e i r own a f f i l i a t e d f i r m s 1 5 2Thomas C a p p i e l l o , \"The Changing R o l e of Japan's G e n e r a l T r a d e r s , \" J o u r n a l of Japanese Trade and I n d u s t r y v o l . 1, no. 4 (1982): 28. 1 5 3 H i d e k i Y o s h i h a r a , \"Research on Japan's G e n e r a l T r a d i n g F i r m s : An Overview,\" Japanese Economic S t u d i e s : A J o u r n a l of T r a n s l a t i o n s v o l . 9, no. 3\" ( S p r i n g , 1981 ): iW. 1 5 \"Ko j ima and Ozawa, op_. c i t . , p. 13. 90 among t h e same keiretsu groups show some s i m i l a r i t i e s t o Ame r i c a n - t y p e m u l t i n a t i o n a l combines, a l t h o u g h some of th e s e i n d i v i d u a l f i r m s t hemselves s t a n d as Ame r i c a n - t y p e o l i g o p o l i s t i c m u l t i n a t i o n a l s . Sometimes t h e r e i s a f i n e l i n e between American-type MNCs and Japanese-type MNCs. For example, Japanese m a n u f a c t u r i n g companies such as N i s s a n M o t o r s and M a t s u s h i t a E l e c t r i c I n d u s t r i a l b e l o n g t o Ame r i c a n - t y p e MNCs. S u f f i c e i t t o say t h a t sogo shosha p l a y a v i t a l r o l e i n Japanese economic a c t i v i t i e s , i n s p i t e of Misono's advocacy i n h i s t h e s i s of the d e c l i n e of sogo shosha two decades a g o . 1 5 5 I I I . J a p a n e s e G e n e r a l T r a d i n g C o m p a n i e s : Sogo Shosha The Japanese g e n e r a l t r a d i n g companies or sogo shosha have been examined e i t h e r as en g i n e s of e x p o r t - l e d growth or as f u n c t i o n i n g models of c l a n o r g a n i z a t i o n s by s c h o l a r s . 1 5 6 Today, the n i n e l a r g e s t sogo shosha a r e c o n s i d e r e d J a p a n e s e - t y p e MNCs based on t h e i r s i z e and f u n c t i o n s . Sogo shosha have p l a y e d a major r o l e i n Japanese o v e r s e a s i n v e s t m e n t , and remain key p l a y e r s i n commerce. I n o r d e r t o c l a r i f y Japanese f o r e i g n i n v e s t m e n t , the h i s t o r i c a l background and the o r g a n i z a t i o n a l s t r u c t u r e and f u n c t i o n s of sogo shosha s h o u l d be s c r u t i n i z e d . 1 5 5 S e e H i t o s h i Misono's \"Sogo Shosha wa Shayo de a r u ka? (Are t h e G e n e r a l T r a d i n g Companies D e c l i n i n g L i k e t he S e t t i n g Sun?) Ekonomisuto ( E c o n o m i s t ) , 23 May 1961, pp. 6-20. T h i s p u b l i c a t i o n t r i g g e r e d y e a r s of a c t i v e debate i n the l i t e r a t u r e on sogo shosha i n Japan. For a more r e c e n t s i m i l a r p r e d i c t i o n see Tsurumi's Sogoshosha. 1 5 6 T s u r u m i , op_. c i t . , p. 108. 91 H i s t o r i c a l Background The o r i g i n s of most sogo shosha d a t e back t o the M e i j i p e r i o d , when Japan resumed i n t e r n a t i o n a l t r a d e under the l e a d e r s h i p of the government a f t e r two c e n t u r i e s of i s o l a t i o n under the Tokugawa shogunate. Some of sogo shosha, f o r example M i t s u i , o r i g i n a t e i n the Edo p e r i o d as s p e c i a l i z e d b u s i n e s s e s . M e i j i government l e a d e r s and i n d u s t r i a l i s t s f u l l y s u p p o r t e d the e s t a b l i s h m e n t of Japanese t r a d i n g companies i n o r d e r t o a t t a i n t h r e e g o a l s . F i r s t , they i n t e n d e d t o reduce shokan boeki , or i n t e r n a t i o n a l t r a d e t h r o u g h W e s t e r n e r s ' newly-opened merchant houses a t p o r t c i t i e s . Western merchants w i t h C h i n e s e a s s i s t a n t s e a s i l y e x p l o i t e d t h e r e l a t i v e l y n a i v e and i g n o r a n t Japanese t r a d e r s . 1 5 7 The second aim was t w o f o l d : t o d e v e l o p e x t e r n a l t r a d e i n o r d e r t o s u p p l y raw m a t e r i a l s , i n d u s t r i a l equipment, t e c h n o l o g y , and o t h e r goods t o Japan's i n f a n t i n d u s t r i e s and to a c q u i r e o v e r s e a s o u t l e t s f o r m a n u f a c t u r e d p r o d u c t s . F i n a l l y , the government and the b u s i n e s s community s t r o v e t o e s t a b l i s h a system based on a d i v i s i o n of l a b o r i n which Japanese m a n u f a c t u r e r s c o u l d c o n c e n t r a t e on m a n u f a c t u r i n g w h i l e t h e t r a d i n g companies undertook f o r e i g n t r a d e i n o r d e r t o s u p p l y and market goods f o r t h e m a n u f a c t u r e r s . 1 5 8 1 5 7 K o z o Yamamura, \" G e n e r a l T r a d i n g Companies i n Japan: T h e i r O r i g i n s and Growth,\" i n Japanese I n d u s t r i a l i z a t i o n and I t s S o c i a l Consequences, ed. Hugh P a t r i c k ( B e r k e l e y : U n i v e r s i t y of C a l i f o r n i a P r e s s , 1976), p. 167. 1 5 8 A l e x a n d e r K. Young, The Sogo Shosha: Japan's M u l t i n a t i o n a l T r a d i n g Companies ( B o u l d e r , C o l o r a d o : Westview P r e s s , 1979), pp. 24-25. 92 By the b e g i n n i n g of the 1880's o n e - t h i r d or 669 of the 2,404 newly i n c o r p o r a t e d companies i n Japan were shosha, or t r a d e r s . 1 5 9 The l a r g e s t was M i t s u i & Co., e s t a b l i s h e d i n 1874 t o e x p o r t c o a l and import c o t t o n s p i n n i n g machinery. In 1877 S u z u k i Shoten was founded t o import and d i s t r i b u t e camphor and su g a r , but met b a n k r u p t c y i n 1927. S u z u k i Shoten was one of the p r e d e c e s s o r s of to d a y ' s N i s s h o - I w a i . The M i t s u b i s h i C o r p o r a t i o n ( i t s name changed from the M i t s u b i s h i T r a d i n g Company i n 1971) was c r e a t e d i n 1889 as the m a r k e t i n g arm of the M i t s u b i s h i Group. Sogo shosha have d e v e l o p e d a l o n g two p a t h s . 1 6 0 One o r i g i n a t e d from s m a l l , g e n e r a l t r a d i n g companies d e a l i n g i n d i v e r s e p r o d u c t s and s e r v i c e s . M i t s u i , M i t s u b i s h i , and t o a l e s s e r e x t e n t , Sumitomo b e l o n g t o t h i s c a t e g o r y , and a r e former members of zai bat su. The o t h e r companies were t r a n s f o r m e d from s p e c i a l i z e d t r a d i n g companies, or senmon shosha, i n t o sogo shosha. For example, Nichimen and Gosho (one of Kanematsu-Gosho) were c o t t o n d e a l e r s w h i l e Marubeni and C. I t o h d e a l t i n d r y goods and t e x t i l e f a b r i c s . Iwai (one of N i s s h o - I w a i ) and now-defunct Ata k a s p e c i a l i z e d i n i r o n and s t e e l d e a l i n g . 1 6 1 A f t e r World War I I , the A l l i e d O c c u p a t i o n F o r c e s d i s s o l v e d the l a r g e s t zai batsu, i n c l u d i n g M i t s u i , 1 5 9 C a p p i e l l o , op_. c i t . , p. 22. 1 6 0 Y o s h i Tsurumi, Sogoshosha; E n g i n e s of E x p o r t - B a s e d Growth ( M o n t r e a l : I n s t i t u t e f o r Re s e a r c h and P u b l i c P o l i c y , 1980) , p. 15. 1 6 1 S e e the d e t a i l e d d i s c u s s i o n of the development of i n d i v i d u a l companies i n Kunio Y o s h i h a r a , Sogo Shosha: The Vanguard of the Japanese Economy (Tokyo: O x f o r d U n i v e r s i t y P r e s s , 1982). 93 M i t s u b i s h i , Sumitomo and Yasuda, based on the Antimonopoly Law of 1947. C o n s e q u e n t l y , M i t s u i was broken i n t o a p p r o x i m a t e l y 170 f i r m s , and M i t s u b i s h i i n t o 139 f i r m s . 1 6 2 However, from the end of the 1940's through the 1950's, many s p e c i a l i z e d t r a d i n g f i r m s , i n c l u d i n g the fragments of M i t s u i and M i t s u b i s h i , recombined and d i v e r s i f i e d . In 1947, the A l l i e d F o r c e s p e r m i t t e d Japanese t r a d i n g f i r m s t o resume i n t e r n a t i o n a l t r a d e . Many s p e c i a l i z e d t r a d i n g f i r m s , or senmon shosha, then had t o handle v a r i o u s p r o d u c t s such as f e r t i l i z e r s , f o o d s , machinery or i n d u s t r i a l raw m a t e r i a l s , and g r a d u a l l y t r a n s c e n d e d t h e i r s p e c i a l i z e d f u n c t i o n s and became sogo shosha d e a l i n g i n a wide range of goods. In a d d i t i o n , i m m e d i a t e l y a f t e r the war, Japan e x p e r i e n c e d an a c u t e d o l l a r s h o r t a g e . Thus, the Japanese government c a r e f u l l y a l l o c a t e d i m p o r t a n t economic r e s o u r c e s l i k e f o r e i g n exchange, c a p i t a l f u n d s , and t e c h n o l o g y among t a r g e t e d i n d u s t r i e s . By c o n t r o l l i n g the f o r e i g n exchange f o r d e s i g n a t i o n of i m p o r t s , t h e government s u p e r v i s e d the amount as w e l l as the k i n d s of i m p o r t s . S i n c e the government encouraged b a r t e r t r a d e , t r a d i n g f i r m s had t o d e v e l o p i n t e r n a l a b i l i t i e s t o h a n d l e such t r a d e . F u r t h e r m o r e , i n 1953 the government i n s t i t u t e d t h e \" t r a d e l i n k i n g p o l i c y . \" Under t h i s p o l i c y , i m p o r t s of s p e c i f i c l u c r a t i v e goods and raw m a t e r i a l s were t i e d t o e x p o r t s of s p e c i f i c heavy and 1 6 2 K y o s u k e A r i t a , Sogo Shosha: M i r a i no Kozu (Sogo Shosha: D e s i g n f o r F u t u r e ) (Tokyo: Nihon K e i z a i s h i n b u n - s h a , 1982), p. 50. 94 chemical manufacturing p r o d u c t s . Import l i c e n c e s f o r l u c r a t i v e consumer goods such as bananas and whiskey were given to the t r a d i n g f i r m s which had a l r e a d y achieved t h e i r export t a r g e t s f o r s h i p s and machine t o o l s . In order to c a r r y out b a r t e r trade and the necessary l i n k i n g t r a d e , a number of s c a t t e r e d f i r m s merged and others g r a d u a l l y d i v e r s i f i e d the goods and s e r v i c e s p r o v i d e d . Moreover, \"the p o l i c y prevented any s i n g l e - l i n e product manufacturer from commencing h i s own e x p o r t i n g and importing a c t i v i t i e s . \" 1 6 3 T h i s dependence of manufacturing f i r m s on t r a d i n g f i r m s as a predominant scheme was set i n p l a c e i n the immediate postwar e r a . From 1949 to 1963, the Japanese economy witnessed s i x severe business downturns. In response to the r e c u r r i n g booms and busts of the b u s i n e s s c y c l e s , weaker t r a d i n g f i r m s were e v e n t u a l l y e l i m i n a t e d , which produced a c o n c e n t r a t i o n and d i v e r s i f i c a t i o n of the sogo shosha. The M i t s u b i s h i t r a d i n g company was d i s s o l v e d i n J u l y 1947, but a l i q u i d a t i o n company remained i n order to take care of the a s s e t s and l i a b i l i t i e s of the former M i t s u b i s h i t r a d i n g company. T h i s l i q u i d a t i o n company, which p r o t e c t e d the company name and i t s three-diamond trade mark, set up a company named \"Kowa J i t s u g y o . \" The l a t t e r f i n a l l y merged with three other t r a d i n g companies i n 1954 to form the present M i t s u b i s h i C o r p o r a t i o n . In the s i m i l a r way, a merger took p l a c e among p r e v i o u s M i t s u i Company's d i v i s i o n s , and i n 1 6 3 T s u r u m i , O r i g i n s , op. c i t . , p. 21. 95 1959 the p r e s e n t M i t s u i Company was r e v i v e d , a l t h o u g h s e v e r a l M i t s u i o f f s p r i n g s chose not t o merge. Moreover, among i n d i v i d u a l sogo shosha, c o n c e n t r a t i o n o c c u r r e d . For i n s t a n c e , i n 1967 Kanematsu absorbed Gosho, and became Kanematsu-Gosho. N i s s h o merged w i t h Iwai i n 1968 t o form N i s s h o - I w a i . 1 6 4 U n t i l 1977 t h e r e had been ten v e r y l a r g e sogo shosha. However, A t a k a was absorbed i n t o C. I t o h because A t a k a ' s i l l - f a t e d o i l r e f i n e r y i n v e s t m e n t i n Newfoundland, had d r i v e n the f i r m i n t o b a n k r u p t c y . 1 6 5 In sum, s i n c e t h e l a t e 19th c e n t u r y , the t r a d i n g companies have been f o s t e r e d t o connect a r e s o u r c e - p o o r , i n d u s t r i a l l y l a t e c o m e r , J a p a n , w i t h the r e s t of the w o r l d . The companies promoted i m p o r t s of n e c e s s a r y n a t u r a l r e s o u r c e s and e x p o r t s of manufacured goods i n o r d e r t o s u s t a i n and d e v e l o p t h e Japanese economy. In a d d i t i o n t o the import of raw m a t e r i a l s and energy r e s o u r c e s , sogo shosha have been i n s t r u m e n t a l i n i n t r o d u c i n g t o Japan advanced Western t e c h n o l o g y as w e l l as machinery and equipment. Thus, b o t h d e v e l o p e d and d e v e l o p i n g c o u n t r i e s a r e i n t e r e s t e d i n sogo shosha, but f o r d i f f e r e n t r e a s o n s . For example, t h e U n i t e d S t a t e s and Canada a r e p r i m a r i l y i n t e r e s t e d i n t h e development of t r a d i n g companies i n o r d e r t o expand e x p o r t s . 1 6 6 On the o t h e r hand, d e v e l o p i n g c o u n t r i e s a r e 1 6 4 F o r a d e t a i l e d h i s t o r y of the merger of i n d i v i d u a l sogo shosha: See Y o s h i h a r a , Sogo Shosha: The Vanguard of the Japanese Economy. 1 6 5 I b i d . , p. 22. 1 6 6 F o r example, see Tsurumi's Sogoshosha, and Jac k G. K a i k a t i , i n \"Japanese T r a d i n g Companies: Lessons i n I n t e r n a t i o n a l B u s i n e s s f o r the U.S.?\" Management I n t e r n a t i o n a l Review: J o u r n a l of I n t e r n a t i o n a l B u s i n e s s v o l . 96 i n t e r e s t e d i n l e a r n i n g about t h i s Japanese b u s i n e s s i n s t i t u t i o n so they c o u l d e s t a b l i s h s i m i l a r i n s t r u m e n t s i n or d e r t o d e v e l o p t h e i r own e c o n o m i e s . 1 6 7 O r g a n i z a t i o n a l S t r u c t u r e and F u n c t i o n s of Sogo Shosha Sogo shosha a r e d i s t i n g u i s h e d from A m e r i c a n - t y p e MNCs i n terms of t h e i r o r g a n i z a t i o n a l s t r u c t u r e and f u n c t i o n s . An e x a m i n a t i o n of the e x t e r n a l and i n t e r n a l o r g a n i z a t i o n a l s t r u c t u r e s as w e l l as the d e l i n e a t i o n of the t h r e e p r i m a r y f u n c t i o n s of sogo shosha a r e i m p e r a t i v e i n o r d e r t o e l u c i d a t e DFI a c t i v i t i e s . The t h r e e major f u n c t i o n s of the ni n e t o p sogo shosha a r e t r a n s a c t i o n i n t e r m e d i a t i o n , i n f o r m a t i o n - g a t h e r i n g and q u a s i - b a n k i n g . Combined, a l l t h r e e c r e a t e an o r g a n i z e r / c o o r d i n a t o r f u n c t i o n , which p l a y s a s i g n i f i c a n t r o l e i n DFI a c t i v i t i e s . C o n c e r n i n g e x t e r n a l o r g a n i z a t i o n a l s t r u c t u r e , sogo shosha a r e s i t u a t e d a t the c o r e of keiretsu a l o n g w i t h t h e i r main banks (see C h apter 3 ) . T r a d i n g companies, main banks and m a n u f a c u t u r e r s a r e l o o s e l y l i n k e d by s t o c k o w n e r s h i p and i n f o r m a l c o r p o r a t i o n m e e t ings w i t h i n the same i n d u s t r i a l g roups. Tsurumi s t a t e s t h a t \" t h i s three-way l i n k i s a n o t h e r ' i d i o s y n c r a c y ' of Japan i n a d d i t i o n t o the convergence of government and b u s i n e s s i n t e r e s t . \" 1 6 8 1 6 6 ( c o n t ' d ) 23, no. 2 ( 1 9 8 3 ) : -65-71. 1 6 7 F o r example, see Lawrence H. W o r t z e l and H e i d i V. W o r t z e l , i n \"Usi n g G e n e r a l T r a d i n g Companies t o Market M a n u f a c t u r e d E x p o r t s from LDCs and NICs,\" Management I n t e r n a t i o n a l Review: J o u r n a l of I n t e r n a t i o n a l B u s i n e s s v o l . 23, no. 2 ( 1 9 8 3 ) : 72-77. 1 6 8 Y o s h i T s u r u m i , The Japanese Are Coming: A M u l t i n a t i o n a l I n t e r a c t i o n of F i r m s and P o l i t i c s (Cambridge, Mass.: B a l l i n g e r P u b l i s h i n g Co., 1976), p. 29. 97 As t o the i n t e r n a l mechanism of sogo shosha, t h e i r o r g a n i z a t i o n a l c h a r a c t e r i s t i c s conform t o the model of Japanese o r g a n i z a t i o n s . C h a r a c t e r i s t i c s of Japanese o r g a n i z a t i o n s p r e s e n t a s t r i k i n g c o n t r a s t t o tho s e of American o r g a n i z a t i o n s (see Ta b l e 3 ) . Sogo shosha adopt a l i f e t i m e employment system w i t h a s e n i o r i t y wage system, which i s p r a c t i c e d i n l a r g e Japanese companies and government bureaus. C o l l e g e g r a d u a t e s a r e d i r e c t l y r e c r u i t e d i n t o companies where they u s u a l l y remain u n t i l r e t i r e m e n t age a t 55. Because of t h i s l i f e t i m e employment s i t u a t i o n , employees embrace a sense of l o y a l t y t o the f i r m and a s t r o n g commitment t o t h e i r j o b s . These employees f o l l o w n o n - s p e c i a l i z e d c a r e e r p a t h s , and f a c e l i f e l o n g j o b r o t a t i o n , which e n a b l e s them t o d e v e l o p new j o b - r e l a t e d s k i l l s . No s p e c i f i c j o b d e s c r i p t i o n i s w r i t t e n f o r any p o s i t i o n . Among a l l employees, t h e r e i s an i m p l i c i t u n d e r s t a n d i n g of s h a r e d g o a l s of and r e s p o n s i b i l i t y t o the company. P r o m o t i o n s e v o l v e s l o w l y i n response t o changes i n market c o n d i t i o n s . D e c i s i o n making i s based on the ringi seido, where a l l workers i n v o l v e d i n a g i v e n p r o p o s a l p a r t i c i p a t e i n a c o l l e c t i v e d e c i s i o n - m a k i n g p r o c e s s . A f o r m a l p r o p o s a l i s w r i t t e n and c i r c u l a t e d from the bottom t o the t o p of t h e o r g a n i z a t i o n . T h i s consensus approach r e q u i r e s a l o n g e r time than the i n d i v i d u a l d e c i s i o n - m a k i n g approach, but a more e f f e c t i v e i m p l e m e n t a t i o n can be e x p e c t e d once a consensus i s 98 T a b l e 3: The C o n t r a s t of Japanese and Ame r i c a n O r g a n i z a t i o n s 1 * 9 Japanese O r g a n i z a t i o n s v s . L i f e t i m e employment Slow e v a l u a t i o n and p r o m o t i o n N o n - s p e c i a l i z e d c a r e e r p a t h s I m p l i c i t c o n t r o l mechanisms C o l l e c t i v e d e c i s i o n - m a k i n g C o l l e c t i v e r e s p o n s i b i l i t y W h o l i s t i c c o n c e r n American O r g a n i z a t i o n s S h o r t - t e r m employment R a p i d e v a l u a t i o n and p r o m o t i o n S p e c i a l i z e d c a r e e r p a t h s E x p l i c i t c o n t r o l mechanisms I n d i v i d u a l d e c i s i o n - m a k i n g I n d i v i d u a l R e s p o n s i b i l i t y Segmented c o n c e r n r e a c h e d . T h e r e f o r e , a group o r team of employees t a k e s j o i n t r e s p o n s i b i l i t y f o r a s e t of t a s k s . The Japanese o r g a n i z a t i o n forms i n c l u s i v e r e l a t i o n s h i p s , and companies show w h o l i s t i c c o n c e r n f o r employees. T h i s w h o l i s t i c o r i e n t a t i o n stems from b o t h h i s t o r i c a l e x p e r i e n c e and u n d e r l y i n g s o c i a l and c u l t u r a l f o r c e s . The p a t e r n a l i s t i c i d e a s p r e v a l e n t i n Japanese s o c i e t y i m p e l companies t o l o o k a f t e r w o r k e r s w i t h t h e e x p e c t a t i o n of t h e i r l o y a l t y i n r e t u r n . These c h a r a c t e r i s t i c s make i t p o s s i b l e f o r sogo shosha t o m a i n t a i n a l a r g e p o o l of a h i g h l y e d u c a t e d , e f f i c i e n t , and company-centered l a b o r f o r c e . S i n c e w o r k e r s r a r e l y move t o o t h e r companies, sogo shosha make a f a i r amount of i n v e s t m e n t i n t r a i n i n g employees and p r o v i d e bonuses as w e l l as f r i n g e b e n e f i t s . Sogo shosha a r e s u c c e s s f u l i n m o l d i n g t h e i r \"company-men,\" who a r e l o y a l and s h a r e company g o a l s . A l t h o u g h i t t a k e s t i m e t o r e a c h a f i n a l d e c i s i o n , once i t i s met, t h e i m p l e m e n t a t i o n of a p r o j e c t i s q u i t e e f f e c t i v e and 1 6 9 W i l l i a m G. O u c h i , Theory Z: How American B u s i n e s s Can Meet t h e Japanese C h a l l e n g e ( R e a d i n g , Mass.: Addison-Wesley P u b l i s h i n g Co., 1981; Avon Books, 1982), pp. 48-49. 99 r e l i a b l e due t o the q u a l i t y of l a b o r power and the mutual consensus system. In c o n t r a s t t o American o r g a n i z a t i o n s , i t ta k e s a l o n g e r time t o n e g o t i a t e and t o r e a c h a f i n a l d e c i s i o n f o r o v e r s e a s investment p r o j e c t s among Japanese p a r t i c i p a n t companies because of ringi seido. However, once a c o n t r a c t i s s i g n e d , i t s i m p l e m e n t a t i o n i s s w i f t l y c a r r i e d o u t . At the same t i m e , the o v e r s e a s s t a f f members sent by the head o f f i c e a r e c a p a b l e i n b u s i n e s s a f f a i r s , s i n c e they a r e - t r a i n e d by the company and share i t s g o a l s . T h e r e f o r e , the f o r e g o i n g e x t e r n a l and i n t e r n a l o r g a n i z a t i o n a l f e a t u r e s of sogo shosha a r e r e f l e c t e d i n i n t e r n a t i o n a l t r a d e and DFI a c t i v i t i e s . T u r n i n g t o the f u n c t i o n s of sogo shosha, commerce, i n f o r m a t i o n - c o l l e c t i o n and f i n a n c i a l s e r v i c e s form t h e i r c e n t r a l b u s i n e s s a c t i v i t i e s . Above a l l , commerce i s the c e n t e r of b u s i n e s s a c t i v i t i e s , c o n s i s t i n g of domestic and f o r e i g n t r a d e . F o r e i g n t r a d e i n c l u d e s i m p o r t , e x p o r t and o f f s h o r e t r a d e . The r a p i d economic growth of Japan i n the postwar p e r i o d was accompanied by h i g h dependence on ov e r s e a s r e s o u r c e s . Japan became the w o r l d ' s l e a d i n g i m p o r t e r of many key p r i m a r y c o m m o d i t i e s . At the same t i m e , e x p o r t was g r e a t l y encouraged by the Japanese government t o earn f o r e i g n c u r r e n c i e s . C o n s e q u e n t l y , b u s i n e s s o p p o r t u n i t i e s f o r t r a d e g r e a t l y expanded f o r sogo shosha. The s a l i e n t f e a t u r e s of sogo shosha a r e d i s p l a y e d i n a wide v a r i e t y of a r t i c l e s and a l a r g e volume of t r a n s a c t i o n s . The commodities they d e a l w i t h a r e d i v e r s i f i e d , o f t e n c a l l e d 100 \"goods r a n g i n g from i n s t a n t n o o d l e s t o m i s s i l e s . \" These commodities a r e d i v i d e d i n t o s i x major p r o d u c t g r o u p s - - m e t a l s , machinery, energy and c h e m i c a l s , t e x t i l e s , f o o d s t u f f s and g e n e r a l m e rchandise. In f i s c a l y e a r 1984, the ni n e l a r g e s t sogo shosha had s a l e s of 92,892 b i l l i o n yen, which a c c o u n t e d f o r 31.7 p e r c e n t of Japan's g r o s s n a t i o n a l p r o d u c t . 1 7 0 They h a n d l e d 44.2 p e r c e n t of Japan's e x p o r t s and 68.0 p e r c e n t of i m p o r t s (see T a b l e 4 ) . Because sogo shosha t r a d e w i t h a d i v e r s e range and a volume of goods, they a r e v e r y f l e x i b l e when d e a l i n g i n i n t e r n a t i o n a l m a r k e t s . For i n s t a n c e , b a r t e r t r a d e or c o u n t e r p u r c h a s i n g i s p o s s i b l e , s i n c e t hey a r e a b l e t o a c c e p t m anufactured goods, raw m a t e r i a l s , or o t h e r commodities, as payment i n l i e u of h a r d c u r r e n c y . 1 7 1 Thus, the sogo shosha's l a r g e i n t e r n a l market e n a b l e s them e f f e c t i v e l y t o b a r t e r goods and s e r v i c e s among t h e m s e l v e s . One of the reasons sogo shosha have s u r v i v e d f o r so lo n g i s t h a t t hey have adopted a g l o b a l s t r a t e g y , by which they can p r o v i d e customers w i t h a v a s t a r r a y of t r a d e s e r v i c e s a t l e s s c o s t than would have been p o s s i b l e o t h e r w i s e . The p r i n c i p a l f u n c t i o n of sogo shosha i s t r a d i n g t r a n s a c t i o n s , o b t a i n i n g t i t l e t o goods t o be t r a d e d from a s u p p l i e r , then s e l l i n g the goods t o a buyer a t a margin of p r o f i t . They a l s o a c t as a g e n t s , a r r a n g i n g f o r a t r a n s a c t i o n 1 7 0 I n FY1984, Japan's GNP was \u00C2\u00A5292,913 b i l l i o n . ( S o u r c e : I n t e r n a t i o n a l Monetary Fund, I n t e r n a t i o n a l F i n a n c i a l S t a t i s t i c s Yearbook 1985, p. 383.) T h i s was e q u i v a l e n t t o U.S.$1,232.7 b i l l i o n , based on the IMF so u r c e o b t a i n e d by the JETRO i n Vancouver. 1 7 1 C a p p i e l l o , op_. c i t . , p. 20. Table 4: Sales of Japan's Nine Sogo Shosha (FY1984) (In \u00C2\u00A5 B i11i on) Total In Japan Exports from Japan Imports into Japan Offshore Trade Mi tsubishi Mi tsui C. Itoh Marubeni Sum i tomo Ni ssho-Iwai Toyo Menka N i chi men Kanematsu-Gosho 16,427 14,900 14,077 13,564 13, 165 8, 552 4,503 3,953 3,751 5,833 5, 547 6, 179 4,561 6,454 2,843 1 ,637 1 ,052 1,714 2, 771 2,662 2,625 3,541 2,777 1 , 391 1 ,074 873 490 457 073 662 873 277 423 951 61 1 881 2,366 2,618 2,612 2,589 1 ,657 1 ,896 841 1,418 666 Total (A) Share (%) 92,892 100.0 35,818 38 .6 18,203 19.6 2 2 , 2 0 7 23.9 16,664 17.9 Japan's Trade, Total (B) Sogo Shosha's Share (A/B) 41,186 44.2% 32,657 68.0% (Source: Akira Nakayama, ed., Japan 1985: An International Comparison, 2nd ed. [Tokyo: Keizai Koho Center, 1985], p. 46; Original source: Japan Foreign Trade Council, Inc.) 102 on a commission b a s i s . S i n c e they must p r o v i d e t r a d e s e r v i c e s t o customers a t c o m p e t i t i v e p r i c e s , sogo shosha r e c e i v e margins or commissions, which a r e v e r y s m a l l p e r c e n t a g e s of the v a l u e of t h e i r c o m m e r c i a l t r a n s a c t i o n s - - r u n n i n g a t between 2 and 3 p e r c e n t . 1 7 2 As a r e s u l t , \"Net p r o f i t f o r t he n i n e l a r g e s t sogo shosha i n f i s c a l [ y e a r ] 1981 was U.S.$500 m i l l i o n , or 0.1 % [!] of t o t a l t r a n s a c t i o n s , u n t h i n k a b l y s m a l l f o r most Western b u s i n e s s e s . \" 1 7 3 Economies of s c a l e a p p l y t o t h e volume of goods and s e r v i c e s t h a t sogo shosha d e a l i n , p a r t i c u l a r l y , as i t r e s u l t s i n the r e d u c t i o n of s h i p p i n g c o s t s . By g u a r a n t e e i n g r e t u r n t r a f f i c t o a f r e i g h t f i r m , sogo shosha can o b t a i n f a v o r a b l e f r e i g h t c o s t s from t r a n s p o r t a t i o n f i r m s , which o f t e n b e l o n g t o the same keiretsu g r o u p s . Because of the s l i m margin of p r o f i t , sogo shosha must ha n d l e a huge amount of commodities i n o r d e r t o make a s u f f i c i e n t p r o f i t . T h i s arrangement was e f f e c t i v e when t h e Japanese i n d u s t r i a l s t r u c t u r e c e n t e r e d i n the heavy and c h e m i c a l i n d u s t r y , which r e q u i r e d enormous q u a n t i t i e s of im p o r t e d raw m a t e r i a l s and n a t u r a l r e s o u r c e s . However, the s h i f t i n the i n d u s t r i a l s t r u c t u r e of Japan from the heavy and c h e m i c a l i n d u s t r y t o h i g h t e c h n o l o g y i n d u s t r y changes the t r a n s a c t i o n volume. Moreover, w i t h the m a t u r i n g of t h e Japanese economy, the t e r t i a r y , or s e r v i c e , s e c t o r was expanding a t a much f a s t e r r a t e than th e p r i m a r y and 1 7 2 K o j i m a and Ozawa, ojo. c i t . , p. 23. 1 7 3 C a p p i e l l o , op_. c i t . , p. 25. 103 secondary s e c t o r s . Thus, d e s p i t e commerce i t s e l f b e l o n g i n g t o t he t e r t i a r y s e c t o r , sogo shosha were unable t o m a i n t a i n t h e i r i n t e r m e d i a r y r o l e u n l e s s they became d i r e c t l y i n v o l v e d . In a d d i t i o n , the \" d e p a r t u r e - f r o m - t r a d e r s \" phenomenon c a l l e d f o r the d i m i n i s h i n g r o l e of sogo shosha as e x p o r t a gents f o r Japanese m a n u f a c t u r e r s , s i n c e those p r o d u c e r s s t a r t e d t o e s t a b l i s h t h e i r own ov e r s e a s m a r k e t i n g f i rms. As a r e s u l t , sogo shosha began t o i n c r e a s e t h i r d - c o u n t r y or o f f s h o r e t r a d e , which does not i n v o l v e i m p o r t s i n t o or e x p o r t s from Japan. Whereas i n 1970 o f f s h o r e t r a d e amounted t o o n l y 5.1 p e r c e n t of the n i n e t o p sogo shosha' s t o t a l t r a d i n g t r a n s a c t i o n s , 1 7 4 i n 1984, t h i s a c c o u n t e d f o r 17.9 p e r c e n t . N e v e r t h e l e s s , as l o n g as Japan c o n t i n u e s t o e x p o r t m anufactured goods f a b r i c a t e d from i m p o r t e d raw m a t e r i a l s , sogo shosha w i l l remain t o p l a y an im p o r t a n t r o l e i n i n t e r n a t i o n a l t r a d e . T h i r d - c o u n t r y t r a d e means s i g n i f i c a n t g a i n s f o r b o t h sogo shosha and p a r t i c i p a t i n g c o u n t r i e s . Sogo shosha1s import and e x p o r t a c t i v i t i e s a r e c l o s e l y l i n k e d w i t h the d i s t r i b u t i o n of goods and s e r v i c e s i n Japan. Postwar r a p i d economic growth and the emergence of a mass consumer market i n Japan promoted not o n l y i n t e r n a t i o n a l but a l s o domestic t r a d e . Sogo shosha expanded t h e i r f u n c t i o n s t o i n c l u d e the development and d i s t r i b u t i o n of consumer goods, m a r k e t i n g and c o n s u l t i n g , and e n g i n e e r i n g . 1 7 \" C a p p i e l l o , ojo. c i t . , p. 30. 104 The second d i s t i n g u i s h i n g f e a t u r e i s t h a t sogo shosha have e s t a b l i s h e d v e r y e x t e n s i v e worldwide communication ne t w o r k s . W i t h the d e v e l o p e d i n f o r m a t i o n networks, sogo shosha c o l l e c t not o n l y economic but a l s o p o l i t i c a l and s o c i a l i n f o r m a t i o n . T h i s i n c l u d e s economic and b u s i n e s s i n f o r m a t i o n of immediate p r a c t i c a l v a l u e as w e l l as g l o b a l p o l i t i c a l - l e g a l d a t a , demographic d a t a , d a t a on the s o c i o - c u l t u r a l environment ( e . g . , a n t i - b u s i n e s s a t t i t u d e s , consumer movements, a n t i - p o l l u t i o n s e n t i m e n t s , e t c . ) , and t r e n d s t h a t a r e l i k e l y t o have an impact on the Japanese economy. 1 7 5 T e l e x , t e l e p h o n e , f a c s i m i l e , m a i l and the computer a r e used as means of communication. The hub of the t r a d i n g companies' i n f o r m a t i o n s e r v i c e i s t h e home o f f i c e i n Japan, which i s the c e n t e r of a t e l e x network. T o g e t h e r , the n i n e l a r g e s t sogo shosha m a i n t a i n a p p r o x i m a t e l y 1,110 o f f i c e s , l i n k e d by h i g h l y s o p h i s t i c a t e d t e l e c o m m u n i c a t i o n systems, i n some 200 c i t i e s i n the w o r l d , and t h e s e o v e r s e a s o f f i c e s a r e s t a f f e d by a t o t a l more than 20,000 h i g h l y t r a i n e d s p e c i a l i s t s . 1 7 6 Not o n l y a r e th e y s p e c i a l i s t s , but a l s o they a r e c o n s c i o u s of t h e i r d u t i e s as company-men so t h a t t h e i r t a s k s a r e always i n a c c o r d w i t h the company's u n w r i t t e n g u i d e l i n e s . Sogo shosha spend l a r g e sums of money on communications, whose communication expense r a t i o s t o s a l e s e x p e n d i t u r e s s t a n d a t 9.6 p e r c e n t f o r M i t s u i and 1.9 p e r c e n t 1 7 5 Y o u n g , op_. c i t . , p. 62. 1 7 6 C a p p i e l l o , op_. c i t . , p. 20. 105 f o r Tomen. F i g u r e s f o r the remainder of the seven companies range from 3 t o 5 p e r c e n t . 1 7 7 These r a t i o s r o u g h l y c o r r e s p o n d t o the average r a t i o of r e s e a r c h and development t o s a l e s i n t e c h n o l o g y - i n t e n s i v e m a n u f a c t u r i n g i n d u s t r i e s . A l t h o u g h sogo shosha g e n e r a t e l i t t l e t e c h n o l o g i c a l knowledge, they c o l l e c t and d i s s e m i n a t e i n f o r m a t i o n . T h e r e f o r e , even the l a r g e m a n u f a c t u r i n g f i r m s use thes e sogo shosha's i n f o r m a t i o n a l and d i s t r i b u t i o n a l networks n a t i o n a l l y and i n t e r n a t i o n a l l y i n o r d e r t o c u l t i v a t e u n c e r t a i n markets and t o supplement d e f i c i e n c i e s i n t h e i r own d i s t r i b u t i o n a l n e t w o r k s . The knowledge of the e x t e n t of bot h domestic and i n t e r n a t i o n a l markets and the de v e l o p e d communication networks a r e the l i f e b l o o d of sogo shosha. R i s k r e d u c t i o n and f i n a n c i a l s e r v i c e s a r e the f i n a l c h a r a c t e r i s t i c s of sogo shosha, which can borrow money from the most advantageous s o u r c e s today i n the i n t e r n a t i o n a l c a p i t a l market and can c h a n n e l t h e s e funds t o c l i e n t s anywhere i n the w o r l d . Sogo shosha's d i v e r s e and v a s t i n t e r n a l exchange of goods and s e r v i c e s reduces f o r e i g n exchange r i s k by u s i n g v a r i o u s i n t e r n a t i o n a l c u r r e n c i e s . \"The l a r g e r the sogoshosha's volume of worldwide t r a d e and the more d i v e r s e i t s h a n d l i n g of f o r e i g n c u r r e n c i e s , t he g r e a t e r i s i t s a b i l i t y t o a b s o r b f i n a n c i a l r i s k s , i n c l u d i n g f o r e i g n exchange t r a n s a c t i o n r i s k f o r i t s c l i e n t s . \" 1 7 8 Sogo shosha f u n n e l funds t o s m a l l - or medium-sized m a n u f a c t u r e r s and s a l e s f i r m s . Sogo shosha i n s e r v i n g as 1 7 7 K o j i m a and Ozawa, op_. c i t . , p. 25. 1 7 8 T s u r u m i , Sogoshos ha, op. c i t . , p. 14. 106 f i n a n c i a l i n t e r m e d i a r i e s between the banks and thousands of s m a l l c l i e n t s p l a y the r o l e of r i s k b u f f e r s f o r l a r g e commercial banks. Sogo shosha f r e q u e n t l y borrow s h o r t - t e r m l o a n s from banks, which funds then r e - l o a n e d o r i n v e s t e d i n a f f i l i a t e d f i r m s and c l i e n t s . \"Indeed, ' r e l e n d i n g ' o r ' r e i n v e s t m e n t ' by sogoshosha t o s m a l l - or medium-sized c l i e n t s c o n s t i t u t e s anywhere between 30 t o 40 p e r c e n t of each sogoshosha' s t o t a l o u t s t a n d i n g debt a t any g i v e n t i m e . \" 1 7 9 Thus, on the b a l a n c e sheet d e b t - e q u i t y r a t i o s of th e s e l e a d i n g sogo shosha a r e h i g h , and t h i s makes sogo shosha v u l n e r a b l e t o s l i g h t d e c l i n e s i n t h e i r b u s i n e s s volumes and p r o f i t s . The g e n e r a l t r a d i n g companies earn o n l y a v e r y low r a t e of r e t u r n on e q u i t y i n v e s t m e n t , r a n g i n g from 1.2 t o 3.1 p e r c e n t . The M i t s u b i s h i C o r p o r a t i o n i s an e x c e p t i o n f o r i t e n j o y s a h i g h r a t e of r e t u r n (9.4 p e r c e n t ) , m o s t l y from i t s v e r y l u c r a t i v e i n v e s t m e n t i n B r u n e i n a t u r a l g a s . 1 8 0 In s p i t e of a low r e t u r n on i n v e s t m e n t , sogo shosha a r e engaged i n investment p r o j e c t s , i n s o f a r as they g e n e r a t e commissions. The g e n e r a l t r a d i n g companies a r e a c t i v e l y i n v e s t i n g o v e r s e a s , and t h e i r o v e r s e a s e q u i t y and l o a n s i n 1978 acc o u n t e d f o r from 20.2 p e r c e n t (C. I t o h ) t o 42.6 p e r c e n t ( T o m e n ) . 1 8 1 The t r a n s a c t i o n i n t e r m e d i a t i o n , i n f o r m a t i o n c o l l e c t i n g and f i n a n c i a l s e r v i c e f u n c t i o n s have d e v e l o p e d the 1 7 9 I b i d . , p. 10. 1 8 0 K o j i m a and Ozawa, op_. c i t \u00E2\u0080\u00A2 , p. 24. 1 8 ' I b i d . , p. 89. 107 o r g a n i z e r / c o o r d i n a t o r r o l e , which i s c r u c i a l i n o v e r s e a s v e n t u r e s . Sogo shosha o r g a n i z e and c o o r d i n a t e c o n s o r t i a of companies w i t h i n t h e i r a f f i l i a t e d keiretsu group. These arrangements a r e e s p e c i a l l y s u i t a b l e when o v e r s e a s development v e n t u r e s a r e enormous i n s c a l e and c o s t , s i n c e no s i n g l e f i r m may be b i g enough t o p r o v i d e the v a r i o u s n e c e s s a r y f u n c t i o n s , such as c o n s t r u c t i o n , i n s t a l l a t i o n of p l a n t s , equipment and machinery, f i n a n c i n g and m a r k e t i n g . However, com m e r c i a l a c t i v i t i e s a r e the major f u n c t i o n of sogo shosha. The l a r g e s t amount of o v e r s e a s i n v e s t m e n t was made i n e s t a b l i s h i n g wholly-owned t r a d i n g s u b s i d i a r i e s t o improve t r a d e e f f i c i e n c y . I nvestments were a l s o made by sogo shosha i n m a n u f a c t u r i n g and n a t u r a l r e s o u r c e development p r o j e c t s i n the form of j o i n t v e n t u r e s . As Yoshino has i n d i c a t e d , t he sogo shosha1s f o r e i g n m a n u f a c t u r i n g a c t i v i t i e s a r e o n l y an e x t e n s i o n of t h e i r r o l e as f o r e i g n t r a d e a g e n t s 1 8 2 a i m i n g a t the e x p a n s i o n of t r a d e volume and the s t r e n g t h e n i n g of t h e i r c ommercial t i e s w i t h m a n u f a c t u r e r s . 1 8 3 In a d d i t i o n , a p r i n c i p a l purpose of inves t m e n t i n r e s o u r c e development i s t o se c u r e the s u p p l y of raw m a t e r i a l s f o r Japan t h r o u g h l o n g - t e r m p u r c h a s i n g c o n t r a c t s . Sogo shosha a r e f o r c e d t o i n v e s t huge amounts i n e q u i t y i n v e s t m e n t i n n a t i o n s t h a t no l o n g e r a l l o w raw e x p o r t s . 1 8 4 1 8 2 Y o s h i n o , op_. c i t . , p, 96. 1 8 3 C a p p i e l l o , op_. c i t . , p. 27. 1 8 4 \" J a p a n e s e M u l t i n a t i o n a l s : C o v e r i n g the World w i t h I nvestment,\" B u s i n e s s Week, 16 J u l y 1980, p.97. 108 DFI by sogo shosha w i l l i n c r e a s e w i t h the r e l a t i v e d e c l i n e i n the p r o p o r t i o n of t o t a l Japanese DFI and t h i s w i l l have a g r e a t impact on the w o r l d economy. T h i s view i s s u p p o r t e d by Lawrence G. Franko's statement t h a t s i n c e Japanese f i r m s \" t a k e more m i n o r i t y p o s i t i o n s and j o i n t v e n t u r e s than U.S. f i r m s , the r e a l o v e r s e a s a s s e t s c o n t r o l l e d by Japanese companies a r e f a r l a r g e r than the raw numbers s u g g e s t . \" 1 8 5 In c o n c l u s i o n , the c o n t r a s t between A m e r i c a n - t y p e MNCs and Japanese-type MNCs, or s i m p l y between American MNCs and Japanese MNCs, i s v a l i d . These terms a r e more i n c l u s i v e than d i c h o t o m i z i n g d e r i v a t i o n s between m a n u f a c t u r i n g and t r a d i n g m u l t i n a t i o n a l s . Indeed, American MNCs a r e o f t e n i d e n t i f i e d w i t h m a n u f a c t u r i n g m u l t i n a t i o n a l s as h a v i n g an o l i g o p o l i s t i c s t r u c t u r e . T r a d i t i o n a l l y , American MNCs have s t r o n g f o u n d a t i o n s i n p r o d u c t i o n w i t h c l o s e r e l a t i o n s h i p s w i t h t h e i r s u b s i d i a r i e s which a r e f u l l y - o w n e d or g r e a t l y c o n t r o l l e d by the p a r e n t companies. A l t h o u g h American MNCs have r e t a i n e d t h e s e fundamental c h a r a c t e r i s t i c s , d u r i n g the p r o c e s s of the development of f i r m s , t h e y have s h i f t e d t h e i r f o c u s from b a s i c a l l y p r o d u c t i o n t o f i n a n c i a l and commercial t r a n s a c t i o n s , t e l e c o m m u n i c a t i o n s , and s e r v i c e s such as the o p e r a t i o n of h o t e l s and promotion of t o u r i s m . Thus, f i n a n c i a l c o n g l o m e r a t e s have been formed over the y e a r s , and American MNCs a r e not always n e c e s s a r i l y m a n u f a c t u r i n g m u l t i n a t i o n a l s . 1 8 5 I b i d . , p. 93. 109 At the same t i m e , a l t h o u g h J a p a n e s e - t y p e MNCs r e f e r t o sogo shosha, i f they a r e c o n s i d e r e d s o l e l y on the b a s i s of t r a d e , then t h i s i s a r a t h e r narrow i n t e r p r e t a t i o n . T h e i r main a c t i v i t y i s t r a d e , but sogo shosha h e a v i l y i n v e s t i n m a n u f a c t u r i n g and n a t u r a l r e s o u r c e development p r o j e c t s , which c o n t r i b u t e t o a low, but c r u c i a l p r o p o r t i o n of Japanese DFI. W i t h a g r e a t number of p r o j e c t s by s m a l l e q u i t y s h a r e h o l d i n g , sogo shosha g a i n economic l e v e r a g e , even though t h e s e a r e s m a l l amounts of i n v e s t m e n t . Moreover, J a p a n e s e - t y p e MNCs a r e d i f f e r e n t from American MNCs i n terms of c u l t u r a l , s o c i a l and o r g a n i z a t i o n a l a s p e c t s . L i f e t i m e employment, i m p l i c i t c o n t r o l mechanisms, c o l l e c t i v e d e c i s i o n - m a k i n g and r e s p o n s i b i l i t y and w h o l i s t i c c o n c e r n a r e an i n t e g r a l p a r t of Japanese m u l t i n a t i o n a l s . In American MNCs, however, a l l e g i a n c e s a r e not as s t r o n g . S h o r t - t e r m employment, i n d i v i d u a l d e c i s i o n - m a k i n g and r e s p o n s i b i l i t y and segmented c o n c e r n c r e a t e a s i t u a t i o n whereby i n d i v i d u a l g a i n i s emphasized more than the p r o s p e r i t y of the company as a whole. C u l t u r a l , s o c i a l and o r g a n i z a t i o n a l f a c t o r s p l a y an imp o r t a n t r o l e i n b e s t o w i n g s p e c i a l f e a t u r e s of Japanese MNCs. F u r t h e r m o r e , J a p a n e s e - t y p e MNCs a r e d i s t i n c t from American MNCs w i t h r e g a r d t o the o r g a n i z a t i o n of j o i n t v e n t u r e s , which a r e c a r r i e d out by f i r m s w i t h i n t h e same keiretsu group. The o r g a n i z a t i o n a l s t r u c t u r e among Japanese companies m i r r o r s Japanese DFI, which makes Japanese MNCs 1 10 d i s t i n c t i v e from American. T h e r e f o r e , the d i s t i n c t i o n between American MNCs and Japanese MNCs i s v a l i d , because t h e s e embrace not o n l y i n c l u s i v e economic a c t i v i t i e s but a l s o c u l t u r a l , . s o c i a l and o r g a n i z a t i o n a l f a c t o r s , which g i v e d i f f e r e n t c h a r a c t e r i s t i c s . Second, a l t h o u g h the a b s o l u t e amount of sogo shosha i n v e s t m e n t has i n c r e a s e d , i t s r e l a t i v e p r o p o r t i o n t o the o v e r a l l Japanese DFI has d e c l i n e d , p r i m a r i l y because Japanese m a n u f a c t u r e r s and f i n a n c i e r s have i n c r e a s e d i n v e s t m e n t , as i n d i c a t e d by Ta b l e 1. However, sogo shosha i n v e s t m e n t w i l l remain i m p o r t a n t , because of the c r u c i a l f u n c t i o n s sogo shosha p e r f o r m i n bo t h the ho s t and home c o u n t r y . Sogo shosha w i l l e x e r t t h e i r i n f l u e n c e by p a r t i c i p a t i n g i n v a r i o u s j o i n t v e n t u r e s and by implementing l o n g - t e r m p u r c h a s i n g c o n t r a c t s . T h e i r key f u n c t i o n i s o r g a n i z i n g i n such t u r n k e y p r o j e c t s ; t h u s , sogo shosha i n v e s t m e n t t o Japanese DFI i s as mortar i s t o b r i c k s . C o n s e q u e n t l y , d e s p i t e the r e l a t i v e d e c l i n e i n sogo shosha i n v e s t m e n t , sogo shosha remain a s i g n i f i c a n t v e h i c l e i n prom o t i n g Japanese DFI. 111 CHAPTER 3 CHARACTERISTICS OF THE JAPANESE ECONOMY Japan i s one of the w o r l d ' s most i n d u s t r i a l i z e d c o u n t r i e s and has the second l a r g e s t economy, a f t e r the U n i t e d S t a t e s . In 1983, the Gr o s s N a t i o n a l P r o d u c t (GNP) of Japan was U.S.$1,159 b i l l i o n , which was the second l a r g e s t i n the f r e e market economy a f t e r the U n i t e d S t a t e s , w i t h a GNP of U.S.$3,305 b i l l i o n . 1 8 6 The Japanese economy i s c h a r a c t e r i z e d by a h i g h dependency on i m p o r t s of n a t u r a l r e s o u r c e s and f o o d s t u f f s ; by a d u a l economic s t r u c t u r e and keiret su; by r a p i d economic growth i n the postwar p e r i o d f o l l o w e d by s t a b l e economic growth; and by c o o p e r a t i v e r e l a t i o n s h i p s between the government and the b u s i n e s s community, and i n d u s t r i a l p o l i c y . I t i s n e c e s s a r y t o lo o k a t the c h a r a c t e r i s t i c s of the postwar Japanese economy i n o r d e r t o u n d e r s t a n d changes i n f o r e i g n economic p o l i c y , which have i n f l u e n c e d d i r e c t f o r e i g n i n v e s t m e n t . H i g h dependency on i m p o r t s of i n d u s t r i a l raw m a t e r i a l s , energy s o u r c e s , and f o o d s t u f f s f o r c e d g r e a t e r f o r e i g n i n v e s t m e n t i n o r d e r t o se c u r e s t a b l e s u p p l i e s . A d i s t i n c t d u a l economic s t r u c t u r e and the e x i s t e n c e of keiretsu groups e x p l a i n the economic and o r g a n i z a t i o n a l mechanism i n the Japanese economy, which i s r e f l e c t e d i n the inve s t m e n t f o r m u l a , namely, j o i n t v e n t u r e s w i t h sogo shosha as the o r g a n i z e r . Changes i n Japan's i n d u s t r i a l s t r u c t u r e 1 8 6 A k i r a Nakayama, ed., Japan 1985: An I n t e r n a t i o n a l Comparison 2nd ed. (Tokyo: K e i z a i Koho C e n t e r , 1985), p. 11. 1 1 2 and i n d u s t r i a l p o l i c y have r e s u l t e d i n changes i n overseas investment p o l i c y and are the f o c i of investment s e c t o r s . T h i s chapter i s o r g a n i z e d i n t o four p a r t s , each of which d i s c u s s e s one of the s p e c i a l f e a t u r e s of the Japanese economy, which are, i n t u r n , important i n e x p l a i n i n g i t s economic behavior and investment motives. Part I o u t l i n e s the s c a r c i t y i n n a t u r a l resources and hi g h dependency on overseas f o o d s t u f f s . Part II d e l i n e a t e s the emergence of the dual economic s t r u c t u r e a f t e r the M e i j i R e s t o r a t i o n ; i t c l a r i f i e s reasons f o r i t s present p e r s i s t e n c e , and d i s c u s s e s the o r g a n i z a t i o n a l r e l a t i o n s h i p between l a r g e and small f i r m s and keiretsu groups. Part I I I surveys Japanese economic growth s i n c e 1945. The postwar p e r i o d can be d i v i d e d i n t o three d i s t i n c t i v e e r a s : (1) R e c o n s t r u c t i o n {1945-1955), (2) Rapid economic growth (1956-1973), and (3) Slower economic growth ( 1 9 7 3 - p r e s e n t ) . 1 8 7 Part IV examines c o o p e r a t i v e government-business r e l a t i o n s h i p s and the i n d u s t r i a l p o l i c y of Japan. F i n a l l y , i n c o n c l u s i o n , the i m p l i c a t i o n s of the f o r e g o i n g c h a r a c t e r i s t i c s of the Japanese economy to Japanese DFI are summarized. 1 8 7 A l t h o u g h the N a t i o n a l Income Doubling Plan i n 1960 was an epoch making event, the Japanese r a p i d economic growth p e r i o d s t a r t e d i n the l a t e 1950's. T h e r e f o r e , the w r i t e r has chosen to demarcate the c a t e g o r i e s by an economic, not a p o l i t i c a l event. As w e l l , the r a p i d economic growth p e r i o d l a s t e d u n t i l 1973 of the f i r s t o i l c r i s i s ; however, a m i l e s t o n e i n the postwar i n t e r n a t i o n a l economic order was reached when Nixon announced the U.S. New P o l i t i c a l and Economic P o l i c i e s i n 1971. 1 13 I . S c a r c i t y i n N a t u r a l Resources Japan i s a small country with a l a r g e p o p u l a t i o n . The area of Japan i s only 378,000 square k i l o m e t e r s with a p o p u l a t i o n of over 120 m i l l i o n i n 1985, which makes Japan a densely populated c o u n t r y . Since Japan i s scarce i n n a t u r a l r e s o u r c e s , i t s economic growth and development have depended on imports of raw m a t e r i a l s and energy s o u r c e s . For example, i n 1980, 99.8 percent of the crude o i l and 79.1 percent of the c o a l used were i m p o r t e d . 1 8 8 In 1981, 84.8 percent of a l l energy sources i n Japan was dependent on overseas energy source p r o d u c t i o n 1 8 9 , and the r e s t was s u p p l i e d by indigenous energy r e s o u r c e s , mainly c o a l and hydro-power. In terms of m i n e r a l resources commonly used in manufacturing, 100.0 percent of the phosphorus, 100.0 percent of the b a u x i t e , 99.6 percent of the i r o n ore, 98.4 percent of the t i n and 98.3 percent of the copper were imported i n 1981. One hundred percent of both wool and c o t t o n , and 68.3 percent of the lumber were a l s o i m p o r t e d . 1 9 0 In a d d i t i o n , even though a h i g h p r o d u c t i v i t y i n a g r i c u l t u r a l products per hectare i s a t t a i n e d , only 14.8 percent of the t o t a l l a n d i s a r a b l e i n Japan. In 1981, the 1 8 8 Y a n o Tsuneta K i n e n k a i , ed., Nippon Kokusei Zue: 1984 (A Charted Survey of Japan: 1984) (Tokyo: Kokusei-sha, 1984), p. 112. 1 8 9 I b i d . , p. 113. 1 9 0 I b i d . 1 1 4 s e l f - s u f f i c i e n c y r a t i o of food was 72 p e r c e n t . 1 3 1 C o n s e q u e n t l y , a p p r o x i m a t e l y 30 p e r c e n t of Japan's food s u p p l y must be i m p o r t e d . A l t h o u g h 92 p e r c e n t of the r i c e was d o m e s t i c a l l y produced because th e r i c e - p r i c e has been p r o t e c t e d by governmental p o l i c y , o t h e r s t a p l e foods r e l y on o v e r s e a s s u p p l y . In 1981, 100.0 p e r c e n t of the c o r n , 95.2 p e r c e n t of the soybeans and 90.0 p e r c e n t of the wheat were i m p o r t e d . 1 9 2 Thus, Japan i s h i g h l y dependent on f o r e i g n s u p p l y , as e v i d e n c e d by the h i g h p e r c e n t a g e s of raw m a t e r i a l s and f o o d s t u f f s i m p o r t e d . C e r t a i n l y , v u l n e r a b i l i t y of s u p p l y must be u n d e r s t o o d i n terms of both the p h y s i c a l and economic a c c e s s i b i l i t y of i m p o r t e d n a t u r a l and f o o d r e s o u r c e s . I t i s o f t e n p o i n t e d out t h a t t h e q u a n t i t a t i v e measure of dependency on f o r e i g n t r a d e of Japan i s r e l a t i v e l y s m a l l . For i n s t a n c e , t r a d e t o GNP r a t i o s i n Japan were 13.0 p e r c e n t f o r e x p o r t s and 12.4 p e r c e n t f o r i m p o r t s i n 1982. In t h e same y e a r , t h e s e f i g u r e s i n West Germany were 26.7 p e r c e n t and 23.5 p e r c e n t r e s p e c t i v e l y . Those i n Canada were 23.8 p e r c e n t and 19.5 p e r c e n t , and t h o s e i n the U n i t e d Kingdom, 20.5 p e r c e n t and 21.0 p e r c e n t . 1 9 3 T h e r e f o r e , i n comparison w i t h t h e s e f i g u r e s f o r o t h e r i n d u s t r i a l i z e d c o u n t r i e s , the Japanese t r a d e t o GNP r a t i o was r e l a t i v e l y s m a l l . However, the q u a l i t a t i v e n a t u r e of the dependence (on f o o d , n a t u r a l r e s o u r c e s , and energy) makes i n t e r n a t i o n a l t r a d e i n d i s p e n s a b l e f o r Japan, and a t h r e a t t o t h i s t r a d e i s a t h r e a t t o i t s economy and 1 9 1 I b i d . , p. 165. 1 9 2 I b i d . , p. 113. 1 9 3 I b i d . , p. 390. 1 1 5 s o c i a l system. The imperative of economic s e c u r i t y has p r e v a i l e d throughout the n a t i o n ' s modern h i s t o r y , d u r i n g the e n t i r e course of i t s i n d u s t r i a l i z a t i o n . 1 9 4 Thus, s e c u r i t y i n supply of raw m a t e r i a l s , energy, and foods has always been Japan's p r i o r i t y . In order to earn f o r e i g n c u r r e n c i e s , which are necessary to import these v i t a l r e s o u r c e s , the Japanese have ensured that i t s exports should be c o m p e t i t i v e i n the world market. In f a c t , the l a c k of a domestic supply of e s s e n t i a l n a t u r a l resources and f o o d s t u f f s has r e s u l t e d i n an \"export or d i e \" psychology t h a t has l e d Japan to expand exports at double the world r a t e . 1 9 5 High dependency means th a t Japan i s s e n s i t i v e to changes i n the s u p p l i e s and p r i c e s of the necessary raw m a t e r i a l s and f o o d s t u f f s . Japan has developed a resource procurement s t r a t e g y that ensures a s t a b l e and secure i n f l o w of r e s o u r c e s . In the l a t e 1960's, with an i n c r e a s e d demand f o r raw m a t e r i a l s and an improved balance of payments p o s i t i o n , the Japanese began to f o s t e r overseas resource development p r o j e c t s . 1 9 6 However, the f i r s t o i l c r i s i s of 1973 had a tremendous impact on the Japanese economy. The p r i c e of crude o i l 1 9 4 P . N. Nemetz, I. V e r t i n s k y and P. V e r t i n s k y , \"Japan's Energy S t r a t e g y at the C r o s s r o a d , \" P a c i f i c A f f a i r s ; An I n t e r n a t i o n a l Review of A s i a and the P a c i f i c , v o l . 57, no. 4 (Winter, 1984-85): 554. 1 9 5 P e t e r Duus, The Rise of Modern Japan, (Boston: Houghton M i f f l i n Co., 1976), p. 257. 1 9 6M. Y. Yoshino, \"Japanese F o r e i g n D i r e c t Investment,\" i n The Japanese Economy in I n t e r n a t i o n a l P e r s p e c t i v e , ed. I s a i a h Frank ( B a l t i m o r e : Johns Hopkins U n i v e r s i t y \" P r e s s , 1975), p. 255. 116 i n c r e a s e d four times w i t h i n a few months, which d r a s t i c a l l y changed Japan's l a r g e - s c a l e energy as w e l l as economic p o l i c i e s . With regard to the n a t i o n a l energy p o l i c y , the d i v e r s i f i c a t i o n of energy sources 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 of energy s u p p l y i n g c o u n t r i e s have been emphasized. The f i r s t o i l c r i s i s was t r i g g e r e d by the Yom Kippur War i n the f a l l of 1973. The Japanese p e r c e i v e d t h i s as an \" o i l shock\" and panicked when c o n f r o n t e d with a cut i n o i l supply and a sharp i n c r e a s e i n o i l p r i c e s . Because of the extreme dependence on o i l imports from the Middle E a s t , the e n e r g y - i n t e n s i v e i n d u s t r i a l s t r u c t u r e of Japan was p l a c e d i n an e x c e p t i o n a l l y v u l n e r a b l e p o s i t i o n . A f t e r World War I I , Japan's r a p i d economic growth was s u s t a i n e d by the a v a i l a b i l i t y of v i r t u a l l y u n l i m i t e d q u a n t i t i e s of low-cost energy sources, mainly o i l . T h i s r a p i d economic growth was accompanied by a r a p i d s h i f t i n manufacturing from l i g h t i n d u s t r y to heavy and chemical i n d u s t r i e s , which a l s o meant a s h i f t to e n e r g y - i n t e n s i v e p r o d u c t i o n . \"The p e r i o d between 1965 and 1970 was c h a r a c t e r i z e d by the c o n t i n u a t i o n of r a p i d economic growth and i n t e n s i f i c a t i o n of energy use i n the manufacturing s e c t o r . \" 1 9 7 The e x i s t e n c e of abundant, cheap o i l made the p r i c e of Japanese exports c o m p e t i t i v e i n world markets. Thus, the r e d u c t i o n of o i l i n f l o w to Japan was e q u i v a l e n t to c u t t i n g i t s l i f e - l i n e . Consequently, the Japanese were s e v e r e l y a f f e c t e d by the o i l c r i s i s . 1 9 7Nemetz, V e r t i n s k y and V e r t i n s k y , op., c i t . , p. 555. 1 1 7 The a v a i l a b i l i t y of an ample o i l s u p p l y a t low c o s t stemmed from two f a c t o r s . F i r s t , i n 1957 the U n i t e d S t a t e s government d e c i d e d t o l i m i t the i m p o r t a t i o n of f o r e i g n o i l . As a r e s u l t , i n the 1950's the l a r g e amounts of crude o i l which were produced i n newly d i s c o v e r e d o i l f i e l d s of N o r t h A f r i c a and the P e r s i a n G u l f caused a g l u t i n o t h e r m a r k e t s . Another f a c t o r r e g a r d i n g low crude o i l p r i c e s was the i n c r e a s i n g d e s i r e of the governments of M i d d l e E a s t o i l p r o d u c i n g c o u n t r i e s f o r h i g h e r r e v e n u e s . 1 9 8 Governments such as I r a n , K u w a i t , and S a u d i A r a b i a p r e s s e d the i n t e r n a t i o n a l o i l companies t o i n c r e a s e the a n n u a l output of c r u d e o i l i n o r d e r t o o b t a i n a d d i t i o n a l n a t i o n a l income. C o n c u r r e n t l y , the new N o r t h A f r i c a n and lower P e r s i a n G u l f f i e l d s began t o produce o i l , which a l s o came i n t o the market. Hence, Japan was a b l e t o t a k e maximum advantage of low c r u d e o i l p r i c e s , which gave Japanese m a n u f a c t u r e r s a c o m p e t i t i v e edge even i n the t i g h t U.S. market. The f i r s t o i l c r i s i s put a h a l t t o an e r a of r a p i d economic growth i n Japan. S u b s e q u e n t l y , Japan e n t e r e d an e r a of a more moderate economic growth. The o i l c r i s i s r a i s e d q u e s t i o n s about s e c u r i n g the s u p p l y of energy s o u r c e s f o r Japan. In a d d i t i o n , i t h i g h l i g h t e d Japan's v u l n e r a b l e p o s i t i o n because, p r e v i o u s l y , Japan depended e x c e s s i v e l y on a s i n g l e commodity from one s p e c i f i c a r e a . A f t e r the i n c i d e n t , Japan embarked on an i n t e n s e p r o c e s s of energy 1 9 8 H e r b e r t I . Goodman, \"Japan and the World Energy Problem,\" i n Japan's Economy: Coping W i t h Changing i n the I n t e r n a t i o n a l E nvironment, ed. D a n i e l I . Okimoto ( B o u l d e r , C o l o r a d o : Westview P r e s s , 1982), p. 47. 1 18 c o n s e r v a t i o n and o i l s u b s t i t u t i o n . In the midst of t h i s p r o c e s s , Japan underwent the second o i l c r i s i s of 1979, when the o i l supply was i n t e r r u p t e d by the I r a n i a n r e v o l u t i o n . The second o i l c r i s i s f u r t h e r r e i n f o r c e d f u e l s u b s t i t u t i o n and c o n s e r v a t i o n e f f o r t s i n Japan although Japan remains h e a v i l y dependent on Middle E a s t e r n o i l . These two o i l c r i s e s changed Japanese energy and economic p o l i c i e s as w e l l as overseas investment a c t i v i t i e s . In order to reduce h i g h dependence on Middle E a s t e r n o i l , new p o l i c i e s s t r e s s e d 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 of o i l s u p p l y i n g c o u n t r i e s , s h i f t i n g from the Middle East r e g i o n to other g l o b a l s u p p l i e r s , and f u e l s u b s t i t u t i o n , s h i f t i n g from o i l to other energy sources such as c o a l , LNG, and n u c l e a r power. In accordance with these g o a l s , the development of o i l and n a t u r a l gas p r o d u c t i o n i n Southeast A s i a was encouraged, and the present government's goal i s to i n c r e a s e by 1990 the share of o i l from A s i a n c o u n t r i e s to 30 p e r c e n t . The e x p l o i t a t i o n of f r o n t i e r c o a l and LNG resources i n Canada and A u s t r a l i a a l s o became s i g n i f i c a n t to Japan. As a r e s u l t , i n 1982, Indonesia, M a l a y s i a , and Brunei s u p p l i e d 20.0 percent of Japan's crude o i l imports, along with China's 4.8 p e r c e n t . In the same year, the Middle East supply was 70.6 p e r c e n t , 1 9 9 dropping from more than 90 percent i n 1973. However, d e s p i t e a l l e f f o r t s to reduce the high dependency on Middle East crude o i l , Middle East o i l 1 9 9 Y a n o Tsuneta K i n e n k a i , ed., op_. c i t . , p. 136. 119 remains a p r e r e q u i s i t e f o r Japanese economic a c t i v i t y . The Japanese i n d u s t r i a l s t r u c t u r e had t o be a d j u s t e d i n response t o the h i g h energy p r i c e s , s i n c e Japan c o u l d no l o n g e r consume abundant, cheap o i l a f t e r the o i l c r i s e s . C o n s e q u e n t l y , the i n d u s t r i a l s t r u c t u r e has been s h i f t i n g from a \" p o l l u t i o n - p r o n e \" and e n e r g y - i n t e n s i v e i n d u s t r i a l base t o a \" c l e a n \" and e n e r g y - c o n s e r v a t i o n i n d u s t r i a l s t r u c t u r e . The Japanese economy i s o r i e n t e d toward h i g h t e c h n o l o g y and k n o w l e d g e - i n t e n s i v e i n d u s t r i e s , w hich a l s o r e q u i r e l e s s e n e rgy. W i t h the i n c r e a s e i n o i l p r i c e s and an accompanying i n c r e a s e i n o t h e r energy p r i c e s , some of the Japanese m a n u f a c t u r i n g i n d u s t r i e s have l o s t t h e i r i n t e r n a t i o n a l c o m p e t i t i v e edge. For example, aluminum s m e l t i n g consumed much e l e c t r i c i t y . T h e r e f o r e , much of i t s o p e r a t i o n i n Japan was c l o s e d down, or r e l o c a t e d o v e r s e a s where ample, cheap energy l i k e c o a l or h y d r o - e l e c t r i c power, was a v a i l a b l e . T h i s was t y p i f i e d by the Asahan aluminum p r o j e c t i n I n d o n e s i a . Thus, t h e Japanese i n d u s t r i a l s t r u c t u r e has been t r a n s f o r m i n g i n t o t h e e n e r g y - c o n s e r v a t i o n t ype and/or t h e k n o w l e d g e - i n t e n s i v e t y p e . W i t h r e g a r d t o o v e r s e a s i n v e s t m e n t , Japan has r e e v a l u a t e d the i m p o r t a n c e of o v e r s e a s i n v e s t m e n t i n n a t u r a l r e s o u r c e development. P r i o r t o the o i l c r i s i s of 1973, Japanese i n d u s t r i a l i s t s i m p o r t e d raw m a t e r i a l s i n c l u d i n g f u e l s by p u r c h a s i n g them on the open market or v i a l o n g - t e r m 120 c o n t r a c t u a l a r r a n g e m e n t s . 2 0 0 However, s i n c e the \" o i l shock\" of 1973, Japan has f u r t h e r engaged i n o v e r s e a s n a t u r a l r e s o u r c e development p r o j e c t s i n o r d e r t o s e c u r e a more s t a b l e s u p p l y . In the p r e v i o u s passage, i t was s t r e s s e d t h a t t h e s c a r c i t y of n a t u r a l r e s o u r c e s i n Japan has r e n d e r e d i t h i g h l y dependent on i m p o r t s of raw m a t e r i a l s and f o o d s t u f f s . Here, the s o - c a l l e d \" r e s o u r c e c o n s t r a i n t s \" p r o b l e m i s examined from a d i f f e r e n t p o i n t of view. A c c o r d i n g t o N i s h i k a w a , the r e s o u r c e 2 0 1 c o n s t r a i n t s problem w h i c h Japan has been f a c i n g i s d e r i v e d n e i t h e r from the p h y s i c a l l i m i t a t i o n of w o r l d r e s o u r c e s , nor from the s t r a t e g y of \" i n t e r n a t i o n a l o l i g o p o l y , \" nor from energy s h o r t a g e s i n the U n i t e d S t a t e s . I t i s e s s e n t i a l l y d e r i v e d from the changes i n the i n t e r n a t i o n a l s u p p l y s t r u c t u r e of the p r i n c i p a l n a t u r a l r e s o u r c e s . 2 0 2 I t i s t r u e t h a t the non-renewable n a t u r a l r e s o u r c e s have p h y s i c a l l i m i t s , but the \" r e s o u r c e s \" a r e a dynamic c o n c e p t , because i t i s p o s s i b l e t o r e e v a l u a t e the \" r e s e r v e s \" 2 0 0 M . Y. Y o s h i n o , op. c i t . , p. 252. 2 0 1 R e s o u r c e s can be b r o a d l y d e f i n e d as m a t e r i a l f a c t o r s t h a t a r e n e c e s s a r y f o r the p r o d u c t i o n of goods and s e r v i c e s t o s a t i s f y human.needs ( i . e . raw m a t e r i a l s , f u e l s , and e n v i r o n m e n t a l r e s o u r c e s such as l a n d , w a t e r , or c l i m a t e ) . Or, t h o s e m a t e r i a l s which a r e consumed by human b e i n g s i n o r d e r t o re p r o d u c e t h e m s e l v e s ( f o o d r e s o u r c e s ) ; and a l s o as n o n - m a t e r i a l f a c t o r s t h a t o r g a n i z e t h i s p r o d u c t i o n and consumption p r o c e s s , such as human r e s o u r c e s and c u l t u r a l r e s o u r c e s . N i s h i k a w a ' s r e f e r e n c e s t o r e s o u r c e s a r e b o t h n a t u r a l and e n v i r o n m e n t a l , a l t h o u g h he says he was g o i n g t o t r e a t o n l y t h e n a t u r a l ones. 2 0 2 J u n N i s h i k a w a , \"'Resource C o n s t r a i n t s ' : A Problem of the Japanese Economy,\" i n Growth and R e s o u r c e s , v o l . 5: Problems R e l a t e d t o Japan , ed. S h i g e t o T s u r u (Tokyo: I n t e r n a t i o n a l Economic A s s o c i a t i o n , 1972), p. 305. 121 year by year a c c o r d i n g to new d i s c o v e r i e s , t e c h n o l o g i c a l changes, t e c h n o l o g i c a l i n n o v a t i o n s , changes i n c o s t s , changes i n demand and supply, or changes i n market p r i c e s . 2 0 3 Japan had had resource c o n s t r a i n t s problems, but the supply of r e s o u r c e s had been so smoothly met that the Japanese almost f o r g o t the e x i s t e n c e of the problem u n t i l the o i l c r i s i s , which was c o n s i d e r e d a symbol f o r d e v e l o p i n g c o u n t r i e s to s e i z e c o n t r o l of t h e i r own resources f o r the f i r s t time i n modern economic h i s t o r y . Moreover, a c c o r d i n g to Nishikawa, there i s another aspect of r esource c o n s t r a i n t s , which stems from domestic concerns. Large e n t e r p r i s e s i n t e r n a l i z e d the e x t e r n a l economies and e x t e r n a l i z e d t h e i r diseconomies. They have long b e n e f i t e d from the f r e e or low c o s t use of environmental r e s o u r c e s such as l a n d , water, or a i r . 2 0 4 N e v e r t h e l e s s , p r o f i t maximizing caused a high degree of p o l l u t i o n and damage to the environment. As a r e s u l t , there were new c o n s t r a i n t s to the expansion of p r o d u c t i o n and d i f f i c u l t y i n o b t a i n i n g new p l a n t l o c a t i o n s . Entrepreneurs looked abroad f o r l o c a t i o n s where new resources would be more a v a i l a b l e . Nishikawa has summarized t h i s , as f o l l o w s . The \"resource c o n s t r a i n t s \" problem i n [the] Japanese economy d i d not o r i g i n a t e i n any sense i n an a b s o l u t e resource d e p l e t i o n problem, but o r i g i n a t e d i n the worsening of \"North-South\" i s s u e s , which i n t u r n r e s u l t e d i n the change i n supply s t r u c t u r e of the world's raw m a t e r i a l s . The problem a l s o r e s u l t e d from the s p e c t a c u l a r development of 2 0 3 I b i d . , p. 304. 2 0 4 I b i d . , p. 308. 122 d o m e s t i c heavy and c h e m i c a l i n d u s t r i e s based on the d o c t r i n e of i n t e r n a t i o n a l d i v i s i o n of l a b o r , which has d e s t r o y e d and d e t e r i o r a t e d domestic r e s o u r c e s . 2 0 5 Then, he p r e s e n t s a s o l u t i o n . For the Japanese economy, the t r u e s o l u t i o n of the \" r e s o u r c e c o n s t r a i n t s \" problem i s t o m o d i f y the a c t u a l road of economic growth, and p r o c e e d t o c o n s t r u c t an economic s t r u c t u r e based on p e o p l e ' s w e l f a r e , s o c i a l j u s t i c e , and harmony w i t h n a t u r e . 2 0 6 There may be some argument f o r N i s h i k a w a ' s p o s i t i o n but i t i s r e a l i t y t h a t w i t h o u t i m p o r t s of n e c e s s a r y n a t u r a l r e s o u r c e s and f o o d s t u f f s , the Japanese a r e not even a b l e t o m a i n t a i n t h e i r p r e s e n t economic a c t i v i t i e s nor t h e i r e x i s t i n g s t a n d a r d s of l i v i n g . T h e r e f o r e , i t i s u n d e r s t a n d a b l e t h a t the Japanese aim a t o v e r s e a s d i r e c t f o r e i g n i n v e s t m e n t i n o r d e r t o s e c u r e a s t a b l e s u p p l y of raw m a t e r i a l s . Japan has l e a r n e d a l e s s o n from i t s v u l n e r a b i l i t y t o overdependence on a s p e c i f i c commodity i n one or a few c o u n t r i e s , not o n l y from the f i r s t and second o i l c r i s e s , but a l s o from the 1973 U.S. embargo on soybean e x p o r t s t o Japan. S i n c e Japan r e g a r d e d t h e U n i t e d S t a t e s as a f r i e n d l y c o u n t r y , the i m p l e m e n t a t i o n w i t h o u t w a r n i n g of the embargo shocked Japan, and l e d i t t o r e e v a l u a t e i t s dependency on i m p o r t e d f o o d . S i n c e i n d u s t r i a l o u t p u t and e x p o r t s expanded and i t s f o r e i g n exchange r e s e r v e s r a p i d l y a c c u m u l a t e d , r a t i o n a l i z e d by the p r i n c i p l e of c o m p a r a t i v e advantage, Japan was a b l e t o 2 0 5 I b i d . , p. 310. 2 0 6 I b i d . , p. 311. 123 purchase g r a i n s and f o o d s t u f f s from o v e r s e a s . R e l a t i v e l y cheap i m p o r t s of a g r i c u l t u r a l p r o d u c t s a r e d e s i r a b l e , s i n c e the a r a b l e l a n d i n Japan i s o n l y about 15 p e r c e n t of the t o t a l . Thus, domestic a g r i c u l t u r e i s d i s a d v a n t a g e d compared t o U.S. a g r i c u l t u r e . W i t h r i s i n g incomes, the postwar i n t r o d u c t i o n of a Western way of l i f e has l e d t o a m o d i f i c a t i o n of Japanese d i e t a r y t a s t e s from r i c e as a s t a p l e w i t h v e g e t a b l e s and f i s h as p r o t e i n t o i n c r e a s i n g use of wheat as a s t a p l e and o t h e r a n i m a l p r o t e i n . C o n s e q u e n t l y , demand f o r g r a i n s , meat, d a i r y p r o d u c t s and f r u i t s has i n c r e a s e d . S i n c e Japan e x p o r t e d m a n u f a c t u r e d goods t o the U n i t e d S t a t e s , Japan has bought American a g r i c u l t u r a l p r o d u c t s a t r e a s o n a b l e p r i c e s . Moreover, d u r i n g the p e r i o d of r a p i d economic growth, Japan e x p e r i e n c e d a s h i f t i n l a b o r from a g r i c u l t u r a l t o the expanding i n d u s t r i a l s e c t o r i n o r d e r t o i n c r e a s e o v e r a l l n a t i o n a l economic p r o d u c t i v i t y . Thus, the i n d u s t r i a l s e c t o r had p r i o r i t y over the a g r i c u l t u r a l s e c t o r . As a r e s u l t , the s u p p l y of f o o d s t u f f s from o v e r s e a s was expanded and f o o d s e l f - s u f f i c i e n c y dropped, except f o r r i c e , w h i c h has been p r o t e c t e d by the government. The 1973 U.S. soybean embargo promoted a c t i v e Japanese i n v e s t m e n t i n a g r i c u l t u r e o v e r s e a s . A \" d e v e l o p - a n d - i m p o r t \" arrangement, which was m o s t l y under l o n g - t e r m l o a n s and p u r c h a s e c o n t r a c t s r a t h e r than t h r o u g h d i r e c t i n v e s t m e n t 2 0 7 2 0 7 T e r u t o m o Ozawa, \"Japan's Resource Dependency and Overseas I n v e s t m e n t , \" J o u r n a l of World Trade Law v o l . 11, no. 1 ( J a n u a r y ; F e b r u a r y , 1977): 63-64. 124 was encouraged, and has been pushed by sogo shosha. Develop-and-import i n v e s t m e n t s were made f o r the l a r g e - s c a l e p r o d u c t i o n of soybeans, c o r n and beef i n B r a z i l . A s i a n c o u n t r i e s such as I n d o n e s i a , T h a i l a n d and the P h i l i p p i n e s h o s t e d a s i m i l a r type of i n v e s t m e n t . Investment i n A u s t r a l i a r e l a t e d t o v e n t u r e s i n beef p r o d u c t i o n . 2 0 8 The 1972-73 worldwide s h o r t a g e s of g r a i n s a l s o r e v e a l e d the v u l n e r a b i l i t y of the Japanese economy. Large Japanese f i r m s r e p r e s e n t e d by sogo shosha i n o r d e r t o secur e a st e a d y s u p p l y of g r a i n s a t f a v o r a b l e p r i c e s began t o p a r t i c i p a t e more d i r e c t l y i n the U.S. g r a i n t r a d e by i n v e s t i n g i n g r a i n e l e v a t o r s and s t o r a g e f a c i l i t i e s i n the U n i t e d S t a t e s . 2 0 9 To c o n c l u d e , s i n c e Japan has f o l l o w e d the r e s o u r c e - i n t e n s i v e p a t t e r n of economic development i n s p i t e of e x i g u o u s r e s o u r c e endowments of i t s own, i t has become i n c r e a s i n g l y dependent on im p o r t e d raw m a t e r i a l s . As the two o i l c r i s e s of 1973 and 1979 exposed, t h e Japanese economy i s s u s c e p t i b l e t o any i n t e r r u p t i o n i n t h e s u p p l y of ov e r s e a s raw m a t e r i a l s and t o sh a r p p r i c e r i s e s . I t was n e c e s s a r y t o rev i e w Japan's p a s t p r a c t i c e of i m p o r t i n g raw m a t e r i a l s and p r o c e s s i n g them a t home f o r d o m e s t i c consumption as w e l l as f o r e x p o r t s i n t h e fa c e of r a d i c a l changes i n the i n t e r n a t i o n a l s i t u a t i o n . Japan has made e f f o r t s t o r e s t r u c t u r e i t s i n d u s t r y t o become l e s s r e s o u r c e - d e p e n d e n t . 2 0 8 I b i d . , p. 67. 2 0 9 N o b u t o s h i Akao, \"Resources and Japan's S e c u r i t y , \" i n Japan's Economic S e c u r i t y : Resources as a F a c t o r i n F o r e i g n P o l i c y ed. N o b u t o s h i Akao (Hampshire, U.K.: Gower P u b l i s h i n g Co., 19830, p. 23. 1 25 However, Japan cannot escape t h e f a c t t h a t i n d u s t r i a l r e s o u r c e s , energy s o u r c e s and f o o d s t u f f s a r e not met, i n q u a n t i t y and q u a l i t y , by i n d i g e n o u s s u p p l i e s as l o n g as Japan r e t a i n s t h e p r e s e n t s i z e of t h e economy. Thus, i t i s i m p e r a t i v e f o r Japan t o s e c u r e t h e s u p p l y of n e c e s s a r y r e s o u r c e m a t e r i a l s . I n t h i s r e g a r d , t r a d e and d i r e c t f o r e i g n i n v e s t m e n t go hand i n hand as means t o o b t a i n c r u c i a l i m p o r t s . As l o n g as Japan i s h i g h l y dependent on o v e r s e a s r e s o u r c e m a t e r i a l s , t h e \" e x p o r t o r d i e \" m e n t a l i t y w i l l not change over n i g h t . T h i s i s h a r d l y s u r p r i s i n g i n view of t h e r e c e n t h i s t o r y of Japan as a net c r e d i t o r i n c a p i t a l w h i c h f i r s t o c c u r r e d i n 1968. By 1985 Japan had become one of t h e l a r g e s t c r e d i t o r n a t i o n s i n t h e w o r l d economy. I I . The Dual Economic S t r u c t u r e and Keiretsu The Japanese economy p r e s e n t s a d u a l s t r u c t u r e . B oth between d i f f e r e n t i n d u s t r i e s and between the l a r g e and s m a l l f i r m s w i t h i n the same i n d u s t r i e s t h e r e e x i s t d i f f e r e n c e s i n wage r a t e s , p r o d u c t i v i t y l e v e l s and t e c h n o l o g y l e v e l s ( t r a d i t i o n a l v e r s u s modern). The d u a l i n d u s t r i a l s t r u c t u r e t y p i f i e s t h e r e l a t i o n s h i p between l a r g e f i r m s and s m a l l f i r m s based on t h e s u b c o n t r a c t i n g s y s t e m . 2 1 0 L a r g e f i r m s 2 1 0 A l t h o u g h t h e s m a l l f i r m i s h e r e i n d e f i n e d i n o p p o s i t i o n t o t h e l a r g e f i r m , i t i s i m p o r t a n t t o c l a r i f y t h e o f f i c i a l d e f i n i t i o n of a s m a l l f i r m . The B a s i c S m a l l B u s i n e s s law p a s s e d i n 1963 d e f i n e d s m a l l b u s i n e s s e s as f i r m s c a p i t a l i z e d a t o r below 50 m i l l i o n yen and/or e m p l o y i n g 300 p e r s o n s or l e s s ( i n t h e commerce and s e r v i c e i n d u s t r i e s , f i r m s c a p i t a l i z e d a t or below 10 m i l l i o n yen and/or h a v i n g 50 or 126 are sometimes members of keiretsu, or g i a n t i n d u s t r i a l groups. The c o n d i t i o n s which allowed the dual s t r u c t u r e of the economy to develop were formed i n the M e i j i p e r i o d (1868-1912), when Japan, as a \"latecomer,\" had to i n d u s t r i a l i z e r a p i d l y i n order to c a t c h up with the more advanced n a t i o n s . The present market system as w e l l as government p o l i c i e s , r e i n f o r c e and enhance t h i s dual s t r u c t u r e r a t h e r than break i t down. Moreover, the d u a l i n d u s t r i a l s t r u c t u r e i s regarded as one of the c o n t r i b u t o r s to the r a p i d economic growth of Japan a f t e r World War I I , s i n c e t h i s s t r u c t u r e gave Japanese l a r g e manufacturers a c o m p e t i t i v e edge i n i n t e r n a t i o n a l markets by u t i l i z i n g the c o s t advantages of small s u b c o n t r a c t o r s . The c o - e x i s t e n c e of t r a d i t i o n a l and modern s e c t o r s c o n s t i t u t e s a \" d u a l i s t i c \" c h a r a c t e r which i s commonly found i n the economic and s o c i a l s t r u c t u r e of d e v e l o p i n g c o u n t r i e s . The concept \"dualism\" or a \"dual economy\" i s a u s e f u l framework to analyze the economy i n the t h i r d world, r e p r e s e n t e d by Boeke i n 1953, Geertz i n 1963, and an I n t e r n a t i o n a l Labor O r g a n i z a t i o n paper i n 1972. In Japan, alth o u g h the term \"dual s t r u c t u r e \" was used before 1957, the 2 1 0 ( c o n t ' d ) fewer employees). The B a s i c Law of 1963 was r e v i s e d i n 1973, and the l e g a l d e f i n i t i o n of small and medium-sized f i r m s i n Japan was changed as f o l l o w s . I n d u s t r i a l c a t e g o r y C a p i t a l Employees Manufacturing and 100 m i l l i o n yen 299 persons or Mining or l e s s l e s s W holesaling 30 \" 99 R e t a i l i n g & s e r v i c e s 10 49 Before the r e v i s i o n of the Law, w h o l e s a l i n g was i n c l u d e d under commerce and s e r v i c e i n d u s t r i e s . 127 d u a l s t r u c t u r e of the Japanese economy was o f f i c i a l l y a n a l y z e d and r e c o g n i z e d i n 1957 economic w h i t e paper. Though t h e r e i s d u a l i s m i n i n d u s t r i a l i z e d c o u n t r i e s , t h e r e i s a d i s t i n c t i o n between the d e v e l o p e d c o u n t r i e s and d e v e l o p i n g c o u n t r i e s i n terms of the d u a l i s t i c c h a r a c t e r of t h e economy. In the d e v e l o p e d n a t i o n s , the t r a d i t i o n a l and modern s e c t o r s a r e u n i f i e d i n a w o r k i n g mechanism of the n a t i o n a l economy, t h a t i s , l a r g e modern e n t e r p r i s e s and t r a d i t i o n a l s m a l l and medium e n t e r p r i s e s a r e i n a complementary r e l a t i o n s h i p . The l a t t e r depend on the development of the f o rmer, w h i l e the l a r g e e n t e r p r i s e s use c h e a p - l a b o r p r o d u c t s of s m a l l and medium e n t e r p r i s e s and r e g a r d t h e s e as a b u f f e r or c u s h i o n a g a i n s t b u s i n e s s f l u c t u a t i o n s . As f a r as the j u x t a p o s i t i o n of t h e two s e c t o r s i s c o n c e r n e d , Japan and t h e S o u t h e r n West European c o u n t r i e s have something i n common. Today [ t h e ] economy i s a m i x t u r e of two phases of economic development. On t h e one s i d e , i t c o n t a i n s a h i g h l y d e v e l o p e d s e c t o r , which i s c h a r a c t e r i s e d by the h i r e d - l a b o u r system, l a r g e - s c a l e o p e r a t i o n s , and modern, c a p i t a l - u s i n g methods of p r o d u c t i o n , and which y i e l d s t o t h o s e w o r k i n g i n i t a r e a s o n a b l y h i g h income per head. On the o t h e r s i d e , i t c o n t a i n s a l a r g e ' p r e - i n d u s t r i a l ' or ' p r e - c a p i t a l i s t i c * s e c t o r , which i s based p r e d o m i n a n t l y on a r t i s a n or f a m i l y l a b o u r , m i n u t e l y s m a l l - s c a l e o p e r a t i o n s and a minimum p r o v i s i o n of c a p i t a l , and which p r o v i d e s f o r t h o s e w o r k i n g i n i t o n l y a v e r y low income per head. T h i s m i x t u r e s e t s [ t h e ] economy a p a r t from the \"advanced' economies where s m a l l - s c a l e e n t e r p r i s e has s u r v i v e d o n l y t o a much more l i m i t e d e x t e n t and where no such marked c l e a v a g e i n income l e v e l s e x i s t s . . . . A f t e r some e i g h t y y e a r s of i n d u s t r i a l development a l o n g modern l i n e s , the . . . economy has remained r o u g h l y a h a l f - a n d - h a l f system. T h i s 1 28 system . . . I s h a l l c a l l . . . the 'dual economy' . \u00E2\u0080\u00A2 \u00E2\u0080\u00A2 \u00E2\u0080\u00A2 'Economic dualism' . . . e x i s t s w i t h i n both a g r i c u l t u r e and i n d u s t r y , as w e l l as between a g r i c u l t u r e and i n d u s t r y , even i f the g r e a t e r p a r t of the poor group i s to be found i n a g r i c u l t u r e . 2 1 1 T h i s q u o t a t i o n comes from Vera L u t z ' s book on I t a l i a n economic development c i t e d by Broadbridge. In essence, i t was a p p r o p r i a t e f o r the Japanese economy i n the 1950's and some of these aspects s t i l l remain, as i l l u s t r a t e d i n the beginning of t h i s s e c t i o n . 2 1 2 On the c o n t r a r y , as Miyazawa has s t a t e d , i n many of the d e v e l o p i n g n a t i o n s , the t r a d i t i o n a l and modern s e c t o r s remain marked by a c o l o n i a l economy and m o n o c u l t u r e . 2 1 3 In most cases, modern s e c t o r s are c l o s e l y i n t e g r a t e d i n t o the economies of m e t r o p o l i t a n c o u n t r i e s , and they o f t e n present economic enclaves i n the d e v e l o p i n g c o u n t r i e s . Indeed, Y o i c h i I t a g a k i has advocated t h a t the concept \"dual economy\" of the d e v e l o p i n g n a t i o n s s h o u l d be understood i n terms of ' \" c o l o n i a l s o c i a l dualism' as a s y s t e m , \" 2 1 4 because a dual 2 1 1 V e r a L u t z , I t a l y : A Study i n Economic Development (London: 1962), pp. 3-4, c i t e d by Seymour Broadbridge, I n d u s t r i a l Dualism i n Japan: A Problem of Economic Growth and S t r u c t u r a l Change (London: Frank Cass & Co., 1966), pp. 5-6. Brackets are i n o r i g i n a l . 2 1 2 F o r recent s t u d i e s on the Japanese s m a l l - and medium-sized f i r m s , see Douglas Anthony, \"Japan,\" i n The Small Firm: An I n t e r n a t i o n a l Survey, ed. David J . Storey, (London & Canberra: Croom Helm; New York: S t . M a r t i n ' s Press, 1983), pp. 46-83, and Roy Rothwell and Walter Zegveld, Innovation and the Small and Medium S i z e d Firm: T h e i r Role i n Employment and i n Economic Change (London: Frances P i n t e r [ p u b l i s h e r s ] , 1982). 2 1 3 K e n i c h i Miyazawa, \"The Dual S t r u c t u r e of Japanese Economy and I t s Growth P a t t e r n , \" The Developing Economies, v o l . 2, no. 2 (1964): 147. 2 1 \" Y o i c h i I t a g a k i , \"A Review of the Concept of the 'Dual Economy,'\" The Developing Economies, v o l . 6, no. 2 (1968): 1 43. 1 29 economy i s a r e s u l t of the h i s t o r i c a l r e s u l t of c o l o n i a l i s m . T h e r e f o r e , the nature and d i r e c t i o n of economic development can adequately be e x p l a i n e d \" i n the context of economic n a t i o n a l i s m i n d e v e l o p i n g c o u n t r i e s . \" 2 1 5 Thus, i t may be s u i t a b l e to use the term \" d u a l i s t i c s t a t e \" or \"dualism\". However, Japanese development of both the t r a d i t i o n a l and modern s e c t o r s has been i n t e g r a t e d i n t o the Japanese economy as a whole; t h e r e f o r e , a d i f f e r e n t term \"dual s t r u c t u r e \" a p p l i e s to the Japanese case. While Japan i s one of the most developed n a t i o n s , i t s t i l l r e t a i n s the dual s t r u c t u r e of the economy. From the beginning of of Japanese i n d u s t r i a l i z a t i o n , small f i r m s played a s i g n i f i c a n t r o l e i n terms of e n t e r p r i s e management and ownership, and the l o c u s of employment f o r a s u b s t a n t i a l , m i n o r i t y of a l l i n d u s t r i a l w o r k e r s . 2 1 6 In other words, the s m a l l f i r m i s an important o r g a n i z a t i o n a l form of the modernizing s o c i e t y of J a p a n . 2 1 7 In f a c t , i n 1981 75.3 percent of a l l manufacturing e s t a b l i s h m e n t s , employing fewer than ten workers, were so c o n s t i t u t e d . 2 1 8 In Japan's manufacturing s e c t o r , the r e l a t i o n s h i p between l a r g e f i r m s and s m a l l f i r m s i s o f t e n based on a s u b c o n t r a c t i n g system. Medium and small f i r m s or s u b c o n t r a c t o r s supply many kinds of p a r t s , components, and r e l a t e d goods under continuous c o n t r a c t s to l a r g e 2 1 5 I b i d . 2 1 6 J o h n C. P e l z e l , \" F a c t o r y L i f e i n Japan and China Today,\" i n Japan: A Comparative View ed. A l b e r t M. C r a i g ( P r i n c e t o n , New J e r s e y : P r i n c e t o n U n i v e r s i t y Press, 1979),, p. 379. 2 1 7 I b i d . , p. 380. 2 1 8 Y a n o Tsuneta K i n e n k a i , ed. , op_. c i t . , p. 218. 130 m a n u f a c t u r e r s i n the a u t o m o b i l e , e l e c t r i c a l a p p l i a n c e s , and o t h e r r e l a t e d i n d u s t r i e s . These f i r m s produce h i g h l y s p e c i a l i z e d p a r t s and components t o make t h e i r f i n a l p r o d u c t s a d a p t a b l e t o t h e d i v e r s i f i e d needs of Japanese consumers. Thus, s m a l l f i r m s have been i m p o r t a n t i n Japan's i n d u s t r i a l o r g a n i z a t i o n and have been f a v o r e d by r a p i d economic g r o w t h . 2 1 9 The d u a l s t r u c t u r e of the economy p r e s e n t s not o n l y the c o e x i s t e n c e of l a r g e and s m a l l m a n u f a c t u r e r s but a l s o the c o e x i s t e n c e of l a r g e and s m a l l r e t a i l e r s . The d u a l s t r u c t u r e a l s o r e f e r s t o p r o d u c t i v i t y and wage d i f f e r e n t i a l s among i n d u s t r i e s . For i n s t a n c e , i n 1981, the r a t i o of c o m p a r a t i v e p r o d u c t i v i t y of a g r i c u l t u r e t o m a n u f a c t u r i n g was 24.0 p e r c e n t . 2 2 0 D e s p i t e t h i s , o v e r a l l farm incomes a r e h i g h e r than urban because of n o n - a g r i c u l t u r a l income and government s u b s i d i e s . The i n t e r p r e t a t i o n of a d u a l s t r u c t u r e by M i y o h e i S h i n o h a r a i s w i d e l y a c c e p t e d among s c h o l a r s i n Japan. F i r s t , S h i n o h a r a i n d i c a t e d t h e r e i s a d i s p a r i t y between the i n d u s t r i a l and a g r i c u l t u r a l s e c t o r s , and t h a t t h e r e i s a d i s c r e p a n c y w i t h i n t h e i n d u s t r i a l s e c t o r and t h e s e r v i c e s e c t o r i n wage l e v e l s and p r o d u c t i v i t y which a r e a s s o c i a t e d w i t h the s i z e of an e n t e r p r i s e . Moreover, he p o i n t e d out t h a t t h e p r o p o r t i o n of the w o r k i n g p o p u l a t i o n engaged i n the 2 1 9 K e n - i c h i I m a i , \"Japan's Changing I n d u s t r i a l S t r u c t u r e and U n i t e d S t a t e s - J a p a n I n d u s t r i a l R e l a t i o n s , \" i n P o l i c y and Trade I s s u e s of the Japanese Economy: American and Japanese P e r s p e c t i v e s , ed. Kozo Yamamura ( S e a t t l e : U n i v e r s i t y of Washington P r e s s , 1982), p. 64. 2 2 0Yano Tsuneta K i n e n k a i , ed., op_. c i t . , p. 168. 131 s m a l l and medium f i r m s i s remark a b l y h i g h e r than i n thos e of o t h e r advanced c o u n t r i e s . A l s o , he a s s e r t e d t h a t t h e l a b o r market, the c a p i t a l market, and t h e p r o d u c t market s u s t a i n the p r e s e n t d u a l s t r u c t u r e of the economy. In a d d i t i o n t o S h i n o h a r a , o t h e r Japanese s c h o l a r s have a d d r e s s e d t h i s problem. S h i g e r u I s h i k a w a demonstrated t h a t wage d i f f e r e n t i a l s by the s i z e of f i r m , as o b s e r v e d i n Japan, e x i s t e d i n the d e v e l o p i n g c o u n t r i e s i n the 1960's. Hence, he c o n c l u d e d t h a t the d u a l s t r u c t u r e was a common phenomenon, i n which the d e v e l o p i n g c o u n t r i e s as l a t e c o m e r s f o l l o w a s i m i l a r c a p i t a l i s t i c m o d e r n i z a t i o n c o u r s e i n o r d e r t o i n d u s t r i a l i z e . 2 2 1 F u r t h e r m o r e , K a z u s h i Ohkawa a p p l i e d the p e r s p e c t i v e of the d u a l s t r u c t u r e t o a n a l y z e h i s t o r i c a l p r o c e s s e s . A c c o r d i n g t o him, d u r i n g t h e m o d e r n i z a t i o n p r o c e s s , the economy of a n a t i o n - s t a t e d e v e l o p s by com b i n i n g i n d i g e n o u s t r a d i t i o n a l f a c t o r s and u n i v e r s a l l y common modern f a c t o r s , and he termed t h i s \" d u a l i s t i c development.\" Based on h i s view, Japanese h i s t o r i c a l e x p e r i e n c e has been e s t a b l i s h i n g a l o n g - l a s t i n g and t y p i c a l r e c o r d of \" d u a l i s t i c d e velopment.\" 2 2 2 W h i l e most e c o n o m i s t s b e l i e v e the l a b o r market i s r e s p o n s i b l e f o r s u s t a i n i n g the d u a l i s t i c s t r u c t u r e , S h i n o h a r a d i s a g r e e s . S i n c e h i s e x p l a n a t i o n i s comprehensive 2 2 1 S h i g e r u I s h i k a w a , \" A j i a - s h o k o k u no D a i k i g y o t o S h o k i g y o , \" (Large F i r m s and S m a l l F i r m s of A s i a n C o u n t r i e s ) The Economic Review v o l . 13, no. 2 (1962): 137-156. 2 2 2 K a z u s h i Ohkawa, K i n d a i Ninon no K e i z a i H a t t e n . (Economic Development of Modern Japan) ed. K a z u s h i Ohkawa and R y o s h i n Minami (Tokyo: K e i z a i S h i n p o - s h a , 1975). 1 32 enough t o c o v e r the v a r i o u s phases of the d u a l s t r u c t u r e of the economy and because he approached the problem from t h e l a b o r market, the c a p i t a l market, and the p r o d u c t market, v i e w s h e r e i n w i l l r e f l e c t S h i n o h a r a ' s t h e s i s . A c c o r d i n g t o B r o a d b r i d g e , the f o l l o w i n g f i v e elements c o m p r i s e the h i s t o r i c a l o r i g i n s of i n d u s t r i a l d u a l i s m i n Japan: 1. M e i j i and subsequent government p o l i c i e s and the r i s e of the zai batsu; 2. The s t r u c t u r e of the c a p i t a l and money m a r k e t s , and Japanese s a v i n g h a b i t s ; 3. The dependence on impor t e d t e c h n o l o g y and t e c h n i q u e s ; 4. Japanese consumption p a t t e r n s ; and 5. The s t r u c t u r e of the l a b o r market and the p a t t e r n of a g r i c u l t u r a l d e v e l o p m e n t . 2 2 3 A l l t h e s e f a c t o r s have i n t e r a c t e d and h e l p e d t o d e t e r m i n e the p a t t e r n of development i n c a p i t a l , t e c h n o l o g y , a g r i c u l t u r e and l a b o r , development which has j o i n t l y p roduced the i n d u s t r i a l s t r u c t u r e which causes so much c o n c e r n i n Japan t o d a y . 2 2 4 S i n c e Japan was under \" w e s t e r n \" p r e s s u r e , r a p i d development was e s s e n t i a l . \" T h i s urgency n e c e s s i t a t e d economic p o l i c i e s which . . . made al m o s t i n e v i t a b l e t h e c r e a t i o n of a d u a l i n d u s t r i a l s t r u c t u r e , \" 2 2 5 which was n o t h i n g o t h e r than a p r o d u c t of i n t e r n a t i o n a l 2 2 3 B r o a d b r i d g e , op. c i t . , p. 10. T h i s i s a s l i g h t l y m o d i f i e d v e r s i o n of f i v e f a c t o r s i n d i c a t e d by B r o a d b r i d g e . Japanese s a v i n g h a b i t s a r e i n c l u d e d i n the market s t r u c t u r e d i s c u s s i o n r a t h e r than w i t h Japanese consumption p a t t e r n s . 2 2 4 I b i d . , p. 23. 2 2 5 I b i d . , p. 9. 133 power p o l i t i c s . I n the f o l l o w i n g passage, the a f o r e s a i d f a c t o r s a r e examined i n o r d e r . 1. M e i j i and subsequent government p o l i c i e s and the r i s e of the zai bat su Japan was f o r c e d t o open i t s doors t o th e West i n the 1850's and modern Japan emerged w i t h the M e i j i R e s t o r a t i o n i n 1868 when the Emperor was r e t u r n e d t o t i t u l a r power. The new government a b o l i s h e d f e u d a l i n s t i t u t i o n s and i n t r o d u c e d w e s t e r n t e c h n o l o g y and c i v i l i z a t i o n i n o r d e r t o modernize. The M e i j i l e a d e r s d e c i d e d t o r e s i s t Western c o l o n i z a t i o n , w h ich was ob s e r v e d i n Ch i n a a f t e r the Opium War of 1840. At the same t i m e , they had t o make e f f o r t s t o get r i d of the \"unequal t r e a t i e s \" 2 2 6 s i g n e d w i t h f o r e i g n powers a t the end of the Tokugawa p e r i o d . T h e r e f o r e , the government adopted two s l o g a n s : one was fukoku-kyohei which means \"a r i c h c o u n t r y , a s t r o n g army.\" The o t h e r was s hokus an-kogyo which means \"the e s t a b l i s h m e n t of (modern) i n d u s t r y , t h e development of i t . \" S i n c e the M e i j i government's major c o n c e r n was the i n t e r n a t i o n a l p o l i t i c a l s t a n d i n g of Japan, economic development was a p r i n c i p a l means t o a c c o m p l i s h p o l i t i c a l aims. Improvements i n i n d i v i d u a l s t a n d a r d s of l i v i n g and consumption p a t t e r n s were g i v e n low p r i o r i t i e s . T h e r e f o r e , from the b e g i n n i n g the Japanese i n d u s t r i a l s t r u c t u r e was made up of two d i f f e r e n t p r o d u c t i v e systems. The f i r s t c o m p r i s e d the s t r a t e g i c i n d u s t r i e s such as 2 2 6 J a p a n was a b l e t o a b o l i s h e x t r a t e r r i t o r i a l i t y i n 1894 and t o a c q u i r e the r i g h t of t a r i f f autonomy i n 1911. 134 s h i p b u i l d i n g , c h e m i c a l s , and armaments. These have d e v e l o p e d t h r o u g h government s p o n s o r s h i p and s u b s i d y by u s i n g the most advanced i n d u s t r i a l t e c h n o l o g y . The second was the h o u s e h o l d - h a n d i c r a f t i n d u s t r y which produced goods f o r home consumption. \"The ' p u t t i n g o u t' system i s w i d e l y used i n t h i s type of p r o d u c t i o n , even i n the l a r g e s t c i t i e s , and e x i s t s s i d e by s i d e w i t h l a r g e - s c a l e f a c t o r i e s . \" 2 2 7 To promote the i n d u s t r i a l p e rformance, the government s t r e s s e d t h e inve s t m e n t i n and development of the i n f r a s t r u c t u r e . Moreover, t h e government s t e p p e d i n t o h e l p development, not o n l y of the s t r a t e g i c i n d u s t r i e s which a r e p r e d o m i n a n t l y heavy, but a l s o of l i g h t i n d u s t r y such as the t e x t i l e i n d u s t r y . These i n d u s t r i e s were d e v e l o p e d by s t a t e - s p o n s o r e d e n t e r p r i s e s , which were s o l d i n the e a r l y 1880's t o p r i v a t e i n t e r e s t s due t o the government's f i n a n c i a l d i f f i c u l t i e s . Government s a l e s of p l a n t s , government c o n t r a c t s , and government s u b s i d i e s a l l r e s u l t e d i n the c o n c e n t r a t i o n of economic power i n the hands of a s m a l l group of f a m i l i e s . I n o t h e r words, economic d e c i s i o n - m a k i n g power came t o be dominated by a few family-owned i n d u s t r i a l companies. T h i s was the zaibatsu or \" f i n a n c i a l combines,\" w i t h the m a j o r i t y b e i n g founded by tho s e p o l i t i c a l merchants who had c l o s e f i n a n c i a l and p o l i t i c a l l i n k s w i t h f a c t i o n s i n the governmental b u r e a c r a c y . By the 1890's, d u r i n g the e r a of 2 2 7Thomas 0. W i l k i n s o n , The U r b a n i z a t i o n of Japanese L a b o r , 1868-1955 (Amherst, Mass.: U n i v e r s i t y of M a s s a c h u s e t t s P r e s s , 1965), p. 199. 135 the Japanese i n d u s t r i a l r e v o l u t i o n , l a r g e and powerful zai batsu, that i s , the M i t s u b i s h i , the M i t s u i , and the Sumitomo, began to form conglomerates c e n t e r i n g on the establishment of a zai bat su bank, i n c l u d i n g t r a d i n g companies, manufacturing f i r m s , and s e r v i c e i n d u s t r i e s , such as insurance and s h i p p i n g companies. Smaller zai batsu tended e i t h e r to s p e c i a l i z e i n banking such as the Yasuda i n t e r e s t s , or to dominate a p a r t i c u l a r i n d u s t r y , such as Furukawa i n copper m i n i n g . 2 2 8 The zai bat su c o n t r o l l e d t r a n s p o r t a t i o n and heavy i n d u s t r i e s , and blossomed a f t e r World War I. 2. The s t r u c t u r e of the c a p i t a l and money markets, and Japanese s a v i n g h a b i t s Japan has achieved a remarkable success i n m o b i l i z i n g domestic c a p i t a l i n l i e u of f o r e i g n c a p i t a l i n order to modernize the c o u n t r y . I t thus prevented the permeation and domination of f o r e i g n f i n a n c e c a p i t a l . The government took steps to m o b i l i z e c a p i t a l f o r i n d u s t r y , through which s u r p l u s e s from a g r i c u l t u r e and consumer taxes were c h a n n e l l e d i n t o the new s e c t o r s . J o i n t - s t o c k banks became sources of funds f o r i n d u s t r i a l development and the government e s t a b l i s h e d the Bank of Japan, the Yokohama Specie Bank, the Hypothec Bank of Japan, the Post O f f i c e Savings Bank, and the I n d u s t r i a l Bank of Japan i n order to promote economic growth. In a d d i t i o n , as the zai bat su c o n t r o l l e d the major commercial banks, they i n f l u e n c e d the 2 2 8Duus, op_. c i t . , p. 144. 1 36 s p e c i a l f i n a n c i a l i n s t i t u t i o n s . Thus, the s t a t e p l a y e d an i m p o r t a n t r o l e i n m o b i l i z i n g the s o u r c e s of f i n a n c e as w e l l as i n e s t a b l i s h i n g the i n s t i t u t i o n s t h r o u g h which c a p i t a l f l o w e d . 2 2 9 In a d d i t i o n t o government t a x e s , i n d i v i d u a l s a v i n g s a l s o c o n t r i b u t e d t o the c r e a t i o n of the d o m e s t i c c a p i t a l market. I n d i v i d u a l s a v i n g s by the l ower income c l a s s e s were s u b s t a n t i a l m o s t l y due t o a l a c k of s o c i a l s e c u r i t y , which, i n t u r n , i n f l u e n c e d the t r a d i t i o n a l consumption h a b i t s . M y r i a d s of s m a l l s a v i n g s were c o l l e c t e d by Japanese banks which p r o v i d e d a l a r g e v a r i e t y of t i m e - d e p o s i t a c c o u n t s . These s a v i n g s were f u n n e l e d i n t o b i g f i r m s t h r o u g h the government and the banks. As one of the p o l i c y g o a l s , the government was t o b u i l d - u p the s t r a t e g i c i n d u s t r i e s which r e q u i r e d l a r g e amounts of c a p i t a l . To meet t h i s end, t h e government s e t up f i n a n c i a l i n s t i t u t i o n s . The demand f o r c a p i t a l was g r e a t but the s u p p l y was i n s u f f i c i e n t . In t h i s s i t u a t i o n , the government and b i g e n t e r p r i s e s took th e l i o n ' s s h a r e , f o r the c a p i t a l market and the b a n k i n g system was i n f a v o r of them. 3. The dependence on i m p o r t e d t e c h n o l o g y and t e c h n i q u e s By the time Japan made a showing i n the modern w o r l d , Western s t a t e s a l r e a d y had e s t a b l i s h e d a c o n s i d e r a b l e degree of u n i t y i n western t e c h n o l o g y and economic i n t e r d e p e n d e n c e . Hence, Japan as a f o l l o w e r - n a t i o n had t o c a t c h up and a t the 2 2 9 B r o a d b r i d g e , op_. c i t . , p. 14. 1 37 same time m a i n t a i n i t s independence. The government took i n i t i a t i v e s t o i n t r o d u c e new t e c h n o l o g i e s , new i d e a s , and new t e c h n i q u e s of management. F o r e i g n t e c h n i c i a n s were employed i n government-sponsored e n t e r p r i s e s . \"Given the s t r a t e g i c n e c e s s i t y and the d e t e r m i n a t i o n t o i n t r o d u c e the i n d u s t r i e s of the West, the a p p r o p r i a t e t e c h n o l o g y , a l l of w h i c h had t o be i m p o r t e d , demanded l a r g e - s c a l e o p e r a t i o n w h i c h , i n t u r n , c a l l e d f o r f i n a n c i a l r e s o u r c e s t o be c o n c e n t r a t e d . \" 2 3 0 As a r e s u l t , c l o s e r e l a t i o n s h i p s between the government, the banks, and a few i n d u s t r i a l g i a n t s d e v e l o p e d . Once e s t a b l i s h e d , the f i r m s w h i c h had government c o n t r a c t s and s u b s i d i e s as w e l l as h a v i n g bought s t a t e - p i o n e e r e d e n t e r p r i s e s , were p l a c e d i n advantageous p o s i t i o n s . In heavy i n d u s t r y , where t e c h n o l o g i c a l r e q u i r e m e n t s , modern f a c i l i t i e s , and c o n s i d e r a b l e c a p i t a l made i t e x t r e m e l y d i f f i c u l t f o r newcomers t o make an e n t r y i n t o t h i s f i e l d , the growing zai batsu c o u l d m o b i l i z e the r e s o u r c e s n e c e s s a r y t o s u c c e e d . 4. Japanese consumption and f a c t o r endowment p a t t e r n s The p e r s i s t e n c e of t r a d i t i o n a l p a t t e r n s of consumption made i t p o s s i b l e f o r t h e i n d i g e n o u s i n d u s t r i e s t o s u r v i v e i n many s p h e r e s . For some time a f t e r t h e M e i j i R e s t o r a t i o n , the i n t r o d u c t i o n of w e s t e r n p r o d u c t s and t e c h n i q u e s was l a r g e l y c o n f i n e d t o the a r e a s which were not c o m p e t i t i v e w i t h i n d i g e n o u s consumer i n d u s t r i e s . 2 3 1 2 3 0 I b i d . , p. 17. 2 3 1 I b i d . , p. 19. 138 There were o t h e r elements i n the s u r v i v a l of s m a l l - s c a l e i n d u s t r y , such as the p a t t e r n of f a c t o r endowment. T r a d i t i o n a l and modern methods were mixed i n the new i n d u s t r i e s , f o r i n s t a n c e , b i c y c l e and e l e c t r i c - b u l b m a n u f a c t u r i n g . L a b o r - i n t e n s i v e methods and c a p i t a l - i n t e n s i v e methods were s u c c e s s f u l l y combined i n d i f f e r e n t branches of the same i n d u s t r y . Complementary r e l a t i o n s h i p s between l a r g e and s m a l l u n i t s i n the i n d u s t r i e s d e v e l o p e d e a r l y o n . 2 3 2 5. The s t r u c t u r e of the l a b o r market and the p a t t e r n of a g r i c u l t u r a l development As the government removed f e u d a l r e s t r i c t i o n s upon the f r e e movement of p e o p l e and a b o l i s h e d the c a s t e system, p e o p l e g a i n e d the r i g h t t o choose a p l a c e t o l i v e and t o s e l e c t an o c c u p a t i o n . W i t h the i n t r o d u c t i o n of a modern e d u c a t i o n a l system, a l l government o f f i c e s were then opened t o t a l e n t , e s p e c i a l l y , u n i v e r s i t y g r a d u a t e s , r e g a r d l e s s of p r e v i o u s s o c i a l s t a t u s . These i n s t i t u t i o n a l changes g r e a t l y i n f l u e n c e d the l a b o r market. S i n c e n e i t h e r e m i g r a t i o n nor i m m i g r a t i o n were s i g n i f i c a n t c o n s i d e r a t i o n s i n J a p a n , the l a b o r market can be e x p l a i n e d by domestic demographic change. A l t h o u g h the p o p u l a t i o n e x p l o s i o n of the M e i j i p e r i o d i n c r e a s e d t h e l a b o r f o r c e , the c a p i t a l i n t e n s i v e p a r t s of the modern s e c t o r c o u l d a b s o r b o n l y a minor p o r t i o n . The r e s t of t h e i n c r e a s e d l a b o r f o r c e was absorbed e i t h e r by a g r i c u l t u r e or by s m a l l - s c a l e i n d u s t r i a l p l a n t s . 2 3 2 I b i d . , pp. 19-20. 139 Indeed, the a g r i c u l t u r a l p o p u l a t i o n remained s t a b l e i n s p i t e of i n d u s t r i a l i z a t i o n . F or i n s t a n c e , the number of Japanese a g r i c u l t u r a l h o u s e h o l d s was 5.6 m i l l i o n i n 1872 and o s c i l l a t e d between 5.4 and 5.7 m i l l i o n u n t i l 1 9 4 6 . 2 3 3 Even i n 1980 the w o r k i n g f o r c e i n a g r i c u l t u r e of Japan was 9.8 p e r c e n t of the t o t a l w o r k i n g f o r c e w h i l e t h i s f i g u r e of the U n i t e d Kingdom and the U n i t e d S t a t e s was, r e s p e c t i v e l y , 2.7 p e r c e n t and 3.7 p e r c e n t . Compared w i t h these advanced c o u n t r i e s , the Japanese f i g u r e i s h i g h . Thus, u n t i l 1946, the l a b o r market i n Japan was dominated by a r e s e r v o i r of l a b o r p r e s s i n g upon n o n - a g r i c u l t u r a l employment o p p o r t u n i t i e s . I n c r e a s e d a g r i c u l t u r a l p r o d u c t i v i t y made i t p o s s i b l e t o m a i n t a i n t h e g r o wing p o p u l a t i o n and t o p r o v i d e s s u r p l u s e s f o r i n d u s t r i a l g rowth. The a g r i c u l t u r a l s e c t o r c o n t a i n e d a g r e a t d e a l of d i s g u i s e d unemployment. T h i s meant t h a t t h e r e were r e s e r v e s of l a b o r a v a i l a b l e f o r p e r i o d s of r a p i d i n d u s t r i a l advance i n the l a b o r market. T h e r e f o r e , l a r g e companies which c o u l d o f f e r b e t t e r wages and w o r k i n g c o n d i t i o n s were a b l e t o choose employees. U s u a l l y t h e y d e s i r e d a young l a b o r f o r c e w hich demonstrated a g r e a t a d a p t a b i l i t y toward the r a p i d t e c h n o l o g i c a l change. In s h o r t , the a g r i c u l t u r e s e c t o r p l a y e d a c r i t i c a l r o l e i n Japan's m o d e r n i z a t i o n . T h i s s e c t o r was the r e s e r v o i r of a l a b o r f o r c e which e a s i l y t u r n e d i n t o an i n d u s t r i a l l a b o r f o r c e , and a l s o p r o v i d e d c a p i t a l s u r p l u s e s which were used 2 3 3 W i l k i n s o n , op_. c i t . , p. 57. 1 40 f o r e s t a b l i s h i n g modern i n d u s t r i e s . T h e r e f o r e , s t r a t e g i c i n d u s t r i e s , e s p e c i a l l y , were d e v e l o p e d a t the expense of a g r i c u l t u r e and consumer i n t e r e s t s . These a g r i c u l t u r a l s u r p l u s e s were c o l l e c t e d by the government i n the form of t a x . S i n c e the government needed a c o n s t a n t revenue from t a x a t i o n , i t undertook p o l i c i e s of a g r a r i a n r e f o r m and removed f e u d a l r e s t r i c t i o n s upon the r i g h t t o s e l l l a n d . The b a s i s of a g r i c u l t u r a l t a x a t i o n was s h i f t e d from h a r v e s t - s h a r i n g t o a d i r e c t t a x a t i o n of t h e t o t a l v a l u e of the l a n d . \"For i n s t a n c e , i n 1885-89, 69.4 p e r c e n t of the government's revenue s t i l l came from l a n d t a x e s , w h i l e f a v o r e d i n d u s t r i a l a r e a s escaped the burden of t a x a t i o n almost c o m p l e t e l y . \" 2 3 0 T h e r e f o r e , much of t h e a g r i c u l t u r a l s u r p l u s was d i r e c t e d i n t o the Exchequer by t a x a t i o n , and f i n a n c e d the i n f r a s t r u c t u r e , the new army and navy, and government i n d u s t r i a l u n d e r t a k i n g s . Moreover, because of the i n t r o d u c t i o n of the new t a x system brought on by t h e a g r a r i a n r e f o r m , the s m a l l , i n d i v i d u a l farmer had d i f f i c u l t y p a y i n g the new t a x . In r e s p o n s e , l a r g e p o r t i o n s of a g r i c u l t u r a l l a n d were s o l d and came i n t o the hands of l a n d l o r d s who kept the former owners as t e n a n t s . These commercial l a n d l o r d s r e c e i v e d a n o t h e r p a r t of the a g r i c u l t u r a l s u r p l u s i n the form of r e n t , and t h e y made i n v e s t m e n t s t h r o u g h which they a c q u i r e d more l a n d or s h a r e s i n b u s i n e s s e s o u t s i d e a g r i c u l t u r e . 2 3 5 The l a n d l o r d s 2 3 \" I b i d . , p. 42. 2 3 5G.C. A l l e n , The Japanese Economy (London: W e i d e n f e l d & N i c o l s o n , 1981), p. 2. 141 were l i t t l e concerned with a g r i c u l t u r a l p r o d u c t i v i t y . T h i s demonstrated a sharp c o n t r a s t to the a g r a r i a n changes which had taken p l a c e i n e i g h t e e n t h - c e n t u r y England, where l a n d l o r d s t r i e d to i n c r e a s e a g r i c u l t u r a l p r o d u c t i v i t y , and hence p r o f i t s , by u s i n g improved t e c h n i q u e s . 2 3 6 As a r e s u l t , a g r i c u l t u r a l s u r p l u s e s were not used per se to enhance a g r i c u l t u r a l p r o d u c t i v i t y i n Japan. Instead, the a g r i c u l t u r a l s e c t o r lagged behind i n the modernization process u n t i l the o c c u p a t i o n ' s land reform program took p l a c e and e l e c t r i c machinery and chemical f e r t i l i z e r were in t r o d u c e d a f t e r World War I I . In sum, these f i v e major f a c t o r s overlapped and were a l l c o n d i t i o n e d by one another. Moreover, they were o v e r l a i n by the p o l i c i e s of the Japanese government from the M e i j i R e s t o r a t i o n of 1868. Because of western p r e s s u r e , r a p i d development was c r u c i a l and t h i s r e q u i r e d a s t r o n g c e n t r a l governmental i n i t i a t i v e . In t h i s sense, the present d u a l s t r u c t u r e of the economy germinated i n the government p o l i c i e s of t h i s p e r i o d . T h i s dual s t r u c t u r e i s d e p i c t e d by Tables 5 to 8. Table 5 shows the number of e s t a b l i s h m e n t s i n the manufacturing i n d u s t r y , which reached a peak i n 1978. The number of p e t t y e s t a b l i s h m e n t s with l e s s than ten employees i n c r e a s e d , a b s o l u t e l y and r e l a t i v e l y , d u r i n g the p e r i o d of 1960 to 1978. In 1960, there were 345,673 es t a b l i s h m e n t s with l e s s than ten employees, c o m p r i s i n g 71.1 percent of the t o t a l 2 3 6 W i l k i n s o n , op_. c i t . , p. 55. 1 42 e s t a b l i s h m e n t s . T h i s f i g u r e i n c r e a s e d a b s o l u t e l y and r e l a t i v e l y , and i n 1978 there were 569,866 e s t a b l i s h m e n t s , comprising 76.6 percent of the t o t a l . In 1980, the t o t a l number of e s t a b l i s h m e n t s d e c l i n e d to 734,623. T h i s decrease r e s u l t e d l a r g e l y from a d e c l i n e i n the number of e s t a b l i s h m e n t s i n the lowest c a t e g o r y \u00E2\u0080\u0094 t h o s e having one to nine employees and which comprised 76.0 percent of the t o t a l . A c c o r d i n g to the o f f i c i a l d e f i n i t i o n of s m a l l f i r m s , most of the Japanese manufacturing e s t a b l i s h m e n t s c o n t i n u e to f a l l i n t o t h i s c a t e gory. Table 6 i n d i c a t e s the number of persons engaged i n the manufacturing i n d u s t r y . There are three s t r a t a with s p e c i f i c c o n c e n t r a t i o n s of employees. From 1960 to 1980, approximately 30 percent of employees worked i n e s t a b l i s h m e n t s with l e s s than 20 employees. The second c o n c e n t r a t i o n of employees i s i n the e s t a b l i s h m e n t s which have more than 49 employees and l e s s than 200, and roughly 20 percent of employees belong i n t h i s b r a c k e t . F i n a l l y , i n 1965, 16.6 percent of workers were employed i n l a r g e f i r m s with 1,000 emloyees or more. Although t h i s f i g u r e dropped a l i t t l e , t h i s t r e n d continued, and i n 1980 13.4 percent of the l a b o r f o r c e was occupied i n l a r g e f i r m s . I t i s noteworthy that the r a t i o of the l a r g e firms with 1,000 employees or more, i n c r e a s e d g r e a t l y from 5.2 percent i n 1960 to 16.6 percent i n 1965. T h i s phenomenon was i n accordance with the r a p i d economic growth e x p e r i e n c e d d u r i n g t h i s p e r i o d . Based on the o f f i c i a l d e f i n i t i o n , i n 1960 79.1 Table 5: Number of Establishments in Manufacturing Industry in Japan Size, by employees 1960 1965 1970 1975 1978 1980 1-9 345,673 71 . , 1 404,971 72 .6 479,376 73 .4 560,688 76 .2 569,866 76. . 6 558,456 76. .0 10-19 71,079 14 . 6 74,451 13 .3 88,761 13 .6 90,764 12 . 3 83,689 1 1 . , 2 83,038 1 1 , . 3 .20-29 26,329 5. .4 26,231 4 .7 26,334 4 .0 28,178 3 .8 36,629 4 . ,9 39,261 5 , 3 30-49 20,242 4. .2 22,956 4 . 1 23,861 3 .7 23,672 3 . 2 22,265 3 . 0 21,686 3 . 0 50-99 13.311 2. 7 16,348 2. .9 18,812 2. .9 18,292 2 . 5 18,164 2 . 4 18,157 2 . 5 100-199 5,822 1 . 2 7 , 343 1 . . 3 8,715 1 . . 3 8,055 1 . . 1 7,905 1 . . 1 8, 131 1 . . 1 200-299 1 , 766 0. 4 2,223 0. .4 2,742 0. .4 2 , 473 0. . 3 2,326 0. 3 2,383 0. . 3 300-499 1 ,329 0. 3 1 , 703 0. .3 1 ,987 0. .3 1,819 0. . 2 1 ,694 0. 2 1,714 0. 2 500-999 881 0. 2 1 , 150 0. .2 1 ,449 0. .2 1 , 257 0. . 2 1 , 126 0. 2 1 , 150 0. 2 1000 - 618 0. 1 730 0. . 1 894 0. . 1 772 0. . 1 673 0. 1 647 0. 1 Total 487,050 100. 0 558,106 100. 0 652,931 100. 0 735,970 100. .0 744,337 100. 0 734,623 100. 0 (Sources: Japan, Office of the Prime Minister, Bureau of S t a t i s t i c s , Japan S t a t i s t i c a l Yearbook, various years, compiled by the writer.) -IN Table 6 Number of Persons Enganged in Manufacturing (In Thousand) Industry in Japan Size, by employees 1960 1965 1970 1975 1978 1980 1-9 1 , 194 16, .6 1 ,599 16 . 1 1 ,910 16. .4 2, 153 19 . 1 2, 178 20, ,0 2, 143 19 .6 10-19 960 13 .4 1 ,050 10. .6 1 ,262 10. .8 1 ,282 1 1 . .3 1 . 152 10, 6 1 , 145 10 .5 20-29 626 8 .7 638 6 . 4 647 5. .5 690 6 . 1 885 8 , . 1 957 8 .8 30-49 762 10. .6 872 8 . a 913 7 . 8 905 8 .0 856 7 , .9 839 7 . 7 50-99 907 12 .6 1 , 120 1 1 . . 3 1 ,291 1 1 . . 1 1 , 252 1 1 .0 1 ,245 1 1 .4 1 , 248 1 1 . 4 100-199 800 1 1 . 2 1,013 10. .2 1 , 194 10. .2 1 , 106 9 .8 1 ,085 10, .0 1,119 10 . 2 200-299 431 6 .0 539 5. .4 665 5. .7 598 5 . 3 566 5 , .2 578 5 . 3 300-499 507 7 . 1 651 6 . 6 760 6 . 5 696 6. .2 650 6 , .0 656 6 .0 500-999 608 8 . 5 795 8 . 0 991 8 . 5 853 7 . 6 762 7 , .0 781 7 . 1 1000 - 374 5 . 2 1 ,645 16 . 6 2,047 17 . 5 1 , 761 15 . 6 1 , 152 13 , .9 1 ,465 13, .4 Total 7, 169 100 .0 9,922 100. .0 11,680 100. ,0 1 1 ,296 100. .0 10,890 100, ,0 10,932 100, .0 (Sources: Japan, Of f i c e of the Prime Minister, Bureau of S t a t i s t i c s , Japan S t a t i s t i c a l Yearbook, various years, compiled by the writer.) 4>-145 T a b l e 7: Average Wages i n M a n u f a c t u r i n g I n d u s t r y i n Japan ( I n Thousand Yen) S i z e , by Average a n n u a l wage employees per per s o n 1 965 1970 1 975 1 978 1980 1-9 180 374 854 1 , 1 37 1 ,317 10-19 313 622 1 ,366 1 ,781 2,042 20-29 345 688 1 ,491 1 ,821 2,078 30-49 356 683 1 ,499 1 ,944 2,238 50-99 369 688 1 ,561 2,028 2,311 100-199 391 732 1 ,739 2,273 2,548 200-299 419 794 1 ,924 2,509 2,829 300-499 449 848 2,077 . 2,754 3,075 500-999 471 903 2, 1 62 2,872 3,307 1000 - 561 1 ,066 2,510 3,361 3,824 Average 380 734 1 ,657 2, 1 37 2,433 ( S o u r c e : J apan, O f f i c e of the Prime M i n i s t e r , Bureau of S t a t i s t i c s , Japan S t a t i s t i c a l Yearbook, v a r i o u s y e a r s , c o m p i l e d by the w r i t e r . ) 146 T a b l e 8: Average Value-Added i n M a n u f a c t u r i n g I n d u s t r y i n Japan ( I n Thousand Yen) S i z e , by Average v a l u e - a d d e d employees per per s o n 1965 1970 1 975 1978 1980 1-9* 479 1,012 1 ,963 2,679 3, 178 10-19 689 1 ,455 2,835 3,852 4,662 20-29 735 1 ,622 3,031 4, 1 09 4,995 30-49 775 1 ,624 3, 136 4,284 5, 180 50-99 848 1 ,791 3,368 4,675 5,531 100-199 976 2,011 3,991 5,662 6,780 200-299 1 ,068 2,345 4,430 6,401 7,988 300-499 1 , 1 54 2,523 5,042 7, 176 9,284 500-999 1 ,357 2,875 5,306 7,874 10,334 1000 - 1 ,633 3,533 5,815 8,822 11,402 Average 974 2, 104 3,749 5,249 6,517 * G r o s s value-added=value of p r o d u c t i o n ( v a l u e of sh i p m e n t s , e t c . ) - v a l u e of domestic e x c i s e t a x i n c l u d e d i n v a l u e of shipments - c o s t s of raw m a t e r i a l s used. ( S o u r c e : Japan, O f f i c e of the Prime M i n i s t e r , Bureau of S t a t i s t i c s , Japan S t a t i s t i c a l Yearbook, v a r i o u s y e a r s , c o m p i l e d by the w r i t e r . ) 1 47 percent of the working p o p u l a t i o n i n the manufacturing i n d u s t r y were employed by small b u s i n e s s e s . In 1980, t h i s f i g u r e decreased to 73.5 p e r c e n t , but i t i s c l e a r that s m a l l e s t a b l i s h m e n t s r e t a i n e d a l a r g e share of the work f o r c e . Table 7 r e v e a l s the unmistakable wage d i f f e r e n t i a l s r e l a t e d to the s i z e of e n t e r p r i s e between 1965 and 1980. E s p e c i a l l y e v i d e n t are the sharp cleavages between the f i r m s with nine or l e s s employees and the f i r m s with ten to 19 employees. In 1965, the wage d i f f e r e n t i a l between the f i r m with nine or l e s s employees and the f i r m with 1,000 or more employees was 3.1 times. In 1980, the wage d i f f e r e n t i a l between them d i d not d i m i n i s h d r a s t i c a l l y and was s t i l l l a r g e at 2.9 times. Table 8 shows the average value-added per person i n manufacturing, and t h i s t a b l e a l s o r e v e a l s the same trends shown on Table 7. There are d i f f e r e n t i a l s between 1965 to 1980 i n p r o d u c t i v i t y a c c o r d i n g to the s i z e of e n t e r p r i s e . Large gaps are evident between the f i r m with one to nine employees and the f i r m with ten to 19 employees. In a d d i t i o n , the p r o d u c t i v i t y d i f f e r e n t i a l between the p e t t y f i r m s w i t h nine or l e s s employees and the l a r g e firms with 1,000 or more was 3.4 times i n 1965, and t h i s became 3.6 times i n 1980. Both wage and p r o d u c t i v i t y d i f f e r e n t i a l s have been r e t a i n e d to the p r e s e n t . T h e r e f o r e , based on the s t a t i s t i c s , small e n t e r p r i s e s s t i l l p r o v i d e a great number of workers with job o p p o r t u n i t i e s . During the p e r i o d of 1965 to 1980, the 1 48 d i f f e r e n t i a l s i n wages and p r o d u c t i v i t y between s m a l l f i r m s and l a r g e f i r m s p e r s i s t e d , and t h u s p r o v e d t h a t the i n d u s t r i a l d u a l i s m has not d i s a p p e a r e d . T h i s i s i n s h a r p c o n t r a s t t o N o r t h A m e r i c a , where l a b o r m o b i l i t y i s h i g h , w h i c h c a u s e s the wage d i f f e r e n t i a l between s m a l l f i r m s and l a r g e f i r m s t o be l i t t l e . T h i s a l s o means t h a t l a r g e f i r m s i n the U n i t e d S t a t e s and Canada a r e unable t o i n c r e a s e t h e i r i n t e r n a t i o n a l c o m p e t i t i v e edge i n t h e Japanese way. A f t e r World War I I , Japan's economy was d e v a s t a t e d . However, Japan d i d not have t o r e b u i l d c o m p l e t e l y f o r the c o u n t r y i n h e r i t e d the prewar e s t a b l i s h m e n t of human r e s o u r c e s : a h i g h l y educated p o p u l a t i o n , wide d i f f u s i o n of t e c h n i c a l s k i l l s , a p e r v a s i v e work e t h i c , and m a n a g e r i a l e x p e r i e n c e . Through u t i l i z a t i o n of the e x i s t i n g human r e s o u r c e s , Japan was a b l e t o devote c a p i t a l , s k i l l s , and energy t o the e x p a n s i o n of the c i v i l i a n economy because of the a b o l i t i o n ' o f a Japanese m i l i t a r y e s t a b l i s h m e n t f o l l o w e d by the slow b u i l d u p of a l i m i t e d d e f e n s e f o r c e . Japan's d e f e n s e has been p r o v i d e d by U n i t e d S t a t e s f o r c e s , t o g e t h e r w i t h Japan's own S e l f - D e f e n s e F o r c e s and the American n u c l e a r u m b r e l l a . To d e v e l o p the economy, the government has f o l l o w e d an \"economics f i r s t \" p o l i c y which has c o n c e n t r a t e d on economic r e c o v e r y and development. The immediate postwar s i t u a t i o n was s i m i l a r t o t h a t of t h e b e g i n n i n g of the M e i j i p e r i o d , when the government p l a y e d a key r o l e i n p r o m o t i n g economic growth. As w e l l , t h e r e was a f o c u s on l a r g e e n t e r p r i s e s and heavy and c h e m i c a l i n d u s t r i e s . F i n a n c i a l 1 49 s u p p o r t and government g u i d e l i n e s a l l c e n t e r e d on the l a r g e s t r a t e g i c i n d u s t r i e s . To o b t a i n f o r e i g n c u r r e n c y t h e government encouraged the development of the e x p o r t s e c t o r . A l t h o u g h about h a l f t h e e x p o r t s a r e p r o d u c t s of s m a l l and medium e n t e r p r i s e s , 2 3 7 t h i s s e c t o r was l a r g e l y n e g l e c t e d by the government. These s m a l l and medium e n t e r p r i s e s c e r t a i n l y c o n t r i b u t e t o Japan's e x p o r t e a r n i n g s . S i n c e t h e i r p r o d u c t s a r e m o s t l y l a b o r - i n t e n s i v e , u n t i l t he e a r l y 1960's they e n j o y e d advantages i n the i n t e r n a t i o n a l d i v i s i o n of l a b o r . F o r e i g n c u r r e n c y earned by t h i s s e c t o r i s u t i l i z e d t o f i n a n c e i m p o r t s , i n c l u d i n g raw m a t e r i a l s and equipment which a r e used by l a r g e e n t e r p r i s e s . T h e r e f o r e , the l a r g e f i r m s have d e v e l o p e d w i t h the h e l p of s m a l l and medium f i r m s . A c c o r d i n g t o S h i n o h a r a , the l a b o r market, the c a p i t a l m arket, and the p r o d u c t market s u s t a i n the e x i s t i n g d u a l s t r u c t u r e . I n the f o l l o w i n g p assage, t h e s e markets a r e examined i n o r d e r . 1. The l a b o r market I t i s a well-known f a c t t h a t wage d i f f e r e n t i a l s i n Japan a r e g r e a t e r than i n o t h e r c o u n t r i e s , and the e x p l a n a t i o n i s m o s t l y g i v e n from the v i e w p o i n t of t h e s p e c i a l c h a r a c t e r of the l a b o u r market. On the s u p p l y s i d e of l a b o u r , t h e r e e x i s t s the p r e s s u r e of e x c e s s s u p p l y , c a u s i n g a s e a r c h f o r employment a t low wages. On the demand s i d e , medium and s m a l l e n t e r p r i s e s p l a n p r o d u c t i o n w i t h low-wage l a b o u r , whereas l a r g e e n t e r p r i s e s a r e a b l e t o o b t a i n b e t t e r l a b o u r a t wages r e l a t i v e l y h i g h e r than the d i f f e r e n c e i n q u a l i t y . 2 3 8 2 3 7 S a b u r o O k i t a , The D e v e l o p i n g Economies and Japan: Lessons i n Growth (Tokyo: U n i v e r s i t y of Tokyo P r e s s , 1980), p. 123. 2 3 \"Miyazawa, op_. c i t . , p. 151. 1 50 I t i s f r e q u e n t l y s u g g e s t e d t h a t t h e r e a r e two broad d i v i s i o n s of the l a b o r market. One i s the market f o r b i g f i r m s and the o t h e r i s the market f o r s m a l l f i r m s . Many c h a r a c t e r i s t i c s s p o t l i g h t e d i n t h e d i s c u s s i o n of the employment system b e l o n g t o t h e employment system of l a r g e companies. In f a c t , one c h a r a c t e r i s t i c of the l a b o r market i s t h a t i t i s a buyer's market w i t h l a r g e f i r m l a b o r b e i n g r e l a t i v e l y i mmobile. These c h a r a c t e r i s t i c s of the l a b o r market f o r the l a r g e f i r m s a p p l y t o government bureaus as w e l l . L a r g e f i r m s have a s e n i o r i t y wage system w i t h a u t o m a t i c i n c r e a s e s a c c o r d i n g t o s e r v i c e y e a r s , based on t h e premise of l i f e t i m e employment. Under t h i s system, r e g u l a r w o r k ers and employees a r e h i r e d by l a r g e f i r m s upon g r a d u a t i o n from s c h o o l or c o l l e g e once a y e a r , and remain i n the same companies u n t i l r e t i r e m e n t , u s u a l l y a t the age of 55. Roughly o n e - t h i r d of Japan's work f o r c e i s a c t u a l l y employed under t h i s permanent employment system, which a f f e c t s m a i n l y male workers i n l a r g e f i r m s . 2 3 9 From e a r l y i n the M e i j i p e r i o d , c l o s e l i n k s were f o r g e d between c e r t a i n u n i v e r s i t i e s and a few b u s i n e s s houses. Major companies s t i l l have e x c l u s i v e r e c r u i t m e n t p o l i c i e s and o f f e r employment t o s t u d e n t s from p a r t i c u l a r s c h o o l s and p r o f e s s o r s who have m a i n t a i n e d placement r e l a t i o n s h i p s w i t h 2 3 9 B r a d l e y M. R i c h a r d s o n and T a i z o Ueda, eds., B u s i n e s s and S o c i e t y i n Japan: Fundamentals f o r Businessmen, E a s t A s i a n S t u d i e s Program, Ohio S t a t e U n i v e r s i t y (New York: P r a e g e r P u b l i s h e r s , 1981), p. 29. 151 s p e c i f i c companies f o r d e c a d e s . 2 4 0 I t i s no e x a g g e r a t i o n t o say t h a t the s t a t u s of the company i n which workers a r e employed r e f l e c t s the scope of the worker's p o t e n t i a l . The s t r a t i f i c a t i o n among f i r m s has been p a r a l l e l e d by a s i m i l a r s t r a t i f i c a t i o n among e d u c a t i o n a l i n s t i t u t i o n s . E d u c a t i o n a l i n s t i t u t i o n s a r e ranked i n the h i e r a r c h y . E n t r a n c e e x a m i n a t i o n s t o u n i v e r s i t i e s and c o l l e g e s a r e s o r t i n g mechanisms which e n a b l e major Japanese companies and the government t o t a k e the cream of the c r o p . Those who work i n t h e l a r g e f i r m s can e n j o y h i g h monthly e a r n i n g s and b i - a n n u a l bonuses w i t h l a v i s h f r i n g e b e n e f i t s as w e l l as l i f e t i m e employment and a s e n i o r i t y wage system. However, temporary and day workers i n s i d e and o u t s i d e of the l a r g e f i r m s a r e not a b l e t o en j o y the same b e n e f i t s as a r e permanent employees, and a r e f o r c e d t o a c c e p t d i s a d v a n t a g e o u s w o r k i n g c o n d i t i o n s . A l t h o u g h the r a t e of l a b o r t u r n o v e r i s low f o r the l a r g e e n t e r p r i s e s , t h e r e i s a c o n s i d e r a b l e f l o w from l a r g e t o s m a l l e n t e r p r i s e s i n the form of s e n d i n g r e t i r e d w o r k ers from p a r e n t companies t o s a t e l l i t e companies. In c o n t r a s t , t h e r e i s l i t t l e or no f l o w of l a b o r from s m a l l f i r m s t o l a r g e , except f o r temporary or s u b c o n t r a c t employment. \"Employment s e c u r i t y and s e n i o r i t y - b a s e d wage systems might t a k e away some of the i n c e n t i v e s f o r u n i o n o r g a n i z a t i o n . \" 2 4 1 N e v e r t h e l e s s , a s u b s t a n t i a l u n i o n movement 2 4 0 W i l k i n s o n , op. c i t . , p. 202. 2 4 1 R i c h a r d s o n and Ueda, op_. c i t . , p. 30. 1 52 has d e v e l o p e d i n Japan s i n c e World War I I . Such Japanese u n i o n s a r e c a l l e d \" e n t e r p r i s e u n i o n s , \" or company u n i o n s . S h i n o h a r a has s t a t e d t h a t \"the e n t e r p r i s e u n i o n s which tended t o be s t r o n g e r i n l a r g e f i r m s f u r t h e r i n t e n s i f i e d t h e s e g m e n t a t i o n of the l a b o r market t h e r e . \" 2 4 2 The e n t e r p r i s e u n i o n i s p r i n c i p a l l y o r g a n i z e d around s p e c i f i c e n t e r p r i s e s r a t h e r than i n d u s t r y or o c c u p a t i o n , and b o t h w h i t e - c o l l a r workers and b l u e - c o l l a r w o r kers a r e members of the same un i o n except where they have s p l i t due t o s t r i k e s . C o n s e q u e n t l y , b a r g a i n i n g between un i o n and management tends t o f o c u s on i n d i v i d u a l f i r m s , and the u n i o n w i l l make r e a s o n a b l e demands i n a c c o r d a n c e w i t h t h e i r own f i r m s ' a b i l i t y t o g r a n t them. The l i f e t i m e employment guarantee and the s e n i o r i t y system of wage payment a r e not t r a d i t i o n a l d e v i c e s . A c c o r d i n g t o Sumiya, b o t h of t h e s e a r e t o be r e g a r d e d not as t r a d i t i o n a l s o c i a l r e l a t i o n s but r a t h e r as i n n o v a t i o n s t h a t d e v e l o p e d i n response t o new n e e d s . 2 4 3 Indeed, \" i n most of the l a r g e p l a n t s i n the M e i j i and T a i s h o e r a s (1868-1912, 1912-1926), t h e r e was l i t t l e sense of common purpose or of r e c i p r o c a l o b l i g a t i o n between management and w o r k e r s , and the l a b o r t u r n o v e r was h i g h . \" 2 4 4 2 4 2 M i y o h e i S h i n o h a r a , \"Ninon K e i z a i no N i j u Kozo,\" i n Sangyo Kozo, ed. M i y o h e i S h i n o h a r a (Shunjusha, 1959), p. 105, c i t e d by Y a s u k i c h i Yasuba, \"The E v o l u t i o n of D u a l i s t i c Wage S t r u c t u r e , \" i n Japanese I n d u s t r i a l i z a t i o n and I t s S o c i a l Consequences ed. Hugh P a t r i c k w i t h the a s s i s t a n c e of L a r r y M e i s s n e r ( B e r k e l e y : U n i v e r s i t y of C a l i f o r n i a P r e s s , 1976), p. 253. 2 4 3 C i t a t i o n by A l l e n , op_. c i t . , p. 144. 2 4 4 I b i d . p. 145. 153 The c u r r e n t system i s an i n s t i t u t i o n a l d e v i c e d e v e l o p e d by modern f i r m s a t the b e g i n n i n g of t h i s c e n t u r y , f o r t h e r e was the need f o r r e t a i n i n g the new type of s k i l l e d male wo r k e r s . A l l e n has s t a t e d t h a t the l i f e t i m e employment guarantee can be t r a c e d t o the r i s e of the e n g i n e e r i n g and armaments i n d u s t r i e s d u r i n g the T a i s h o e r a . 2 4 5 For l a r g e r , w e l l - e s t a b l i s h e d f i r m s , t h i s system has become predominant a f t e r World War I I . Under t h e s e c i r c u m s t a n c e s , the l a r g e f i r m s s t r e n g t h e n e d the i n s t i t u t i o n a l b a r r i e r s i n the l a b o r market which became fragmented i n t o many non-competing groups. Workers i n s m a l l b u s i n e s s e s must t o l e r a t e low incomes and u n s t a b l e employment c o n d i t i o n s , even though t h e y have the same e x p e r i e n c e , e d u c a t i o n and a b i l i t y as t h e i r c o u n t e r p a r t s i n l a r g e b u s i n e s s e s . T h i s segmented l a b o r market causes gaps between e a r n i n g s of workers i n v a r i o u s s i z e - g r o u p s , t h a t i s , wage d i f f e r e n t i a l s by s i z e of f i r m . Yasuba's d e t a i l e d r e s e a r c h p r o v e d the e v o l u t i o n of d u a l i s t i c wage s t r u c t u r e and c o n c l u d e d : . d u a l i s m i n the sense of s i z e - o r i e n t e d wage d i f f e r e n t i a l s a l r e a d y e x i s t e d i n 1909, and the degree of d u a l i t y was c o n s i d e r a b l e ; the d i f f e r e n t i a l s widened u n t i l 1932/33, when a p a t t e r n s i m i l a r t o t h a t i n a postwar year c o u l d be o b s e r v e d . 2 4 6 2. The c a p i t a l market There a r e two r e a s o n s why l a r g e - s c a l e f i r m s have been a b l e t o pay h i g h e r wages t o w o r k e r s , p a r t i c u l a r l y t o workers 2 4 5 I b i d . , p. 143. 2 4 6 Y a s u b a , op_. c i t . , p. 261. 1 54 w i t h a l i f e t i m e commitment. S h i n o h a r a has emphasized two c h a r a c t e r i s t i c s of l a r g e f i r m s t h a t made t h i s p o s s i b l e . One i s c r e d i t r a t i o n i n g i n the c a p i t a l market and the o t h e r i s t h e i r p r i c e - c o n t r o l power i n the p r o d u c t market. In the c a p i t a l market of the prewar p e r i o d , the zai batsu, or \" f i n a n c i a l combines,\" owned the most i m p o r t a n t p r i v a t e banks and m o b i l i z e d c a p i t a l t o promote t h e i r own e n t e r p r i s e s . By World War I I , zai batsu c o n t r o l l e d much of Japa'nese i n d u s t r y , commerce, and f i n a n c e , and d u r i n g the War they had c l o s e t i e s w i t h the Japanese m i l i t a r y . T h e r e f o r e , d u r i n g the o c c u p a t i o n e r a , the zai batsu were d i s s o l v e d by the o c c u p a t i o n a u t h o r i t i e s . However, not s u r p r i s i n g l y , the economic upsurge of t h e l a t e 1950's and 1960's was accompanied by the re-emergence of many major f i r m s from t h e o l d zai batsu. In the postwar p e r i o d , t h o s e s u c c e s s o r f i r m s of the zai batsu have formed l o o s e r g r o u p i n g s known as kei retsu. The keiretsu enhanced Japan's c o m p e t i t i v e p o s i t i o n based on economies of s c a l e much as the zai bat su e n j o y e d i n the prewar p e r i o d , but th e y were d i f f e r e n t from t h e zai batsu w i t h r e g a r d t o t h e i r c h a r a c t e r , s t r u c t u r e , and s t r a t e g y . F i r s t , the prewar zai batsu were t i e d t o g e t h e r by t h e i r h o l d i n g companies, whose d i v e r s i f i e d i n t e r e s t s were c o n t r o l l e d by a few w e a l t h y f a m i l i e s . These h o l d i n g companies r e f l e c t e d t e n d e n c i e s of an e n t r e p r e n e u r i a l system. On the o t h e r hand, the postwar keiretsu, a l e s s t i g h t l y s t r u c t u r e d type of a s s o c i a t i o n s , a r e t i e d r a t h e r by mutual c o n v e n i e n c e and i n t e r e s t . 155 Next, i n the zaibatsu, banks played only a subordinate r o l e . 2 4 7 On the c o n t r a r y , a major bank stands at the center of most keiretsu, combined with a t r a d i n g company. Thus, the keiretsu are f i n a n c e - c e n t e r e d groups. The group's bank and t r a d i n g company f i n a n c e t h e i r a s s o c i a t e d firms and su b c o n t r a c t o r s , which r e s u l t e d i n a c o r o l l a r y of high d e b t - e q u i t y r a t i o of i n d u s t r i a l f i r m s . Although i n prewar days, s e l f - f i n a n e i n g w i t h i n the group was the r u l e , a member of keiretsu u s u a l l y r e s o r t e d to s e v e r a l banks f o r i t s l o a n s . Government banks pumped huge loan funds i n t o the keiretsu to fi n a n c e new p l a n t and p r o d u c t i o n . F i n a l l y , while some of the o l d zaibatsu f i r m s tended to dominate a p a r t i c u l a r i n d u s t r y , the keiretsu are made up of companies i n many d i f f e r e n t i n d u s t r i e s , f o l l o w i n g a \" o n e - s e t - o f - e v e r y t h i n g \" p r i n c i p l e . 2 4 8 The \"one-set\" p r i n c i p l e i m p l i e s that a group should be rep r e s e n t e d to the same degree i n each important i n d u s t r y . 2 4 9 Consequently, there seems to be more c o m p e t i t i o n between the postwar keiretsu than between prewar zaibatsu. In sum, the keiretsu are l o o s e l y , v e r t i c a l l y i n t e g r a t e d groups with a core of a major bank and t r a d i n g company. The groups are l i n k e d by i n t e r l o c k i n g d i r e c t o r a t e s , mutual stock ownership, supply and marketing agreements, and j o i n t development of new 2 4 7 H e n r y C. W a l l i c h , F e d e r a l Reserve Board and Mable I. W a l l i c h , \"Banking and Finance,\" i n A s i a ' s New G i a n t ; How the Japanese Economy Works, ed. Hugh P a t r i c k and Henry Rosovsky (Washington, D.C.: Brookings I n s t i t u t i o n , 1976), p. 294. 2 4 8Duus, op. c i t . , p. 259. 2 4 9 W a l l i c h , F e d e r a l Reserve Board and W a l l i c h , op. c i t . , p. 296. 156 b u s i n e s s l i n e s . At p r e s e n t , t h e r e a r e s i x f i n a n c e - c e n t e r e d g r o u p s : M i t s u b i s h i , M i t s u i , Sumitomo, Fuyo ( F u j i B a n k - c e n t e r e d , f o r m e r l y known as Yasuda zai batsu), D a i - i c h i Kangyo, and S a n w a . 2 5 0 In a d d i t i o n , t h e r e are seven b i g i n d u s t r y - c e n t e r e d g r oups: Nippon S t e e l , T o s h i b a , H i t a c h i , T o y o t a , N i s s a n , M a t s u s h i t a , and Tokyu. These groups a r e v e r t i c a l l y i n t e g r a t e d o p e r a t i o n s w i t h i n a s i n g l e i n d u s t r y or r e l a t e d i n d u s t r i e s . In c o n t r a s t t o the keiretsu l o o s e l y c o o r d i n a t e d by companies, t h e s e companies w i t h i n i n d u s t r y - c e n t e r e d groups a r e managed as i f they were d i v i s i o n s of one g i a n t c o r p o r a t i o n . 2 5 1 S i n c e t h e s e groups do not i n c l u d e a f i n a n c i a l i n s t i t u t i o n , they t e n d t o s e l l s h a r e s i n o r d e r t o meet t h e i r c a p i t a l needs. A c c o r d i n g t o Miyazawa, s i n c e the s i z e of owned c a p i t a l i s the fundamental f a c t o r f o r l a r g e - s c a l e i n v e s t m e n t i n p l a n t and m a c h i n e r y . R e s u l t i n g h i g h e r p r o d u c t i v i t y p e r m i t s h i g h e r wages, advantages not open t o s m a l l and medium e n t e r p r i s e s . Miyazawa a l s o p r o v e d the e x i s t e n c e of a c a p i t a l market s i d e of d u a l i s m which r e v e a l s s i z e - o r i e n t e d d i f f e r e n t i a l s i n i n t e r e s t r a t e s , w i t h l a r g e f i r m s b o r r o w i n g a t lower r a t e s than s m a l l f i r m s . T h i s i s due t o an economic p r i n c i p l e i n w h i c h c o s t of a l o a n f o r an i n d i v i d u a l 2 5 0 F o r a d e t a i l e d d i s c u s s i o n of which companies b e l o n g t o which g r o u p s , see T a d a n o r i N i s h i y a m a , \"The S t r u c t u r e of M a n a g e r i a l C o n t r o l : Who Owns and C o n t r o l s Japanese B u s i n e s s ? \" Japanese Economic S t u d i e s : A J o u r n a l of T r a n s l a t i o n s v o l . 11, no. 1 ( F a l l , 1982): 37-77. 2 5 J o n a t h a n B. T u c k e r , \"Managing the I n d u s t r i a l M i r a c l e , \" H i g h Technology v o l . 5, no. 8 (August, 1985): 26. 1 57 f i n a n c i a l i n s t i t u t i o n i s h i g h e r when the r i s k i s g r e a t e r and the amount i s s m a l l e r . 2 5 2 V a r i o u s t y p e s of f i n a n c i a l i n s t i t u t i o n s such as c i t y banks, l o c a l banks, and t r u s t banks p r o v i d e d i f f e r e n t s i z e s of e n t e r p r i s e s w i t h l o a n s w i t h d i f f e r e n t terms and a t d i f f e r e n t i n t e r e s t r a t e s . L a r g e banks t e n d t o e x t e n d l o a n s t o l a r g e e n t e r p r i s e s a t a r e l a t i v e l y low i n t e r e s t r a t e , w h i l e p r o v i d i n g l o a n s a t a h i g h e r i n t e r e s t r a t e f o r the s m a l l and medium e n t e r p r i s e s . In a d d i t i o n , banks can m a i n t a i n t h e i r l i q u i d i t y of a s s e t s by o f f e r i n g o n l y s h o r t - t e r m l o a n s t o s m a l l and medium e n t e r p r i s e s . 2 5 3 C o n s e q u e n t l y , t h e d i s t r i b u t i o n of funds as a whole i s u n e q u a l , and l o a n s from f i n a n c i a l i n s t i t u t i o n s c o n c e n t r a t e on l a r g e f i r m s , which can make an i n v e s t m e n t i n new and l a r g e - s c a l e p l a n t s and equipment. D i f f e r e n t l e v e l s of c a p i t a l i n t e n s i t y emphasize the wage and p r o d u c t i v i t y d i f f e r e n c e s . C a p i t a l c o n c e n t r a t i o n i n the l a r g e e n t e r p r i s e s i s n o t i c e a b l e not o n l y i n Japan but a l s o i n t h e U n i t e d Kingdom and West Germany. However, t h e r e i s a d i f f e r e n c e r e g a r d i n g the l o a n - e q u i t y r a t i o s . S i n c e World War I I the Japanese economy has h e a v i l y r e l i e d on bank c r e d i t . \"A t y p i c a l c o r p o r a t i o n ' s c a p i t a l s t r u c t u r e d i v i d e s i n t o 80 p e r c e n t bank l o a n s and 20 p e r c e n t e q u i t y \u00E2\u0080\u0094 a f o u r - t o - o n e r a t i o (sometimes t e n - t o - o n e ) c o o l l y m a i n t a i n e d w h i l e American f i r m s t h i n k 2 5 2 M i y a z a w a , op. c i t . , p. 162. 2 5 3 I b i d . 158 t h a t one-to-two i s s c a r y . \" 2 5 \" In o t h e r words, Japanese c o r p o r a t i o n s count on borrowed bank money, r a t h e r than t h e s a l e s of s t o c k , t o f i n a n c e growth and p r o d u c t i o n . F u r t h e r m o r e , s i n c e the M e i j i p e r i o d the Bank of Japan has been r e s c u i n g o v e r e x t e n d e d c o m m e r c i a l banks. C o n s e q u e n t l y , l a r g e Japanese e n t e r p r i s e s and banks t a k e b i g r i s k s s i n c e they a l w a y s expect the government bank t o b a i l them o u t . 3. The p r o d u c t market In t h e p r o d u c t market, the l a r g e f i r m s have p r i c e - c o n t r o l power. In the o l i g o p o l i s t i c market, a few l a r g e c o r p o r a t i o n s t e n d t o s e t r i g i d p r i c e s . On the o t h e r hand, i n the c o m p e t i t i v e market, p r i c e s of commodities have e l a s t i c i t y . As the p r i c e s of goods produced by the l a r g e f i r m s become r i g i d , t h e i r i n c r e a s e d p r o d u c t i v i t y b r i n g s wage i n c r e a s e s f o r workers w i t h t h e h e l p of the e n t e r p r i s e u n i o n p r e s s u r e . However, s i n c e e x c e s s i v e c o m p e t i t i o n among s m a l l and medium f i r m s o c c u r s , t h e i r i n c r e a s e d p r o d u c t i v i t y c o n t r i b u t e s t o d e c r e a s i n g commodity p r i c e s . These p r i c e - d e t e r m i n i n g mechanisms i n the p r o d u c t market a l s o r e s u l t i n t h e wage d i f f e r e n t i a l s and p r o d u c t i v i t y between the l a r g e and s m a l l f i r m s . To summarize, the l a b o r market, the c a p i t a l market and the p r o d u c t market, a l l m a i n t a i n the d u a l s t r u c t u r e m a n i f e s t e d i n the d i f f e r e n t i a l s i n p r o d u c t i v i t y and wages between l a r g e and s m a l l e n t e r p r i s e s . 2 5 \" W i l l i a m H. F o r b i s , Japan Today; P e o p l e , P l a c e s , Power, w i t h a Foreward by Senator Mike M a n s f i e l d (New York: Harper & Row, P u b l i s h e r , 1975), p. 357. 159 F i n a l l y , the r e l a t i o n s h i p between the l a r g e and small f i r m s should be c o n s i d e r e d . C e r t a i n l y , the l a r g e and small e n t e r p r i s e s are complementary. The l a r g e e n t e r p r i s e s u t i l i z e the products of cheap l a b o r i n s m a l l e n t e r p r i s e s through the s u b c o n t r a c t i n g system and the formation of r e l a t e d e n t e r p r i s e s under t h e i r c o n t r o l . T h i s s u b c o n t r a c t i n g system i t s e l f had been in use s i n c e the mid-1920's. Because of the widening wage d i f f e r e n t i a l , usin'g the low-wage la b o r of the s m a l l f i r m s i n d i r e c t l y v i a s u b c o n t r a c t i n g was more p r o f i t a b l e f o r the l a r g e concerns than producing goods t h e m s e l v e s . 2 5 5 T h i s was one of the p r i n c i p a l reasons that s u b c o n t r a c t i n g became popular. The l a r g e e n t e r p r i s e s use s m a l l e n t e r p r i s e s as a b u f f e r a g a i n s t b usiness f l u c t u a t i o n s and a d j u s t t h e i r l e v e l s of p r o d u c t i o n a c c o r d i n g l y . Nakamura has p o i n t e d out the m e r i t s of the s u b c o n t r a c t i n g system f o r the parent f i r m s , as f o l l o w s : Most important among these were c a p i t a l economies and the spreading of r i s k , p a r t i c u l a r l y the l a t t e r . When business was poor, parent f i r m s would drop t h e i r s u b c o n t r a c t o r s and postpone payment on t h e i r accounts, while i n good times they would in c r e a s e s u b c o n t r a c t i n g . Then, c i t i n g the need f o r r a t i o n a l i z a t i o n among s u b c o n t r a c t o r s , they would beat down p r i c e s to low l e v e l s . I t was not without reason that the s u b c o n t r a c t i n g system c a l l e d f o r \" o r d e r i n g e x t e r n a l l y on unequal terms.\" The l a r g e f i r m s got away with t h i s k i nd of t h i n g because the s m a l l companies were at a great r e l a t i v e disadvantage. . . . Needless to say, the s u b c o n t r a c t i n g f i r m s were a l s o at a disadvantage i n terms of c o m p e t i t i v e a b i l i t y i n the m a r k e t p l a c e . 2 5 6 For example, the automobile i n d u s t r y r e q u i r e s a l a r g e number 2 5 5 T a k a f u s a Nakamura, The Postwar Japanese Economy: I t s Development and S t r u c t u r e , t r a n s . J a c q u e l i n e Kaminski (Tokyo: U n i v e r s i t y of Tokyo Pr e s s , 1981), p. 175. 2 5 6 I b i d . 1 60 of a u x i l i a r y companies which produce v a r i o u s k i n d s of p a r t s , components, and a c c e s s o r i e s . S m a l l and medium f i r m s a r e s u b c o n t r a c t o r s t o manufacture such c o m m o d i t i e s . Toyota i s famous f o r i t s \"kanban f o r m u l a \" or \" j u s t - i n - t i m e system\" w h i c h means d e l i v e r y of p a r t s and components o n l y when Toyota needs them i n o r d e r t o m i n i m i z e i n - p l a n t i n v e n t o r y c o s t s . In s h o r t , the p r o v i s i o n of n e c e s s a r y items by s u b c o n t r a c t o r s q u i c k l y e n a b l e s a p a r e n t company t o i n c r e a s e i t s i n t e r n a t i o n a l c o m p e t i t i v e n e s s . There a r e some advantages f o r s m a l l f i r m s i n the s u b c o n t r a c t i n g system i n good economic t i m e s . They a r e g u a r a n t e e d a c o n t i n u o u s f l o w of o r d e r s ; a r e taken c a r e of f i n a n c i a l l y ; and can r e c e i v e t e c h n o l o g i c a l a s s i s t a n c e as w e l l as new and second-hand machinery from t h e i r p a r e n t companies. The pa r e n t f i r m s a l s o p r o v i d e p e r s o n n e l . Summarizing t h i s r e l a t i o n s h i p , e v e r y l a r g e f i r m i s the c e n t e r of a c o n s t e l l a t i o n of s m a l l and medium f i r m s which a r e dependent on i t f o r b u s i n e s s . A l l e n has r e v e a l e d an i n t e r e s t i n g o p i n i o n of t h e s u b c o n t r a c t i n g system c o n c e r n i n g i t s management: . . . the system e n a b l e s the f i r m a t the c e n t e r of o p e r a t i o n s t o a v o i d some of the problems of a d m i n i s t r a t i o n a s s o c i a t e d w i t h l a r g e n e s s . In o t h e r words, the d e v o l u t i o n of m a n a g e r i a l a u t h o r i t y g i v e s i t a c c e s s t o economies of s c a l e w i t h o u t the o f f s e t t i n g burden of b u r e a u c r a t i c w a s t e . 2 5 7 Indeed, \"the system e n a b l e s complex m a n u f a c t u r i n g e n t e r p r i s e s t o enj o y the advantages of o p e r a t i o n s a t the 2 5 7 A l l e n , op_. c i t . , p. 122. 161 a p p r o p r i a t e s c a l e . \" 2 5 8 T h e r e f o r e , by u s i n g the s u b c o n t r a c t i n g system the l a r g e f i r m s p r o t e c t t h e i r advantageous p o s i t i o n i n the m a r k e t p l a c e and make p r o f i t s w h i l e t hey throw much of the burden on t h e i r s u b c o n t r a c t o r s , e s p e c i a l l y i n time of r e c e s s i o n . To c o n c l u d e , when the \" l a t e c o m e r \" Japan had t o i n d u s t r i a l i z e r a p i d l y i n the M e i j i p e r i o d , c o n d i t i o n s were d e v e l o p e d which l a t e r a l l o w e d the d u a l s t r u c t u r e t o form. The i n d u s t r i a l s e c t o r has d e v e l o p e d a t the c o s t of the a g r i c u l t u r a l s e c t o r and the l a r g e e n t e r p r i s e s i n c r e a s e t h e i r p r o s p e r i t y by s h i f t i n g p a r t of t h e p r o d u c t i o n p r o c e s s t o s m a l l and medium e n t e r p r i s e s . The p r e s e n t market systems as w e l l as government p o l i c i e s r e i n f o r c e t h i s d u a l s t r u c t u r e r a t h e r than e l i m i n a t e i t . I n a c c o r d a n c e w i t h i n d u s t r i a l i z a t i o n of the d e v e l o p i n g c o u n t r i e s , the Japanese economic s t r u c t u r e i s now p l a n n e d t o be t r a n s f o r m e d i n t o one which f o c u s e s upon b o t h a h i g h t e c h n o l o g y i n d u s t r y and a k n o w l e d g e - i n t e n s i v e i n d u s t r y , w h i c h r e q u i r e c a p i t a l - i n t e n s i v e methods. Whether s m a l l and medium f i r m s which m a i n l y use l a b o r - i n t e n s i v e methods d i s a p p e a r or s u r v i v e as a r e s u l t of t h i s s e c t o r a l s h i f t , i s a q u e s t i o n y e t unanswered. I I I . Economic Growth S i n c e 1945 Changes i n the Japanese economic s t r u c t u r e have been r e f l e c t e d i n i t s o v e r s e a s i n v e s t m e n t a c t i v i t i e s ( T a b l e 9 ) . 2 5 8 I b i d . , p. 123. 162 Table 9: H i s t o r y of Japanese Economic Development and I t s D i r e c t F o r e i g n Investment A c t i v i t y Major Event I m p l i c a t i o n s f o r DFI 1950 1 951 1 960 1968 1969 1 971 1972-73 1 973 1 979 1 980 1 981 \u00E2\u0080\u0094 S p e c i a l m i l i t a r y procurement boom from the Korean War \u00E2\u0080\u0094 N a t i o n a l Income Doubling Plan \u00E2\u0080\u0094 Rapid economic growth \u00E2\u0080\u0094 Nixon announces new f o r e i g n and economic p o l i c i e s \u00E2\u0080\u0094 Worldwide g r a i n shortage \u00E2\u0080\u0094 F i r s t o i l c r i s i s \u00E2\u0080\u0094 U.S. soybean embargo to Japan \u00E2\u0080\u0094 F l o a t i n g exchange . r a t e system g a i n i n g acceptance \u00E2\u0080\u0094 Slower economic growth \u00E2\u0080\u0094 Trade f r i c t i o n with developed c o u n t r i e s \u00E2\u0080\u0094 Second o i l c r i s i s \u00E2\u0080\u0094 Worldwide r e c e s s i o n \u00E2\u0080\u0094U.S. becomes a net r e c i p i e n t country \u00E2\u0080\u0094 Postwar DFI resumed \u00E2\u0080\u0094 Sogo shosha investment i n commerce in the U.S. \u00E2\u0080\u0094 N a t u r a l resource development p r o j e c t s by the government i n 4 f o r e i g n c o u n t r i e s \u00E2\u0080\u0094 DFI i n commerce and n a t u r a l resource development p r o j e c t s \u00E2\u0080\u0094 Net c r e d i t o r s t a t u s \u00E2\u0080\u0094 L i b e r a l i z a t i o n p o l i c y of c a p i t a l s t a r t e d \u00E2\u0080\u0094 DFI i n l i g h t manufacturing i n d u s t r i e s i n developing c o u n t r i e s \u00E2\u0080\u0094 DFI i n energy development p r o j e c t s i n both developed and developing c o u n t r i e s \u00E2\u0080\u0094 DFI i n a g r i c u l t u r e \u00E2\u0080\u0094 DFI i n manufacturing i n developed c o u n t r i e s \u00E2\u0080\u0094 L i b e r a l i z a t i o n of DFI completed \u00E2\u0080\u0094 I n c r e a s i n g Japanese DFI 163 T h e r e f o r e , i t i s i m p o r t a n t t o s c r u t i n i z e the postwar economic development of Japan i n o r d e r t o c l a r i f y t e n a b l e f a c t o r s which i n c r e a s e d DFI. The h i s t o r y of the postwar Japanese economy has been d i v i d e d i n t o t h r e e d i s t i n c t i v e e r a s : (1) R e c o n s t r u c t i o n (1945-1955), (2) R a p i d economic growth (1956-1973), and (3) Slow, s t a b l e economic growth ( 1 9 7 3 - p r e s e n t ) . R a p i d economic growth was accompanied by a s h i f t i n i n d u s t r i a l s t r u c t u r e from l i g h t i n d u s t r y t o heavy and c h e m i c a l i n d u s t r i e s , and s t a b l e economic growth has been a s s o c i a t e d w i t h a t r a n s i t i o n o r i e n t e d toward k n o w l e d g e - i n t e n s i v e and h i g h t e c h n o l o g y i n d u s t r i e s . U n t i l the e a r l y 1970's, the Japanese economy p r o s p e r e d under the regime of the Pax Americana by t a k i n g advantage of the s o - c a l l e d \" f r e e - r i d e \" v i s - a - v i s American d e f e n s e . A f t e r the N i x o n shocks of 1971 t h e c h a r a c t e r of the r e l a t i o n s h i p between the U n i t e d S t a t e s and Japan was t r a n s f o r m e d from t h a t of p a t r o n - c l i e n t 2 5 9 t o a more e q u a l p a r t n e r s h i p , even though Japan s t i l l i s h i g h l y dependent on the U n i t e d S t a t e s , e c o n o m i c a l l y , p o l i t i c a l l y , and m i l i t a r i l y . Japan has become the c h i e f economic c o m p e t i t o r of the U n i t e d S t a t e s and, c o n s e q u e n t l y , i t s d e c i s i o n s i n the 1970's have i n f l u e n c e d U.S. economic p o l i c y , w hich c o r r e s p o n d e d t o the r e l a t i v e d e c l i n e of American hegemony and l e a d e r s h i p i n the w o r l d economy. 2 5 9 B e r n a r d K. Gordon, \"Chapter F o u r t e e n : I n t r o d u c t i o n t o the P a r t I V \u00E2\u0080\u0094 S t r a t e g i e s f o r the P a c i f i c i n the 1970s and 1980s,\" i n The New P o l i t i c a l Economy of the P a c i f i c , ed. B e r n a r d K. Gordon and Kenneth J . R o t h w e l l (Cambridge, Mass.: B a l l i n g e r P u b l i s h i n g Co., 1975), p. 138. 1 64 Japanese economic development can not be d i s c u s s e d w i t h o u t r e f e r e n c e t o t h e l a s t i n g and s u b s t a n t i a l r e l a t i o n s h i p w i t h the U n i t e d S t a t e s . \". . . i n h e r e n t i n U.S. economic and f o r e i g n p o l i c y s i n c e 1945 has been a d e l i b e r a t e e f f o r t t o i n c r e a s e p r o d u c t i v i t y and t r a d e i n o t h e r a r e a s of the w o r l d . \" 2 6 0 Indeed, two p e r c e n t of t h e GNP of the U n i t e d S t a t e s went, f o r a w h i l e , i n t o the M a r s h a l l P l a n t o r e h a b i l i t a t e the weary and wounded economies of the two p i l l a r s of the i n d u s t r i a l i z e d F r e e W o r l d , t h a t i s , Japan and the European Economic Community of t o d a y . 2 6 1 Japan was a b l e t o e n j o y r e l a t i v e l y f r e e a c c e s s t o raw m a t e r i a l s , t o the a f f l u e n t market of the U n i t e d S t a t e s , and t o advanced t e c h n o l o g y . Because of war d e v a s t a t i o n , Japan had t o r e b u i l d i t s i n d u s t r i e s from the ground up w i t h new, modern p l a n t s , equipment, and i m p o r t e d t e c h n o l o g y , which u l t i m a t e l y c o n t r i b u t e d t o i n c r e a s i n g p r o d u c t i v i t y and i n t e r n a t i o n a l c o m p e t i t i v e n e s s . Under the U n i t e d S t a t e s - J a p a n M u t u a l S e c u r i t y T r e a t y , the U n i t e d S t a t e s has h e l d a n u c l e a r u m b r e l l a over J a p a n , which a l l o w e d Japan t o spend l e s s than 1 p e r c e n t of i t s GNP on d e f ense and s e c u r i t y d u r i n g most of the postwar p e r i o d . 2 6 2 Japan's rearmament was not welcomed by E a s t A s i a n and P a c i f i c c o u n t r i e s . In the y e a r s f o l l o w i n g World War I I , 2 6 0 M c M i l l a n , op_. c i t . , p. 6. 2 6 1 R o b e r t W. B a r n e t t , \"Chapter Fo u r ; C o n f l i c t and C o o p e r a t i o n : Japan and A m e r i c a , \" i n The New P o l i t i c a l Economy of the P a c i f i c , ed. B e r n a r d K. Gordon and Kenneth J . R o t h w e l l (Cambridge, Mass.: B a l l i n g e r P u b l i s h i n g Co., 1975), p. 35. 2 6 2 I b i d . 1 65 the U n i t e d S t a t e s h e l p e d t o r e b u i l d Japan i n o r d e r t o p l a y a r o l e of a b u f f e r a g a i n s t the s p r e a d of communism i n A s i a . S u f f i c e i t t o say t h a t the P e o p l e ' s R e p u b l i c of C h i n a , e s t a b l i s h e d i n 1949, was r e g a r d e d as a communist t h r e a t . Thus, under American hegemony, the Japanese government and b u s i n e s s community c o n c e n t r a t e d on economic development, which was j u s t i f i e d by the r a t i o n a l e t h a t \"the p u r s u i t of economic p r o s p e r i t y by the p e a c e f u l means of f r e e t r a d e was the most r a t i o n a l and p r a c t i c a l way t o s a f e g u a r d and enhance the n a t i o n a l i n t e r e s t . \" 2 6 3 C e r t a i n l y , the postwar i n t e r n a t i o n a l economic and p o l i t i c a l s i t u a t i o n a l l o w e d Japan t o s t r i v e f o r i t s own economic growth. T h i s i n i t i a t i v e was undermined by the N i x o n d o c t r i n e of 1971, and the f i r s t o i l c r i s i s i n 1973, t h e r e b y c h a n g i n g the postwar economic framework. The c o n c e p t , \" f r e e r i d e , \" can be n a r r o w l y i n t e r p r e t e d t o mean t h a t Japan has been p r o t e c t e d by the U n i t e d S t a t e s w i t h o u t c o n t r i b u t i n g i t s f a i r share of m i l i t a r y s p e n d i n g . B r o a d l y , the t h e o r y of t h e \" f r e e r i d e \" a rgues t h a t Japan b e n e f i t s a t low c o s t from the postwar p r o t e c t i o n p r i m a r i l y p a i d f o r by the U n i t e d S t a t e s , and t h a t t h i s a l l i a n c e a c c o u n t s a t l e a s t p a r t i a l l y f o r the m i r a c u l o u s , r a p i d economic growth of Japan. Based on t h i s t h e o r y , Japan has e n j o y e d a f r e e r i d e i n t h r e e ways: (1) modest d e f e n s e 2 6 3 H a r u h i k o F u k u i , \"Chapter F i f t e e n : Japan's S e c u r i t y P o s t u r e B e f o r e and A f t e r the Nixon Shocks,\" i n The New P o l i t i c a l Economy of t h e P a c i f i c , ed. B e r n a r d K. Gordon and Kenneth J . R o t h w e l l (Cambridge, Mass.: B a l l i n g e r P u b l i s h i n g Co., 1975), p. 146. 166 e x p e n d i t u r e , ( 2 ) r e a d y a c c e s s t o the huge American e x p o r t market, and (3) r e l a t i v e l y cheap t r a n s f e r of t e c h n o l o g y . 2 6 \" Indeed, t h i s \" f r e e r i d e \" c o n s t i t u t e s one of the p i l l a r s of the r a p i d economic growth of Japan a l o n g s i d e a n o t h e r p i l l a r , the abundant s u p p l y of n a t u r a l r e s o u r c e s from d e v e l o p i n g c o u n t r i e s t h a t Japan b e n e f i t e d from d u r i n g the f i r s t two decades f o l l o w i n g World War I I . 2 6 5 The d e v e l o p m e n t a l i m p e r a t i v e s of modern Japan d i c t a t e d by f o r e i g n i m p e r i a l i s m , l a t e development, a s h o r t a g e of n a t u r a l r e s o u r c e s , a l a r g e p o p u l a t i o n i n a small, c o u n t r y , the need f o r t r a d e and balance-of-payments c o n s t r a i n t a r e a t t r i b u t e s of the modern Japanese economy. To overcome t h e s e d i s a d v a n t a g e s and t o d e v e l o p the Japanese economy, i n the l a t e 1860's the M e i j i Government adopted \"the s t a t e - g u i d e d c a p i t a l i s t d e v e l o p m e n t a l system\" or \"a p l a n - r a t i o n a l economy w i t h m a r k e t - r a t i o n a l p o l i t i c a l i n s t i t u t i o n s . \" 2 6 6 In t h i s r e g a r d , the postwar r a p i d economic growth i s c o n s i d e r e d an e x t e n s i o n of i n d u s t r i a l i z a t i o n o r i g i n a t i n g from t h e p o l i c i e s of the M e i j i Government which were based on the same mechanism. A l t h o u g h World War I I d i s r u p t e d the p r o c e s s of economic development, the f o l l o w i n g o c c u p a t i o n r e f o r m s s t r e n g t h e n e d the p r e v i o u s a p p a r a t u s of \" p l a n r a t i o n a l i t y , \" or the economic b u r e a c r a c y . 2 6 7 2 6 \" C h a l m e r s A. Johnson, MITI and the Japanese M i r a c l e : The Growth of I n d u s t r i a l P o l i c y , 1925-1975 ( S t a n f o r d , C a l i f . : S t a n f o r d U n i v e r s i t y P r e s s , 1982), p. f 5 . 2 6 5 N i s h i k a w a , op_. c i t . , p. 299. 2 6 6 C h a l m e r s Johnson, \"La Serenissima of t h e E a s t , \" A s i a n and A f r i c a n S t u d i e s : J o u r n a l of the I s r a e l O r i e n t a l S o c i e t y , v o l . 18, no. 1 (March, 1984): 64. 2 6 7 I b i d . 167 1. R e c o n s t r u c t i o n (1945-1955) In 1945 Japan came under f o r e i g n occupation f o r the f i r s t time i n i t s h i s t o r y , which l a s t e d u n t i l 1952 when the San F r a n c i s c o Peace T r e a t y went i n t o e f f e c t . Japan began r e b u i l d i n g i t s economy under the d i r e c t i o n of the General Headquarters of the A l l i e d Forces (GHQ). In 1949, Joseph Dodge, a D e t r o i t banker, provided the framework f o r an economic p o l i c y f o r Japan, known as the \"Dodge L i n e . \" The Dodge Li n e was an e f f e c t i v e a n t i - i n f l a t i o n a r y p o l i c y , c a l l i n g f o r a f u l l - s c a l e d e f l a t i o n a r y budget p o l i c y and the adoption of a f i x e d yen exchange r a t e set at 360 yen to one U.S. d o l l a r . In 1950, the outbreak of the Korean War had a s i g n i f i c a n t impact on the Japanese economy, which had stagnated under the s t a b i l i z a t i o n p o l i c y of the Dodge L i n e . The s p e c i a l m i l i t a r y procurement boom caused by the Korean War c o n t r i b u t e d to the economic r e s u r r e c t i o n of the war-weary Japan i n the e a r l y 1950's. Indeed, the s p e c i a l wartime demand enabled Japan to make a complete economic recovery almost at a s i n g l e s t r o k e . 2 6 8 By the mid 1950's not only had the economic p r o d u c t i o n of Japan recovered to the peak prewar l e v e l , but a l s o Japan had been accepted i n t o the i n t e r n a t i o n a l economic community. 2 6 9 The Economic White Paper of 1956 s t a t e d that the postwar decade of recovery was 2 6 8 T a s t s u o Uchino, Japan's Postwar Economy: An I n s i d e r ' s View of I t s H i s t o r y and I t s Future, t r a n s . Mark A. Harbison (Tokyo: Kodansha I n t e r n a t i o n a l , i~983; F i r s t Japanese e d i t i o n , 1978), p. 56. 2 6 9 F u k u i , op. c i t . , p. 145. 168 o v e r . The e x p o r t s of prewar Japan h e a v i l y r e l i e d on l i g h t i n d u s t r i a l p r o d u c t s such as t e x t i l e s and sundry goods. However, a t t h a t t i m e , i t was c l e a r t h a t w i t h o u t the development of heavy and c h e m i c a l i n d u s t r i e s i t would be d i f f i c u l t t o employ a l a r g e p o p u l a t i o n and r a i s e the s t a n d a r d of l i v i n g t o the Western l e v e l w i t h o n l y l i g h t i n d u s t r i a l development. T h e r e f o r e , the M i n i s t r y of I n t e r n a t i o n a l Trade and I n d u s t r y (MITI) d e c i d e d t o e s t a b l i s h t h e s e heavy and c h e m i c a l i n d u s t r i e s i n J a p a n . These i n d u s t r i e s , such as s t e e l , o i l r e f i n i n g , p e t r o - c h e m i c a l s , a u t o m o b i l e s , a i r c r a f t , i n d u s t r y machinery, and e l e c t r o n i c s , r e q u i r e d modern t e c h n o l o g y , a l a r g e amount of c a p i t a l , and abundant raw m a t e r i a l s . Encouragement of such i n d u s t r i e s would seem t o c o n f l i c t w i t h economic r a t i o n a l i s m i n the s h o r t r u n , however, i n the l o n g r u n , \" t h e s e a r e p r e c i s e l y the i n d u s t r i e s where income e l a s t i c i t y of demand i s h i g h , t e c h n o l o g i c a l p r o g r e s s i s r a p i d , and l a b o r p r o d u c t i v i t y r i s e s f a s t . \" 2 7 0 In the p u r s u i t of i n t e n s i f i c a t i o n of i n v e s t m e n t and economy of s c a l e i n t h e s e key i n d u s t r i e s , MITI p r o v i d e d a d m i n i s t r a t i v e guidance t o i n d u s t r y t h r o u g h s u g g e s t i o n s , a d v i c e and the g r a n t i n g of i m p o r t a u t h o r i z a t i o n s . 2 7 1 2 7 0 Y . O j i m i , \" B a s i c P h i l o s o p h y and O b j e c t i v e s of Japanese I n d u s t r i a l P o l i c y , \" i n The I n d u s t r i a l P o l i c y of Japan ( P a r i s : O r g a n i z a t i o n f o r Economic C o - o p e r a t i o n and Development, 1972), p. 15. 2 7 1 I b i d . , p. 17. 169 In order to bridge the t e c h n o l o g i c a l gap, advanced f o r e i g n technology was imported. The r i p p l e e f f e c t of t e c h n o l o g i c a l advances i n the s t e e l i n d u s t r y was e s p e c i a l l y remarkable i n the automobile i n d u s t r y , which was a b l e to secure a domestic supply of s p e c i a l s t e e l p r o d u c t s , such as high-grade a r t metal sheet p r e v i o u s l y imported from the U n i t e d S t a t e s . 2 7 2 By m o b i l i z i n g domestic c a p i t a l as opposed to f o r e i g n c a p i ' t a l , the scant c a p i t a l of Japan was c o n c e n t r a t e d i n s t r a t e g i c i n d u s t r i e s . The people's savings i n bank d e p o s i t s and p o s t - o f f i c e savings were c h a n n e l l e d i n t o growth i n d u s t r i e s through c i t y banks and the Development Bank. The heavy and chemical i n d u s t r i e s r e c e i v e d p r o t e c t i o n and encouragement, and the abundant, r e l a t i v e l y cheap supply of n a t u r a l r e s o u r c e s enabled Japan to e a s i l y i n c r e a s e i t s consumption. Hence, by 1960 the f i r s t p lan f o r postwar economic development was completed. During t h i s p e r i o d , the s o l i d f o u n d a t i o n s f o r the Japanese automotive i n d u s t r y were e s t a b l i s h e d . Even though Japan d i d not have a comparative edge i n t h i s f i e l d , MITI a l r e a d y announced i t s \"people's c a r \" ( m i n i c a r ) concept in 1 9 5 5 . 2 7 3 L a t e r Japan became the u nchallenged master of the p r o d u c t i o n and export of automobiles. T h i s demonstrated that the new \" f u t u r e - o r i e n t e d \" s t r a t e g y has been s u c c e s s f u l . A c c o r d i n g to Blumenthal, the \" f u t u r e - o r i e n t e d \" s t r a t e g y r e f e r s to \"a set of d e c i s i o n s which may seem to be i n a p p r o p r i a t e , i r r a t i o n a l , 2 7 2 U c h i n o , op_. c i t . , p. 90. 2 7 3 I b i d . , p. 91. 1 70 and o n l y c o s t l y t o s o c i e t y , but which t u r n out t o be j u s t i f i e d i n the l o n g r u n , when t h e i r r a t i o n a l i t y and e f f i c i e n c y become e v i d e n t . \" 2 7 4 Moreover, t h i s s t r a t e g y i s a broad n o t i o n which does not n e c e s s a r i l y mean a c o n s c i o u s l y p l a n n e d a c t i o n , but i s the s u m - t o t a l of s e v e r a l d e c i s i o n s made by d i f f e r e n t p e o p l e a t d i f f e r e n t t i m e s . 2 7 5 In a d d i t i o n , d u r i n g the l a t t e r 1950's \"consumer r e v o l u t i o n \" became a c a t c h p h r a s e . The t e c h n o l o g i c a l r e v o l u t i o n t r a n s f o r m e d the i n d u s t r i a l s t r u c t u r e of Japan and a l s o brought changes i n the l i f e - s t y l e s of the Japanese. E l e c t r i c h o u s e h o l d a p p l i a n c e s became p o p u l a r , and t h i s s y m b o l i z e d the advent of the mass consumption s o c i e t y of Japan. 2. R a p i d Economic Growth (1956-1973) The p e r i o d between 1945 and 1955 was t h e e r a of economic r e c o v e r y . From 1956, Japan e n t e r e d an e r a of r a p i d economic growth. The N a t i o n a l Income D o u b l i n g P l a n of 1960, which sought t o dou b l e n a t i o n a l income over t h e e n s u i n g t e n y e a r s , a c t u a l l y g r e a t l y exceeded i t . The major g o a l s of t h i s p l a n were t o r e a l i z e a n n u a l economic growth r a t e s of 10 p e r c e n t , t o i n c r e a s e Japan's i n t e r n a t i o n a l c o m p e t i t i v e n e s s t h r o u g h heavy in v e s t m e n t i n p l a n t and equipment and the a d o p t i o n of u l t r a m o d e r n t e c h n o l o g i e s , and t o improve the b a l a n c e of payments p o s i t i o n . 2 7 6 2 7 4 T u v i a B l u m e n t h a l , \"The F u t u r e - O r i e n t e d S t r a t e g y of Japanese Economic Development,\" A s i a n and A f r i c a n S t u d i e s : J o u r n a l of the I s r a e l S o c i e t y vol] TW, no. i (March, 1984) : 83. 2 7 5 I b i d . 2 7 6 U c h i n o , op_. c i t . , p. 171. 171 W i t h t h i s P l a n , the i n d u s t r i a l s t r u c t u r e of Japan s h i f t e d from l i g h t i n d u s t r y t o heavy and c h e m i c a l i n d u s t r i e s w h i c h , s u b s e q u e n t l y , enhanced Japanese i n t e r n a t i o n a l c o m p e t i t i v e n e s s . By 1967, the t a r g e t t o doub l e n a t i o n a l income was a c h i e v e d . In 1968, as p r e v i o u s l y mentioned, Japan's GNP became the second l a r g e s t among the f r e e market economies, and, s i n c e t h a t y e a r , Japan's b a l a n c e of payments have been i n s u r p l u s . R a p i d economic growth can be s t a t i s t i c a l l y summarized i n t h a t d u r i n g the decade from 1958 t o 1968, Japan's average a n n u a l r e a l growth r a t e of GNP was 11.1 p e r c e n t , the h i g h e s t among t h e d e v e l o p e d c o u n t i e s . 2 7 7 W i t h t h i s r a p i d economic gro w t h , t h e Japanese i n d u s t r i a l s t r u c t u r e was t r a n s f o r m e d i n t o t h e p r e v a i l i n g p a t t e r n of o t h e r i n d u s t r i a l i z e d c o u n t r i e s . As Ta b l e 10 shows, d u r i n g t h e p e r i o d from 1955 t o 1973, t h e share of the p r i m a r y s e c t o r ( a g r i c u l t u r e , f o r e s t r y and f i s h e r i e s ) i n t o t a l net domesti c p r o d u c t d e c l i n e d from 22.8 p e r c e n t t o 7.1 p e r c e n t of the t o t a l v a l u e , w h i l e t h a t of t h e secondary s e c t o r ( m i n i n g , m a n u f a c t u r i n g and c o n s t r u c t i o n ) i n c r e a s e d from 29.0 p e r c e n t t o 36.5 p e r c e n t , and t h a t of the t e r t i a r y s e c t o r ( e l e c t r i c i t y , gas, w a t e r , t r a n s p o r t and communication; w h o l e s a l e and r e t a i l t r a d e ; f i n a n c e , i n s u r a n c e and r e a l e s t a t e ; s e r v i c e s ; and government) rose from 48.2 p e r c e n t t o 56.4 p e r c e n t . 2 7 O r g a n i z a t i o n f o r Economic C o - o p e r a t i o n and Development (OECD), The I n d u s t r i a l P o l i c y of Japan ( P a r i s : OECD, 1972), p. 39. Table 10: Net Domestic Product in Japan (FY 1955 -(In B i l l ion Yen, %) 1955 1965 1982) 1973 1982 Primary Sector Agriculture, Forestry & Fis h e r i e s 1.655.4 1,655.4 22 .8 22.8 2,916.7 2,916.7 11.1 11.1 6,498.9 6,498.9 7 . 1 7 . 1 7,012 7,012 2.9 2.9 Secondary Sector M i n i ng Manufactur1ng Construct i on 2,107.5 136.8 1,655.8 314.9 29.0 1 .9 22 .8 4.3 9,362.5 225.8 7,290.9 1,845.8 35.7 0.9 27.8 7.0 33,456.2 353 . 1 25.146.3 7,956.8 36.5 0.4 27.4 8.7 93,142 1 ,020 72, 1 14 20,008 39 . 2 0.4 30.3 8.4 T e r t i a r y Sector E l e c t r i c i t y , Gas, Water, Transportation & Communi cat i on Wholesale & Retail trade Finance, Insurance & Real estate Serv i ces Government 3,510.6 648.3 1,151.5 492.6 891 .0 327.2 48.2 8.9 15.8 6.8 12.2 4.5 13,935.7 2,221 .5 4,426. 1 2,800.8 3,405.8 1,081.5 53.2 8.5 16.9 10.7 13.0 4 . 1 51,770.5 6,578. 1 16,001.0 12,240.8 13,128. 1 3,822.5 56.4 7 . 2 17.4 13.3 14.3 4.2 137,564 20,037 29,874 33,322 28,383 25,948 57 .9 8.4 12.6 14.0 11.9 10.9 Total 7,273.5 100.0 26,215.0 100.0 91,725.6 100.0 237,719 100.0 (Source: Japan, Of f i c e of the Prime Minister, Bureau of S t a t i s t i c s , Japan S t a t i s t i c a l Yearbook 1975. [Tokyo: Japan S t a t i s t i c a l Association and the Mainichi Newspapers, 1975], p. 488, and Japan S t a t i s t i c a l Yearbook 1984, p. 561.) 1 73 T a b l e 11 p r e s e n t s t h e v a l u e of shipments of m a n u f a c t u r i n g i n d u s t r i e s i n 1955, 1960, and 1972. I t r e v e a l s t h e a b s o l u t e and r e l a t i v e marked i n c r e a s e i n the o u t p u t s of heavy and c h e m i c a l i n d u s t r i e s . In 1955, the t o t a l v a l u e of shipments i n the m a n u f a c t u r i n g i n d u s t r i e s was 6,772,000 m i l l i o n yen. Out of t h i s t o t a l , 55.3 p e r c e n t was i n l i g h t i n d u s t r y and 44.7 p e r c e n t was i n heavy and c h e m i c a l i n d u s t r i e s . W i t h r e g a r d t o the l i g h t m a n u f a c t u r i n g i n d u s t r i e s , food and k i n d r e d p r o d u c t s , a l o n g w i t h t h e t e x t i l e m i l l p r o d u c t s were major c o n t r i b u t o r s , c o n s i s t i n g of 17.9 p e r c e n t and 16.2 p e r c e n t of the t o t a l v a l u e of s h i p m e n t s , r e s p e c t i v e l y . In the heavy and c h e m i c a l i n d u s t r i e s , p r i m a r y m e t a l s , and c h e m i c a l and a l l i e d p r o d u c t s were l a r g e p r o d u c e r s , w i t h 13.8 p e r c e n t and 11.0 p e r c e n t of the t o t a l v a l u e of s h i p m e n t s , r e s p e c t i v e l y . F i v e y e a r s l a t e r i n 1960, t h e r e was an e v i d e n t s h i f t i n t h e m a n u f a c t u r i n g i n d u s t r i e s , and the v a l u e pf shipments i n heavy and c h e m i c a l i n d u s t r i e s s u r p a s s e d t h o s e i n l i g h t i n d u s t r i e s . The t o t a l v a l u e of shipments reached by 1960 15,578,623 m i l l i o n yen. The v a l u e of shipments i n l i g h t i n d u s t r y d e c l i n e d t o 43.6 p e r c e n t of the t o t a l v a l u e , w h i l e the v a l u e of shipments i n heavy and c h e m i c a l i n d u s t r i e s i n c r e a s e d t o 56.4 p e r c e n t pf t h e t o t a l , w h i l e i n the l i g h t i n d u s t r y s e c t o r , the f o o d i n d u s t r y and the t e x t i l e i n d u s t r y remained major c o n t r i b u t o r s . In s p i t e of an a b s o l u t e i n c r e a s e i n the v a l u e of a l l l i g h t i n d u s t r y s h i p m e n t s , the r e l a t i v e v a l u e of f o o d i n d u s t r y shipments d e c l i n e d from 17.9 Table 11: Value of Shipments in Japan (In B i l l i o n Yen, %) 1955 1960 1972 1982 Light Industry 3,745 55 .3 6,799 43 .6 32,018 39 . 5 80,002 34 .8 Food & Kindred products 1,215 17 .9 1 ,927 12 .4 8,913 1 1 .0 25,178 1 1 .O T e x t i l e m i l l products 1 ,096 16 .2 1 ,741 1 1 . 2 5,058 6 . 2 8, 159 3 .6 Apparel & Related products 86 1 .3 181 1 . 2 1 ,290 1 .6 3, 246 1 .4 Lumber & Wood products 274 4. .0 551 3 .5 2,632 3 . 3 4 , 346 1 .9 Furniture & O u t f i t s 65 1 . 0 160 1 .0 1 , 289 1 .6 2,900 1 . 3 Pulp, Paper 8> Paper products 285 4 . 2 601 3 . 9 2,622 3 . 2 6,847 3 .O Publishing 223 3. . 3 395 2 .5 2,562 3 .2 7 , 747 3 .4 Rubber 97 1 , . 4 234 1 .5 920 1 . 1 2,546 1 . 1 Leather 38 0. 6 77 0 .5 437 O . 5 977 0 .4 Ceramic, Stone & Clay products 232 3. .4 538 3 .5 3, 125 3 .9 8,572 3 . 7 Others 133 2 . 0 394 2 .5 3, 169 3 .9 9,484 4 A Heavy & Chemical Industries 3,027 44 . 7 8,780 56. .4 48,944 60. .5 149,747 65 . 2 Chemicals & Related industries 744 1 1 . 0 1 ,464 9 .4 6, 136 7 . 8 18,465 8 .0 Petroleum & Coal products 130 1 . 9 372 2 .4 2,382 2 9 15,878 6 .9 Iron and Steel 934' 13.8' 1 ,652 10. .6 6,691 8. . 3 17,360 7 6 Non-ferrous metals & products 670 4 . 3 3,097 3. 8 6,765 2 9 Fabricated metal products 220 3. 2 610 3 .9 4,473 5. .5 11,317 4 .9 Mach i nery 312 4 . 6 1,214 7 . 8 7,096 8 8 19,990 8 . 7 E l e c t r i c a l machinery & equipment 251 3 . 7 1 , 294 8 . 3 8,561 10. 6 27,631 12 .0 Transportation equipment 371 5. 5 1 ,329 8 . 5 9, 380 1 1 . 6 28,702 12 . 5 Pr e c i s i o n instruments 56 0. 8 173 1 . 1 1 , 108 1 . .4 3,603 1 . 6 Ordnance & Accessories 10 0. 1 2 0. .0 19 0. .0 36 0. .0 Total 6, 772 100. O 15,578 100. O 80,962 100. 0 229,748 100 .0 ' Primary metals (Sources: Japan. O f f i c e of the Prime Minister, Bureau of S t a t i s t i c s , Japan S t a t i s t i c a l Yearbook 1957 [Tokyo: Japan S t a t i s t i c a l Association and The Mainichi Newspapers, 1957], pp. 152-153; Japan S t a t i s t i c a l Yearbook 1963, pp.154-157; Japan S t a t i s t i c a l Yearbook 1976, pp. 168-169; and Japan S t a t i s t i c a l Yearbook 1984, pp. 218-219.) 1 75 p e r c e n t i n 1955 t o 12.4 p e r c e n t i n 1960. The t e x t i l e i n d u s t r y a l s o d e c l i n e d ; the 1955 t o t a l was 16.2 p e r c e n t and i t s 1960 t o t a l was 11.2 p e r c e n t . In c o n t r a s t , the v a l u e of shipments i n heavy and c h e m i c a l i n d u s t r i e s i n c r e a s e d a b s o l u t e l y and r e l a t i v e l y . The r e l a t i v e v a l u e s of shipments i n the i r o n and s t e e l i n d u s t r y and i n the c h e m i c a l i n d u s t r y d e c r e a s e d t o 10.6 p e r c e n t and 9.4 p e r c e n t of the t o t a l v a l u e , r e s p e c t i v e l y . V a l u e s i n the t r a n s p o r t a t i o n equipment i n d u s t r y , the e l e c t r i c a l m achinery and equipment i n d u s t r y , and the machinery i n d u s t r y i n c r e a s e d t o 8.5 p e r c e n t , 8.3 p e r c e n t , and 7.8 p e r c e n t of the t o t a l v a l u e , r e s p e c t i v e l y . In 1972, a t the f i n a l s t a g e of r a p i d economic growth, the t o t a l v a l u e of shipments i n m a n u f a c t u r i n g amounted t o 80,961,930 m i l l i o n yen. Output from l i g h t i n d u s t r y c o n s i s t e d of 39.5 p e r c e n t of the t o t a l value., w h i l e the o u t p u t s i n heavy and c h e m i c a l i n d u s t r i e s a c c o u n t e d f o r 60.5 p e r c e n t of the t o t a l . Among the s u b - c a t e g o r i e s i n l i g h t i n d u s t r y , t h e r e l a t i v e v a l u e of shipments i n the food i n d u s t r y o c c u p i e d 11.0 p e r c e n t of the t o t a l v a l u e , but the v a l u e of shipments i n the t e x t i l e i n d u s t r y f u r t h e r d e c l i n e d t o 6.2 p e r c e n t of the t o t a l . C o n v e r s e l y , the a b s o l u t e and r e l a t i v e v a l u e s of shipments i n heavy and c h e m i c a l i n d u s t r i e s e n l a r g e d . In p a r t i c u l a r , i t i s noteworthy t h a t the v a l u e s of shipments i n the t r a n s p o r t a t i o n equipment i n d u s t r y , i n the e l e c t r i c a l machinery and equipment i n d u s t r y , and i n the machinery 176 i n d u s t r y f u r t h e r expanded t o 11.6 p e r c e n t , 10.6 p e r c e n t , and 8.8 p e r c e n t of the t o t a l v a l u e . The i r o n and s t e e l and the c h e m i c a l i n d u s t r i e s were a l s o major c o n t r i b u t o r s t o the o u t p u t i n t h i s s e c t o r , i n s p i t e of a r e l a t i v e d e c l i n e i n p e r c e n t a g e s ; 8.3 p e r c e n t and 7.8 p e r c e n t of the t o t a l v a l u e . Thus, T a b l e 11 i l l u s t r a t e s a remarkable s h i f t i n m a n u f a c t u r i n g from l i g h t i n d u s t r y t o heavy and c h e m i c a l i n d u s t r i e s i n terms of t h e v a l u e of shipments. In l i g h t i n d u s t r y , the wane i n the t e x t i l e i n d u s t r y was s i g n i f i c a n t , i n a d d i t i o n t o a r e l a t i v e d e c l i n e i n the f o o d i n d u s t r y . On the o t h e r hand, the t r a n s p o r t a t i o n equipment i n d u s t r y , the e l e c t r i c a l machinery and equipment i n d u s t r y , and the machinery i n d u s t r y were the impetus f o r the enhancement of an i n c r e a s e i n o u t p u t by the heavy and c h e m i c a l i n d u s t r i e s , w h i l e t h e i r o n and s t e e l and the c h e m i c a l i n d u s t r i e s a l s o c o n t r i b u t e d . T a b l e 12 i n d i c a t e s the v a l u e of e x p o r t s by commodity. R e f l e c t i n g a s h i f t i n t h e d o m e s t i c i n d u s t r i a l s t r u c t u r e , e x p o r t commodities a l s o changed toward heavy and c h e m i c a l i n d u s t r i a l p r o d u c t s . From 1960 t o 1970, the share of t h e s e heavy and c h e m i c a l i n d u s t r i a l p r o d u c t s i n t o t a l e x p o r t v a l u e i n c r e a s e d r e s p e c t i v e l y from 48.2 p e r c e n t t o 74.3 p e r c e n t of the t o t a l v a l u e . S h i p s , a u t o m o b i l e s , e l e c t r i c a l a p p l i a n c e s and o t h e r machinery c o n t r i b u t e d t o t h i s i n c r e a s e . C o n c o m i t a n t l y , the p r o p o r t i o n of l i g h t i n d u s t r i a l p r o d u c t s i n the t o t a l e x p o r t v a l u e d e c l i n e d , and the share of t e x t i l e s sank from 37.3 p e r c e n t i n 1955 t o 12.5 p e r c e n t i n Table 12: Value of Japanese Exports by Commodity Group (1955 - 1983) (In B111 ion Yen, %) 1955 1960 1970 1983 Foodstuffs 45 6 .2 92 6. 3 233 3 .4 330 0. 9 T e x t i l e s & A l l i e d products 270 37 3 440 30. 1 867 12 . 5 1 ,572 4 . 5 Chemicals & A l l i e d products 37 5. 1 65 4 . 5 444 6 . 4 1 ,659 4 . 8 Non-metallic mineral products 34 4. .7 61 4 . 2 134 1 . 9 51 1 1 . 5 Metals & Metal products 139 19. . 2 205 14 . 0 1 ,370 19 . 7 4 , 365 12 . 5 Iron & Steel 93 12 8 140 9. .6 1 ,024 14 , . 7 3,051 8. .7 Non-ferrous metals 24 3 . 3 9 0. ,6 89 1 . 3 377 1 . 1 Metal products 22 3. .0 56 3. 8 257 3 . 7 937 2 . 7 Machinery & Equipment - - 373 25. .5 3,219 46 . 3 23,653 67 . 8 Machinery e x c l . e l e c t r i c a l - - - - 722 10. .4 5,488 15 . 7 E l e c t r i c a l machinery - - - - 858 12 .3 5 , 440 15 .6 Transportation equipment - - - - 1 ,239 17 .8 9,296 26. .6 Pr e c i s i o n instruments - - - - 399 5. . 7 3,430 9. . 8 Others - - 224 15. 3 687 9. .9 2,819 8 . 1 Total 724 100. .0 1 ,460 100. 0 6,954 100. .0 34,909 100. 0 Not available. (Source: Japan, Management and Coordination Agency, S t a t i s t i c s Bureau, Japan S t a t i s t i c a l Yearbook 1984 [Tokyo: Japan S t a t i s t i c a l Association and the Mainichi Newspapers, 1984], p. 342.) 178 1 970. The r e s u l t s of t h i s r a p i d economic growth c a s t a new l i g h t on the Japanese economy. I n t e r n a t i o n a l l y , Japan became a genuine member of the d e v e l o p e d w o r l d , as i t was r e c o g n i z e d as an economic superpower by i t s c o m p e t i t o r s . In terms of t r a d e , Japan was r e l e a s e d from i t s b a l a n c e - o f - p a y m e n t s c o n s t r a i n t , and commenced the l i b e r a l i z a t i o n of c a p i t a l i n the l a t e 1960's. D o m e s t i c a l l y , t h i s amazing economic performance was accompanied by a change i n the l a n d s c a p e of Japan. I t brought about a mass consumption s o c i e t y and p l a n t e d a \" v i r t u o u s growth\" m e n t a l i t y i n the Japanese p e o p l e . At the same t i m e , i t caused e n v i r o n m e n t a l d e t e r i o r a t i o n and p o l l u t i o n . T h i s r a p i d economic growth g r e a t l y i n f l u e n c e d a l l f a c e t s of l i f e i n Japanese s o c i e t y . In 1964, Japan was a c c e p t e d as an advanced c o u n t r y , by s h i f t i n g t o A r t i c l e 8 member s t a t u s of the I n t e r n a t i o n a l Monetary Fund (IMF) and by becoming a f u l l member of the O r g a n i z a t i o n f o r Economic C o o p e r a t i o n and Development (OECD). The G e n e r a l Agreement on T a r i f f s and Trade (GATT) was e s t a b l i s h e d on the p r i n c i p l e of f r e e t r a d e w i t h i t s b a s i c p remise c o n s t i t u t i n g the e l i m i n a t i o n of r e s t r i c t i o n s on t r a d e by member c o u n t r i e s . F i r s t , t he Western European c o u n t r i e s and Japan j o i n e d GATT under A r t i c l e 14 of the IMF, which a l l o w e d t e m p o r a r y , t r a n s i t i o n a l import r e s t r i c t i o n s by th o s e c o u n t r i e s w h i c h had s u f f e r e d damage from the war and were e x p e r i e n c i n g a s h o r t a g e of d o l l a r s . By 1959 the Western 1 79 European c o u n t r i e s s h i f t e d t o A r t i c l e 8 s t a t u s of t h e IMF, which r e q u i r e d an e l i m i n a t i o n of government s u b s i d i e s f o r e x p o r t s and of t r a d e c o n t r o l s p r e v i o u s l y imposed because of b a l a n c e of payments d e f i c i t s . 2 7 8 Acceptance of IMF A r t i c l e 8 s t a t u s and membership of the OECD f o r m a l l y r a n k e d Japan among the advanced c o u n t r i e s . S i n c e t h i s r a p i d economic growth c o n t i n u e d w i t h o u t i n t e r r u p t i o n i n the 1960's, t h e r e was g r a d u a l l y a s i g n i f i c a n t change i n Japan's b a l a n c e - o f - p a y m e n t s p o s i t i o n . An a d v e r s e b a l a n c e of payments had been the predominant c o n s t r a i n t on the economic growth of Japan, and government p o l i c y f o c u s e d on a f a v o r a b l e b a l a n c e as the major o b j e c t i v e of Japanese f o r e i g n economic p o l i c y . 2 7 9 As R e i s c h a u e r has p o i n t e d o u t , Japan's foremost f o r e i g n p o l i c y o b j e c t i v e was t o pursue t r a d e as v i g o r o u s l y as p o s s i b l e w i t h a l l f o r e i g n c o u n t r i e s . . 2 8 0 The t r a d i n g p a t t e r n of Japan was t o e x p o r t v a s t q u a n t i t i e s of m a n u f a c t u r e d p r o d u c t s and t o import p r i m a r i l y raw m a t e r i a l s and f o o d s t u f f s . E x p o r t a t i o n of man u f a c t u r e d goods s h i f t e d from l a b o r - i n t e n s i v e , t e c h n o l o g i c a l l y u n s o p h i s t i c a t e d goods, such as c o t t o n t e x t i l e s , t o more t e c h n o l o g i c a l l y advanced ones, such as t e l e v i s i o n s e t s and c a r s . As a r e s u l t , the i n t e r n a t i o n a l c o m p e t i t i v e n e s s of 2 7 8 U c h i n o , op_. c i t . , p. 118. 2 7 9 H u g h P a t r i c k and Henry Rosovsky, \"Chapter One, Japan's Economic Performance: An Overview,\" i n A s i a ' s New G i a n t : How the Japanese Economy Works eds. Hugh P a t r i c k and Henry Rosovsky (Washington, D.C.: B r o o k i n g s I n s t i t u t i o n , 1976), p. 44. 2 8 0 E d w i n 0. R e i s c h a u e r , The Japanese (Cambridge, Mass.: H a r v a r d U n i v e r s i t y P r e s s , B e lknap P r e s s , 1977), p. 357. 180 t h e s e l a t t e r goods were enhanced. U n t i l 1973 the i n c r e a s e i n p r i c e s of raw m a t e r i a l s were l e s s than the i n c r e a s e i n p r i c e s of m a n u f a c t u r e d goods. The commodity terms of t r a d e were i n Japan's f a v o r . 2 8 1 As of 1968, Japan s t a r t e d t o accumulate s u r p l u s e s . The U n i t e d S t a t e s showed g r e a t c o n c e r n i n Japan's economic pe r f o r m a n c e , s i n c e the U n i t e d S t a t e s had been Japan's l e a d i n g market and many American i n d u s t r i e s were c o n f r o n t e d by Japanese c o m p e t i t i o n . At the same t i m e , the U n i t e d S t a t e s was s u f f e r i n g from an o v e r v a l u e d d o l l a r , because the r i g i d B r e t t o n Woods system p r e v e n t e d easy and r a p i d a d j u s t m e n t s . The U n i t e d S t a t e s t h e r e f o r e pushed f o r the l i b e r a l i z a t i o n of Japan's economy. In name and r e a l i t y , by 1965 Japan became one of t h e w o r l d ' s i n d u s t r i a l i z e d c o u n t r i e s , and under the regime of GATT and IMF Japan a t t a i n e d over 93 p e r c e n t import l i b e r a l i z a t i o n . 2 8 2 In a d d i t i o n , i n 1969 under OECD Codes of L i b e r a l i z a t i o n of C u r r e n t I n v i s i b l e O p e r a t i o n s and C a p i t a l Movements and w i t h the p r e s s u r e from f o r e i g n governments, Japan commenced l i b e r a l i z a t i o n of c a p i t a l t r a n s a c t i o n s . W h i l e Japan was e s t a b l i s h i n g some p r e s t i g e i n the i n t e r n a t i o n a l community, the amazing economic performance proceeded d o m e s t i c a l l y g i v i n g Japanese s o c i e t y a new f a c e . F i r s t , not o n l y the N a t i o n a l Income D o u b l i n g P l a n but a l s o the announcement of t r a d e l i b e r a l i z a t i o n s t i m u l a t e d p l a n t and equipment i n v e s t m e n t i n o r d e r t o upgrade and modernize f a c i l i t i e s t o meet the a n t i c i p a t e d s e v e r e c o m p e t i t i o n . The 2 8 1 P a t r i c k and Rosovsky, i b i d . 2 8 2OECD, op_. c i t . , p. 37. 181 d e c i s i o n t o h o l d the 1964 Olympic Games i n Tokyo r e s u l t e d i n a tremendous growth i n the c o n s t r u c t i o n i n d u s t r y . In a d d i t i o n t o Olympic f a c i l i t i e s , t r a n s p o r t a t i o n f a c i l i t i e s and l u x u r y h o t e l s were b u i l t , which t r a n s f o r m e d the e n t i r e c i t y s c a p e b e f o r e the games took p l a c e . In l i k e manner, Expo '70, a w o r l d ' s f a i r h e l d on the o u t s k i r t s of Osaka, s t i m u l a t e d the c o n s t r u c t i o n i n d u s t r y . W i t h th e upsurge i n n a t i o n a l p r i d e , Expo '70 p r e s e n t e d i t s own Japanese t e c h n o l o g i c a l accomplishments as w e l l as f o r e i g n e x h i b i t i o n s . T h i s p e r i o d c o i n c i d e d w i t h the consumer r e v o l u t i o n which t r a n s f o r m e d Japan i n t o a mass consumption s o c i e t y . The r i s e i n p e r s o n a l consumption e x p e n d i t u r e based on the i n c r e a s e i n r e a l p e r s o n a l income, was a t t r i b u t e d t o the i n c r e a s e i n l a b o r p r o d u c t i v i t y due t o the heavy investment i n p l a n t and equipment, and the i n c r e a s e i n wage l e v e l s due t o the t r a n s f o r m a t i o n of the l a b o r market. Around 1960 the s u p p l y and demand of l a b o r i n t e r c h a n g e d and Japan f a c e d a f u l l employment s o c i e t y f o r the f i r s t t i me i n modern h i s t o r y . T h i s w i l l be d i s c u s s e d i n the next c h a p t e r . W ith the development of heavy and c h e m i c a l i n d u s t r i e s and the r i s e i n p e r s o n a l r e a l income, Japan s h i f t e d t o the mass consumption s o c i e t y , which was s y m b o l i z e d by h o u s e h o l d e l e c t r i c a l a p p l i a n c e s , known as \" t h r e e e l e c t r i c t r e a s u r e s , \" t h a t i s , b l a c k - a n d - w h i t e t e l e v i s i o n s e t s , washing machines and r e f r i g e r a t o r s . 182 F i n a l l y , the t e n - y e a r N a t i o n a l Income D o u b l i n g P l a n e p i t o m i z e d the e r a of what was r e g a r d e d as \" v i r t u o u s g r o w t h . \" 2 8 3 Here, an a n a l o g y of a p i e i s o f t e n used t o s u p p o r t the economic growth argument. I f the s i z e of a p i e becomes l a r g e r , then an i n d i v i d u a l i n the s o c i e t y w i l l get a l a r g e r amount of the p i e w i t h o u t d e c r e a s i n g someone e l s e ' s s h a r e . Indeed, r a p i d economic growth was a panacea t h a t s o l v e d many problems by b r i n g i n g b e n e f i t s t o v i r t u a l l y e v e r y one. For i n s t a n c e , i t c r e a t e d j o b s ; r a i s e d p e r s o n a l income; made the adjustment p r o c e s s e a s i e r f o r d e c l i n i n g i n d u s t r i e s t h r o u g h the p r o v i s i o n of a l t e r n a t i v e j o b s ; and c o n t r i b u t e d t o the enhancement of Japan's i n t e r n a t i o n a l s t a t u s . Japan f o c u s e d on i t s own economic growth and a c c o m p l i s h e d i t s o r i g i n a l g o a l . Though economic growth was seen as a panacea, Japan a l s o e x p e r i e n c e d i t s n e g a t i v e s i d e e f f e c t s . The problems c r e a t e d by the growth were the r i s e i n consumer p r i c e s s t a r t i n g i n the 1960's, and e n v i r o n m e n t a l d e t e r i o r a t i o n and s e v e r e p o l l u t i o n . The s u b s t a n t i a l economic growth was a c h i e v e d a t the expense of the i r r e p l a c e a b l e e n v i r o n m e n t . Thus, by the end of 1960's Japan r e c o g n i z e d the m e r i t s and d e m e r i t s brought by the r a p i d economic growth. 3. Slow Economic Growth ( 1 9 7 3 - p r e s e n t ) In 1971 Japan e n c o u n t e r e d the two \"Nixon s h o c k s . \" The f i r s t shock came i n the s p r i n g of 1971, when then P r e s i d e n t N i x o n announced h i s p l a n t o v i s i t the P e o p l e ' s R e p u b l i c of C h i n a . T h i s announcement was made w i t h o u t any p r i o r 2 8 3 P a t r i c k and Rosovsky, op. c i t . , p. 44. 183 c o n s u l t a t i o n w i t h Japan, t h e r e f o r e e r o d i n g some of the i m p o r t a n t a s s u m p t i o n s of t h e postwar U n i t e d S t a t e s - J a p a n a l l y p o s t u r e . The n o r m a l i z a t i o n of U n i t e d S t a t e s - C h i n a r e l a t i o n s changed the b a s i c s t r u c t u r e of power p o l i t i c s as w e l l as the economic sphere i n t h e P a c i f i c . 2 8 4 The second shock o c c u r r e d i n August, 1971, when Ni x o n announced h i s \"New Economic P o l i c y , \" which v i r t u a l l y t e r m i n a t e d the r u l e s of the w o r l d ' s postwar monetary system. The New Economic P o l i c y suspended the c o n v e r s i o n of d o l l a r s i n t o g o l d which s t r u c k a t the r o o t of the p r e v a l e n t i n t e r n a t i o n a l monetary system. P r e v i o u s l y , the B r e t t o n Woods system had been based on t h e f i x e d d o l l a r / g o l d exchange r a t e s . In December of the same y e a r , an a l t e r n a t i v e monetary system was e s t a b l i s h e d under the S m i t h s o n i a n Agreement, but s i n c e 1973 the f l o a t i n g exchange r a t e system has been g a i n i n g a c c e p t a n c e . The \"Nixon s h o c k s \" of 1971 and the \" o i l shock\" of 1973 n e c e s s i t a t e d the r e f o r m a t i o n of the p r e v a i l i n g postwar i n t e r n a t i o n a l economic framework. In response t o the changes i n d o m e s t i c and i n t e r n a t i o n a l economic s i t u a t i o n s , Japan d e p a r t e d from r a p i d economic growth and e n t e r e d a sl o w , s t a b l e economic growth p e r i o d . The s h a r p i n c r e a s e i n energy p r i c e s and c o n c o m i t a n t i n c r e a s e s i n raw m a t e r i a l p r i c e s a f f e c t e d e n e r g y - i n t e n s i v e i n d u s t r i e s , such as the aluminum s m e l t i n g and p e t r o c h e m i c a l i n d u s t r i e s . Because of the slow growth, the s t a g n a t i o n of 2 8 4 0 k i t a , op_. c i t . , p. 254. 184 demand a f f e c t e d i n d u s t r i e s , p a r t i c u l a r l y the i r o n and s t e e l i n d u s t r i e s . The s u p p l y of l a b o r f e l l due t o the slow growth of p o p u l a t i o n and l o n g e r span of e d u c a t i o n . Land s h o r t a g e s f o r i n d u s t r i a l p l a n t s and a growing c o n c e r n w i t h e n v i r o n m e n t a l p o l l u t i o n a l s o h i n d e r e d r a p i d economic growth. P o p u l a r v a l u e s r e g a r d i n g the h i g h economic growth has changed, and the improvement of environment took p r i o r i t y o v e r economic g r o w t h . 2 8 5 ' I n t e r n a t i o n a l l y , Japan f a c e d new problems. Once Japan caught up w i t h o t h e r i n d u s t r i a l i z e d c o u n t r i e s , t e c h n o l o g i c a l p r o g r e s s began t o slow down. On the one hand, w i t h the i n c r e a s i n g share of w o r l d t r a d e market, Japan's e x p a n s i o n of e x p o r t s c r e a t e d f r i c t i o n w i t h o t h e r l e a d i n g i n d u s t r i a l i z e d c o u n t r i e s . P a r t i c u l a r l y , the s t e e l , s h i p b u i l d i n g , and a u t o m o b i l e i n d u s t r i e s were a f f e c t e d . On the o t h e r hand, Japan c o n f r o n t e d a c h a l l e n g e by the emergence of newly i n d u s t r i a l i z i n g c o u n t r i e s ( N I C s ) . Japanese t e x t i l e s , plywood, and s h i p b u i l d i n g i n d u s t r i e s were l o s i n g t h e i r c o m p e t i t i v e edge i n the i n t e r n a t i o n a l market. F i n a l l y , the a p p r e c i a t i o n of the yen206 d i d s e r v e t o o f f s e t the r i s e i n 2 8 5 Y u t a k a K o s a i and Y o s h i t a r o Ogino, The Contemporary Japanese Economy (London: M a c m i l l a n P r e s s , 1984), p. 41. 2 8 6 T h e r e v a l u a t i o n of the yen t o t h e U.S. d o l l a r i n f l u e n c e d t h e t r a d e performance of J apan, and, u l t i m a t e l y , i t s b a l a n c e of payments. S i n c e 1947, the yen had been f i x e d a t the r a t e of 360 yen t o the U.S. d o l l a r , but was r e v a l u e d a t 308 yen t o t h e U.S. d o l l a r under the S m i t h s o n i a n Agreement. In O c t o b e r , 1978, the v a l u e of the yen r e c o r d e d as s t r o n g as 185 yen t o the U.S. d o l l a r . ( J apan, Economic P l a n n i n g Agency, Economic Survey of Japan: 1980-1981 [Tokyo: The Japan Times, 1981], p. 47.) In t h e o r y , under the f l o a t i n g exchange r a t e system, exchange r a t e s w i l l a d j u s t a c c o r d i n g t o t h e r e l a t i v e i n t e r n a t i o n a l c o m p e t i t i v e a b i l i t i e s of the t r a d i n g c o u n t r i e s . However, J - c u r v e e f f e c t s , or l a g s i n 185 energy p r i c e s , t o a c e r t a i n e x t e n t , and i n c r e a s e d i m p o r t s , w h i l e c o m p e t i t i o n was made s t i f f e r f o r e x p o r t s . As a r e s u l t , under the f l o a t i n g exchange r a t e system, the expanding i n d u s t r i e s have c o n t r i b u t e d t o the s t r e n g t h e n i n g the yen, w h i l e weaker i n d u s t r i e s s u f f e r e d from the a p p r e c i a t i o n of the yen.287 T h e r e f o r e , Japan had t o r e s t r u c t u r e i t s economy i n o r d e r t o meet the new d o m e s t i c and i n t e r n a t i o n a l e n v i r o n m e n t s . The \" p o s t - o i l c r i s e s \" w o r l d has been c h a r a c t e r i z e d by \"slow growth\" and a \"zero-sum s o c i e t y . \" W ith the s h a r p i n c r e a s e i n energy p r i c e s and the u n c e r t a i n t y of s e c u r i n g s u p p l i e s of raw m a t e r i a l s , t h e Japanese i n d u s t r i a l s t r u c t u r e has s h i f t e d from e n e r g y - i n t e n s i v e i n d u s t r i e s t o h i g h e r v a l u e - a d d e d and \" c l e a n \" i n d u s t r i e s , namely, h i g h t e c h n o l o g y and k n o w l e d g e - i n t e n s i v e i n d u s t r i e s . A l t h o u g h heavy and c h e m i c a l i n d u s t r i e s , e s p e c i a l l y the s t e e l and s h i p b u i l d i n g i n d u s t r i e s , were a t h r i v i n g f o r c e f o r economic development, t h e s e r e v e a l e d d i f f i c u l t i e s i n a d j u s t i n g t o the new c o n d i t i o n s of slow economic growth. L a r g e - s c a l e p r o d u c t i o n c a u sed a s t r u c t u r a l adjustment problem, s i n c e t h e s e i n d u s t r i e s r e t a i n e d e x c e s s c a p a c i t y d e s p i t e a s h i f t i n demand. As a r e s u l t , the once l e a d i n g i n d u s t r i e s t u r n e d i n t o \" s t r u c t u r a l l y d e p r e s s e d \" i n d u s t r i e s , 2 8 6 ( c o n t ' d ) a d j u s t m e n t , and i n t e r n a t i o n a l s p e c u l a t i o n a c t i v i t i e s w i l l i n f l u n e c e t h i s system. For a d e t a i l e d d i s c u s s i o n of the J - c u r v e e f f e c t , see T a k a f u s a Nakamura, \"An Economy i n S e a r c h of S t a b l e Growth: Japan S i n c e the O i l C r i s i s , \" The J o u r n a l of Japanese S t u d i e s v o l . 6, no. 1 ( W i n t e r , 1980): 173-175. 2 8 7 K o s a i and Ogino, ojo. c i t . , p. 76. 186 i n c l u d i n g p e t r o c h e m i c a l s , p u l p and paper, aluminum s m e l t i n g , s h i p b u i l d i n g , and a r t i f i c i a l f i b e r s . 2 8 8 P r e s e n t key i n d u s t r i e s a r e k n o w l e d g e - i n t e n s i v e and h i g h t e c h n o l o g y i n d u s t r i e s , t y p i f i e d by the c o m p u t e r - r e l a t e d and semiconductor i n d u s t r i e s , which r e q u i r e r e l a t i v e l y s m a l l e r s c a l e o p e r a t i o n s . Because of t h e n a t u r e of i n d u s t r i e s , the d i v e r s i f i c a t i o n of demand and the s h o r t e n i n g of the p r o d u c t l i f e c y c l e g i v e the more f l e x i b l e , s m a l l and medium-sized f i r m s a c e r t a i n c o m p e t i t i v e edge over l a r g e f i r m s which a r e more o r i e n t e d toward economies of s c a l e and mass p r o d u c t i o n . 2 8 9 C o n v e n t i o n a l l y , s m a l l and medium-sized f i r m s a r e reg a r d e d as a u x i l i a r y and a r e c o n n e c t e d w i t h l a r g e f i r m s t h r o u g h the s u b c o n t r a c t system. However, new, b u r g e o n i n g , s m a l l e r e n t e r p r i s e s s p e c i a l i z e d i n h i g h t e c h n o l o g y i n d u s t r i e s c a s t a new l i g h t on the e x i s t i n g c o ncept of s m a l l and medium-sized f i r m s i n Japan. Today, \" s o f t n o m i z a t i o n \" 2 9 0 i s now a major t h r u s t i n 2 8 8 T u c k e r , op_. c i t . , p. 23. 2 8 9 A k i h i r o Yoshikawa and B r i a n W o o d a l l , \"The 'Venture Boom' and Japanese I n d u s t r i a l P o l i c y , \" A s i a n Survey: A Monthly Review of Contemporary A s i a n A f f a i r s v o l . 25\", no. 6 (June, 1985): 702. 2 9\u00C2\u00B0Softnomization i s the term used by the M i n i s t r y of F i n a n c e t o r e f e r t o the r e c e n t s t r u c t u r a l t r a n s f o r m a t i o n of the economy as r e p r e s e n t e d by the r i s i n g r a t i o of the c o s t of n o n - m a t e r i a l i n p u t s or n o n - m a t e r i a l c o s t s p l u s l a b o r c o s t s t o the c o s t of a l l i n p u t s . I t r e f e r s not o n l y t o the i n c r e a s e i n the share of s e r v i c e s i n t o t a l consumer e x p e n d i t u r e but a l s o t o fundamental changes i n p e o p l e ' s i n t e r e s t s , sense of v a l u e s and b e h a v i o r i n f a v o r of s e r v i c e s a t the expense of goods. For a more d e t a i l e d d i s c u s s i o n , see H i r o s h i T a k e u c h i , \" S o f t n o m i z a t i o n of Economy and U l t i m a t e D e s t i n a t i o n of C i v i l i z e d S o c i e t y , \" The O r i e n t a l Economist v o l . 51, no. 878 (December, 1983): 18-23. 187 c u r r e n t s t r a t e g y f o r Japanese i n d u s t r i a l p o l i c y . \" S o f t n o m i z a t i o n \" r e f e r s t o t h e s t e a d y s h i f t from a \"hard economy\" f o c u s i n g on a g r i c u l t u r e and m a n u f a c t u r i n g t o a \" s o f t economy\" c e n t e r i n g on a s e r v i c e - r e l a t e d economy. As B e l l and Honjo p o i n t o u t , b o t h the U n i t e d S t a t e s and Japan ar e b e i n g t r a n s f o r m e d i n t o p o s t - i n d u s t r i a l s o c i e t i e s , where t e r t i a r y a c t i v i t i e s dominate the economy and where i n c r e a s i n g the q u a l i t y of l i f e becomes the more d e s i r e d g o a l . In t h i s s o c i e t y , i n f o r m a t i o n and knowledge a r e the major s t r u c t u r a l f e a t u r e s . 2 9 1 T h i s can be i l l u s t r a t e d by s t a t i s t i c s . In 1982, the t e r t i a r y s e c t o r c o n t r i b u t e d 57.9 p e r c e n t t o the net d o m e s t i c p r o d u c t i o n of Japan ( T a b l e 10). In 1984, 56.9 p e r c e n t of the t o t a l l a b o r f o r c e was employed i n t h i s s e c t o r . 2 9 2 N e v e r t h e l e s s , t h e s econdary s e c t o r , e s p e c i a l l y the m a n u f a c t u r i n g i n d u s t r i e s , i s s t i l l s i g n i f i c a n t . T h i s s e c t o r produces t a n g i b l e goods and p r o v i d e s employment o p p o r t u n i t i e s , wherein 34.2 p e r c e n t of the t o t a l l a b o r f o r c e was so engaged i n 1 9 8 4 . 2 9 3 T a b l e 11 i n d i c a t e s t h e v a l u e of shipment i n the heavy and c h e m i c a l i n d u s t r y w h i c h a b s o l u t e l y and r e l a t i v e l y i n c r e a s e d i n 1982. The heavy and c h e m i c a l i n d u s t r i e s c o n s i s t e d of 65.2 p e r c e n t of the t o t a l v a l u e of shipment, 2 9 1 S e e D a n i e l B e l l , The Coming of P o s t - I n d u s t r i a l S o c i e t y : A V e n t u r e i n S o c i a l F o r e c a s t i n g (New York: B a s i c Books, P u b l i s h e r s , 1976) and Masahiko Honjo, M e t r o p o l i t a n Problems i n P o s t i n d u s t r i a l S o c i e t i e s : The Case of Japan (Nagoya, Japan: U n i t e d N a t i o n s , C e n t r e f o r R e g i o n a l Development, 1980). 2 9 2Nakayama, op_. c i t . , p. 20. 2 9 3 I b i d . 188 w h i l e l i g h t i n d u s t r y composed 34.8 p e r c e n t . Among the heavy and c h e m i c a l i n d u s t r i e s , the t r a n s p o r t a t i o n equipment and the e l e c t r i c a l machinery and equipment i n d u s t r i e s i n c r e a s e d t o 12.5 p e r c e n t of the t o t a l and 12.0 p e r c e n t i n 1982, r e s p e c t i v e l y , w h i l e the i r o n and s t e e l i n d u s t r y r e l a t i v e l y d e c l i n e d t o 7.6 p e r c e n t . I n t e r e s t i n g l y , the p e t r o l e u m and c o a l p r o d u c t s i n d u s t r y i n c r e a s e d i t s v a l u e of shipment w i t h 6.9 p e r c e n t of the t o t a l , a l t h o u g h i t s v a l u e - a d d e d o n l y c o n s i s t e d of 1.9 p e r c e n t of the t o t a l v a l u e - a d d e d i n 1 982 2 9 4 The machinery, e l e c t r i c a l and t r a n s p o r t a t i o n equipment i n d u s t r i e s made up 35.1 p e r c e n t of the t o t a l v a l u e - a d d e d i n 1.982 which demonstrates t h e i n c r e a s i n g importance of the h i g h t e c h n o l o g y i n d u s t r i e s . T h i s m a n u f a c t u r i n g i n d u s t r i a l s t r u c t u r e i s a l s o r e f l e c t e d i n the v a l u e of e x p o r t s from Japan. In 1983, 67.8 p e r c e n t of the t o t a l v a l u e of e x p o r t s was i n machinery and equipment ( T a b l e 12). In p a r t i c u l a r , t r a n s p o r t a t i o n equipment composed 26.6 p e r c e n t of the t o t a l v a l u e of e x p o r t s , w h i l e o r d i n a r y m a c h i n e r y , and e l e c t r i c a l machinery and equipment c o m p r i s e d 15.7 p e r c e n t and 15.6 p e r c e n t , r e s p e c t i v e l y . C o n s e q u e n t l y , the p r o p o r t i o n s of m e t a l and met a l p r o d u c t s , e s p e c i a l l y , i r o n and s t e e l , r e l a t i v e l y d e c l i n e d . Overseas d i r e c t f o r e i g n i n v e s t m e n t r e f l e c t e d b o t h the s h i f t i n the Japanese i n d u s t r i a l s t r u c t u r e and the slow growth economy. L a b o r - i n t e n s i v e and e n e r g y - i n t e n s i v e 2 9 \" T h e d a t a s o u r c e s a r e the same as T a b l e 11. 189 i n d u s t r i e s have l o s t t h e i r i n t e r n a t i o n a l c o m p e t i t i v e n e s s , and have r e l o c a t e d from Japan t o d e v e l o p i n g c o u n t r i e s , p a r t i c u l a r l y , t o S o u t h e a s t A s i a n c o u n t r i e s , e s p e c i a l l y A s i a n NICs, and t o B r a z i l . Meanwhile, Japanese t r a n s p o r t a t i o n as w e l l as the e l e c t r i c a l / e l e c t r o n i c s i n d u s t r i e s a l s o a c q u i r e d an i n t e r n a t i o n a l c o m p e t i t i v e edge, which has provoked a r i s e of p r o t e c t i o n i s m i n o t h e r i n d u s t r i a l i z e d c o u n t r i e s . In o r d e r t o m i t i g a t e t r a d e f r i c t i o n w i t h t h e s e c o u n t r i e s , Japan has made' an inve s t m e n t i n t h e p r o d u c t i o n of such goods as a u t o m o b i l e s and c o l o r t e l e v i s i o n s e t s l o c a l l y i n s t e a d of e x p o r t i n g a l l from J a p a n . In c o n c l u s i o n , Japan was a b l e t o m a i n t a i n r a p i d economic growth u n t i l 1973 thanks t o f a v o r a b l e i n t e r n a t i o n a l and domestic e n v i r o n m e n t s . S i n c e then Japan has e x p e r i e n c e d s l o w e r economic growth i n o r d e r t o a d j u s t t o changes i n the w o r l d economic framework as w e l l as i n the sense of v a l u e of the Japanese. The Japanese i n d u s t r i a l s t r u c t u r e has s h i f t e d from l i g h t i n d u s t r y t o heavy and c h e m i c a l i n d u s t r i e s , then t o more k n o w l e d g e - i n t e n s i v e and h i g h t e c h n o l o g y i n d u s t r i e s . Japan c o n f r o n t e d c h a l l e n g e s by the d e v e l o p i n g c o u n t r i e s which a r e c a t c h i n g up i n c e r t a i n i n d u s t r i e s , w h i l e i t a l s o f a c e d f r i c t i o n w i t h o t h e r i n d u s t r i a l i z e d c o u n t r i e s . IV. C o o p e r a t i v e Government-Business R e l a t i o n s h i p s and the I n d u s t r i a l P o l i c y of Japan Economic a c t i v i t i e s by b u s i n e s s e s a r e g r e a t l y i n f l u e n c e d by t h e i r r e l a t i o n s h i p s w i t h the government and by governmental p o l i c i e s . A c o o p e r a t i v e , harmonious 1 90 r e l a t i o n s h i p between the government and the b u s i n e s s community smooths the p a t h t o n a t i o n a l economic development as a common g o a l . Moreover, i n f o s t e r i n g c e r t a i n i n d u s t r i e s , the government t h r o u g h f a v o r a b l e p o l i c i e s has promoted b u s i n e s s a c t i v i t i e s . Thus, i t i s n e c e s s a r y t o examine the r e l a t i o n s h i p between the government and b u s i n e s s e s as w e l l as government economic p o l i c i e s i n o r d e r t o u n d e r s t a n d d i r e c t f o r e i g n i n v e s t m e n t . I t i s i m p o r t a n t t o r e c a l l t h a t s i n c e t h e i n i t i a l i n d u s t r i a l i z a t i o n p e r i o d d u r i n g the M e i j i e r a , the Japanese government has p l a y e d a s i g n i f i c a n t r o l e i n d e v e l o p i n g the economy t h r o u g h t h e i n t r o d u c t i o n of f o r e i g n t e c h n o l o g y and t e c h n i c i a n s , the u n d e r t a k i n g of i n i t i a l i n v e s t m e n t s i n m a n u f a c t u r i n g , and the t r a n s f e r of t h i s s t a t e p r o p e r t y t o p r i v a t e o w n e r s h i p . Thus, from the e a r l i e s t s t a g e of economic development i n the modern s t a t e of Japan, t h e government has been s u p p o r t i v e i n t a k i n g the i n i t i a t i v e t o i n d u s t r i a l i z e the c o u n t r y . T h i s s i t u a t i o n makes f o r a c o o p e r a t i v e and a c c o r d a n t r e l a t i o n s h i p between the Japanese government and the b u s i n e s s community, which i s d i f f e r e n t from t h o s e g e n e r a l l y found among o t h e r Western economies such as i n the U n i t e d S t a t e s . The Japanese economy i s a s t a t e - l e d market economy, but i s d i f f e r e n t from s o c i a l i s t , p l a n n e d economies, which t h e s t a t e c o n t r o l s . In J a p a n , the government and the b u s i n e s s community work i n a c c o r d , toward a g r e e d g o a l s . T a k i n g t h i s t o an extreme view i s the \"Japan, I n c o r p o r a t e d \" t h e o r y . 191 \"Japan, I n c o r p o r a t e d \" d e s c r i b e s one of the w o r l d ' s l a r g e s t economies as i f i t were a s i n g l e , c o o r d i n a t e d , c e n t r a l l y managed b u s i n e s s u n i t . T h i s a n a l o g y i s drawn between the Japanese economy and a g i a n t , m u l t i d i v i s i o n a l company: The Japanese government c o r r e s p o n d s t o c o r p o r a t e h e a d q u a r t e r s , r e s p o n s i b l e f o r p l a n n i n g and c o o r d i n a t i o n , f o r m a t i o n of l o n g - t e r m p o l i c i e s and major i n v e s t m e n t d e c i s i o n s . The l a r g e c o r p o r a t i o n s of Japan a r e a k i n t o c o r p o r a t e d i v i s i o n s , w i t h a good d e a l of o p e r a t i n g autonomy w i t h i n the o v e r a l l p o l i c y framework l a i d down by c o r p o r a t e h e a d q u a r t e r s , f r e e t o compete w i t h each o t h e r w i t h i n broad l i m i t s , and charged w i t h d i r e c t o p e r a t i n g r e s p o n s i b i l i t y . 2 9 5 A r e l e v a n t a s p e c t of t h i s t h e o r y r e v e a l s the r o l e s of the government and b u s i n e s s as m u t u a l l y s u p p o r t i v e . The b u r e a u c r a t s c o n c e r n e d w i t h i n d u s t r y , t r a d e , and f i n a n c e a r e g e n e r a l l y s u p p o r t i v e of Japan's b u s i n e s s e s as the n e c e s s a r y and a p p r o p r i a t e i n s t r u m e n t s of economic growth and w e l l - b e i n g . S i m i l a r l y , the b u s i n e s s community tends on the whole t o see the b u r e a u c r a t s as competent and g o o d - i n t e n t i o n e d and w o r k i n g f o r t h e n a t i o n a l i n t e r e s t . U n d o u b t e d l y , t h e r e i s some d i s a c c o r d between the government and the b u s i n e s s community. B u r e a u c r a t s c o m p l a i n about narrow and p r o f i t - s e e k i n g b u s i n e s s b e h a v i o r , w h i l e businessmen a r e d i s p l e a s e d w i t h u n n e c e s s a r y government r e g u l a t i o n s and i n t e r v e n t i o n . However, i n comparison w i t h 2 9 5 J a m e s C. A b e g g l e n , ed., B u s i n e s s S t r a t e g i e s f o r Japan (Tokyo: S o p h i a U n i v e r s i t y , 1970), p. 7. A s i m p l i s t i c a n t i t h e s i s of the \"Japan, I n c . \" t h e s i s i s the \"monopoly c a p i t a l i s m \" or \" A m e r i c a , I n c . \" t h e s i s , i n which b i g b u s i n e s s c o n t r o l s the government. See Morton M i n t z and J e r r y S. Cohen, Am e r i c a , I n c . : Who Owns and Operates the U n i t e d S t a t e s (New York: D i a l P r e s s , 1971). 1 92 o t h e r market economies, t h e r e has been a good b a s i s f o r c o o p e r a t i o n between the government and t h e b u s i n e s s community i n Japan, a r i s i n g out of h i s t o r y and a sense of s h a r e d p u r p o s e , i n o r d e r t o d e v e l o p i t s e c o n o m y . 2 9 6 C l o s e r e x a m i n a t i o n of the d e c i s i o n - m a k i n g p r o c e s s p r o v i d e s d i f f e r e n t views of who e x a c t l y d e t e r m i n e s government p o l i c i e s . S a k a k i b a r a and Noguchi emphasize the r o l e of the M i n i s t r y of F i n a n c e and the Bank of Japan. F i n a n c i a l c o n t r o l s , which a r e wartime l e g a c i e s , s t i l l c o n s t i t u t e the c o r e of the p r e s e n t economic system, and have c o n t r i b u t e d t o the r a p i d economic growth i n Japan a l o n g w i t h l a r g e c o r p o r a t i o n s and an e g a l i t a r i a n i d e o l o g y . 2 9 7 On the c o n t r a r y , most of the \"Japan, I n c o r p o r a t e d \" group b e l i e v e t h a t the M i n i s t r y of I n t e r n a t i o n a l Trade and I n d u s t r y (MITI) i s the d e c i s i o n - m a k i n g o r g a n . 2 9 8 Based on t h i s t h e o r y , r e p r e s e n t a t i v e s of b o t h the government and the b u s i n e s s community s i t on the board of d i r e c t o r s of \"Japan, I n c o r p o r a t e d , \" and s e t g o a l s by c o n s e n s u s . Harmony and consensus a r e the r e s u l t of the i n t e r a c t i o n between the government and the b u s i n e s s community r a t h e r than the b a s i s of t h e i r r e l a t i o n s h i p , even though i t t a k e s a l o n g time 2 9 6 J a m e s C. A b e g g l e n , The S t r a t e g y of Japanese B u s i n e s s (Cambridge, Mass.: B a l l i n g e r P u b l i s h i n g Co., 1984), p. 108. 2 9 7 E i s u k e S a k a k i b a r a and Y u k i o N o g u c h i , \" D i s s e c t i n g the F i n a n c e M i n i s t r y - B a n k of Japan Dynasty: End of the Wartime System f o r T o t a l Economic M o b i l i z a t i o n , \" Japan Echo v o l . 4, no. 4 ( W i n t e r , 1977): 100 and 106. 2 9 8 K o s a i and Ogino, ojo. c i t . , p. 123. For a d e t a i l e d r e v iew of MITI, see Chalmers Johnson, MITI and the Japanese M i r a c l e : The Growth of i n d u s t r i a l P o l i c y , 1925-1975 ( S t a n f o r d , C a l i f . : S t a n f o r d U n i v e r s i t y , 1982) . 1 93 b e f o r e a consensus i s r e a c h e d . 2 9 9 The main r o l e of MITI i s t o i n t r o d u c e a b l u e p r i n t t o s e r v e as a p o l i c y t a r g e t , and t o g u i d e i n d u s t r y toward t h a t o b j e c t i v e , w h i l e b u s i n e s s e s i n v e n t new p r o d u c t s and d e v e l o p e x p o r t m a r k e t s . 3 0 0 The M i n i s t r y of F i n a n c e and MITI a r e u n q u e s t i o n a b l y p a r t of t h e p o w e r f u l government mac h i n e r y , but t h e i r p o l i c i e s and o r g a n i z a t i o n s a r e q u i t e d i f f e r e n t . S e c t i o n a l i s m and r i v a l r y among v a r i o u s m i n i s t r i e s and t h e i r departments do e x i s t . Y e t , o v e r a l l , i n t e r e s t s among d i f f e r e n t , c o n c e r n e d bureaus w i l l be a d j u s t e d once n a t i o n a l g o a l s a r e s e t . In a d d i t i o n t o e f f i c i e n t government b u r e a c r a t s , Japan's r u l i n g L i b e r a l Democratic P a r t y (LDP) has a l s o p l a y e d a l e a d i n g r o l e i n p o l i c y - m a k i n g . The LDP and i t s p r e d e c e s s o r s have been i n power throughout the postwar e r a , except f o r a ten-month p e r i o d when a S o c i a l i s t government o c c u p i e d the c a b i n e t i n 1947 t o 1948. Some p o l i t i c i a n s d i s p l a y e d s t r o n g l e a d e r s h i p and took well-known economic measures, such as Ikeda's N a t i o n a l Income D o u b l i n g P l a n i n 1960 and Tanaka's Japanese A r c h i p e l a g o R e f o r m a t i o n P l a n i n . 1 9 7 2 . Whether or not one a g r e e d w i t h the i m p l e m e n t a t i o n of t h e s e p l a n s , they u n d o u b t e d l y i n f l u e n c e d the d i r e c t i o n of Japanese economic development. D e s p i t e b e i n g i n power f o r a l o n g t i m e , the LDP i t s e l f i s f a r from m o n o l i t h i c , f o r i t c o n s i s t s of numerous, 2 \" U n i t e d S t a t e s , Department of Commerce, Japan: The Government-Business R e l a t i o n s h i p s ; A Guide f o r the American businessman, by Eugene J . Ka p l a n (Washington, D.C.: Government P r i n t i n g O f f i c e , 1977), p. 16. 3 0 0 I b i d . 1 94 c o m p e t i t i v e f a c t i o n s v y i n g f o r power. The LDP i s a r e p r e s e n t a t i v e of v a r i o u s i n t e r e s t g r o u p s . Thus, the p a r t y and p o l i c y - m a k i n g have been swayed by the l o b b y i n g of p r e s s u r e groups such as the a g r i c u l t u r a l and m e d i c a l a s s o c i a t i o n s . T h e r e f o r e , the government b u r e a u c r a t s and the r u l i n g p a r t y have never been m o n o l i t h i c , but r a t h e r t h e i r economic p o l i c i e s r e f l e c t numerous i n t e r e s t s of the s o c i a l segments of the s o c i e t y . ' P l u r a l i s t i c p e r s p e c t i v e s a l s o a p p l y t o the b u s i n e s s community. B u s i n e s s a s s o c i a t i o n s a r e formed t o t r a n s m i t the b u s i n e s s views t o the government. D u r i n g the postwar e r a , f o u r d i s t i n c t b u s i n e s s o r g a n i z a t i o n s were formed: the Keidanren (Japan F e d e r a t i o n of Economic O r g a n i z a t i o n s ) , Japan Chamber of Commerce and I n d u s t r y , Nikkeiren (Japan F e d e r a t i o n of Employees A s s o c i a t i o n ) , and Keizai Doyukai (Japan Committee f o r Economic D e v e l o p m e n t ) . 3 0 1 The Keidanren i s a l e a d i n g economic o r g a n i z a t i o n , c o n s i s t i n g of more than 118 major i n d u s t r i a l a s s o c i a t i o n s and e x t e n s i v e l y encompassing banks, i n s u r a n c e , t r a d i n g companies, and m a n u f a c t u r i n g f i r m s . S i n c e the Keidanren o p e r a t e s w i t h a p a n e l of 37 s t a n d i n g p o l i c y committees i n v o l v i n g the most s e n i o r e x e c u t i v e s of major c o r p o r a t i o n s . In a d d i t i o n , t h e r e a r e 11 o t h e r committees based on c o u n t r y and r e g i o n a l i n t e r e s t s . 3 0 2 The committees' views r e f l e c t the Japanese b u s i n e s s community. I t s b a s i c i d e o l o g y i s e s s e n t i a l l y c o n s e r v a t i v e and p r o - f r e e e n t e r p r i s e . 3 0 1 M c M i l l a n , op_. c i t . , pp. 57-58. 3 0 2 A s of O c t o b e r , 1984. 195 Not only does the Keidanren speak to the government and p o l i t i c i a n s f o r the sake of b u s i n e s s , but a l s o p r o v i d e s the LDP with funds f o r e l e c t i o n s , p l a y i n g a s i g n i f i c a n t r o l e i n keeping them i n power. The LDP h e a v i l y depends on i t s l i n k s w i t h bureaucrats as w e l l as with b i g b u s i n e s s . Bureaucrats d r a f t l e g i s l a t i o n and implement p o l i c i e s . They serve as an i n s t i t u t i o n a l l i n k between p o l i t i c i a n s and businessmen. Consequently, many bureaucrats a f t e r r e t irement j o i n l a r g e f i r m s or become p o l i t i c i a n s . By the same token, businessmen sometimes enter the D i e t , the Japanese l e g i s l a t i v e body. To e x p l a i n the f o r e g o i n g l i n k a g e , p o l i t i c a l s c i e n t i s t Yanaga has drawn an analogy between p o l i t i c i a n s - b u r e a u c r a t s - b u s i n e s s m e n and the s c i s s o r s - p a p e r - s t o n e game. I t i s namely that \"Keidanren, through campaign money, c o n t r o l s the L i b e r a l Democratic P a r t y ; the L i b e r a l Democrats, through lawmaking, c o n t r o l MITI; and MITI, through c r e d i t and s u b s i d i e s , c o n t r o l s the Keidanren's members.\" 3 0 3 Furthermore, the Japanese e d u c a t i o n a l system, with an i n t e g r a t e d s o r t i n g mechanism based on entrance examinations, p r o v i d e s the government and i n d u s t r y with the cream of the c r o p . Because of the network of u n i v e r s i t y c l i q u e s , b u r e a u c r a t s , p o l i t i c i a n s and businessmen are \"connected\" to f e l l o w graduates thereby c r e a t i n g an in-group f e e l i n g a c r o s s 3 0 3 C i t e d by W i l l i a m H. F o r b i s , i n h i s Japan Today: People, P l a c e s , Power, with a Foreword by Senator Mike M a n s f i e l d (New York: Harper & Row, P u b l i s h e r , 1975), p. 361. For a d e t a i l e d d i s c u s s i o n , see C h i t o s h i Yanaga, Big Business i n Japanese P o l i t i c s (New Haven and London: Yale U n i v e r s i t y P r e s s , 1968). 196 the p u b l i c and p r i v a t e s e c t o r s . T h e r e f o r e , p e r s o n a l c o n n e c t i o n s t h r o u g h t h i s s c h o o l c l i q u e a l s o c o n t r i b u t e t o c o n c o r d a n t r e l a t i o n s h i p s between the government and the b u s i n e s s community i n Japan. In sum, a l t h o u g h the Japanese economic system i s a \" c o n c e r t e d economy,\" which has been used by MITI, economic d e c i s i o n - m a k i n g has r e f l e c t e d the p l u r a l i s t i c d i s t r i b u t i o n of power among the m u l t i t u d e of f a c t i o n s and i n t e r e s t groups l a r g e l y w i t h i n the government b u r e a u c r a c y , b i g b u s i n e s s , and the LDP. D e s p i t e a l l t h e s e q u a l i f i c a t i o n s , i t can be s a i d t h a t i n Japan b u s i n e s s e s p e c i a l l y b i g b u s i n e s s , has had a c l o s e , f r i e n d l y r e l a t i o n s h i p w i t h a s u p p o r t i v e g o v e r n m e n t . 3 0 4 R e g a r d i n g the degree of government i n t e r v e n t i o n , t h e r e a r e c o n s i d e r a b l e d i f f e r e n c e s i n the i n t e r p r e t a t i o n of the r e l a t i o n s h i p between government economic p o l i c i e s and p r i v a t e i n d u s t r i a l s t r a t e g i e s . As p r e v i o u s l y d i s c u s s e d , the \"Japan, I n c . \" t h e o r y s t a n d s as a p o l e , i n which the government and b u s i n e s s a r e presumed t o form a s i n g l e e n t i t y . One of the i n t e r p r e t a t i o n s of t h i s t h e o r y i s t h a t the p o w e r f u l , or \" n o t o r i o u s , \" MITI s e t s g o a l s f o r s p e c i f i c i n d u s t r i e s and g i v e s d i r e c t i o n t o Japan's economic growth. MITI has p r o t e c t e d i n f a n t i n d u s t r i e s t h r o u g h v a r i o u s d e v i c e s by k e e p i n g f o r e i g n e r s o u t , w h i l e i t a l s o managed Japanese f o r e i g n a i d i n o r d e r t o p r o v i d e maximum b e n e f i t s f o r 3 0 4 H u g h P a t r i c k and Henry Rosovsky, \"Japan's Economic Performance: An Overview,\" i n A s i a ' s New G i a n t , op. c i t . , pp. 51-52. 1 97 Japanese s u p p l i e r s . Both MITI and o t h e r m i n i s t r i e s have g i v e n \" a d m i n i s t r a t i v e g u i d a n c e \" on many m a t t e r s , which the b u s i n e s s community has a c c e p t e d and f o l l o w e d . A d m i n i s t r a t i v e g u i d a n c e , or i n f o r m a l g uidance by government o f f i c e s , ranges from a d v i c e t o \" s t r o n g recommendations\" t o the b u s i n e s s w o r l d . 3 0 5 Through t h i s a d m i n i s t r a t i v e g u i d a n c e , the government has been a b l e t o i n f l u e n c e the d e c i s i o n - m a k i n g of i n d i v i d u a l companies. In s h o r t , MITI has worked hand i n hand w i t h businessmen and the Bank of J a p a n . 3 0 6 Another view p r o c l a i m s t h a t a l t h o u g h the government has b u i l t up a n a t i o n a l consensus around i n d u s t r i a l g o a l s , i t has l e f t a market mechanism t o shape g r o w t h - o r i e n t e d s t r a t e g i e s of f i r m s . A c c o r d i n g t o T s u r u m i , the government has o n l y p r o v i d e d a framework w i t h i n which f i e r c e , c o m p e t i t i v e p r i v a t e f i r m s a u t o m a t i c a l l y weed out the weaker ones and emerge as i n t e r n a t i o n a l , c o m p e t i t i v e f o r c e s . 3 0 7 A v a l i d argument can be made i n t h a t government i n t e r v e n t i o n a t the l e v e l of t h e f i r m has not been e f f e c t i v e . Examples i n c l u d e the e f f o r t s t o reduce the number of a u t o makers. R a t h e r , i n d u s t r i a l p o l i c y has been most e f f e c t i v e when d e a l i n g a t the i n d u s t r i a l l e v e l , such as i n s h i p b u i l d i n g , but p o l i c y m a k e r s then l e t the m a r k e t p l a c e d e c i d e w i n n e r s and l o s e r s w i t h i n t h e i n d u s t r y . 3 0 8 3 0 5 K o s a i and Ogino, op. c i t . , p. 126. 3 0 6 F o r b i s , op. c i t . , p. 360. 3 0 7 Y o s h i Tsurumi, \" I n d u s t r i a l P o l i c i e s and C o r p o r a t e S t r a t e g i e s , \" The Columbia J o u r n a l of World b u s i n e s s , v o l . 17, no. 2 (Summer, 1982): 87. 3 0 8 A b e g g l e n , The s t r a t e g y , op. c i t . , p. 113. 198 Government i n t e r v e n t i o n i s , i n g r e a t e r or l e s s e r degree, o b s e r v e d u b i q u i t o u s l y i n i n d u s t r i a l i z e d c o u n t r i e s . Under economic p o l i c i e s , t a r i f f s , t a x e s , d e p r e c i a t i o n , p u b l i c c o r p o r a t i o n s and s u b s i d i e s a r e used as d e v i c e s of i n t e r v e n t i o n . E x h o r t a t i o n and guidance a r e a l s o p r a c t i c e d . However, the s t a t e c u r r e n t l y o p e r a t e s a s m a l l p a r t of the economy t h r o u g h the n a t i o n a l i z a t i o n of i n d u s t r y . The most i m p o r t a n t g o v e r n m e n t - c o n t r o l l e d o p e r a t i o n s a r e f i n a n c i a l i n s t i t u t i o n s such as the Bank of Japan, the Japan Development Bank, and the E x p o r t - I m p o r t Bank. The government a l s o c o n t r o l s t h e t r a n s p o r t a t i o n and communication i n d u s t r i e s , f o r example, Japan A i r L i n e s and the Japanese N a t i o n a l R a i l w a y s . The Japan Telephone and T e l e g r a p h C o r p o r a t i o n on the o t h e r hand, was p l a c e d under p r i v a t e management i n 1985. The government w h o l l y owns the revenue monopolies i n t o b a c c o and s a l t , w h i l e o t h e r p u b l i c c o r p o r a t i o n s w h o l l y or p a r t i a l l y funded by the government ar e e s t a b l i s h e d t o meet s p e c i f i c n a t i o n a l n e e d s . 3 0 9 Thus, i f measured by the amount of c a s h f l o w d i r e c t l y from the government, i t i s s a f e t o say t h a t the t o t a l i n v o l v e m e n t of the Japanese government i n the economy i s s m a l l . 3 1 0 N e v e r t h e l e s s , t h e s e government-owned e n t e r p r i s e s a r e c r u c i a l , because t h e y a r e s t r a t e g i c a l l y p l a c e d . For example, the Japan Telephone and T e l e g r a p h C o r p o r a t i o n , 3 0 9 F o r a d e t a i l e d d i s c u s s i o n r e g a r d i n g Japanese p u b l i c c o r p o r a t i o n s , see Chalmers Johnson, Japan's P u b l i c P o l i c y Companies (Washington, D.C: American E n t e r p r i s e I n s t i t u t e f o r P u b l i c P o l i c y R e s e a r c h , 1978). 3 1 0 A b e g g l e n , The S t r a t e g y , op. c i t . , p. 107. 199 r e c e n t l y p a s s e d i n t o p r i v a t e hands, i s a major consumer of the p r o d u c t s of the Japanese e l e c t r o n i c s and computer i n d u s t r i e s . 3 1 1 C o n s e q u e n t l y , s i n c e the s t a t e does not own a s i g n i f i c a n t s h are of Japan's i n d u s t r y , e x c l u d i n g c e r t a i n s e c t o r s , the i n f l u e n c e of the government s h o u l d be un d e r s t o o d i n the c o n t e x t of economic p o l i c i e s . Economic p o l i c i e s a r e o f t e n r e g a r d e d as a synonym f o r \" i n d u s t r i a l p o l i c i e s . \" However, i n d u s t r i a l p o l i c y c o m p r i s e s ecortomic p o l i c i e s a l o n g w i t h f i s c a l and monetary p o l i c i e s . A c c o r d i n g t o T s u r u t a , a 1971 OECD p u b l i c a t i o n , The I n d u s t r i a l P o l i c y of 14 Member C o u n t r i e s , made the term \" i n d u s t r i a l p o l i c y \" p o p u l a r i n the Anglophone w o r l d . 3 1 2 T s u r u t a added t h a t i n d u s t r i a l p o l i c y has been a c c e p t e d by the Japanese d u r i n g t h e postwar e r a i n o r d e r t o r e c o n s t r u c t and d e v e l o p the Japanese economy. A p p a r a t u s e s have been e s t a b l i s h e d t o implement i n d u s t r i a l p o l i c y , w h i l e MITI responded ad hoc t o v a r i o u s p roblems. As a r e s u l t , K a i z u k a has d e f i n e d i n d u s t r i a l p o l i c y as p o l i c i e s implemented by M I T I . 3 1 3 In t h i s paper, i n d u s t r i a l p o l i c i e s are b r o a d l y d e f i n e d as \"government a c t i v i t i e s t h a t d i r e c t l y 3 1 1 U . S . , Department of Commerce, Japan, op. c i t . , p. 14. 3 1 2 T o s h i m a s a T s u r u t a , Sengo Nihon no Sangyo S e i s a k u ( I n d u s t r i a l P o l i c y i n Postwar Japan) (Tokyo: Nihon K e i z a i S hinbun-sha, 1982), p. 9. 3 1 3 I b i d . A thorough d i s c u s s i o n of Japanese i n d u s t r i a l p o l i c y can be found i n OECD's The I n d u s t r i a l P o l i c y of Japan ( P a r i s : O r g a n i s a t i o n f o r Economic C o - o p e r a t i o n and Development, 1972). A l s o see the U n i t e d S t a t e s , C o n g r e s s , J o i n t Economic Committee, I n d u s t r i a l P o l i c y : Japan's F l e x i b l e Approach by the C o m p t r o l l e r G e n e r a l (Washington, D.C.: G e n e r a l A c c o u n t i n g O f f i c e , 1982), and Chalmers Johnson, ed. The I n d u s t r i a l P o l i c y Debate (San F r a n c i s c o : I n s t i t u t e f o r Contemporary S t u d i e s P r e s s , 1984). 200 r e l a t e to the development and adjustment of v a r i o u s i n d u s t r i e s i n a n a t i o n a l economy i n order to enhance g l o b a l c o m p e t i t i v e n e s s . \" 3 1 \" A f t e r World War I I , Japan had to r e c o n s t r u c t i t s economy and develop a c o m p e t i t i v e manufacturing s e c t o r i n order to provide employment and pay f o r necessary imports of energy and raw m a t e r i a l s . To achieve t h i s o b j e c t i v e , the government adopted an i n d u s t r i a l p o l i c y , which changed over time, and corresponded to i n t e r n a t i o n a l and domestic economic environments i n three d i s t i n c t p h a s e s . 3 1 5 F i r s t , the focus was on r e b u i l d i n g the n a t i o n a l economy and on d e s i g n a t i n g c e r t a i n key i n d u s t r i e s . These i n c l u d e d e l e c t r i c a l power, i r o n and s t e e l , s h i p b u i l d i n g and cement. At that time the Japanese economy was c h a r a c t e r i z e d as a \"si e g e economy,\" and had no component of i n t e r n a t i o n a l i z a t i o n . 3 1 6 The government p r o t e c t e d i n f a n t i n d u s t r i e s f o r they d i d not possess i n t e r n a t i o n a l c o m p e t i t i v e n e s s . The government t o t a l l y c o n t r o l l e d imports and exports and f a c e d an acute shortage of c a p i t a l and a near absence of advanced technology. Because of a very small economy and the n e c e s s i t y f o r c o n t r o l , the government d i r e c t l y i n t e r v e n e d i n resource a l l o c a t i o n d e c i s i o n s . F o r e i g n investment was t r i v i a l , due to r e s t r i c t i o n s and the g e n e r a l i n d i f f e r e n c e of f o r e i g n businesses to investment i n 3 1 \" A k i h i r o Yoshikawa and B r i a n Woodall, \"The 'Venture Boom' and Japanese I n d u s t r i a l P o l i c y : Promoting the N e g l e c t e d Winners,\" A s i a n Survey: A Monthly Review of Contemporary As i a n A f f a i r s v o l . 25, no. 6 (June, 1985): 693. 3 1 5 A b e g g l e n , The S t r a t e g y , op. c i t . , pp. 102-104. 3 1 6 I b i d . , p. 102. 201 J apan. MITI was c r e a t e d out of the prewar M i n i s t r y of Commerce and I n d u s t r y i n 1949 and the Economic P l a n n i n g Agency was newly founded i n 1955. The second phase of i n d u s t r i a l p o l i c y l a s t e d from the mid-1950's t o t h e l a t e 1960's. The emphasis was on the s c a l e of f a c i l i t i e s , and t a r g e t i n d u s t r i e s s h i f t e d t o p e t r o c h e m i c a l s and a u t o m o b i l e s . The government c o n t i n u e d t o n u r t u r e i n f a n t i n d u s t r i e s i n o r d e r t o a t t a i n the c u t t i n g edge a t the i n t e r n a t i o n a l l e v e l . Toward the end of t h i s p e r i o d , import r e s t r i c t i o n s were r e l a x e d t o some e x t e n t , and the l i b e r a l i z a t i o n of t r a d e and c a p i t a l c o n t r o l s became a major i s s u e . S i n c e the end of t h e 1960's, Japan's i n d u s t r i a l p o l i c y has changed s u b s t a n t i a l l y . MITI r e c o g n i z e d the need f o r a s s i s t i n g f a i l i n g i n d u s t r i e s r a t h e r than i n f a n t i n d u s t r i e s . S t a b l e s u p p l i e s of raw m a t e r i a l s and energy s o u r c e s have been emphasized e s p e c i a l l y s i n c e 1973. The l e a d i n g edge of the economy has been moving toward p r o d u c i n g h i g h e r v a l u e - a d d e d and more s o p h i s t i c a t e d m anufactured goods. W i t h the s h i f t t o h i g h t e c h n o l o g y i n d u s t r y , more r e s e a r c h and development e f f o r t s b e i n g encouraged. A l b e i t the p o l i c y remains t h a t of s h i f t i n g l a b o r and c a p i t a l t o h i g h e r growth, h i g h e r t e c h n o l o g y , h i g h e r v a l u e - a d d e d s e c t o r s , the i m p l e m e n t a t i o n and n a t u r e of p o l i c y become l e s s d i r e c t i v e , a l l o w i n g the market f o r c e s t o work, s i n c e many Japanese i n d u s t r i e s have o b t a i n e d i n t e r n a t i o n a l c o m p e t i t i v e n e s s . I n t e r n a t i o n a l i z a t i o n of the Japanese economy has g a t h e r e d 202 momentum and f o r e i g n investment i s s u p p o r t e d . Hence, Japanese i n d u s t r i a l p o l i c y has changed over the l a s t f o u r decades i n response t o changes i n w o r l d and do m e s t i c economies. As O j i m i , then V i c e - m i n i s t e r f o r I n t e r n a t i o n a l Trade and I n d u s t r y , s t a t e d t h a t i n the e a r l y s t a g e of i n d u s t r i a l p o l i c y , MITI d e c i d e d t o e s t a b l i s h a heavy and c h e m i c a l i n d u s t r y emphasis i n Japan. Such encouragement, however, would seem t o c o n f l i c t w i t h economic r a t i o n a l i t y and would be the most i n a p p r o p r i a t e p o l i c y f o r Japan a t t h a t t i m e , s i n c e the i n d u s t r y r e q u i r e d i n t e n s i v e employment of c a p i t a l and t e c h n o l o g y . 3 1 7 Among c a p i t a l , l a b o r , l a n d and raw m a t e r i a l s , the o n l y abundant f a c t o r of p r o d u c t i o n p o s s e s s e d was l a b o r . Hence, i f Japan were t o f o l l o w the c o m p a r a t i v e c o s t t h e o r y , c o n c e n t r a t i o n on l a b o r - i n t e n s i v e , l i g h t i n d u s t r y such as t e x t i l e s , was o b v i o u s . Shared among many government o f f i c i a l s and academics i s the view t h a t postwar economic development i n Japan was a r e s u l t of d e l i b e r a t e government p o l i c y . However, K o s a i and Ogino argue t h a t t h i s i n t e r p r e t a t i o n of f a c t o r endowment i s f a r too narrow and i n f l e x i b l e . 3 1 8 The p o i n t i s not o n l y a matter of amounts, but a l s o of q u a l i t y . Abundant, s k i l l e d l a b o r was an i m p o r t a n t c o m p a r a t i v e advantage f o r t h e heavy i n d u s t r i e s as w e l l as f o r t h e machinery i n d u s t r i e s . Moreover, s i n c e marine t r a n s p o r t improved and c o s t s f e l l , c o a s t a l l o c a t i o n s i n terms of the 3 1 7OECD, The I n d u s t r i a l P o l i c y of Japan, op. c i t . , p. 15. 3 1 8 K o s a i and Ogino, op. c i t . , pp. 60-63. 203 c o s t of o b t a i n i n g raw m a t e r i a l s and energy s o u r c e s and of e x p o r t i n g f i n i s h e d p r o d u c t s would be advantageous. The i n s t a l l a t i o n s of the heavy and c h e m i c a l i n d u s t r y i n t i d e w a t e r l o c a t i o n s c r e a t e d c o n s p i c u o u s l a n d s c a p e f e a t u r e s known as kombinato, l a r g e - s c a l e , heavy and p e t r o c h e m i c a l i n d u s t r i a l c o m p l e x e s . 3 1 9 Thus, Japan's l o n g c o a s t l i n e w i t h f i n e h a r b o r s was a d i s t i n c t advantage. The f i n a l p o i n t made by K o s a i and Ogino i s t h a t the age of c a p i t a l s t o c k i s more i m p o r t a n t than the a c t u a l amount. C a p i t a l s t o c k of the heavy and c h e m i c a l i n d u s t r y i n Japan was r e l a t i v e l y young so t h a t t h i s was a c o m p a r a t i v e advantage as w e l l . In s h o r t , w i t h the advancement of t e c h n o l o g y , changes i n the i n t e r n a t i o n a l s i t u a t i o n and improvements i n i n f r a s t r u c t u r e , Japan's f a c t o r endowment has been c h a n g i n g . T a k i n g i n t o a c c o u n t q u a l i t y and changes w i t h t i m e , postwar i n d u s t r i a l development i n Japan can be e x p l a i n e d by the t h e o r y of c o m p a r a t i v e c o s t . 3 2 0 To c o n c l u d e , whether or not the postwar economic development i n Japan can be e x p l a i n e d by t h e c o m p a r a t i v e advantage t h e o r y , t h i s r e p r e s e n t s d i f f e r e n t i n t e r p r e t a t i o n s by e c o n o m i s t s . Indeed, most s c h o l a r s agree t h a t Japan d i d a c c o m p l i s h economic development w i t h i n a s h o r t p e r i o d of t i m e . W i t h the growth of the economy, government i n d u s t r i a l p o l i c y has changed w i t h r e g a r d t o t a r g e t i n d u s t r i e s and t h e i r i m p l e m e n t a t i o n . 3 1 9 D a v i d K o r n h a u s e r , Japan: G e o g r a p h i c a l Background t o U r b a n - I n d u s t r i a l Development, 2nd ed., w i t h a Foreword by J . M. Houston (London and New York: Longman, 1982), pp. 133-134. 3 2 0 K o s a i and Ogino, op_. c i t . , p. 63. 204 A r e l a t i v e l y c o o p e r a t i v e r e l a t i o n s h i p between the government and the b u s i n e s s community has p a r t i a l l y c o n t r i b u t e d t o t h i s economic growth. As a r e s u l t , i n t e r n a t i o n a l i z a t i o n of the Japanese economy commenced i n the 1970's. P r e v i o u s t i g h t c o n t r o l of t r a d e and f o r e i g n i n v e s t m e n t was d i s m a n t l e d and nowadays d i r e c t f o r e i g n i n v e s t m e n t i s encouraged by the government i n o r d e r t o a l l e v i a t e t r a d e f r i c t i o n w i t h o t h e r i n d u s t r i a l i z e d c o u r t t r i e s . C o n c l u s i o n The c h a r a c t e r i s t i c s of the Japanese economy, t h a t i s , the h i g h degree of dependency on o v e r s e a s n a t u r a l r e s o u r c e s and f o o d s t u f f s ; the d u a l economic s t r u c t u r e ; postwar r a p i d economic growth f o l l o w e d by s t a b l e economic growth; the c o o p e r a t i v e r e l a t i o n s h i p between the p u b l i c and p r i v a t e s e c t o r s , and a f a v o r a b l e i n d u s t r i a l p o l i c y by the government, have been shown t o have major i m p l i c a t i o n s f o r o v e r s e a s Japanese i n v e s t m e n t . The i n i t i a l postwar Japanese economic s t r u c t u r e was formed w i t h a f o c u s on the heavy and c h e m i c a l i n d u s t r y by u t i l i z i n g abundant, cheap energy r e s o u r c e s . Because of the s c a r c i t y of domestic n a t u r a l r e s o u r c e s and the low r a t e of foo d s e l f - s u f f i c i e n c y , the Japanese economy g r e a t l y r e l i e d on o v e r s e a s r e s o u r c e s . In o r d e r t o earn f o r e i g n c u r r e n c y f o r payment of n e c e s s a r y import m a t e r i a l s and r o y a l t i e s f o r advanced Western t e c h n o l o g y , Japan had t o e x p o r t 205 m a n u f a c t u r e d goods by i n c r e a s i n g i t s own i n t e r n a t i o n a l c o m p e t i t i v e n e s s i n terms of the q u a l i t y and p r i c e of goods. Because of th e s e c h a r a c t e r i s t i c s sogo shosha have p l a y e d a s i g n i f i c a n t r o l e i n import and e x p o r t b u s i n e s s t r a n s a c t i o n s . Thus, sogo shosha a r e o f t e n r e f e r r e d t o as engi n e s of Japanese economic development. By the e a r l y 1970's, the n a t i o n a l and i n t e r n a t i o n a l economic scenes had d r a s t i c a l l y changed. D o m e s t i c a l l y , i n the e a r l y 1960's Japan a t t a i n e d a f u l l y - e m p l o y e d s o c i e t y f o r the f i r s t t i me i n modern economic h i s t o r y , and i n a d d i t i o n t o h i g h wage l e v e l s , e x p e r i e n c e d l a b o r s h o r t a g e s . The Japanese economic s t r u c t u r e s h i f t e d from l i g h t i n d u s t r y t o heavy and c h e m i c a l i n d u s t r i e s , which f o r c e d the a c q u i s i t i o n of s t r o n g i n t e r n a t i o n a l c o m p e t i t i v e n e s s . F a v o r a b l e American p a t r o n a g e , the governmental i n d u s t r i a l p o l i c y and d u a l economic s t r u c t u r e , a l l c o n t r i b u t e d t o the r a p i d economic growth, which caused e n v i r o n m e n t a l problems as w e l l as s h o r t a g e s of p l a n t s i t e s . I n t e r n a t i o n a l l y , the f i r s t o i l c r i s i s of 1973 treme n d o u s l y a f f e c t e d the economic and p o l i t i c a l s i t u a t i o n i n t h e w o r l d . U n t i l t h e n , Japan was a b l e t o enjo y ample, cheap energy s o u r c e s . The shar p p r i c e i n c r e a s e of o i l f o r c e d the Japanese economic s t r u c t u r e t o s h i f t from e n e r g y - i n t e n s i v e , heavy and c h e m i c a l i n d u s t r y t o e n e r g y - c o n s e r v a t i v e , k n o w l e d g e - i n t e n s i v e and h i g h t e c h n o l o g y i n d u s t r i e s i n o r d e r t o a d j u s t t o t h e new economic e n v i r o n m e n t . 206 In 1971, the d e v a l u a t i o n of the yen a g a i n s t major f o r e i g n c u r r e n c i e s and the s h i f t from a f i x e d t o a f l o a t i n g exchange r a t e system i n f l u e n c e d the b e h a v i o r of Japanese D F I , and d e t r a c t e d from the a b i l i t y t o m a i n t a i n i n t e r n a t i o n a l c o m p e t i t i v e n e s s i n Japanese m a n u f a c t u r i n g . In the d r i v e f o r economic m a t u r i t y i n the e a r l y 1970's, Japan e n c o u n t e r e d t r a d e f r i c t i o n over t e x t i l e s and t e l e v i s i o n s e t s , w i t h o t h e r i n d u s t r i a l i z e d c o u n t r i e s , such as the U n i t e d S t a t e s , and over a u t o m o b i l e s i n the 1980's. Japanese DFI was t h e r e f o r e i n d i s t i n c t response t o t h e s e changes i n the n a t i o n a l and i n t e r n a t i o n a l economic e n v i r o n m e n t . Because of the r a p i d economic development of Japanese m a n u f a c t u r e r s w i t h a c o m p e t i t i v e edge, t h e b a l a n c e of payments, which p r e v i o u s l y r e s t r i c t e d Japan's o u t f l o w of c a p i t a l , t i l t e d i n Japan's f a v o r . I t was o n l y i n 1968 t h a t Japan was s e t f r e e from the balance-of-payments c o n s t r a i n t s and became a net c r e d i t o r i n c a p i t a l (see T a b l e 9 ) . C o n s e q u e n t l y , Japanese governmental c o n t r o l over DFI was d i s m a n t l e d , s t e p by s t e p , from 1969, and i n 1980, Japanese DFI became f r e e i n p r i n c i p l e . C o r r e s p o n d i n g t o the changes i n t h e governmental p o l i c y of DFI as w e l l as i n t h e l e v e l s of t h e Japanese economic development, the amounts of Japanese DFI i n c r e a s e d p r o p o r t i o n a t e l y . From the e a r l y s t a g e s of Japanese economic development, sogo shosha have i n v e s t e d i n t h e e s t a b l i s h m e n t of com m e r c i a l n e t w o r k s i n o r d e r t o c u l t i v a t e o v e r s e a s markets as w e l l as t o p r o c u r e f o o d s t u f f s and n a t u r a l r e s o u r c e s . 207 S i n c e Japan has h e a v i l y r e l i e d on ov e r s e a s n a t u r a l r e s o u r c e s , i t has e x t e n s i v e l y i n v e s t e d i n r e s o u r c e development p r o j e c t s b oth i n d e v e l o p e d and d e v e l o p i n g c o u n t r i e s . The f i r s t o i l c r i s i s f u r t h e r enhanced t h i s t r e n d . The U.S. soybean embargo ta u g h t Japan t h a t i t i s r i s k y t o h e a v i l y r e l y on a s i n g l e s o u r c e c o u n t r y f o r a p a r t i c u l a r commodity. Thus, Japan began t o i n v e s t i n a g r i c u l t u r e i n d i f f e r e n t c o u n t r i e s . Japanese m a n u f a c t u r e r s began o f f s h o r e p r o d u c t i o n i n the l a t e 1960's. Labor i n t e n s i v e , l i g h t m a n u f a c t u r i n g i n d u s t r i e s r e l o c a t e d from Japan t o d e v e l o p i n g c o u n t r i e s , where lower l a b o r c o s t s and abundant n a t u r a l r e s o u r c e s e x i s t e d w i t h fewer e n v i r o n m e n t a l c o n t r o l s . A f t e r t he f i r s t o i l c r i s i s , e n e r g y - i n t e n s i v e i n d u s t r i e s a l s o moved from Japan t o ov e r s e a s l o c a t i o n s which p o s s e s s e d economic advantages. In t h o s e d a y s , most of the DFI c a r r i e d out by the Japanese m a n u f a c t u r e r s were s m a l l - s c a l e . T h e r e f o r e , i n v o l v e m e n t of sogo shosha was i n d i s p e n s a b l e f o r s u c c e s s f u l v e n t u r e s , s i n c e t h e s e depended on sogo shosha f i n a n c i a l , m a r k e t i n g and o r g a n i z a t i o n a l competence as w e l l as on t h e i r w o rldwide i n f o r m a t i o n g a t h e r i n g a b i l i t y . S i n c e the e a r l y 1970's Japan has f a c e d t r a d e f r i c t i o n w i t h o t h e r i n d u s t r i a l i z e d c o u n t r i e s such as the U n i t e d S t a t e s , and has seen a r i s e of p r o t e c t i o n i s m i n th e s e c o u n t r i e s . Mature Japanese m a n u f a c t u r e r s such as e l e c t r i c a l and e l e c t r o n i c equipment and a u t o m o b i l e makers have t h e r e f o r e embarked on l o c a l p r o d u c t i o n of manufactured goods 208 i n order to a v o i d i n t e n s i v e t r a de f r i c t i o n with other developed c o u n t r i e s as w e l l as to capture l o c a l markets. In n a t u r a l resource development p r o j e c t s as w e l l as i n the e a r l y stages of manufacturing, j o i n t ventures were a l s o e x t e n s i v e l y u t i l i z e d . The t r o i k a formula i n DFI was r e f l e c t e d i n the unique o r g a n i z a t i o n a l s t r u c t u r e of Japanese companies. In other words, sogo shosha, e s p e c i a l l y the same keiretsu groups, with f o r e i g n l o c a l p a r t n e r s , took p a r t i n ventures with Japanese manufacturers. In sum, the understanding of the c h a r a c t e r i s t i c s and development of the Japanese economy have proved to be major components of the e x p l a n a t i o n of unique Japanese f e a t u r e s i n overseas investment. The s c a r c i t y i n domestic n a t u r a l resources and the i n d u s t r i a l s t r u c t u r e , e s p e c i a l l y b efore the f i r s t o i l c r i s i s of 1973, f o r c e d the Japanese economy to r e l y h e a v i l y on overseas n a t u r a l r e s o u r c e s . Consequently, Japanese DFI i n n a t u r a l resource development has been c r u c i a l i n order to secure the supply of these r e s o u r c e s . With the encouragement of manufacturing s e c t o r s r e l a t i v e to the a g r i c u l t u r a l s e c t o r , food s e l f - s u f f i c i e n c y r a t i o s decreased d u r i n g the r a p i d economic growth p e r i o d , which r e s u l t e d i n hig h dependence on overseas f o o d s t u f f s . Thus, Japanese DFI i n overseas a g r i c u l t u r e has a l s o c o n t r i b u t e d to the domestic needs of the Japanese economy. The dual economic s t r u c t u r e a s s i s t e d r a p i d economic growth and has s u s t a i n e d the hig h i n t e r n a t i o n a l c o m p e t i t i v e n e s s of Japanese manufacturers. I n d u s t r i e s which 209 l o s t i n t e r n a t i o n a l c o m p a r a t i v e advantages have r e l o c a t e d from Japan t o the d e v e l o p i n g c o u n t r i e s . These i n d u s t r i e s formed the t i p of the d u a l economic s t r u c t u r e . J o i n t v e n t u r e s have been c a r r i e d out by the Japanese f i r m s a l o n g w i t h sogo shosha w i t h i n t h e same keiretsu i n d u s t r i a l g r oups. R a p i d economic growth w i t h an i n c r e a s i n g i n t e r n a t i o n a l c o m p e t i t i v e edge by Japanese m a n u f a c t u r e r s l i b e r a t e d Japan from the s h a c k l e s of the b a l a n c e of payments, and r e s u l t e d i n d r a p i d i n c r e a s e i n t h e amount of Japanese DFI. W i t h the s h i f t from r a p i d economic growth t o s t a b l e economic growth, the Japanese i n d u s t r i a l s t r u c t u r e a l s o s h i f t e d from e n e r g y - i n t e n s i v e t o energy c o n s e r v a t i v e . T h i s s h i f t was r e f l e c t e d i n the changes i n Japanese DFI i n n a t u r a l r e s o u r c e development p r o j e c t s as w e l l as i n m a n u f a c t u r i n g v e n t u r e s . F i n a l l y , government p o l i c y i n o v e r s e a s investment has been r e f l e c t e d i n the amounts, s e c t o r s and a r e a s of Japanese DFI which has been much i n a c c o r d w i t h governmental g o a l s and economic p o l i c y . In Ch a p t e r 4, the p a t t e r n s of t h i s f o r e i g n i n v e s t m e n t a r e i n v e s t i g a t e d . 210 CHAPTER 4 AN OVERVIEW OF JAPANESE DIRECT FOREIGN INVESTMENT D i r e c t F o r e i g n Investment (DFI) i s not a new phenomenon and 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 p l a y an i m p o r t a n t r o l e i n the DFI p r o c e s s , as d i s c u s s e d i n Chapter 2. T h i s c h a p t e r r e v i e w s Japanese DFI dn the w o r l d . F i r s t , Japanese DFI i s p l a c e d i n a g l o b a l DFI c o n t e x t i n o r d e r t o c l a r i f y the r o l e i t p l a y s i n the w o r l d t r e n d s i n DFI. Second, the s h i f t from r e s t r i c t i v e t o l i b e r a l g overnmental p o l i c i e s i s a f o c u s because t h i s s i g n i f i e d a t u r n i n g p o i n t i n the e v o l u t i o n of Japanese DFI. F i n a l l y , i n o r d e r t o d i s c e r n the importance of DFI i n N o r t h A m e r i c a , i t i s n e c e s s a r y t o t r a c e the postwar h i s t o r y of DFI as w e l l as t o d e l i n e a t e i t s c h a r a c t e r i s t i c s . I. World Trends i n D i r e c t F o r e i g n Investment A l t h o u g h 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 e x i s t e d b e f o r e World War I I , t h e r e have been d i f f e r e n c e s i n the sheer number and d i v e r s i t y of such u n d e r t a k i n g s a l l over the w o r l d i n the postwar p e r i o d . A f t e r W orld War I I , t h e r e was a one-way f l o w of DFI from the U n i t e d S t a t e s t o o t h e r c o u n t r i e s , s i n c e a t the end of the war the U n i t e d S t a t e s was the one economic superpower which e x c e l l e d i n t e c h n o l o g y and management t e c h n i q u e s , and which p o s s e s s e d abundant c a p i t a l . The r e c o n s t r u c t i o n and growth of the Western European and Japanese economies r e s u l t e d i n the ex p a n s i o n of i n t e r n a t i o n a l t r a d e and i n v e s t m e n t . S i n c e the 1960's, 21 1 however, DFI i n the U n i t e d S t a t e s by o t h e r i n d u s t r i a l i z e d c o u n t r i e s has g r a d u a l l y i n c r e a s e d , and 1978 saw an e x p l o s i v e i n c r e a s e i n DFI i n the U n i t e d S t a t e s . The y e a r 1981 was a m i l e s t o n e year i n the postwar h i s t o r y of p r i v a t e DFI when the U n i t e d S t a t e s s h i f t e d f o r the f i r s t time from a net c r e d i t o r t o a net d e b t o r s t a t u s . I n t e r n a t i o n a l c a p i t a l f l o w i n c r e a s e d and r e c e n t l y c r o s s - h a u l i n g i nvestment between the d e v e l o p e d c o u n t r i e s has i n t e n s i f i e d . The postwar h i s t o r y of i n t e r n a t i o n a l DFI has been broken down i n t o t h r e e major p e r i o d s . The f i r s t c o v e r s the time i m m e d i a t e l y f o l l o w i n g World War I I t o the e a r l y 1950's, d u r i n g w h i c h , U.S.-based m u l t i n a t i o n a l s m a i n l y made i n v e s t m e n t s i n p e t r o l e u m and n a t u r a l r e s o u r c e development. In the meantime, the Western European c o u n t r i e s and Japan pursued th e r e c o n s t r u c t i o n of t h e i r war-damaged economies, and DFI by t h e s e c o u n t r i e s was r e s t r i c t e d because of the s h o r t a g e of f o r e i g n c u r r e n c i e s . The second p e r i o d spans the l a t e 1950's t o t h e l a t e 1960's. U.S. m u l t i n a t i o n a l s s h i f t e d the f o c i of i n v e s t m e n t i n Europe from p e t r o l e u m and n a t u r a l r e s o u r c e development t o m a n u f a c t u r i n g and commerce. In response t o the f l o o d of DFI by the U n i t e d S t a t e s , an a i r of c r i s i s grew i n Europe, as e x e m p l i f i e d by the book The American C h a l l e n g e by J . - J . S e r v a n - S c h r e i b e r , which appeared i n the o r i g i n a l F r e n c h v e r s i o n i n 1966. There were f i v e main reasons f o r the i n c r e a s e of DFI i n Europe by U.S. m u l t i n a t i o n a l s . F i r s t , U.S. m u l t i n a t i o n a l s 212 aimed a t c a p t u r i n g the markets of European c o u n t r i e s , which had grown r a p i d l y , s i n c e economic r e c o n s t r u c t i o n had ended, and the markets were now l a r g e . Second, i n 1958, the European Economic Community was e s t a b l i s h e d . T a r i f f s were lowered f o r member c o u n t r i e s w h i l e h i g h e r common t a r i f f s were s e t up a g a i n s t non-member c o u n t r i e s . C o n s e q u e n t l y , the e x p o r t of American manufactured goods was a t a d i s a d v a n t a g e and U.S. m u l t i n a t i o n a l s s w i t c h e d t o l o c a l p r o d u c t i o n of m anufactured goods. T h i r d , i n the l a t e 1950's the E u r o - d o l l a r market was formed so U.S. m u l t i n a t i o n a l s were a b l e t o u t i l i z e t h e s e i n o r d e r t o e s t a b l i s h and t a k e over p l a n t s . F o u r t h , a l t h o u g h the U.S. b a l a n c e of payments was u n f a v o r a b l e , the v a l u e of the U.S. d o l l a r remained about the same, and a l t h o u g h o v e r v a l u a t i o n of the U.S. d o l l a r e n a b l e d U.S. m u l t i n a t i o n a l s t o o b t a i n more pounds, marks and S w iss f r a n c s ; i t was advantageous f o r them t o make DFI. F i n a l l y , wage l e v e l s i n the EEC were lower than those i n t h e U n i t e d S t a t e s , and l a b o r p r o d u c t i v i t y was h i g h e r . 3 2 1 In o t h e r words, a f f l u e n t European m a r k e t s , th e e s t a b l i s h m e n t of the European Economic Community, the f o r m a t i o n of the E u r o - d o l l a r market, o v e r v a l u a t i o n of the U.S. d o l l a r , and lower l a b o r c o s t s and h i g h e r p r o d u c t i v i t y , were a l l f a c t o r s which f o s t e r e d U.S. DFI i n Europe. Meanwhile, Western European c o u n t r i e s resumed making DFI i n 3 2 1 K i y o s h i Ikemoto, A k i r a Ueno, and K e n ' i c h i Yasumuro, Nihon K i g y o no T a k o k u s e k i t e k i T e n k a i ; K a i g a i C h o k u s e t s u T o s h i no S h i n t e n ( M u l t i n a t i o n a l Development of Japanese F i r m s ; E v o l u t i o n of F o r e i g n D i r e c t Investment) (Tokyo: Y u h i k a k u , 1981), pp. 21-22. 213 Europe and t h e i r former c o l o n i a l c o u n t r i e s . However, Japanese DFI s t i l l was l i m i t e d , e x c e p t f o r f o u r major p r o j e c t s s u p p o r t e d by the government. The f i n a l p e r i o d extends from the end of the 1960's t o the p r e s e n t . G l o b a l l y , U.S. DFI d e c l i n e d , r e l a t i v e t o t h a t by Europe and Japan which i n c r e a s e d r a p i d l y . D u r i n g t h i s t i m e , DFI i n t h e U n i t e d S t a t e s by o t h e r i n d u s t r i a l i z e d c o u n t r i e s g r e a t l y i n c r e a s e d . As mentioned, i n 1981, the net i n f l o w of DFI exceeded the net o u t f l o w of DFI i n the U n i t e d S t a t e s . T h i s phenomenon i s i n t e r p r e t e d as a r e l a t i v e d e c l i n e of the U.S. economy as opposed t o r a p i d economic growth, e s p e c i a l l y of West Germany and Japan. The s u p e r i o r i t y of U.S. t e c h n o l o g y and m a n a g e r i a l s k i l l s was a l s o g r a d u a l l y l o s t as o t h e r i n d u s t r i a l i z e d c o u n t r i e s caught up w i t h the U n i t e d S t a t e s . In o t h e r words, t h i s m i r r o r e d the c o l l a p s e of Pax Americana. In a d d i t i o n , the U n i t e d S t a t e s p r o v i d e d an a t t r a c t i v e i nvestment c l i m a t e . I t s p o l i t i c a l s t a b i l i t y , w i t h g r e a t p o s s i b i l i t i e s f o r economies of s c a l e , and a f f l u e n t markets were f a v o r a b l e f a c t o r s . Moreover, r e v a l u a t i o n s of major f o r e i g n c u r r e n c i e s a g a i n s t the U.S. d o l l a r made p r o d u c t i o n i n the U n i t e d S t a t e s l e s s c o s t l y and more advantageous t o the o t h e r d e v e l o p e d c o u n t r i e s . As w e l l , a r e c e n t r i s e of p r o t e c t i o n i s m , accompanied by t r a d e f r i c t i o n between d e v e l o p e d c o u n t r i e s , a l s o c o n t r i b u t e d t o i n c r e a s e d DFI i n the U n i t e d S t a t e s . Investment i n the U n i t e d S t a t e s t y p i f i e d the case of u p s u r g i n g i n v e s t m e n t between the d e v e l o p e d 214 c o u n t r i e s . I I . R e s t r i c t i v e and L i b e r a l P o l i c i e s i n Japanese D i r e c t F o r e i g n Investment Japan i s a l a t e c o m e r t o the r e a l m of d i r e c t f o r e i g n i n v e s t m e n t ( D F I ) . I t has o n l y been s i n c e 1968 t h a t Japanese DFI has been l a r g e enough t o be i d e n t i f i e d as a new t r e n d toward m u l t i n a t i o n a l i s m . 3 2 2 Today, Japan i s a new c a p i t a l s u p p l y c o u n t r y . Japan's DFI resumed i n 1951 w i t h i n v e s t m e n t i n the U n i t e d S t a t e s by major Japanese t r a d i n g c o m p a n i e s . 3 2 3 The 1950's was a p e r i o d of economic r e c o n s t r u c t i o n , when the b a l a n c e of payments was i n the r e d . C a p i t a l and t e c h n o l o g y from the U n i t e d S t a t e s and Western European c o u n t r i e s were d i s c r e e t l y s c r e e n e d by the Japanese government. Japanese DFI remained l i m i t e d u n t i l the 1960's. However, d u r i n g t h i s p e r i o d the Japanese government promoted f o u r l a r g e - s c a l e i n t e r n a t i o n a l n a t u r a l r e s o u r c e development p r o j e c t s ; one of which was the A l a s k a P u l p P r o j e c t i n 1953. On t h e o t h e r hand, f o r b a l a n c e of payments reasons DFI by the p r i v a t e s e c t o r was s t r i c t l y c o n t r o l l e d by the F o r e i g n Exchange C o n t r o l A c t of 1 9 4 9 . 3 2 4 3 2 2 0 z a w a , op. c i t . , p. 3. 3 2 3 M a s a y a M i y o s h i , \"Japan's D i r e c t I n v e s t m e n t s O v e r s e a s : P r e s e n t S t a t e and F u t u r e O u t l o o k , \" KEIDANREN Review no. 30 ( J u l y , 1974): 5. 3 2 4 T o s h i o S h i s h i d o and N i k k o R e s e a r c h C e n t e r , eds., Nihon k i g y o i n USA: N i h o n t e k i K e i e i no K a n o s e i o Saguru(Japanese E n t e r p r i s e s i n USA: The S e a r c h f o r Japanese Management P o s s i b i l i t i e s ) (Tokyo: Toyo K e i z a i Shimpo-sha, 1980), p. 2. 215 There a r e t h r e e main reasons why Japanese DFI was l i m i t e d u n t i l t h e l a t e 1960's. F i r s t , the Japanese government r e s t r i c t e d d i r e c t i n v e s t m e n t abroad because u n t i l 1967 the Japanese c u r r e n t b a l a n c e of payments was i n the r e d . As t h i s improved and the p r e s s u r e from the o t h e r i n d u s t r i a l i z e d c o u n t r i e s i n c r e a s e d , the r e s t r i c t i o n s on o v e r s e a s i n v e s t m e n t were removed s t e p - b y - s t e p . In O c t o b e r , 1969, t h e Japanese government i n i t i a t e d l i b e r a l i z a t i o n . Second, d u r i n g World War I I Japanese f i r m s l o s t t h e i r \" a c c u m u l a t i o n of m a n a g e r i a l r e s o u r c e s . \" 3 2 5 Japan had t o r e c o v e r from a war-damaged economy and b e g i n r e b u i l d i n g from the ground up. A c c o r d i n g l y , Japanese f i r m s a l s o s t a r t e d t o accumulate m a n a g e r i a l r e s o u r c e s . W i t h t h e s e the Japanese i m p o r t e d t e c h n o l o g y from the U n i t e d S t a t e s and Western European c o u n t r i e s . C o n s e q u e n t l y , Japanese f i r m s were b e h i n d i n e x p a n d i n g t h e i r b u s i n e s s p r a c t i c e s o v e r s e a s . F i n a l l y , Japan reached a f u l l employment s o c i e t y f o r the f i r s t t i m e i n modern h i s t o r y . The s h i f t from a s u r p l u s t o a s h o r t a g e i n the l a b o r market o c c u r r e d d u r i n g 1960 and 1 9 6 1 . 3 2 6 A l t h o u g h wage l e v e l s i n Japan were r e l a t i v e l y low u n t i l the mid 1960's, the s h o r t a g e of l a b o r r e s u l t e d i n an i n c r e a s e i n wage l e v e l s . T h i s s h o r t a g e of l a b o r stemmed from a c o m b i n a t i o n of p o p u l a t i o n dynamics and an i n c r e a s e i n l a b o r demand. Around 1960, the postwar baby boom g e n e r a t i o n 3 2 5 S u e o S e k i g u c h i , Japanese D i r e c t F o r e i g n Investment ( M o n t c l a i r , N. J . : A l l a n h e l d , Osmun, 1979), p. 7. 3 2 6 T a t s u r o , U c h i n o , Japan's Postwar Economy: An I n s i d e r ' s View of I t s H i s t o r y and I t s F u t u r e , t r a n s . Mark A. H a r b i s o n (Tokyo: Kodansha I n t e r n a t i o n a l , T\"983), p. 129. 216 was s t i l l i n h i g h s c h o o l ; i t s e n t r y i n t o t h e l a b o r market was s t i l l some y e a r s o f f . Moreover, the number of s t u d e n t s who c o n t i n u e d e d u c a t i o n beyond j u n i o r h i g h s c h o o l i n c r e a s e d , which caused a r e d u c t i o n i n the number of new g r a d u a t e s . Meanwhile, the development of the Japanese economy was c r e a t i n g new j o b s . These two p r o c e s s e s g e n e r a t e d the l a b o r s h o r t a g e . 3 2 7 W i t h i n c r e a s e s i n wages, l a b o r - i n t e n s i v e i n d u s t r i e s were r e l o c a t e d from Japan t o t h e d e v e l o p i n g c o u n t r i e s , e s p e c i a l l y , t o S o u t h e a s t A s i a n and L a t i n American c o u n t r i e s , where t h e r e was abundant, cheap l a b o r . In summary, the c o n s i d e r a t i o n of b a l a n c e of payments was one of the most i m p o r t a n t r e a s o n s f o r the government t o r e s t r i c t c a p i t a l o u t f l o w . In a d d i t i o n , t h e r e was a l a c k of a c c u m u l a t e d m a n a g e r i a l r e s o u r c e s i n b u s i n e s s c i r c l e s , and t h e r e was not the a v a i l a b i l i t y of cheap l a b o r as i n the 1950's. W i t h the N a t i o n a l Income-Doubling P l a n , begun i n 1960, the heavy and c h e m i c a l i n d u s t r i e s were encouraged by government p o l i c i e s t o d e v e l o p . W i t h t h e i n t r o d u c t i o n of advanced Western t e c h n o l o g y , the p r o d u c t i v i t y of Japanese i n d u s t r i e s i n c r e a s e d g r e a t l y . R a p i d economic growth was a c h i e v e d , and i n 1969 the r e a l GNP expanded by 10.8 p e r c e n t . 3 2 8 Enhanced p r o d u c t i v i t y by heavy i n v e s t m e n t i n the m a n u f a c t u r i n g i n d u s t r i e s and a s t r u c t u r a l s h i f t i n Japanese m a n u f a c t u r i n g i n c r e a s e d i n t e r n a t i o n a l c o m p e t i t i v e n e s s and 3 2 7 I b i d . 3 2 8 S e k i g u c h i , op_. , c i t . , p. 8. 217 r e f l e c t e d the change i n the goods which Japan e x p o r t e d . \"Japan's t r a d e a c c o u n t s b e n e f i t e d from the v e r y moderate pace of import p r i c e i n c r e a s e d u r i n g t h i s p e r i o d - - a moderate pace even by the s t a n d a r d of Japanese e x p o r t p r i c e s . \" 3 2 9 As the s h i f t t o s u r p l u s e s i n the b a l a n c e of payments o c c u r r e d i n 1965, Japan reached net c r e d i t o r s t a t u s i n 1 9 6 7 . 3 3 0 \"Though p o l i c i e s on d i r e c t f o r e i g n i n v e s t m e n t s h o u l d be independent of the payment p o l i c y , the Japanese government t r i e d t o promote c a p i t a l e x p o r t s and i m p o r t s of goods i n o r d e r t o a v o i d a r e v a l u a t i o n of the y e n . \" 3 3 1 The l i b e r a l i z a t i o n of f o r e i g n i n v e s t m e n t began i n October 1969 and i n 1973 d i r e c t i n v e s t m e n t was l i b e r a l i z e d a l m o s t 100 p e r c e n t . \"And as a s o r t of grand c o m p l e t i o n i n the moves f o r l i b e r a l i z a t i o n of f o r e i g n exchange c o n t r o l , the f o r e i g n exchange and f o r e i g n t r a d e c o n t r o l laws were r e v i s e d and e n f o r c e d i n December 1980.\" 3 3 2 The f i r s t s t e p i n the l i b e r a l i z a t i o n of f o r e i g n i n v e s t m e n t took the f o l l o w i n g form: i n v e s t m e n t p r o j e c t s c a l l i n g f o r l e s s than U.S.$300,000 were s u b j e c t o n l y t o a p p r o v a l by the Bank of Japan, and t h o s e which were l e s s t han U.S.$200,000 were t o be g i v e n a u t o m a t i c a p p r o v a l . 3 3 3 P r e v i o u s l y , a l l p r o j e c t s had been s u b j e c t t o c a s e - b y - c a s e 3 2 9 L a w r e n c e B. Krause, and Sueo S e k i g u c h i , \"Japan and the W o r l d Economy,\" i n A s i a ' s New G i a n t : How the Japanese Economy Works, ed. Hugh P a t r i c k and Henry Rosovsky (Washington, D.C: B r o o k i n g s I n s t i t u t i o n , 1976), p. 424. 3 3 0 I b i d . , p. 441. 3 3 1 S e k i g u c h i , l o c . , c i t . 3 3 2 J a p a n , Economic P l a n n i n g Agency, Economic Survey of Japan: 1980-1981 (Tokyo: Japanese Government, 1981 ), p. 225. 3 3 3 S e k i g u c h i , l o c . c i t . 218 s c r e e n i n g by the M i n i s t r y of F i n a n c e . The c e i l i n g f o r a u t o m a t i c a p p r o v a l was r a i s e d t o U.S.$1 m i l l i o n i n September 1970, and was c o m p l e t e l y e l i m i n a t e d i n J u l y 1 9 7 1 . 3 3 4 In A p r i l 1978, of t o t a l d i r e c t f o r e i g n i n v e s t m e n t , a c q u i s i t i o n of s e c u r i t i e s was s u b j e c t t o p r i o r d e c l a r a t i o n s r a t h e r than a u t h o r i z a t i o n , e x c l u d i n g some k i n d s of i n v e s t m e n t . In December 1980, d i r e c t f o r e i g n i nvestment was based on the p r i o r d e c l a r a t i o n system w i t h e x a m i n a t i o n . T h i s was accompanied by the r e v i s i o n of t h e f o r e i g n exchange c o n t r o l law of 1949. A s i g n i f i c a n t change i n f o r e i g n exchange c o n t r o l based on new law was a s h i f t from \" p r o h i b i t i o n of d e a l i n g i n p r i n c i p l e \" t o \"freedom i n p r i n c i p l e . \" 3 3 5 A l t h o u g h the r e v i s e d laws s t i l l a l l o w e d t h e government t o s t e p i n and r e s t r i c t c a p i t a l t r a n s a c t i o n s , i t was a c l e a r s w i t c h of government p o l i c y from d i r e c t c o n t r o l t o i n d i r e c t c o n t r o l of i n t e r n a t i o n a l t r a n s a c t i o n s . I I I . C h a r a c t e r i s t i c s of Japanese D i r e c t F o r e i g n Investment Japan's accumulated DFI i n the w o r l d from f i s c a l y e a r s 1951 u n t i l 1983 amounted t o U.S.$61,276 m i l l i o n . 3 3 6 T h i s amount was g e o g r a p h i c a l l y broken down i n t o N o r t h America 3 3 4 T h e Bank of Japan, Sengo Kawase K a n r i no S u i i (The Change i n Postwar F o r e i g n Exchange C o n t r o l ) (Tokyo: Bank of Japan, 1983), p. 29. 3 3 5 J a p a n , Economic P l a n n i n g Agency, op_. c i t . , p. 227. 3 3 6 H e r e a f t e r , a year i n d i c a t e s a f i s c a l y e a r , which s t a r t s A p r i l 1 and ends March 31 the \" f o l l o w i n g y e a r , r a t h e r than a c a l e n d a r y e a r . A l s o , a l l d o l l a r amounts a r e U.S. d o l l a r s . The Japanese d a t a which i s a n a l y z e d i n the t h e s i s does not go beyond the f i s c a l y e a r 1983, w h i c h c o n c l u d e s March 31, 1 984. 219 w i t h $17,926 m i l l i o n (29.3 p e r c e n t ) , A s i a w i t h $16,399 m i l l i o n (26.8 p e r c e n t ) , L a t i n America w i t h $10,730 m i l l i o n (17.5 p e r c e n t ) Europe w i t h $7,136 m i l l i o n (11.6 p e r c e n t ) , O c e a n i a w i t h $3,560 m i l l i o n (5.8 p e r c e n t ) , A f r i c a w i t h $2,871 m i l l i o n (4.7 p e r c e n t ) , and the M i d d l e E a s t w i t h $2,654 m i l l i o n (4.3 p e r c e n t ) ( T a b l e 13). By c o u n t r y , the ac c u m u l a t e d DFI i n the U n i t e d S t a t e s reached $16,535 m i l l i o n which was the l a r g e s t i n v e s t m e n t i n a n y o n e c o u n t r y made by the Japanese and a c c o u n t e d f o r 27.0 p e r c e n t of t o t a l i n v e s t m e n t . I n d o n e s i a c a p t u r e d the second l a r g e s t investment w i t h $7,641 m i l l i o n , or 12.5 p e r c e n t of the t o t a l . F o l l o w i n g the U n i t e d S t a t e s and I n d o n e s i a , B r a z i l , Panama and A u s t r a l i a a t t r a c t e d $3,955 m i l l i o n , $3,245 m i l l i o n and $3,048 m i l l i o n , r e s p e c t i v e l y , which c o m p r i s e d 6.5 p e r c e n t , 5.3 p e r c e n t and 5.0 p e r c e n t of the t o t a l . These f i v e c o u n t r i e s r e c e i v e d 56.3 p e r c e n t of the t o t a l Japanese DFI, r e v e a l i n g a c l e a r g e o g r a p h i c a l c o n c e n t r a t i o n of i n v e s t m e n t . By the type of i n d u s t r y , the accumulated amount of Japanese DFI i n the m a n 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 reached $19,542 m i l l i o n by 1983; 31.9 p e r c e n t of the t o t a l i n v e s t m e n t . In t h i s i n d u s t r y , i n v e s t m e n t c o n c e n t r a t e d i n the f e r r o u s and n o n - f e r r o u s , c h e m i c a l , e l e c t r i c a l equipment and t r a n s p o r t a t i o n equipment s e c t o r s , which c o m p r i s e d 6.7 p e r c e n t , 5.9 p e r c e n t , 4.6 p e r c e n t , and 3.8 p e r c e n t of the t o t a l i n v e s t m e n t , r e s p e c t i v e l y . A f t e r m a n u f a c t u r i n g i n d u s t r y , m i n i n g c a p t u r e d $10,673 m i l l i o n , w i t h 17.4 p e r c e n t Table 13: Japanese Direct Foreign Investment by (In M i l l i o n Dollars, %) Reg i on North Amer i ca Lat i n Amer i ca Asia Middle East Europe Afr i ca Oceani a Total 1951-1962 Amount % 112 21.2 151 28 . 7 91 17.3 158 29.9 10 1 .9 1 0.2 4 0.8 528 100.0 1963-1967 Amount % 257 29.6 225 26.0 207 23.9 82 9 . 5 46 5 . 2 16 4.0 34 1 .8 867 100.0 1968-1971 Amount % 722 24 . 5 325 11.0 666 22.6 128 4.3 660 22.4 96 3.3 349 11.9 2,945 100.0 1972-1977 Amount % 4,258 24 .0 3,051 17.2 5,340 30.0 1 , 109 6 . 2 2, 351 13.2 799 4.5 867 4.9 17,775 100.0 1978-1980 Amount % 4,398 30.8 2,411 16.9 3,502 24.5 780 5.5 1 , 396 9.8 532 3.7 1 , 269 8.9 14,286 100.0 1981-1983 Amount % 8, 128 32.8 4,562 18.4 6, 569 26.5 395 1 .6 2,664 10.8 1 ,426 5.8 1 ,036 4 . 2 24,779 100.0 1951-1983 Amount 17,926 10,730 16,399 2,654 7,136 2,871 3,560 61,276 % 29.3 17.5 26.8 4.3 11.6 4.7 5.8 100.0 (Source: Japan, Ministry of International Trade and Industry, Dai 10/11 Kai Waga Kuni no Kaigai J i gyo Katsudo, and Japan, Ministry of Finance, Zaisei Kinyu Tokei Geppo, No. 380, compiled by the writer.) Note: Although the original data of the Ministry of Finance and the Bank of Japan are the same, compilations are di f f e r e n t . Figures from 1951 to 1971 in this table, compiled by MITI, excluded the amounts invested in branches and real estate investment. Thus, figures from 1972 to 1983 are different from the total figures in Tables 18 to 20 for the same years. ho o 221 of the t o t a l . Commerce o b t a i n e d $9,646 m i l l i o n , c o m p r i s i n g 15.7 p e r c e n t of the t o t a l i n v e s t m e n t , w h i l e f i n a n c e and i n s u r a n c e r e c e i v e d $4,969 m i l l i o n , or 8.1 p e r c e n t . T h i s was the p i c t u r e of the g e o g r a p h i c a l and s e c t o r a l c o n c e n t r a t i o n s of Japanese DFI i n 1983. There a r e f o u r major c h a r a c t e r i s t i c s of Japanese DFI, compared w i t h DFI of o t h e r i n d u s t r i a l i z e d c o u n t r i e s i n terms of the f l o w of i n v e s t m e n t , a r e a of i n v e s t m e n t , the t y p e s of i n d u s t r i e s and s c a l e of in v e s t m e n t . F i r s t , the amounts of inward f o r e i g n d i r e c t i nvestment t o Japan a r e e x t r e m e l y s m a l l , compared w i t h t h e amounts of outward Japanese DFI (T a b l e 14), r e s u l t i n g i n an unba l a n c e d , one-way f l o w . T h i s may be s u f f i c i e n t grounds f o r the ongoing c o n t r o v e r s y as t o whether inv e s t m e n t o p p o r t u n i t i e s i n Japan a r e c l o s e d . The second and t h i r d c h a r a c t e r i s t i c s a r e t h a t more than h a l f the accumulated Japanese DFI was made i n the d e v e l o p i n g c o u n t r i e s and t h a t the p r o p o r t i o n i n v e s t e d i n m a n u f a c t u r i n g was s m a l l a t the end of 1982, a c c o u n t i n g f o r 31.9 p e r c e n t of the t o t a l . On the c o n t r a r y , the DFI of o t h e r advanced c o u n t r i e s f o c u s e d on d e v e l o p e d c o u n t r i e s w i t h a l a r g e r s h a r e i n v e s t e d i n m a n u f a c t u r i n g . For example, 72.5 p e r c e n t of the t o t a l DFI of the U n i t e d S t a t e s was made i n the d e v e l o p e d c o u n t r i e s and m a n u f a c t u r i n g o c c u p i e d 41.0 p e r c e n t of the t o t a l i n v e s t m e n t ( F i g u r e s 1 and 2 ) . In the case of West Germany, 79.2 p e r c e n t of i t s DFI was f u n n e l e d i n t o the de v e l o p e d c o u n t r i e s and m a n u f a c t u r i n g c o n s i s t e d of 62.6 p e r c e n t of t o t a l i n v e s t m e n t . T h e r e f o r e , Japanese DFI was Table 14: Outward and Inward Direct Investment Flows (Percentage D i s t r i b u t i o n Among 13 Countries) 1961-1967 1968-1973 1974-1979 Outward Inward Outward Inward Outward Inward Canada 2.3 16.2 4.5 12.1 6 . 2 3.2 United States 61.1 2.6 45.8 11.4 29 . 3 26.7 Japan 2.4 2.0 6.7 1 . 7 13.0 1 . 2 Aust r a l i a 0.7 15.6 1 .4 12.9 1 .61 9.5' Belgium 0.3! 4.5* 1 .4 6 . 1 2.5 9.4 France 6.9 8.2 5.2 8.2 7.8 15.2 Germany 7.2 21.3 12.5 16.4 17.0 14.7 Italy 3.6 11.5 3 . 3 8 . 3 2.0 5.0 Nether1ands 4.4 4 . 7 6.8 8 . 5 9.63 6.03 Sweden 2.0 2.4 2.4 1 . 7 3 .7\" 0. 5 4 United Kingdom 8.7 9.7 9 . 1 7 . 4 9.2 6 . 1 Spa i n 0.0 2 . 7 0.3 3.7 0.6 3.7 Norway 0.0 0.8 0.3 1 . 4 0.9 4. 1 Notes: 'From 1974 to 1976 2 From 1965 3 From 1974 to 1978 4From 1974 to 1977 (Source: Organization for Economic Co-operation and Development. International Investment and Multinational Enterprises: Recent International Direct Investment Trends, [Paris: OECD, 1981], pp. 40-41. Original sources: IMF-OECD Common Reporting System on Balance of Payments S t a t i s t i c s . The United Kingdom and United States figures do not include reinvested earnings to place the data on a more comparable basis. United Kingdom data do not include the petroleum sector.) ho ho ho United States West Germany Agr 225 d i f f e r e n t from t h a t of the U n i t e d S t a t e s and West Germany w i t h r e g a r d t o the i n v e s t i n g a r e a s and type of i n d u s t r y . Japanese DFI c e n t e r e d i n the commerce and m i n i n g s e c t o r s , which c o m p r i s e d 16.0 p e r c e n t and 19.4 p e r c e n t of the t o t a l i n v e s t m e n t , r e s p e c t i v e l y . The f i n a l f e a t u r e of Japanese DFI i s t h a t a c c o r d i n g t o Sato the amount of investment per p r o j e c t was s m a l l . 3 3 7 There were thus many investment p r o j e c t s on a s m a l l s c a l e . P a r t i c u l a r l y , between 1951 and 1967, $1,451 m i l l i o n was approved f o r 2,008 p r o j e c t s , which r e s u l t e d i n $722,610 i n average i n v e s t m e n t s . 3 3 8 In sum, the o u t f l o w of Japanese DFI was e x c e s s i v e l y l a r g e , compared w i t h the i n f l o w . A g r e a t e r p a r t of Japanese DFI was poured i n t o the d e v e l o p i n g c o u n t r i e s . By t y p e of i n d u s t r y , m a n u f a c t u r i n g h o s t e d a l e s s e r p r o p o r t i o n of Japanese DFI w h i l e commerce and m i n i n g a t t r a c t e d l a r g e r p r o p o r t i o n s , compared w i t h DFI of o t h e r d e v e l o p e d c o u n t r i e s . There were many s m a l l - s c a l e i n v e s t m e n t p r o j e c t s . IV. The Postwar H i s t o r y of Japanese D i r e c t F o r e i g n Investment I t was o n l y i n the e a r l y 1970's t h a t Japanese DFI began t o grow r a p i d l y . The s u b s t a n t i a l b a l a n c e - o f - p a y m e n t s s u r p l u s e s of the c o u n t r y and the a p p r e c i a t i o n of the Japanese c u r r e n c y r e l a t i v e t o the U.S. d o l l a r promoted 3 3 7 S a d a y u k i S a t o , T a k o k u s e k i K i g y o no S e i j i K e i z a i (The P o l i t i c a l Economy of M u l t i n a t i o n a l E n t e r p r i s e s ) Tfokyo: Y u h i k a k u , 1984), p. 218. 3 3 8 D a t a s o u r c e s : Bank of Japan. 226 o v e r s e a s i n v e s t m e n t . I t i s c r u c i a l t o examine the investment p a t t e r n s c h r o n o l o g i c a l l y , s i n c e t h e s t r u c t u r a l s h i f t i n the Japanese economy i n accordance w i t h i t s r a p i d economic growth, the a l t e r a t i o n of Japanese government p o l i c y from r e s t r i c t i v e t o l i b e r a l i n f o r e i g n exchange t r a n s a c t i o n s , and changes i n i n t e r n a t i o n a l economic e n v i r o n m e n t s , r e s u l t e d i n s h i f t s i n i n v e s t m e n t a c t i v i t i e s by t h e Japanese. There a r e some c l a s s i f i c a t i o n s of time p e r i o d s a l r e a d y s u g g ested i n o r d e r t o i n v e s t i g a t e the c h a r a c t e r i s t i c s of DFI i n each p e r i o d . The M i n i s t r y of I n t e r n a t i o n a l Trade and I n d u s t r y (MITI) adopted s i x time p e r i o d s , Ikemoto a d v o c a t e d f i v e time p e r i o d s , and Sato s u g g e s t e d f o u r . 3 3 9 An amended v e r s i o n of MITI's c l a s s i f i c a t i o n i s adopted f o r t h i s s t u d y . G i v e n the i n c r e a s e d amount of Japanese DFI, an a l t e r a t i o n i n the time p e r i o d s proposed by MITI i s n e c e s s a r y . By combining 1972-1973 and 1974-1977, a more a c c u r a t e d e s c r i p t i o n of the same l e v e l of i n v e s t m e n t i s p o s s i b l e . By 1981, the tremendous i n c r e a s e i n Japanese DFI r e q u i r e d a f u r t h e r s p l i t i n the o r i g i n a l MITI c l a s s i f i c a t i o n t o r e f l e c t the s t a g e s i n v o l v e d . The amount of Japanese DFI i s an a p p r o p r i a t e i n d i c a t o r / m e a s u r e of the Japanese economic development stage as w e l l as a m i r r o r f o r n a t i o n a l government p o l i c y ( F i g u r e 3 3 9 Japan, M i n i s t r y of I n t e r n a t i o n a l Trade and I n d u s t r y , I n d u s t r i a l P o l i c y Bureau, I n t e r n a t i o n a l B u s i n e s s A f f a i r s D i v i s i o n , ed., D a i 10/11 k a i Waga Kuni K i g y o no K a i g a i J i g y o Katsudo (No. 10/11 Overseas B u s i n e s s A c t i v i t i e s of Japanese F i r m s ) (Tokyo: Toyohoki Shuppan K a b u s h i k i - g a i s h a , 1983), p. 1, K i y o s h i Ikemoto, A k i r a Ueno, and K e n ' i c h i Yasumuro, op. c i t . , p. 46, and Sadayuki S a t o , Nihon no T a i b e i Tosho no S h i n d a n k a i (New Stage of Japanese Investment i n the U n i t e d S t a t e s ) (\"Tokyo: H i t o t s u b a s h i U n i v e r s i t y , I n s t i t u t e of Economic R e s e a r c h , 1984), p. 2. 227 3) . 1. 1951-1962 Annual amount of DFI was under $100 m i l l i o n 2. 1963-1967 Annual amount of DFI was from $100 m i l l i o n t o $200 m i l l i o n 3. 1968-1971 Annual amount of DFI was from $500 m i l l i o n t o $900 m i l l i o n 4. 1972-1977 Annual amount of DFI was from $2 b i l l i o n t o $3 b i l l i o n 5. 1978-1980 Annual amount of DFI was over $4 b i l l i o n 6. 1981-1983 Annual amount of DFI was over $7 b i l l i o n 1. 1951-1962 Postwar Japanese DFI s t a r t e d i n 1951 w i t h investment i n the U n i t e d S t a t e s by sogo s h o s h a . The p e r i o d between 1951 and 1962 was the nascent p e r i o d of Japanese DFI, which was ye t under the t i g h t c o n t r o l of the government. T h i s p e r i o d was a l s o c h a r a c t e r i z e d by f o u r major i n v e s t m e n t p r o j e c t s by the government; namely, the A l a s k a P u l p P r o j e c t (1953), the U s i m i n a s S t e e l M i l l P r o j e c t (1957), the A r a b i a n O i l P r o j e c t (1958), and the N o r t h Sumatra O i l P r o j e c t (1960). D u r i n g t h i s p e r i o d , the l a r g e s t r e g i o n a l i nvestment of $158 m i l l i o n , was i n v e s t e d i n the M i d d l e E a s t , which a c c o u n t e d f o r 29.9 p e r c e n t of the t o t a l i n v e s t m e n t (Table 15). One hundred and f i f t y - s e v e n m i l l i o n was i n t h e A r a b i a n O i l P r o j e c t i n 1958. The second l a r g e s t i n v e s t m e n t was made i n L a t i n America w i t h a t o t a l of $151 m i l l i o n , of which the m a n u f a c t u r i n g s e c t o r a t t r a c t e d $107 m i l l i o n . There were f u r t h e r c o n c e n t r a t i o n s i n the f e r r o u s and n o n - f e r r o u s m e t a l 9 0 0 0 8 0 0 0 -Figure 3 Japanese Direct Foreign Investment In the World and the United States, 1951 to 1983 7 0 0 0 -6 0 0 0 -5 0 0 0 4 0 0 0 -3 0 0 0 -2 0 0 0 1 0 0 0 0 L e g e n d mm World ZZ\ U.S. O r\u00C2\u00AB ^ > o> O) Y e a r T a b l e 15: Accumulated Japanese D i r e c t F o r e i g n Investment: 1951-1962 ( I n Mi 11 i o n D o l l a r s ) N o r t h L a t i n A s i a M i d d l e E a s t Europe A f r i c a O c e a n i a T o t a l America America No. Amount No. Amount No. Amount No Amount No. Amount No Amount No. Amount No. Amount F o o d s t u f f s 4 1 3 1 7 4 - - 1 0 1 0 - 16 6 Text i 1 e s - - 15 31 20 5 - - - - 4 0 1 0 40 36 Lumber & P u l p 3 51 1 0 - - - - - - - - - - 4 51 C h e m i c a l s - - 4 1 15 1 - - 2 1 1 o 22 2 F e r r o u s & - - 2 35 10 3 - - - - - - 12 38 N o n - f e r r o u s m e t a l s O r d i n a r y m a c h i n e r y - - 1 1 12 7 1 - - 1 0 - - - 19 13 E l e c t r i c a l equipment 2 1 6 1 19 3 - - 1 0 1 0 29 5 T r a n s p o r t a t i o n - - 7 23 4 2 - - 1 2 - - - 12 27 equipment O t h e r s 3 0 9 2 21 1 1 - - - - - - - 33 13 M a n u f a c t u r 1 n g 12 52 58 107 103 30 - - 6 2 5 0 3 0 187 191 s u b - t o t a l A g r i c u l t u r e . 1 1 17 4 17 4 2 0 1 0 4 0 4 1 46 1 1 F o r e s t r y & F i s h e r i e s M i n i n g 4 7 1 1 7 35 51 1 157 2 0 2 0 4 2 59 225 R e s o u r c e development 5 7 28 12 52 55 3 157 3 0 6 1 8 3 105 236 s u b - t o t a l Commerce 134 35 24 3 33 2 5 0 52 3 3 0 24 1 275 45 F i n a n c e & I n s u r a n c e 1 1 14 8 1 8 3 1 0 - - - - 28 18 O t h e r s 33 3 97 28 10 2 - - 6 4 - 0 146 37 Commerce & S e r v i c e s 178 52 129 33 51 7 6 1 58 7 3 0 24 1 449 101 s u b - t o t a l T o t a l 195 1 12 2 15 151 206 91 9 158 67 10 14 1 35 4 741 528 ( S o u r c e : Japan, MITI , Dai 10/11 Kal Waqa Kun1 no K a i q a i J l g y o Katsudo, p. 10. ; O r i g i n a l s o u r c e : Japan, M i n i s t r y Of F i n a n c e . ) Note: T o t a l s may d i f f e r due to r o u n d i n g . 230 s e c t o r ($35 m i l l i o n ) , c o n n e c t e d w i t h the c o n s t r u c t i o n of the U s i m i n a s S t e e l M i l l i n B r a z i l . The t e x t i l e s e c t o r ($31 m i l l i o n ) , and the t r a n s p o r t a t i o n equipment s e c t o r ($23 m i l l i o n ) a l s o c a p t u r e d s i g n i f i c a n t p o r t i o n s . N o r t h America was a l l o c a t e d the t h i r d l a r g e s t i n v e s t m e n t of $112 m i l l i o n (21.2 p e r c e n t of the t o t a l ) , of w h i c h $51 m i l l i o n was i n v e s t e d i n the lumber and p u l p i n d u s t r y . T h i s was a s s o c i a t e d i n 1953 w i t h the A l a s k a P u l p P r o j e c t . T h i r t y - f i v e m i l l i o n d o l l a r s was i n v e s t e d i n the p r o m o t i o n and development of c o m m e r c i a l a c t i v i t i e s by sogo shosha i n o r d e r t o e s t a b l i s h s u b s i d i a r i e s . I t s h o u l d be n o t e d t h a t o v e r s e a s Japanese in v e s t m e n t i n commerce was e x t e n s i v e l y p l a n n e d , not t o p e n e t r a t e the c ommercial s e c t o r of t h e h o s t c o u n t r y by e s t a b l i s h i n g new f i r m s or t a k i n g over e x i s t i n g f i r m s , but t o s e t up wholly-owned t r a d i n g s u b s i d i a r i e s and m a r k e t i n g companies i n o r d e r t o a c t i v a t e t h e t r a d e l a r g e l y between Japan and the h o s t c o u n t r y . D u r i n g t h i s p e r i o d , DFI i n A s i a was r e l a t i v e l y s m a l l , compared w i t h o t h e r time p e r i o d s . The amount of DFI was $91 m i l l i o n , which c o n s i s t e d of 17.3 p e r c e n t of the t o t a l . The m i n i n g s e c t o r c a p t u r e d $51 m i l l i o n , which was a s s o c i a t e d w i t h the N o r t h Sumatra O i l P r o j e c t i n 1960. The p e r i o d between 1951 and 1962 w i t n e s s e d the l a r g e s t i n v e s t m e n t i n m i n i n g w i t h $225 m i l l i o n and i n the lumber and p u l p i n d u s t r y w i t h $51 m i l l i o n . In a d d i t i o n , i n v e s t m e n t i n the t e x t i l e i n d u s t r y ($36 m i l l i o n ) and i n the f e r r o u s and n o n - f e r r o u s m e t a l i n d u s t r y ($38 m i l l i o n ) aimed a t a c q u i r i n g 231 raw m a t e r i a l s , s i n c e the i n t e r n a t i o n a l c o m p e t i t i v e s t r e n g t h of the Japanese t e x t i l e i n d u s t r y a t t h i s time was g r e a t . 3 4 0 2. 1963-1967 The second p e r i o d c o i n c i d e d w i t h r a p i d economic growth i n Japan and the s h i f t of the i n d u s t r i a l s t r u c t u r e from l i g h t i n d u s t r y t o the heavy and c h e m i c a l i n d u s t r i e s . W i t h i n c r e a s e d i n t e r n a t i o n a l c o m p e t i t i v e s t r e n g t h , e x p o r t s i n c r e a s e d and the b a l a n c e of payments t u r n e d f a v o r a b l e . In 1964, Japan a c c e p t e d A r t i c l e 8 i n l i e u of A r t i c l e 14 of the IMF and became a member of the OECD (see Chapter 3 ) . By r e g i o n , the l a r g e s t b l o c k ($257 m i l l i o n ) was made i n N o r t h A m e r i c a , which a c c o u n t e d f o r 29.6 p e r c e n t of the t o t a l ( T a b l e 16). Of t h i s amount, $98 m i l l i o n was i n v e s t e d i n commerce f o r the promotion of e x p o r t s from Japan, which d u r i n g t h i s p e r i o d a c c o u n t e d f o r 86.0 p e r c e n t of the t o t a l Japanese DFI i n commerce i n t h e w o r l d . The lumber and p u l p i n d u s t r y c a p t u r e d $59 m i l l i o n and the m i n i n g i n d u s t r y , $35 m i l l i o n . A p p r o x i m a t e l y $30 m i l l i o n was i n v e s t e d i n f i n a n c e and i n s u r a n c e . L a t i n A merica a t t r a c t e d t h e second l a r g e s t DFI w i t h $225 m i l l i o n , c o m p r i s i n g 26.0 p e r c e n t of the t o t a l . T h i s c o n c e n t r a t e d i n f i n a n c e and i n s u r a n c e w i t h $40 m i l l i o n , m a i n l y f o r l o a n s t o and f o u n d a t i o n c a p i t a l f o r banks i n B r a z i l , w h i l e m i n i n g , w i t h $32 m i l l i o n , was r e l a t e d t o copper m i n i n g development p r o j e c t s i n C h i l e and P e r u . In the m a n u f a c t u r i n g s e c t o r , the t r a n s p o r t a t i o n equipment i n d u s t r y 3 4 0 K i y o s h i Ikemoto, A k i r a Ueno, and K e n ' i c h i Yasumuro, op. c i t . , p. 48. Table 16: Accumulated Japanese Direct Foreign Investment: 1963-1967 (In M i l l i o n Dollars) North Lat i n Asia Middle East Europe A f r i c a Oceania Total Amer i ca America No. Amount No. Amount No. Amount No. Amount No. Amount No. Amount No. Amount No. Amount Foodstuffs 2 1 9 5 13 9 - 3 4 3 2 1 1 31 20 Text i1es 1 3 8 13 49 27 - 2 1 18 10 2 1 80 54 Lumber & Pulp 3 59 - - 9 3 - - - - - 1 0 13 62 Chem i ca1s 3 2 11 3 47 6 - 1 0 2 1 2 0 66 14 Ferrous & 1 0 9 27 24 19 - - - 4 2 - - 38 49 Non-ferrous metals Ordinary machinery 3 2 8 18 27 3 - 4 1 - - - - 42 25 E l e c t r i c a l equipment 3 1 17 6 42 8 - 1 0 2 1 1 1 66 17 Transportat i on - - 7 36 12 8 1 1 1 2 - - 1 0 22 47 equ i pment Others 2 0 4 2 59 1 1 2 0 3 1 - - 1 0 71 14 Manufacturi ng sub-total 18 69 73 1 10 282 94 3 1 15 9 29 15 9 3 429 302 Agr i cu1ture, 10 2 9 3 9 17 - 1 0 5 1 12 2 46 26 Forestry & Fisheries M i ni ng 18 35 7 32 17 42 81 - 0 - - 8 27 50 218 Resource development 28 38 16 35 26 59 81 1 0 5 1 20 30 96 244 sub-total Commerce 159 98 25 3 51 4 3 0 62 6 3 0 12 2 315 1 14 Finance & Insurance 8 30 7 40 6 46 - - 6 3 2 0 - - 29 1 18 Others 29 22 66 37 29 4 - - 10 27 2 0 1 - 137 90 Commerce & Serv i ces 196 149 98 80 86 54 3 0 78 36 7 0 13 2 481 322 sub-total Total 242 257 187 225 394 207 6 82 94 46 41 16 42 34 1 ,006 867 (Source: MITI, Dai 10/11 Kai, op, c i t . , p. 16.) U J 233 o b t a i n e d $36 m i l l i o n and the f e r r o u s and n o n - f e r r o u s m e t a l i n d u s t r y r e c e i v e d $27 m i l l i o n . A s i a h o s t e d $207 m i l l i o n , which c o m p r i s e d 23.9 p e r c e n t of the t o t a l i n v e s t m e n t . The investment i n A s i a i n c r e a s e d a b s o l u t e l y as w e l l as r e l a t i v e l y . D u r i n g t h i s p e r i o d , t h e So u t h e a s t A s i a n c o u n t r i e s adopted import s u b s t i t u t i o n and development of domest i c i n d u s t r i a l p o l i c i e s . These governments encouraged f o r e i g n investment and p r o v i d e d v a r i o u s i n c e n t i v e s f o r t h a t purpose. T h e r e f o r e , Japanese m a n u f a c t u r e r s made i n v e s t m e n t s i n Southeast A s i a n c o u n t r i e s i n o r d e r t o c a p t u r e t h e s e markets and t o t a k e advantage of t h e i r i n c e n t i v e s f o r f o r e i g n i n v e s t m e n t . Moreover, the investment was poured i n t o f i n a n c e and i n s u r a n c e w i t h $46 m i l l i o n and i n t o m i n i n g w i t h $42 m i l l i o n . I n the m a n u f a c t u r i n g s e c t o r , t h e l a b o r - i n t e n s i v e t e x t i l e i n d u s t r y a t t r a c t e d $27 m i l l i o n and the f e r r o u s and n o n - f e r r o u s m e t a l i n d u s t r y o b t a i n e d $19 m i l l i o n . The M i d d l e E a s t h o s t e d $82 m i l l i o n , of which $80 m i l l i o n was i n v e s t e d i n m i n i n g . I t was a l s o r e l a t e d t o the A r a b i a n O i l P r o j e c t . By the type of i n d u s t r y , m i n i n g c a p t u r e d 25.2 p e r c e n t of the t o t a l i n v e s t m e n t , a l t h o u g h the p r o p o r t i o n i n t h i s i n d u s t r y d e c l i n e d from 42.6 p e r c e n t , compared w i t h the p r e v i o u s p e r i o d . M a n u f a c t u r i n g c o n s i s t e d of 34.8 p e r c e n t of the t o t a l i n v e s t m e n t . As w i t h t h i s s e c t o r , the i n v e s t m e n t i n lumber and p u l p , t e x t i l e , and f e r r o u s and n o n - f e r r o u s m e t a l i n d u s t r i e s r e l a t e d t o s e c u r i n g raw m a t e r i a l s and n a t u r a l r e s o u r c e s and u t i l i z i n g o v e r s e a s l o w - c o s t l a b o r . On the 234 c o n t r a r y , the p e r c e n t a g e of f i n a n c e and i n s u r a n c e i n c r e a s e d from 3.5 p e r c e n t t o 13.6 p e r c e n t of the t o t a l i n v e s t m e n t . The p e r c e n t a g e of commerce a l s o i n c r e a s e d from 8.6 p e r c e n t t o 13.1 p e r c e n t of the t o t a l . The investment i n t h e s e s e c t o r s was i n t e n d e d t o enhance commercial a c t i v i t i e s and t o c a p t u r e o v e r s e a s markets i n o r d e r t o promote Japanese e x p o r t s . 3. 1968-1971 \u00E2\u0080\u00A2 The t h i r d p e r i o d from 1968 t o 1971 w i t n e s s e d t h e e x p a n s i o n of Japanese e x p o r t s and the i n c r e a s e i n t r a d e s u r p l u s e s . The l i b e r a l i z a t i o n of DFI began and t h i s p e r i o d was t o be r e g a r d e d as a t a k e - o f f p e r i o d toward the f i r s t y ear of l a r g e DFI of 1972. F o l l o w i n g the p r e v i o u s p e r i o d , the Japanese government emphasized the n e c e s s i t y of development and i m p o r t s of n a t u r a l r e s o u r c e s . Moreover, inv e s t m e n t i n m a n u f a c t u r i n g i n c r e a s e d because of the s e c u r i t y of f o r e i g n m a r k e t s . The domestic f a c t o r s i n J a p a n , such as a s h o r t a g e of a l a b o r f o r c e , wage i n c r e a s e s , e n v i r o n m e n t a l p o l l u t i o n and d i f f i c u l t y i n f i n d i n g p l a n t l o c a t i o n s , a l s o c o n t r i b u t e d t o expanding i n v e s t m e n t i n o v e r s e a s m a n u f a c t u r i n g . By r e g i o n , t h e l a r g e s t amount of DFI was poured i n t o N o r t h A m e r i c a , which reached $722 m i l l i o n and a c c o u n t e d f o r 24.5 p e r c e n t of the t o t a l i n v e s t m e n t (Table 17). The commerce s e c t o r a t t r a c t e d the l a r g e s t share w i t h $289 m i l l i o n , which i l l u s t r a t e d the i n t e r n a t i o n a l i z a t i o n of sogo shosha toward f u l l - g r o w n o v e r s e a s b u s i n e s s e n t e r p r i s e s . The Table 17: Accumulated Japanese Direct Foreign Investment (In M i l l i o n Dollars) 1968-1971 North Lat i n As i a Middle East Europe Afr i ca Oceania Total America America No. Amount No.Amount No. Amount No. Amount No. Amount No. Amount No. Amount No. Amount Foodstuffs 8 7 7 5 28 13 - - 1 3 10 2 8 14 62 43 Text i1es - 4 13 23 139 128 - - 5 1 9 7 - - 166 163 Lumber & Pulp 8 98 - - 24 16 - - - - - - 7 37 39 151 Chemicals 4 2 5 5 86 25 - - 9 17 - - 3 2 107 50 Ferrous & 1 1 2 35 47 18 - 3 9 4 1 3 37 60 101 Non-ferrous metals Ordinary machinery 13 8 13 15 68 16 1 1 7 13 - - 2 0 104 53 E l e c t r i c a l equipment 12 6 9 16 1 14 54 2 2 4 1 1 0 2 2 144 80 Transportat i on - - 1 15 6 4 - - 1 1 - - 2 7 10 27 equipment Others 14 4 10 2 213 49 3 2 5 2 1 1 4 1 250 59 Manufactur i ng 60 130 60 1 17 725 321 6 4 35 46 25 10 31 99 942 727 sub-total Agr i cuiture, 12 4 12 9 61 39 - - 1 0 9 7 21 7 1 16 66 Forestry & Fisheries Mi ni ng 35 149 20 117 22 227 1 122 1 6 12 71 22 216 1 13 909 Resource development 47 153 \u00E2\u0080\u00A2 32 126 83 266 1 122 2 7 21 78 43 223 229 975 sub-total Commerce 370 289 40 15 133 19 5 0 162 35 4 1 37 1 1 751 370 Finance & Insurance 1 1 98 12 39 7 18 1 1 15 65 2 0 13 13 71 235 Others 130 52 53 28 101 42 - - 54 508 1 1 6 12 3 361 638 Commerce & Services 511 439 105 82 251 80 6 1 231 608 17 7 62 26 1 , 183 1 ,243 sub-total Total 618 722 197 325 1 ,059 666 13 128 268 660 63 96 136 349 2,354 2,945 (Source: MITI, Dai 10/11 Kai, op. c i t , p. 26.) 236 f i n a n c e and i n s u r a n c e s e c t o r c a p t u r e d $98 m i l l i o n . A f t e r the commerce s e c t o r , the m i n i n g s e c t o r o b t a i n e d the second l a r g e s t s h are w i t h $149 m i l l i o n . Major i n v e s t m e n t s were copper m i n i n g development i n Canada, and c o a l and copper m i n i n g development i n t h e U n i t e d S t a t e s . The lumber and p u l p i n d u s t r y r e c e i v e d $98 m i l l i o n . A s i a h o s t e d the second l a r g e s t amount of i n v e s t m e n t of $666 m i l l i o n , w hich c o n s i s t e d of 22.6 p e r c e n t of the t o t a l . M i n i n g a t t r a c t e d $227 m i l l i o n , w hich was d i r e c t e d i n t o o i l development i n I n d o n e s i a , copper development i n t h e P h i l i p p i n e s , and n a t u r a l gas development i n B r u n e i . Among m a n u f a c t u r i n g i n d u s t r i e s , the i n v e s t m e n t c o n c e n t r a t e d i n t e x t i l e s w i t h $128 m i l l i o n and i n e l e c t r i c a l equipment w i t h $54 m i l l i o n , w hich were l a b o r - i n t e n s i v e i n d u s t r i e s . T h i s i n d i c a t e s t h a t the o f f s h o r e p r o d u c t i o n of m a n u f a c t u r e d goods, c e n t e r e d i n Taiwan and South K o r e a , was p r o m o t e d . 3 * 1 Europe r e c e i v e d the t h i r d l a r g e s t amount of i n v e s t m e n t of $660 m i l l i o n , which r e l a t e d t o t e r t i a r y a c t i v i t i e s . Many l o a n i n v e s t m e n t c a s e s o c c u r r e d f o r d e f e r r e d payment of e x p o r t s of s h i p p i n g i n the U n i t e d Kingdom. O c e a n i a h o s t e d $349 m i l l i o n , of which $216 m i l l i o n was i n v e s t e d i n the m i n i n g s e c t o r , c o n s i s t i n g of 61.9 p e r c e n t of the t o t a l i n v e s t m e n t i n t h i s r e g i o n . M i n i n g investment r e l a t e d t o n i c k e l , i r o n and c o a l m i n i n g development i n A u s t r a l i a and copper m i n i n g development i n Papua New G u i n e a . Hence, the f o c u s of i n v e s t m e n t i n the f e r r o u s and n o n - f e r r o u s m e t a l 1 1 b i d . , p. 50. 237 i n d u s t r y s h i f t e d from A s i a t o L a t i n America and O c e a n i a , where t h e r e e x i s t e d an abundance of n a t u r a l r e s o u r c e s e c o n o m i c a l l y more a c c e s s i b l e t o Japan. By the t y p e of i n d u s t r y , the m i n i n g i n d u s t r y remained the l a r g e s t i n v e s t m e n t s e c t o r (30.8 p e r c e n t ) . The commerce i n d u s t r y o b t a i n e d 12.6 p e r c e n t of the t o t a l . T e x t i l e s , lumber and p u l p , and f e r r o u s and n o n - f e r r o u s m e t a l i n d u s t r i e s composed 5.5 p e r c e n t , 5.1 p e r c e n t , and 3.4 p e r c e n t of t h e t o t a l , r e s p e c t i v e l y . The i n v e s t m e n t a c t i v i t i e s showed a s t r o n g tendency t o s e c u r e n a t u r a l r e s o u r c e s as w e l l as t o promote e x p o r t s from Japan. 4. 1972-1977 The f o u r t h p e r i o d , between 1972 and 1977, was c h a r a c t e r i z e d by f u l l - f l e d g e d i nvestment a c t i v i t i e s a l t h o u g h the f i r s t o i l c r i s i s of 1973 caused worldwide s t a g n a t i o n . There were f i v e major f a c t o r s c o n t r i b u t i n g t o the a ugmentation of Japanese DFI from 1972 t o 1973. F i r s t , l i b e r a l i z a t i o n of c a p i t a l was f u r t h e r advanced by the government i n 1972, and the l i b e r a l i z a t i o n of DFI was c o m pleted i n p r i n c i p l e . Numerous i n c e n t i v e s f o r the p r o m o t i o n of DFI were p r o v i d e d , f o r example, as a t a x i n c e n t i v e t h e r e s e r v e fund p o l i c y a g a i n s t f o r e i g n i nvestment l o s s e s was enhanced. In 1972,.the f o r e i g n i n v e s t m e n t i n s u r a n c e p o l i c y was e n r i c h e d as w e l l . Second, the r e e v a l u a t i o n of t h e yen caused the a n t i c i p a t o r y f e a r t h a t Japanese i n t e r n a t i o n a l c o m p e t i t i v e n e s s f o r e x p o r t s would g r a d u a l l y l o s e i n t h e l o n g r u n . C o n s e q u e n t l y , DFI i n c r e a s e d 238 because of Japanese e x p o r t s u b s t i t u t i o n . T h i r d , s i n c e the i n t e r n a t i o n a l s u p p l y of n a t u r a l r e s o u r c e s d i m i n i s h e d , the development and import of n a t u r a l r e s o u r c e s were f u r t h e r a c c e n t u a t e d . F o u r t h , S o u t h e a s t A s i a n c o u n t r i e s c o n t i n u e d i n d u s t r i a l i z a t i o n p o l i c i e s , which encouraged the i n t r o d u c t i o n of f o r e i g n c u r r e n c i e s . F i n a l l y , by 1970 the m a n a g e r i a l , f i n a n c i a l and t e c h n o l o g i c a l a b i l i t i e s of Japanese e n t e r p r i s e s made g r e a t s t r i d e s . T h e r e f o r e , t h e s e c o n d i t i o n s s p u r r e d them t o make f o r e i g n i n v e s t m e n t i n o r d e r t o m a i n t a i n and expand o v e r s e a s markets. However, the o i l c r i s i s of 1973 d r a s t i c a l l y a l t e r e d the postwar w o r l d economic environment, and pr o v o k e d worldwide s t a g n a t i o n . I n the postwar Japanese h i s t o r y of DFI, t h i s was the f i r s t s t a g n a n t p e r i o d , which l a s t e d u n t i l 1977. D e p r e s s i o n made b u s i n e s s p r o f i t s l e s s , and f o r c e d companies to reduce t h e i r o p e r a t i o n s i n o r d e r t o meet the new demand. In a d d i t i o n , s m a l l - s c a l e , i n t e n s i v e i n v e s t m e n t w i t h i n a s h o r t p e r i o d of time i n the So u t h e a s t A s i a n c o u n t r i e s brought about antagonism a g a i n s t Japan, which d e t e r i o r a t e d the i n v e s t m e n t c l i m a t e s of t h e host c o u n t r i e s . Overpresence of Japanese f i r m s g e n e r a t e d e x c e s s i v e c o m p e t i t i o n among Japanese f i r m s as w e l l as between Japanese and l o c a l f i r m s . F i n a l l y , t he governments of t h e s e h o s t c o u n t r i e s i n t r o d u c e d p r e f e r e n t i a l f o r e i g n i n v e s t m e n t p o l i c i e s . By r e g i o n , the l a r g e s t amount of i n v e s t m e n t , $5,340 m i l l i o n , was d i r e c t e d t o A s i a and composed 30.0 p e r c e n t of the t o t a l i n v e s t m e n t ( T a b l e 13). The m i n i n g s e c t o r c a p t u r e d 239 $2,171 m i l l i o n ( T a ble 18), s i n c e t h e investment was made i n the copper m i n i n g i n I n d o n e s i a and M a l a y s i a , i n the l a r g e LNG P r o j e c t i n I n d o n e s i a , and i n i r o n m i n i n g development i n the P h i l i p p i n e s . The m a n u f a c t u r i n g s e c t o r a t t r a c t e d $2,108 m i l l i o n . Investment i n the t e x t i l e i n d u s t r y f l o u r i s h e d u n t i l 1974, and s i n c e then i t s dominance has g r a d u a l l y d e c l i n e d . The i n v e s t m e n t i n the e l e c t r i c a l equipment i n d u s t r y a l s o p r e s e n t e d s t a g n a t i o n due t o the above-mentioned changes i n i n v e s t m e n t c l i m a t e . N o r t h America a t t r a c t e d the second l a r g e s t amount of DFI w i t h $4,258 m i l l i o n w hich a c c o u n t e d f o r 24.0 p e r c e n t of the t o t a l . The commerce s e c t o r o b t a i n e d $1,556 m i l l i o n , w h i l e the m a n u f a c t u r i n g s e c t o r g a i n e d $1,005 m i l l i o n . Investment was f o c u s e d on the e l e c t r i c a l equipment i n d u s t r y and the f e r r o u s and n o n - f e r r o u r s m e t a l i n d u s t r i e s , which r e l a t e d t o a l a r g e - s c a l e i n v e s t m e n t i n aluminum s m e l t i n g . L a t i n America h o s t e d $3,051 m i l l i o n , which c o m p r i s e d 17.2 p e r c e n t of the t o t a l i n v e s t m e n t . The m a n u f a c t u r i n g s e c t o r r e c e i v e d $1,691 m i l l i o n (55.5 p e r c e n t ) , c e n t e r i n g on the c h e m i c a l i n d u s t r y . Most of i t s i n v e s t m e n t was a s s o c i a t e d w i t h l i q u e f i e d gas p r o j e c t i n the M i d d l e E a s t , but i n v e s t m e n t was done th r o u g h companies i n B e r m u d a . 3 4 2 The m i n i n g s e c t o r o b t a i n e d $448 m i l l i o n (14.7 p e r c e n t ) , of which $350 m i l l i o n was d i r e c t e d i n t o t h e o i l development p r o j e c t i n P e r u . 2 M I T I , D a i 10/11 K a i , op_. c i t . , p. 34. Table 18: Accumulated Japanese Direct Foreign (In M i l l i o n Dollars) Investment: 1972-1977 North Latin Asia Middle East Europe . A f r i c a Oceania Total America America No. Amount No.j Amount No. Amount No. Amount No. Amount No. Amount No. Amount No. Amount Foodstuffs 116 69 51 87 140 81 1 - 15 31 14 4 21 21 358 293 Text i1es 63 102 \"74 230 265 641 3 4 18 36 12 16 3 3 438 1 ,032 Lumber & Pulp 16 47 31 165 156 103 - - - - 1 O 22 48 226 364 Chemicals 47 107 55 423 221 244 14 377 27 47 2 8 1 1 96 377 1 , 302 Ferrous & 28 213 51 270 225 260 6 27 31 \u00E2\u0080\u00A2 46 1 1 14 12 33 364 863 Non-ferrous metals Ordinary machinery 91 98 55 162 201 94 4 5 33 55 - - 8 8 392 422 E l e c t r i c a l equipment 64 283 44 139 390 261 3 9 22 37 2 3 5 13 530 745 Transportat i on 16 40 13 168 86 146 4 2 4 4 1 - 5 76 129 438 equ i pment Others 89 47 52 46 413 277 1 1 37 38 45 4 3 8 4 615 459 Manufacturi ng 530 1 ,005 426 1 ,691 2,097 2, 108 46 461 188 301 47 48 95 304 3,429 5,918 sub-total Agr i cu1ture, 90 125 100 1 10 226 125 6 3 3 2 41 27 1 10 64 576 455 Forestry & Fisheries Mining 59 241 59 448 68 2,171 6 28 6 852 66 361 39 218 303 4,319 Resource development 149 366 159 557 294 2,295 12 31 9 855 107 389 149 282 879 4,774 sub-total Commerce 1 ,455 1 , 556 236 234 739 164 22 5 496 373 5 1 126 93 3,079 2,426 Finance & Insurance 37 476 43 200 99 129 1 1 22 86 465 6 1 10 29 292 1 ,323 Others 784 615 444 357 549 603 37 68 151 284 227 359 129 156 2,321 2,442 Commerce & Services 2,276 2,646 723 791 1 ,387 896 70 95 733 1 , 123 238 361 265 278 5,692 6, 190 sub-total Total 2,955 4,017 1 ,308 3,039 3, 778 5,299 128 588 930 2,278 392 797 509 864 10,000 16,883 (Source: MITI, Dai 10/11 Kai, op. c i t . , pp.35 and 45.) o 241 In a d d i t i o n , Europe h o s t e d $2,351 m i l l i o n , which c o n s i s t e d of 13.2 p e r c e n t of the t o t a l i n v e s t m e n t . A l a r g e i n v e s t m e n t of $818 m i l l i o n was made i n 1972 i n t h e m i n i n g s e c t o r . T h i s i n c l u d e d $780 m i l l i o n i n payment t o the B r i t i s h P e t r o l e u m Company t o p u r c h a s e i t s s u b s i d i a r y the Abu Dhabi M a r i n e M i n i n g Area Company (ADMA) i n the M i d d l e E a s t . 3 \" 3 Investment was c o n c e n t r a t e d i n commerce as w e l l as i n f i n a n c e and i n s u r a n c e , s i n c e Europe i s one of the major c e n t e r s of the i n t e r n a t i o n a l f i n a n c i a l market. In 1973, Japanese c i t y banks and l e a d i n g merchant banks i n London e s t a b l i s h e d j o i n t banks. As e a r l y as 1968, the Bank of Tokyo s e t up a European s u b s i d i a r y , and i n 1970 the I n t e r n a t i o n a l Investment Bank was a l s o founded by a group of Japanese banks. A l l banks p l a n n e d t o i n c r e a s e f i n a n c i a l t r a n s a c t i o n s i n the E u r o - d o l l a r m a r k e t . 3 4 4 D u r i n g t h i s p e r i o d , a p a t t e r n was emerging; investment i n the d e v e l o p e d n a t i o n s c o n c e n t r a t e d i n commerce and i n v e s t m e n t i n d e v e l o p i n g n a t i o n s f o c u s e d on m a n u f a c t u r i n g , based on n a t u r a l r e s o u r c e - o r i e n t e d and l a b o r - i n t e n s i v e i n d u s t r i e s . Moreover, an i n t e r n a t i o n a l s u b - c o n t r a c t i n g p a t t e r n emerged, i n which the m a n u f a c t u r e d goods were p r o d u c e d , e s p e c i a l l y i n A s i a n NICs as o f f s h o r e p r o d u c t i o n and were e x p o r t e d t o the U n i t e d S t a t e s . 3 4 5 N a t u r a l r e s o u r c e development p r o j e c t s were c r u c i a l r e g a r d l e s s of l o c a t i o n . 3 4 3 I b i d . , p. 33. 3 4 4 I b i d . 3 4 5 I b i d . , p. 50. 242 5. 1978-1980 The f i f t h p e r i o d , when Japan was r e c o v e r i n g from the s t a g n a t i o n , saw a f u r t h e r i n c r e a s e i n the a n n u a l amount of i n v e s t m e n t . D u r i n g the s t a g n a n t p e r i o d of the l a t e 1970's, Japanese f i r m s pursued the r a t i o n a l i z a t i o n of management and r e d u c t i o n of o p e r a t i o n p o l i c i e s . T h e i r endeavors bore f r u i t as the a c c u m u l a t i o n of more advanced m a n a g e r i a l r e s o u r c e s , which became a t h r u s t f o r DFI. Then, DFI was c o n s i d e r e d as one of the s o l u t i o n s f o r t r a d e f r i c t i o n between Japan and Europe as w e l l as between Japan and the U n i t e d S t a t e s . Moreover, under th e f l o a t i n g exchange system, the exchange r a t e of yen r e c o r d e d the h i g h e s t v a l u e i n O c t o b e r , 1978, y i e l d i n g 176 yen per U.S.$1. The 1979 o i l c r i s i s t r i g g e r e d the second worldwide r e c e s s i o n , w h i c h was m i r r o r e d i n the s l u g g i s h Japanese DFI i n 1980. By r e g i o n , N o r t h A m e r i c a took the l a r g e s t share of i n v e s t m e n t (30.8 p e r c e n t of t h e t o t a l ) , and i t s amount reached $4,398 m i l l i o n ( T a b l e 13). Commerce h o s t e d $1,516 m i l l i o n , w h i l e m a n u f a c t u r i n g a t t r a c t e d $1,174 m i l l i o n ( T a ble 19). In the m a n u f a c t u r i n g i n d u s t r y , investment f o c u s e d on the e l e c t r i c a l equipment i n d u s t r y was $371 m i l l i o n , c o m p r i s i n g 31.6 p e r c e n t of the t o t a l i n m a n u f a c t u r i n g . A s i a r e c e i v e d the second l a r g e s t i nvestment ($3,502 m i l l i o n ) , which a c c o u n t e d f o r 24.5 p e r c e n t of the t o t a l . The m a n u f a c t u r i n g s e c t o r a t t r a c t e d $2,019 m i l l i o n (57.7 p e r c e n t ) . The f o c u s of i n v e s t m e n t b e i n g r e l a t e d t o the Japan Asahan Aluminum P r o j e c t i n I n d o n e s i a s h i f t e d from the Table 19: Accumulated Japanese Direct Foreign Investment: 1978-1980 (In M i l l ion Dollars) North Latin Asia Middle East Europe A f r i c a Oceania Total America America No. Amount No.Amount No. Amount No. Amount No. Amount No. Amount No. Amount No. Amount foods t u f f s 92 132 15 37 99 41 - - 10 6 - 0 6 9 222 224 Text i1es 34 73 20 54 84 119 - - 36 102 4 5 2 1 180 351 Lumber & Pulp 25 81 5 23 35 21 - - 1 0 - - 6 8 72 134 Chemicals 39 131 29 69 132 445 6 568 15 40 2 5 1 1 224 1 , 257 Ferrous & 42 157 14 366 135 731 4 26 248 102 2 3 12 183 457 1 ,569 Non-ferrous metals Ordinary machinery 92 1 1 1 15 42 164 160 1 4 21 49 - - 4 14 297 381 E l e c t r i c a l equipment 137 371 20 48 204 219 - 0 29 89 - 0 1 5 391 732 Transportat ion 7 49 4 91 40 108 - 0 5 51 2 6 3 137 61 440 equipment Others 101 68 15 28 167 176 - 0 35 49 3 3 5 25 325 349 Manufactur i ng 569 1 , 174 137 757 1 ,060 2,019 1 1 597 399 485 13 22 40 382 2,229 5,437 sub-total Agriculture, 54 120 70 71 96 100 - - - - 17 22 66 33 303 351 Forestry & Fishery Mi n i ng 35 146 19 584 13 531 2 1 1 - - 13 37 37 453 1 19 1 , 760 Resource development 89 266 89 655 109 631 2 1 1 - - 30 59 103 486 422 2,111 sub-total Commerce 1 ,261 1,516 87 181 413 21 1 5 5 323 399 5 2 56 140 2, 150 2,454 Finance & Insurance 23 334 8 16 28 71 - 1 26 290 1 0 4 21 89 732 Others 524 841 336 772 330 512 30 20 83 177 130 447 75 230 1 , 508 2,996 Commerce & Service 1 ,808 2,691 431 969 771 794 35 26 432 866 136 449 135 391 3,747 6, 182 sub-total Total 2,466 4, 129 657 2,380 1 ,940 3,444 48 634 830 1 ,351 179 531 278 1 , 260 6,398 13,730 (Source: Japan, Ministry of Finance, Zaisei Kinyu Tokei Geppo, No. 380, pp. 19-22.) ho 244 t e x t i l e i n d u s t r y t o the f e r r o u s and n o n - f e r r o u s m e t a l i n d u s t r y ($731 m i l l i o n ) and t o the c h e m i c a l i n d u s t r y ($445 m i l l i o n ) , which was a s s o c i a t e d w i t h p e t r o c h e m i c a l p r o j e c t s i n South K o r e a , M a l a y s i a and S i n g a p o r e . L a t i n America r e c e i v e d the t h i r d l a r g e s t i n v e s t m e n t of $2,411 m i l l i o n . The m a n u f a c t u r i n g s e c t o r o b t a i n e d 31.4 p e r c e n t of t h a t i n v e s t m e n t , which was f u n n e l e d i n t o the U s i m i n a s S t e e l M i l l and t h e Japan Amazon Aluminum i n B r a z i l , 3 4 6 and i n t o the a u t o m o b i l e i n d u s t r y i n Mexico i n 1980 w i t h $32 m i l l i o n . 3 4 7 The m i n i n g s e c t o r c a p t u r e d 24.2 p e r c e n t of the t o t a l i n v e s t m e n t i n L a t i n A m e r i c a . In 1979, a mega loan- a n d - p u r c h a s e of o i l p r o j e c t absorbed $500 m i l l i o n by PEMEX or the Mexican N a t i o n a l P e t r o l e u m P u b l i c C o r p o r a t i o n . 3 4 8 O c e a n i a , p r i m a r i l y A u s t r a l i a , h o s t e d $1,269 m i l l i o n , where inv e s t m e n t was r e l a t e d t o uranium and c o a l m i n i n g development p r o j e c t s t o s e c u r e s u b s t i t u t e energy s o u r c e s f o r o i l . Investment was a l s o made i n the aluminum s m e l t i n g i n d u s t r y . 3 4 9 6. 1981-1983 F i n a l l y , 1981 was an epoch-making year when the amount of i n v e s t m e n t of $8,931 m i l l i o n was a r e c o r d h i g h . There were t h r e e major reasons a t t h i s time f o r a s h a r p i n c r e a s e . F i r s t , as the t r a d e f r i c t i o n s between Japan and o t h e r 3 4 6 I b i d . , p. 49. 3 4 7 K a i g a i T o s h i Kenkyujo Ho v o l . 7, no. 9 (September, 1981): 17. 3 4 8 I b i d . 3 4 9 M I T I , D a i 10/11 K a i , op. c i t . , p. 50. 245 i n d u s t r i a l i z e d c o u n t r i e s i n t e n s i f i e d , i n vestment i n t h e m a n u f a c t u r i n g s e c t o r i n t h e s e c o u n t r i e s i n c r e a s e d . W i t h the r i s e of p r o t e c t i o n i s m , the i n d u s t r i a l p r o d u c t i o n i n the h o s t c o u n t r i e s was p r e f e r r e d t o the e x p o r t s of manufactured goods from Japan i n o r d e r t o c a p t u r e and r e t a i n markets of t h e h o s t c o u n t r i e s . Second, because of the h i g h i n t e r e s t r a t e s i n the U n i t e d S t a t e s and i t s e f f e c t s , the c a p i t a l p r o v i s i o n of Japanese o v e r s e a s f i r m s s h i f t e d from r a i s i n g funds i n l o c a l a r e a s t o b o r r o w i n g money from p a r e n t s companies i n Japan. F i n a l l y , the i m p o r t a nce of a s t e a d y s u p p l y of n a t u r a l r e s o u r c e s was r e e v a l u a t e d and the i n v e s t m e n t t o s e c u r e n a t u r a l r e s o u r c e s was encouraged. F o l l o w i n g the p r e v i o u s p e r i o d , N o r t h America a g a i n a t t r a c t e d the l a r g e s t amount of i n v e s t m e n t of $8,128 m i l l i o n , c o m p r i s e d 32.8 p e r c e n t of t h e t o t a l o v e r s e a s investment from 1981 t o 1983 ( T a b l e 13). The m a n u f a c t u r i n g s e c t o r c a p t u r e d $2,813 m i l l i o n , which was 34.6 p e r c e n t of the t o t a l i n v e s t m e n t ( T a b l e 2 0 ) . T h i s investment f o c u s e d e s p e c i a l l y on the e l e c t r i c a l equipment i n d u s t r y w i t h $848 m i l l i o n (10.4 p e r c e n t of the t o t a l ) and on the t r a n s p o r t a t i o n equipment i n d u s t r y w i t h $728 m i l l i o n (9.0 p e r c e n t ) . As mentioned above, in v e s t m e n t i n the m a n u f a c t u r i n g i n d u s t r y was used as one of the means t o a l l e v i a t e t r a d e f r i c t i o n w i t h r e g a r d t o consumer d u r a b l e s such as a u t o m o b i l e s and c o l o r t e l e v i s i o n s e t s between Japan and the U n i t e d S t a t e s w i t h the former b e i n g the base f o r f r i c t i o n between Japan and Canada. I n c r e a s e d i n v e s t m e n t i n Table 20: Accumulated Japanese Direct Foreign Investment: (In M i l l ion Dollars) 1981-1983 North Latin Asia Middle East Europe A f r i c a Oceania Total America America No. Amount No. Amount No. Amount No. Amount No./ iVmount No. Amount No.Amount No. Amount Foodstuffs 130 196 17 27 81 47 0 0 5 13 1 0 8 15 242 297 Text i1es 26 46 17 40 104 214 0 0 37 32 3 0 0 1 187 332 Lumber & Pulp 22 166 3 1 46 36 0 - 0 0 0 0 41 30 112 233 Chemicals 73 230 15 46 202 475 1 153 22 95 2 2 0 0 315 1 ,000 Ferrous & 40 163 7 562 98 519 0 6 17 50 4 74 73 94 239 1 ,468 Non-ferrous metals Ordinary machinery 125 231 13 86 1 12 168 0 1 57 44 1 0 7 1 1 315 540 E l e c t r i c equipment 127 848 19 79 143 145 0 0 42 167 2 2 1 3 334 1 , 244 Transportation 44 728 15 277 55 209 1 0 8 90 2 4 1 2 1 126 1 , 330 equ i pment Others 151 204 10 21 183 158 1 1 34 95 0 0 9 43 388 524 Manufactur i ng 738 2,813 1 16 1 , 143 1 ,024 1 ,970 3 161 222 584 15 83 140 2 17 2 , 258 6,970 sub-tota1 Agr i c u l t u r e , 44 71 65 57 80 42 0 - 1 - 12 15 65 27 268 209 Forestry & F i sher i es M i n1ng 68 39 20 233 20 2,590 - - - - 33 100 92 410 233 3,601 Resource development 112 1 10 85 290 100 2,632 0 - 1 - 45 1 15 157 437 501 3.810 sub-tota1 Commerce 1 , 252 2,532 86 261 484 375 15 4 440 843 5 4 158 2 19 2,440 4,237 Finance & Insurance 52 1 , 172 19 271 35 137 4 4 1 71 898 2 1 5 24 188 2,543 Others 570 1 ,246 910 2, 573 499 1 , 356 30 33 67 196 201 1 , 224 78 133 2,357 6,761 Commerce & Services 1 ,874 4,950 1,015 3, 105 1 ,018 1 .868 49 78 578 1,937 208 1 , 229 241 376 4,985 13,541 sub-tota1 Total 2,724 8,091 1 ,216 4, 538 2, 142 6,470 55 239 801 2,521 268 1 ,427 538 1 .032 7,744 24,321 (Source: Ministry of Finance, Zaisei Kinyu Toke i Geppo, No. 380, pp. . 19-20, and a sheet of data for 1983 by the Min i s t r y of Finance, compiled by the writer.) 247 the e l e c t r i c a l and t r a n s p o r t a t i o n equipment i n d u s t r i e s i n the U n i t e d S t a t e s t y p i f i e d t h i s p a r t i c u l a r c a s e . The Japanese a u t o m o t i v e i n d u s t r y has made the d e c i s i o n t o i n v e s t i n Canada as w e l l . T oyota's C$24.5 m i l l i o n a u t o wheel p l a n t i n B r i t i s h Columbia and Honda's C$100 m i l l i o n (20 b i l l i o n yen) assembly p l a n t , not y e t begun i n O n t a r i o , e x e m p l i f y t h i s move i n inve s t m e n t i n Canada. F o l l o w i n g t h e m a n u f a c t u r i n g s e c t o r , commerce o b t a i n e d $2,532 m i l l i o n , which a c c o u n t e d f o r 31.2 p e r c e n t of the t o t a l , w h i l e f i n a n c e and i n s u r a n c e a c q u i r e d $1,172 m i l l i o n w i t h 14.4 p e r c e n t . In commerce, i n v e s t m e n t was d i r e c t e d as funds f o r the new e s t a b l i s h m e n t and e x p a n s i o n of e x p o r t i n g a g e n c i e s as w e l l as f o r s u b s i d i a r i e s of sogo shosha. A s i a r e c e i v e d the second l a r g e s t amount of i n v e s t m e n t w i t h $6,569 m i l l i o n , which was 26.5 p e r c e n t of t h e t o t a l , w i t h the m i n i n g s e c t o r o b t a i n i n g $2,590 m i l l i o n , or 39.4 p e r c e n t of the t o t a l i n vestment i n A s i a , m a n i f e s t e d i n 1981 when two mega loan- a n d - p u r c h a s e LNG P r o j e c t s i n I n d o n e s i a were begun amounting t o $1,840 m i l l i o n . 3 5 0 The m a n u f a c t u r i n g s e c t o r r e c e i v e d $1,970 m i l l i o n , which was 30.0 p e r c e n t o t the t o t a l . The f o c u s remained on the f e r r o u s and n o n - f e r r o u s m e t a l i n d u s t r i e s c o n n e c t e d t o the Japan Asahan Aluminum P r o j e c t i n I n d o n e s i a , and t o c h e m i c a l i n d u s t r i e s such as the p e t r o c h e m i c a l p r o j e c t i n S i n g a p o r e . 3 5 0 N i h o n B o e k i S h i n k o K a i (Japan E x t e r n a l Trade O r g a n i z a t i o n , JETRO), 1984 K a i g a i S h i j o Hakusho, T o s h i - h e n : S e k a i K e i z a i no K a s s e i k a n i Mukete (White Paper on Overseas M a r k e t s , Volume of Investment: Toward the A c t i v a t i o n of World Economy), (Tokyo: JETRO, 1984), p. 12. 248 The t h i r d l a r g e s t investment of $4,562 m i l l i o n was f u n n e l e d i n t o L a t i n America and c o m p r i s e d 18.4 p e r c e n t of the t o t a l i n v e s t m e n t . Of t h i s amount, $2,192 m i l l i o n was poured i n t o the t r a n s p o r t a t i o n i n d u s t r y . E s p e c i a l l y , i n v e s t m e n t was made i n the s h i p p i n g l e a s e and s h i p p i n g b u s i n e s s i n Panama. Europe h o s t e d $2,664 m i l l i o n i n v e s t m e n t , which a c c o u n t e d f o r 10.8 p e r c e n t of the t o t a l i n v e s t m e n t . The f i n a n c e and i n s u r a n c e c a p t u r e d $898 m i l l i o n (33.7 p e r c e n t ) . Investment was made i n Luxemburg, the U n i t e d Kingdom, Be l g i u m , West Germany and the N e t h e r l a n d s . Luxemburg a t t r a c t e d the l a r g e s t amount by Japanese l i f e - i n s u r a n c e companies t o s e t up s u b s i d i a r i e s s i n c e i t had p r e f e r e n t i a l t a x t r e a t m e n t and l e s s r e g u l a t i o n s . 3 5 1 Commerce o b t a i n e d $843 m i l l i o n (31.6 p e r c e n t ) , and m a n u f a c t u r i n g r e c e i v e d $584 m i l l i o n (21.9 p e r c e n t ) . With the r i s e i n p r o t e c t i o n i s m , i n v e s t m e n t was made i n the e l e c t r i c a l and t r a n s p o r t a t i o n equipment i n d u s t r i e s as w e l l as i n the machinery i n d u s t r y . However, compared w i t h N o r t h A m e r i c a , i n v e s t m e n t i n the m a n u f a c t u r i n g i n d u s t r y of Europe was not l a r g e i n s p i t e of t r a d e f r i c t i o n , e s p e c i a l l y , between Japan and E.C. c o u n t r i e s . Based on t h e c o n t e n t of DFI, the c h a r a c t e r i s t i c s of Japanese f o r e i g n i n v e s t m e n t can be summarized as f o l l o w s : 1) Investment i n n a t u r a l r e s o u r c e development forms an i n d i s p e n s a b l e p a r t of DFI, r e g a r d l e s s of whether the h o s t 3 5 1 K a i g a i T o s h i Kenkyujo Ho v o l . 10, no. 10 ( O c t o b e r , 1984): 47. 249 c o u n t r y i s d e v e l o p e d or d e v e l o p i n g . In t h e d e v e l o p e d c o u n t r i e s , i t i s noteworthy t h a t N o r t h A m e r i c a and A u s t r a l i a have been the r e c i p i e n t s of r e s o u r c e development investment by the Japanese. 2) In the e a r l y s t a g e of i n v e s t m e n t , most of the m a n u f a c t u r i n g investment was c o n c e n t r a t e d i n d e v e l o p i n g c o u n t r i e s , p a r t i c u l a r l y i n S o u t h e a s t A s i a and L a t i n A m erica. Purposes of i n v e s t m e n t s h i f t e d from s e c u r i n g and t a p p i n g n a t u r a l r e s o u r c e s t o u t i l i z i n g cheap l a b o r . M a n u f a c t u r i n g i n v e s t m e n t i n d e v e l o p e d c o u n t r i e s was l i m i t e d but g a t h e r e d momentum because of r e c e n t t r a d e f r i c t i o n , e s p e c i a l l y w i t h the U n i t e d S t a t e s and the E.C. c o u t r i e s . 3) Other i n v e s t m e n t i n d e v e l o p e d c o u n t r i e s has been m a i n l y i n commerce, f i n a n c e and i n s u r a n c e , and s e r v i c e s i n the U n i t e d S t a t e s and Europe, i n o r d e r t o smooth commercial a c t i v i t i e s and t o c u l t i v a t e o v e r s e a s m a r k e t s . Investment i n f i n a n c e and i n s u r a n c e c o n n e c t s w i t h the e s t a b l i s h m e n t of a f o o t h o l d i n the E u r o - d o l l a r markets t h a t have expanded g r e a t l y s i n c e 1973 i n o r d e r t o g a i n b e n e f i t s from f i n a n c i a l t r a n s a c t i o n s . In a d d i t i o n , c h r o n o l o g i c a l e x a m i n a t i o n has i l l u s t r a t e d t h a t N o r t h America has been one of the most i m p o r t a n t i n v e s t m e n t d e s t i n a t i o n s , and t h a t t h i s t r e n d has a c c e l e r a t e d i n r e c e n t y e a r s . T h e r e f o r e , a more d e t a i l e d i n v e s t i g a t i o n of Japanese DFI i n N o r t h America w i l l be c a r r i e d out i n the f o l l o w i n g c h a p t e r . 250 CHAPTER 5 JAPANESE DIRECT FOREIGN INVESTMENT IN NORTH AMERICA The U n i t e d S t a t e s has been a v i t a l t r a d i n g p a r t n e r of Japan t h r o u g h o u t the postwar e r a . The U n i t e d S t a t e s as a s i n g l e c o u n t r y has h o s t e d the l a r g e s t amount of Japanese DFI as w e l l . T h e r e f o r e , i t i s c r u c i a l t o i n v e s t i g a t e Japanese DFI p a t t e r n s t h e r e i n o r d e r t o i d e n t i f y t h e i r c h a r a c t e r i s t i c s . E x a m i n a t i o n i n c l u d e s the in v e s t m e n t c l i m a t e of the U n i t e d S t a t e s t o c l a r i f y what f a c t o r s draw Japanese DFI as w e l l as those which d i s c o u r a g e Japanese DFI i n t h a t c o u n t r y . A l t h o u g h Canada has r e c e i v e d a s m a l l amount of Japanese DFI, i t has a l s o been an i m p o r t a n t t r a d i n g p a r t n e r of Japan by s u p p l y i n g n a t u r a l r e s o u r c e s and f o o d s t u f f s as w e l l as by p r o v i d i n g markets f o r Japanese manufactured goods. Moreover, a c o m p a r i s o n of Japanese DFI p a t t e r n s i n the U n i t e d S t a t e s and Canada makes i t c l e a r t h a t Japanese DFI a c t i v i t y i s d i f f e r e n t i n each c o u n t r y because of t h e d i f f e r e n t i n v e s t m e n t c l i m a t e , even though b o t h a r e i n d u s t r i a l i z e d . Hence, t h e s t u d y of Japanese DFI i n Canada and the comparison i s m e a n i n g f u l t o u n d e r s t a n d the c h a r a c t e r i s t i c s and m o t i v e s of Japanese DFI. I. Japanese D i r e c t F o r e i g n Investment i n the U n i t e d S t a t e s B e f o r e l i b e r a l i z a t i o n i n 1969, Japanese D i r e c t F o r e i g n Investment was r e s t r i c t e d due t o the c o n s t r a i n i n g e f f e c t s of 251 i t s b a l a n c e of payments, t h e r e f o r e DFI was s m a l l . As a r e s u l t , w h i l e t o t a l Japanese DFI i n N o r t h America was s m a l l , N o r t h America c a p t u r e d a l a r g e p e r c e n t a g e of the s m a l l amount i n v e s t e d w o r l d w i d e . However, w i t h improvement i n the b a l a n c e of payments, l i b e r a l i z a t i o n of f o r e i g n exchange took p l a c e i n a s e r i e s of p o l i c y i m p l e m e n t a t i o n s and d u r i n g t h i s time the d e s i r e f o r i n t e r n a t i o n a l i z a t i o n of f i r m s i n c r e a s e d . As a r e s u l t , Japanese DFI g a i n e d momentum. Indeed, i n 1971 the new economic p o l i c y of the U n i t e d S t a t e s d e c l a r e d by then P r e s i d e n t N i x o n , t r i g g e r e d the c o l l a p s e of the B r e t t o n Woods System, and u l t i m a t e l y r e s u l t e d i n a s h i f t from the f i x e d exchange system t o the p r e s e n t f l o a t i n g exchange system, under which t h e yen was r e v a l u e d . S i n c e 1949 the p r e v i o u s r a t e had been s e t a t 360 yen t o the U.S. d o l l a r under the Dodge L i n e . T h i s r e v a l u a t i o n made the c o s t of p r o d u c t i o n of manufactured goods i n the U n i t e d S t a t e s r e l a t i v e l y l e s s and made l o c a l p r o d u c t i o n more advantageous compared w i t h the t o t a l c o s t of f i n a l p r o d u c t s s h i p p e d from Japan. Meanwhile, Japan a t t a i n e d a r a p i d economic growth r a t e and i n 1968 the Japanese Gross N a t i o n a l P r o d u c t (GNP) became the second l a r g e s t a f t e r the U n i t e d S t a t e s i n the f r e e market economic system. The s t r u c t u r e of m a n u f a c t u r i n g i n d u s t r i e s s h i f t e d from l i g h t i n d u s t r y t o heavy and c h e m i c a l i n d u s t r i e s . T h i s s t r u c t u r a l change and i n t r o d u c t i o n of advanced Western t e c h n o l o g y d u r i n g t h e r a p i d economic growth p e r i o d r e s u l t e d i n an i n c r e a s e i n i n t e r n a t i o n a l 252 c o m p e t i t i v e n e s s . H i g h l y c o m p e t i t i v e Japanese manufactured goods poured i n t o markets i n o t h e r i n d u s t r i a l i z e d c o u n t r i e s . C o n s e q u e n t l y , s i n c e the e a r l y 1970's Japan has e x p e r i e n c e d t r a d e f r i c t i o n w i t h the i n d u s t r i a l i z e d c o u n t r i e s of N o r t h A m e r i c a and Europe, and t h i s r i s e i n p r o t e c t i o n i s m has, i n t u r n , f o s t e r e d Japanese DFI, e s p e c i a l l y i n m a n u f a c t u r i n g i n d u s t r y . In a d d i t i o n , a l o n g w i t h the changes i n Japanese demographic s t r u c t u r e , r a p i d economic growth has g e n e r a t e d a l a b o r s h o r t a g e , which has r e s u l t e d i n p u s h i n g up wage l e v e l s . R a p i d economic growth has a l s o caused a s h o r t a g e of i n d u s t r i a l s i t e s f o r p l a n t s as w e l l as e n v i r o n m e n t a l problems such as p o l l u t i o n . Thus, a l l of t h e s e i n t e r n a t i o n a l and d o m e s t i c economic f a c t o r s have i n f l u e n c e d and s p u r r e d Japanese DFI. In the p r e v i o u s c h a p t e r , i t was c l a r i f i e d t h a t s i n c e the l a t e 1970's the l a r g e s t amount of Japanese DFI has poured i n t o N o r t h A m e r i c a . Investment i n the U n i t e d S t a t e s was c r u c i a l f o r Japan. In the same v e i n , the r e c e n t r a p i d growth of Japanese DFI was a l s o s i g n i f i c a n t t o the U n i t e d S t a t e s . T h i s i s i l l u s t r a t e d by two b a s i c d a t a s e t s p e r t a i n i n g t o Japanese d i r e c t i n v e s t m e n t i n the U n i t e d S t a t e s : The Japanese M i n i s t r y of F i n a n c e approved d a t a ( r e c e n t l y p r i o r d e c l a r a t i o n d a t a ) and the U.S. Department of Commerce balance-of-payments d a t a . There a r e s e v e r a l s i g n i f i c a n t d i f f e r e n c e s between th e s e two s e t s of d a t a . F i r s t , the Japanese d a t a were on an a p p r o v a l b a s i s , w h i l e t h e U.S. d a t a a r e n o t . A f t e r the 253 amendment of the F o r e i g n Exchange C o n t r o l Law i n 1980, DFI i s now based on the p r i o r d e c l a r a t i o n system i n Japan. Second, the Japanese d a t a p e r t a i n t o the Japanese f i s c a l y e a r , which runs from A p r i l 1 t o March 31, w h i l e the U.S. d a t a a r e on a c a l e n d a r - y e a r b a s i s . T h i r d , the Japanese d a t a on d i r e c t i n v e s t m e n t g e n e r a l l y i n c l u d e l o a n s made t o f o r e i g n e n t e r p r i s e s t h a t a r e under Japanese c o n t r o l , w h i l e the U.S. d a t a r e c o r d l o a n s as l o n g - t e r m c a p i t a l f l o w s s e p a r a t e from d i r e c t i n v e s t m e n t . F i n a l l y , the Japanese d a t a a r e g e n e r a t e d from a p p r o v a l and p r i o r d e c l a r a t i o n r e c o r d s m a i n t a i n e d by the Japanese M i n i s t r y of F i n a n c e and the Bank of Japan, w h i l e the U.S. d a t a r e l y on a sample s u r v e y of the l a r g e r f o r e i g n - o w n e d e n t e r p r i s e s i n the U n i t e d S t a t e s . 3 5 2 A c c o r d i n g t o the Japanese d a t a , the l a r g e s t amount of Japanese o v e r s e a s investment went t o the U n i t e d S t a t e s , and the a c c u m u l a t e d Japanese DFI i n t h e U n i t e d S t a t e s u n t i l 1983 was $16,535 m i l l i o n , which a c c o u n t e d f o r 27.0 p e r c e n t of the t o t a l i n v e s t m e n t by Japan i n the w o r l d . O v e r a l l Japanese DFI was r e f l e c t e d i n i n v e s t m e n t i n t h e U n i t e d S t a t e s , which g r e a t l y i n c r e a s e d a f t e r the e a r l y 1970's. T a b l e 21 and F i g u r e 3 i n d i c a t e the amounts of Japanese DFI i n the U n i t e d 3 5 2 T h e 1980 benchmark s u r v e y by t h e U.S. Department of Commerce c o v e r e d the u n i v e r s e of U.S. a f f i l i a t e s . Complete r e p o r t s which i n c l u d e d the b a l a n c e of payments and d i r e c t i n v e s t m e n t p o s i t i o n d a t a were r e q u i r e d from a f f i l i a t e s t h a t had t o t a l a s s e t s , s a l e s , or net income of $1 m i l l i o n or more or t h a t owned 200 or more a c r e s of U.S. l a n d s . These a f f i l i a t e s a c c o u n t e d f o r v i r t u a l l y a l l of the u n i v e r s e i n terms of v a l u e . U.S., Department of Commerce, Bureau of Economic A n a l y s i s , Survey of C u r r e n t B u s i n e s s , by R. D a v i d B e l l i , v o l . 64, no. 10 (Washington, D.C: Government P r i n t i n g O f f i c e , 1984), p. 32. ible 21: Japanese Direct Foreign : Investment in the World, the United States and Canada (In U.S. M i l l i o n Dollars) Year World U. S. (%) Canada 1951-1960 283 87 30 . 7 1961 164 7 4 . 3 1962 98 16 16 . 3 1963 126 51 40 . 5 1964 119 26 21 .8 1965 159 33 20 .8 21 11966 227 71 31 . 3 38 1967 275 53 19. . 3 4 1968 557 145 26. .0 40 1969 665 1 19 17 . 9 10 1970 904 94 10. ,4 99 1971 858 216 25. .2 14 1972 2, 338 356 15. 2 51 1973 3,494 801 22. 9 1 13 1974 2,395 498 20. 8 52 1975 3,280 846 25 . 8 59 1976 3,462 663 19. .2 86 1977 2,806 686 24. 4 48 1978 4,598 1 , 282 27 . 9 82 1979 4,995 1 ,345 26 . 9 93 1980 4,693 1 ,484 31 . 6 1 1 1 1981 8,931 2,354 26 . 4 167 1982 7 , 703 2 , 738 35. 3 167 1983 8, 145 2,565 31 . 5 136 1951-1983 61 ,276 16,535 27. 0 1 ,391 lOurce: Bank of Japan.) 1951-1965 255 S t a t e s as w e l l as i n the w o r l d based on the Japanese d a t a . Sharp i n c r e a s e s can be seen i n the amount of inve s t m e n t i n the U n i t e d S t a t e s i n 1968, 1973, 1978, and 1981. T h i s p a t t e r n p a r a l l e l s expanding Japanese DFI i n the w o r l d a l t h o u g h the second peak of 1973 i n the U n i t e d S t a t e s was a year b e h i n d the 1972 peak i n the w o r l d . Hence, i n terms of the amount of i n v e s t m e n t , Japanese DFI i n the U n i t e d S t a t e s i s a m i n i a t u r e of t r e n d s w o r l d w i d e . A c c o r d i n g t o the U.S. d a t a ( T a b l e 2 2 ) , i t i s apparent t h a t Japan i s a new i n v e s t o r t o the U n i t e d S t a t e s . A s h a r p i n c r e a s e i n inv e s t m e n t s t a r t e d i n 1974, when Japanese DFI c o n s i s t e d o n l y of 1.4 p e r c e n t of the t o t a l . T a b l e 23 i l l u s t r a t e s the r e l a t i v e p o s i t i o n of Japanese DFI i n the U n i t e d S t a t e s . I t i s re m a r k a b l e t h a t d u r i n g such a s h o r t p e r i o d of time the s k y r o c k e t i n g i n c r e a s e i n amounts of Japanese DFI s u r p a s s e d t h e amounts of o t h e r i n d u s t r i a l i z e d c o u n t r i e s and N e t h e r l a n d s A n t i l l e s , a t a x haven i n the C a r i b b e a n I s l a n d s . At t h e end of 1983, the f o r e i g n d i r e c t i n v e s t m e n t of Japan was $11,145 m i l l i o n which ranked t h i r d a f t e r the U n i t e d Kingdom and the N e t h e r l a n d s . T h i s amount was s l i g h t l y over the amount of Canadian DFI w i t h $11,115 m i l l i o n , and each a c c o u n t e d f o r 8.2 p e r c e n t of t h e t o t a l i n v e s t m e n t i n the U n i t e d S t a t e s . T h e r e f o r e , i t c o u l d be c o n c l u d e d t h a t Japanese DFI i n t h e U n i t e d S t a t e s became s i g n i f i c a n t i n the h o s t c o u n t r y as w e l l . Table 22 Fore i gn Direct Investment Position in the United (In Mi 11 ion Dollaps) States, by Year Year Total Japan (%) 1962 7,612 112 1 . 5 1963 7,944 104 1 . 3 1964 8, 363 72 0.9 1965 8, 797 1 18 1 . 3 1966 9,054 103 1 . 1 1967 9,923 108 1 . 1 1968 10,815 181 1 .7 1969 11,818 176 1 .5 1970 13,270 229 1 . 7 1971 13,655 -230 -1972 14,363 -132 -1973 20,556 152 0.7 1974 25,144 345 1 .4 1975 27,662 591 2 . 1 1976 30,182 890 2.9 1977 34,595 1 ,755 5. 1 1978 42,471 2,749 6.5 1979 52,260 3,441 6.6 1980 83,046 4, 723 5 . 7 1981 107,590 7,688 7 . 1 1982 123,590 9,679 7.8 1983 135,313 1 1 ,145 8 . 2 (Source: U.S., Department of Commerce, Survey of Current Business.) K3 Table 23: Direct Foreign Investment Position in the United States, by Country (In Mi 1 1 ion Doltars) 1977 1978 1979 1980 1981 1982 1983 Nether 1ands 7,830 10,078 12.462 19,140 18. 471 25,994 28 .817 United Kingdom 6, 397 7,638 9,391 14,105 26, 800 28,386 32 ,512 Canada 5,650 6, 180 6,974 12,162 1 1 . 870 11,435 1 1 ,115 Sw i tzer1 and 2,651 2,879 3,290 5,070 5, 458 6, 391 7 , 132 West Germany 2,529 3,654 5,004 7,596 9, 239 9,683 10 , 482 France 1 .800 1 ,978 2,214 3,731 5, 833 5.666 6 , 045 Japan 1 ,755 2,749 3,441 4,723 7 , 688 9,679 1 1 , 145 Netherlands A n t i l l e s 6,651 8, 196 9 , 205 9 , 546 Total 34,595 42,471 52,260 83,046 107 , 590 123,590 135 .313 (Source: U.S., Department of Commerce, Survey of Current Business.) 258 Type of I n d u s t r y In terms of the amount of investment u s i n g b o t h the U.S. d a t a and the Japanese d a t a , Japanese DFI i n t h e U n i t e d S t a t e s was s u b s t a n t i a l t o b o t h home and host c o u n t r i e s . Now, i t i s i m p o r t a n t t o c h r o n o l o g i c a l l y examine the t y p e of i n d u s t r y a t t r a c t i n g Japanese DFI. F i r s t , T a b l e 24 i n d i c a t e s the f o r e i g n d i r e c t i n v e s t m e n t p o s i t i o n of Japan i n t h e U n i t e d S t a t e s based on the U.S. d a t a , broken down by the type of i n d u s t r y , t h a t i s , m i n i n g , p e t r o l e u m , m a n u f a c t u r i n g , w h o l e s a l e t r a d e , r e t a i l t r a d e , b a n k i n g , f i n a n c e o t h e r than b a n k i n g , i n s u r a n c e , r e a l e s t a t e , and o t h e r i n d u s t r i e s . S i n c e the d a t a s e r i e s on DFI i n the U n i t e d S t a t e s f o r 1980 f o r w a r d have been r e v i s e d , the c o n t e n t s i n the d a t a a r e i n c o n s i s t e n t . The amounts of investment i n some i n d u s t r i e s e x p r e s s e d n e g a t i v e amounts and u n d i s c l o s e d f i g u r e s . Thus, t h i s t a b l e p r o v i d e s the t r e n d of c o n c e n t r a t i o n s and y i e l d s based on a d e t a i l e d e x a m i n a t i o n of the Japanese d a t a . There a r e t h r e e major c o n c e n t r a t i o n s of i n v e s t m e n t . F i r s t , a h i g h c o n c e n t r a t i o n i n w h o l e s a l e t r a d e i s d i s t i n g u i s h e d . 3 5 3 T h i s i n d u s t r y h o s t e d $3,177 m i l l i o n i n 1980 and reached $7,625 m i l l i o n i n 1983, when i t a c c o u n t e d f o r 68.4 p e r c e n t of t h e a d j u s t e d - t o t a l , t a k i n g a c c o u n t of n e g a t i v e b a l a n c e s and u n d i s c l o s e d f i g u r e s . Next, a l t h o u g h the amount of in v e s t m e n t i n m a n u f a c t u r i n g i n c r e a s e d , i t s share of the f i n a l b a l a n c e d e c l i n e d . In 1983, m a n u f a c t u r i n g c a p t u r e d $1,682 m i l l i o n , c o n s i s t i n g of 15.1 p e r c e n t of the 3 5 3Sogo shosha i n v e s t m e n t i n t h e i r t r a d i n g a f f i l i a t e s i s c l a s s i f i e d as w h o l e s a l e t r a d e i n the U.S. d a t a . Table 24: Japanese Direct Foreign Investment Position in the United States, by Sector (In M i l l i o n Dollars) 1979 (X) 1980 1981 1982 1983 Mining - - 4 4 4 (D) Petroleum 128 3.7 -232 -78 121 - -325 Manufactur i ng Food 32 0.9 98 165 182 191 Chemicals 187 5.4 224 249 256 293 Primary & Fabricated metals 220 6.4 78 121 1 17 119 Machi nery 159 4.6 318 414 432 473 Others 124 3.6 315 372 649 606 Manufacturing sub-total 722 21.0 1 ,033 1 , 320 1 , 636 1 ,682 Wholesale trade 1 , 736 50.5 3, 177 4 , 975 6 ,089 7,625 Reta i1 trade 78 70 154 123 Banking 644 18.7 645 1 , 155 1 , 300 1 , 351 Finance, except banking (D) (D) -567 (D) Insurance 62 1 .8 (D) (D) 162 174 Real estate 57 1 .7 264 302 394 457 Others 91 2.6 270 383 386 490 Total 3,441 100.0 4,723 7,688 9,679 1 1 , 145 (D) Suppressed to avoid disclosure of data of individual companies. (Source: U.S., Department of Commerce, Survey of Current Business.) 260 f i n a l a d j u s t e d - t o t a l . In m a n u f a c t u r i n g , the f o c i of inves t m e n t were machinery and o t h e r m a n u f a c t u r i n g , which 1 a c c o u n t e d f o r 28.1 p e r c e n t and 36.0 p e r c e n t of t h e t o t a l i n v e s t m e n t i n m a n u f a c t u r i n g i n 1983, r e s p e c t i v e l y . F i n a l l y , a major c o n c e n t r a t i o n i s i n b a n k i n g , which s t e a d i l y i n c r e a s e d t o $1,351 m i l l i o n i n 1983, a c c o u n t i n g f o r 12.1 p e r c e n t of the f i n a l b a l a n c e . The r e s t of t h e i n d u s t r i e s r e c e i v e d s m a l l amounts of i n v e s t m e n t and some showed i n v e s t m e n t o u t f l o w . N e x t , s e c t o r a l c o n c e n t r a t i o n s of i n v e s t m e n t a r e examined i n the Japanese d a t a , which a r e broken down by the type of i n d u s t r y , t h a t i s , m a n u f a c t u r i n g , a g r i c u l t u r e and f o r e s t r y , f i s h e r y , m i n i n g , c o n s t r u c t i o n , commerce, f i n a n c e and i n s u r a n c e , s e r v i c e s , t r a n s p o r t a t i o n , r e a l e s t a t e companies, o t h e r s , b r a n c h e s , and r e a l e s t a t e i n v e s t m e n t . M a n u f a c t u r i n g i n d u s t r y i s f u r t h e r broken down i n t o food p r o c e s s i n g , t e x t i l e s , lumber and p u l p , c h e m i c a l s , f e r r o u s and n o n - f e r r o u s m e t a l s , o r d i n a r y machinery, e l e c t r i c a l / e l e c t r o n i c equipment, t r a n s p o r t a t i o n equipment, and o t h e r . T a b l e 25 shows the accumulated Japanese DFI from 1951 t o 1983 i n the w o r l d , the U n i t e d S t a t e s and Canada by the type of i n d u s t r y . T a b l e 26 i n d i c a t e s Japanese DFI i n the U n i t e d S t a t e s . The time p e r i o d s adopted a r e the same as t h e ones i n the p r e v i o u s c h a p t e r except the f i r s t and second p e r i o d s which a r e combined i n t h i s c h a p t e r s i n c e d e t a i l e d d a t a a r e o n l y a v a i l a b l e a f t e r 1966. T a b l e 25 a l s o i l l u s t r a t e s major Table 25: Accumulated Japanese D i rect Foreign Investment by Sector, 1951-1983 (In M i 1 1 i on Dol1ars , %) World U. S. Canada Manufacturing Foodstuffs 883 1 .4 376 2 . 3 30 2 .2 Text i1es 1 ,969 3 .2 170 1 .0 57 4 . 1 Lumber & Pulp 991 1 .6 275 1 .7 225 16 .2 Chemicals 3,626 5 .9 471 2 .8 2 0 . 1 Ferrous & Non-ferrous metals 4,087 6 .7 432 2 .6 102 7 . 3 Ordinary machinery 1 ,434 2 . 3 438 2 .6 13 0 .9 E l e c t r i c a l equipment 2; 824 4 .6 1 ,487 9 \u00E2\u0080\u00A2 0 22 1 .6 Transportation equipment 2,309 3 .8 813 4 .9 5 0 . 4 Others 1,418 2 .3 320 1 .9 2 0 . 1 Manufacturing sub-total 19,542 31 .9 4,782 28 .9 459 33 .0 Agriculture & Forestry 742 1 . 2 177 1 . 1 60 4 . 3 F i sher i es 375 0 .6 83 0 . 5 4 0. . 3 M i n i ng 10,673 17 . 4 459 2 .8 388 27. .9 Construct i on 591 1 . .0 177 1 . 1 7 0. . 5 Commerce 9,646 15 , .7 5,798 35 . 1 227 16 . 3 Finance & Insurance 4,969 8 . 1 1 ,996 12 . 1 126 9 . 1 Serv i ces 3,340 5 . 5 665 4 .0 10 0. 7 Transportation 3,009 4 . 9 31 0 .2 0 0. 0 Real estate companies 896 1 . 5 563 3 .4 27 1 . 9 Others 5, 130 8. ,4 1 ,220 7 .4 67 4 . 8 Branches 1 ,768 2 . 9 107 0 .6 7 0. 5 Real estate investment 594 1 . 0 477 2 .9 8 0. 6 Total 61,276 100. 0 16,535 100 .0 1 , 391 100. 0 (Source: Bank of Japan.) rO Table 26: Japanese Direct Foreign Investment in the United States (In M i l l i o n Dollars, %) 1951-1967 1968-1971 1972-1977 1978-1980 1981-1983 Manufactur i ng Foodstuffs 2 0 .6 7 1 . 2 59 1 . 5 ,1 16 2 .8 193 2 . 5 Text i1es 3 0 .9 4 0 . 7 ' 63 1 .6 54 1 . 3 46 0 .6 Lumber & Pulp 78 22 . 7 13 2 . 3 26 0 . 7 22 0 . 5 137 1 . 8 Chemicals 2 0 .6 1 0 . 2 107 2 .8 130 3 .2 230 3 .0 Ferrous & Non-ferrous metals - - 0 O O 152 4 .0 152 3 . 7 128 1 . 7 Ordinary machinery 0 0 .0 8 1 .4 93 2 . 4 108 2 .6 228 3 .0 E l e c t r i c a l equipment 2 0 .6 5 0 .9 281 7 . 3 . 363 8 .8 834 10 .9 Transportation equipment - - - - 40 1 .0 48 1 . 2 724 9. . 5 Others 0 0 .0 4 0 .7 44 1 . 1 68 1 .7 204 2 .7 Manufacturing sub-total 87 25. .3 43 7 .5 865 22 .5 1 ,062 25 .8 2 , 726 35. .6 Ag r i c u l t u r e & Forestry 1 0. .3 1 0 2 95 2 . 5 54 1 . 3 26 0. . 3 F i sher i es 1 0. . 3 0 0. 0 16 0 .4 47 1 . 1 19 0 . 2 Mi n i ng 16 4 . 7 90 15 . 7 1 17 3 .O 1 1 1 2 . 7 125 1 .6 Construct ion . 4 1 . 2 1 0. .2 68 1 .8 49 1 .2 55 0 . 7 Commerce 132 38 . 4 281 49. 0 1 ,480 38 . 5 1 , 433 34 . 9 2,473 32 . 3 Finance & Insurance 43 12 . 5 99 17 . 2 473 12 .3 317 7 .7 1 ,064 13 .9 Serv i ces - - - - 191 5. O 219 5 .3 205 2 . 7 Transportation - - - - - - - - 31 0. .4 Real estate companies - - - - - - - - 563 7 . 4 Others 22 6. 4 46 8 . 0 307 8 . ,0 559 13 . 6 335 4 . 4 Branches 7 2 . 0 9 1 . 6 32 0. 8 22 0. . 5 37 0. 5 Real estate investment 31 9 . 0 4 0. 7 203 5 . 3 239 5 . 8 - -Total 343 100. 0 574 100. 0 3,850 100. 0 4. ,111 100. 0 7 ,657 100. 0 (Source: Bank of Japan, compiled by the author.) Notes: Following an amendment to the Foreign Exchange Control Law, figures since December 1980 (1) include 10% or more of equity a c q u i s i t i o n (25% before amendment) in foreign corporations and loans to those corporations, and (2) exclude real estate investment. Figures for transportation and real estate are since f i s c a l 1981. Up to 1980, figures for these categories were included i n \"Others.\" IX) cn 263 c o n c e n t r a t i o n s of investment i n commerce, m a n u f a c t u r i n g , and f i n a n c e and i n s u r a n c e . D u r i n g the p e r i o d between 1951 and 1967, the acc u m u l a t e d amount of Japanese DFI i n the U n i t e d S t a t e s amounted t o U.S.$343 m i l l i o n . 3 5 4 Commerce h o s t e d the l a r g e s t s h a re of the i n v e s t m e n t , or 38.4 p e r c e n t of the t o t a l . I t was l a r g e l y from t h i s t h a t s i n c e November, 1951, sogo shosha commenced t o e s t a b l i s h t h e i r wholly-owned s u b s i d i a r y c o r p o r a t i o n s i n New York t o promote comm e r c i a l a c t i v i t i e s . By 1954 seven out of the n i n e l a r g e s t sogo shosha had American s u b s i d i a r y c o r p o r a t i o n s / i n c o r p o r a t i o n s . In 1960 and 1967 two more companies were founded, and a l l n i n e sogo shosha were engaged i n b u s i n e s s i n the U n i t e d S t a t e s . M a n u f a c t u r i n g c a p t u r e d 25.3 p e r c e n t of the t o t a l i n v e s t m e n t w i t h a h i g h c o n c e n t r a t i o n i n the lumber and p u l p i n d u s t r y (22.7 p e r c e n t of the t o t a l ) . T h i s r e l a t e d t o the b i g A l a s k a P u l p P r o j e c t of 1953. F i n a n c e and i n s u r a n c e h o s t e d 12.5 p e r c e n t of the t o t a l . The p e r i o d between 1968 and 1971 was c o n s i d e r e d the t a k e - o f f p e r i o d toward f u l l - f l e d g e d Japanese DFI. D u r i n g t h e s e f o u r y e a r s , $574 m i l l i o n i n a d d i t i o n a l i nvestment went t o the U n i t e d S t a t e s . ( S i n c e Japanese d a t a a r e on an a p p r o v a l b a s i s , f u l l amounts of inves t m e n t approved were not n e c e s s a r i l y c a r r i e d o ut.) Commerce h o s t e d $281 m i l l i o n , w h ich was the l a r g e s t s h are a t 49.0 p e r c e n t of t o t a l i n v e s t m e n t . F i n a n c e and i n s u r a n c e r e c e i v e d $99 m i l l i o n , or 3 5 \" H e r e a f t e r , a l l i n v e s t m e n t amounts a r e i n U.S. d o l l a r s . 264 17.2 p e r c e n t of the t o t a l . M i n i n g h o s t e d the t h i r d l a r g e s t amount w i t h $90 m i l l i o n , or 15.7 p e r c e n t . However, m a n u f a c t u r i n g o b t a i n e d o n l y $43 m i l l i o n , which a c c o u n t e d f o r 7.5 p e r c e n t . W i t h l i b e r a l i z a t i o n of f o r e i g n exchange by the Japanese government, amounts of i n v e s t m e n t i n c r e a s e d s u b s t a n t i a l l y . From 1972 t o 1977, $3,850 m i l l i o n was f u n n e l l e d i n t o the U n i t e d S t a t e s . Commerce h o s t e d the l a r g e s t amount w i t h $1,480 m i l l i o n , c o n s i s t i n g of 38.5 p e r c e n t of the t o t a l , w h i l e f i n a n c e and i n s u r a n c e h o s t e d $473 m i l l i o n , or 12.3 p e r c e n t . In 1973, i n v e s t m e n t i n commerce was a s s o c i a t e d w i t h the a d d i t i o n a l sogo shosha funds a l l o c a t e d t o t h e i r s u b s i d i a r y c o r p o r a t i o n s r e g i s t e r e d i n New York t o s t r e n g t h e n t h e i r b u s i n e s s bases. In the same y e a r , m a n u f a c t u r e r s e s t a b l i s h e d m a r k e t i n g companies t o s e l l e l e c t r i c a l equipment, cameras and a u t o m o b i l e s . In the f o l l o w i n g y e a r , m a n u f a c t u r e r s f u r t h e r s e t up companies i n o r d e r t o c o l l e c t i n f o r m a t i o n , t o convey advanced t e c h n o l o g y and t o p r o v i d e a f t e r c a r e . From 1974 i n f i n a n c e and i n s u r a n c e , Japanese c i t y banks began t o a c t i v e l y t a k e over American b a n k s , 3 5 5 and i n 1977 Japanese c i t y b a nk(s) p u r c h a s e d 19 branches of an American b a n k . 3 5 6 One of the c h a r a c t e r i s t i c s of the p e r i o d between 1972 and 1977 was t h a t m a n u f a c t u r i n g became a s u b s t a n t i a l r e c i p i e n t of Japanese DFI. T h i s s e c t o r h o s t e d $865 m i l l i o n , 3 5 5 K a i g a i T o s h i Kenkyusho-Ho v o l . 3 (August, 1977): 39. 3 5 6 K a i g a i T o s h i Kenkyusho-Ho v o l . 4, no. 9 (August, 1978): 32. 265 w hich c o n s i s t e d of 22.5 p e r c e n t of the t o t a l . Among the m a n u f a c t u r i n g i n d u s t r i e s , i n v e s t m e n t f o c u s e d on the e l e c t r i c a l equipment i n d u s t r y w i t h $281 m i l l i o n and on the f e r r o u s and n o n - f e r r o u s m e t a l i n d u s t r y w i t h $152 m i l l i o n (4.0 p e r c e n t ) . In the e a r l y 1970's, t r a d e f r i c t i o n between Japan and the U n i t e d S t a t e s r e g a r d i n g c o l o r t e l e v i s i o n s e t s began and the U n i t e d S t a t e s government r e s t r i c t e d the number of i m p o r t s from Japan. T h i s was r e f l e c t e d i n the sha r p i n c r e a s e i n i nvestment i n the e l e c t r i c a l equipment i n d u s t r y i n o r d e r t o produce c o l o r t e l e v i s i o n s e t s as w e l l as t h e i r p a r t s and components i n the U n i t e d S t a t e s . For example, i n 1977 the inv e s t m e n t of $87 m i l l i o n i n the e l e c t r i c a l equipment i n d u s t r y i n the U n i t e d S t a t e s a c c o u n t e d f o r 54.0 p e r c e n t of t o t a l Japanese DFI i n t h i s s e c t o r ($161 m i l l i o n ) t h r o u g h o u t the w o r l d t h a t y e a r . 3 5 7 In a d d i t i o n , a n o t h e r r e m a r k a b l e i n c r e a s e i n the f e r r o u s and n o n - f e r r r o u s m e t a l i n d u s t r y was d e r i v e d from the mega-project of an aluminum r e f i n e r y , Alumax I n c . , by Amax I n c . , M i t s u i , and Nippon S t e e l C o r p o r a t i o n which i n v e s t e d $135 m i l l i o n i n 1 9 7 3 . 3 5 8 The c e n t e r of investment s h i f t e d from the lumber and p u l p i n d u s t r y d u r i n g the p e r i o d of 1951 t o 1967, t o the above-mentioned i n d u s t r i e s i n the 1970's. In c o n t r a s t t o m a n u f a c t u r i n g , m i n i n g r e c e i v e d $117 m i l l i o n and i t s r e l a t i v e i mportance d e c l i n e d from 15.7 p e r c e n t t o 3.0 p e r c e n t of the t o t a l . I t i n c l u d e d the 3 5 7 I b i d . , p. 27. 3 5 8 K a i g a i T o s h i Kenkyusho-Ho v o l . 1 (September, 1975): 18. 266 F e t t e r r o l f C o a l P r o j e c t ( l o a n and purchase of c o a l ) w i t h $37 m i l l i o n i n 1 974 3 5 9 and the B l u e c r e e k P r o j e c t ( l o a n and purchase of c o a l ) w i t h $43 m i l l i o n i n 1 9 7 5 . 3 6 0 I n c l u d i n g t h e s e p r o j e c t s , t h e r e were f i v e b i g p r o j e c t s t h r o u g h which one m i l l i o n t o n s of c o a l would be e x p o r t e d a n n u a l l y t o Japan based on t e n - y e a r l o n g term c o n t r a c t s . 3 6 1 Each y e a r from 1978 t o 1980, the U n i t e d S t a t e s r e c e i v e d the l a r g e s t amount of Japanese DFI as a s i n g l e c o u n t r y . I t s amount reached $4,111 m i l l i o n t o t a l f o r the t h r e e y e a r s . Commerce h o s t e d the l a r g e s t p o r t i o n of investment of 34.9 p e r c e n t of t h e t o t a l , which amounted t o $1,433 m i l l i o n . Investment i n m a n u f a c t u r i n g i n c r e a s e d r e l a t i v e l y as w e l l as a b s o l u t e l y . One thousand and s i x t y - t w o m i l l i o n d o l l a r s was poured i n t o m a n u f a c t u r i n g c o m p r i s i n g 25.8 p e r c e n t of the t o t a l . I n t h i s s e c t o r , i n v e s t m e n t c o n t i n u e d t o f o c u s on the e l e c t r i c a l equipment i n d u s t r y w i t h $363 m i l l i o n (8.8 p e r c e n t of the t o t a l ) . Investment i n f i n a n c e and i n s u r a n c e d e c l i n e d t o $317 m i l l i o n w i t h 7.7 p e r c e n t . However, s e r v i c e s and o t h e r s o b t a i n e d $559 m i l l i o n , w hich c o n s i s t e d of 13.6 p e r c e n t , such investment was made i n t o u r i s t - l e i s u r e development p r o j e c t s , r e a l e s t a t e i n d u s t r y , t r a n s p o r t a t i o n i n d u s t r y and warehouse i n d u s t r y . 3 6 2 From 1981 t o 1983, $7,657 m i l l i o n was c h a n n e l l e d t o the U n i t e d S t a t e s . In 1982, Japanese DFI i n the U n i t e d S t a t e s 3 5 9 I b i d . , p. 19. 3 6 0 K a i q a i T o s h i Kenkyusho-Ho v o l . 2 (August, 1976): 39. 3 6 1 I b i d . 3 6 2 K a i g a i T o s h i Kenkyusho-Ho v o l . 5, no. 10: 16; v o l . 6, no. 9: 21; v o l . 7, no. 9: 22. 267 r e c o r d e d an h i s t o r i c a l peak w i t h $2,738 m i l l i o n . The i n c r e a s e can be a t t r i b u t e d t o i n c r e a s e d funds t o c o v e r i n v e n t o r i e s and improve the f i n a n c i a l p o s i t i o n s of the l o c a l m a r k e t i n g s u b s i d i a r i e s of t r a d i n g companies and m a n u f a c t u r e r s a f f e c t e d by the p r o t r a c t e d s t a g n a t i o n of demand stemming from the d e l a y e d U.S. r e c o v e r y . 3 6 3 Commerce' remained t o r e c e i v e a s i g n i f i c a n t amount of investment w i t h $2,473 m i l l i o n , but i t s p e r c e n t a g e , 32.3 p e r c e n t , became the second l a r g e s t investment i n d u s t r y a f t e r m a n u f a c t u r i n g . Moreover, t h i s f i g u r e i n c l u d e d $300 m i l l i o n t h a t s h o u l d be p r o p e r l y c l a s s i f i e d as m a n u f a c t u r i n g i n v e s t m e n t . T h i s $300 m i l l i o n , p a r t of a t o t a l $600 m i l l i o n f o r the manufacture of s m a l l t r u c k s , has been c l a s s e d under 'commerce' because the funds were i n v e s t e d v i a l o c a l m a r k e t i n g f i r m s . 3 6 \" M a n u f a c t u r i n g h o s t e d $2,726 m i l l i o n , which d i d not i n c l u d e the above-mentioned $300 m i l l i o n , and c o m p r i s e d 35.6 p e r c e n t of the t o t a l i n v e s t m e n t , which exceeded the p e r c e n t a g e of commerce f o r the f i r s t t i m e . I t i s noteworthy t h a t the a b s o l u t e v a l u e of i n v e s t m e n t as w e l l as the r e l a t i v e v a l u e r o s e . In s u c c e s s i o n , investment c e n t e r e d i n the e l e c t r i c a l equipment i n d u s t r y w i t h $834 m i l l i o n (10.9 p e r c e n t of the t o t a l ) . Major in v e s t m e n t was d e s i g n e d t o produce home e l e c t r i c a l a p p l i a n c e s such as c o l o r t e l e v i s i o n s e t s and microwave o v e n s , 3 6 5 w h i l e a c o n s i d e r a b l e amount of i n v e s t m e n t was r e l a t e d t o the p r o d u c t i o n of s e m i c o n d u c t o r s . 3 6 3 E X I M Review v o l . 4, no. 2 (1983): 7. 3 6 \" l b i d . 3 6 5 K a i g a i T o s h i Kenkyusho-Ho v o l . 8, no. 10 ( O c t o b e r , 1982): 18. 268 A new f o c u s of i n v e s t m e n t was the t r a n s p o r t a t i o n i n d u s t r y w i t h $724 m i l l i o n as 9.5 p e r c e n t of the t o t a l . T h i s f i g u r e i n c l u d e d the amount of a l a r g e p r o j e c t , $116 m i l l i o n , t o produce s m a l l t r u c k s i n Tennessee i n 1 9 8 1 . 3 6 6 F i n a n c e and i n s u r a n c e o b t a i n e d $1,064 m i l l i o n , which composed 13.9 p e r c e n t . T h i s stemmed from l a r g e a c q u i s i t i o n s of U.S. b a n k s . 3 6 7 To summarize, the U n i t e d S t a t e s has been a major h o s t c o u n t r y of Japanese DFI t h r o u g h o u t the postwar e r a . T h i s i n d i c a t e s the c l o s e economic t i e s between Japan and the U n i t e d S t a t e s . Indeed, t h e U n i t e d S t a t e s has been the l a r g e s t and most i m p o r t a n t t r a d e p a r t n e r f o r Japan, and has p r o v i d e d a f f l u e n t , l a r g e markets as w e l l as raw m a t e r i a l s . In o r d e r t o enhance t r a d i n g a c t i v i t i e s , sogo shosha e s t a b l i s h e d t h e i r s u b s i d i a r y c o r p o r a t i o n s as e a r l y as the 1950's and m a n u f a c t u r e r s s e t up t h e i r m a r k e t i n g companies t o b u i l d up c o m m e r c i a l networks t o c u l t i v a t e m a rkets. C o n s e q u e n t l y , t h i s r e s u l t e d i n a c o n t i n u o u s l a r g e amount of investment i n commerce i n the U n i t e d S t a t e s , and over 30.0 p e r c e n t of the t o t a l i n v e s t m e n t i n t h i s c o u n t r y c h a n n e l l e d i n t o the commerce s e c t o r t h r o u g h o u t postwar y e a r s . In a d d i t i o n , s i n c e t h e U n i t e d S t a t e s i s one of the major c e n t e r s of t h e i n t e r n a t i o n a l f i n a n c i a l market, f i n a n c e and i n s u r a n c e h o s t e d c o n s t a n t i n v e s t m e n t , r a n g i n g from 7.7 p e r c e n t t o 17.2 p e r c e n t . S i n c e 1974 Japanese c i t y banks have e s t a b l i s h e d t h e i r banks i n the U n i t e d S t a t e s and n o t i c e a b l y 3 6 6 I b i d . 3 6 7EXIM Review, l o c . c i t . 269 began t o t a k e over American banks. From 1968 t o 1971, a t the onset of growing Japanese DFI, the m i n i n g s e c t o r r e c e i v e d 15.7 p e r c e n t of the i n v e s t m e n t . I t s s i g n i f i c a n c e d e c l i n e d r e l a t i v e l y , a l t h o u g h l a r g e p r o j e c t s of l o a n and p u r c h a s e of c o a l e x i s t e d i n the e a r l y 1970's. Investment i n the m a n u f a c t u r i n g s e c t o r r e v e a l s a dynamic p a t t e r n . U n t i l 1967 t h i s was almost e x c l u s i v e l y i n the lumber and p u l p i n d u s t r y . The major o b j e c t i v e of Japanese DFI was t o s e c u r e raw m a t e r i a l s t o be e x p o r t e d t o Japan. D u r i n g the n a s c e n t s t a g e of f u l l - f l e d g e d DFI, 1968-1971, i n v e s t m e n t i n m a n u f a c t u r i n g was r e l a t i v e l y s m a l l . S i n c e 1972 Japanese DFI i n the U.S. m a n u f a c t u r i n g i n d u s t r y has i n c r e a s e d r a p i d l y , and the amount of i n v e s t m e n t i n t h i s s e c t o r from 1981 t o 1983 exceeded the amount i n commerce, which had been a p r i n c i p a l h o s t of Japanese DFI. W h i l e Japanese DFI g a i n e d momentum w i t h the c a p i t a l l i b e r a l i z a t i o n p o l i c i e s , the t r a d e f r i c t i o n r e g a r d i n g consumer d u r a b l e s such as c o l o r t e l e v i s i o n s e t s and a u t o m o b i l e s between Japan and the U n i t e d S t a t e s promoted i n v e s t m e n t i n m a n u f a c t u r i n g i n o r d e r t o produce t h e s e manufactured goods i n the U n i t e d S t a t e s . D u r i n g t h e p e r i o d of 1972 t o 1977, the e l e c t r i c a l and f e r r o u s and n o n - f e r r o u s m e t a l i n d u s t r i e s h o s t e d s i g n i f i c a n t amounts of i n v e s t m e n t , and t h i s t r e n d remained i n t a c t d u r i n g the f o l l o w i n g t h r e e y e a r s . From 1981 t o 1983, not o n l y t h e e l e c t r i c a l equipment i n d u s t r y but a l s o the t r a n s p o r t a t i o n equipment i n d u s t r y a t t r a c t e d c o n s i d e r a b l e amounts of i n v e s t m e n t . In a n u t s h e l l , a main stream of 270 Japanese DFI i n the U n i t e d S t a t e s has been inv e s t m e n t i n commerce, w i t h , t o a c e r t a i n e x t e n t , a minor stream i n f i n a n c e and i n s u r a n c e . In the e a r l y 1970's inv e s t m e n t i n m a n u f a c t u r i n g became n o t i c e a b l e , and a t p r e s e n t forms a v i t a l s e c t o r as a r e c i p i e n t of Japanese DFI. By comparing b o t h s e t s of d a t a , i t becomes ap p a r e n t t h a t the U.S. d a t a d i d not r e p r e s e n t a g r e a t i n c r e a s e i n the amounts of i n v e s t m e n t i n m a n u f a c t u r i n g . T h i s d i f f e r e n c e may stem from the f a c t t h a t the Japanese d a t a on d i r e c t i n v e s t m e n t g e n e r a l l y i n c l u d e l o a n s made t o f o r e i g n e n t e r p r i s e s t h a t a r e under Japanese c o n t r o l , w h i l e t h e U.S. d a t a r e c o r d l o a n s as l o n g - t e r m c a p i t a l f l o w s s e p a r a t e from d i r e c t i n v e s t m e n t . There a r e t h r e e c h a r a c t e r i s t i c s of r e c e n t growing i n v e s t m e n t i n m a n u f a c t u r i n g . F i r s t , the f o c u s of i n v e s t m e n t s h i f t e d t o the h i g h t e c h n o l o g y i n d u s t r i e s . W h i l e i n v e s t m e n t i n the raw m a t e r i a l p r o c e s s i n g i n d u s t r i e s such as the lumber and p u l p i n d u s t r y as w e l l as the f e r r o u s and n o n - f e r r o u s m e t a l i n d u s t r y d e c r e a s e d , investment i n p r o c e s s i n g - a s s e m b l y i n d u s t r i e s such as e l e c t r i c a l / e l e c t r o n i c , t r a n s p o r t a t i o n equipment and o r d i n a r y machinery i n d u s t r i e s i n c r e a s e d g r e a t l y . Thus, th e f o c u s of investment i n m a n u f a c t u r i n g moved t o i n d u s t r i e s which r e q u i r e a h i g h e r degree of p r o c e s s i n g and f u r t h e r t o the h i g h t e c h n o l o g y i n d u s t r y . Second, i n v e s t m e n t a s s o c i a t e d w i t h the f l e e i n g from t r a d e f r i c t i o n i n t e n s i f i e d . There has been t r a d e f r i c t i o n between Japan and the U n i t e d S t a t e s w i t h r e g a r d t o t e x t i l e s 271 i n the e a r l y 1970's and t o consumer d u r a b l e s such as c o l o r t e l e v i s i o n s e t s and a u t o m o b i l e s s i n c e the m i d d l e 1970's. C o n s e q u e n t l y , p r o t e c t i o n i s m r e q u e s t i n g import r e s t r i c t i o n s of Japanese m a n u f a c t u r e d goods i n o r d e r t o p r o t e c t domestic i n d u s t r i e s g a i n e d prominence i n the U n i t e d S t a t e s . As a r e s u l t , Japanese m a n u f a c t u r e r s began t o s w i t c h from the e x p o r t of f i n a l p r o d u c t s of m anufactured goods t o the p r o d u c t i o n of m anufactured goods i n the U n i t e d S t a t e s as one of the means of s i d e - s t e p p i n g the r i s e of p r o t e c t i o n i s m . T h i r d , T a k i i has p o i n t e d out t h a t the manner of a c q u i r i n g new e s t a b l i s h m e n t s f o r Japanese DFI has become d i v e r s i f i e d . 3 6 8 Japanese m a n u f a c t u r e r s used t o found new companies and p l a n t s . In a d d i t i o n t o new e s t a b l i s h m e n t s , they r e c e n t l y began t o t a k e over e x i s t i n g e s t a b l i s h m e n t s . In g e n e r a l , Japanese DFI i n the U.S. m a n u f a c t u r i n g i n d u s t r i e s w i l l c o n t i n u e t o i n c r e a s e i n the f u t u r e f o c u s i n g on h i g h t e c h n o l o g y i n d u s t r i e s by both s e t t i n g up new e s t a b l i s h m e n t s and a c q u i r i n g e x i s t i n g e s t a b l s h i m e n t s . I I . The Investment C l i m a t e i n t h e U n i t e d S t a t e s I n c r e a s e d i n v e s t m e n t i n the U n i t e d S t a t e s i n the l a t e 1970's r e f l e c t e d the c o n c e r n s of 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 over g r e a t e r w o r l d w i d e economic and p o l i t i c a l i n s t a b i l i t y . The e a r l y 1970's w i t n e s s e d s e r i o u s economic d i s r u p t i o n s 3 6 8 M i t s u o T a k i i , \"Kakudai s u r u S h i j o H a i k e i n i G u t a i k a susumu Genchi S e i s a n H o s h i k i . \" ( M a t e r i a l i z i n g L o c a l P r o d u c t i o n Formula i n Response t o An Expanding M a r k e t ) N i k k e i B u s i n e s s , A p r i l 30, 1984, p. 177. 272 caused by t h e breakdown of the postwar i n t e r n a t i o n a l monetary system, known as the B r e t t o n Woods system; the r i s e i n raw m a t e r i a l p r i c e s ; a f o u r f o l d i n c r e a s e i n o i l p r i c e s i n c e the f i r s t o i l c r i s i s of 1973; and a worldwide r e c e s s i o n w i t h a slo w , weak r e c o v e r y . 3 6 9 F u r t h e r , rampant i n f l a t i o n and i n c r e a s i n g o v e r e x t e n d e d c o r p o r a t e and ba n k i n g d e b t s d e t e r i o r a t e d worldwide economic performance. Thus, i n s e c u r e c o r p o r a t e i n v e s t o r s saw the U n i t e d S t a t e s as a haven from the shaky i n t e r n a t i o n a l market. T h i s p e r i o d c o i n c i d e d w i t h l e f t w a r d p o l i t i c a l t r e n d s i n s e v e r a l i n d u s t r i a l i z e d c o u n t r i e s such as the U n i t e d Kingdom, the N e t h e r l a n d s , and Canada. \" . . . r i s i n g l a b o r u n i o n m i l i t a n c y i n much of Europe and Canada has combined w i t h h i g h e r c o r p o r a t e t a x r a t e s and an i n c r e a s e i n governmental i n t e r v e n t i o n i n c o r p o r a t e a f f a i r s by l a b o r - b a c k e d or s o c i a l i s t p a r t i e s t o y i e l d an inv e s t m e n t environment i n which r i s k e x p o s ure has been s i g n i f i c a n t l y h e i g h t e n e d . \" 3 7 0 P o l i t i c a l c o n d i t i o n s i n d e v e l o p i n g c o u n t r i e s were l e s s f a v o r a b l e f o r f o r e i g n i n v e s t o r s . R i s i n g economic n a t i o n a l i s m (economic s o v e r e i g n t y ) , governmental demands f o r g r e a t e r c o n t r o l of f o r e i g n i n v e s t m e n t , and i n c r e a s i n g l y s t r i n g e n t r e s t r i c t i o n s on r e p a t r i a t i o n of p r o f i t s c r e a t e d u n p r o p i t i o u s i n v e s t m e n t c l i m a t e s . 3 6 9 L a w r e n c e B. Krause and Sueo S e k i g u c h i , eds., Economic I n t e r a c t i o n i n t h e P a c i f i c B a s i n , (Washington, D.C: B r o o k i n g s I n s t i t u t i o n , 1980), p. 6. 3 7 0 U n i t e d S t a t e s , Department of Commerce, F o r e i g n D i r e c t Investment i n t h e U n i t e d S t a t e s , 9 v o l s . (Washington, D.C: U.S. Government P r i n t i n g O f f i c e , 1976), v o l . 5: Appendices G-I, p. G-52. 273 Indeed, a l t h o u g h b u s i n e s s r i s k i n t h e U n i t e d S t a t e s was h i g h because of se v e r e c o m p e t i t i o n , the \" c o u n t r y r i s k \" i n the U n i t e d S t a t e s was l i m i t e d . The U n i t e d S t a t e s has been r e g a r d e d as the \" l a s t b a s t i o n of c a p i t a l i s m . \" Moreover, w i t h the worldwide a g g r a v a t i o n of i n f l a t i o n , i n v e s t m e n t i n U.S. r e a l e s t a t e , p l a n t s and p r o d u c t i o n f a c i l i t i e s has been used as an a n t i - i n f l a t i o n measure. In a d d i t i o n t o p o l i t i c a l s t a b i l i t y , t he U n i t e d S t a t e s p o s s e s s e s abundant energy and n a t u r a l r e s o u r c e s . A l l t h e s e c o n d i t i o n s made the U n i t e d S t a t e s a most d e s i r a b l e l o c a t i o n f o r m u l t i n a t i o n a l s i n o r d e r t o m i n i m i z e investment r i s k , s i n c e the U n i t e d S t a t e s h e l d i t s own l a r g e s t market, m a i n t a i n e d p o l i t i c a l s t a b i l i t y , and g e n e r a l l y f o s t e r e d a f a v o r a b l e a t t i t u d e t oward f r e e e n t e r p r i s e . 3 7 1 C o n s e q u e n t l y , not o n l y f o r e i g n m u l t i n a t i o n a l s but a l s o A m e r i c a n - o r i g i n m u l t i n a t i o n a l s s h i f t e d i n v e s t m e n t s from abroad t o the U n i t e d S t a t e s . In the Benchmark Survey of 1974, t h e U n i t e d S t a t e s Department of Commerce p o i n t e d out t e n s i g n i f i c a n t a t t r a c t i o n s c o n c e r n i n g the American i n v e s t m e n t c l i m a t e f o r f o r e i g n i n v e s t i n g f i r m s . 3 7 2 In a d d i t i o n t o t h e s e f a c t o r s , some i m p o r t a n t f a c t o r s s h o u l d be mentioned. E i g h t e c o n o m i c a l l y f a v o r a b l e c o n d i t i o n s and s i x p o l i t i c a l l y and s o c i a l l y f a v o r a b l e c o n d i t i o n s f o r f o r e i g n i n v e s t m e n t i n the 3 7 1 I b i d . , p. G-53. 3 7 2 U n i t e d S t a t e s , Department of Commerce, F o r e i g n D i r e c t Investment i n the U n i t e d S t a t e s : Report of t h e S e c r e t a r y of Commerce t o the Congress i n Compliance W i t h t h e F o r e i g n Investment Study A c t of l 9 7 4 ( P u b l i c Law 93-479), 9 v o l s . (Washington, D.C.: U.S. Government P r i n t i n g O f f i c e , 1976), v o l 1: Report of the S e c r e t a r y of Commerce t o the Congress, p. 98. 274 U n i t e d S t a t e s have been i d e n t i f i e d . 3 7 3 These a r e summarized as f o l l o w s : Economic Environment 1. Economic s t a b i l i t y and g e n e r a l economic growth p r o s p e c t s ; 2. The e x t r e m e l y l a r g e s i z e of the U n i t e d S t a t e s market and i t s growth p o t e n t i a l ; 3. L e a d e r s h i p i n m a n a g e r i a l and m a r k e t i n g know-how and i n n o v a t i o n s ; 4. T e c h n o l o g i c a l l e a d e r s h i p i n many f i e l d s , a l o n g w i t h ' e x t e n s i v e r e s e a r c h and development c a p a b i l i t i e s ; 5. W e l l - d e v e l o p e d i n f r a s t r u c t u r e and d i s t r i b u t i o n system; 6. E f f i c i e n t and h i g h l y s k i l l e d l a b o r f o r c e ; 7. W e l l - d e v e l o p e d c a p i t a l markets which r e a d i l y p r o v i d e d c r e d i t a t i n t e r e s t r a t e s t h a t o f t e n a r e lower than a b r o a d ; and 8. R e l a t i v e l y l a r g e s u p p l i e s of some n e c e s s a r y n a t u r a l r e s o u r c e s . P o l i t i c a l and S o c i a l Environment 1. D e m o c r a t i c i n s t i t u t i o n s and p o l i t i c a l s t a b i l i t y ; 2. G r e a t e r freedom from economic c o n t r o l s and government i n t e r v e n t i o n s than i n most o t h e r c o u n t r i e s i n c l u d i n g o t h e r d e m o c r a c i e s ; 3. The t r a d i t i o n a l U.S. \"open door,\" n o n - d i s c r i m i n a t o r y p o l i c y w i t h r e g a r d t o i n v e s t m e n t from abroad; 4. P o l i t i c a l l y n o n - r a d i c a l l a b o r u n i o n s i n s p i t e of s t r o n g b a r g a i n i n g power; 5. The t r a d i t i o n a l p o s i t i v e r e c e p t i v i t y t o new p r o d u c t s , methods, and i d e a s ; and 6. Encouragement and p r e f e r e n t i a l p o l i c i e s toward f o r e i g n i n v e s t m e n t by s t a t e and l o c a l governments. 3 7 3 T h i s i s an amended v e r s i o n of the forenamed Benchmark Survey of 1974 by the U.S. Department of Commerce. Four more f a c t o r s were added. 275 European, Japanese, and Canadian businessmen e x p e c t e d the slowdown i n t h e i r home c o u n t r y ' s d o m e s t i c economic growth t o be g r e a t e r than t h a t i n t h e U n i t e d S t a t e s . Compared w i t h f o r e i g n market p r o s p e c t s , U.S. market s i z e and growth p r o s p e c t s were e x c e e d i n g l y a t t r a c t i v e . A l t h o u g h t h e r e were o f t e n d i s t i n c t r e g i o n a l markets w i t h i n the U n i t e d S t a t e s , t hey tended t o view \"the r e g u l a t o r y and c u l t u r a l homogeneity of the l a r g e U.S. market as d i s t i n c t l y s u p e r i o r i n c omparison t o t h e i r own domesti c m a r k e t s . \" 3 7 4 S i n c e the 1950's European and Canadian f i r m s have e x p e r i e n c e d c o m p e t i t i v e c h a l l e n g e by U.S. m u l t i n a t i o n a l s i n t h e i r own domesti c market as w e l l as i n f o r e i g n m a r k e t s . Hence, e n t r y i n t o t he U.S. market was r e g a r d e d as one way t o c o n f r o n t t h i s c h a l l e n g e . A c c o r d i n g t o Hymer and Rowthorn, the most common p a t h c o n s i d e r e d by European f i r m s i s f o r e i g n i n v e s t m e n t a f t e r t he e s t a b l i s h m e n t of t h e i r f o r e i g n markets and f i n a n c i a l s t r e n g t h . At f i r s t , t h e s e m u l t i n a t i o n a l s began t o i n v e s t o u t s i d e American markets because of the easy e n t r y . E v e n t u a l l y , t hey i n v e s t e d i n t h e U n i t e d S t a t e s when more e x p e r i e n c e was g a i n e d as w e l l as t h e n e c e s s a r y o r g a n i z a t i o n a l s t r u c t u r e and e x t r a f i n a n c i a l s t r e n g t h . 3 7 5 European f i r m s a t t e m p t e d t o g a i n a f o o t h o l d i n the U.S. m a r k e t . 3 7 6 In a n u t s h e l l , \" s e v e r a l f i r m s f e l t t h a t a U.S. pr e s e n c e was a p r e r e q u i s i t e f o r w o r l d w i d e o p e r a t i o n s , b o t h because of the p r a c t i c a l c o m p e t i t i v e e x p e r i e n c e i t p r o v i d e d 3 7 \" U n i t e d S t a t e s , Department of Commerce, F o r e i g n D i r e c t Investment i n the U n i t e d S t a t e s , v o l . 5, op_. c i t . , p. G-51. 3 / 5 H y m e r and Rowthorn, op. c i t . , pp. 79-80. 3 7 6 I b i d . , p. 81. 2 7 6 and because of t h e i n e v i t a b l e p r e s t i g e which a c c r u e d t o a company m a i n t a i n i n g such a p r e s e n c e . \" 3 7 7 There were many c a s e s of a t a k e - o v e r i n e x i s t i n g f i r m s by European m u l t i n a t i o n a l s r a t h e r than the e s t a b l i s h m e n t of new f i r m s . They were a b l e t o e n j o y the a l r e a d y d e v e l o p e d m a n a g e r i a l and m a r k e t i n g know-how and i n n o v a t i o n s . These companies were a l s o a b l e t o t a k e advantage of advanced t e c h n o l o g y , a l o n g w i t h e x t e n s i v e r e s e a r c h and development c a p a b i l i t i e s . For example, Sony's San Diego p l a n t f o r c o l o r t e l e v i s i o n p r o d u c t i o n was implemented w i t h the d e s i r e f o r t e c h n o l o g i c a l or market l e a r n i n g , s i n c e \"The U.S. market has been of the utmost importance t o the f i r m not o n l y as an o u t l e t f o r i t s p r o d u c t s but a l s o as a t e c h n o l o g i c a l l a b o r a t o r y from which t o a c q u i r e new i d e a s and the l a t e s t t e c h n o l o g i e s and i n which t o t e s t and i n t r o d u c e new p r o d u c t s . \" 3 7 8 B e s i d e s , the U.S. m a n u f a c t u r i n g i n d u s t r y r e t a i n e d s p l e n d i d t e c h n o l o g y and p r o d u c t i S n a b i l i t y i n the b a s i c f i e l d s as w e l l as i n the f r o n t i e r f i e l d s . C o n s e q u e n t l y , t h i s i n d u s t r i a l s t r u c t u r e of the U n i t e d S t a t e s brought about an advantageous s i t u a t i o n f o r i n v e s t i n g i n m a n u f a c t u r i n g . V a r i o u s m a t e r i a l s w i t h l o c a l l y produced p a r t s and components were a v a i l a b l e i n the U n i t e d S t a t e s . In the d e v e l o p i n g c o u n t r i e s , t h i s s o r t of i n d u s t r i a l s t r u c t u r e d i d not e x i s t . 3 7 7 U n i t e d S t a t e s , Department of Commerce, F o r e i g n D i r e c t I n v e s t m e n t , v o l . 5, l o c . c i t . 3 / 8 0 z a w a , M u l t i n a t i o n a l i s m , op_. c i t . , p. 118. 277 The U n i t e d S t a t e s had a huge l a b o r f o r c e , which was h i g h l y e ducated and s k i l l e d . A l t h o u g h s t r o n g l a b o r u n i o n s such as the U n i t e d Auto Workers (UAW) uni o n e x i s t e d , they s t r u g g l e f o r wage i n c r e a s e s and f r i n g e b e n e f i t s r a t h e r than r a d i c a l p o l i t i c a l change, w h i c h enhanced the inve s t m e n t c l i m a t e . Moreover, i n the S u n b e l t R e g i o n , t h e r e a r e fewer l a b o r u n i o n movements, which r e s u l t s i n lower wage r a t e s and fewer stoppages. These f a c t o r s a t t r a c t e d f o r e i g n f i r m s as w e l l as domesti c ones t o t h i s a r e a . W i t h more r a p i d wage i n c r e a s e s i n o t h e r d e v e l o p e d c o u n t r i e s between 1 9 6 5 - 1 9 7 0 , 3 7 9 the l a b o r c o s t d i f f e r e n t i a l between t h e s e c o u n t r i e s and the U n i t e d S t a t e s d e c r e a s e d . In a d d i t i o n , r e v a l u a t i o n s of major c u r r e n c i e s a g a i n s t the U.S. d o l l a r changed the p r o d u c t i o n c o s t s i n the U n i t e d S t a t e s , w h i c h , i n t u r n , became more c o m p e t i t i v e i n some i n d u s t r i e s . The c o s t s and a v a i l a b i l i t y of c a p i t a l f i n a n c i n g f o r inves t m e n t p r o j e c t s were a l s o s i g n i f i c a n t . The U n i t e d S t a t e s had one of the most d e v e l o p e d f i n a n c i a l and c a p i t a l markets i n the w o r l d . T h e r e f o r e , f o r e i g n companies were a b l e t o use t h e s e f a c i l i t i e s f r e e l y by b o r r o w i n g l a r g e sums of money i n t e r n a t i o n a l l y and t r a n s f e r r i n g funds t o d e s i r e d d e s t i n a t i o n s . An abundant, s t a b l e s u p p l y of n a t u r a l r e s o u r c e s a t t r a c t e d r e s o u r c e - p r o c e s s i n g companies and r e s o u r c e - o r i e n t e d secondary m a n u f a c t u r e r s t o the U n i t e d S t a t e s . P a r t i c u l a r l y , the Japanese undertook d i r e c t 3 7 9 U n i t e d S t a t e s , Department of Commerce, F o r e i g n D i r e c t I n v e s t m e n t , v o l . 5, op_. c i t . , p. G-54. 278 i n vestment i n U.S. o i l and gas e x p l o r a t i o n and development, uranium, c o a l , m e t a l s , lumber and p u l p , and a g r i c u l t u r e s i n c e \" i n c r e a s i n g r e s t r i c t i o n s on r e s o u r c e development i n Canada and A u s t r a l i a , as w e l l as r i s i n g ocean t r a n s p o r t a t i o n c o s t s \" 3 8 0 s t i m u l a t e d the s h i f t of investment a c t i v i t i e s i n t o the U n i t e d S t a t e s . In the e a r l y 1970's, g l o b a l s h o r t a g e s of key raw m a t e r i a l s as w e l l as i n c r e a s i n g i n s e c u r i t y and f l u c t u a t i o n s of raw m a t e r i a l s u p p l i e s and c o s t s g r e a t l y i n f l u e n c e d the inv e s t m e n t d e c i s i o n - m a k i n g p r o c e s s . As w e l l , s i n c e the i n c r e a s e i n o i l p r i c e s r a i s e d t r a n s p o r t a t i o n c o s t s , the p r o d u c t i o n of heavy or b u l k y m a n u f a c t u r i n g goods i n the U n i t e d S t a t e s became more advantageous. The e x i s t e n c e of t a r i f f s and n o n - t a r i f f b a r r i e r s s t i m u l a t e d d i r e c t i n v e s t m e n t u n d e r t a k e n i n the U n i t e d S t a t e s . Trade f r i c t i o n between Japan and the U n i t e d S t a t e s l e d t o j o i n t i n t e r g o v e r n m e n t a l agreements between th e s e two c o u n t r i e s on v o l u n t a r y r e s t r a i n t on Japanese e x p o r t s of t e x t i l e s and i r o n and s t e e l from the 1960's t h r o u g h the e a r l y 1970's. In 1978, the U n i t e d S t a t e s government i n t r o d u c e d a t r i g g e r p r i c e mechanism f o r i r o n and s t e e l p r o d u c t s . The t r i g g e r p r i c e mechanism was a system under which the T r e a s u r y Department s t u d i e d the p r i c e s of i m p o r t e d s t e e l p r o d u c t s a t Japanese p r o d u c t i o n c o s t , and i f i t was found t h a t o t h e r c o u n t r i e s ' i m p o r t s were below t h o s e p r i c e s , and i f n e c e s s a r y , the department c o u l d l a u n c h an i n v e s t i g a t i o n of p o s s i b l e d u m p i n g . 3 8 1 A f t e r t h e i s s u e s of 3 8 0 I b i d . , p. G-53. 3 8 ' J a p a n , Economic P l a n n i n g Agency, op_. c i t . , p. 208. 279 t e x t i l e s and i r o n and s t e e l , the f o c i of the t r a d e f r i c t i o n between Japan and the U n i t e d S t a t e s s h i f t e d t o c o l o r t e l e v i s i o n s e t s and o t h e r key items such as a u t o m o b i l e s . The a u t o m o b i l e i s s u e was e s p e c i a l l y b u r n i n g . S i n c e 1981 t h e Japanese had l i m i t e d the e x p o r t of a u t o m o b i l e s t o the U n i t e d S t a t e s t o l e s s than 1.8 m i l l i o n u n i t s a y e a r , and t h i s v o l u n t a r y - r e s t r a i n t agreement was l i f t e d on March 31, 1985. The Reagan A d m i n i s t r a t i o n e x p e c t e d the Japanese t o drop the q uotas i n response t o opening Japanese markets t o American p r o d u c t s . However, the M i n i s t r y of I n t e r n a t i o n a l Trade and I n d u s t r y announced t h a t Japanese would s e t a new a u t o q u o t a r a i s i n g the c e i l i n g 24 p e r c e n t , t o 2.3 m i l l i o n v e h i c l e s a y e a r . 3 8 2 T h i s Japanese government announcement d i s p l e a s e d both the U.S. government which thought i t was t o o h i g h and Japanese automakers who wanted t o i n c r e a s e e x p o r t s by 50.0 p e r c e n t . T h i s t r a d e f r i c t i o n a l o n g w i t h the r i s e i n p r o t e c t i o n i s m encouraged the Japanese t o make i n v e s t m e n t s i n U.S. m a n u f a c t u r i n g , e s p e c i a l l y i n e l e c t r o n i c s and motor v e h i c l e s . B e h i n d t h i s t r a d e f r i c t i o n , t h e r e a r e some s t r u c t u r a l p roblems. The U.S. t r a d e d e f i c i t w i t h Japan r e c o r d e d a p p r o x i m a t e l y 50 b i l l i o n i n 1985. P a r t l y , \" t h i s huge b i l a t e r a l d e f i c i t i s due t o weak Japanese d o m e s t i c demand, but the c e n t r a l c u l p r i t has been the s t r o n g d o l l a r , r e s u l t i n g from US m i l i t a r y and economic p o l i c i e s w hich produce h i g h i n t e r e s t r a t e s and a low exchange v a l u e f o r the 3 8 2 J o h n Greenwald, \" P r e s s u r e From Abroad: The U.S. i s h i t by Tokyo and a S l i d i n g D o l l a r , \" Time, A p r i l 8, 1985, p. 48. 280 y e n . \" 3 8 3 As a r e s u l t , h i g h v a l u e of the d o l l a r a g a i n s t t h e yen l a s t e d u n t i l the F i v e F i n a n c e M i n i s t e r s ' M e e t i n g i n September, 1985, made Japanese e x p o r t s t o the U n i t e d S t a t e s more p r i c e c o m p e t i t i v e and U.S. e x p o r t s t o Japan l e s s so. A s t r o n g d o l l a r was a p a r t i a l element t o such a huge t r a d e d e f i c i t . F u n d a m e n t a l l y , i t i s a s c r i b e d t o the economic s t r u c t u r e s of the two c o u n t r i e s . F i r s t , Japan i s endowed w i t h l i t t l e n a t u r a l r e s o u r c e s . Japan i m p o r t s almost a l l raw m a t e r i a l s and tends t o have l a r g e t r a d e d e f i c i t w i t h r e s o u r c e s u p p l y i n g c o u n t r i e s . However, the U n i t e d S t a t e s has a s t r o n g r e s o u r c e base f o r d o m e s t i c consumption and e x p o r t s . Next, both t h e U n i t e d S t a t e s and Japan have c a p i t a l i n t e n s i v e i n d u s t r i e s w i t h h i g h l a b o r c o s t s . C o n s e q u e n t l y , manufactured goods produced by both c o u n t r i e s have a s i m i l a r c o m p a r a t i v e advantage i n the w o r l d m a r k e t s . D e s p i t e s i m i l a r p r o d u c t i o n and demand s t r u c t u r e , Japan must e x p o r t more manufactured goods t o the U n i t e d S t a t e s t o compensate f o r the t r a d e d e f i c i t w i t h r e s o u r c e e x p o r t i n g c o u n t r i e s , and the U n i t e d S t a t e s can e x p o r t l e s s manufactured goods t o J a p a n . 3 8 4 In a d d i t i o n , the r i s e i n p r o t e c t i o n i s m i n the U n i t e d S t a t e s i s r e l a t e d t o a f e a r t h a t Japanese i n d u s t r i e s have caught up w i t h American ones, and have even begun t o s u r p a s s 3 8 3 F r a n k Langdon, \"Canada and the I n t e r n a t i o n a l i z a t i o n of the Japanese Economy,\" i n Canada and I n t e r n a t i o n a l T r a d e , v o l . 2: Canada and the P a c i f i c Rim ( M o n t r e a l ; I n s t i t u t e f o r Research on P u b l i c P o l i c y , 1985), p. 533. 3 8 4 E d w a r d J . L i n c o l n , \"U.S.-Japan R e l a t i o n s : Good T e r r i b l e ? \" SAIS ( S c h o o l of Advanced I n t e r n a t i o n a l S t u d i e s ) Review v o l . 4, no. 1 ( W i n t e r - S p r i n g , 1984): 33. 281 them i n some f i e l d s , even though American i n d u s t r i e s p o s s e s s supremacy i n the h i g h t e c h n o l o g y i n d u s t r i e s . A t h r e a t t o American key i n d u s t r i e s a m p l i f i e s t r a d e f r i c t i o n . A c o r o l l a r y of t h i s argument i s t h a t the b i l a t e r a l t r a d e f r i c t i o n between t h e U n i t e d S t a t e s and Japan w i l l remain u n l e s s t h e r e a r e some changes i n both t h e i r economic s t r u c t u r e s . W i t h a major purpose t o m i t i g a t e i n t e n s e t r a d e f r i c t i o n , i n 1983 the two governments e s t a b l i s h e d the Japan-U.S. Investment Committee t o promote c r o s s i n v e s t m e n t and t o exchange i n f o r m a t i o n . The f i r s t m e eting was h e l d i n Tokyo i n 1984. Mor e o v e r , l o c a l governments and American companies a c t i v e l y s e n t m i s s i o n s i n o r d e r t o l u r e Japanese i n v e s t m e n t t o t h e i r own c o u n t r y , and 21 s t a t e governments i n c l u d i n g P u e r t o R i c o opened l i a i s o n o f f i c e s i n J a p a n . 3 8 5 T h e r e f o r e , Japanese DFI i s c r u c i a l , e s p e c i a l l y p s y c h o l o g i c a l l y , t o a l l e v i a t e t r a d e f r i c t i o n , t o p r o v i d e j o b o p p o r t u n i t i e s , and t o r e v i t a l i z e some d e c l i n i n g i n d u s t r i e s of the U n i t e d S t a t e s , which have l o s t t h e i r i n t e r n a t i o n a l c o m p e t i t i v e n e s s . Thus, the U.S. economic as w e l l as p o l i t i c a l and s o c i a l environment have c r e a t e d a most a t t r a c t i v e i n v e s t m e n t c l i m a t e . I n a d d i t i o n , i n t e r n a t i o n a l economic and p o l i t i c a l s i t u a t i o n s , r e p r e s e n t e d by the f o u r major worldwide c r i s e s and t h e i r a f t e r e f f e c t s , and U.S. domestic economic and p o l i t i c a l s i t u a t i o n s , such as the r i s e of p r o t e c t i o n i s m 3 8 5 T a k i i , l o c . c i t . 282 a g a i n s t the i m p o r t s of f o r e i g n m anufactured goods, have f o s t e r e d d i r e c t f o r e i g n investment i n the U n i t e d S t a t e s . D e s p i t e the f a v o r a b l e U.S. inve s t m e n t c l i m a t e , when the w r i t e r i n t e r v i e w e d Japanese businessmen i n the summer of 1984 they showed g r e a t c o n c e r n over U.S. government c o n t r o l s over f o r e i g n i n v e s t m e n t f o r n a t i o n a l s e c u r i t y r e a s o n s and the American u n i t a r y t a x on a f i r m ' s w o r l d w i d e income which have been c o n s i d e r e d h i n d r a n c e s t o the i n c r e a s e of d i r e c t f o r e i g n i n v e s t m e n t i n the U n i t e d S t a t e s . Indeed, i n 1983 when the Japanese F i n a n c e M i n i s t e r T a k e s h i t a and the then U.S. T r e a s u r y S e c r e t a r y Regan agreed upon the e s t a b l i s h m e n t of a j o i n t U.S.-Japan Ad Hoc Group on the y e n / d o l l a r i s s u e , the Japanese government e x p r e s s e d c o n c e r n over the d i f f i c u l t y i n d e t e r m i n i n g on n a t i o n a l s e c u r i t y grounds the c r i t e r i a f o r U.S. government i n t e r v e n t i o n i n d i r e c t f o r e i g n i nvestment i n the U n i t e d S t a t e s . 3 8 6 The Japanese government a l s o e x p r e s s e d c o n c e r n over the wo r l d w i d e u n i t a r y t a x a t i o n system, which c o u l d impose a heavy f i n a n c i a l and a d m i n i s t r a t i v e burden on f o r e i g n s u b s i d i a r i e s i n the U n i t e d S t a t e s . Thus, t h i s t a x a t i o n system c o u l d d i s c o u r a g e f o r e i g n i n v e s t m e n t i n the U n i t e d S t a t e s . 3 8 7 Some Japanese companies r e f u s e d t o i n v e s t i n American s t a t e s w i t h u n i t a r y t a x l a w s . P r i n c i p a l l y , the U n i t e d S t a t e s has adopted an open-door p o l i c y f o r d i r e c t f o r e i g n i n v e s t m e n t . However, a t t h e 3 8 6 \" R e p o r t by t h e Working Group of J o i n t Japan-U.S. Ad Hoc Group on Y e n / D o l l a r Exchange Rate,\" The O r i e n t a l Economist v o l . 52, no. 885 ( J u l y , 1984): 22 and 25. 3 8 7 I b i d . , p. 23. 283 f e d e r a l l e v e l , t h e r e have been r e s t r i c t i o n s on f o r e i g n i n v e s t m e n t i n communication, b r o a d c a s t i n g , t r a n s p o r t a t i o n , n u c l e a r power and r e l a t e d b u s i n e s s f i e l d s and development of m i n e r a l r e s o u r c e s . At the s t a t e l e v e l , t h e r e a l s o have been some r e s t r i c t i o n s on f o r e i g n i n v e s t m e n t i n f i n a n c i a l b u s i n e s s e s and l a n d h o l d i n g s . These r e s t r i c t i o n s were not beyond the s t a n d a r d s which were i n t e r n a t i o n a l l y a c c e p t e d . R e c e n t l y , Japanese d i r e c t f o r e i g n i n v e s t m e n t i n the U n i t e d S t a t e s has become o r i e n t e d i n h i g h t e c h n o l o g y i n d u s t r i e s . I t i s w i d e l y acknowledged t h a t numerous e l e c t r o n i c s - r e l a t e d p r o d u c t s , such as o p t i c a l f i b e r equipment, g a l l i u m a r s e n i d e m i c r o e l e c t r o n i c s d e v i c e s , l a s e r s , and o t h e r t y p e s of communication and c o n t r o l w i d g e t s have a \" d u a l use\" t h r o u g h both c i v i l i a n and m i l i t a r y a p p l i c a t i o n s . T h e r e f o r e , Japanese in v e s t m e n t i n the U.S. h i g h t e c h n o l o g y i n d u s t r i e s d e f i n i t e l y r e l a t e s t o n a t i o n a l s e c u r i t y c o n s i d e r a t i o n s . For example, i t i s not s u r p r i s i n g t h a t c e r a m i c packages f o r i n t e g r a t e d c i r c u i t s made by K y o c e r a I n t e r n a t i o n a l , which i s a C a l i f o r n i a s u b s i d i a r y of K yoto-based K y o c e r a , found t h e i r way i n s i d e G e n e r a l D y n a m i c s - b u i l t Tomahawk c r u i s e m i s s i e s . 3 8 8 Moreover, i n 1983 K y o c e r a I n t e r n a t i o n a l I n c . s o l d one of i t s s u b s i d i a r i e s , D e x c e l I n c . , i n C a l i f o r n i a t o a major m u n i t i o n s m a n u f a c t u r e r , G o u l d I n c . A f t e r a n a t i o n a l s e c u r i t y c l e a r a n c e , t h e company d i s c o v e r e d t h a t i t was r e q u i r e d t o g i v e up the r i g h t t o o p e r a t e D e x c e l I n c . because D e x c e l ' s 3 8 8 \" U . S . I n t e r e s t e d i n Japanese M i l i t a r y - U s e Technology,\" The O r i e n t a l Economist v o l . 53, no. 895 (May, 1985): 26. 284 p r o d u c t i o n was t o be p r o c u r e d by the S e c r e t a r y of D e f e n s e . 3 8 9 In the f u t u r e , problems r e l a t e d t o U.S. n a t i o n a l s e c u r i t y c o n s i d e r a t i o n s w i l l i n c r e a s e i n a c c o r d a n c e w i t h the s h i f t of Japanese investment i n h i g h t e c h n o l o g y i n d u s t r i e s . Hence, an advanced n a t i o n a l s e c u r i t y c l e a r a n c e i s n e c e s s a r y f o r the i n v e s t o r s i n t h e s e f i e l d s . A n other l a r g e s i n g l e b a r r i e r a g a i n s t d i r e c t Japanese investment i s the worldwide u n i t a r y t a x a t i o n system i n the U n i t e d S t a t e s . I t i s n e c e s s a r y t o p r e s e n t a d e t a i l e d d i s c u s s i o n of t h i s problem. The w o r l dwide u n i t a r y t a x a t i o n system i s based on the concept t h a t i f a c o r p o r a t i o n i s so c l o s e l y l i n k e d w i t h o t h e r e s t a b l i s h m e n t s t h a t i t i s i n f a c t a component of a l a r g e r m u l t i - e s t a b l i s h m e n t e n t e r p r i s e , a c o r p o r a t i o n must r e p o r t the e n t e r p r i s e s ' s w o r l d w i d e income, even though some of i t s b r a n c h e s , s u b s i d i a r i e s , or a f f i l i a t e s a r e l o c a t e d out of s t a t e , s i n c e the e n t i r e group of companies i s r e g a r d e d as a s i n g l e u n i t . 3 9 0 \"The s t a t e t a x e s a f r a c t i o n of t h a t w o r l dwide income, u s u a l l y d e t e r m i n e d by i t s s h a r e s of the e n t e r p r i s e s ' s worldwide p a y r o l l , s a l e s , and p r o p e r t y . \" 3 9 1 The i n t r o d u c t i o n of the u n i t a r y t a x a t i o n stems from the f a c t t h a t s e p a r a t e a c c o u n t i n g has proven d i f f i c u l t t o a d m i n i s t e r , s i n c e m u l t i - s t a t e c o r p o r a t i o n s a r e a b l e t o c o n c e a l intracompany t r a n s f e r s i n o r d e r t o u n d e r s t a t e 3 8 9 T a k i i , op_. c i t . , p. 188. 3 9 0 R o b e r t Tannenwald, \"The P r o s and Cons of Worldwide U n i t a r y T a x a t i o n , \" New England Economic Review ( J u l y / A u g u s t , 1984): 17. 3 9 1 I b i d . 285 p r o f i t s i n h i g h - t a x s t a t e s . O t h e r w i s e , the company c o u l d r e a l l o c a t e t a x a b l e income from a h i g h - t a x s t a t e t o a l o w - t a x s t a t e , r e d u c i n g i t s s t a t e income tax l e v i e d j u s t i n the l o c a l b r a n c h . Thus, some s t a t e s e x t e n d the scope of t h e i r u n i t a r y t a x power beyond the n a t i o n ' s b o r d e r s . The n a t u r e of i n t r a o r g a n i z a t i o n a l t r a n s f e r s by v e r t i c a l l y i n t e g r a t e d m u l t i n a t i o n a l e n t e r p r i s e s became an i s s u e . The f o c u s was on d o m e s t i c c o r p o r a t i o n s t o g e t h e r w i t h t h e i r o v e r s e a s a f f i l i a t e s r a t h e r than on d o m e s t i c a f f i l i a t e s and branches o n l y . M u l t i n a t i o n a l e n t e r p r i s e s and the Japanese, C a n a d i a n , B r i t i s h , D utch and o t h e r f o r e i g n governments s t r o n g l y opposed the p r a c t i c e of the w o r l dwide u n i t a r y t a x a t i o n . They argued t h a t worldwide u n i t a r y t a x a t i o n imposed i n t e r n a t i o n a l d ouble t a x a t i o n on them and t h a t i t burdened them w i t h e x c e s s i v e bookkeeping r e q u i r e m e n t s . A l s o , t h i s t a x a t i o n system c o u l d d i s t o r t i n t e r n a t i o n a l f l o w s of t r a d e and i n v e s t m e n t . In t h e 1930's, C a l i f o r n i a became the f i r s t s t a t e t o d e v e l o p a d e f i n i t i o n of a u n i t a r y b u s i n e s s t h a t was independent of f o r m a l o r g a n i z a t i o n a l arrangements and used i t r e g u l a r l y t o i d e n t i f y the u n i t a r y b u s i n e s s e s of i t s c o r p o r a t e t a x p a y e r s . The f o l l o w i n g d e f i n i t i o n , put f o r t h by the C a l i f o r n i a Supreme Court i n 1947, i s s t i l l w i d e l y a c c e p t e d : \" I f the o p e r a t i o n of the b u s i n e s s done w i t h i n the s t a t e i s dependent upon or c o n t r i b u t e s t o the o p e r a t i o n s of the b u s i n e s s w i t h o u t the s t a t e , the o p e r a t i o n s a r e 286 u n i t a r y . \" 3 9 2 The p r a c t i c e of the u n i t a r y t a x a t i o n system v a r i e s from s t a t e t o s t a t e . A c c o r d i n g t o Tannenwald, i n l a t e 1983, 15 s t a t e s r e g u l a r l y i n c l u d e d a f f i l i a t e s i n a u n i t a r y b u s i n e s s , a l t h o u g h f i v e e x c l u d e d o v e r s e a s a f f i l i a t e s . Of the s e f i v e , f o u r s t a t e s , t h a t i s , Kansas, Maine, M i n n e s o t a and Nebraska, p r a c t i c e d d o m e s t i c combined a c c o u n t i n g , which i n c l u d e d t h e p r o f i t s of U.S. a f f i l i a t e s no m a t t e r where earned i n a p p o r t i o n a b l e income. I l l i n o i s l i m i t e d \"the p e r m i s s i b l e scope of a u n i t a r y b u s i n e s s t o the domestic o p e r a t i o n s of a f f i l i a t e s i n c o r p o r a t e d i n the U n i t e d S t a t e s , a p r a c t i c e known as 'water's edge' a c c o u n t i n g . \" 3 9 3 Ten more s t a t e s p r a c t i c e w o r l d w i d e u n i t a r y a c c o u n t i n g . There a r e two v e r s i o n s of t h i s : domestic and t o t a l . A major d i f f e r e n c e between the above-mentioned two t a x a t i o n systems i s the t r e a t m e n t of t a x p a y e r s t h a t a r e s u b s i d i a r i e s of p a r e n t c o r p o r a t i o n s l o c a t e d i n o t h e r c o u n t r i e s . C o l o r a d o , M a s s a c h u s e t t s , Montana, New Hampshire, and Utah p r a c t i c e d d o m e s t i c w o r l d w i d e u n i t a r y t a x a t i o n , under which the s t a t e s a u t o m a t i c a l l y e x c l u d e d from u n i t a r y b u s i n e s s of such t a x p a y e r s the p a r e n t and the f o r e i g n s u b s i d i a r i e s of the p a r e n t . A l a s k a , C a l i f o r n i a , Idaho, N o r t h Dakota, and Oregon p r a c t i c e d t o t a l w o r l d wide u n i t a r y t a x a t i o n , under which \"the u n i t a r y b u s i n e s s of a f o r e i g n - b a s e d c o r p o r a t i o n can i n c l u d e any of i t s a f f i l i a t e s , i n c l u d i n g i t s f o r e i g n p a r e n t and f o r e i g n a f f i l a t e s [ s i c ] c o n d u c t i n g no t r a d e or b u s i n e s s i n 3 9 2 I b i d . , pp. 19-20. 3 9 3 I b i d . , p. 20. 287 the U n i t e d S t a t e s . \" 3 9 4 Moreover, F l o r i d a e n a c t e d l e g i s l a t i o n t o p r a c t i c e t o t a l w orldwide u n i t a r y t a x a t i o n , which has been i n f o r c e s i n c e 1983. As p r e v i o u s l y mentioned, the Japanese M i n i s t r y of F i n a n c e e x p r e s s e d c o n c e r n over the u n i t a r y t a x system. In r e s p o n s e , the worldwide U n i t a r y T a x a t i o n Working Group was e s t a b l i s h e d under P r e s i d e n t Reagan. In May, 1984, the Working Group reached a g e n e r a l agreement t o recommend a \"water's edge\" approach t o the worldwide u n i t a r y t a x a t i o n . \" I t was n o t e d t h a t under the U n i t e d S t a t e s ' f e d e r a l system, i m p l e m e n t a t i o n of t h i s agreement w i l l remain the r e s p o n s i b i l i t y of the s t a t e s . \" 3 9 5 P a t t e r n s of f o r e i g n d i r e c t i n v e s t m e n t i n the U n i t e d S t a t e s have a l r e a d y been a f f e c t e d by the u n i t a r y t a x . For i n s t a n c e , Sony C o r p o r a t i o n \" c i t e d c o n c e r n over the u n i t a r y t a x i s s u e as a p r i m a r y f a c t o r i n i t s d e c i s i o n t o l o c a t e a l a r g e c a s s e t t e - t a p e m a n u f a c t u r i n g p l a n t i n Alabama, which has no u n i t a r y t a x , r a t h e r than i n C a l i f o r n i a , which has been i n t h e f o r e f r o n t of the u n i t a r y t a x movement.\" 3 9 6 A n o t h e r example was the case of Ky o c e r a C o r p o r a t i o n , which \"has been s t a g g e r e d w i t h a b i l l from the S t a t e of C a l i f o r n i a f o r t a x e s which amount t o 101 p e r c e n t of i t s e a r n i n g s i n C a l i f o r n i a . \" 3 9 7 3 9 4 I b i d . , p. 22. 3 9 5 \"Report by Working Group,\" op_. c i t . , p. 23. 3 9 6 \" U n i t a r y Tax: B i g Idea That C o u l d B a c k f i r e B a d l y , \" The Japan Times, 5 June 1984, p. 12. 3 9 ' I b i d . 288 The Japan F e d e r a t i o n of Economic O r g a n i z a t i o n s (Keidanren) r a i s e d s t r o n g o b j e c t i o n t o t h i s way of impl e m e n t i n g the u n i t a r y t a x and s t r o v e t o win i t s e a r l y a b o l i t i o n . 3 9 8 In June, 1984, Keidanren sent an \"Investment Study M i s s i o n \" l e d by Sony Chairman A k i o M o r i t a t o 23 American s t a t e s and Washington, D.C. The v i s i t by the Keidanren m i s s i o n bore f r u i t i n t h a t i n 1985 I n d i a n a and Oregon a g r e e d t o a b o l i s h the f o r e i g n a p p l i c a t i o n of the u n i t a r y t a x . D u r i n g the m i s s i o n , M o r i t a announced t h a t t h e Sony C o r p o r a t i o n would s e t up a new $15-20 m i l l i o n (U.S.) p l a n t i n I n d i a n a t o produce l a s e r v i d e o d i s c s . 3 9 9 Moreover, the g o v e r n o r s of M a s s a c h u s e t t s and F l o r i d a promised t o f i n d a s o l u t i o n t o the u n i t a r y t a x p r o b l e m . 4 0 0 The Japanese government and b u s i n e s s community w i l l c o n t i n u e the campaign a g a i n s t t h i s t a x a t i o n system, e s p e c i a l l y i n C a l i f o r n i a , where the l a r g e s t number of Japanese c o r p o r a t i o n s have i n v e s t e d . F i n a l l y , w h i l e some of the U.S. s t a t e s b e n e f i t e d from a d d i t i o n a l revenue brought by t h e u n i t a r y t a x , the U n i t e d S t a t e s may s u f f e r from i t . \"The u n i t a r y t a x runs c o u n t e r t o the d r a f t agreement on double t a x a t i o n i s s u e d by the O r g a n i z a t i o n f o r Economic C o o p e r a t i o n and D e v e l o p m e n t . \" 4 0 1 There i s a p o s s i b i l i t y of d e v e l o p i n g c o u n t r i e s t a k i n g up the 3 9 8 T s u g u i o I b a y a s h i , \"Recent Development On U n i t a r y Tax,\" K e i d a n r e n Review no. 89 ( O c t o b e r , 1984): 11. 3 \" \" S o n y Announces P l a n t o B u i l d V i d e o D i s c F a c t o r y i n I n d i a n a , \" The Japan Times, 9 June 1984, p. 6. 4 0 0 A k i o M o r i t a , \"Investment Study M i s s i o n Welcome i n U.S.,\" KEIDANREN Review no. 8 (August, 1984): 8. n o i \" u n i t a r y Tax,\" The Japan Times, op. c i t . , p. 12. 289 u n i t a r y t a x t o o b t a i n a d d i t i o n a l revenue. Then, U.S. m u l t i n a t i o n a l s may a l s o be a d v e r s e l y a f f e c t e d . I I I . Japanese D i r e c t F o r e i g n Investment i n Canada A f t e r c o n s i d e r a b l e growth, Japanese D i r e c t F o r e i g n Investment (DFI) i n the U n i t e d S t a t e s e p i t o m i z e d Japanese DFI i n the w o r l d . However, based on the Japanese d a t a ( T a b l e 21) Japanese DFI i n Canada has not kept pace w i t h t o t a l Japanese o v e r s e a s i n v e s t m e n t . From 1951 t o 1970 Canada h o s t e d U.S.$212 m i l l i o n , w h i c h a c c o u n t e d f o r 5.9 p e r c e n t of the t o t a l Japanese DFI i n the w o r l d . Since, then Canada has r e c e i v e d a s m a l l e r s h a r e . The a c c u m u l a t e d Japanese DFI from 1951 t o 1983 i n t h i s c o u n t r y reached U.S.$1,391 m i l l i o n , r a n k i n g e l e v e n t h i n the s c a l e of r e c i p i e n t s , but c o n s i s t i n g of o n l y 2.3 p e r c e n t of a l l Japanese o v e r s e a s i n v e s t m e n t . (As p r e v i o u s l y mentioned, a c t u a l i n v e s t m e n t f a l l s s h o r t of the l i c e n s e d amount because some approved p r o j e c t s f a i l e d t o m a t e r i a l i z e . ) Not o n l y was Japanese i n v e s t m e n t i n Canada a s m a l l p o r t i o n of the t o t a l Japanese DFI, but a l s o the Canadian s h a r e r e p r e s e n t e d a s m a l l p a r t of t o t a l f o r e i g n i nvestment i n Canada. Based on the Canadian d a t a a t the end of 1984, Japanese d i r e c t i n v e s t m e n t i n Canada was C$1,752 m i l l i o n , r a n k i n g i t f i f t h . \" 0 2 Japanese i n v e s t m e n t i n Canada was overshadowed by e x i s t i n g e q u i t y h e l d by the U n i t e d S t a t e s , * 0 2 C a n a d a , S t a t i s t i c s Canada, Canada's I n t e r n a t i o n a l Investment P o s i t i o n : 1981 t o 1984, (Ottawa: M i n i s t r y of S u p p l y and S e r v i c e s , 1986) , p. 58. 290 the U n i t e d Kingdom, West Germany, and the N e t h e r l a n d s . I t o n l y c o m p r i s e d 2.1 p e r c e n t of the t o t a l DFI i n Canada. However, i n 1979 Japanese DFI i n Canada was o n l y C$479 m i l l i o n , r a n k i n g i t s e v e n t h which has s h a r p l y i n c r e a s e d . 4 0 3 A l t h o u g h Japanese d i r e c t i n v e s t m e n t was s t i l l s m a l l , compared w i t h i n v e s t m e n t by o t h e r i n d u s t r i a l i s e d c o u n t r i e s , Japan was a new i n v e s t o r t o Canada. \". . . i t adds t o the d i v e r s i t y of f o r e i g n i n v e s t o r s and c o n t r i b u t e s a s m a l l c o u n t e r w e i g h t t o the p r e v a i l i n g dominance of American investment i n C a n a d a . \" 4 0 4 In t h i s sense, i n s p i t e of t h e s m a l l amount of c a p i t a l f l o w , i t i s i m p o r t a n t t o examine Japanese i n v e s t m e n t i n Canada. Moreover, i n v e s t m e n t i s one of the i n d i c a t o r s used i n d e t e r m i n i n g the degree of economic i n t e r d e p e n d e n c e between two c o u n t r i e s . Another i n d i c a t o r , the amount of t r a d e , i l l u s t r a t e d t h a t 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 f o r Canada a f t e r the U n i t e d S t a t e s i n 1973. There a r e two b a s i c s e t s of d a t a p e r t a i n i n g t o Japanese d i r e c t i n v e s t m e n t i n Canada: th e Japanese M i n i s t r y of F i n a n c e a p p r o v a l d a t a ( r e c e n t l y p r i o r d e c l a r a t i o n d a t a ) and S t a t i s t i c s Canada book v a l u e d a t a . Wright summarizes d i f f e r e n c e s i n t h e s e two s e t s of d a t a . The Japanese d a t a : \u00E2\u0080\u00A2Are more c u r r e n t than S t a t i s t i c s Canada d a t a 4 0 3 C a n a d a , S t a t i s t i c s Canada, S t a t i s t i c s Canada D a i l y , 1 F e b r u a r y 1983, p. 9. 4 0 a K e i t h A . J . Hay and P e t e r P r i c e , Canada, Japan and t h e P a c i f i c Community: A Study of I n t e r l o c k i n g P a c i f i c Rim Trade P a t t e r n s , The R o l e of Canada and Japan i n Them and the Concept of A P a c i f i c Community, (Ottawa: Econolynx I n t e r n a t i o n a l , 1981), p. 32. 291 \u00E2\u0080\u00A2 I n c l u d e a l l i n v e s t m e n t p r o p o s a l s a u t h o r i z e d by the Japanese M i n i s t r y of F i n a n c e , whether r e a l i z e d or not \u00E2\u0080\u00A2 I n c l u d e p o r t f o l i o as w e l l as d i r e c t i n v e s t m e n t s . C o n s e q u e n t l y , i n v e s t m e n t f i g u r e s r e p o r t e d from Japanese s o u r c e s t e n d t o be much l a r g e r than t h o s e from Canadian s o u r c e s . Japanese M i n i s t r y of F i n a n c e d a t a a r e more r e a l i s t i c and t i m e l y i n an a g g r e g a t e sense, but S t a t i s t i c s Canada d a t a a r e more u s e f u l f o r a n a l y t i c and c o m p a r a t i v e p u r p o s e s . \" 0 5 However, the w r i t e r adopted the Japanese d a t a t o a n a l y z e Japanese i n v e s t m e n t p a t t e r n s i n Canada. The Japanese investment p a t t e r n s i n the U n i t e d S t a t e s and Canada a r e comparable by u s i n g the same Japanese d a t a s o u r c e . R e g a r d i n g the t h i r d p o i n t i n the Wright summary, the d e f i n i t i o n of d i r e c t f o r e i g n investment by the M i n i s t r y of F i n a n c e i n c l u d e s 10 p e r c e n t or more e q u i t y a c q u i s i t i o n (25 p e r c e n t or more b e f o r e t h e amendment of the F o r e i g n Exchange C o n t r o l Law i n December, 1980) i n f o r e i g n c o r p o r a t i o n s and l o a n s t o t h o s e c o r p o r a t i o n s , and the e s t a b l i s h m e n t or e x p a n s i o n of b r a n c h e s , but e x c l u d e s r e a l e s t a t e s i n c e 1980. T h e r e f o r e , by d e f i n i t i o n the Japanese d a t a does not i n c l u d e p o r t f o l i o i n v e s t m e n t . A c c o r d i n g t o the Japanese d a t a , i n 1983 the a c c u m u l a t e d Japanese DFI i n Canada re a c h e d U.S.$1,391 m i l l i o n . \" 0 6 M a n u f a c t u r i n g h o s t e d the l a r g e s t amount w i t h $459 m i l l i o n , or 33.3 p e r c e n t of the t o t a l Japanese i n v e s t m e n t i n Canada ( T a b l e 2 7 ) . Of t h i s amount, lumber and p u l p a t t r a c t e d $225 m i l l i o n (16.2 p e r c e n t of the t o t a l ) and f e r r o u s and \" 0 5 R i c h a r d W. W r i g h t , Japanese B u s i n e s s i n Canada: The E l u s i v e A l l i a n c e , ( M o n t r e a l : I n s t i t u t e f o r R e s e a r c h on P u b l i c P o l i c y , , 1984), pp. 22 and 25. \" 0 6 H e r e a f t e r , amounts a r e i n U.S. d o l l a r s . Table 27: Japanese Direct Foreign Investment in Canada (In U.S. M i l l i o n Dollars, %) 1951-1967 1968-1971 1972- 197,7 1978- 1980 1981 -1983 Manufacturi ng Foodstuffs - - - - 10 2.4 16 5 .6 5 1 . 1 Text i1es - - - - 39 9 . 5 18 6 . 3 0 0 .0 Lumber & Pulp 32 50.8 86 53. 1 21 5. 1 59 20 .6 29 6 . 2 Chemicals - - - - 0 0.0 1 0 . 3 0 0 .0 Ferrous & Non-ferrous metals 0 0.0 0 0.0 63 15.4 6 2 . 1 34 7 . 2 Ordinary machinery 2 3 . 2 - - 4 1 .0 4 1 .4 3 0 .6 E l e c t r i c a l equipment - - 1 0.6 2 0.5 7 2 .4 13 2 .8 Transportation equipment - - - - 1 0.2 1 0 .3 3 0 .6 Others - - 0 0.0 2 0.5 0 0. .0 0 0 .0 Manufacturing sub-total 34 54.0 88 54.3 141 34.6 1 12 39 . 0 88 18 . 7 Agriculture & Forestry - - 2 1 .2 10 2.4 20 7 . ,0 25 5. .3 F i sher i es 1 1 .6 0 0.0 3 0.7 - - - -M i ni ng 26 41.3 60 37 .0 125 30.6 33 1 1 . .5 144 30. .7 Construct i on - - 0 0.0 4 1 .0 3 1 . .0 - -Commerce 2 3.2 8 4.9 75 18.3 83 28. 9 60 12 . 8 Banking & Insurance - - - - 3 0.7 18 6 . 3 106 22. .6 Services - - - - 9 2 . 2 0 0. 0 0 0. .0 Transportat i on - - - - - - - - 0 0. .0 Real estate companies - - - - - - - - 27 5. 8 Others 0 0.0 4 2.5 34 8 . 3 9 3 . 1 20 4. 3 Branches 0 0.0 0 0.0 1 0.2 5 1 . 7 0 0. 0 Real estate investment 0 0.0 0 0.0 3 0.7 4 1 . 4 - -Total 63 100.0 163 100.0 409 100.0 286 100. 0 470 100. 0 (Source: Bank of Japan.) N3 vo ho 293 n o n - f e r r o u s m e t a l s $102 m i l l i o n (7.3 p e r c e n t ) . M i n i n g c a p t u r e d the second l a r g e s t i nvestment of $388 m i l l i o n , a c c o u n t i n g f o r 27.9 p e r c e n t . Commerce o b t a i n e d $227 m i l l i o n (16.3 p e r c e n t ) and b a n k i n g and i n s u r a n c e , $126 m i l l i o n (9.1 p e r c e n t ) . T a b l e 27 a l s o p r e s e n t s c h r o n o l o g i c a l l y the amounts of i n v e s t m e n t broken down by the type of i n d u s t r y . From 1951 t o 1971, the a g g r e g a t e amount of Japanese DFI was $226 m i l l i o n . Investment was almost e x c l u s i v e l y f u n n e l l e d i n t o t h e lumber and p u l p i n d u s t r y w i t h $118 m i l l i o n (52.4 p e r c e n t of the t o t a l Japanese i n v e s t m e n t ) and m i n i n g w i t h $86 m i l l i o n (38.2 p e r c e n t ) . The p e r i o d between 1972 and 1977, a t the onset of f u l l - f l e d g e d Japanese i n v e s t m e n t a c t i v i t i e s , w i t n e s s e d d i v e r s i f i e d i n v e s t m e n t s e c t o r s . F i r s t , m a n u f a c t u r i n g h o s t e d $141 m i l l i o n , or 34.6 p e r c e n t of the t o t a l i n v e s t m e n t . The f o c i of i n v e s t m e n t i n m a n u f a c t u r i n g s h i f t e d from lumber and p u l p t o f e r r o u s and n o n - f e r r o u s m e t a l s and t e x t i l e s . F e r r o u s and n o n - f e r r o u s m e t a l s o b t a i n e d $63 m i l l i o n , or 15.4 p e r c e n t , and a major p r o j e c t was an aluminum s m e l t e r s t a r t e d i n 1 9 7 5 . 4 0 7 A f t e r the f i r s t o i l c r i s i s of 1973, i n c r e a s e d o i l p r i c e s r e s u l t e d i n h i g h c o s t s of e l e c t r i c i t y i n J a p a n , which, i n t u r n , eroded t h e i n t e r n a t i o n a l c o m p e t i t i v e n e s s of the Japanese aluminum i n d u s t r y . C o n s e q u e n t l y , the i n d u s t r y began t o s c a l e down do m e s t i c p r o d u c t i o n c a p a c i t y and 4 0 7 K a i q a i T o s h i Kenkyusho-Ho (August, 1976): 35. 294 r e l o c a t e d s m e l t e r s o v e r s e a s where cheaper h y d r o e l e c t r i c i t y or c o a l were a v a i l a b l e f o r power. The Asahan aluminum s m e l t e r i n I n d o n e s i a t y p i f i e d t h i s movement of the i n d u s t r y . S i m i l a r l y , an aluminum s m e l t e r was e s t a b l i s h e d i n Canada. In 1977 $11 m i l l i o n was i n v e s t e d i n t e x t i l e s , i n d i c a t i v e of the new type of i n v e s t m e n t , whose major purpose was t o manufacture h i g h f a s h i o n a p p a r e l p r o d u c t s f o r the d e v e l o p e d c o u n t r i e s . 4 0 8 T h i s was i n sh a r p c o n t r a s t t o c o n v e n t i o n a l t y p e s of investment i n t e x t i l e s which were i n t e n d e d t o u t i l i z e cheap l a b o r i n the d e v e l o p i n g c o u n t r i e s . The second l a r g e s t amount, some $125 m i l l i o n (30.6 p e r c e n t ) , was poured i n t o m i n i n g , an i n c r e a s e r e l a t e d t o the f i r s t o i l c r i s i s of 1973, which s e v e r e l y h u r t the Japanese economy. T h i s i n c i d e n t f o r c e d the Japanese t o pursue p o l i c i e s of d i v e r s i f i c a t i o n i n energy s u p p l i e s from the M i d d l e E a s t c o u n t r i e s t o worldwide a r e a s . At the same t i m e , the Japanese sought t o d i v e r s i f y energy s o u r c e s from p r i m a r i l y o i l t o c o a l , n a t u r a l gas and atomic energy. T h i s p r a c t i c e i n Canada m a n i f e s t e d a c t i v e Japanese p a r t i c i p a t i o n i n n a t u r a l r e s o u r c e development p r o j e c t s i n o r d e r t o o b t a i n t h e r m a l c o a l , o i l sand, and l i q u e f i e d n a t u r a l gas (LNG), i n a d d i t i o n t o c o k i n g c o a l . The Japanese s t e e l i n d u s t r y and sogo shosha were e s p e c i a l l y i n t e r e s t e d i n c o a l development p r o j e c t s l o c a t e d i n B r i t i s h Columbia i n o r d e r t o s e c u r e the s u p p l y of c o k i n g c o a l f o r Japan. For example, i n 1974 $18 m i l l i o n was i n v e s t e d i n the Smoky R i v e r P r o j e c t ( l o a n and 4 0 8 K a i g a i T o s h i Kenkyusho-Ho (August, 1977): 34-35. 295 purchase of c o a l ) . 4 0 9 In 1973, major m i n i n g i n v e s t m e n t was d i r e c t e d i n t o the development of i r o n o r e . Commerce h o s t e d the t h i r d l a r g e s t amount of investment w i t h $75 m i l l i o n , a c c o u n t i n g f o r 18.3 p e r c e n t of the t o t a l . I t i s noteworthy t h a t i n v e s t m e n t i n commerce was l i m i t e d and o n l y s t a r t e d t o i n c r e a s e a f t e r 1972, a l t h o u g h b r a n c h o f f i c e s and s u b s i d i a r i e s of sogo shosha i n Canada were a l r e a d y e s t a b l i s h e d i n the 1950's and 1960's. T h i s i n v e s t m e n t p a t t e r n i n Canada p r e s e n t s a s t r i k i n g c o n t r a s t t o investment i n U.S. commerce, which r e c e i v e d a l a r g e amount of Japanese DFI from the b e g i n n i n g of postwar i n v e s t m e n t h i s t o r y . D e s p i t e the independent s t a t u s of sogo shosha i n the U n i t e d S t a t e s and Canada, because of t h e i r s m a l l s i z e , Canadian o p e r a t i o n s a r e sometimes assumed t o be an e x t e n s i o n of the American companies. In t he next p e r i o d of i n v e s t m e n t , 1978 t o 1980, $112 m i l l i o n was i n v e s t e d i n m a n u f a c t u r i n g . A p p r o x i m a t e l y h a l f , $59 m i l l i o n , was d i r e c t e d i n t o t he lumber and p u l p i n d u s t r y . In 1980 t h e r e was a $43 m i l l i o n p r o j e c t t o produce paper f o r magazines and a $15 m i l l i o n p r o j e c t t o produce p u l p . 4 1 0 D u r i n g t h i s p e r i o d , commerce h o s t e d $83 m i l l i o n , a c c o u n t i n g f o r 28.9 p e r c e n t of the t o t a l . M i n i n g c a p t u r e d $33 m i l l i o n , c o n s i s t i n g of 11.5 p e r c e n t . Of t h i s amount, i n 1979 $17 m i l l i o n was i n v e s t e d i n o i l sand d e v e l o p m e n t . 4 1 1 4 0 9 K a i g a i T o s h i Kenkyusho-Ho (September, 1975): 19. 4 1 0 K a i q a i T o s h i Kenkyusho-Ho v o l . 7, no. 9 (September, 1981): 14. 4 1 1 K a i g a i T o s h i Kenkyusho-Ho v o l . 6, no. 9 (September, 1980): 17. 296 F i n a l l y , from 1981 t o 1983, $470 m i l l i o n was f u r t h e r i n v e s t e d i n Canada. M i n i n g o c c u p i e d the l a r g e s t share w i t h $144 m i l l i o n , or 30.7 p e r c e n t . Major p r o j e c t s i n c o k i n g c o a l i n c l u d e d development of the Greg R i v e r Mine ($25 m i l l i o n ) i n 1981, and development of the Bullmoose Mine ($29 m i l l i o n ) and the Q u i n t e t t e Mine ($21 m i l l i o n ) i n 1 9 8 2 . 4 1 2 The Greg R i v e r Mine development was a noteworthy event s i n c e Japanese b l a s t f u r n a c e companies took an e q u i t y p o s i t i o n (40.0 p e r c e n t of e q u i t y by the J a p a n e s e ) . Remarkably, the second l a r g e s t i n v e s t m e n t of $106 m i l l i o n (22.6 p e r c e n t ) was f u n n e l l e d i n t o b a n k i n g and i n s u r a n c e . T h i s s h a r p i n c r e a s e i n t h i s s e c t o r m i r r o r e d r e v i s i o n s of the Canadian Bank A c t , e f f e c t i v e J a n u a r y 1981. \" P r i o r t o 1981, Canadian bank l e g i s l a t i o n r e s t r i c t e d f o r e i g n b a n k i n g p r e s e n c e i n Canada t o r e p r e s e n t a t i v e o f f i c e s , which c o u l d n e i t h e r a c c e p t d e p o s i t s nor make l o a n s . \" 4 1 3 However, w i t h a change i n the law, Japanese banks i n Canada were a b l e t o open f u l l - s e r v i c e b r a n c h e s . They m a i n l y o f f e r w h o l e s a l e commercial s e r v i c e s . 4 1 4 M a n u f a c t u r i n g took the t h i r d l a r g e s t amount, $88 m i l l i o n . Investment was c o n c e n t r a t e d i n the f e r r o u s and n o n - f e r r o u s m e t a l i n d u s t r y w i t h $34 m i l l i o n and i n the lumber and p u l p i n d u s t r y w i t h $29 m i l l i o n . Commerce h o s t e d $60 m i l l i o n w hich a c c o u n t e d f o r 12.8 p e r c e n t of the t o t a l . The amount and p e r c e n t a g e of i n v e s t m e n t i n commerce was 4 1 2 K a i g a i T o s h i Kenkyusho-Ho v o l . 8, no. 10 ( O c t o b e r , 1982): 21, and v o l . 9, no. 10 ( O c t o b e r , 1983): 53. 4 1 3 W r i g h t , op_. c i t . , p. 64. 4 1 4 I b i d . , p. 66. 297 s m a l l compared w i t h t h o s e i n the U.S. To summarize, throughout the postwar p e r i o d m i n i n g has been a major h o s t of Japanese DEF i n Canada. In m a n u f a c t u r i n g , Japanese investment has been c o n c e n t r a t e d i n m a t e r i a l i n d u s t r i e s , t h a t i s , lumber and p u l p and f e r r o u s and n o n - f e r r o u s m e t a l i n d u s t r i e s . Japanese investment i n commerce, and i n b a n k i n g and i n s u r a n c e i s a r e c e n t phenomenon. I n c r e a s e d investment i n commerce s t a r t e d i n the e a r l y 1970's, w h i l e b a n k i n g and i n s u r a n c e commenced i n t h e 1980's. T h i s Japanese investment p a t t e r n i n Canada i s d i f f e r e n t from t h a t i n the U n i t e d S t a t e s . The f o c i of Japanese i n v e s t m e n t i n the U n i t e d S t a t e s have been commerce and b a n k i n g and i n s u r a n c e s i n c e the b e g i n n i n g of postwar p e r i o d w i t h a r e c e n t upsurge of i n v e s t m e n t i n m a n u f a c t u r i n g , e s p e c i a l l y i n e l e c t r i c a l / e l e c t r o n i c equipment and t r a n s p o r t equipment. Japanese i n v e s t m e n t i n U.S. m a n u f a c t u r i n g was o r i e n t e d t o more va l u e - a d d e d and p r o c e s s i n g - a s s e m b l y , w h i l e c o r r e s p o n d i n g Canadian i n v e s t m e n t was d i r e c t e d t o l e s s v a l u e - a d d e d . Japanese i n v e s t m e n t i n Canada has unique c h a r a c t e r i s t i c s . U n l i k e o t h e r i n v e s t o r s , who g e n e r a l l y seek t o g a i n d i r e c t c o n t r o l of a f f i l i a t e d companies i n Canada, the p r i m a r y purposes of Japanese i n v e s t o r s a r e t o s e c u r e r e l i a b l e f l o w s of raw m a t e r i a l s and n a t u r a l r e s o u r c e s t o Japan and t o f a c i l i t a t e the e x p o r t of m a n u f a c t u r i n g goods produced i n Japan. As a r e s u l t , Japanese i n v e s t m e n t i s 298 d i r e c t e d m a i n l y i n t o n a t u r a l r e s o u r c e s and m e r c h a n d i s i n g r a t h e r than m a n u f a c t u r i n g . A h i g h p r o p o r t i o n of Japanese i n v e s t m e n t i s i n the form of l o a n s r a t h e r than e q u i t y . The Japanese o f t e n take m i n o r i t y h o l d i n g s or e n t e r j o i n t v e n t u r e s . \"Another unique c h a r a c t e r i s t i c i s the e x t e n s i v e p a r t i c i p a t i o n of the l a r g e Japanese t r a d i n g h o u s e s . \" * 1 5 F i n a l l y , w h i l e most f o r e i g n i n v e s t m e n t i s d e s t i n e d f o r C e n t r a l Canada, which i s the i n d u s t r i a l c o r e of t h i s c o u n t r y , Japanese i n v e s t m e n t f l o w s l a r g e l y t o Western Canada, p a r t i c u l a r l y B r i t i s h Columbia and A l b e r t a where the major r e s o u r c e e x p o r t s f o r Japan and the P a c i f i c o r i g i n a t e . In sum, major c h a r a c t e r i s t i c s of Japanese investment i n Canada a r e : a f o c u s on n a t u r a l r e s o u r c e s and commerce r a t h e r than m a n u f a c t u r i n g ; a tendency toward l o n g - t e r m l o a n s r a t h e r than e q u i t y ; a h i g h i n c i d e n c e of m i n o r i t y e q u i t y p o s i t i o n s ; an e x t e n s i v e p a r t i c i p a t i o n of sogo shosha; and a marked o r i e n t a t i o n toward Western Canada r a t h e r than C e n t r a l Canada. Canadian s o u r c e s e v a l u a t e d m e r i t s and d e m e r i t s of t h i s t y p e of Japanese i n v e s t m e n t . \" I n r e f l e c t i n g w i l l i n g n e s s t o p r o v i d e needed f i n a n c i n g and t o open markets w i t h o u t s e e k i n g t o g a i n c o n t r o l , the Japanese aims seem c o m p a t i b l e w i t h Canada's s t a t e d o b j e c t i v e of welcoming f o r e i g n p a r t i c i p a t i o n w h i c h does not t h r e a t e n i t s own n a t i o n a l economic s o v e r e i g n t y . \" 4 1 6 In the view of many C a n a d i a n s , academics, 4 1 5 J o a n Gherson, \"Japanese Investment i n Canada,\" F o r e i g n Investment Review v o l . 3, no. 1 (Autumn, 1979): 4. 4 1 6 W r i q h t , i b i d . \" 299 businessmen and government o f f i c i a l s c oncerned w i t h Japanese DFI, however, \"The problem i s t h a t o n l y a v e r y s m a l l p o r t i o n of Japanese inv e s t m e n t i s d i r e c t e d towards m a n u f a c t u r i n g or p r o c e s s i n g a c t i v i t i e s which would maximize domestic j o b c r e a t i o n and v a l u e a d d e d . \" 4 1 7 Canadians hope t h a t the Japanese w i l l be engaged i n more p r o c e s s i n g of n a t u r a l r e s o u r c e s and m a n u f a c t u r i n g i n Canada. t IV. The Investment Climate i n Canada Canada i s one of the i n d u s t r i a l i z e d c o u n t r i e s . However, the p o l i t i c a l , economic and s o c i a l e nvironments i n Canada d i f f e r from those of the U n i t e d S t a t e s , and have r e s u l t e d i n a d i f f e r e n t i n v e s t m e n t c l i m a t e . The c h a r a c t e r i s t i c s of the Canadian economy and economic p o l i c i e s , which have i n f l u e n c e d the i n v e s t m e n t c l i m a t e , a r e d i s c u s s e d i n o r d e r t o c l a r i f y Japanese d i r e c t f o r e i g n i n v e s t m e n t a c t i v i t i e s i n Canada. In 1984, the p o p u l a t i o n of t h e U n i t e d S t a t e s was a p p r o x i m a t e l y 237 m i l l i o n w h i l e Canadian p o p u l a t i o n was 25 m i l l i o n . 4 1 8 In 1983, the G r o s s N a t i o n a l P r o d u c t of the U n i t e d S t a t e s was U.S.$3,305 b i l l i o n and t h a t of Canada was U.S.$324 b i l l i o n , or o n e - t e n t h t h e s i z e of the U.S. economy. S i n c e the per c a p i t a GNP of t h e U n i t e d S t a t e s was U.S.$14,093 and t h a t of Canada was U.S.$ 1 3,007, 4 1 9 p u r c h a s i n g power i n t h e s e two c o u n t r i e s i s comparable. 4 1 7 I b i d . 4 1 8 N a k a y a m a , op_. c i t . , p. 6. 4 1 9 I b i d . p. 11. 300 D e s p i t e s i m i l a r p u r c h a s i n g power the f a c t t h a t the Canadian economy was o n e - t e n t h the s i z e of the U n i t e d S t a t e s economy r e s u l t e d i n a s m a l l s i z e market, f o r i t s p r o t e c t e d m a n u f a c t u r i n g s e c t o r . Moreover, the s m a l l s i z e of the market has p r e v e n t e d the development of economies of s c a l e . Not o n l y the s m a l l economy s i z e but a l s o the p a r t i c u l a r n a t u r e of the p o p u l a t i o n d i s t r i b u t i o n have i n f l u e n c e d market f o r m a t i o n . A l t h o u g h some 70 p e r c e n t of the Canadian p o p u l a t i o n i s c o n c e n t r a t e d i n O n t a r i o and Quebec, the r e s t of the p o p u l a t i o n i s d i s p e r s e d a l o n g the border between Canada and the U n i t e d S t a t e s . T h i s s i t u a t i o n makes i t d i f f i c u l t f o r m a r k e t i n g a g e n c i e s and d i s t r i b u t o r s t o f o c u s upon t a r g e t a r e a s , e xcept f o r the C e n t r a l p a r t of Canada. Thus, the s m a l l s i z e and l o c a t i o n of the market make Canada a l e s s a t t r a c t i v e i n v e s t m e n t d e s t i n a t i o n , compared w i t h the U n i t e d S t a t e s . In a d d i t i o n t o t h e s e economic f a c t o r s , p o l i t i c a l f a c t o r s a r e i n s e p a r a b l e from th e f o r m a t i o n of the p r e s e n t Canadian investment c l i m a t e as w e l l as the c h a r a c t e r i s t i c s of the economy. The Canadian economy has been i n c o r p o r a t e d i n t o b o t h a N o r t h - S o u t h and an East-West dichotomy. The N o r t h - S o u t h a x i s r e f e r s t o the r e l a t i o n s h i p w i t h the U n i t e d S t a t e s . Because of i t s g e o g r a p h i c a l p r o x i m i t y , Canada has been i n f l u e n c e d much more by i t s s t r o n g n e i g h b o r than by o t h e r i n d u s t r i a l i z e d c o u n t r i e s . Canada has f l u c t u a t e d between n a t i o n a l i s m and c o n t i n e n t a l i s m , i n terms of economic and p o l i t i c a l s o v e r e i g n t y . Depending on governmental p o l i c y , 301 on one o c c a s i o n Canada sought economic independence from the U n i t e d S t a t e s , and on a n o t h e r o c c a s i o n i t pursued economic i n t e g r a t i o n w i t h the U n i t e d S t a t e s . The East-West a x i s r e f e r s t o the r e l a t i o n s h i p among p r o v i n c e s w i t h i n the c o u n t r y . As opposed t o a u n i t a r y s t a t e such as Japan, Canada i s based on f e d e r a l i s m . I n t e r e s t s among the f e d e r a l and p r o v i n c i a l governments o f t e n c o n f l i c t , which has provoked a r i s e i n s t r o n g r e g i o n a l i s m . D i f f e r e n c e s i n h i s t o r i c a l development, s o c i a l background and economic bases g e n e r a t e d antagonism, p a r t i c u l a r l y , i n Western Canada a g a i n s t t h e f e d e r a l government, i n which the i n t e r e s t s of C e n t r a l Canada a r e o f t e n r e f l e c t e d , and Quebec s e p a r a t i s m . H i s t o r i c a l l y , t he Canadian economy has been based on e x p o r t i n g and p r o c e s s i n g raw m a t e r i a l s . F o r e i g n c a p i t a l was i n t r o d u c e d t o supplement d o m e s t i c c a p i t a l i n o r d e r t o d e v e l o p i n f r a s t r u c t u r e , n a t u r a l r e s o u r c e s , and i n d u s t r i a l b a ses. The h i s t o r i c a l p r o d u c t of economic development p r e s e n t l y appears as r e l a t i v e l y h i g h l e v e l s of f o r e i g n o w n e r s h i p i n the Canadian m a n u f a c t u r i n g and r e s o u r c e i n d u s t r i e s . W h i l e Canada i s i n d u s t r i a l i z e d , p r o d u c i n g a wide range of manufactured goods, i t a l s o p o s s e s s e s h i n t e r l a n d economic c h a r a c t e r i s t i c s , p r o d u c i n g r e s o u r c e s e x p o r t e d t o o t h e r i n d u s t r i a l i z e d c o u n t r i e s . The Canadian economy f e a t u r e s a s t a p l e economy, a l o n g w i t h the b r a n c h - p l a n t n a t u r e economy. In t h i s r e g a r d , K a r i L e v i t t has c a l l e d Canada a \" r i c h , i n d u s t r i a l i z e d , [and] underdeveloped 302 e c onomy.\" 4 2 0 Indeed, P r o f e s s o r A i t k e n has p o i n t e d out t h a t \"Canada remains, i n s p i t e of her g r e a t e r w e a l t h and i n s p i t e of her p o l i t i c a l l y independent s t a t u s , a p e r i p h e r a l s a t e l l i t e . \" 4 2 1 T h i s i s n o t h i n g o t h e r than a p r o d u c t of h i s t o r i c a l c i r c u m s t a n c e s . To borrow P r o f e s s o r A i t k e n ' s words, a l t h o u g h the Canadian economy has c o n t i n u e d t o d e v e l o p , t h r o u g h o u t i t s h i s t o r y Canada has been an economic s a t e l l i t e of b o t h B r i t a i n and the U n i t e d S t a t e s . 4 2 2 The Canadian economy g r e a t l y depends on f o r e i g n t r a d e , which a c c o u n t s f o r over 30 p e r c e n t of the GNP. Canada s h a r e s w i t h the U n i t e d S t a t e s t h e w o r l d ' s l a r g e s t b i l a t e r a l t r a d e r e l a t i o n s h i p . In 1984, 76.6 p e r c e n t of Canadian e x p o r t s and 72.8 p e r c e n t of i m p o r t s were w i t h the U n i t e d S t a t e s . 4 2 3 As C u l v e r has p o i n t e d o u t , not o n l y i s Canada the l a r g e s t t r a d i n g p a r t n e r of the U n i t e d S t a t e s , but a l s o , more n o t e w o r t h i l y , the p r o v i n c e of O n t a r i o a l o n e i s the second l a r g e s t t r a d i n g p a r t n e r of t h e U n i t e d S t a t e s . 4 2 4 In a d d i t i o n , f o r e i g n c o n t r o l of c a p i t a l i n Canadian i n d u s t r y remains h i g h by i n t e r n a t i o n a l s t a n d a r d s , even though d u r i n g the 1970's and owing t o a c t i v e governmental 4 2 0 L e v i t t , op. c i t . , p. 127. 4 2 1 H . G . J . A i t k e n , \" D e f e n s i v e E x p a n s i o n i s m : The S t a t e and Economic Growth i n Canada,\" i n The S t a t e and Economic Growth, ed. H.G.J. A i t k e n (New Y ork: S o c i a l S c i e n c e R e s e a r c h C o u n c i l , 1959), c i t e d by K a r i L e v i t t , op. c i t . , p. 48. 4 2 2 I b i d . 4 2 3 C a n a d a , R o y a l Commission on the Economic Union and Development P r o s p e c t s f o r Canada, R e p o r t , 3 v o l s . , known as the Macdonald Report (Ottawa: M i n i s t e r of S u p p l y and S e r v i c e s , 1985), 1:263. 4 2 \" D a v i d M. C u l v e r , \" K a i k a i A i s a t s u (The Opening Speech),\" i n Dai H a c h i k a i N i k k a K e i z a i j i n K a i g i Hokoku-sho (The R e p o r t of the 8 t h Japan-Canada Businessmen's C o n f e r e n c e ) (Tokyo: KEIDANREN, 1985), p. 37. 303 p o l i c i e s Canada w i t n e s s e d s u b s t a n t i a l d e c l i n e s i n f o r e i g n h o l d i n g of i n many d o m e s t i c i n d u s t r i e s . In 1982, \" f o r e i g n companies h e l d 49 per c e n t c o n t r o l i n Canadian m a n u f a c t u r i n g , 45 per c e n t i n p e t r o l e u m and n a t u r a l gas, 43 per c e n t i n m i n i n g and s m e l t i n g , and 26 per c e n t i n a l l o t h e r i n d u s t r i e s , e x c l u d i n g a g r i c u l t u r e and f i n a n c e . \" \" 2 5 Among t h e s e , the U n i t e d S t a t e s a c c o u n t s f o r about 80 p e r c e n t of the DFI i n C a n a d a . \" 2 6 T h e r e f o r e , the American economy has a s i g n i f i c a n t i n f l u e n c e on t h e Canadian economy. Abundant n a t u r a l r e s o u r c e s and governmental p o l i c i e s bestowed the p r e s e n t f e a t u r e s of the Canadian economy. The f i r s t momentous economic p o l i c y was the N a t i o n a l P o l i c y i n t r o d u c e d i n 1879 by John A. Macdonald. The N a t i o n a l P o l i c y i s c h a r a c t e r i z e d as b o t h a d o m e s t i c p o l i c y of economic development and a l s o a f o r e i g n p o l i c y d e s i g n e d t o stem from the southward f l o w of e m i g r a n t s from Canada t o the U n i t e d S t a t e s . * 2 7 The P o l i c y i n s t i t u t e d a p r o t e c t i v e t a r i f f a g a i n s t f o r e i g n , m a i n l y A m e r i c a n , manufactured goods, i n o r d e r t o p r o t e c t d o m e s t i c i n f a n t m a n u f a c t u r i n g i n d u s t r i e s . The P o l i c y r e s u l t e d i n i n c r e a s e i n f o r e i g n i n v e s t m e n t , e s p e c i a l l y A merican, f o r s e t t i n g up b r a n c h p l a n t s t o a v o i d Canadian t r a d e b a r r i e r s . S i n c e t h e p r o t e c t e d i n d u s t r i e s were d e s i g n e d * 2 5 T h e Macdonald R e p o r t , op. c i t . , 2:233. \" 2 6 I b i d . Only a few o t h e r economies have as much as 40 p e r c e n t of t h e i r m a n u f a c t u r i n g c a p i t a l i n companies owned by f o r e i g n r e s i d e n t s ; I t a l y , F r a n c e , West Germany and the U n i t e d Kingdom have economies t h a t a r e between 20 p e r c e n t and 30 p e r c e n t f o r e i g n - o w n e d ; and the U n i t e d S t a t e s and Japan a r e a p p r o x i m a t e l y 5 p e r c e n t f o r e i g n - o w n e d . (The Macdonald R e p o r t , i b i d . ) \" 2 7 T h e Macdonald R e p o r t , op. c i t . , 1:217. 304 t o s e r v e the s m a l l Canadian market, t h e s e would be i n e f f i c i e n t by w o r l d s t a n d a r d s . \" 2 8 C o n s e q u e n t l y , the N a t i o n a l P o l i c y p r e c e d e n t e d the development of the b r a n c h - p l a n t n a t u r e of the Canadian economy. Moreover, the N a t i o n a l P o l i c y t o b u i l d a s t r o n g n a t i o n a l economy was i n t e n d e d t o i n c r e a s e t h e a c c e p t a n c e of immigrants and t o e s t a b l i s h e a s t - w e s t t r a n s p o r t a t i o n l i n k s . I r o n i c a l l y , a g a i n s t t h e s e o r i g i n a l purposes of t h e P l a n , the h i s t o r y of the c o n s t r u c t i o n of a t r a n s c o n t i n e n t a l r a i l r o a d c o u l d be i n t e r p r e t e d as a h i s t o r y of the l a t e n t e x p l o i t a t i o n of Western Canada by C e n t r a l Canada. H i s t o r i c a l development of the f r o n t i e r and d i f f e r e n c e s i n economic bases g e r m i n a t e d the h i n t e r l a n d - h e a r t l a n d dichotomy between the l a t e r - d e v e l o p e d , r e s o u r c e - b a s e d Western p r o v i n c e s and the e a r l i e r - d e v e l o p e d , m a n u f a c t u r i n g - b a s e d C e n t r a l p r o v i n c e s . As a r e s u l t , not o n l y d i d the N a t i o n a l P o l i c y i n i t i a t e l a t e n t c o n f l i c t s of i n t e r e s t s among r e g i o n s , i t a l s o encouraged d i r e c t f o r e i g n i n v e s t m e n t , which gave the Canadian economy a b r a n c h - p l a n t n a t u r e , s u b s t a n t i a l l y g i v i n g c o n t r o l of Canadian i n d u s t r i e s t o f o r e i g n c a p i t a l . To many contemporary C a n a d i a n s , f o r e i g n c a p i t a l was synonymous w i t h American c a p i t a l , e s p e c i a l l y s i n c e Americans c o n t r o l l e d key m a n u f a c t u r i n g i n d u s t r i e s i n Canada. However, the U n i t e d S t a t e s has not always p l a y e d a major r o l e as a sourc e of in v e s t m e n t i n Canada. Up t o t h e m i d d l e of the n i n e t e e n t h c e n t u r y G r e a t B r i t a i n had been a main f o r e i g n \" 2 8 I b i d . , 1:270. 305 c r e d i t o r . \" I t has been e s t i m a t e d t h a t a t l e a s t 90 p e r c e n t of the $200 m i l l i o n of t o t a l f o r e i g n i n v e s t m e n t i n Canada i n 1867 o r i g i n a t e d i n B r i t a i n . \" 4 2 9 Most f o r e i g n i n v e s t m e n t was p o r t f o l i o i n v e s t m e n t , l a r g e l y government and r a i l w a y bonds. However, d i r e c t i n v e s t m e n t , i n v o l v i n g o w n e r s h i p or c o n t r o l of Canadian i n d u s t r y , amounted t o about 30 p e r c e n t of the t o t a l , \" 3 0 and G r e a t B r i t a i n was the foremost d i r e c t i n v e s t o r as w e l l . The dominant p o s i t i o n of Gr e a t B r i t a i n c o n t i n u e d u n t i l World War I . In the meantime, American i n v e s t m e n t g r a d u a l l y i n c r e a s e d due t o t h e e f f e c t s of the Canadian N a t i o n a l P o l i c y . I t s s h a r e of t o t a l f o r e i g n c a p i t a l i n Canada a c c o u n t e d f o r about 23 p e r c e n t by 1914, w h i l e the B r i t i s h s h a re d e c l i n e d t o about 72 p e r c e n t . D u r i n g and a f t e r W orld War I the B r i t i s h s t a r t e d t o l i q u i d a t e government and r a i l w a y d e b t s , and t h e r e f o r e , the Canadian f e d e r a l and p r o v i n c i a l governments and Canadian c o r p o r a t i o n s t u r n e d t o the U n i t e d S t a t e s f o r fu n d s . By 1926 r a p i d i n c r e a s e s i n U.S. investment made t h e U n i t e d S t a t e s Canada's p r i n c i p a l c r e d i t o r , but p o r t f o l i o i nvestment remained more than h a l f of f o r e i g n i n v e s t m e n t . \" 3 1 U.S. s o u r c e s c o n t i n u e d t o r e p l a c e the e r o s i o n of B r i t i s h i n vestment and by 1946 the p o s i t i o n s of the U n i t e d S t a t e s and Gre a t B r i t a i n as Canada's c r e d i t o r s \" 2 9 J o a n Gherson, \"U.S. Investment i n Canada\" F o r e i g n Investment Review v o l . 3, no. 2 ( S p r i n g , 1980T1 11. \" 3 0 I b i d . \" 3 1 N i h o n B o e k i S h i n k o k a i (Japan E x t e r n a l Trade O r g a n i z a t i o n , JETRO), N i k k a K e i z a i B o e k i no Genjo t o Shomondai ( P r e s e n t C o n d i t i o n and Some Problems of the Economic and T r a d i n g R e l a t i o n s h i p Between Japan and Canada) (Tokyo: JETRO, 1981), p. 90. 306 were e x a c t l y the r e v e r s e of what they had been i n 1914. That i s , \"some 72 p e r c e n t of the $7 b i l l i o n of f o r e i g n c a p i t a l was owned i n the U n i t e d S t a t e s and about 23 p e r c e n t i n B r i t a i n . \" 4 3 2 The 1950's and 1960's saw a massive i n f l u x of f o r e i g n i n v e s t m e n t i n Canada, e s p e c i a l l y U.S. d i r e c t i n v e s t m e n t . The sheer magnitude of U.S. f i n a n c e s i n o v e r s e a s p r o j e c t s and the h i g h p r o p o r t i o n of d i r e c t i n v e s t m e n t were two major c h a r a c t e r i s t i c s of U.S. DFI. At the end of 1982, the book v a l u e of f o r e i g n l o n g - t e r m i n v e s t m e n t i n Canada amounted t o Canadian $172.5 b i l l i o n , and U n i t e d S t a t e s r e s i d e n t s h e l d 63.4 p e r c e n t of t o t a l i n v e s t m e n t o r C$109.4 b i l l i o n . The second l a r g e s t i n v e s t m e n t was made by the U n i t e d Kingdom, c o m p r i s i n g 6.7 p e r c e n t (C$11.6 b i l l i o n ) of the t o t a l a t the end of 1 9 8 2 . 4 3 3 At the end of 1984, the book v a l u e of f o r e i g n d i r e c t i n v e s t m e n t i n Canada was C$81.7 b i l l i o n . U n i t e d S t a t e s d i r e c t i nvestment amounted t o C$62.3 b i l l i o n , which a c c o u n t e d f o r 76.3 p e r c e n t of t o t a l f o r e i g n d i r e c t i n v e s t m e n t . The second l a r g e s t d i r e c t f o r e i g n i n vestment i n Canada was made by the U n i t e d Kingdom r e a c h i n g C$7.3 b i l l i o n . 4 3 4 These f i g u r e s r e f l e c t the predominant pr e s e n c e of U.S. c a p i t a l i n t h i s c o u n t r y . A c c o r d i n g t o Gherson, the two p r i n c i p a l m o t i v e s f o r U.S. d i r e c t i n v e s t m e n t have been t o s e c u r e s u p p l i e s of raw m a t e r i a l s f o r i n d u s t r y and s u b s i d i a r i e s , and t o e x t e n d the 4 3 2 G h e r s o n , 1980, l o c . c i t . 4 3 3 C a n a d a , S t a t i s t i c s Canada, Canada's, op. c i t . , pp. 48-49. 4 3 4 I b i d . , p. 58. 307 market f o r U.S. p r o d u c t s . 4 3 5 E v i d e n c e of the r e a l i z a t i o n of t h e s e two g o a l s i s r e f l e c t e d by the f a c t t h a t r e s o u r c e development and m a n u f a c t u r i n g t o g e t h e r a c c o u n t e d f o r 75.1 p e r c e n t of the book v a l u e a t the end of 1984 of a l l U.S. d i r e c t f o r e i g n investment i n Canada (43.8 p e r c e n t i n m a n u f a c t u r i n g , 26.4 p e r c e n t i n p e t r o l e u m and n a t u r a l gas, and 4.9 p e r c e n t i n m i n i n g and s m e l t i n g ) . 4 3 6 Based on t h e same d a t a , U.S. d i r e c t f o r e i g n i nvestment i n Canadian m a n u f a c t u r i n g and i n p e t r o l e u m and n a t u r a l gas amounted t o C$27,307 m i l l i o n and C$16,466 m i l l i o n , which a c c o u n t e d f o r 84.5 p e r c e n t and 78.6 p e r c e n t of the t o t a l d i r e c t f o r e i g n investment i n Canada, r e s p e c t i v e l y . In m a n u f a c t u r i n g , the a u t o m o b i l e , e l e c t r o n i c s , c h e m i c a l s and o i l - c o a l s e c t i o n s have been h i g h l y c o n t r o l l e d by A m e r i c a n s . 4 3 7 H i s t o r i c a l a n a l y s i s and c o n s i d e r a t i o n s of r e c e n t c o n d i t i o n s i n d i c a t e t h a t Canada has been, over the l o n g term, one of the, most open and u n r e s t r i c t e d c o u n t r i e s i n terms of h o s t i n g f o r e i g n i n v e s t m e n t . L i k e o t h e r c o u n t r i e s , the Canadian f e d e r a l and p r o v i n c i a l governments r e s t r i c t e d f o r e i g n i n v e s t m e n t i n such a r e a s as t r a n s p o r t a t i o n , c o m m u n i c a t i o n s, i n s u r a n c e and t r u s t o p e r a t i o n s t o p r o t e c t n a t i o n a l i n t e r e s t s . 4 3 8 For example, the b r o a d c a s t i n g and newspaper p u b l i s h i n g i n d u s t r i e s a r e r e s e r v e d f o r C a n a d i a n s . The f e d e r a l b a n k i n g law has l i m i t e d the share of the 4 3 5 G h e r s o n , 1980, op. c i _ t . , p. 12. 4 3 6 C a n a d a , S t a t i s t i c s Canada, Canada's, op. c i t . , pp. 54-56. 4 3 7 J E T R O , N i k k a K e i z a i B o e k i , l o c . c i t . 4 3 8The Macdonald R e p o r t , op. c i t . , 2:238. 308 C a nadian market t h a t f oreign-owned banks may h o l d , but the m a r k e t - s h a r e l i m i t s of f o r e i g n b a n k i n g have been l i b e r a l i z e d i n r e c e n t y e a r s . 4 3 9 Thus, except f o r c e r t a i n i n d u s t r i e s , Canada has a c c e p t e d DFI w i t h open arms. D i r e c t f o r e i g n i n v e s t m e n t was s u p p o r t e d f o r i t was a major so u r c e of s c a r c e c a p i t a l , v a l u a b l e t e c h n o l o g y , m a n a g e r i a l \"know-how\" and e n t r e p r e n e u r s h i p , which f o s t e r e d growth and e f f i c i e n c y i n t h e economy and s t i m u l a t e d c o m p e t i t i o n . As a r e s u l t , by 1970 the C a n a d i a n p r i v a t e s e c t o r ( e x c l u d i n g f i n a n c i a l i n s t i t u t i o n s ) was 36 p e r c e n t c o n t r o l l e d by f o r e i g n e n t e r p r i s e s and t h i s i n c l u d e d 54 p e r c e n t of the m a n u f a c t u r i n g s e c t o r . 4 4 0 N a t u r a l l y , Canadians have shown g r e a t c o n c e r n about n a t i o n a l economic s o v e r e i g n t y i n r e s p onse t o the h i g h l e v e l of f o r e i g n o w n e r s h i p and c o n t r o l of t h e C anadian economy and the l a c k of a comprehensive c o n t r o l mechanism. D u r i n g the Trudeau e r a (1968-1980, 1981-1984), the n a t i o n a l i z a t i o n or C a n a d i a n i z a t i o n of the economy blossomed which m a t e r i a l i z e d i n the e s t a b l i s h m e n t of the F o r e i g n Investment Review Act i n 1973 and t h e N a t i o n a l Energy Program i n 1980. They were r e g u l a t i v e a p p a r a t u s e s of f o r e i g n o w n e r s h i p and c o n t r o l of the Canadian i n d u s t r i e s . However, b e f o r e these l e g i s l a t i o n s , the p r e d e c e s s o r s of t h e Trudeau government a l s o showed g r e a t c o n c e r n over the r e l a t i v e l y h i g h degree of f o r e i g n o w n e r s h i p , which might be 4 3 9 I b i d . 4 f t 0 T h e Embassy of Canada, Tokyo, Canada/Japan B u s i n e s s C o o p e r a t i o n Seminar, 1983, p. 12-12. 309 d e t r i m e n t a l t o Canadian i n t e r e s t s . In 1957, the Gordon Commission recommended an i n c r e a s e i n Canadian p a r t i c i p a t i o n i n f o r e i g n - o w n e d s u b s i d i a r i e s by means of share i s s u e s and t h e appointment of Canadian r e s i d e n t s t o boards of d i r e c t o r s . The Watkin Report i n 1965 was the f i r s t major government s t u d y of f o r e i g n i n v e s t m e n t i n Canada. The f o c u s was the e x t r a t e r r i t o r i a l a p p l i c a t i o n of the U.S. l e g i s l a t i o n t o Canadian branch o p e r a t i o n s of U.S. c o r p o r a t i o n s , and the Report recommended t h a t t h e r e be l e g i s l a t i o n t o f o r b i d the a p p l i c a t i o n of f o r e i g n laws i n C a n a d a . 4 \" 1 The Report recommended the e s t a b l i s h m e n t of h o l d i n g companies which would buy back f o r e i g n - c o n t r o l l e d Canadian c o r p o r a t i o n s i n o r d e r t o pursue C a n a d i a n i z a t i o n of r e s o u r c e s and i n d u s t r i e s . I t f r u c t i f i e d as the e s t a b l i s h m e n t of the Canada Development C o r p o r a t i o n i n 1 9 7 1 . 4 4 2 The Wahn Repo r t i n 1969 a l s o recommended t h a t 51 p e r c e n t of e q u i t y of major f o r e i g n - c o n t r o l l e d Canadian c o r p o r a t i o n s s h o u l d be s o l d t o C a n a d i a n s . In 1968 the L i b e r a l P a r t y l e d by Trudeau r e g a i n e d power. The f e d e r a l government a d o p t e d an independent f o r e i g n economic p o l i c y t o enhance Canadian economic and p o l i t i c a l autonomy. T h i s was e x e m p l i f i e d by t h e \" T h i r d O p t i o n , \" i n 1972 a i m i n g a t g r e a t e r independence from the U n i t e d S t a t e s , 4 4 ' R o b e r t K. P a t e r s o n , \"Law and P o l i c y of F o r e i g n D i r e c t Investment i n Canada ( P a r t I ) , \" J o u r n a l of the Japanese I n s t i t u t e of I n t e r n a t i o n a l B u s i n e s s Law ( K o k u s a i S h o j i Homu), v o l . 11, no. 6 (June, 1983): 370. 4 4 2 Y o s h i h i k o T a k a h a s h i and Tetsuo Ueda, Kanada no Shigen t o K e i z a i (The Resources and Economy of Canada) (Tokyo: K y o i k u - s h a , 1978), pp. 102 and 104. 310 r a t h e r than the st e a d y maintenance of the status quo r e l a t i o n s h i p w i t h the U n i t e d S t a t e s ( t h e f i r s t o p t i o n ) , or the c l o s e r i n t e g r a t i o n w i t h the U n i t e d S t a t e s ( t h e second o p t i o n ) . A l o n g t h e s e l i n e s , \"the f e d e r a l government sought t o s t r e n g t h e n the domesti c f o u n d a t i o n s of the Canadian economy, d i v e r s i f y t r a d e r e l a t i o n s , and reduce Canada's v u l n e r a b i l i t y t o the U.S.\" 4 4 3 Under t h i s \" c o u n t e r - c o n t i n e n t a l i s m , \" and s i n c e the U n i t e d Kingdom became a E.E.C. member i n 1973, the P a c i f i c B a s i n c o u n t r i e s , e s p e c i a l l y Japan, became a new r e g i o n a l f o c u s . C l o s e t r a d e and i n v e s t m e n t t i e s w i t h Japan denoted the i n t e r e s t s of the Western p r o v i n c e s , as p r e s e n t e d t o the f e d e r a l government. 4 4 4 Economic n a t i o n a l i s m bore f r u i t i n 1973 w i t h the passage of the F o r e i g n Investment Review A c t . The Gray Re p o r t i n 1972, p r o v i d e d t h e p o l i c y f o u n d a t i o n f o r t h i s l e g i s l a t i o n . The Report i n d i c a t e d t h a t a h i g h degree of f o r e i g n ownership and c o n t r o l of i n d u s t r y over l o n g p e r i o d s has l e d t o a \" t r u n c a t i o n \" of economic development, i n such a way t h a t branch p l a n t s l i m i t l o c a l autonomy over investment d e c i s i o n - m a k i n g and i n c r e a s e dependency on f o r e i g n goods, t e c h n o l o g y and s e r v i c e s . 4 4 5 In o r d e r t o p r e v e n t t h i s , the 4 4 3 T h e Macdonald R e p o r t , op. c i t . , 1:299. 4 4 \" F r a n k Langdon, \"Problems of Canada-Japan Economic Diplomacy i n the 1960's and 1970's: The T h i r d O p t i o n , \" i n Canadian P e r s p e c t i v e s on Economic R e l a t i o n s w i t h Japan, ed. K e i t h A. J . Hay ( M o n t r e a l : I n s t i t u t e f o r Research on P u b l i c P o l i c y , 1980), p. 78. 4 4 t r u n c a t i o n i s a term of Canadian o r i g i n , and the Gray R e p o r t p o p u l a r i z e d t h i s term. See Roger H a y t e r , \" T r u n c a t i o n , t h e I n t e r n a t i o n a l F i r m and R e g i o n a l P o l i c y . \" Area v o l . 14, no. 14 (1982): 277. 31 1 F o r e i g n Investment Review A c t was i n t r o d u c e d . Thus, a major purpose of the A c t was t o bestow upon the Government the a u t h o r i t y t o ensure t h a t new in v e s t m e n t p r o p o s a l s were d e s i g n e d t o b r i n g b e n e f i t s t o Canada as w e l l as t o the i n v e s t o r . The A c t came i n t o f o r c e i n A p r i l , 1974, w i t h r e s p e c t t o t a k e o v e r s and i n O c t o b e r , 1975, t o c o v e r the e s t a b l i s h m e n t of new b u s i n e s s e s . Under the F o r e i g n Investment Review A c t , the F o r e i g n Investment Review Agency (FIRA) was e s t a b l i s h e d t o examine c a s e s of p o t e n t i a l f o r e i g n i n v e s t m e n t . Both t a k e o v e r s of e x i s t i n g Canadian f i r m s and t h e e s t a b l i s h m e n t of new e n t e r p r i s e s by \" n o n - e l i g i b l e p e r s o n ( s ) \" a r e s u b j e c t t o a p p r o v a l . A \" n o n - e l i g i b l e p e r s o n \" i s d e f i n e d as a pe r s o n who i s n e i t h e r a Canadian c i t i z e n nor a lan d e d immigrant. F o r e i g n governments and t h e i r a g e n c i e s a r e a l s o c o n s i d e r e d as n o n - e l i g i b l e p e r s o n s . The F o r e i g n Investment Review Agency d i d not e x e r c i s e any o f f i c i a l d e c i s i o n - m a k i n g , but i t s recommendations t o the C a b i n e t g r e a t l y i n f l u e n c e d f i n a l a p p r o v a l by the Government. A p p l i c a n t s must s a t i s f y the c o n d i t i o n t h a t the e s t a b l i s h m e n t of e n t e r p r i s e would c o n f e r \" s i g n i f i c a n t b e n e f i t s \" t o Canada i n the l i g h t of f i v e r a t h e r vague c r i t e r i a : i . e . , the l e v e l and n a t u r e of economic a c t i v i t y , p a r t i c i p a t i o n by C a n a d i a n s , e f f i c i e n c y of i n d u s t r y , c o m p e t i t i o n , and f e d e r a l and p r o v i n c i a l economic p o l i c i e s . 4 4 6 S i n c e 1973 the C a b i n e t has 4 4 6 A l a n M. Rugman, \"The R e g u l a t i o n of F o r e i g n Investment i n Canada,\" J o u r n a l of World Trade Law v o l . 11, no. 4 ( J u l y / A u g u s t , 1977): 323-324. 312 r e j e c t e d o n l y about 7 p e r c e n t of f o r e i g n i n v e s t m e n t p r o p o s a l s r e v i e w e d by the Agency, but c r i t i c s have noted t h a t t h i s does not i n c l u d e unknown amounts by d i s c o u r a g e d a p p l i c a n t s . 4 4 7 Around 1980 the Canadian b u s i n e s s community, j o i n e d by f o r e i g n i n v e s t o r s and f o r e i g n governments, condemned the A c t , c l a i m i n g i t had been p r a c t i c e d i n an i n t e r v e n t i o n i s t manner. Hence, i n June 1982 the Government p r e s e n t e d a budget which i n c l u d e d some s p e c i f i c changes i n f o r e i g n investment p o l i c y . These e n t a i l e d r a i s i n g the t h r e s h o l d under which the s h o r t form a p p l i c a t i o n s would a p p l y and even h i g h e r t h r e s h o l d s f o r s o - c a l l e d i n d i r e c t i n v e s t m e n t s . The t h r e s h o l d a p p l i e d t o the s h o r t form was i n c r e a s e d from s m a l l - s c a l e e n t e r p r i s e s w i t h t o t a l a s s e t s of C$2 m i l l i o n o r l e s s and 100 employees or l e s s t o e n t e r p r i s e s w i t h t o t a l a s s e t s of C$5 m i l l i o n or l e s s and 200 employees or l e s s . C o n c e r n i n g i n d i r e c t i n v e s t m e n t , the t h r e s h o l d was l i f t e d t o i n c l u d e f i r m s o p e r a t i n g w i t h t o t a l a s s e t s of C$15 m i l l i o n or below and 600 employees or l e s s . 4 4 8 A f t e r the f e d e r a l e l e c t i o n of 1984, the C o n s e r v a t i v e P a r t y r e p l a c e d the L i b e r a l P a r t y , and f o l l o w i n g t h i s , p r e v i o u s economic p o l i c i e s were s c r u t i n i z e d by the newly e l e c t e d , more b u s i n e s s - o r i e n t e d government. In 1984 l e g i s l a t i o n was passed t h a t Investment Canada aimed a t e n c o u r a g i n g f o r e i g n i n v e s t m e n t would r e p l a c e FIRA. 4 4 7The Macdonald R e p o r t , op. c i t . , 2:239. 4 4 8 T h e Embassy of Canada, H a i k e i Setsumei Repoto No. 30 (Background I n f o r m a t i o n Report No. 3 0 ) , 1983, p. 6~. 313 A l o n g w i t h the F o r e i g n Investment Review A c t , the N a t i o n a l Energy Program (NEP) formed the f o u n d a t i o n of f o r e i g n i nvestment p o l i c y i n Canada. I n t r o d u c e d i n 1980, one of the o b j e c t i v e s was t o i n c r e a s e Canadian c o n t r o l i n the o i l and gas s e c t o r . U n l i k e o t h e r i n d u s t r i a l i z e d c o u n t r i e s , Canada began o n l y r e c e n t l y t o t r e a t i t s n a t u r a l r e s o u r c e s e c t o r as a key s e c t o r . 4 4 9 In 1974, Trudeau s t a t e d t h a t a t l e a s t 50 and p r e f e r a b l y 60 p e r c e n t Canadian e q u i t y o wnership s h o u l d be a t t a i n e d i n new major p r o j e c t s f o r n a t u r a l r e s o u r c e s . In 1971 t h e Canada Development C o r p o r a t i o n was e s t a b l i s h e d under f e d e r a l o w n e r s h i p t o i n v e s t i n the n a t u r a l r e s o u r c e s e c t o r , and i n 1975 P e t r o c a n was e s t a b l i s h e d . Hence, i n 1980 as a grand f i n a l e f o r energy p o l i c y by the Trudeau government, the N a t i o n a l Energy Program was i n t r o d u c e d . As g e n e r a l p o l i c y g u i d e l i n e s , the NEP proposed t h a t by 1990 a t l e a s t 50 p e r c e n t of Canada's o i l and gas p r o d u c t i o n s h o u l d be under Canadian c o n t r o l , a move which d i s c o u r a g e d some f o r e i g n o i l companies from p a r t i c i p a t i n g i n f r o n t i e r energy and r e s o u r c e p r o j e c t s . The Program was a l s o d e s i g n e d t o i n c r e a s e \" f e d e r a l revenues from the o i l i n d u s t r y . Moreover, d i r e c t s u b s i d i e s f o r e x p l o r a t i o n and development, or s o - c a l l e d P e t r o l e u m I n c e n t i v e Payment ( P I P s ) were i n t r o d u c e d , l a r g e l y r e p l a c i n g the former system of d e p l e t i o n a l l o w a n c e s . The g r a n t s f a v o r e d companies e x p l o r i n g i n the n o r t h e r n f e d e r a l l a n d s 4 4 9 A . E. S a f a r i n , Governments and M u l t i n a t i o n a l s : P o l i c i e s i n t he Developed C o u n t r i e s . (Washington, D.C.: B r i t i s h - N o r t h American Committee, 1983), p. 15. 314 and o f f s h o r e , s i n c e , e x c e p t f o r f e d e r a l l a n d s , p r o v i n c e s have j u r i s d i c t i o n over th e management of n a t u r a l r e s o u r c e s . The NEP a c c o m p l i s h e d i t s main o b j e c t i v e s . In 1974, Americans c o n t r o l l e d 59 p e r c e n t of the Canadian p e t r o l e u m and n a t u r a l gas s e c t o r , w h i l e Canadians owned 25 p e r c e n t , but i n 1982, t h e U.S. s h are had d r a s t i c a l l y d e c l i n e d t o 35 p e r c e n t of the t o t a l , w h i l e the Canadian share had i n c r e a s e d t o 55 p e r c e n t . ' 5 0 The Program changed the energy demand from o i l t o s u b s t i t u t e s , e s p e c i a l l y n a t u r a l gas, and encouraged e x t e n s i v e e x p l o r a t i o n i n f r o n t i e r a r e a s . I t c r e a t e d o p p o r t u n i t i e s f o r Canadian f i r m s t o p a r t i c i p a t e i n e x p l o r a t i o n . However, the NEP a m p l i f i e d the c o n f l i c t of i n t e r e s t s between the f e d e r a l government and p r o v i n c i a l governments, p a r t i c u l a r l y , A l b e r t a , over energy p r i c e s and management. However, the P I P s , or the c o r e of the NEP was phased o u t , and the new C o n s e r v a t i v e government a l s o a l t e r e d the p r e v i o u s energy program. Thus, FIRA and the NEP r e s t r i c t e d f o r e i g n e r s from making i n v e s t m e n t s i n c e r t a i n s e c t o r s of the Canadian economy. Not o n l y d i d FIRA d i s c o u r a g e f o r e i g n i n v e s t m e n t , i t a l s o i n f o r m a l l y demanded the purchase of Canadian p r o d u c t s and the h i r i n g of Canadian l a b o r even when t h i s was t o o c o s t l y . F o r e i g n governments and b u s i n e s s i n t e r e s t s c o n s i d e r e d t h e s e Canadian r e g u l a t i o n s h i n d r a n c e s t o a c t i v e economic e x e r t i o n , a l t h o u g h m o t i v a t i o n f o r the n a t i o n a l i z a t i o n of i n d u s t r i e s and r e s o u r c e s was u n d e r s t o o d . q 5 0 T h e Macdonald R e p o r t , op. c i t . , 2:234. 315 W i t h the change of t h e r u l i n g p a r t y , b oth FIRA and the NEP l o s t t h e i r r e g u l a t i v e e f f e c t i v e n e s s . The p r e s e n t C o n s e r v a t i v e P a r t y i s p r o - c o n t i n e n t a l , which i s shown by the a t t e mpt t o p r o c e e d w i t h a f r e e t r a d e arrangement w i t h the U n i t e d S t a t e s , and g e n e r a l l y by e n c o u r a g i n g f o r e i g n i n v e s t m e n t i n Canada. N e v e r t h e l e s s , t h e f a c t t h a t r e g u l a t i v e measures were adopted by the f e d e r a l government does not e r a s e the p s y c h o l o g i c a l e f f e c t on f o r e i g n i n v e s t o r s who might a n t i c i p a t e s i m i l a r r e g u l a t i o n s i n the f u t u r e . Moreover, p o l i c y d i f f e r e n c e s between the f e d e r a l and p r o v i n c i a l governments 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 and the c o n t r o l of n a t u r a l r e s o u r c e s makes the Canadian i n v e s t m e n t c l i m a t e i n c r e a s i n g l y u n a t t r a c t i v e . For example, LNG p r o j e c t o r g a n i z e d by one of the sogo shosha, N i s s h o - I w a i t o g e t h e r w i t h G u l f Canada, e x p e r i e n c e d d i f f i c u l t y due t o d i f f e r i n g p o l i c i e s and i n t e r e s t s of the f e d e r a l , A l b e r t a and B r i t i s h Columbia governments, a l l of which must approve the use of the gas. F i n a l l y , t h i s p l a n was a b o r t e d i n 1986 a f t e r a f i v e - y e a r p e r i o d of n e g o t i a t i o n s . In a d d i t i o n , the Japanese b u s i n e s s community has p o i n t e d out t h a t t h e r e u n t i l r e c e n t l y has been a h i g h i n c i d e n c e of s t r i k e s and work stoppages. There i s c o n c e r n t h a t the e x i s t e n c e of s t r o n g l a b o r u n i o n s , e s p e c i a l l y i n B r i t i s h C o l u m b i a , and the use of s t r i k e a c t i o n , tends t o t h r e a t e n a s t a b l e s u p p l y of m a t e r i a l s . S t r o n g l a b o r u n i o n s a l s o cause h i g h wage l e v e l s . 316 F i n a l l y , as mentioned e a r l i e r , the s m a l l s i z e of the Canadian d o m e s t i c market, a l o n g w i t h p a r t i c u l a r l o c a t i o n a l c h a r a c t e r i s t i c s , and h i g h t r a n s p o r t a t i o n and l a b o r c o s t s have l i m i t e d the p r o s p e c t s f o r new inve s t m e n t i n m a n u f a c t u r i n g . However, t r a d e f r i c t i o n between Canada and Japan w i t h r e g a r d t o the import of a u t o m o b i l e s , has s t i m u l a t e d some modest Japanese investment i n m a n u f a c t u r i n g . Japanese aut o and a u t o - p a r t s makers have begun,to s w i t c h t o some e x t e n t from the e x p o r t of f i n i s h e d goods from Japan t o l o c a l p r o d u c t i o n i n O n t a r i o and B r i t i s h Columbia of a u t o m o b i l e s as w e l l as p a r t s and components i n o r d e r t o ease t r a d e f r i c t i o n , but the p r o p o r t i o n of Japanese a u t o i n v e s t m e n t i n Canada i s about one f o r t i e t h t h a t i n t h e U n i t e d S t a t e s . In sum, the p o l i c i e s of the Government, j u r i s d i c t i o n a l c o n f l i c t s among the governments c o n c e r n e d , l a b o r u n r e s t and h i g h p r o d u c t i o n l a b o r c o s t s , and the s m a l l market, a l l have c o n t r i b u t e d t o the c r e a t i o n of a l e s s a t t r a c t i v e i n v e s t m e n t c l i m a t e i n Canada than i s c h a r a c t e r i s t i c , of the U n i t e d S t a t e s . However, p o l i t i c a l s t a b i l i t y and p r o x i m i t y t o the l a r g e , a f f l u e n t American market p r e s e n t some p o s i t i v e c o n d i t i o n s t o a t t r a c t f o r e i g n i n v e s t m e n t i n Canada. In a d d i t i o n , the r e c e n t t r a d e f r i c t i o n between Japan and Canada have f o s t e r e d i n v e s t m e n t i n Canadian m a n u f a c t u r i n g i n d u s t r i e s . A u t o m o b i l e s and auto p a r t s made by Japanese f i r m s i n Canada can be e x p o r t e d d u t y - f r e e t o the U n i t e d S t a t e s under the Canada-U.S. auto p a c t of 1965 so t h a t t o 317 some e x t e n t t h e r e i s a c o n t i n e n t a l market p o t e n t i a l i n a u t o m o b i l e s f o r Japanese i n v e s t o r s . The a u t o m o b i l e i s s u e e x e m p l i f i e s one of the a s p e c t s of t r a d e between the two c o u n t r i e s and i n v e s t m e n t i n Canada. Japanese-Canadian t r a d e i s s u e s a r e c r u c i a l , because they a r e l i n k e d c l o s e l y t o investment i s s u e s , which l i k e t r a d e between Canada and Japan, i s i n c r e a s i n g y e a r by y e a r . When Trudeau adopt e d th e \" T h i r d O p t i o n \" Japan became an i m p o r t a n t t r a d i n g c o u n t r y f o r Canada. At the same t i m e , e s p e c i a l l y a f t e r 1973 Canada was s p o t l i g h t e d as a r e s o u r c e - s u p p l y i n g c o u n t r y . Thus, the n e c e s s i t i e s of the two c o u n t r i e s c o i n c i d e d . S i n c e 1973, a l t h o u g h Japan has been Canada's second l a r g e s t t r a d i n g p a r t n e r a f t e r the U n i t e d S t a t e s , i n 1984, i t s share of Canadian merchandise e x p o r t s amounted t o o n l y 5 p e r c e n t of t h e t o t a l , w h i l e t h a t of i m p o r t s was 6 p e r c e n t . 4 5 1 Hence, even though Japan was i n the second p o s i t i o n , t h e U n i t e d S t a t e s w i t h i t s share of 70 p e r c e n t of the t o t a l e x p o r t s and i m p o r t s f a r outweighed Japan. U n t i l 1983 w i t h o n l y one e x c e p t i o n a l y e a r s i n c e 1960, t h e r e was a b i l a t e r a l t r a d e s u r p l u s i n Canada's f a v o r . 4 5 2 Canada e n j o y e d s u r p l u s e s of C$1.1 b i l l i o n i n 1982 and C$319 m i l l i o n i n 1983. However, i n 1984, Japan e x p o r t e d C$5.7 b i l l i o n and i m p o r t e d C$5.6 b i l l i o n from Canada, l e a v i n g a d e f i c i t of C$82 m i l l i o n f o r C a n a d a . 4 5 3 Thus, i n s p i t e of a 4 5 1 T h e Macdonald R e p o r t , op. c i t . , 2:237. 4 5 2 K e i t h A. J . Hay and S. R. H i l l , Canada-Japan Trade and Investment (Ottawa: Economix I n t e r n a t i o n a l , 1 978), p~! 75. 4 5 3 F i n a n c i a l P o s t , \"Canada Not W o r r i e d by S l i g h t Trade 318 g e n e r a l l y f a v o r a b l e b a l a n c e of payments f o r Canada, t r a d e between Canada and Japan has drawn the a t t e n t i o n of the governments and b u s i n e s s i n t e r e s t s . Trade i s c h a r a c t e r i z e d as c o m p l e m e n t a r i t y , or as Akao has c a l l e d i t , a l o p s i d e d s t r u c t u r e , 4 5 4 s i n c e Japan m a i n l y e x p o r t s m a n u f a c t u r e d goods t o Canada, and i m p o r t s f o o d , f u e l s , o t h e r raw m a t e r i a l s and s e m i - f i n i s h e d goods. C o n s e q u e n t l y , Canada has r e q u e s t e d t h a t Japan import more Canadian manufactured and p r o c e s s e d goods i n s t e a d of raw m a t e r i a l s . 4 5 5 R e g a r d i n g r e g i o n a l t r a d e b a l a n c e s w i t h J a p a n , Hay and H i l l p o i n t out t h a t the P a c i f i c and P r a i r i e R e g i o n s , i n c l u d i n g B r i t i s h C o lumbia, the Yukon and Northwest T e r r i t o r i e s , A l b e r t a , Saskatchewan and M a n i t o b a , had s u b s t a n t i a l r e g i o n a l s u r p l u s e s i n the 1970's, w h i l e O n t a r i o and Quebec s u f f e r e d t r a d e d e f i c i t s . 4 5 6 T h i s t r e n d s t i l l 4 5 3 ( c o n t ' d ) Imbalance,\" 18 May 1985, p. 45. 4 5 4 A k a o , pjD. c i t . , p. 249. 4 5 5 A n imbalance i n the t r a d e s t r u c t u r e between Japan and Canada i s r e f l e c t e d i n l e s s than 5 p e r c e n t of Canadian e x p o r t s t o Japan i n the form of f i n i s h e d p r o d u c t s . (See B a r r y C o n n e l l S t e e r s , \"Toward a P a c i f i c F o c u s : Canada's S h i f t i n g Economic P r i o r i t i e s , \" S p e a k i n g of Japan v o l . 5, no. 51 [March, 1985]: 31.) However, t h e r e a r e d i f f e r e n c e s between the d e f i n i t i o n s of Japanese and Canadian \" f i n i s h e d goods.\" S i n c e the Japanese government i n c l u d e d semi-manufactured goods, manufactured or f i n i s h e d goods e x p o r t s c o n s i s t e d of 16.0 p e r c e n t of the t o t a l i n 1980. (See W r i g h t , Japanese B u s i n e s s i n Canada, op. c i t , pp. 11-12.) In a d d i t i o n , t h e r e i s a n o t h e r k i n d of s t a t i s t i c a l magic. A c c o r d i n g t o N i t t a , Japan i m p o r t e d v i a t h e U n i t e d S t a t e s some C$20 t o 30 m i l l i o n worth of f i r s t s t a g e p r o c e s s e d n u c l e a r energy f u e l . C o n s e q u e n t l y , t h i s f i g u r e was i n c l u d e d as t r a d e between the U n i t e d S t a t e s and Canada, i n s t e a d of e x p o r t s t o Japan. (Telephone i n t e r v i e w w i t h M i t s u n a r i N i t t a , V i c e p r e s i d e n t , M i t s u i & Co. [Canada] L t d . , Vancouver, 2 May 1985.) 4 5 6Hay and H i l l , op_. c i t . , pp. 58-77. 319 p e r s i s t s , 4 5 7 s i n c e the P a c i f i c and P r a i r i e Regions a r e c h i e f s u p p l i e r s of n a t u r a l r e s o u r c e s and f o o d s t u f f s , w h i l e O n t a r i o and Quebec a l b e i t t h e i r economic bases a r e a l s o i n m a n u f a c t u r i n g i n d u s t r y a r e major markets f o r Japanese . m a n u f a c t u r e d goods. I t s h o u l d be n o t e d t h a t s t a t i s t i c a l magic a l s o a p p l i e s i n such a way t h a t e x p o r t s from the P a c i f i c p o r t s would be r e g i s t e r e d as e x p o r t s from t h i s r e g i o n , r e g a r d l e s s of the o r i g i n s of the goods. C o n s e q u e n t l y , the f e d e r a l government, where the v o i c e of the Canadian h e a r t l a n d i s s t r o n g , has been c o n c e r n e d about the t r a d e s t r u c t u r e w i t h Japan and would l i k e t o see i t changed. Canadian f r u s t r a t i o n on t h i s i s s u e was c l e a r l y e x p r e s s e d by Ivan Head, S p e c i a l A s s i s t a n t t o then Prime M i n i s t e r Trudeau. I t i s not much of an e x a g g e r a t i o n t o say t h a t Japanese governments have l o o k e d upon Canada i n r e c e n t y e a r s as a l a r g e o p e n - p i t mine; as an e n d l e s s and r e l i a b l e s ource of raw m a t e r i a l s t o s a t i s f y the Japanese i n d u s t r i a l a p p e t i t e . . . . As a P a c i f i c n e i g h b o u r , i t i s i n Canada's i n t e r e s t t h a t Japan c o n t i n u e as a dynamic and r e s p o n s i b l e p o l i t i c a l and economic a c t o r on the w o r l d scene. Canada i s w i l l i n g as a r e s u l t t o c o n t r i b u t e t o t h a t p r o c e s s . In o r d e r t o do so, however, i t w i l l be n e c e s s a r y f o r Japan t o r e c o g n i z e the q u a l i t y and the competence of Canada i n a v a r i e t y of economic and non-economic f i e l d s ; t o do more t h a n , as i s now the c a s e , r e g a r d Canada p r i m a r i l y as an o b j e c t of i t s \"Resources D i p l o m a c y . \" 4 5 8 T h i s s t a t e m e n t o v e r t l y warned the Japanese government of the danger of p u r s u i n g o n l y r e s o u r c e d i p l o m a c y . In o r d e r t o 4 5 7 W r i t e r ' s i n t e r v i e w s w i t h businessmen and o f f i c i a l s a t the Canadian Embassy i n Tokyo. 4 5 8 I v a n L. Head, \"Canada's P a c i f i c P e r s p e c t i v e , \" P a c i f i c Community: An A s i a n Q u a r t e r l y Review v o l . 6, no. 1 ( O c t o b e r , 1974): 18. 320 m a i n t a i n a f r i e n d l y r e l a t i o n s h i p , Japan t o a c e r t a i n e x t e n t has t o y i e l d t o Canadian i n t e r e s t s , s i n c e Japan has been r e q u e s t e d t o change i t s t r a d i n g p a t t e r n , namely, t o i n c r e a s e i m p o r t s of p r o c e s s e d and f i n i s h e d goods from Canada. Recent t r a d e d e f i c i t s on the Canadian s i d e have s p u r r e d t h i s l o p - s i d e d t r a d e s i t u a t i o n , making Japanese investment s i g n i f i c a n t i n o r d e r t o a l l e v i a t e t r a d e f r i c t i o n as w e l l as t o f u r t h e r d e v e l o p the Canadian economy. V. Comparison of Japanese D i r e c t F o r e i g n Investment i n the U n i t e d S t a t e s and Canada P r e v i o u s d e s c r i p t i o n s of Japanese D i r e c t F o r e i g n Investment i n the U n i t e d S t a t e s and Canada as w e l l as the i n v e s t m e n t c l i m a t e s of each the two c o u n t r i e s p r o v i d e the c h a r a c t e r i s t i c s of Japanese DFI. The s i g n i f i c a n c e of comparing Japanese DFI i n the U n i t e d S t a t e s and Canada d e l i n e a t e s s i m i l a r i t i e s and d i f f e r e n c e s between Japanese i n v e s t m e n t p a t t e r n s i n two i n d u s t r i a l i z e d c o u n t r i e s . T h i s d i s c u s s i o n g i v e s some c l u e s as t o how economic, p o l i t i c a l or s o c i a l f a c t o r s i n f l u e n c e Japanese DFI. By 1983 the a c c u m u l a t e d Japanese DFI i n the U n i t e d S t a t e s r eached US$16,535 m i l l i o n 4 5 9 , w h i l e i n Canada t h i s amounted t o $1,391 m i l l i o n , which was a p p r o x i m a t e l y o n e - t w e l f t h the amount i n the U n i t e d S t a t e s . As p r e v i o u s l y i n d i c a t e d , the Canadian p o p u l a t i o n i s about o n e - t e n t h t h a t of the U n i t e d S t a t e s . Both the s i z e of the economy and the s i z e of the market, a r e a l s o a p p r o x i m a t e l y o n e - t e n t h t h a t of 4 5 9 H e r e a f t e r , a l l monetary amounts a r e i n U.S. d o l l a r s . 321 the U n i t e d S t a t e s , which makes f o r an e q u a l i t y of p u r c h a s i n g power. T h e r e f o r e , the s c a l e of Japanese DFI i n Canada n e a r l y c o r r e s p o n d s t o the s i z e of i t s economy. However, w h i l e Japanese DFI i n the U n i t e d S t a t e s has kept pace w i t h the i n c r e a s e i n t o t a l o v e r s e a s Japanese DFI, Japanese DFI i n Canada has n o t . C o n s e q u e n t l y , Japanese DFI i n t h e U n i t e d S t a t e s has accounted f o r 27.0 p e r c e n t of the t o t a l Japanese o v e r s e a s d i r e c t i n v e s t m e n t , r a n k i n g the U n i t e d S t a t e s f i r s t by c o u n t r y . However, Japanese DFI i n Canada has c o n s i s t e d o n l y of 2.3 p e r c e n t , r a n k i n g i t e l e v e n t h . Japanese DFI i n Canada i s minor i n terms of the amount of i n v e s t m e n t . U.S. m a n u f a c t u r i n g a t t r a c t e d $4,782 m i l l i o n , composing 28.9 p e r c e n t of the t o t a l i n v e s t m e n t i n the U n i t e d S t a t e s by t h e J a p a n e s e , w h i l e Canadian m a n u f a c t u r i n g h o s t e d $459 m i l l i o n , c o m p r i s i n g 33.0 p e r c e n t of the t o t a l amount i n v e s t e d by the Japanese. There i s no l a r g e d i s p a r i t y i n p e r c e n t a g e , but wide d i s c r e p a n c i e s by the type of i n d u s t r y a r e r e v e a l e d . On the one hand, w i t h i n U.S. m a n u f a c t u r i n g i n d u s t r i e s , over the p a s t 15 y e a r s the f o c u s of Japanese DFI s h i f t e d from m a t e r i a l i n d u s t r i e s such as t i m b e r and p u l p t o p r o c e s s i n g - a s s e m b l y i n d u s t r i e s c e n t e r e d on e l e c t r i c a l equipment and t r a n s p o r t a t i o n equipment. On the o t h e r hand, i n Canada, m a t e r i a l i n d u s t r i e s , t y p i f i e d by raw m a t e r i a l p r o c e s s i n g such as t i m b e r and p u l p as w e l l as f e r r o u s and n o n - f e r r o u s m e t a l s , r e c e i v e d a l a r g e share of t o t a l i n v e s t m e n t . L i t t l e Japanese i n v e s t m e n t was made i n the p r o c e s s i n g - a s s e m b l y i n d u s t r i e s of Canada, which d e p i c t s a 322 s h a r p c o n t r a s t t o the p a t t e r n i n the U n i t e d S t a t e s . Commerce a t t r a c t e d $5,798 m i l l i o n , a c c o u n t i n g f o r 35.1 p e r c e n t of t o t a l Japanese DFI i n the U n i t e d S t a t e s . T h i s amount a l s o a c c o u n t s f o r 60.1 p e r c e n t of the w o r l d Japanese DFI i n commerce and d e m o n s t r a t e s Japanese emphasis on c u l t i v a t i n g and c a p t u r i n g the U.S. market. Canadian commerce h o s t e d $227 m i l l i o n , or 16.3 p e r c e n t of the t o t a l Japanese DFI i n Canada, but t h i s was l e s s than l / 2 5 t h of the i n v e s t m e n t i n U.S. commerce. Assuming the same l e v e l of p u r c h a s i n g power but o n e - t e n t h t h e market s i z e , Japanese per c a p i t a i n v e s t m e n t i n Canadian commerce was r o u g h l y l e s s than h a l f t h a t of the U.S. c o u n t e r p a r t . Thus, i t may be s a f e t o say t h a t t h i s p r o p o r t i o n s u g g e s t s t h a t the Japanese do not c o n s i d e r Canada a major market. R a t h e r , i t seems t h a t Japan c o n s i d e r s t h e Canadian market an e x t e n s i o n of the U.S. and t h a t N o r t h America i s p e r c e i v e d as a s i n g l e market. In the U n i t e d S t a t e s , m i n i n g c a p t u r e d $459 m i l l i o n , c o m p r i s i n g o n l y 2.8 p e r c e n t of t h e t o t a l Japanese DFI, w h i l e i n Canada m i n i n g h o s t e d $388 m i l l i o n , composing 27.9 p e r c e n t of the t o t a l . Compared w i t h the w o r l d average f i g u r e of 17.4 p e r c e n t i n t h i s s e c t o r , Japanese DFI i n the Canadian m i n i n g s e c t o r was u n u s u a l l y h i g h . Thus, because of the s m a l l amount of in v e s t m e n t i n Canada, the m i n i n g s e c t o r was s t r e s s e d . F i n a l l y , f i n a n c e and i n s u r a n c e i n the U n i t e d S t a t e s h o s t e d $1,996 m i l l i o n , c o n s i s t i n g of 12.1 p e r c e n t of the t o t a l Japanese DFI i n the c o u n t r y and 40.2 p e r c e n t of the w o r l d Japanese DFI i n t h i s s e c t o r . Such c o n c e n t r a t i o n 323 r e v e a l s t h a t the U n i t e d S t a t e s f u n c t i o n s as a major i n t e r n a t i o n a l f i n a n c i a l c e n t e r . In Canada, by 1983 w i t h the r e v i s i o n of the Canadian Bank Act of 1980, Japanese DFI i n f i n a n c e and i n s u r a n c e i n c r e a s e d t o $126 m i l l i o n , a c c o u n t i n g f o r 9.1 p e r c e n t of the t o t a l Japanese inv e s t m e n t i n Canada, which seems t o be overshadowed by the U n i t e d S t a t e s as an i n t e r n a t i o n a l f i n a n c i a l hub. In sum, i n the U n i t e d S t a t e s Japanese DFI c o n c e n t r a t e d i n commerce as w e l l as i n f i n a n c e and i n s u r a n c e . These two s e c t o r s a t t r a c t e d the l a r g e s t p r o p o r t i o n of each s e c t o r of the w o r l d Japanese DFI, r e s p e c t i v e l y . In m a n u f a c t u r i n g , the f o c u s of Japanese DFI has s h i f t e d from the m a t e r i a l i n d u s t r i e s t o the p r o c e s s i n g - a s s e m b l y and h i g h - t e c h i n d u s t r i e s , which a r e h i g h e r v a l u e - a d d e d i n d u s t r i e s . On the c o n t r a r y , Japanese DFI i n Canada has f o c u s e d on m i n i n g and the m a t e r i a l m a n u f a c t u r i n g i n d u s t r i e s . \" Both a r e based on abundant n a t u r a l r e s o u r c e s , an o v e r a l l main f e a t u r e of the Canadian economy. By the e a r l y 1980's, Canada which has been a n a t u r a l r e s o u r c e s u p p l y i n g c o u n t r y had r e l a t i v e l y f a i l e d t o a t t r a c t Japanese inv e s t m e n t i n commerce and i n p r o c e s s i n g - a s s e m b l y type of m a n u f a c t u r i n g . However, the d e c i s i o n by Toyota and Honda i n 1985 t o e s t a b l i s h assembly p l a n t s i n Canada w i l l s u b s t a n t i a l l y change t h i s p a s t t r e n d . A p a r t from an a n a l y s i s of Japanese s t a t i s t i c s , t h e r e i s a s h a r p c o n t r a s t i n t h a t sogo shosha s t i l l p l a y a s i g n i f i c a n t r o l e i n p r o m o t i n g Japanese DFI i n Canada, w h i l e t h e i r share of i n v e s t m e n t has r e l a t i v e l y d e c l i n e d i n the 324 U n i t e d S t a t e s . Sogo shosha i n v e s t m e n t which d a t e s from the e a r l y 1950's when s u b s i d i a r i e s t o promote com m e r c i a l t r a n s a c t i o n s were e s t a b l i s h e d r e p r e s e n t s some of the o l d e s t Japanese i n v e s t m e n t i n bo t h the U n i t e d S t a t e s and Canada. However, major d i f f e r e n c e s appeared when mature Japanese m a n u f a c t u r e r s began i n d i v i d u a l l y t o make l a r g e i n v e s t m e n t s from the e a r l y 1970's i n th e U n i t e d S t a t e s . These were not t y p i c a l j o i n t v e n t u r e s w i t h sogo shosha and l o c a l p a r t n e r s , as o b s e r v e d i n the d e v e l o p i n g c o u n t r i e s , however. E x c l u s i o n of sogo shosha from m a n u f a c t u r i n g v e n t u r e s r e s u l t e d i n the r e l a t i v e d e c l i n e i n t h e i r i n v e s t m e n t i n the U n i t e d S t a t e s . However, s i n c e Japanese m a n u f a c t u r e r s d i d not r u s h i n t o i n v e s t m e n t i n Canada, the importance of inves t m e n t by sogo shosha was a c c e n t u a t e d . T h i s i s i l l u s t r a t e d by the f a c t t h a t as of 1981 the n i n e l a r g e s t sogo shosha had i n v e s t e d t he e q u i v a l e n t of $179 m i l l i o n , or about o n e - t h i r d of a l l Japanese i n v e s t m e n t i n C a n a d a ! 4 6 0 In the next c h a p t e r , investment by sogo shosha i n th e U n i t e d S t a t e s and Canada i s i n v e s t i g a t e d i n o r d e r t o d i f f e r e n t i a t e the c h a r a c t e r i s t i c s of sogo shosha and Japanese DFI. Q u e s t i o n s a r i s e as t o which economic, p o l i t i c a l and s o c i a l f a c t o r s a r e i n v o l v e d and the manner i n which t h e s e i n f l u e n c e t h e p a t t e r n of Japanese DFI i n the two n e i g h b o r i n g , i n d u s t r i a l i z e d c o u n t r i e s . Comparison of the p r e v i o u s l y d i s c u s s e d i n v e s t m e n t c l i m a t e s p r o v i d e s some answers t o th e s e q u e s t i o n s . 4 6 0 W r i g h t op_. c i t . , p. xx. 325 S i n c e b o t h the U n i t e d S t a t e s and Canada a r e p o l i t i c a l l y s t a b l e , c o u n t r y r i s k s a r e s m a l l compared w i t h t h o s e of the d e v e l o p i n g c o u n t r i e s . Both c o u n t r i e s a r e h i g h l y i n d u s t r i a l i z e d making f u l l use of advanced t e c h n o l o g y and know-how. Both p o s s e s s a s k i l l e d l a b o r f o r c e and a d e v e l o p e d f i n a n c i a l system as w e l l as abundant l a n d and n a t u r a l r e s o u r c e s . In c o n t r a s t t o t h e s e s i m i l a r i t i e s , t h e r e a r e s e v e r a l d i f f e r e n c e s . F i r s t , the Canadian p o p u l a t i o n i s a p p r o x i m a t e l y o n e - t e n t h t h a t of the U n i t e d S t a t e s , and the s i z e of Canadian economy i s a l s o n e a r l y o n e - t e n t h t h a t of t h e U n i t e d S t a t e s , which l e a d s t o e q u a l p u r c h a s i n g power. The s m a l l Canadian market, based on p o p u l a t i o n s i z e , o f t e n becomes a b o t t l e n e c k i n development of the economy, s i n c e economies of s c a l e do not a p p l y , e s p e c i a l l y t o Canadian m a n u f a c t u r i n g . The U n i t e d S t a t e s has adopted an open-door p o l i c y w i t h few r e g u l a t i o n s f o r f o r e i g n i n v e s t m e n t . However, i n Canada under the Trudeau government, FIRA and the NEP were i n t r o d u c e d , which formed two p i l l a r s i n the n a t i o n a l i z a t i o n of the Canadian economy and c o n t r o l l e d f o r e i g n i n v e s t m e n t . The f e d e r a l government sought t o o b t a i n s o v e r e i g n t y of the economy and t o d e c r e a s e dependence on the U n i t e d S t a t e s , but a t the same time t h e s e governmental p o l i c i e s a f f e c t e d t h e i n f l o w of i n v e s t m e n t . Under the p r e s e n t P r o g r e s s i v e C o n s e r v a t i v e P a r t y , FIRA has been changed t o the Investment Canada A c t , the purpose of which i s t o encourage f o r e i g n i n v e s t m e n t . In s p i t e of the p o l i c y change, the p s y c h o l o g i c a l 3 2 6 e f f e c t from the Trudeau e r a s t i l l p r e v a i l s and the Japanese remain a p p r e h e n s i v e of f u t u r e p o l i c y changes. In Canada t h e r e were more j u r i s d i c t i o n a l d i s p u t e s and c o n f l i c t s of i n t e r e s t among f e d e r a l and p r o v i n c i a l governments c o n c e r n i n g t h e c o n t r o l of n a t u r a l r e s o u r c e s than t h e r e were such f e d e r a l and s t a t e d i s p u t e s i n the U n i t e d S t a t e s . C o n s e q u e n t l y , i t i s n e c e s s a r y t o n e g o t i a t e a t the f e d e r a l as w e l l as p r o v i n c i a l l e v e l i n o r d e r t o conduct p r o j e c t s f o r n a t u r a l r e s o u r c e development. Canadian r e g i o n a l i s m , t h a n k s t o s t r o n g p r o v i n c i a l j u r i s d i c t i o n over d i f f e r i n g economic development p o l i c i e s , o f t e n a c t s as a s h a c k l e ; p r e v e n t i n g the smooth e x e c u t i o n of v e n t u r e s . H i g h i n c i d e n c e of work stoppage and l a b o r u n r e s t i n Canada i s a n o t h e r r e a s o n why the Japanese a r e uneasy about making f u r t h e r i n c r e a s e s i n i n v e s t m e n t . From the Japanese p o i n t of v i e w , Canadian l a b o r u n i o n s p r e s e n t major problems t o companies i n which t h e y have major or even m i n o r i t y o w n e r s h i p , because of the f e a r of m i l i t a n t u n i o n s which w i l l go on s t r i k e r e a d i l y and t h r e a t e n the s t a b l e s u p p l y of m a t e r i a l s . For example, s t r i k e s i n B r i t i s h Columbia i n t e r f e r e d w i t h the e x t r a c t i o n of f o r e s t p r o d u c t s i n the summer of 1984. In a d d i t i o n , l a b o r c o s t s i n Canada a r e h i g h . Hence, i n o r d e r t o a v o i d h i g h l a b o r c o s t s and s t r o n g u n i o n p r e s s u r e , Toyota has chosen E a s t e r n O n t a r i o where i t i s p o s s i b l e t o h i r e non-union w o r k e r s . A l t h o u g h t h e r e a r e some s t r o n g u n i o n s i n the U n i t e d S t a t e s which p r o t e c t h i g h wages, t h e r e i s a r e g i o n a l wage 327 d i f f e r e n t i a l . In the s o u t h e r n and w e s t e r n s t a t e s , t h e \" S u n b e l t , \" lower wages and easy l a b o r r e l a t i o n s drew the r e l o c a t i o n of s e v e r a l p l a n t s from the \"Snowbelt\" and new p l a n t s were e s t a b l i s h e d t h e r e . Thus, s i n c e the Japanese c o n s i d e r the N o r t h American c o n t i n e n t a s i n g l e economic u n i t , Japanese DFI has been drawn t o the S u n b e l t a r e a s i n the U n i t e d S t a t e s , e s p e c i a l l y i n m a n u f a c t u r i n g . As Canadian i n f r a s t r u c t u r e i s u n d e r d e v e l o p e d , i n some p r o j e c t s t r a n s p o r t a t i o n and p o r t f a c i l i t i e s must be c o n s t r u c t e d from s c r a t c h . The N o r t h e a s t C o a l development scheme has m a t e r i a l i z e d w i t h the c o o p e r a t i o n of t h e f e d e r a l and B r i t i s h Columbia p r o v i n c i a l governments which have spent hundreds of m i l l i o n s of d o l l a r s t o e s t a b l i s h r a i l r o a d and p o r t f a c i l i t i e s near P r i n c e Rupert and a t the new mines. However, t h i s i s e x c e p t i o n a l . In most c a s e s , i n v e s t o r s have t o d e v e l o p an i n f r a s t r u c t u r e by t h e m s e l v e s , w i t h o u t governmental a s s i s t a n c e . Such i n a d e q u a c i e s a r e t y p i c a l of the s h o r t c o m i n g s of Canada i n a t t r a c t i n g f o r e i g n i n v e s t m e n t . Owing t o the i n a c c e s s i b i l i t y of Canadian n a t u r a l r e s o u r c e s , the economic v i a b i l i t y of n a t u r a l r e s o u r c e development becomes an open q u e s t i o n . D e s p i t e t h e i r a v a i l a b i l i t y , i f r e s o u r c e l o c a t i o n i s f a r from a market, h i g h t r a n s p o r t a t i o n c o s t s become a d e t e r r e n t . A l s o , i f e n v i r o n m e n t a l c o n d i t i o n s such as c l i m a t e a l l o w o n l y a s h o r t span of e x p l o i t a t i o n a c t i v i t y i n the y e a r , then economic v i a b i l i t y d i m i n i s h e s f u r t h e r . 328 In s h o r t , s m a l l market s i z e , g e o g r a p h i c a l p o p u l a t i o n d i s t r i b u t i o n , f e d e r a l governmental p o l i c y such as FIRA, c o n f l i c t s i n j u r i s d i c t i o n among governments over n a t u r a l r e s o u r c e s , h i g h l a b o r c o s t and m i l i t a n t u n i o n s , u n d e r d e v e l o p e d i n f r a s t r u c t u r e , a c c e s s i b i l i t y and economic v i a b i l i t y , a l l t h e s e economic, p o l i t i c a l and g e o g r a p h i c a l f a c t o r s c r e a t e a l e s s f a v o r a b l e i n v e s t m e n t c l i m a t e i n Canada. In the U n i t e d S t a t e s , major o b s t a c l e s t o d i r e c t f o r e i g n investment a r e r e q u i r e m e n t s f o r n a t i o n a l s e c u r i t y c l e a r a n c e and the u n i t a r y t a x (see p r e v i o u s s e c t i o n ) . T h i s d e v i c e , produced by C a l i f o r n i a , i s d e p r i v i n g t h a t s t a t e of a f a i r s h a r e of d i r e c t f o r e i g n investment which i n s t e a d i s poured i n t o s o u t h e r n and o t h e r western s t a t e s . \" 6 1 However, except f o r t h e s e f e d e r a l and s t a t e p o l i c i e s , the i n v e s t m e n t c l i m a t e of the U n i t e d S t a t e s i s s u p e r i o r t o t h a t of Canada. F i r s t of a l l , the l a r g e s i z e and a f f l u e n t market of the U n i t e d S t a t e s cannot be matched by any o t h e r market i n the w o r l d . A l t h o u g h t h e r a t e of economic growth has been s m a l l e r than t h a t of o t h e r i n d u s t r i a l i z e d c o u n t r i e s such as Japan, the p r o s p e c t s f o r economic growth a r e g r e a t because of the l a r g e s i z e of t h e economy. Moreover, compared w i t h the Canadian economy, which i s of a b r a n c h - p l a n t n a t u r e , the U.S. economy i s more s e l f - s u s t a i n e d , d e s p i t e some r e c e n t d e c r e a s e i n s e l f - c o n t a i n e d n e s s because of i n t e r d e p e n d e n c e between d e v e l o p e d Western European and Japanese economies. 4 6 1 \" U n i t a r y Tax: A r i z o n a Here We Come,\" The Economist 21 September 1985, pp. 80-81. 329 Hence, i n p r o v i d i n g a s o l i d f o u n d a t i o n f o r f o r e i g n i n v e s t m e n t , the U.S. economy i s l e s s s u s c e p t i b l e than the Canadian economy. In a d d i t i o n t o market s i z e , the l o c a t i o n of markets i s more f a v o r a b l e i n the U n i t e d S t a t e s than i n Canada. A c o n c e n t r a t i o n of p o p u l a t i o n i s o b s e r v e d . For example, m e g a l o p o l i s e s have formed by the merging of c i t i e s a l o n g the urban c o r r i d o r s i n the e a s t e r n U n i t e d S t a t e s from Boston t o Washington; t h e s e a r e a l s o found i n the Los A n g e l e s - L o n g Beach and i n the C h i c a g o - N o r t h w e s t e r n I n d i a n a a r e a s . P o p u l a t i o n c o n c e n t r a t i o n c o n t r i b u t e s t o the f o r m a t i o n of dense markets i n the U n i t e d S t a t e s . The U n i t e d S t a t e s has a c c e p t e d f o r e i g n i n v e s t m e n t w i t h few r e g u l a t i o n s . As p r e v i o u s l y i n d i c a t e d , U.S. m a n u f a c t u r i n g i s o n l y 5 p e r c e n t f o r e i g n - o w n e d , i n c o n t r a s t t o the Canadian w i t h 49 p e r c e n t . T h e r e f o r e , b o t h the f e d e r a l and s t a t e governments have encouraged Japanese DFI i n the U n i t e d S t a t e s . Sending m i s s i o n s t o promote Japanese DFI i s such an example. The p r e s e n c e of the r e p r e s e n t a t i v e s of American l o c a l m u n i c i p a l i t i e s i n Japan s i g n i f i e s the s t r o n g d e s i r e t o draw Japanese DFI t o the U n i t e d S t a t e s . In the U n i t e d S t a t e s , t h e r e a r e r e g i o n a l d i f f e r e n t i a t i o n s i n terms of l a b o r movements and wages. In the S u n b e l t , lower c o s t s and fewer l a b o r d i s p u t e s can be e x p e c t e d . O v e r a l l u n i t l a b o r c o s t i n the U n i t e d S t a t e s i s t h u s lower than the Canadian c o u n t e r p a r t , and t h e p r o d u c t i v i t y of the U n i t e d S t a t e s i s h i g h e r than t h a t of 330 Canada. A c c o r d i n g t o D a l y , a p r o f e s s o r of economics a t York U n i v e r s i t y , \" u n i t l a b o r c o s t s , based on t o t a l c o m p e nsation, were 15 per c e n t h i g h e r i n Canada than i n the U n i t e d S t a t e s i n 1984, and were double the c o s t l e v e l i n J a p a n . \" * 6 2 Based on the same a n a l y s i s , \"In terms of output per hour, Canada has s u f f e r e d f o r more than a decade from a p r o d u c t i o n gap of 25 t o 30 per c e n t i n comparison w i t h the U n i t e d S t a t e s . \" * 6 3 A c c o r d i n g l y , the American l a b o r f o r c e i s more a t t r a c t i v e than the C a n a d i a n , which i s one of the f a c t o r s i n f l u e n c i n g a u gmentation of investment i n the U n i t e d S t a t e s . A s u r v e y done by the American Chamber of Commerce i n Japan showed t h a t American investment i n Japan was r e w a r d i n g , and t h a t the average r e t u r n on i n v e s t m e n t was about 18 p e r c e n t (!), a f i g u r e h i g h e r than i n the U n i t e d S t a t e s . 4 6 4 S i m i l a r l y , a MITI s u r v e y r e c e n t l y r e l e a s e d r e p o r t e d much the same s t o r y i n t h a t Japanese o v e r s e a s i n v e s t m e n t s were more p r o f i t a b l e than t h e i r d o m e s t i c Japanese c o u n t e r p a r t s . 4 6 5 As a r e s u l t , Japanese DFI i n t h e U n i t e d S t a t e s was a s s o c i a t e d w i t h h i g h p r o d u c t i v i t y and p r o f i t a b i l i t y . C o n v e r s e l y , i t i s a f a c t t h a t o n l y t h o s e f i r m s w h i c h p o s s e s s these q u a l i t i e s can compete w i t h American f i r m s and s u r v i v e i n the U n i t e d S t a t e s . 4 6 2 C i t e d i n \"High Labor C o s t s H u r t i n g Economy,\" The Globe and M a i l , 27 November 1985, p. B2. * 6 3 I b i d . 4 6 \" R o b e r t L. Sharp, \"A Rewarding R e l a t i o n s h i p : P r o s p e c t s f o r U.S.-Japan Overseas Investment,\" S p e a k i n g of Japan v o l . 5, no. 51 (March, 1985): 16. \" 6 5 I b i d . 331 F u r t h e r m o r e , the U n i t e d S t a t e s r e t a i n s s p l e n d i d t e c h n o l o g i c a l l e a d e r s h i p , e s p e c i a l l y i n t h e a e r o n a u t i c equipment f i e l d s . A c c e s s t o advanced t e c h n o l o g y i s one of the r e a s o n s f o r i n v e s t m e n t i n t e r e s t by the Japanese. The i n f r a s t r u c t u r e and d i s t r i b u t i o n system i n t h e U n i t e d S t a t e s a r e so w e l l d e v e l o p e d t h a t f o r e i g n i n v e s t o r s do not need t o s p a r e funds f o r t h e s e p u r p o s e s . To summarize, the a f f l u e n t and l a r g e n a t i o n a l market, the e x i s t e n c e of dense r e g i o n a l m a r k e t s , f e d e r a l and s t a t e g overnmental p o l i c i e s t o encourage f o r e i g n investment i n the U n i t e d S t a t e s , lower American l a b o r c o s t s and h i g h e r p r o d u c t i v i t y than the Canadian e q u i v a l e n t s , as w e l l as t e c h n o l o g i c a l s u p e r i o r i t y , and a d e v e l o p e d i n f r a s t r u c t u r e , a l l have c o n t r i b u t e d t o making the U n i t e d S t a t e s the l a r g e s t r e c i p i e n t of DFI. In t h i s c h a p t e r , o v e r a l l Japanese DFI i n the U n i t e d S t a t e s and Canada has been s u r v e y e d , and i t i s shown t h a t the comparison of Japanese DFI i n the U n i t e d S t a t e s and Canada r e f l e c t s d i f f e r e n c e s i n t h e i n v e s t m e n t c l i m a t e s of t h e s e two c o u n t r i e s w i t h r e g a r d t o economic, p o l i t i c a l , g e o g r a p h i c a l and s o c i a l f a c t o r s . In the next c h a p t e r , t o d i s c e r n the c h a r a c t e r i s t i c s of i n v e s t m e n t p a t t e r n s Japanese DFI a c t i v i t i e s by sogo shosha i n t h e f o r e g o i n g investment c l i m a t e s a r e demonstrated. 332 CHAPTER 6 A CASE STUDY: JAPANESE DIRECT FOREIGN INVESTMENT IN NORTH AMERICA BY SOGO SHOSHA The economic i n f l u e n c e of sogo shosha extends f u r t h e r than the crud e f i g u r e s of d i r e c t employment and consumption of goods and s e r v i c e s would i n d i c a t e . H aving abundant f i n a n c i a l r e s o u r c e s and de v e l o p e d g l o b a l communication n e t w o r k s , sogo shosha p l a y a c r u c i a l r o l e i n f o s t e r i n g t r a d e a n d \u00E2\u0080\u00A2 i n v e s t m e n t i n the w o r l d . There a r e t h r e e major r o l e s p l a y e d by sogo shosha i n the U n i t e d S t a t e s and Canada. P r i n c i p a l l y , they e x p o r t p r i m a r i l y t o Japan n a t u r a l r e s o u r c e s , raw m a t e r i a l s and f o o d s t u f f s . Second, they import a wide range of Japanese m a n u f a c t u r e d goods and engage i n the w h o l e s a l i n g . F i n a l l y , t h e y a c t i v e l y p a r t i c i p a t e i n Japanese o v e r s e a s i n v e s t m e n t . Some of the e a r l i e s t postwar Japanese investment abroad was i n i t i a t e d by the e s t a b l i s h m e n t of sogo shosha s u b s i d i a r i e s i n New York. B e s i d e s heavy investment i n commerce ( w h o l e s a l i n g and m a r k e t i n g ) , sogo shosha have s e r v e d as c a t a l y s t s t h r o u g h j o i n t v e n t u r e s i n r e s o u r c e development and m a n u f a c t u r i n g . Thus, the i n f l u e n c e of sogo shosha e x t e n d s f a r beyond what the raw d a t a s u g g e s t . In t h i s c h a p t e r , sogo shosha i n v e s t m e n t i n the U n i t e d S t a t e s and Canada i s d i s c u s s e d i n o r d e r t o c l a r i f y t he c h a r a c t e r i s t i c s of investment w i t h r e g a r d t o type of i n d u s t r y and g e o g r a p h i c a l l o c a t i o n . In a d d i t i o n , the s c a l e of t h e inv e s t m e n t p r o j e c t s i n terms of paid- u p c a p i t a l and 333 the number of employees, the degree of s h a r e h o l d i n g , and purposes of investment a r e examined v i s - a - v i s the c o n v e n t i o n a l investment f o r m u l a . The r e p r e s e n t a t i v e n e s s of sogo shosha i n v e s t m e n t i s d e t e r m i n e d by comparison w i t h t o t a l Japanese DFI i n t h e s e two c o u n t r i e s . F i n a l l y , the l o c a t i o n s of the head and branch o f f i c e s of sogo shosha a r e examined i n terms of a new i n t e r n a t i o n a l urban h i e r a r c h y . I. Sogo Shosha Investment i n the U n i t e d S t a t e s T a b l e s i n Appendix B i n d i c a t e t h a t the amount of inv e s t m e n t by sogo shosha*66 i n the U n i t e d S t a t e s i n 1973 4 6 6 A t a k a , which f a i l e d due t o bad inve s t m e n t i n Newfoundland, was one of the t o p t e n sogo shosha and was l a t e r a b s o r b e d by C. I t o h . I t was e x c l u d e d from t h e s e t a b l e s . The amounts of inve s t m e n t i n 1973, 1978 and 1984 were c o m p i l e d by the w r i t e r , based on Shukan Toyo K e i z a i (The O r i e n t a l E c o n o m i s t ) , S p e c i a l I s s u e s : Japanese M u l t i n a t i o n a l s , F a c t s & F i g u r e s , 1973 ed., 1978 ed. and 1984 ed., w i t h supplements of tho s e s p e c i a l i s s u e s of 1974 ed., 1975 ed., 1979 ed., 1980 ed., 1985 ed. and 1986 ed. The 1973 e d i t i o n was the f i r s t i s s u e i n t h i s s e r i e s . S u b s e q u e n t l y , i s s u e s have been p u b l i s h e d a n n u a l l y . The 1978 and 1984 d a t a c l o s e l y c o r r e s p o n d t o FY1977 and FY1983, which have been used i n the p r e v i o u s two c h a p t e r s . S i n c e each volume of Shukan Toyo K e i z a i updates l i s t s of s u b s i d i a r i e s and j o i n t v e n t u r e s w i t h some i n a c t i v e c a s e s , which e i t h e r were dormant or had c e a s e d o p e r a t i o n s , no e d i t i o n i n c l u d e d a l l p a s t p r o j e c t s i n which sogo shosha had been i n v o l v e d . I n a d d i t i o n , the w r i t e r e x c l u d e d some c a s e s . For example, when e q u i t y r a t i o s were not broken down i n t o i n d i v i d u a l companies and/or sogo shosha o n l y p o s s e s s e d p r e f e r r e d s t o c k , the case was e x c l u d e d . F u r t h e r m o r e , the amounts of investment i n c l u d e t h a t investment c a r r i e d out by b o t h the n i n e sogo shosha and t h e i r N o r t h American sogo shosha c o u n t e r p a r t s . F i g u r e s i n the t a b l e s o n l y i n d i c a t e the amount of inve s t m e n t made by sogo shosha. They e x c l u d e a l l i n v e s t m e n t c a r r i e d out by any Japanese p a r t n e r . C a p i t a l of some p r o j e c t s i n Canada i n d i c a t e d by U.S. d o l l a r s have been c o n v e r t e d t o Canadian d o l l a r s by the w r i t e r u s i n g the I.M.F. exchange r a t e s . T h e r e f o r e , t h e s e f i g u r e s s h o u l d be c a u t i o u s l y compared w i t h the ac c u m u l a t e d amounts of inv e s t m e n t r e l e a s e d by the M i n i s t r y of F i n a n c e and the Bank 334 t o t a l l e d US$268 m i l l i o n . 4 6 7 In 1978, t h i s i n c r e a s e d t o $867 m i l l i o n and i n 1984, t o $1,614 m i l l i o n . By i n d u s t r y , i n v e s t m e n t was h e a v i l y f o c u s e d on commerce w i t h some c o n c e n t r a t i o n s i n m a n u f a c t u r i n g and m i n i n g . By a r e a , sogo shosha investment was l a r g e l y c e n t e r e d i n New York, but by 1978, C a l i f o r n i a had emerged as ano t h e r f o c a l p o i n t , and i n 1984, Texas, Washington, Tennessee, Delaware, I l l i n o i s and F l o r i d a were a l s o major r e c i p i e n t s . 1. 1973 In 1973, t o t a l i n v e s t m e n t by the n i n e l a r g e s t sogo shosha i n the U n i t e d S t a t e s reached $268 m i l l i o n . By i n d u s t r y , commerce a t t r a c t e d $252 m i l l i o n (94.0 p e r c e n t ) , t r a n s p o r t a t i o n $4,720,000 (1.8 p e r c e n t ) , m i n i n g $4,708,000 (1.8 p e r c e n t ) , lumber and p u l p $2,212,000 (0.8 p e r c e n t ) , f o o d p r o c e s s i n g $1,296,000 (0.5 p e r c e n t ) , r e a l e s t a t e $1,207,000 (0.4 p e r c e n t ) , and v a r i o u s o t h e r i n d u s t r i e s $1,960,000 (0.7 p e r c e n t ) . By s t a t e , c o n c e n t r a t i o n of inves t m e n t i n New York ($248 m i l l i o n ) s u r p a s s e d a l l o t h e r s t a t e s , c o m p r i s i n g 92.5 p e r c e n t of t o t a l sogo shosha i n v e s t m e n t . Next t o New York, Texas h o s t e d $6,840,000 (2.5 p e r c e n t ) , Washington $3,125,000 (1.2 p e r c e n t ) , C o l o r a d o $3 m i l l i o n (1.1 p e r c e n t ) , Delaware $1,708,000 (0.6 p e r c e n t ) and C a l i f o r n i a $1,617,000 (0.6 p e r c e n t ) w i t h the r e m a i n i n g b a l a n c e $3,902,000 (1.5 p e r c e n t ) s p r e a d out over the r e s t of the U n i t e d S t a t e s . Thus, i n 4 6 6 ( c o n t ' d ) of Japan. As l o n g as sogo shosha companies can be i d e n t i f i e d , the names a r e w r i t t e n i n the s h o r t form. 4 6 7 H e r e a f t e r , a d o l l a r i n d i c a t e s US d o l l a r s . 335 a d d i t i o n t o f o c u s on New Yor k , a n o t h e r d i s t i n c t c h a r a c t e r i s t i c of sogo shosha investment i n the U n i t e d S t a t e s i n 1973 was the h i g h c o n c e n t r a t i o n i n commerce. Investment i n New York amounted t o $248 m i l l i o n , of which $247.9 was f u n n e l e d i n t o commerce. T h i s a l s o r e f l e c t s t he c a p i t a l i n v e s t m e n t p a t t e r n of a l l n i n e sogo shosha, which was t o e s t a b l i s h by 1967 (see Chapter 5) wholly-owned s u b s i d i a r i e s w i t h h e a d q u a r t e r s i n New York C i t y . Investment a s s o c i a t e d w i t h the e s t a b l i s h m e n t of these s u b s i d i a r i e s amounted t o $247,480,000 (see b e l o w ) , which was 99.8 p e r c e n t commerce. C a p t i a l as of 1973 C. I t o h & Co. Kanematsu-Gosho U.S.A. Marubeni Co. M i t s u b i s h i I n t e r n a t i o n a l Corp. M i t s u i Bussan (U.S.A.) Nichimen Co. I n c . N i s s h o - I w a i American Corp. Sumitomo S h o j i America Toyo Menka (America) I n c . T o t a l $25,750,000 10,000,000 50,000,000 51 ,500,000 33,000,000 14,000,000 30,000,000 20,000,000 13,230,000 247,480,000 B e s i d e s wholly-owned s u b s i d i a r i e s of American sogo shosha, sogo shosha a l s o had s m a l l - s c a l e , f u l l y - o w n e d t r a d i n g s u b s i d i a r i e s d e a l i n g i n s p e c i a l i z e d goods. As Tomen (Toyo Menka) and Nichimen had de v e l o p e d from senmon shosha t o sogo shosha (see Chapter 2 ) , b o t h a t f i r s t had s t r e n g t h i n t h e i r s p e c i a l t y , c o t t o n , but t h i s d i m i n i s h e d i n importance as the volume of o t h e r goods and monetary v a l u e s i n c r e a s e d . In 1954 Tomen e s t a b l i s h e d the Toyo C o t t o n Co., i n 336 D a l l a s , Texas w i t h a c a p i t a l i n vestment of $900,000. A l s o , Nichimen owned the J a p a n . C o t t o n Company, whose c a p i t a l was $400,000 and was a l s o e s t a b l i s h e d i n D a l l a s , i n 1954. S i m i l a r l y , i n 1963 Marubeni i n v e s t e d $200,000 f o r the e s t a b l i s h m e n t of the Marubeni C o t t o n C o r p o r a t i o n of D a l l a s . In a d d i t i o n t o thes e f u l l y - o w n e d s u b s i d i a r i e s , t h e r e were many m a r k e t i n g companies, j o i n t l y owned by.both Japanese m a n u f a c t u r e r s and sogo shosha, d e a l i n g w i t h the d i s t r i b u t i o n of commo d i t i e s . I n t e r e s t i n g l y , Japanese a u t o m o b i l e makers were among the f i r s t t o market i n d e p e n d e n t l y ; t h u s , i n the e a r l y s t a g e s of e x p o r t a c t i v i t y by Japan, N o r t h American branches was i n d i v i d u a l l y e s t a b l i s h e d . For example, among the m a r k e t i n g companies were: i n 1957, Toyota Motor S a l e s USA I n c . i n C a l i f o r n i a ; i n 1959, American Honda Motor i n C a l i f o r n i a ; i n 1960, N i s s a n Motor Corp. U.S.A. i n C a l i f o r n i a ; i n 1970, Mazda Motors A. (N.Y.) I n c . i n New York; and i n 1971, Mazda Motors of USA i n Los A n g e l e s . \"Japanese m a n u f a c t u r i n g f i r m s have b u i l t t h e i r own d i s t r i b u t i o n systems i n t h e i r major o v e r s e a s markets w h i l e l e a v i n g more p e r i p h e r a l markets t o be r e p r e s e n t e d by the sogo shosha.\"1*6* Indeed, Toyota Motors has a l l o w e d M i t s u i t o handle p a r t of i t s s a l e s i n Canada (see s e c t i o n I I ) , but i n the U n i t e d S t a t e s , has kept the market t o i t s e l f . Moreover, w h i l e Mazda founded the Mazda Motor A. (N.Y.) I n c . i n New York i n 1970, 4 S 8 L a w r e n c e G. Fr a n k o , The Th r e a t of Japanese M u l t i n a t i o n a l s : How the West Can Respond, w i t h a Foreword by Terutomo Ozawa ( C h i c h e s t e r and New York: John W i l e y & Sons, 1983; r e p r i n t ed., 1984), p. 64. 337 t h a t y e a r Mazda a l s o c r e a t e d two o t h e r m a r k e t i n g companies. One was Mazda Motors of F l o r i d a I n c . i n J a c k s o n v i l l e owned by Mazda Motors ($180,000, or 60 p e r c e n t of the c a p i t a l ) and Sumitomo ($120,000, or 40 p e r c e n t ) . The o t h e r was Mazda Motors of Texas I n c . i n Houston owned by Mazda ($180,000, or 60 p e r c e n t of the c a p i t a l ) and C. I t o h ($120,000, or 40 p e r c e n t ) . These examples i l l u s t r a t e t h a t Japanese m a n u f a c t u r e r s r e l i e d upon sogo shosha f o r m a r k e t i n g knowledge and networks a b r o a d and used t h e s e as e x p o r t a g e n t s , though nowadays sogo shosha a r e bypassed i n f a v o r of own m a r k e t i n g and s a l e s companies (shosha banare, see Chapter 2) owned d i r e c t l y by the companies c o n c e r n e d . F o l l o w i n g i n v e s t m e n t i n commerce, t r a n s p o r t a t i o n r e c e i v e d the second l a r g e s t amounting t o $4,720,000. M i t s u i & Co. (U.S.A.) I n c . e s t a b l i s h e d the Channel T e r m i n a l Corp., a h o l d i n g f i r m f o r t a n k s , warehouses and docks i n Houston, Texas, i n 1 9 7 2 \u00E2\u0080\u0094 a p r o j e c t c a p i t a l i z e d a t $4.5 m i l l i o n . 4 6 9 The m i n i n g s e c t o r c a p t u r e d $4,708,000, a p p r o x i m a t e l y the same amount of in v e s t m e n t as t r a n s p o r t a t i o n . 4 7 0 In 1973, M i t s u i undertook a $3 m i l l i o n investment i n C o l o r a d o t o e s t a b l i s h a f u l l y - o w n e d c o r p o r a t i o n , c a l l e d H a m i l t o n B r o s , f o r p e t r o l e u m e x p l o r a t i o n . The r e s t ($1,708,000) was 4 6 9 A l t h o u g h t h i s amount was c o n f i r m e d by Shukan Toyo K e i z a i 1974 ed. and 1975 ed., the c a p i t a l of t h i s f i r m i n 1984 was $330,000. *70Sogo shosha o f t e n r e g i s t e r e d t h e i r companies i n a r e a s where l o c a l governments p r o v i d e d investment i n c e n t i v e s such as a lower c o r p o r a t e t a x r a t e . C o n s e q u e n t l y , the l o c a t i o n of sogo shosha s u b s i d i a r i e s does not match the l o c a t i o n where a c t u a l b u s i n e s s t r a n s a c t i o n s t a k e p l a c e . T h i s phenomenon i s o f t e n o b s e r v e d i n m i n i n g i n v e s t m e n t . 338 i n v e s t e d i n Delaware; one of two Delaware v e n t u r e s b e i n g D a h l i a M i n i n g Co. L t d . , which s t a r t e d o p e r a t i o n s i n 1968 t o e x c a v a t e i r o n o r e . C a p i t a l amounting t o $1,160,000 was p r o v i d e d by Sumitomo (25 p e r c e n t ) and M i t s u b i s h i (75 p e r c e n t ) . The o t h e r v e n t u r e was the L i b e r i a n I n t e r n a t i o n a l American Corp., a s t o c k h o l d i n g company e s t a b l i s h e d t o d e v e l o p i r o n mines i n L i b e r i a . C. I t o h , N i s s h o - I w a i , Tomen and Kawasaki S t e e l took p a r t i n the p r o j e c t , t o g e t h e r c o n t r i b u t i n g 12.4 p e r c e n t \" 7 1 of the c a p i t a l of $11,413,000. However, the r e c e s s i o n i n the s t e e l i n d u s t r y f o r c e d t h e Japanese f i r m s t o g i v e up t h i s v e n t u r e i m m e d i a t e l y a f t e r they had begun p a r t i c i p a t i o n . In t h e m a n u f a c t u r i n g s e c t o r , lumber and p u l p r e c e i v e d $2,212,000, a l l of which was i n v e s t e d i n the s t a t e of Washington. T h i s was un d e r t a k e n by J u j o Weyerhaeuser i n 1973 f o r the p r o d u c t i o n of paper f o r newspapers. C a p i t a l i z a t i o n was \u00C2\u00A52.8 b i l l i o n * 7 2 and was p r o v i d e d by J u j o Paper (60 p e r c e n t ) , M i t s u i (21 p e r c e n t ) and Weyerhaeuser (19 p e r c e n t ) . * 7 3 Investment i n the food p r o c e s s i n g i n d u s t r y t o t a l e d $1,296,000, of which $636,000 was i n the s t a t e of Washington, $600,000 i n A l a s k a , and $60,000 i n C a l i f o r n i a . 4 7 A l t h o u g h e q u i t y r a t i o s were not broken down by company, and t h i s 12.4 p e r c e n t i n c l u d e d the e q u i t y of Kawasaki S t e e l , the w r i t e r c o u l d not e x c l u d e t h i s p r o j e c t as an example or a m i n o r i t y s h a r e h o l d i n g case by sogo shosha. * 7 E q u i v a l e n t t o US$10,534,000, based on the exchange r a t e of US$1 t o \u00C2\u00A5265.8 i n March, 1973. * 7 3 T h e w r i t e r e x c l u d e d $400,000 f o r A l a s k a P r i n c e Timber Corp. because t h e r e was no breakdown by s h a r e h o l d e r s ( O j i Paper and Sumitomo). 339 M i t s u b i s h i , a l o n g w i t h N i c h i r o Gyogyo, was f i n a n c i a l l y committed t o the Orca P a c i f i c P a c k i n g Co. of S e a t t l e t o produce canned salmon and t r o u t . M i t s u b i s h i c o n t r i b u t e d 20 p e r c e n t of the c a p i t a l ($1,365,000). Marubeni was i n v o l v e d w i t h t h r e e companies; B e r i n g Sea F i s h e r i e s I n c . , N o r t h P a c i f i c P r o c e s s e r s , and Togiak F i s h e r i e s I n c , which p r o c e s s e d marine p r o d u c t s , m a i n l y salmon and t r o u t c a n n i n g i n S e a t t l e . Marubeni a l s o e s t a b l i s h e d the wholly-owned Marubeni A l a s k a Seafoods I n c . i n A l a s k a , w i t h Marubeni c o n t r i b u t e d $600,000. Among the n i n e sogo shosha, Marubeni was the most i n v o l v e d w i t h p r o c e s s i n g of marine p r o d u c t s . In 1970, N i s s i n Foods (U.S.A.) Co., I n c . , was s e t up i n Gardena, C a l i f o r n i a t o produce i n s t a n t n o o d l e s . C a p i t a l of $300,000 was p r o v i d e d by N i s s i n Food P r o d u c t s (55 p e r c e n t ) , the A j i n o m o t o Co. (25 p e r c e n t ) and M i t s u b i s h i (20 p e r c e n t ) . \" 7 4 A t o t a l of $1,207,000 was i n v e s t e d i n r e a l e s t a t e . H a w a i i a t t r a c t e d $300,000 from the Tokyu Corp., w i t h M i t s u b i s h i e s t a b l i s h i n g the O r c h i d I s l a n d R e s o r t s Corp. i n H o n o l u l u i n 1972 t o d e v e l o p r e c r e a t i o n and r e s o r t a r e a s (1,267 ha.) on the I s l a n d of H a w a i i . The Tokyu Corp. c o n t r i b u t e d 70.6 p e r c e n t and M i t s u b i s h i 29.4 p e r c e n t of the c a p i t a l t o t a l of $1,020,000. In 1972, Y o m i u r i Ryoko ( T r a v e l ) and M i t s u b i s h i i n v e s t e d i n a r e a l e s t a t e company, Pago Bay Land Co. L t d . , of t h e U n i t e d S t a t e s , \" 7 5 w i t h Y o m i u r i Ryoko and M i t s u b i s h i each p r o v i d i n g 25 p e r c e n t of the c a p i t a l of \" 7 \" E q u i t y r a t i o s from t h e 1974 ed. were adopted. \" 7 5 L o c a t i o n was u n s p e c i f i e d i n d a t a s e t . 340 $3,627,000; however, by the end of 1974 a l l s t o c k was s o l d . 2. 1978 Sogo shosha i n v e s t m e n t i n 1978 i n c r e a s e d t o $867,057,000 and as i n 1973 investment i n commerce ($784,523,000) dominated, c o m p r i s i n g 90.5 p e r c e n t of t o t a l sogo shosha i n v e s t m e n t . F o l l o w i n g commerce, t e x t i l e s took $15,245,000 (1.8 p e r c e n t ) , food p r o c e s s i n g $11,984,000 (1.4 p e r c e n t ) , a g r i c u l t u r e and f o r e s t r y $12,026,000 (1.4 p e r c e n t ) , r e a l e s t a t e $10,052,000 (1.2 p e r c e n t ) , m i n i n g $9,281,000 (1.1 p e r c e n t ) , s e r v i c e s $5,157,000 (0.6 p e r c e n t ) , f e r r o u s and n o n - f e r r o u s m e t a l s $3,319,000 (0.4 p e r c e n t ) , t r a n s p o r t a t i o n $2,326,000 (0.3 p e r c e n t ) , and o t h e r i n d u s t r i e s $13,144,000 (1.5 p e r c e n t ) . By s t a t e , i n v e s t m e n t was a g a i n s t r i k i n g l y c o n c e n t r a t e d i n New York w i t h $675,303,000 (77.9 p e r c e n t ) . I n 1978, sogo shosha i n v e s t m e n t i n C a l i f o r n i a became s i g n i f i c a n t w i t h $114,381,000 (13.2 p e r c e n t ) . Washington r e c e i v e d $17,238,000 (2.0 p e r c e n t ) , F l o r i d a $13,727,000 (1.6 p e r c e n t ) , C o l o r a d o $8,126,000 (0.9 p e r c e n t ) , Tennessee $7,582,000 (0.9 p e r c e n t ) , New J e r s e y $7,209,000 (0.8 p e r c e n t ) , A l a s k a $7,099,000 (0.8 p e r c e n t ) , and the r e s t of t h e U n i t e d S t a t e s $16,397,000 (1.9 p e r c e n t ) . In s p i t e of an a b s o l u t e i n c r e a s e i n i n v e s t m e n t i n New York, sogo shosha i n v e s t m e n t t h e r e d e c r e a s e d r e l a t i v e l y . B oth a b s o l u t e and r e l a t i v e i n v e s t m e n t i n c r e a s e d i n C a l i f o r n i a . In a d d i t i o n , a c o n s i d e r a b l e i n c r e a s e i n inv e s t m e n t was seen i n F l o r i d a , New J e r s e y and A l a s k a . 341 S e c t o r a l l y , t he l a r g e s t amount ($784,523,000) was f u n n e l e d i n t o commerce, which i n New York took $665,783,000, a c c o u n t i n g f o r 76.8 p e r c e n t of t o t a l sogo shosha investment i n the U n i t e d S t a t e s i n 1978. The second l a r g e s t investment amount was i n C a l i f o r n i a commerce, amounting t o $93,306,000. Investment i n commerce i n both New York and C a l i f o r n i a t o t a l e d 96.8 p e r c e n t of the inves t m e n t i n t h i s s e c t o r . C a p i t a l of wholly-owned s u b s i d i a r i e s of the n i n e sogo shosha amounted t o $660.6 m i l l i o n . The r e m a i n i n g b a l a n c e of investment m a t e r i a l i z e d i n the c r e a t i o n of f u l l y - or p a r t l y - o w n e d sogo shosha m a r k e t i n g companies, which s p e c i a l i z e d i n s e l l i n g one k i n d of commodity. As p r e v i o u s l y mentioned, Tomen, Nichimen and Marubeni had f u l l y - o w n e d c o t t o n companies i n D a l l a s , Texas. Investment i n thes e companies was expanded t o $2.5 m i l l i o n by the Toyo C o t t o n , Co., $1.6 m i l l i o n by the Japan C o t t o n Company, and $2 m i l l i o n by the Marubeni C o t t o n C o r p o r a t i o n . Investment p r o j e c t s i n 1973 showed Mazda f o u n d i n g m a r k e t i n g companies t o g e t h e r w i t h C. I t o h and Sumitomo. However, company names and s h a r e h o l d i n g s were a l t e r e d . In 1975, C. I t o h p r o v i d e d 100 p e r c e n t f u n d i n g ($13 m i l l i o n ) f o r Mazda Motors of America ( E a s t ) I n c . i n J a c k s o n v i l l e , F l o r i d a . Sumitomo a l s o c o n t r i b u t e d $80 m i l l i o n i n f u l l y f u n d i n g Mazda Motors of Am e r i c a , I n c . of Compton, C a l i f o r n i a , i n 1977. In 1975, Mazda i t s e l f undertook the o p e r a t i o n of a m a r k e t i n g company, Mazda Motors of America 342 C a p i t a l as of 1978 C. I t o h & Co. (America) I n c . Kanematsu-Gosho (U.S.A.) I n c . Marubeni A m e r i c a Corp. M i t s u b i s h i I n t e r n a t i o n a l Corp. M i t s u i & Co. I n c . Nichimen Co. I n c . N i s s h o - I w a i American Corp. Sumitomo S h o j i A m e r i c a , I n c . Toyomenka (America) I n c . $85,300,000 40,000,000 79,000,000 125,000,000 140,000,000 35,000,000 61,800,000 53,500,000 41,000,000 T o t a l 660,600,000 ( C e n t r a l ) , I n c . of Compton, C a l i f o r n i a , i n which Mazda c o n t r i b u t e d 48.5.percent of the c a p i t a l of $17 m i l l i o n , w h i l e a n o t h e r 48.5 p e r c e n t was s u p p l i e d by Sumitomo, and 3.0 pe r c e n t by Chaya Sangyo. In c o n t r a s t t o Toyota and Honda, w h i c h had t h e i r own ma r k e t i n g companies, Mazda h e a v i l y r e l i e d on sogo shosha i n ca r s a l e s . A l t h o u g h N i s s a n had i t s own m a r k e t i n g company, t o a c e r t a i n e x t e n t , Marubeni was used f o r i t s s u b s i d i a r y , D i s t r i b u t i o n & Auto S e r v i c e s I n c . i n C a l i f o r n i a . C a p i t a l of $100,000 was p r o v i d e d by N i s s a n (30 p e r c e n t ) and Marubeni (30 p e r c e n t ) . 4 7 6 T h e r e f o r e , sogo shosha i n v e s t e d i n commerce f o r the e s t a b l i s h m e n t of wholly-owned g e n e r a l t r a d i n g companies, wholly-owned s p e c i a l i z e d t r a d i n g companies, and w h o l l y - or p a r t l y - o w n e d m a r k e t i n g / s a l e s companies i n o r d e r t o s t r e n g t h e n t h e i r c o mmercial t r a n s a c t i o n s i n the U n i t e d S t a t e s . The second l a r g e s t i n v e s t m e n t ($15,245,000) was d i r e c t e d i n t o t e x t i l e s . C a l i f o r n i a r e c e i v e d $14,553,000, New York $542,000, and South C a r o l i n a $150,000. A major v e n t u r e 4 7 6 T h e r e m a i n i n g s h a r e h o l d e r s were u n c l e a r . 343 was G e n e r a l K n i t of C a l i f o r n i a , I n c . e s t a b l i s h e d i n 1974 i n Cucamonga, C a l i f o r n i a . C a p i t a l of $16 m i l l i o n was r a i s e d by C. I t o h (81.5 p e r c e n t ) , T o k a i Senko (12.3 p e r c e n t ) , and Kawabo T e x t i l e (6.2 p e r c e n t ) . Another example was Somitex P r i n t s of C a l i f . I n c . c r e a t e d i n 1974, i n the C i t y of I n d u s t r y , C a l i f o r n i a , w i t h f u n d i n g ($1.8 m i l l i o n ) b e i n g s u p p l i e d by M i t s u b i s h i (57 p e r c e n t ) and Soko S e i r e n (43 p e r c e n t ) . Marubeni p r o v i d e d 95 p e r c e n t of t h e c a p i t a l ($284,000) f o r the Don Juan Sportwear, I n c . of New York, a l o n g w i t h Halanby I n c . (5 p e r c e n t ) . In 1973, C. I t o h undertook a j o i n t v e n t u r e , Pago F a b r i c s Corp., i n New Y o r k , c o n t r i b u t i n g 90 p e r c e n t of the c a p i t a l ($160,000), w i t h S. S c h u t , 10 p e r c e n t . In 1974, Marubeni and S h i n m e i 4 7 7 funded Wateree T e x t i l e , Corp. i n L u g o f f , South C a r o l i n a . The former p r o v i d e d 15 p e r c e n t of 1 m i l l i o n c a p i t a l , w h i l e the l a t t e r c o n t r i b u t e d the b a l a n c e . Food p r o c e s s i n g a t t r a c t e d $11,984,000. G e o g r a p h i c a l l y , i t s d i s t r i b u t i o n was: A l a s k a , $6,873,000, Washington $3,861,000, Oregon $800,000, and C a l i f o r n i a $450,000. Marubeni was f i n a n c i a l l y committed i n 1973 t o the Kodiak K i n g C r a b , I n c . of A l a s k a t o p r o c e s s marine p r o d u c t s . C a p i t a l of $10 m i l l i o n was s u p p l i e d h a l f by Marubeni and h a l f by K i n g Crab and o t h e r s . In i 9 7 2 , Marubeni a l s o formed the Marubeni A l a s k a Seafoods I n c . i n Juneau, and p r o v i d e d the f u l l amount of $1.6 m i l l i o n . fl77This c o u l d be a l s o pronounced as Shinmyo. R o m a n i z a t i o n of Japanese names i s d i f f i c u l t . 344 A l l i n vestment i n Washington was r e l a t e d t o p r o c e s s i n g and c a n n i n g marine p r o d u c t s , e s p e c i a l l y salmon and t r o u t . Marubeni a c t i v e l y undertook v e n t u r e s i n t h i s f i e l d . For example, Marubeni p r o v i d e d h a l f of $3.2 m i l l i o n f o r the Nefco Marubeni Seafoods Co. In t h e case of the Togiak F i s h e r i e s , I n c . , Marubeni s u p p l i e d a l l t he c a p i t a l of $1.6 m i l l i o n . F u t h e r m o r e M a r u b e n i c o n t r i b u t e d h a l f of the $500,000 f o r N o r t h P a c i f i c P r o c e s s o r s , I n c . , w h i l e H. A. Daubenspeck c o n t r i b u t e d the o t h e r h a l f . A g a i n , i t s h o u l d be p o i n t e d out t h a t Marubeni- c o n c e n t r a t e d i t s b u s i n e s s i n t h i s a r e a , more than d i d o t h e r sogo shosha. In a d d i t i o n t o M a r u b e n i , M i t s u i a l s o had a j o i n t v e n t u r e , Morpac I n c . i n the s t a t e of Washington. M i t s u i and Nippon S u i s a n each p r o v i d e d 46 p e r c e n t of the c a p i t a l ($2,072,000), a l o n g w i t h Robert F. Morgan (8 p e r c e n t ) . Investment i n C a l i f o r n i a was r e p r e s e n t e d by N i s s i n Foods (U.S.A.) Co., I n c . , a f a s t g r o w i n g company. The c a p i t a l $4.5 m i l l i o n was put up by N i s s i n Foods (80 p e r c e n t ) , A j i n o m o t o (10 p e r c e n t ) , and M i t s u b i s h i (10 p e r c e n t ) . A g r i c u l t u r e and f o r e s t r y r e c e i v e d $12 m i l l i o n . M i t s u i founded N o r t h American F o r e s t r y Development, I n c . i n 1977 i n S e a t t l e . T h i s was a f u l l y - o w n e d company w i t h $8 m i l l i o n i n c a p i t a l . M i t s u b i s h i was engaged i n f r u i t c u l t i v a t i o n i n B a k e r s f i e l d , C a l i f o r n i a . M i t s u b i s h i and B l a c k w e l l Land Corp. each f i n a n c e d h a l f of the $3,068 m i l l i o n i n c a p i t a l . Marubeni was i n v o l v e d i n the Western G r a i n Exchange I n c . , of 345 P o r t l a n d , Oregon, w i t h c a p i t a l ($3,266,000) p r o v i d e d by Marubeni (51 p e r c e n t ) and R. C. Woolcock (49 p e r c e n t ) . R e a l e s t a t e o b t a i n e d $10,052,000, which was i n v e s t e d i n New J e r s e y ($4,297,000), H a w a i i ($2,497,000), Delaware ($2,000,000), C a l i f o r n i a ($1,140,000), and New York ($118,000). M i t s u i U.S.A. funded $4,297,000 f o r the H a r b o r l a n d Corp. i n New J e r s e y . M i n i n g r e c e i v e d $9,281,000, of which $8.1 m i l l i o n was d i r e c t e d t o C o l o r a d o , $1,160,000 t o Delaware, and $21,000 t o A l a s k a . M i t s u i U.S.A. f u l l y funded P e t r o l e u m H. B. L t d . i n Denver, C o l o r a d o , w i t h $8.1 m i l l i o n i n c a p i t a l . Sumitomo (25 p e r c e n t ) and M i t s u b i s h i (75 p e r c e n t ) p r o v i d e d $1,160,000 f o r D a h l i a M i n i n g Co., L t d . , i n Delaware. S e r v i c e s a t t r a c t e d $5,157,000, of which $5,155,000 was i n v e s t e d i n New York. M i t s u b i s h i America i n v e s t e d the f u l l amount of $4.2 m i l l i o n f o r the B. & H. Corp. i n New York t o run a h o t e l . The Canyon West Corp. was a n o t h e r f i r m e s t a b l i s h e d t o run a h o t e l b u s i n e s s i n New York. M i t s u b i s h i c o n t r i b u t e d 80 p e r c e n t of $1 m i l l i o n c a p i t a l w i t h l o c a l p a r t n e r ( s ) (20 p e r c e n t ) . F e r r o u s and n o n - f e r r o u s m e t a l s took $3,319,000. In 1972, Sumitomo America f i n a n c i a l l y p a r t i c i p a t e d i n Predco I n c . i n New J e r s e y f o r the p r o c e s s i n g of w i r e r o d s . The c a p i t a l ($7,807,000) was s u p p l i e d by Sumitomo America (13 p e r c e n t ) and by Dixon V a l v e & C o u p l i n g , w i t h o t h e r s u n s p e c i f i e d (87 p e r c e n t ) . The e s t a b l i s h m e n t of Alumax I n c . i n C a l i f o r n i a i n 1973 s h o u l d be p o i n t e d o u t , a l t h o u g h the 346 c a p i t a l was s m a l l ($50,000). M i t s u i c o n t r i b u t e d 45 p e r c e n t of the c a p i t a l a l o n g w i t h Nippon S t e e l (5 p e r c e n t ) , w h i l e the b a l a n c e was p r o v i d e d by Amax S e c u r i t i e s I n c . among o t h e r s . F i n a l l y , t r a n s p o r t a t i o n r e c e i v e d 2,326,000, w i t h i n v e s t m e n t s i n New J e r s e y ($870,000), C a l i f o r n i a ($708,000) and o t h e r s t a t e s . 3. 1984 In 1984, sogo shosha i n v e s t m e n t i n the U n i t e d S t a t e s amounted t o $1,614,094,000. As i n the p a s t , commerce a t t r a c t e d t h e g r e a t e r p o r t i o n \u00E2\u0080\u0094 a t o t a l of $1,236,828,000, a c c o u n t i n g f o r 76.6 p e r c e n t of t h e t o t a l . Investment i n f e r r o u s and n o n - f e r r o u s m e t a l s i n c r e a s e d c o n s i d e r a b l y t o $134,020,000, c o n s i s t i n g of 8.3 p e r c e n t of the t o t a l and c o m p r i s i n g 76.9 p e r c e n t of the t o t a l sogo shosha i n v e s t m e n t i n the m a n u f a c t u r i n g i n d u s t r i e s . Investment i n m i n i n g a l s o m u l t i p l i e d t o $96,289,000, composing 6.0 p e r c e n t of the t o t a l , w h i l e a g r i c u l t u r e and f o r e s t r y h o s t e d $50,696,000, making up 3.1 p e r c e n t . These f o u r s e c t o r s a c c o u n t e d f o r 94.0 p e r c e n t of the sogo shosha i n v e s t m e n t i n the U n i t e d S t a t e s i n 1984. Among o t h e r i n d u s t r i e s , f o o d p r o c e s s i n g o b t a i n e d $17,623,000 (1.1 p e r c e n t ) , r e a l e s t a t e $16,383,000 (1.0 p e r c e n t ) , and t r a n s p o r t a t i o n $7,905,000 (0.5 p e r c e n t ) . The r e m a i n i n g b a l a n c e of $54,350,000 (3.4 p e r c e n t ) was d i s p e r s e d over v a r i o u s i n d u s t r i e s . Investment i n m a n u f a c t u r i n g as a whole i n c r e a s e d enormously t o $174,269,000, c o m p r i s i n g 10.8 p e r c e n t of the t o t a l sogo shosha investment i n the U n i t e d 347 S t a t e s i n 1984 an i n c r e a s e from 4.6 p e r c e n t i n 1978. Investments i n t e x t i l e s and s e r v i c e s on the o t h e r hand i n c u r r e d n o t a b l e d e c r e a s e s . G e o g r a p h i c a l l y , the l a r g e s t amount ($1,181,972,000) was a g a i n i n v e s t e d i n New York, a c c o u n t i n g f o r 73.3 p e r c e n t of t o t a l sogo shosha investment i n the U n i t e d S t a t e s i n 1984. C a l i f o r n i a c a p t u r e d the second l a r g e s t amount w i t h $169 m i l l i o n (10.5 p e r c e n t ) . Texas a t t r a c t e d $59,267,000 (3.7 p e r c e n t ) , Washington $51,559,000 (3.2 p e r c e n t ) , and Tennessee $43,264,000 (2.7 p e r c e n t ) . In a d d i t i o n , Delaware h o s t e d $21,132,000 (1.3 p e r c e n t ) , I l l i n o i s $17,131,000 (1.1 p e r c e n t ) , F l o r i d a $15,560,000 (1.0 p e r c e n t ) , and the re m a i n i n g b a l a n c e of $53,406,000 (3.3 p e r c e n t ) was s c a t t e r e d i n o t h e r s t a t e s . Large i n c r e a s e s i n Tennessee, Texas, Delaware and I l l i n o i s were n o t e w o r t h y . C o n c e n t r a t i o n of sogo shosha i n v e s t m e n t i n New York commerce can be e x p l a i n e d by the f a c t t h a t t o t a l i n v e s t m e n t of the n i n e sogo shosha s u b s i d i a r i e s amounted t o $1,016 m i l l i o n i n 1984, which a c c o u n t e d f o r 86 p e r c e n t of the t o t a l i n v e s t m e n t i n New York (see the breakdown b e l o w ) . One b i l l i o n s i x t e e n m i l l i o n d o l l a r s o c c u p i e d 82.3 p e r c e n t of the t o t a l i n vestment i n U.S. commerce by sogo shosha. The r e s t of the b a l a n c e was embodied i n the e s t a b l i s h m e n t of w h o l l y -or p a r t l y - o w n e d m a r k e t i n g companies. Among the Japanese a u t o m o t i v e m a n u f a c t u r e r s , Mazda c o n t i n u e d t o r e l y on sogo shosha f o r the s a l e s of i t s c a r s . 348 C a p i t a l as of 1 984 Number of employees C. I t o h &Co. (America) I n c . Kanematsu-Gosho (U.S.A.) I n c . Marubeni America Corp. M i t s u b i s h i I n t e r n a t i o n a l Corp. M i t s u i & Co. (U.S.A.) I n c . Nichimen America I n c . N i s s h o - I w a i American Corp. Sumitomo Corp. of Amer i c a Toyomenka (America) I n c . US$100.M 41.5 120.0 205.0 210.0 50.0 1 04.5 105.5 79.5 300 282 601 797 675 195 480 534 31 1 T o t a l 1016.0 4, 175 Mazda Motors of America ( C e n t r a l ) , I n c . , i n C a l i f o r n i a , was funded ($1.7 m i l l i o n c a p i t a l ) h a l f by Sumitomo and h a l f by Mazda. Mazda Motors of A m e r i c a ( E a s t ) , I n c . , i n F l o r i d a , was c a p i t a l i z e d a t $1.3 m i l l i o n by C. I t o h (75 p e r c e n t ) and Mazda (25 p e r c e n t ) . Not o n l y Mazda but a l s o I s u z u u t i l i z e d a l r e a d y e s t a b l i s h e d sogo shosha d i s t r i b u t i o n networks and m a r k e t i n g know-how. In 1981, I s u z u M o t o r s (80 p e r c e n t ) and C. I t o h (20 p e r c e n t ) i n v e s t e d $10 m i l l i o n i n American I s u z u M o t o r s , I n c . i n C a l i f o r n i a f o r the s a l e of a u t o m o b i l e s . By u n d e r t a k i n g a j o i n t v e n t u r e w i t h C. I t o h , I s u z u took a s h o r t c u t and squeezed i n t o the American a u t o m o b i l e market, where s e v e r e c o m p e t i t i o n has been i n t e n s i f i e d among the \" B i g Three\" and i t s Japanese r i v a l s . T h i s e x p l a n a t i o n i s a l s o a p p l i c a b l e t o M i t s u b i s h i M o t o r s . In 1981, M i t s u b i s h i Motor S a l e s of America was e s t a b l i s h e d i n C a l i f o r n i a w i t h c a p i t a l of $21 m i l l i o n , funded t w o - t h i r d s by M i t s u b i s h i Motors and o n e - t h i r d by M i t s u b i s h i . These c a s e s demonstrate a c o n v e n t i o n a l p a t t e r n 349 whereby Japanese m a n u f a c t u r e r s u t i l i z e sogo shosha competence t o open up new o v e r s e a s markets. In a d d i t i o n t o a u t o m o b i l e s a l e s companies as n o t e d , sogo shosha c o n t r o l f u l l y or p a r t l y owned m a r k e t i n g companies. For example, M i t s u b i s h i f u l l y owned the MCF Footwear Corp. e s t a b l i s h e d i n New York i n 1979 w i t h c a p i t a l of $66.5 m i l l i o n . M i t s u b i s h i w h o l l y owned G u l f Coast G r a i n , I n c . , founded i n Memphis, Tennessee, i n 1978, w i t h c a p i t a l i n v estment amounting t o $38.75 m i l l i o n . The second l a r g e s t amount, $134,020,000, was c h a n n e l l e d i n t o f e r r o u s and n o n - f e r r o u s m e t a l s . A l a r g e and s u c c e s s f u l company, Alumax I n c . , w i t h $209 m i l l i o n i n c a p i t a l and 7,000 employees, a c c o u n t s f o r t he i n c r e a s e i n t h i s s e c t o r . M i t s u i c o n t r i b u t e d 45 p e r c e n t of the c a p i t a l a l o n g w i t h Nippon S t e e l (5 p e r c e n t ) , w h i l e Amax I n c . p r o v i d e d h a l f . Among m a n u f a c t u r i n g companies which were w h o l l y or p a r t l y f i n a n c e d by Japanese a b r o a d , Alumax I n c . was ranked f i r s t w i t h r e g a r d t o 1982 s a l e s of $1,004 m i l l i o n . 4 7 8 M i n i n g r e c e i v e d the t h i r d l a r g e s t i n v e s t m e n t w i t h $96,289,000. New York ($62 m i l l i o n ) and Texas ($26,893,000) h o s t e d most of t h i s . M i t s u b i s h i Japan (49 p e r c e n t ) and M i t s u b i s h i America (51 p e r c e n t ) e s t a b l i s h e d the f u l l y - o w n e d MC M i n e r a l Corp. i n March 1 9 8 1 , 4 7 9 i n New York. I n March, 1980, M i t s u b i s h i a l s o f u l l y owned MIC P e t r o l e u m I n c . , i n 4 7 8 S h u k a n Tokyo K e i z a i , S p e c i a l I s s u e , no. 4498, 1984, p. 14. 4 7 9 I n t e r v i e w w i t h T e t s u y a Yamamoto and Y o s h i a k i H o r i u c h i , The Americas & Oceania Team, M a r k e t i n g & C o o r d i n a t i o n Dept., M i t s u b i s h i C o r p o r a t i o n , Tokyo, 31 J u l y 1984. 350 Houston, Texas, w i t h c a p i t a l of $26.89 m i l l i o n s u p p l i e d by . M i t s u b i s h i U.S.A. (80 p e r c e n t ) and M i t s u b i s h i Japan (20 p e r c e n t ) . M i t s u b i s h i and Sumitomo have c o n t i n u o u s l y run the o p e r a t i o n s of D a h l i a M i n i n g Co., L t d . , i n Delaware. M i t s u b i s h i (75 p e r c e n t ) and Sumitomo (25 p e r c e n t ) have s u p p l i e d $2.74 m i l l i o n i n c a p i t a l . F u r t h e r m o r e , M i t s u b i s h i has f u l l y owned t h e I r o n Ore Co., of Juneau, A l a s k a , w i t h c a p i t a l of $2.3 m i l l i o n . M i t s u b i s h i was a l s o f i n a n c i a l l y committed t o the F l e t c h e r O i l & R e f i n i n g Co. i n 1979 i n Car s o n , C a l i f o r n i a , w i t h c a p i t a l s u p p l i e d by M i t s u b i s h i (20 p e r c e n t ) and the F l e t c h e r f a m i l y (80 p e r c e n t ) . Hence, M i t s u b i s h i was a c t i v e l y i n v o l v e d i n U.S. m i n i n g . In a d d i t i o n t o the above-mentioned p r o j e c t s , t h e r e were two v e n t u r e s by o t h e r sogo shosha. One was F-M Energy Development Co., L t d . , i n 1980, i n Delaware. C a p i t a l of $520,000 was p r o v i d e d h a l f by Fuyo P e t r o l e u m Development and h a l f by Marubeni.- The o t h e r was the Toyo Energy Development Corp. i n D a l l a s by Tomen America w i t h $2,500 i n c a p i t a l t o p r o s p e c t f o r p e t r o l e u m and gas. One of the c h a r a c t e r i s t i c s of sogo shosha i n v e s t m e n t i s t h a t the p a i d - u p c a p i t a l such as the $2,500 mentioned was sometimes s m a l l . However, l a r g e l o a n s f o r a c t u a l o p e r a t i o n s of p r o j e c t s a r e o f t e n p r o v i d e d . Thus, d e s p i t e s m a l l c a p i t a l i z a t i o n , l e v e r a g e by Japanese i n t e r e s t s i s o f t e n i n exc e s s of what the a c t u a l amounts i n d i c a t e . 351 The p a t t e r n of involv e m e n t of sogo shosha i n U.S. mi n i n g was d i f f e r e n t from t h a t i n Canadian m i n i n g . In the former c a s e , s t o c k s of m i n i n g companies were m o s t l y m a j o r i t y - o w n e d , e s p e c i a l l y by M i t s u b i s h i . In t h e l a t t e r c a s e , o n l y m i n o r i t y e q u i t y s h a r e s were h e l d by s e v e r a l sogo shosha i n m e g a - p r o j e c t s (see s e c t i o n I I ) . A g r i c u l t u r e and f o r e s t r y o b t a i n e d $50,696,000. The s t a t e of Washington h o s t e d $41,695,000 (82.2 p e r c e n t ) , a l l i n M i t s u i ' s f u l l y - o w n e d company, N o r t h American F o r e s t r y Development, I n c . , a l t h o u g h t h i s company i s s t i l l e x t a n t . The remainder was i n v e s t e d i n s e v e r a l s m a l l - s c a l e v e n t u r e s such as the E l V i c Farm Corp. by M i t s u i (50 p e r c e n t of $3.81 m i l l i o n ) f o r f r u i t c u l t i v a t i o n , i n B a k e r s f i e l d , C a l i f o r n i a . T h i s i n v e s t m e n t p a t t e r n i n U.S. a g r i c u l t u r e and f o r e s t r y i s a l s o i n sha r p c o n t r a s t t o the s e v e r a l sogo shosha, a c t i v e l y i n v o l v e d i n Canadian f o r e s t r y , e s p e c i a l l y i n B r i t i s h C o l umbia. In a d d i t i o n t o inves t m e n t i n f o r e s t r y , sogo shosha were i n t e r e s t e d i n owning c o u n t r y e l e v a t o r s t o pave the way f o r smooth g r a i n t r a n s a c t i o n s . I n 1978, Marubeni c r e a t e d Columbia G r a i n , I n c . , i n P o r t l a n d , Oregon, t o c o l l e c t and s t o r e g r a i n f o r e x p o r t s and s a l e s . C a p i t a l of $3.1 m i l l i o n was p r o v i d e d i n f u l l by Ma r u b e n i . I n 1981 Nic h i m e n e s t a b l i s h e d G r a n p l e x , I n c . , g r a i n e l e v a t o r s , i n S t . L o u i s , M i s s o u r i which i t f u l l y c a p i t a l i z e d a t $3.7 m i l l i o n . The f o o d p r o c e s s i n g i n d u s t r y o b t a i n e d $17,623,000. Investments were made l a r g e l y f o r p r o c e s s i n g and c a n n i n g 352 marine p r o d u c t s t o be imported i n t o Japan or f o r p r o c e s s i n g foods t o be s o l d i n l o c a l American markets. In 1981, M i t s u i Japan (30 p e r c e n t ) and M i t s u b i s h i America (70 p e r c e n t ) w i t h a c a p i t a l of $5 m i l l i o n e s t a b l i s h e d N u t r i u s I n c . i n C l e v e l a n d , O h i o , t o produce f o o d s t u f f a d d i t i v e s . Marubeni was f i n a n c i a l l y committed t o Kodiak K i n g Crab, I n c . i n Anchorage, A l a s k a , t o p r o c e s s marine p r o d u c t s , p r o v i d i n g h a l f the $ l 0 - m i l l i o n c a p i t a l , w h i l e Ocean Beauty put -up the o t h e r h a l f . In a d d i t i o n , Marubeni w i t h $3.84 m i l l i o n i n c a p i t a l f u l l y funded N o r t h P a c i f i c P r o c e s s o r s , I n c . , i n S e a t t l e , Washington, t o p r o c e s s marine p r o d u c t s . M i t s u i was f i n a n c i a l l y i n v o l v e d w i t h Morpac I n c . i n S e a t t l e i n p r o c e s s i n g and c a n n i n g marine p r o d u c t s . C a p i t a l of $2.07 m i l l i o n was s u p p l i e d by Nippon S u i s a n (50 p e r c e n t ) , M i t s u i (46 p e r c e n t ) , and Robert F. Morgan (4 p e r c e n t ) . However, M i t s u i had withdrawn from t h i s o p e r a t i o n by 1 9 8 4 . 4 8 0 C a p i t a l i z a t i o n of the p r e v i o u s l y mentioned N i s s i n Foods (U.S.A.) Co., I n c . , i n which M i t s u b i s h i took p a r t , remained the same ($4.5 m i l l i o n ) w i t h e q u i t y s h a r e s among p a r t n e r s e q u a l l y a p p o r t i o n e d . Investment i n r e a l e s t a t e amounted t o $16,383 m i l l i o n , which was d i r e c t e d t o Hawaii ($5,016 m i l l i o n ) , F l o r i d a ($5 m i l l i o n ) , New York ($4,168 m i l l i o n ) , and C a l i f o r n i a ($2,198 m i l l i o n ) . In 1981, Mauna L a n i R e s o r t , I n c . was e s t a b l i s h e d 4 8 0 I n t e r v i e w w i t h Takeo M o c h i z u k i , Manager, Overseas P l a n n i n g D i v i s i o n , Americas & Oceania Department, M i t s u i & Co., L t d . , Tokyo, 30 J u l y 1984. 353 i n H a w a i i f o r r e s o r t development. F o r t y - f o u r m i l l i o n d o l l a r s were s u p p l i e d by the Tokyu Corp. (42.4 p e r c e n t ) , M i t s u b i s h i (11.4 p e r c e n t ) , and seven o t h e r Japanese i n t e r e s t s (46.2 p e r c e n t ) . In 1979, Nichimen w i t h $5 m i l l i o n i n c a p i t a l c r e a t e d a f u l l y - o w n e d r e a l e s t a t e f i r m , C r e s t p o i n t E n t e r p r i s e s I n c . i n Palm Beach, F l o r i d a . I n 1979 i n New Yor k , Nichimen a l s o founded a wholly-owned r e a l e s t a t e company, t h e S o u t h e r n l a n d I n t e r n a t i o n a l Development Corp., but though the c a p i t a l ($4 m i l l i o n ) was put up by Nic h i m e n , t h i s company was dormant. 4 8 1 In 1973, C. I t o h and Sumitomo f i n a n c i a l l y p a r t i c i p a t e d i n t h e E a s t West Development Corp. i n Los A n g e l e s f o r the redevelopment of L i t t l e Tokyo t h e r e and management of a h o t e l and shopping c e n t e r . Each of the two sogo shosha c o n t r i b u t e d 2.55 p e r c e n t 4 8 2 of the c a p i t a l of $23.5 m i l l i o n , w h i l e the K a j i m a Corp. p r o v i d e d 30.2 p e r c e n t , Sumitomo Bank 2.5 p e r c e n t , o t h e r Japanese i n t e r e s t s 45.5 p e r c e n t , and Kaj i m a Overseas (Curacao) N. V., 16.7 p e r c e n t . In 1973, Tomen America w i t h $1 m i l l i o n i n c a p i t a l f u l l y f i n a n c e d S u n r i s e P r o p e r t i e s I n c . i n Los An g e l e s f o r r e a l e s t a t e . Sogo shosha i n v e s t m e n t i n U.S. r e a l e s t a t e was con n e c t e d w i t h the development of r e s o r t / t o u r i s t a r e a s and r e a l e s t a t e s a l e s i n the Sun B e l t a r e a s . The development of 4 8 i n t e r v i e w w i t h I . Motomatsu, G e n e r a l manager, A f f i l i a t e d Companies Department, Nichimen C o r p o r a t i o n , Tokyo, 1 August 1 984. 4 8 i n t e r v i e w w i t h M a s a h i r o Yamamoto, Ameri c a Team, S u b s i d i a r i e s & A f f i l i a t e s Dept., C. I t o h & Co., L t d . , Tokyo, 30 J u l y 1984. 354 r e s o r t / t o u r i s t a r e a s i n the U n i t e d S t a t e s by o t h e r Japanese c o n s t r u c t i o n , t r a n s p o r t a t i o n , and t r a v e l companies was d e s i g n e d t o draw Japanese t o u r i s t s i n a n t i c i p a t i o n of growing i n t e r e s t . S i m i l a r l y i n Canada, the i n c r e a s e d p r e s e n c e of Japanese t r a v e l c o r p o r a t i o n s i n Vancouver c o i n c i d e d w i t h major i n t e r n a t i o n a l a t t r a c t i o n s ; t h a t i s , the 1984 summer Olympics a t Los A n g e l e s , Expo '86 i n Vancouver, and the 1988 C a l g a r y w i n t e r O l y m p i c s , each of which i s e x p e c t e d t o draw over 15 m i l l i o n p e o p l e . 4 8 3 The a s s o c i a t i o n w i t h sogo shosha made i t p o s s i b l e f o r t h e s e t r a v e l companies t o have easy a c c e s s t o c a p i t a l as w e l l as a c a p t i v e market, e n a b l i n g them t o expand o p e r a t i o n s . 4 8 4 Even though sogo shosha may not share i n the i n v e s t m e n t , t h e i r i n f l u e n c e remains g r e a t , f o r sogo shosha a r e c o n n e c t e d w i t h these t o u r i s t companies t h r o u g h membership i n the same keiretsu groups (see Chapter 3 ) . F i n a l l y , $7,905 m i l l i o n was i n v e s t e d i n t r a n s p o r t a t i o n and w a r e h o u s i n g . Meiko K a i u n K a i s h a and M i t s u i funded a warehousing f i r m , M. T. M., I n c . , i n Delaware, w i t h each company s u p p l y i n g h a l f the c a p i t a l of $9 m i l l i o n . M i t s u i U.S.A. a l s o e s t a b l i s h e d I n t e r m o d a l T e r m i n a l I n c . , i n New J e r s e y i n 1981, which i n c l u d e d warehouses and l a n d , w i t h M i t s u i s u p p l y i n g the f u l l amount of c a p i t a l of $1.35 m i l l i o n . 4 8 3 C l y d e Weaver and Tom St u b b s , \"Japanese T o u r i s m i n B r i t i s h C o l u m b i a : Wave or R i p p l e ? \" A d r a f t paper. (Vancouver: U n i v e r s i t y of B r i t i s h C o l u m b i a , S c h o o l of Community and R e g i o n a l P l a n n i n g , 1983), p. 29. 4 8 4 I b i d , p. 23. 355 The M i t s u b i s h i I n t e r n a t i o n a l Warehouse Corp., was e s t a b l i s h e d i n 1972, f o r warehousing and i n t e r n a t i o n a l compound t r a n s p o r t a t i o n i n New J e r s e y . For t h i s , M i t s u b i s h i Warehouse & T r a n s p o r t a t i o n (60 p e r c e n t ) and M i t s u b i s h i A m e r i c a (40 p e r c e n t ) f u r n i s h e d a c a p i t a l of $1.5 m i l l i o n . Such Sogo shosha i n v e s t m e n t i n t r a n s p o r t a t i o n and warehousing i s a n c i l l a r y but s t i l l t h i s enhances commercial a c t i v i t i e s . A l t h o u g h most m a n u f a c t u r i n g i n d u s t r i e s r e c e i v e d i n c r e a s e d sogo shosha i n v e s t m e n t between 1973 and 1984, some, such as t e x t i l e s , lumber and p u l p , had l e s s or f l u c t u a t i n g amounts. In t h e s e c a s e s , sogo shosha s i m p l y withdrew from p r o j e c t s , which were then c a r r i e d on by Japanese m a n u f a c t u r e r s and f o r e i g n l o c a l p a r t n e r s . For example, an inve s t m e n t of $2,212,000 i n lumber and p u l p i n 1973 was a s s o c i a t e d w i t h the e s t a b l i s h m e n t of J u j o Weyerhaeuser, i n v o l v i n g M i t s u i . In 1984, the N o r t h P a c i f i c Paper Corp., e s t a b l i s h e d i n 1979, c o u l d be re g a r d e d as the s u c c e s s o r t o t h i s company. C a p i t a l f o r the new company ($292 m i l l i o n ) was p r o v i d e d by J u j o Paper (10 p e r c e n t ) and Weyerhaeuser (90 p e r c e n t ) . S i m i l a r l y , the t e x t i l e i n d u s t r y i n C a l i f o r n i a w i t n e s s e d a s h a r p d e c l i n e i n inve s t m e n t from $14,553,000 i n 1978 t o $513,000 i n 1984, though Somitex P r i n t s of C a l i f . I n c . c o n t i n u e d o p e r a t i o n s d e s p i t e changes i n ow n e r s h i p . In 1984, M i t s u b i s h i withdrew from the company and Somitex then i n c r e a s e d the c a p i t a l t o $2.8 m i l l i o n , h a l f s u p p l i e d by Soko 356 S e i r e n and the o t h e r h a l f by N i s h i k a w a Bussan. On the o t h e r hand, G e n e r a l K n i t of C a l i f o r n i a , I n c . , i n which C. I t o h was i n v o l v e d , was u n t r a c e a b l e f o r 1984. I t can p r o b a b l y be c o n s i d e r e d a ceased o p e r a t i o n or perhaps was s o l d t o a t h i r d p a r t y . I f j o i n t m a n u f a c t u r i n g v e n t u r e s have t e r m i n a t e d o p e r a t i o n s , even though s m a l l - s c a l e , t h e i r r e g i o n t h e n s u f f e r t h r o u g h the m u l t i p l i e r e f f e c t d e c r e a s e d employment o p p o r t u n i t i e s as w e l l as g e n e r a l l o c a l economic a c t i v i t y . Thus, th e s e p l a n t s a r e s u b j e c t t o ch a n g i n g s t r a t e g i e s of pa r e n t companies l o c a t e d i n Tokyo or New York, where d e c i s i o n - m a k i n g o c c u r s . T h e r e f o r e , d e c l i n i n g sogo shosha i n v e s t m e n t i n some i n d u s t r i e s i s due t o one of t h r e e r e a s o n s : 1) t a k e o v e r by Japanese and l o c a l p a r t n e r s who then c o n t i n u e a f t e r sogo shosha w i t h d r a w a l ; 2) the v e n t u r e s a r e s o l d t o a t h i r d p a r t y ; o r 3) the j o i n t v e n t u r e s t h e m s e l v e s a r e t e r m i n a t e d by sogo shosha. I f these c o n t i n u e t o o p e r a t e , then sogo shosha p l a y t h e r o l e of an i n i t i a t o r i n the e s t a b l i s h m e n t of o p e r a t i o n s . B e s i d e s p r e s e n t i n v o l v e m e n t i n j o i n t v e n t u r e s i n m a n u f a c t u r i n g , ground b r e a k i n g by sogo shosha i n d i c a t e s t h a t Japanese DFI by m a n u f a c t u r e r s has g e n e r a l l y been f u r t h e r e d . In sum, the postwar sogo shosha i n v e s t m e n t was s e c t o r a l l y c o n c e n t r a t e d i n the commerce and a u x i l i a r y i n d u s t r i e s t o r e i n f o r c e and f a c i l i t a t e c o m m e r c i a l t r a n s a c t i o n s i n the U n i t e d S t a t e s . Sogo shosha i n v e s t m e n t t h e r e i n 1973 amounted t o some $268.4 m i l l i o n , and the acc u m u l a t e d DFI i n the U n i t e d S t a t e s by Japan t o FY1972 was 357 $1,273 m i l l i o n ; t h u s , d e s p i t e d a t a d i s c r e p a n c i e s , sogo shosha i n v e s t m e n t a c c o u n t e d f o r 21.1 p e r c e n t . 4 8 5 Based on the same d a t a , sogo shosha i n v e s t m e n t i n U.S. commerce ($252 m i l l i o n ) c o m p r i s e d 46.0 p e r c e n t of the t o t a l Japanese i n v e s t m e n t i n t h i s s e c t o r ($548 m i l l i o n ) . T h i s t r e n d has c o n t i n u e d w i t h a s l i g h t d e c r e a s e i n the r e l a t i v e amount of i n v e s t m e n t . I n 1978, sogo shosha i n v e s t m e n t i n the U n i t e d S t a t e s i n c r e a s e d t o $867 m i l l i o n , w h ich c o n s i s t e d of 18.2 p e r c e n t of the t o t a l a c c u m u l a t e d Japanese i n v e s t m e n t i n the U n i t e d S t a t e s as of FY1977 ($4,767 m i l l i o n ) , w i t h i n v e s t m e n t i n commerce t o t a l i n g $784.5 m i l l i o n , composing 41.4 p e r c e n t of the t o t a l Japanese DFI i n t h a t s e c t o r ($1,893 m i l l i o n ) . However, t h i s t r e n d d i d not keep pace w i t h the a c c e l e r a t e d growth of o v e r a l l Japanese d i r e c t .investment i n the U n i t e d S t a t e s . C o n s e q u e n t l y , sogo shosha i n v e s t m e n t i n the U n i t e d S t a t e s i n 1984 ($1,614 m i l l i o n ) a c c o u n t e d o n l y f o r 9.8 p e r c e n t of the t o t a l Japanese accumulated DFI i n FY1983. W i t h r e g a r d t o commerce, sogo shosha investment i n c r e a s e d t o $1,237, but t h i s m e r e l y a c c o u n t e d f o r 21.3 pe r c e n t of the t o t a l Japanese i n v e s t m e n t i n t h i s s e c t o r . T h e r e f o r e , a l t h o u g h t h e r e was an a b s o l u t e i n c r e a s e of sogo shosha i n v e s t m e n t i n U.S. commerce, the r e l a t i v e s h a re of t o t a l Japanese i n v e s t m e n t i n t h i s s e c t o r d e c l i n e d g r e a t l y 4 8 5 A s p r e v i o u s l y i n d i c a t e d , the d a t a from the Bank of Japan was based on an a p p r o v a l b a s i s u n t i l 1980. T h i s i n c l u d e d the f i g u r e s f o r p r o j e c t s which had not y e t begun and some which had been g i v e n up. Shukan Toyo K e i z a i d a t a updated p r o j e c t s by e l i m i n a t i n g most of the withdrawn and i n a c t i v e p r o j e c t s . 358 because of the r a p i d i n c r e a s e i n investment by o t h e r Japanese e n t r e p r e n e u r s . However, t h i s does not mean the d e c l i n e of a c t i v i t y i n the commercial f i e l d s i n c e t h e s e sogo shosha a r e engaged i n many j o i n t v e n t u r e s w i t h Japanese m a n u f a c t u r e r s (see s e c t i o n I I I ) . Sogo shosha i n v e s t m e n t i n commerce was r e p r e s e n t e d by the e s t a b l i s h m e n t of wholly-owned sogo shosha s u b s i d i a r i e s and w h o l l y - or p a r t l y - o w n e d m a r k e t i n g companies m e r c h a n d i z i n g a wide range of commodities. Even mature Japanese m a n u f a c t u r e r s , such as a u t o m o b i l e makers, s t i l l r e l y on m a r k e t i n g a b i l i t y by sogo shosha. Investment by sogo shosha has been accompanied by in v e s t m e n t s i n r e l a t e d a r e a s , i n c l u d i n g s e r v i c e s , warehousing and t r a n s p o r t a t i o n , and b a n k i n g . Sogo shosha were a l s o i n v o l v e d i n r u n n i n g h o t e l s and i n prom o t i n g the t o u r i s t i n d u s t r y i n Japan and N o r t h A m e r i c a . Moreover, i n o r d e r t o a m e l i o r a t e g r a i n t r a n s a c t i o n s , sogo shosha began t o purchas e and b u i l d t h e i r own g r a i n e l e v a t o r s and t o e s t a b l i s h c o l l e c t i o n and d i s t r i b u t i o n c e n t e r s i n the c o u n t r y s i d e . S i n c e the e a r l y 1970's, sogo shosha have e n l a r g e d i n v e s t m e n t f i e l d s , and have been a c t i v e l y i n v o l v e d i n j o i n t v e n t u r e s i n U.S. m a n u f a c t u r i n g . T r a d i t i o n a l l y , i n v e s t m e n t has been i n r e s o u r c e - b a s e d m a n u f a c t u r i n g , such as food p r o c e s s i n g , the lumber and p u l p i n d u s t r i e s , so t h a t p r o c e s s e d foods and p r i m a r y manufactured goods c o u l d be im p o r t e d by Japan. In the same v e i n , sogo shosha i n v e s t e d i n 359 such r e s o u r c e - o r i e n t e d f e r r o u s and n o n - f e r r o u s m e t a l i n d u s t r i e s , as i s t y p i f i e d by the s u c c e s s f u l case of Alumax I n c . I n a d d i t i o n t o the s c a r c i t y of domestic s u p p l i e s of m i n e r a l r e s o u r c e s , 1973 energy p r i c e i n c r e a s e s had re n d e r e d o v e r s e a s o p e r a t i o n s i n aluminum s m e l t i n g more c o m p e t i t i v e . The t h i r d t y pe of in v e s t m e n t by sogo shosha i n m a n u f a c t u r i n g was d e s i g n e d t o c a p t u r e l o c a l m a r k e t s . N i s s i n Foods (U.S.A.) Co., I n c . , an i n s t a n t noodle company, i s such an example, a l o n g w i t h the Pasco Corp. of A m e r i c a , a ba k e r y , e s t a b l i s h e d i n 1980 i n Los A n g e l e s . N i s s h o - I w a i c o n t r i b u t e d 15 p e r c e n t of the c a p i t a l ($300,000) a l o n g w i t h Pasco (85 p e r c e n t ) , and the company has g r e a t p r o m i s e . 4 8 6 Investment i n U.S. m a n u f a c t u r i n g as a means t o a l l e v i a t e t r a d e f r i c t i o n between Japan and the U n i t e d S t a t e s i s m a i n l y c a r r i e d out by Japanese m a n u f a c t u r e s . F i n a l l y , sogo shosha i n v e s t m e n t i n a g r i c u l t u r e and f o r e s t r y as w e l l as i n m i n i n g have formed i n t e g r a l p a r t s of DFI i n the U n i t e d S t a t e s a l t h o u g h t h e s e have been overshadowed by i n v e s t m e n t s i n commerce. A f t e r t h e f i r s t o i l c r i s i s of 1973, sogo shosha have i n c r e a s e d i n v e s t m e n t i n the mi n i n g i n d u s t r y . 4 8 7 G e o g r a p h i c a l l y , sogo shosha investment s p r e a d m a i n l y from New York t o o t h e r p a r t s of the U n i t e d S t a t e s . In p a r t i c u l a r , t o C a l i f o r n i a , Texas, Washington and Tennessee, 4 8 6 I n t e r v i e w w i t h Y o s h i t a k a K i t a n o , A s s i s t a n t manager, The Americas O f f i c e , Overseas P l a n n i n g & A d m i n i s t r a t i o n Dept., N i s s h o - I w a i C o r p o r a t i o n , Tokyo, 24 J u l y 1984. 4 8 7 I n the Japanese c l a s s i f i c a t i o n s , the m i n i n g i n d u s t r y i n c l u d e s b o t h m i n e r a l and energy r e s o u r c e s e c t o r s . 360 though S u n b e l t a r e a s have a l s o s u c c e s s f u l l y a t t r a c t e d sogo shosha c a p i t a l . I I . Sogo Shosha Investment i n Canada T a b l e s i n Appendix B i n d i c a t e the amount of in v e s t m e n t i n Canada by the n i n e l a r g e s t sogo shosha. D i r e c t f o r e i g n i nvestment i n Canada i n 1973 amounted t o $29,087,000 Canadian, but by 1978 t h i s had i n c r e a s e d t o C$98,414,000, and by 1984, t o C$180,182,000. By i n d u s t r y , sogo shosha investment f o c u s e d on commerce, m i n i n g , and lumber and p u l p ; g e o g r a p h i c a l l y , i t was f o c u s e d on B r i t i s h Columbia and O n t a r i o ( T a b l e s i n Appendix B ) . 1. 1973 In 1973, the l a r g e s t s e c t o r a l i n v e s t m e n t , C$13,676,000, was i n the lumber and p u l p i n d u s t r y of B r i t i s h C o l u m b i a . The major p r o j e c t was t h a t of Daishowa-Marubeni I n t e r n a t i o n a l L t d . , a p u l p company, which began o p e r a t i o n s i n 1972. C a p i t a l i z a t i o n was C$12 m i l l i o n , funded by Daishowa Paper M a n u f a c t u r i n g (50 p e r c e n t ) and by Marubeni (50 p e r c e n t ) . Another p u l p company, C r e s t b r o o k F o r e s t I n d u s t r i e s L t d . , was a j o i n t v e n t u r e of the t r o i k a scheme (see Chapter 2 ) , C$30.67 m i l l i o n b e i n g i n v e s t e d by Japanese Honshu Paper (25 p e r c e n t ) , M i t s u b i s h i (25 p e r c e n t ) , and l o c a l p a r t n e r s (50 p e r c e n t ) . Commerce r e c e i v e d the second l a r g e s t amount i n 1973 (C$9,885,000). O n t a r i o took C$6,205,000, B r i t i s h Columbia C$2,917,000 and Quebec C$763,000. Investment i n commerce was 361 a s s o c i a t e d w i t h the e s t a b l i s h m e n t of wholly-owned sogo shosha s u b s i d i a r i e s and bra n c h o f f i c e s as w e l l as m a r k e t i n g companies f o r b o t h sogo shosha and Japanese m a n u f a c t u r e r s . S e v e r a l wholly-owned s u b s i d i a r i e s were e s t a b l i s h e d : M i t s u i Bussan & Co., (Canada) (C$0.5 m i l l i o n ) , 1956, N i s s h o - I w a i Canada L t d . (C$1.5 m i l l i o n ) , 1959, and Marubeni Canada (U.S.$3 m i l l i o n ) \" 8 8 i n To r o n t o ; M i t s u b i s h i Canada L t d . (C$1.2 m i l l i o n ) , 1965, and Sumitomo Canada (C$1.5 m i l l i o n ) , 1961, i n Vancouver; and C. I t o h Canada (C$300,000), 1970, and Kanematsu-Gosho Canada (C$463,000), 1972, i n M o n t r e a l . Mazda Canada I n c . was s e t up i n O n t a r i o i n 1968, as a m a r k e t i n g company, w i t h i n i t i a l c a p i t a l i n v e s t m e n t a t C$500,000, funded by Mazda (60 p e r c e n t ) and C. I t o h (40 p e r c e n t ) . Canadian Motor I n d u s t r i e s , l a t e r Toyota Canada I n c . , was e s t a b l i s h e d i n O n t a r i o i n 1972, w i t h U.S.$2.2 m i l l i o n , p r o v i d e d h a l f by Toyota and h a l f by M i t s u i . As these e s t a b l i s h m e n t s i n d i c a t e , Japanese m a n u f a c t u r e r s g r e a t l y depended on sogo shosha t o c u l t i v a t e markets i n Canada i n the l a t e 1960's and e a r l y 1970's. A l t h o u g h t h e s e Japanese au t o makers have a l r e a d y o b t a i n e d i n t e r n a t i o n a l c o m p e t i t i v e n e s s and a c q u i r e d \" m a n a g e r i a l r e s o u r c e s \" (see Chapter 1 ) , both Mazda and Toyota r e t a i n t h e f o r e g o i n g m a r k e t i n g companies and t h e sogo shosha even now. Mazda Canada I n c . has been a h i g h p r o f i t - m a k e r 4 8 9 and i t appears a 8 8 T h e exchange r a t e was one Canadian d o l l a r U.S.$0.9990 i n March, 1973. 4 8 9 I n t e r v i e w w i t h N o r i o N e g i s h i , V i c e p r e s i d e n t & s e c r e t a r y t r e a s u r e r , C. I t o h & Co. (Canada) L t d . , Vancouver, 13 June 362 t h a t Toyota Canada I n c . i s p r o f i t a b l e as w e l l . F o r e s t r y , c a t e g o r i z e d as a g r i c u l t u r e and f o r e s t r y , c a p t u r e d C$4 m i l l i o n , from C. I t o h f o r Q. C. Timber of Vancouver. T i t a n S t e e l & Wire Co., L t d . of N o r t h S u r r e y , B. C , was a n o t h e r example of the t r o i k a s t y l e of i n v e s t m e n t . C a p i t a l i z a t i o n was C$1.3 m i l l i o n , 40.8 p e r c e n t of which was p r o v i d e d by M i t s u i , 27.7 p e r c e n t by Kobe S t e e l , 2.8 p e r c e n t by S h i n k o Wire w i t h the r e m a i n i n g b a l a n c e c o n t r i b u t e d by loc a ' l p a r t n e r ( s ) . M i n i n g o b t a i n e d C$546,000,\" 9 0 of which 83.0 p e r c e n t was i n v e s t e d i n B. C. The t r o i k a scheme i s a l s o a t y p i c a l p a t t e r n i n the development of m i n e r a l r e s o u r c e s . F o r example, Sumitomo M e t a l & M i n i n g i n v e s t e d 20.7 p e r c e n t , and Sumitomo 3.1 p e r c e n t , of the c a p i t a l f o r the Bethlehem Copper Co. i n B.C., w i t h a combined t o t a l c a p i t a l i z a t i o n of C$3.21 m i l l i o n . Moreover, Sumitomo and M i t s u i t o g e t h e r i n v e s t e d 1 p e r c e n t of the c a p i t a l (C$6,492,000) t o d e v e l o p copper m i n i n g by Lornex M i n i n g Corp. L t d . i n B. C. Sumitomo w i t h a c a p i t a l i z a t i o n of C$2.6 m i l l i o n a l s o i n v e s t e d 1 p e r c e n t i n the G r a n i s l e Copper Corp. i n B. C. Thus, sogo shosha h o l d i n g m i n o r i t y e q u i t y s h a r e s were engaged i n B.C. copper m i n i n g development i n the e a r l y 1960's. The major purpose of i n v e s t m e n t i n n a t u r a l r e s o u r c e development was t o s e c u r e raw m a t e r i a l s . 4 8 9 ( c o n t ' d ) 1984. * 9 0 T h i s f i g u r e does not i n c l u d e Sumac Mines L t d . i n B. C , w i t h c a p i t a l i z a t i o n of C$850,000, because i t was not broken down i n t o e q u i t y s h a r e s of i n d i v i d u a l companies. 363 To a l e s s e r e x t e n t , t r a n s p o r t a t i o n i n v e s t m e n t , more s p e c i f i c a l l y w a r e h o u s i n g , amounted t o C$300,000. M i t s u i , f o r example, i n v e s t e d C$300,000 i n B. C. i n the F r a z e r Wharves t o s t o r e and t r a n s p o r t a u t o m o b i l e s . Sogo shosha i n v e s t m e n t p a t t e r n s i n 1973 showed: (1) by i n d u s t r y , n a t u r a l r e s o u r c e development and r e s o u r c e r e l a t e d m a n u f a c t u r i n g i n d u s t r i e s , as w e l l as commerce and a n c i l l a r y a r e a s , or t r a n s p o r t a t i o n , a t t r a c t e d most of the c a p i t a l ; and (2) by p r o v i n c e , i n v e s t m e n t was poured o v e r w h e l m i n g l y i n t o B r i t i s h C o l u m b i a , a l t h o u g h O n t a r i o and Quebec a l s o succeeded i n l u r i n g f u n d s . 2. 1978 In 1978 i n v e s t m e n t i n Canadian commerce i n c r e a s e d s i g n i f i c a n t l y , w i t h C$53,924,000 the l a r g e s t amount, which a c c o u n t e d f o r 54.8 p e r c e n t of t h e t o t a l invesment made by the n i n e sogo shosha. The amount of inves t m e n t i n commerce r e f l e c t e d the l o c a t i o n s of the p r e v i o u s l y e s t a b l i s h e d h e a d q u a r t e r s of wholly-owned s u b s i d i a r i e s of sogo shosha and w h o l l y or p a r t l y owned m a r k e t i n g companies. Among the above-mentioned seven sogo shosha, Kanematsu-Gosho (Canada) L t d . moved i t s h e a d q u a r t e r s from M o n t r e a l t o T o r o n t o . In a d d i t i o n , Toyomenka (Canada) L t d . was e s t a b l i s h e d i n T o r o n t o i n 1974 w i t h a c a p i t a l i nvestment of C$1 m i l l i o n . Nichimen Canada L t d . was s e t up i n M o n t r e a l i n 1974 a l s o w i t h a h a l f m i l l i o n c a p i t a l i n v e s t m e n t . Thus, by 1974 a l l n i n e l a r g e sogo shosha founded t h e i r own wholly-owned s u b s i d i a r i e s i n Canada. 364 Compared w i t h t h e i r American c o u n t e r p a r t s f o r the same time p e r i o d , the Canadian s u b s i d i a r y h e a d q u a r t e r s were l a t e because they began as branch or r e p r e s e n t a t i v e o f f i c e s of e i t h e r Japanese p a r e n t companies or American s u b s i d i a r i e s . E a r l i e r d a t e s of e s t a b l i s h m e n t i n the U n i t e d S t a t e s c o u l d r e f l e c t t he l a r g e American market and the s t r o n g economic r e l a t i o n s h i p between the U n i t e d S t a t e s and Japan. B e s i d e s t h e f o r e g o i n g Mazda Motors of Canada L t d . , c a p i t a l i z e d by Mazda and C. I t o h , and Canadian Motor I n d u s t r i e s , by Toyota and M i t s u i , Komatsu Canada L t d . was e s t a b l i s h e d i n T o r o n t o i n 1974 t o market Komatsu t r a c t o r s . I t was f u l l y f unded, w i t h C$2.1 m i l l i o n i n c a p i t a l , by Sumitomo, of Japan, and Sumitomo S h o j i Canada L t d . In the same y e a r , Marubeni and Marubeni Canada L t d . r a i s e d C$2 m i l l i o n f o r Himac Motors L t d . of C o q u i t l a m , B. C , f o r the import of Hino t r u c k s from Japan. A l t h o u g h t h e c a p i t a l of t h i s company i n c r e a s e d t o C$6 m i l l i o n , the company was l i q u i d a t e d i n March, 1 9 8 3 . 0 9 1 In 1975, Kubota T r a c t o r Canada L t d . was founded i n O n t a r i o as a m a r k e t i n g company. In 1978, 62.5 p e r c e n t of the company's c a p i t a l (C$480,000) was p r o v i d e d by Marubeni and 37.5 p e r c e n t by Kubota L t d . T h e r e f o r e , i n a d d i t i o n t o the two p r e v i o u s a u t o m o b i l e c a s e s , the e s t a b l i s h m e n t of t h e t h r e e t r a n s p o r t a t i o n m a r k e t i n g companies t o g e t h e r w i t h sogo shosha, i l l u s t r a t e s a heavy r e l i a n c e of Japanese m a n u f a c t u r e r s on sogo shosha i n 4 9 ' I n t e r v i e w w i t h T a k e s h i K o s h i o , A s s i s t a n t g e n e r a l manager & a s s i s t a n t t r e a s u r e r , Marubeni Canada L t d . , Vancouver, 19 June 1984. 365 o r d e r the o p e n i n g of new m arkets. T h i s p i c t u r e was f u r t h e r r e i n f o r c e d by the f a c t t h a t sogo shosha were i n v o l v e d w i t h o t h e r Japanese m a n u f a c t u r e r s and engaged i n s a l e s of c ommodities such as g l a s s and t e x t i l e p r o d u c t s . The second l a r g e s t i nvestment of C$15,680,000 was f u n n e l e d i n t o the lumber and p u l p i n d u s t r y , w i t h most of t h i s b e i n g i n v e s t e d i n the B. C.-based Daishowa-Marubeni I n t e r n a t i o n a l L t d . , the p r e v i o u s l y mentioned p u l p company which r e t a i n e d C$12 m i l l i o n c a p i t a l , of which 50 p e r c e n t was i n v e s t e d by M a r u b e n i . Another major v e n t u r e i n t h i s s e c t o r was C r e s t b r o o k F o r e s t I n d u s t r i e s L t d . , f u n d i n g C$30,688,000, f o r w h i c h p r o j e c t was p r o v i d e d by Honshu Paper (25.02 p e r c e n t ) , by M i t s u b i s h i (25.02 p e r c e n t ) , and by the former C r e s t b r o o k Timber L t d (49.97 p e r c e n t ) . The t h i r d l a r g e s t i n v e s t m e n t (C$12,083,000) was made i n m i n i n g w i t h C$8,389,000 b e i n g d i r e c t e d i n t o O n t a r i o . A major p r o j e c t , B r i n c o L t d . i n M i s s i s s a u g a , O n t a r i o , was funded t o d e v e l o p n o n - f e r r o u s m e t a l mines. Marubeni c o n t r i b u t e d 6.8 p e r c e n t and F u j i Bank, 1.4 p e r c e n t , f o r a t o t a l c a p i t a l i n v e s t m e n t of C$75.95 m i l l i o n , w i t h PTZ and the Bethlehem S t e e l Group h o l d i n g the r e m a i n i n g e q u i t y . Marubeni a l s o p a r t i c i p a t e d i n a gas and o i l e x p l o i t a t i o n v e n t u r e i n O n t a r i o , h o l d i n g 0.4 p e r c e n t of the e q u i t y s hare of Norcen Energy R e s o u r c e s L t d . w i t h a c a p i t a l i z a t i o n of C$160.58 m i l l i o n . M arubeni a l s o took p a r t i n a n o t h e r r e s o u r c e development v e n t u r e , B rascan L t d . i n O n t a r i o , w i t h one p e r c e n t e q u i t y . However, by March 1984, Marubeni had 366 withdrawn from the t h r e e p r o j e c t s . B r i t i s h Columbia h o s t e d C $ 2 , 4 5 1 , 0 0 0 , 4 9 2 Sumitomo h e l d 3.13 p e r c e n t of the c a p i t a l of C$3.16 m i l l i o n of the Bethlehem Copper Corp. i n B. C. C a p i t a l a s s e t s of Lornex M i n i n g Corp., L t d . i n B. C , the a f o r e m e n t i o n e d copper m i n i n g company, were C$8.26 m i l l i o n . I n t h i s v e n t u r e , Sumitomo, M i t s u i and M i t s u b i s h i each c o n t r i b u t e d 0.6 p e r c e n t of the e q u i t y 'Share, and R i o Algom Mines L t d . among o t h e r s , h e l d the r e m a i n i n g b a l a n c e . Another S u m i t o m o - r e l a t e d v e n t u r e , Sumac Mines L t d . , was e s t a b l i s h e d i n 1972 t o e x p l o r e n o n - f e r r o u s m i n e r a l r e s o u r c e s , m a i n l y copper i n B. C , and was funded by Japanese i n t e r e s t s . Three sogo shosha: Sumitomo, Marubeni and C. I t o h , have been i n v o l v e d i n t h i s p r o j e c t , each c o m p r i s i n g 10.5 p e r c e n t of the c a p i t a l of C$1.665,000. 4 9 3 M i t s u i made a f i n a n c i a l commitment t o Saxon C o a l L t d . i n Vancouver. The c a p i t a l was C$5.28 m i l l i o n , of which M i t s u i p r o v i d e d 13.5 p e r c e n t w h i l e D e n i s o n Mines L t d . and o t h e r s , 86.5 p e r c e n t . In A l b e r t a , one company, Japan O i l Sands Co. P r i m r o s e L t d . , was founded f o r p e t r o l e u m and n a t u r a l gas e x p l o i t a t i o n . An i n v e s t m e n t of C$9,945,000 was made by Japan O i l Sands Co. (83.9 p e r c e n t ) , Fuyo P e t r o l e u m Development (3.6 p e r c e n t ) and Marubeni (12.5 p e r c e n t ) . 4 9 2 T h i s f i g u r e does not i n c l u d e the i n v e s t m e n t of K a i s e r R e s o u r c e s L t d . w i t h c a p i t a l of C$26,810,000, s i n c e the e q u i t y s h are of 27.3 p e r c e n t was c o n t r i b u t e d by not o n l y M i t s u b i s h i but a l s o by Nippon S t e e l , Kawasaki S t e e l , Nippon Kokan, and s e v e r a l o t h e r Japanese i n t e r e s t s . 4 9 3 T h e r e m a i n i n g c a p i t a l was p r o v i d e d by Sumitomo M e t a l M i n i n g L t d . (13.5 p e r c e n t ) , Sumitomo M e t a l M i n i n g Canada L t d . (23.3 p e r c e n t ) , and Nippon Sumac (36.6 p e r c e n t ) . 367 T h e r e f o r e , i n a d d i t i o n t o copper mines i n B. C , between 1973 and 1978, Japanese f i r m s began t o engage i n c o a l and o i l / n a t u r a l gas development. The f o u r t h l a r g e s t i n v e s t m e n t of C$9,051,000 was made i n t h e t e x t i l e i n d u s t r y of Quebec. The Toyobo Co. and Marubeni began c a p i t a l p a r t i c i p a t i o n i n Bruck M i l l s L t d . i n 1973, c o n t r i b u t i n g 48.6 p e r c e n t and 47.3 p e r c e n t of the c a p i t a l (C$13 m i l l i o n ) , r e s p e c t i v e l y . Another j o i n t v e n t u r e was - F u j i D yeing & P r i n t i n g L t d . of which C. I t o h put up 68 p e r c e n t of the c a p i t a l of C$3.95 m i l l i o n , w h i l e T e i j i n (3.7 p e r c e n t ) , S e i r e n (10 p e r c e n t ) , and Flam (18.3 p e r c e n t ) . 3. 1984 Sogo shosha i n v e s t e d C$180 m i l l i o n i n Canada i n 1984. Commerce a t t r a c t e d a p p r o x i m a t e l y C$86.8 m i l l i o n (48.2 p e r c e n t ) , m i n i n g , C$43 m i l l i o n (23.9 p e r c e n t ) , lumber and p u l p , C$34.5 m i l l i o n (19.2 p e r c e n t ) , and a g r i c u l t u r e and f o r e s t r y , C$10 m i l l i o n (5.6 p e r c e n t ) . Among i n v e s t m e n t s i n commerce, c a p i t a l f o r wholly-owned sogo shosha o c c u p i e d the l a r g e s t p r o p o r t i o n of i n v e s t m e n t . Some changes i n head o f f i c e s s h o u l d be no t e d . N i s s h o - I w a i h e a d q u a r t e r s were moved from T o r o n t o t o Vancouver i n December, 1982, as d i d the head o f f i c e of Toyomenka i n 1983. As f o r C. I t o h , M o n t r e a l was once a s i t e f o r the head o f f i c e . D u r i n g the o i l boom, however, the company moved t o C a l g a r y , and a l t h o u g h C a l g a r y remains the r e g i s t e r e d h e a d q u a r t e r s , i n O c t o b e r , 1983, Vancouver became an 368 C a p i t a l Number of as of employees 1 984 L o c a t i o n of head o f f i c e s C. I t o h & Co (Canada) L t d . C$8.6M 42 C a l g a r y (Vancouver) Kanematsu-Gosho (Canada) I n d . Marubeni Canada L t d . M i t s u b i s h i Canada L t d . M i t s u i & Co., (Canada) L t d . N ichimen Canada I n c . N i s s h o - I w a i Canada L t d . Sumitomo Canada L t d . Toyomenka (Canada) L t d . 2.61 10.00 10.14 22.75 1 .04 5.00 3.45 3.20 40 77 1 40 129 10 23 60 30 Vancouver Vancouver Vancouver Vancouver T o r o n t o M o n t r e a l T o r o n t o T o r o n t o T o t a l 58. 19 551 o p e r a t i o n a l h e a d q u a r t e r s , and i t i s here t h a t the company p r e s i d e n t r e s i d e s . 4 9 4 On the c o n t r a r y , M i t s u b i s h i p l a n s t o move i t s p r e s i d e n t and c h i e f e x e c u t i v e o f f i c e r from Vancouver t o T o r o n t o , w h i l e m a i n t a i n i n g the r e s i s t e r e d c o r p o r a t e head o f f i c e and Chairman of the Board D i r e c t o r s i n Vancouver. A c c o r d i n g t o the Chairman, M i t s u b i s h i i s a l r e a d y s t r o n g i n w e s t e r n Canada so the company has had t o s t r e n g t h e n i t s b u s i n e s s i n the E a s t . 4 9 5 Thus, except f o r N i c h i m e n , whose h e a d q u a r t e r s i s i n M o n t r e a l , o p e r a t i o n a l h e a d q u a r t e r s of sogo shosha i n Canada a r e l o c a t e d i n e i t h e r T o r o n t o or Vancouver. Toronto i s an i m p o r t a n t l o c a t i o n i n t h e c u l t i v a t i o n of markets i n C e n t r a l Canada, w h i l e Vancouver i s a b r e a k - i n - b u l k p o i n t f o r t r a d e between Japan and Canada, thus s e r v i n g the h i n t e r l a n d of n a t u r a l r e s o u r c e development p r o j e c t s . The l o c a t i o n a l 4 9 4 I n t e r v i e w w i t h N e g i s h i , i d . 4 9 5 \" M i t s u b i s h i S h i f t s Top B r a s s t o T o r o n t o , \" The Vancouver Sun, 11 March 1986, p. D6. 369 d i s t r i b u t i o n of head o f f i c e s of sogo shosha i n Canada i s i n a s t a r k c o n t r a s t t o the d i s t r i b u t i o n i n the U n i t e d S t a t e s , where a l l sogo shosha h e a d q u a r t e r s a r e l o c a t e d i n New York C i t y . I n the new i n t e r n a t i o n a l urban h i e r a r c h y , Toronto and Vancouver a r e ranked as lower o r d e r c i t i e s compared t o New Yor k , which i s r e c o g n i z e d as a \" w o r l d c i t y \" (see s e c t i o n I V ) . The second l a r g e s t i nvestment of C$43.2 m i l l i o n was f u n n e l e d i n t o m i n i n g i n B. C. (C$31.7 m i l l i o n ) , A l b e r t a (C$7.7 m i l l i o n ) , and O n t a r i o (C$3.8 m i l l i o n ) . In B r i t i s h C o l u m b i a , the c a p i t a l of and e q u i t y s h a r e s of the t h r e e sogo shosha of Lornex M i n i n g Corp., L t d . remained t h e same. C a p i t a l of Sumac Mines L t d . however was i n c r e a s e d t o C$1,945 m i l l i o n , a l t h o u g h the e q u i t y s h a r e s of each of the t h r e e sogo shosha d e c r e a s e d from 10.5 p e r c e n t t o 8.9 p e r c e n t . M i t s u b i s h i , a l o n g w i t h o t h e r Japanese i n t e r e s t s i n c l u d i n g Nippon S t e e l , Kawasaki S t e e l , and Nippon Kokan, made a f i n a n c i a l commitment of 13 p e r c e n t 4 9 6 of C$18.25 m i l l i o n f o r Wester M i n i n g L t d . , f o r m e r l y known as K a i s e r R e sources L t d . BCRIC E n t e r p r i s e s L t d . p r o v i d e d 66.6 p e r c e n t of the c a p i t a l . M i t s u b i s h i a l s o was i n v o l v e d i n K a i s e r C o a l Canada L t d . , formed i n 1981 i n Vancouver p r i m a r i l y t o s e t t l e o l d b u s i n e s s from K a i s e r Resources L t d . , which was funded (C$5.55 m i l l i o n ) by M i t s u i M i n i n g (20 p e r c e n t ) , M i t s u b i s h i (5 p e r c e n t ) , K a i s e r Resources (70 p e r c e n t ) , and a t h i r d c o u n t r y (5 p e r c e n t ) . 4 9 6 I n t e r v i e w w i t h A r t h u r S. Hara, Chairman of the Board, M i t s u b i s h i Canada L i m i t e d , Vancouver, 7 June 1984. 370 M i t s u i a l s o became f i n a n c i a l l y i n v o l v e d w i t h Saxon C o a l L t d . , and p r o v i d e d 13.5 p e r c e n t of the c a p i t a l (C$258,000), w h i l e the r e s t was p r o v i d e d by Denison Mines L t d . In 1981, M i t s u i i n v e s t e d some C$950,000 t o c r e a t e the wholly-owned Hidden Creek Mines L t d . i n Vancouver i n o r d e r t o d e v e l o p m i n e r a l r e s o u r c e s . A t r o i k a scheme m a t e r i a l i z e d i n Q u i n t e t t e C o a l L t d . i n Vancouver. In 1983 Japanese f i r m s p a r t i c i p a t e d i n t h i s j o i n t v e n t u r e w i t h a c a p i t a l of C$114 m i l l i o n . E q u i t y r a t i o s were d i v i d e d i n t o 12.5 p e r c e n t by M i t s u i M i n i n g , 10.5 p e r c e n t by Tokyo B o e k i , 10 p e r c e n t by the Nippon S t e e l Corp., 5 p e r c e n t by Sumitomo, and 62 p e r c e n t by Denison Mines L t d . N i s s h o - I w a i c o n t r i b u t e d 10 p e r c e n t of the c a p i t a l f o r the Bullmoose Mine i n B r i t i s h C olumbia. The t o t a l c a p i t a l was C$150 m i l l i o n , which was a l s o p r o v i d e d i n p a r t by Tech (Corp.) (51 p e r c e n t ) and Lornex M i n i n g Corp., L t d . (39 p e r c e n t ) . In o r d e r t o d e v e l o p and import c o a l from B r i t i s h C o l u m b i a , N i s s h o - I w a i e s t a b l i s h e d a wholly-owned f i r m , N i s s h o - I w a i C o a l Development (Canada) L t d . , i n B. C , i n June 1984, w i t h c a p i t a l r e a c h i n g C$6.69 m i l l i o n . 4 9 7 A l b e r t a , second t o B r i t i s h C o lumbia, was a l s o the t a r g e t of sogo shosha m i n i n g i n v e s t m e n t . P r o j e c t s i n c l u d e d t h e forenamed company, Japan O i l Sands Co. P r i m r o s e L t d . , i n C a l g a r y ; the c a p i t a l f o r w h i c h was C$14.56 m i l l i o n , p r o v i d e d by the Japan O i l Sands Co. (89 p e r c e n t ) , Fuyo P e t r o l e u m Development (1.4 p e r c e n t ) and Marubeni (9.4 p e r c e n t ) . In March, 1981, i n C a l g a r y M i t s u i e s t a b l i s h e d M i t s u i C o a l 4 9 7 I n t e r v i e w w i t h K i t a n o , i d . 371 Development (Canada) L t d . , f u l l y f i n a n c e d , t o d e v e l o p Gregg R i v e r c o a l , f o r which Canada M i t s u i c o n t r i b u t e d 20 p e r c e n t of the c a p i t a l , amounting t o C$3.91 m i l l i o n . In December, 1981, N i s s h o - I w a i formed NIC Resources I n c . i n C a l g a r y i n e x p e c t a t i o n of a p r o s p e r o u s LNG p r o j e c t , which was a b o r t e d i n 1985. N i s s h o - I w a i f u l l y owned t h i s company, and i n 1984 i n c r e a s e d the c a p i t a l from an i n i t i a l C$1.15 m i l l i o n t o C$2.3 m i l l i o n . In 1982, seven Japanese f i r m s c r e a t e d Japan F i r a n c o E n t e r p r i s e s L t d . i n C a l g a r y w i t h C$1 m i l l i o n c a p i t a l i z a t i o n t o d e v e l o p , produce and s e l l c o k i n g c o a l . Nippon S t e e l (34.95 p e r c e n t ) , Nippon Kokan (14.74 p e r c e n t ) , and f o u r o t h e r companies, a l o n g w i t h M i t s u i (12.5 p e r c e n t ) , f i n a n c e d t h i s v e n t u r e . Investment i n O n t a r i o m i n i n g was a s s o c i a t e d w i t h Norcen Energy Resources L t d . and B r a s c a n L t d . , i n which Marubeni was i n v o l v e d , a l t h o u g h i t withdrew from t h e s e companies i n March, 1984. In o t h e r sogo shosha i n v e s t m e n t , M i t s u b i s h i was a s h a r e h o l d e r of Domik E x p l o r a t i o n L t d . i n Toro n t o i n o r d e r t o f i n d new me t a l o re d e p o s i t s . The c a p i t a l (C$285,000) was s u p p l i e d by Dowa M i n i n g (66.7 p e r c e n t ) , M i t s u b i s h i (30 pe r c e n t ) and K i n s h o - M a t a i c h i (3.3 p e r c e n t ) . However, t h i s company has been i n a c t i v e s i n c e the m i d d l e 1970's. 49 8 Thus, sogo shosha i n v e s t m e n t i n the m i n i n g s e c t o r i n O n t a r i o was f o r the most p a r t e i t h e r withdrawn or remained e c o n o m i c a l l y dormant--a p i c t u r e which c o n t r a s t s s h a r p l y w i t h o t h e r Japanese in v e s t m e n t i n B r i t i s h Columbia and A l b e r t a . 4 9 8 I n t e r v i e w w i t h Hara, i d . 372 The t h i r d l a r g e s t amount of investment (C$34.5 m i l l i o n ) was d i r e c t e d i n t o the lumber and p u l p i n d u s t r y . B r i t i s h C olumbia o b t a i n e d a p p r o x i m a t e l y C$30.5 m i l l i o n , w h i l e New Brunswick a t t r a c t e d C$4 m i l l i o n . As p r e v i o u s l y mentioned, Daishowa-Marubeni I n t e r n a t i o n a l L t d . (Marubeni h e l d 50 p e r c e n t of the C$12 m i l l i o n c a p i t a l ) and C r e s t b r o o k F o r e s t I n d u s t r i e s L t d . ( M i t s u b i s h i h e l d 27 p e r c e n t of the c a p i t a l of C$30.67 m i l l i o n ) c o n t r i b u t e d t o investment i n B. C. In a d d i t i o n , Mayo F o r e s t P r o d u c t s L t d . a l s o drew Japanese inv e s t m e n t t o Nanaimo, B. C. T h i s was a C $ 8 - m i l l i o n j o i n t v e n t u r e , f i n a n c e d by M i t s u b i s h i (40 p e r c e n t ) and P a c i f i c F o r e s t P r o d u c t s L t d . (60 p e r c e n t ) . In 1980, O j i Paper and M i t s u i f i n a n c i a l l y p a r t i c i p a t e d i n the New Brunswick I n t e r n a t i o n a l Paper Co. w i t h c a p i t a l of C$50.5 m i l l i o n , as i n v o l v e d by O j i Paper (25 p e r c e n t ) , M i t s u i (8 p e r c e n t ) , and the Canadian I n t e r n a t i o n a l Paper Co. (67 p e r c e n t ) . R e l a t e d t o lumber and p u l p , a g r i c u l t u r e and f o r e s t r y , p r i m a r i l y t h e l a t t e r , a c q u i r e d C$10 m i l l i o n , most of which was i n v e s t e d i n B. C. Kanematsu-Gosho f u l l y owned Naden Harbour Timer L t d . w i t h a c a p i t a l i n v e s t m e n t of C$10 m i l l i o n . About C$2.4 m i l l i o n was i n v e s t e d i n the food p r o c e s s i n g i n d u s t r y . For example, c a p i t a l of U n i t e d O i l s e e d P r o d u c t s L t d . amounted t o C$3.55 m i l l i o n . M i t s u b i s h i h e l d 35 p e r c e n t of the e q u i t y share and N i s s h i n O i l M i l l s , 15 p e r c e n t , w h i l e the U n i t e d G r a i n Growers r e t a i n e d 50 p e r c e n t . Marubeni was a l s o f i n a n c i a l l y i n v o l v e d i n some p a c k i n g f i r m s t h a t canned 373 salmon and t r o u t . To summarize, sogo shosha i n v e s t m e n t i n Canada has been c o n c e n t r a t e d i n B r i t i s h C o lumbia, where inv e s t m e n t has fo c u s e d on commerce, m i n i n g , lumber and p u l p , and f o r e s t r y . O n t a r i o was another h o s t p r o v i n c e f o r sogo shosha i n v e s t m e n t , which r e l a t e d p r i m a r i l y t o commercial a c t i v i t i e s . In the l a t e 1970's, sogo shosha expanded investment i n A l b e r t a , c e n t e r i n g on m i n i n g . Quebec, New Brunswick and Manitoba a t t r a c t e d a v e r y s m a l l number and l i m i t e d v a r i e t y of p r o j e c t s . In commerce, by 1974 the n i n e sogo shosha e s t a b l i s h e d wholly-owned s u b s i d i a r i e s and were i n v o l v e d w i t h Japanese m a n u f a c t u r e r s i n the c r e a t i o n of m a r k e t i n g / s a l e s companies. In r e s o u r c e development and r e s o u r c e r e l a t e d m a n u f a c t u r i n g p r o j e c t s , i n v e s t m e n t took the form of j o i n t v e n t u r e s , a scheme employed by sogo shosha a l o n g w i t h c o n c e r n e d Japanese i n t e r e s t s and l o c a l p a r t n e r ( s ) , as i l l u s t r a t e d by m i n i n g and the lumber and p u l p i n d u s t r y . In most c a s e s , sogo shosha took a m i n o r i t y e q u i t y s h a r e . I n s h o r t , the t r o i k a f o r m u l a has been w i d e l y u t i l i z e d . I I I . C h a r a c t e r i s t i c s of Sogo Shosha Investment Ventures and Comparison of Sogo Shosha Investment P a t t e r n s in the Un i t e d S t a t e s and Canada In the p r e v i o u s s e c t i o n , g e o g r a p h i c a l and s e c t o r a l d i s t r i b u t i o n s of sogo shosha i n v e s t m e n t were d i s c u s s e d . Investment v e n t u r e s a r e now examined i n agg r e g a t e t o e l u c i d a t e c h a r a c t e r i s t i c s of th e s e u n d e r t a k i n g s (see t a b l e s 374 i n Appendix C ) . There were 197 a c t i v e sogo shosha p r o j e c t s 4 9 9 i n the U n i t e d S t a t e s i n 1984. F i f t y f o u r v e n t u r e s (27.4 p e r c e n t of the t o t a l p r o j e c t s by sogo shosha i n the U n i t e d S t a t e s ) were l o c a t e d i n New Yor k , and 51 (25.9 p e r c e n t ) i n C a l i f o r n i a . In New Yo r k , 37 of 54 c a s e s (68.5 p e r c e n t ) were c a t e g o r i z e d as commerce, w h i l e i n C a l i f o r n i a , commerce c o n s t i t u t e d 52.9 p e r c e n t (27 c a s e s ) . The r e m a i n i n g p r o j e c t s were s c a t t e r e d i n v a r i o u s i n d u s t r i a l s e c t o r s . Both I l l i n o i s and Texas had 15 p r o j e c t s , the m a j o r i t y of which were i n commerce. The s t a t e of Washington h o s t e d 10 p r o j e c t s , f o u r of which were r e l a t e d t o food p r o c e s s i n g . I n terms of s c a l e , 114 cas e s out of 197 (57.9 p e r c e n t ) were c a p i t a l i z e d a t over U S $ 5 0 0 , 0 0 0 , 5 0 0 making t h e s e l a r g e - s c a l e i n v e s t m e n t s . 5 0 1 T h i r t y - n i n e c a s e s (19.8 p e r c e n t ) belonged t o the s t r a t u m w i t h c a p i t a l between $151,000 and $500,000. Twenty-nine c a s e s (12.7 p e r c e n t ) were c a p i t a l i z e d a t $50,000 or l e s s , w i t h the r e m a i n i n g 19 ca s e s (9.6 p e r c e n t ) c a p i t a l i z e d a t $51,000 t o $150,000. In commerce, 52 c a s e s out of 100 v e n t u r e s were funded a t over $500,000. N o n e t h e l e s s , t h e r e were a l s o many s m a l l - s c a l e o p e r a t i o n s : 13 b e l o n g i n g t o the $ 1,000-$50,000 4 9 9 I n t h i s d i s c u s s i o n , i n a c t i v e p r o j e c t s and thos e from which sogo shosha had withdrawn a r e e x c l u d e d . 5 0\u00C2\u00B0Hereafter, a d o l l a r i n d i c a t e s U.S. d o l l a r s . 5 0 1 S i n c e t h e r e were no u n i v e r s a l i n d u s t r i a l d e f i n i t i o n s of s m a l l - s c a l e or l a r g e - s c a l e f i r m s , the Japanese d e f i n i t i o n s of s m a l l and medium-sized f i r m s (see Chapter 3) have been adopted: $50,000, $150,000, and $500,000, r o u g h l y c o r r e s p o n d i n g t o \u00C2\u00A510 m i l l i o n , \u00C2\u00A530 m i l l i o n , and \u00C2\u00A5100 m i l l i o n , a l t h o u g h exchange r a t e s of U.S. and Canadian d o l l a r s were not always the same. 375 group, 13 t o the $51,000-$150,000 group, and 22 t o the $151,000-$500,000 group. In terms of the number of employees, 86 out of 181 (47.5 p e r c e n t ) 5 0 2 were f i r m s w i t h 19 or l e s s . Companies w i t h more than 99 workers o n l y a c c o u n t e d f o r 22.6 p e r c e n t of the t o t a l , or 41 c a s e s . Upon c l o s e r e x a m i n a t i o n of the 95 c a s e s i n commerce, t h e r e i s a c o n c e n t r a t i o n of companies w i t h a s m a l l number of employees. F o r t y - t w o p r o j e c t s (44.2 p e r c e n t of t o t a l commerce v e n t u r e s ) had l e s s than 20 employes, and 23 cases (24.2 p e r c e n t ) had o n l y 20-49 w o r k e r s . There were o n l y 14 companies w i t h over 200 employees, n i n e of w h i c h were wholly-owned t r a d i n g s u b s i d i a r i e s . Thus, sogo shosha e s t a b l i s h e d many m a r k e t i n g companies which were s m a l l - s c a l e i n terms of c a p i t a l and number of employees. T h i s p a t t e r n can be g e n e r a l l y noted i n m a n u f a c t u r i n g , as w e l l . For example, of the f e r r o u s and n o n - f e r r o u s m e t a l p r o j e c t s , 11 out of 18 employed 99 workers or l e s s and seven had 100 or more employees. W i t h r e g a r d t o e q u i t y r a t i o s , 84 p r o j e c t s out of 197 (42.6 p e r c e n t ) were m a j o r i t y - o w n e d (95-100 p e r c e n t ) . However, of the r e m a i n i g c a s e s , 77 were m i n o r i t y e q u i t y s h a r e h o l d i n g s (0.1-49.9 p e r c e n t ) . I n commerce, 47 c a s e s out of 100 were m a j o r i t y - o w n e d , w h i l e 28 c a s e s were owned w i t h l e s s than h a l f t h e t o t a l s h a r e s . In c o n t r a s t , i n m a n u f a c t u r i n g , 17 out of 52 p r o j e c t s 5 0 2 T h e t o t a l i s l e s s than the 197 c a s e s because of i n c o m p l e t e i n f o r m a t i o n . 376 (32.7 p e r c e n t ) were owned by sogo shosha which h e l d over 95 p e r c e n t of t h e t o t a l s h a r e s , but 29 ca s e s (55.8 p e r c e n t ) were owned w i t h s h a r e h o l d i n g of l e s s than 50 p e r c e n t . A c c o r d i n g t o Kojima and Ozawa, o n l y 3.8 p e r c e n t of the e s t a b l i s h m e n t s worldwide i n the m a n u f a c t u r i n g s e c t o r were 80.0 t o 100.0 p e r c e n t owned by the n i n e l a r g e s t sogo s hos ha. 5 0 3 V e n t u r e s w i t h l e s s than 30 p e r c e n t e q u i t y o w n e r s hip a c c o u n t e d f o r as much as 74.8 p e r c e n t i n 1 9 8 0 . 5 0 4 Compared w i t h t h e s e f i g u r e s , even though t h e s e c a s e s were su r v e y e d i n 1984, a f i g u r e 32.7 p e r c e n t f o r m a j o r i t y - o w n e d e s t a b l i s h m e n t s i n U.S. m a n u f a c t u r i n g i s h i g h . P a r t i c i p a t i o n i n j o i n t v e n t u r e s t h r o u g h m i n o r i t y o w n e r s hip i n m a n u f a c t u r i n g i s t y p i c a l of sogo shosha, s i n c e the main purpose i s not p r o d u c t i o n but comme r c i a l a c t i v i t y . T h i s i n c l u d e s procurement of p l a n t s , c a p i t a l equipment, and machinery; t h e s u p p l y of raw m a t e r i a l s and i n t e r m e d i a t e p r o d u c t s ; and the m a r k e t i n g of o u t p u t . 5 0 5 A b r i e f o u t l i n e r e g a r d i n g the purpose of the investment was i n c l u d e d i n the d a t a s o u r c e s f o r 164 of the 197 c a s e s . However, t h e r e a r e more than 164 answers because some v e n t u r e s were m u l t i - p u r p o s e . C a t e g o r i e s f o r the purpose of inve s t m e n t i n c l u d e d : 1) t o se c u r e raw m a t e r i a l s and n a t u r a l r e s o u r c e s , 2) because of abundant n a t u r a l r e s o u r c e s t o make p r o d u c t i o n e a s i e r i n the hos t c o u n t r y , 3) t o u t i l i z e l a b o r , 4) t o comply w i t h the hos t c o u n t r y ' s governmental p o l i c y f o r 5 0 3 K o j i m a and Ozawa, op. c i t . , p. 98. 5 0 4 I b i d , p. 42. 5 0 5 I b i d . , p. 40. 377 development and p r o t e c t i o n of i n d u s t r y , 5) t o expand markets i n the h o s t c o u n t r y and a t h i r d c o u n t r y , 6) t o ga t h e r i n f o r m a t i o n , 7) t o reduce t r a d e f r i c t i o n w i t h Japanese e x p o r t s , 8) t o c o l l e c t r o y a l t i e s , and 9) o t h e r s . 5 0 6 In commerce, 92 of the 94 cas e s c i t e d the e x p a n s i o n of markets i n the h o s t c o u n t r y as w e l l as a t h i r d c o u n t r y (no. 5 ) . Ten p o i n t e d t o the importance of i n f o r m a t i o n g a t h e r i n g (no. 6 ) . In m a n u f a c t u r i n g , the e x p a n s i o n of markets i n the host- c o u n t r y (no. 5) was a major r e a s o n . However, investment i n f o o d p r o c e s s i n g , a g r i c u l t u r e and f o r e s t r y , and mi n i n g was a s s o c i a t e d w i t h s e c u r i n g raw m a t e r i a l s and n a t u r a l r e s o u r c e s (no. 1 ) . To sum up, sogo shosha i n v e s t m e n t i n the U n i t e d S t a t e s c o n c e n t r a t e d s e c t o r a l l y , i n commerce and v a r i o u s m a n u f a c t u r i n g i n d u s t r i e s , and g e o g r a p h i c a l l y , i n New York and C a l i f o r n i a . Commerce.in terms of bo t h c a p i t a l and the number of employees took v a r i o u s forms: from wholly-owned l a r g e - s c a l e o p e r a t i o n s t o w h o l l y - or p a r t l y - o w n e d p e t i t f i r m s . In m a n u f a c t u r i n g , 34 of the t o t a l of 52 p r o j e c t s were c a p i t a l i z e d t o the e x t e n t of $500,000 or more. However, c o n c e r n i n g s i z e of l a b o r f o r c e , 9 of 51 c a s e s had 200 or more w o r k e r s ; t h u s , the m a j o r i t y were s m a l l - s c a l e . As t o e q u i t y s h a r e s , about o n e - t h i r d of the v e n t u r e s were 5 0 6 I n o r d e r t o g r a s p the purpose of sogo shosha i n v e s t m e n t , a d d i t i o n a l r e a s o n s need t o be i n c l u d e d , f o r example, t o e x p o r t goods t o Japan or t o e s t a b l i s h sogo shosha s u b s i d i a r i e s which have the same f u n c t i o n of t h e i r p a r e n t companies, et cetera. 378 m a j o r i t y - o w n e d by sogo shosha and the r e m a i n i n g p r o j e c t s were j o i n t v e n t u r e s . T h e r e f o r e , t o summarize, i n m a n u f a c t u r i n g where sogo shosha were i n v o l v e d , c a p i t a l a s s e t s of over $500,000, employment of l e s s than 200 workers and m i n o r i t y - e q u i t y s h a r e h o l d i n g was the norm. However, t h i s i s not the o n l y investment p a t t e r n i n U.S. m a n u f a c t u r i n g . For example, i n terms of c a p i t a l and number of w o r k e r s , o t h e r t y p e s of m a n u f a c t u r i n g v e n t u r e s , such as f u l l y - o w n e d , l a r g e - s c a l e o p e r a t i o n s , were a l s o c h a r a c t e r i s t i c of Japanese m a n u f a c t u r e r s i n the U n i t e d S t a t e s . T u r n i n g t o Canada, i n 1984 t h e r e were 48 sogo shosha i n v e s t m e n t p r o j e c t s t h a t were e c o n o m i c a l l y v i a b l e . B r i t i s h C olumbia a t t r a c t e d 26 p r o j e c t s (54.2 p e r c e n t ) , O n t a r i o 10 (20.8 p e r c e n t ) , A l b e r t a 8 (16.7 p e r c e n t ) , Quebec 3 (6.3 p e r c e n t ) , and New Brunswick 1 (2.1 p e r c e n t ) . In terms of c a p i t a l i z a t i o n , 39 p r o j e c t s (81.3 p e r c e n t ) of 48 were funded by over $500,000 C a n a d i a n , and 9 were funded up t o and i n c l u d i n g C$500,000. There were o n l y 18 companies engaged i n commerce, and h a l f were wholly-owned sogo shosha t r a d i n g s u b s i d i a r i e s . Hence, the number of m a r k e t i n g companies funded by sogo shosha was v e r y s m a l l , compared w i t h t h a t i n the U n i t e d S t a t e s . Among p r o j e c t s , m i n i n g r e l a t e d v e n t u r e s numbered 13, the second l a r g e s t . The r e s t were r e s o u r c e - r e l a t e d i n v e s t m e n t , such as i n lumber and p u l p , as w e l l as i n a g r i c u l t u r e and f o r e s t r y . Investment i n Canadian m a n u f a c t u r i n g was l e s s than t h a t i n the U n i t e d S t a t e s . 379 R e g a r d i n g the number of employees, 21 cas e s of 4 7 5 0 7 (44.7 p e r c e n t ) employed 19 workers o r l e s s . In commerce, o n l y 3 companies had 100 or more w o r k e r s . These f i g u r e s l e a d t o t he f a c t t h a t even wholly-owned sogo shosha t r a d i n g s u b s i d i a r i e s were s m a l l - s c a l e i n terms of employment, which was i n c o n t r a s t t o the American c o u n t e r p a r t s (see p r e v i o u s t a b l e s ) . In m i n i n g , 3 companies out of 12 had over 500 wo r k e r s , w h i l e 9 companies had l e s s than 20 wo r k e r s . C o n c e r n i n g e q u i t y r a t i o s , 11 of the 18 f i r m s were (95-100 p e r c e n t ) m a j o r i t y - o w n e d , most of which were the above-mentioned t r a d i n g s u b s i d i a r i e s . I n m a n u f a c t u r i n g , a l l 11 v e n t u r e s were p a r t l y - o w n e d by sogo shosha which h e l d 50 p e r c e n t or l e s s e q u i t y s h a r e s . In m i n i n g , 4 cas e s were m a j o r i t y - o w n e d ; however, 8 p r o j e c t s were p a r t i a l l y owned w i t h l e s s than 25 p e r c e n t of the t o t a l s h a r e s . I n t e r e s t i n g l y , the purpose of in v e s t m e n t i n Canada f i r s t r e f e r r e d t o the s e c u r i n g of raw m a t e r i a l s and n a t u r a l r e s o u r c e s (no. 1) (25 out of 45 c a s e s ) . O p e r a t i o n s were thus i n m i n i n g , f o o d p r o c e s s i n g , lumber and p u l p , and commerce. The second most c i t e d reason f o r i n v e s t m e n t was t o expand the market i n the h o s t c o u n t r y and a t h i r d c o u n t r y (no. 5 ) , which can be a s s o c i a t e d w i t h v e n t u r e s i n commerce. To sum up, sogo shosha i n v e s t m e n t i n Canada has been g e o g r a p h i c a l l y f o c u s e d i n B r i t i s h C o l u m b i a , O n t a r i o and A l b e r t a . By s e c t o r , a l t h o u g h sogo shosha e s t a b l i s h e d wholly-owned t r a d i n g companies, i n terms of c a p i t a l and the 5 0 7 O n e case i s a m i s s i n g v a l u e . 380 number of employees, the p r e s e n c e of m a r k e t i n g companies i n Canada was mi n i m a l compared t o thos e i n the U n i t e d S t a t e s . R e s o u r c e - r e l a t e d investment by sogo shosha f l o u r i s h e d i n Canada. M i n i n g , lumber and p u l p , a g r i c u l t u r e and f o r e s t r y were key s e c t o r s , i n which sogo shosha o f t e n took a m i n o r i t y - e q u i t y p o s i t i o n . Comparison of Sogo Shosha Investment P a t t e r n s i n the U n i t e d S t a t e s and Canada Comparison of sogo shosha i n v e s t m e n t i n the U n i t e d S t a t e s and Canada i s s i g n i f i c a n t , because even though the ho s t c o u n t r i e s a r e i n d u s t r i a l i z e d , d i f f e r e n t i n v e s t m e n t c l i m a t e s have i n d u c e d d i f f e r e n t i n v e s t m e n t p a t t e r n s . In 1984, sogo shosha i n v e s t m e n t i n the U n i t e d S t a t e s amounted t o U.S.$1,614 m i l l i o n . As mentioned, t h i s f i g u r e of $16,535 m i l l i o n was s m a l l , when compared w i t h the accumulated DFI i n the U n i t e d S t a t e s up t o f i s c a l y e a r 1983. The r e l a t i v e i m p o r t a n c e of sogo shosha i n v e s t m e n t i n the U n i t e d S t a t e s d e c l i n e d , i n c o n t r a s t t o t h a t o b s e r v e d i n Canada, because o t h e r Japanese i n t e r e s t s i n such as thos e i n m a n u f a c t u r i n g and f i n a n c e w i t h the new t r e n d toward m u l t i n a t i o n a l i z a t i o n s i n c e 1969 have embarked on o v e r s e a s i n v e s t m e n t . However, i t w i l l be r e c a l l e d t h a t on e x a m i n a t i o n of sogo shosha i n v e s t m e n t i n U.S. commerce, a s l i g h t l y d i f f e r e n t p i c t u r e a p p e a r s . Sogo shosha investment i n t h i s s e c t o r amounted t o about $1,237 m i l l i o n , a c c o u n t i n g f o r 21.3 p e r c e n t of the t o t a l i n v e s t m e n t i n U.S. commerce by a l l Japan ($5,798 m i l l i o n ) . T h i s f i g u r e i n d i c a t e s net c a p i t a l 381 p r o v i d e d by sogo shosha f o r wholly-owned t r a d i n g s u b s i d i a r i e s as w e l l as f o r w h o l l y or p a r t l y - o w n e d m a r k e t i n g companies. T h e r e f o r e , s i n c e sogo shosha were a b l e t o ex t e n d t h e i r i n f l u e n c e t h r o u g h the p r o v i s i o n of l a r g e l o a n s a t low i n t e r e s t r a t e s and the p r a c t i c e of l o n g - t e r m p u r c h a s i n g c o n t r a c t s , t he t r u e v a l u e of sogo shosha i n f l u e n c e i n U.S. commerce i s unmeasurable i n s u r f a c e f i g u r e s . In o r d e r t o s t r e n g t h e n b u s i n e s s o p e r a t i o n s , sogo shosha have a l s o pursued w a r e h o u s i n g , s h i p p i n g , i n s u r a n c e , and c o n s u l t i n g and f i n a n c e , which Kojima has c a l l e d \" b u s i n e s s i n f r a s t r u c t u r e . \" 5 0 8 The above-mentioned M i t s u b i s h i I n t e r n a t i o n a l Warehouse Corp., f u n c t i o n i n g as a warehouse and i n t e r n a t i o n a l compound t r a n s p o r t a t i o n b u s i n e s s , i s such an example. Sumitomo was a c t i v e l y i n v o l v e d i n b a n k i n g . Sumitomo Bank (74 p e r c e n t ) e s t a b l i s h e d the Sumitomo Bank of C a l i f o r n i a i n San F r a n c i s c o w i t h $20.46 m i l l i o n c a p i t a l i z a t i o n . Sumitomo America c o n t r i b u t e d 0.66 p e r c e n t of the c a p i t a l f o r t h i s , a l o n g w i t h p r i v a t e i n v e s t o r s (25.34 p e r c e n t ) . Sumitomo a l s o p r o v i d e d 4.31 p e r c e n t of the c a p i t a l ($9.28 m i l l i o n ) f o r the C h i c a g o Tokyo Bank, and 0.04 p e r c e n t of the c a p i t a l ($50.77 m i l l i o n ) f o r the C a l i f o r n i a F i r s t Bank of San F r a n c i s c o . T h e r e f o r e , i t i s shown t h a t sogo shosha have i n v e s t e d i n c o n c o m i t a n t b u s i n e s s a r e a s . S i n c e 1973 sogo shosha i n v e s t m e n t , i n bo t h a b s o l u t e and r e l a t i v e t e rms, i n U.S. m a n u f a c t u r i n g has i n c r e a s e d s i g n i f i c a n t l y , e s p e c i a l l y i n v a r i e t y of m a n u f a c t u r i n g 5 0 8 K o j i m a and Ozawa, op_. c i t . , p. 40. 382 i n d u s t r i e s i n C a l i f o r n i a . I t s h o u l d be noted t h a t the sogo shosha investment i n m i n i n g was r e l a t i v e l y s m a l l compared t o t o t a l sogo shosha i n v e s t m e n t i n the U n i t e d S t a t e s , but t h a t the a b s o l u t e amount ($96.3 m i l l i o n ) was l a r g e , an i n c r e a s e from the 1978 f i g u r e of $9.2 m i l l i o n . Investment i n a g r i c u l t u r e and f o r e s t r y reached some $50.7 m i l l i o n . Thus, the U n i t e d S t a t e s i s not o n l y a s i g n i f i c a n t market f o r Japan but a l s o i s v i t a l i n s u p p l y i n g r e s o u r c e s . G e o g r a p h i c a l l y , sogo shosha investment i n the U n i t e d S t a t e s has been f o c u s e d i n New York, where wholly-owned t r a d i n g s u b s i d i a r i e s a r e l o c a t e d . A l t h o u g h t h e s e companies t a k e account of the d e c i s i o n - m a k i n g t h a t has o c c u r r e d i n t h e par e n t companies, t h e s e a r e u l t i m a t e l y on t h e i r own as d e c i s i o n - m a k e r s c o n c e r n i n g N o r t h American b u s i n e s s . Because s i n c e the e a r l y 1970's, sogo shosha have begun investment i n o t h e r s t a t e s , i n v e s t m e n t i n New York has r e l a t i v e l y d e c l i n e d i n s p i t e of the a b s o l u t e i n c r e a s e . Other l o c a t i o n s of sogo shosha i n v e s t m e n t have i n c r e a s e d s i n c e 1973. In p a r t i c u l a r , C a l i f o r n i a has become a f o c a l p o i n t , w i t h an ex p a n s i o n i n the S u n b e l t i n such s t a t e s as Texas and F l o r i d a . Sogo shosha investment n o r t h of the U.S. bo r d e r p r e s e n t s a d i f f e r e n t p i c t u r e d e s p i t e the f a c t t h a t Canada i s a d e v e l o p e d c o u n t r y . As of the end of J u l y 1984, sogo shosha i n v e s t m e n t i n Canada amounted t o C$180 m i l l i o n . A c c o r d i n g t o W r i g h t , i n v e s t m e n t by the n i n e l a r g e s t sogo shosha was \"the 383 e q u i v a l e n t of US$179 m i l l i o n i n Canada as of 1981, t h a t i s , about o n e - t h i r d of a l l Japanese investment i n C a n a d a . \" 5 0 9 I n f l u e n c e of sogo shosha i n v e s t m e n t has remained g r e a t , s i n c e Japanese i n v e s t m e n t has o n l y r e c e n t l y begun t o s h i f t from r e s o u r c e s and commerce t o m a n u f a c t u r i n g w i t h the d e c i s i o n t o e s t a b l i s h a u t o m o b i l e and p a r t f a c t o r i e s i n O n t a r i o and B r i t i s h C o l u m b i a . Sogo shosha i n v e s t m e n t i n Canada i n a d d i t i o n t o commerce has c e n t e r e d i n r e s o u r c e - r e l a t e d s e c t o r s , such as lumber and p u l p , as w e l l as i n a g r i c u l t u r e and f o r e s t r y . However, a s t r i k i n g i n v e s t m e n t i n c r e a s e i n m i n i n g from C$546,000 i n 1973 t o C$11,806,000 i n 1978 i s n o t e w o r t h y . I n 1984, t h i s was f u r t h e r i n c r e a s e d t o C$43,236,000. T r a d i t i o n a l l y , Japan has had t o p a r t i c i p a t e i n r e s o u r c e development p r o j e c t s i n o r d e r t o secu r e raw m a t e r i a l s and n a t u r a l r e s o u r c e s \u00E2\u0080\u0094 a n e c e s s i t y f u r t h e r a c c e n t u a t e d by the two o i l c r i s e s . As a r e s u l t , Japan has t r i e d t o d i v e r s i f y energy s u p p l y i n g c o u n t r i e s as w e l l as energy s o u r c e s . C o n s e q u e n t l y , l a r g e i n v e s t m e n t s i n mi n i n g i n B r i t i s h Columbia and A l b e r t a have m a t e r i a l i z e d , and changes i n t h e Japanese energy p o l i c y a r e r e f l e c t e d . The F e d e r a l and B.C. P r o v i n c i a l Governments have funded the n e c e s s a r y i n f r a s t r u c t u r e of the new town of Tumbler R i d g e , a r a i l w a y and a new l o a d i n g f a c i l i t y a t P r i n c e R u p e r t . Sogo shosha and Japanese s t e e l companies have committed themselves t o c o k i n g and th e r m a l c o a l development 5 0 9 W r i g h t , Japanese B u s i n e s s i n Canada, op. c i t . , p. xx. 384 p r o j e c t s i n N o r t h e a s t B.C. Japanese i n t e r e s t s have t a k e n p a r t i n th e s e m e g a - p r o j e c t s as j o i n t v e n t u r e s , h o l d i n g m i n o r i t y e q u i t y share w i t h l o n g - t e r m p u r c h a s i n g c o n t r a c t s , but t h e s e schemes were t o cause problems l a t e r due t o energy p r i c e changes i n the w o r l d market. In m i n i n g and r e s o u r c e - r e l a t e d m a n u f a c t u r i n g , the t r o i k a system was e x t e n s i v e l y adopted. Sogo shosha i n v e s t m e n t i n Canadian commerce, ( a p p r o x i m a t e l y C$86.8 m i l l i o n ) , was s m a l l , compared w i t h t h a t i n the U n i t e d S t a t e s (U.S.$1,235 m i l l i o n ) . T h i s i n d i c a t e s t h a t major co m m e r c i a l a c t i v i t i e s were i n t h e U n i t e d S t a t e s . I t s h o u l d be r e c a l l e d t h a t because i t i s on e - t e n t h of the s c a l e , the Canadian market i s o f t e n c o n s i d e r e d o n l y an e x t e n s i o n of the huge, a f f l u e n t American market. These s e c t o r a l i n v e s t m e n t p a t t e r n s have m i r r o r e d g e o g r a p h i c a l i n v e s t m e n t p a t t e r n s . B r i t i s h Columbia and A l b e r t a have h o s t e d r e s o u r c e - r e l a t e d p r o j e c t s , w h i l e B r i t i s h Columbia and O n t a r i o have a t t r a c t e d i n v e s t m e n t i n commerce. Vancouver and Toro n t o have thus been the c e n t e r s of economic a c t i v i t i e s of the sogo shosha i n Canada. To summarize, comparison of sogo shosha i n v e s t m e n t between the U n i t e d S t a t e s and Canada shows d i f f e r e n t p a t t e r n s of s e c t o r a l and g e o g r a p h i c a l c o n c e n t r a t i o n s ; t he c o n t r a s t has a l s o i n t e n s i f i e d c h r o n o l o g i c a l l y . The U n i t e d S t a t e s has drawn more sogo shosha investment than Canada i n terms of amounts, s e c t o r s and l o c a t i o n s . In the U n i t e d 385 S t a t e s sogo shosha has a d i v e r s i f i e d i n v e s t m e n t f i e l d c e n t e r i n g not o n l y i n commerce, but a l s o i n m a n u f a c t u r i n g and t o a l e s s e r degree i n r e s o u r c e development. At t h e same t i m e , sogo shosha have expanded investment l o c a t i o n from c h i e f l y i n New York t o o t h e r s t a t e s , e s p e c i a l l y t o t h e S u n b e l t . As l o n g as the U n i t e d S t a t e s i s the w o r l d ' s l a r g e s t , most a f f l u e n t open market f o r Japan, sogo shosha i n v e s t m e n t i n U.S. commerce and m a n u f a c t u r i n g w i l l i n c r e a s e . On the c o n t r a r y , i n Cananda sogo shosha have c o n t i n u e d t o i n v e s t i n i n d u s t r i e s dependent on commerce and n a t u r a l r e o u r c e s . B r i t i s h Columbia and O n t a r i o a r e t h e r e f o r e a r e major h o s t s w i t h A l b e r t a as a new r e c i p i e n t . Few r i p p l e s a r e caused by sogo shosha investment i n o t h e r i n d u s t r i e s , p a r t i c u l a r l y , i n n o n - r e s o u r c e - o r i e n t e d m a n u f a c t u r i n g and i n o t h e r p r o v i n c e s . S i n c e Canada remains an i m p o r t a n t market as w e l l as a sourc e of s u p p l y , sogo shosha i n v e s t m e n t w i l l i n c r e a s e i n Canadian commerce and r e s o u r c e - o r i e n t e d s e c t o r s . The s m a l l n e s s of t h e Canadian market r e l a t i v e t o t h a t of the U.S. has been a major h i n d e r a n c e i n a t t r a c t i n g i n v e s t m e n t s which depend on economies of s c a l e . Compared w i t h t h e s e p a t t e r n s , new a d d i t i o n a l sogo shosha i n v e s t m e n t w i l l most l i k e l y be drawn more t o the U n i t e d S t a t e s , e s p e c i a l l y t o the South and E a s t . T h i s t r e n d appears t o o v e r l a p o t h e r Japanese investment p a t t e r n s i n the two c o u n t r i e s . In o r d e r t o c o u n t e r t h i s , t he in v e s t m e n t c l i m a t e of Canada needs t o become even more a t t r a c t i v e than t h a t of the U n i t e d S t a t e s . 386 IV. O f f i c e L o c a t i o n s of Sogo Shosha i n the U n i t e d S t a t e s and Canada and the New I n t e r n a t i o n a l Urban H i e r a r c h y In t h i s s e c t i o n , f i r s t , the l o c a t i o n s of sogo shosha o f f i c e s i n the U n i t e d S t a t e s and Canada a r e d e s c r i b e d from the 1950's t o the 1980's i n o r d e r t o i d e n t i f y c h a r a c t e r i s t i c s and p a t t e r n s of o f f i c e d i s t r i b u t i o n i n the two c o u n t r i e s . Then, t r e n d s i n s p a t i a l d i s t r i b u t i o n of DFI i n the U n i t e d S t a t e s , w i t h a f o c u s on the m a n u f a c t u r i n g s e c t o r , a r e c l a r i f i e d . I t i s s a f e t o say t h a t g e o g r a p h i c a l e x p a n s i o n i n sogo shosha o f f i c e s p a r a l l e l s t he r e c e n t phenomenon of the s h i f t i n t a r g e t a r e a s of DFI i n U.S. m a n u f a c t u r i n g . F i n a l l y , the f u n c t i o n of the c i t y and i t s rank o r d e r i n the new i n t e r n a t i o n a l urban h i e r a r c h y i s examined. T h i s w i l l be done i n o r d e r t o e l u c i d a t e t h e r e l a t i o n s h i p as a s p a t i a l m a n i f e s t a t i o n of economic a c t i v i t i e s of the MNCs between the r o l e of a c i t y and t h e economic w e l l - b e i n g i n the a r e a . T a b l e 28 and Maps 1-4 show the l o c a t i o n of h e a d q u a r t e r s , branch and r e p r e s e n t a t i v e o f f i c e s of the n i n e t o p sogo shosha i n t h e U n i t e d S t a t e s and Canada s i n c e 1951. Because of d a t a l i m i t a t i o n , t h e s e maps can o n l y i n d i c a t e t r e n d s i n the d i s t r i b u t i o n of o f f i c e s . 5 1 0 5 1\u00C2\u00B0The d a t a on the year i n which o p e r a t i o n s s t a r t e d a r e i n c o n s i s t e n t among t h e n i n e companies. For i n s t a n c e , some companies p r o v i d e d d a t e s f o r the f i r s t y e a r an o f f i c e s t a r t e d as a bra n c h o f f i c e of i t s p a r e n t company, or as a branch o f f i c e of i t s American company i n the c a s e of Canada. Spokesmen from some of the companies i n f o r m e d the w r i t e r of the f i r s t y e a r an o f f i c e opened as a b r a n c h o f f i c e of a l o c a l l y r e g i s t e r e d company. M i t s u i & Co. (U.S.A.) I n c . i s such an example. Thus, Map 1 does not p r e s e n t New York and 7 o t h e r Japanese branch o f f i c e s of M i t s u i o p e r a t i n g b e f o r e 1966, the year M i t s u i was o f f i c i a l l y r e g i s t e r e d as an 387 T a b l e 28: L o c a t i o n of Sogo Shosha O f f i c e s i n N o r t h A m e r i c a 1950'S 1960'S 1970'S 1980'S New York Los A n g e l e s San F r a n c i s c o P o r t l a n d Houston C h i c a g o S e a t t l e D a l l a s D e t r o i t W ashington, D.C. P i t t s b u r g h S t . L o u i s New O r l e a n s N o r t h B r u n s w i c k Anaheim ( L . A . ) * Anchorage Akron A t l a n t a B e l l e v u e ( S e a t t l e ) * B o ston C h a r l o t t e C l e v e l a n d Denver F r e s n o P a l o A l t o ( S . F . ) * P h i l a d e l p h i a P h o e n i x Memphi s Miami N a s h v i l l e N o r t h Palm Beach Sommerset ( N . Y . ) * S u n n y v a l e ( S . F . ) * 8 8 6 6 3 1 1 1 9 9 9 8 8 9 5 3 9 9 9 8 8 9 8 3 5 4 3 2 9 9 9 9 9 9 8 5 6 6 3 4 0 1 1 1 1 6 1 2 1 1 6 2 1 2 1 1 1 1 1 1 1 M o n t r e a l . 3 T o r o n t o 3 Vancouver 3 C a l g a r y 7 9 9 7 9 9 7 8 8 2 6 7 3 c a s e s ( D a l l a s , F r e s n o and C a l g a r y ) a r e i n c l u d e d i n the 1980's f i g u r e s f o r which t h e o f f i c e o p e n i n g d a t e s a r e unknown * A l t h o u g h t h e s e c i t i e s a r e suburbs of one of the c i t i e s i n the f i r s t g r o u p , they a r e s t i l l l i s t e d s e p a r a t e l y . E v i d e n t l y t h e r e i s a need f o r e x p a n s i o n w i t h i n one SMSA i n the form of e i t h e r b r a n c h o r , more commonly, r e p r e s e n t a t i v e o f f i c e s i n o r d e r t o c a r r y out the g r o w i n g number of f u n c t i o n s . Map 1: Location of Sogo Shosha Offices in North America in the 1950's 388 \u00C2\u00A9 Outline Map Series. Cartographic Centra. Faculty of Environmental Studies, University o( Waterloo. Map 3: Location of Sogo Shosha Offices in North America in the 1970fs 390 \u00C2\u00A9 Outline Map Series, Cartographic Centre; Faculty ot Environmental Studies, University ol Waterloo. 392 By 1984, t h e r e were 33 c i t i e s where sogo shosha had head, branch and r e p r e s e n t a t i v e o f f i c e s i n the U n i t e d S t a t e s w h i l e t h e i r o f f i c e s were l o c a t e d i n f o u r Canadian c i t i e s . F i r s t , the w r i t e r c a t e g o r i z e d c i t i e s i n t o t h r e e groups based on the year when t h e s e were opened i n the U n i t e d S t a t e s . The f i r s t group of c i t i e s a r e t h o s e i n which i n the 1950's sogo shosha head, b r a n c h and r e p r e s e n t a t i v e o f f i c e s f i r s t a ppeared. E i g h t c i t i e s out of 33 b e l o n g i n t h i s c a t e g o r y . In o t h e r words, e i g h t sogo shosha had h e a d q u a r t e r s i n New York i n the 1950's, a l t h o u g h M i t s u i may a l s o have had an o f f i c e i n New York a t t h i s t i m e . 5 1 1 By 1966 the n i n e sogo shosha had a l r e a d y l o c a t e d t h e i r h e a d q u a r t e r s i n New York and thus g e o g r a p h i c a l e x p a n s i o n was me r e l y by i n c r e a s i n g the number of b ranch and r e p r e s e n t a t i v e o f f i c e s . 5 1 2 The seven o t h e r c i t i e s i n whi c h sogo shosha opened br a n c h and r e p r e s e n t a t i v e o f f i c e s i n the 1950's were: Los A n g e l e s , San F r a n c i s c o , P o r t l a n d , Houston, C h i c a g o , S e a t t l e and D a l l a s . These were a l l major c e n t e r s of r e g i o n a l 5 1 0 ( c o n t ' d ) American company. (Data on o f f i c e l o c a t i o n s of M i t s u i U.S.A. a r e based on a t e l e p h o n e i n t e r v i e w w i t h N i t t a , i d . ) S i n c e most companies p r o v i d e d the opening y e a r s of p r e s e n t o f f i c e s , some o f f i c e s w h i c h had once opened but a r e now c l o s e d as of 1985 may not app e a r . There a r e t h r e e such examples i n the case of M a r u b e n i ; however, t h e r e a r e no d a t a on o t h e r sogo shosha i n t h i s r e s p e c t . Seven of the sogo shosha, e x c e p t f o r Sumitomo and Ni c h i m e n , p r o v i d e d d a t a which d i s t i n g u i s h e d branch o f f i c e s from r e p r e s e n t a t i v e o f f i c e s . 5 1 1 A s p r e v i o u s l y mentioned, t h e company o f f i c i a l l y became an American c o r p o r a t i o n i n 1966 and t h u s o f f i c i a l l y l i s t t h e i r o p e n i n g d a t e as 1966. 5 1 2 T h e d i f f e r e n c e between b r a n c h o f f i c e and r e p r e s e n t a t i v e o f f i c e i s based on the s c a l e of o p e r a t i o n ; a r e p r e s e n t a t i v e o f f i c e i s s m a l l e r than a br a n c h o f f i c e . 393 economic a c t i v i t y and were s i t u a t e d i n s t r a t e g i c l o c a t i o n s . Compared w i t h o t h e r major c i t i e s , sogo shosha o f f i c e c o n c e n t r a t i o n i n P o r t l a n d seems anomalous. I n the m i d d l e of 1950's, Japan i m p o r t e d from the U n i t e d S t a t e s s o f t wheat f o r n o o d l e s , h a r d wheat f o r b r e a d , as w e l l as r i c e . As w i t h C h i c a g o i n the Midwest, P o r t l a n d has been a c e n t e r f o r g r a i n exchange on the West C o a s t . T h e r e f o r e , around 1957 the Food Agency, a s u b o r d i n a t e of the M i n i s t r y of A g r i c u l t u r e and F o r e s t r y of Japan, e s t a b l i s h e d an o f f i c e i n P o r t l a n d i n or d e r t o c o n t r o l under an agreement w i t h the U.S. government a n n u a l wheat i m p o r t s . The Food Agency has a l s o r e g u l a t e d t he l i c e n s e s f o r f o o d i m p o r t s . Thus, the e s t a b l i s h m e n t of an o f f i c e i n P o r t l a n d i n d u c e d the s e t t i n g up sogo shosha o f f i c e s t h e r e . 5 1 3 In the 1960's, sogo shosha opened o f f i c e s i n s i x o t h e r c i t i e s ( t h e second g r o u p ) . These were D e t r o i t , Washington, D.C, P i t t s b u r g h , S t . L o u i s , New O r l e a n s and N o r t h B r u n s w i c k . 5 1 4 A l l b e i n g l o c a t e d a l o n g major t r a n s p o r t a t i o n r o u t e s were c h a r a c t e r i z e d as i n d u s t r i a l c i t i e s or as p r i n c i p a l p o l i t i c a l c e n t e r s . F i n a l l y , i n t h e 1970's (16) and 1980's ( 3 ) , the sogo shosha have expanded a c t i v i t y t o an a d d i t i o n a l 19 c i t i e s . 5 1 3 T e l e p h o n e i n t e r v i e w w i t h Ohyama, D i r e c t o r , Overseas M e r c h a n d i s e I n s p e c t i o n Co., L t d . , Vancouver, 11 J u l y 1986. 5 1 \" M a r u b e n i S t . L o u i s o f f i c e was c l o s e d by 1984. Kanematsu-Gosho e s t a b l i s h e d an r e p r e s e n t a t i v e o f f i c e i n \"Nort h B r u n s w i c k \" i n the U n i t e d S t a t e s , a c c o r d i n g t o A r a i , A s s o c i a t e Manager, P u b l i c R e l a t i o n s Department of Kanematsu-Gosho i n Tokyo. However, no N o r t h Brunswick e x i s t s t o t he bes t of w r i t e r ' s knowledge. He may have meant New Bru n s w i c k , New J e r s e y , but t h i s i s not c e r t a i n . 394 T h i s i n d i c a t e s t h a t 57.6 p e r c e n t of the branch and r e p r e s e n t a t i v e o f f i c e e x p a n s i o n has o c c u r r e d s i n c e 1970. Except f o r some c i t i e s such as Bos t o n , C l e v e l a n d and P h i l a d e l p h i a , most a r e l o c a t e d i n the West and S u n b e l t a r e a s and among t h e s e , A t l a n t a and Denver have emerged as f o c a l p o i n t s . A l t h o u g h the 1970's w i t n e s s e d the g e o g r a p h i c a l e x p a n s i o n of o f f i c e s i n terms of numbers, the t h i r d group of c i t i e s e x c e p t f o r A t l a n t a and Denver have o n l y one t o two sogo shosha o f f i c e s . On the c o n t r a r y , by the 1980's s i x of the e i g h t c i t i e s i n the f i r s t group saw a l l n i n e sogo shosha p r e s e n t . H a l f the c i t i e s i n the second c a t e g o r y saw s i x sogo shosha. T h e r e f o r e , t he e a r l i e r t h a t the branches had been opened, the g r e a t e r were t h e number of sogo shosha i n v o l v e d . The s t r a t e g i c g e o g r a p h i c a l o f f i c e e x p a n s i o n c h r o n o l o g i c a l l y m i r r o r e d the r e s t r u c t u r i n g of economic a c t i v i t y i n the U n i t e d S t a t e s . New sogo shosha o f f i c e s have tended t o move to major t r a n s a c t i o n c e n t e r s such as A t l a n t a and Denver which have become new i n f o r m a t i o n and t r a n s p o r t a t i o n nodes. As w e l l , i n the 1950's t h e f i r s t sogo shosha e s t a b l i s h e d a f o o t h o l d i n major economic c e n t e r s , and as they l e a r n e d the economic, p o l i t i c a l and s o c i a l environments and i n c r e a s e d t h e i r t e r r i t o r i a l knowledge, t h i s r e s u l t e d i n g e o g r a p h i c a l e x p a n s i o n i n the U n i t e d S t a t e s . In Canada, i n the 1950's t h r e e sogo shosha opened branch and r e p r e s e n t a t i v e o f f i c e s i n M o n t r e a l , T o r o n t o and Vancouver. In the 1960's, two sogo shosha opened o f f i c e s i n 395 C a l g a r y . However, d u r i n g t he 1970's and 1980's as opposed t o t h a t i n the U n i t e d S t a t e s , l o c a t i o n a l o f f i c e e x p a n s i o n has not been o b s e r v e d i n Canada. Moreover, the h e a d q u a r t e r s of the Canadian sogo shosha were d i s p e r s e d among t h e s e f o u r c i t i e s , w h i l e those i n th e U n i t e d S t a t e s were c o n c e n t r a t e d i n New York. In the f o l l o w i n g s e c t i o n , l o c a t i o n a l o f f i c e e x p a n s i o n by i n d i v i d u a l sogo shosha i s d e s c r i b e d i n d e t a i l . Map 1 shows t h a t i n the 1950's head, branch and r e p r e s e n t a t i v e o f f i c e s were s p a r s e l y l o c a t e d i n the U n i t e d S t a t e s and Canada. For example, a c o n c e n t r a t i o n of o f f i c e s i s seen i n New York, Los A n g e l e s , P o r t l a n d , and San F r a n c i s c o i n t h e U n i t e d S t a t e s . These p o r t s as s t r a t e g i c l o c a t i o n s , t h u s p r o v i d e d o p p o r t u n i t y f o r t h e sogo shosha t o g a i n a f o o t h o l d i n American c o m m e r c i a l l i f e . S i n c e P o r t l a n d was as i m p o r t a n t as New York, Los A n g e l e s and San F r a n c i s c o i n the 1950's, s i x out of the n i n e sogo shosha l o c a t e d o f f i c e s t h e r e . 5 1 5 Other o f f i c e s were s e t up i n o t h e r p a r t s of the U n i t e d S t a t e s . I n 1959, C. I t o h , M i t s u b i s h i and Tomen e s t a b l i s h e d branch o f f i c e s i n Houston. I n 1956, C. I t o h s e t up an o f f i c e i n D a l l a s , and M i t s u b i s h i founded a r e p r e s e n t a t i v e o f f i c e i n S e a t t l e , w hich was upgraded t o a bra n c h o f f i c e i n 1959. Sumitomo e s t a b l i s h e d an o f f i c e i n C h i c a g o , a l s o i n 1959. In Canada, i n the 1950's some sogo shosha p r e s e n c e was seen i n T o r o n t o , Vancouver and M o n t r e a l . Most had begun as r e p r e s e n t a t i v e o f f i c e s of the p a r e n t companies i n Japan. 5 1 5 M i t s u i Japan a l s o had a bra n c h o f f i c e i n P o r t l a n d b e f o r e 1966, which i s not r e v e a l e d i n the d a t a p l o t t e d on the map. 396 In the 1960's (Map 2 ) , the n i n e t o p sogo shosha h e a d q u a r t e r s were l o c a t e d i n New York. A l s o , i n the e a r l y 1960's i n a d d i t i o n t o P o r t l a n d , San F r a n c i s c o and Los A n g e l e s , a l l n i n e sogo shosha e s t a b l i s h e d branch o f f i c e s i n C h i c a g o , and e i g h t sogo shosha ( e x c l u d i n g N i c h i m e n ) , opened o f f i c e s i n Houston, S e a t t l e and D a l l a s . In t h a t decade, o t h e r new o f f i c e l o c a t i o n s appeared: i n D e t r o i t by M i t s u i (1966) and C. I t o h (1969); i n Washington, D. C. by Marubeni ( 1 9 6 2 ) ; i n New O r l e a n s by Marubeni (1962) ( c l o s e d by 1 9 8 5 ) 5 1 6 ; i n P i t t s b u r g h by C. I t o h (1964); and i n S t . L o u i s by N i s s h o - I w a i (1969). In Canada d u r i n g t h e 1960's, seven of the n i n e l a r g e s t sogo shosha e s t a b l i s h e d o f f i c e s i n T o r o n t o , M o n t r e a l and Vancouver, w h i l e i n 1965 and 1968, r e s p e c t i v e l y , M i t s u i and Sumitomo opened o f f i c e s i n C a l g a r y . D u r i n g the 1970's, w i t h the e x p a n s i o n of economic a c t i v i t y , the e s t a b l i s h m e n t of sogo shosha o f f i c e s i n c r e a s e d . In the U n i t e d S t a t e s , b e s i d e the above-mentioned c i t i e s , newly e s t a b l i s h e d o f f i c e s p r o l i f e r a t e d , e s p e c i a l l y i n the South and West (Map 3 ) . Among the c i t i e s i n v o l v e d were A t l a n t a which became a f o c a l p o i n t i n the South. A l s o , d u r i n g the 1970's b e g i n n i n g w i t h the e s t a b l i s h m e n t of a branch o f f i c e by M i t s u b i s h i i n 1972, another f i v e sogo shosha opened o f f i c e s i n A t l a n t a . However, a r e p r e s e n t a t i v e o f f i c e of Marubeni had c l o s e d by 1984. 5 1 6 T e l e p h o n e i n t e r v i e w w i t h M a s a h i r o Murakami, Marubeni Canada L t d . , Vancouver, 17 A p r i l 1985. 397 Other new o f f i c e l o c a t i o n s i n a u g u r a t e d i n t h e 1970's were: Anchorage, by Marubeni (1970) and N i s s h o - I w a i ( 1 9 7 0 ) 5 1 7 ; A k r o n , by C. I t o h (1975); B o s t o n , by Marubeni (1973); P a l o A l t o (1975) and P h i l a d e l p h i a ( 1 9 7 9 ) , by M i t s u b i s h i ; C l e v e l a n d (1972), Miami (1974), P h o e n i x (1977), and Memphis (1979), by M i t s u i ; B e l l e v u e , Washington (1972), by N i s s h o - I w a i ; Anaheim (1975) and N o r t h Palm Beach (1979), by N i c h i m e n ; and Fr e s n o (1978), by Sumitomo. * In Canada, i n the 1970's a l l n i n e sogo shosha had e i t h e r h e a d q u a r t e r s or branch o f f i c e s i n T o r o n t o and M o n t r e a l . E i g h t sogo shosha, except f o r N i c h i m e n , a l s o had e s t a b l i s h e d h e a d q u a r t e r s or branch o f f i c e s i n Vancouver, and f o u r a d d i t i o n a l sogo shosha opened o f f i c e s i n C a l g a r y . A l s o , because of the w o r l d energy c r i s i s , C a l g a r y because of o i l became a boom town. Hence, d u r i n g t h i s t i m e , 5 1 8 C. I t o h moved i t s h e a d q u a r t e r s from M o n t r e a l t o C a l g a r y , which remains a r e g i s t e r e d h e a d q u a r t e r s even a f t e r 1983 when Vancouver became the o p e r a t i o n a l h e a d q u a r t e r s . In the 1980's (Map 4 ) , as o t h e r sogo shosha opened o f f i c e s i n the p r e v i o u s l y mentioned U.S. c i t i e s , Denver appeared as a n o t h e r f o c a l p o i n t i n the West. I n a d d i t i o n t o the two sogo shosha, f o u r o t h e r s e s t a b l i s h e d o f f i c e s , m a i n l y r e p r e s e n t a t i v e o f f i c e s . A d d i t i o n a l new o f f i c e l o c a t i o n s were C h a r l o t t e , N o r t h C a r o l i n a , by Tomen i n 1981; Somerset, New J e r s e y , and Su n n y v a l e , C a l i f o r n i a , by Kanematsu-Gosho i n 5 1 7 T h e Marubeni Anchorage r e p r e s e n t a t i v e o f f i c e c l o s e d by 1 984. 5 1 8 S p e c i f i c y e a r was u n c l e a r . 398 1985; and N a s h v i l l e by Marubeni i n the 1980's. I n Canada, no a d d i t i o n a l e x p a n s i o n of o f f i c e l o c a t i o n s were r e c o r d e d . Thus, by 1985, g e o g r a p h i c a l o f f i c e c l u s t e r i n g was obs e r v e d among t h e n i n e t o p sogo shosha. A l l had he a d q u a r t e r s i n New York and m a i n l y branch o f f i c e s i n San F r a n c i s c o , Los A n g e l e s , P o r t l a n d , C h i c a g o and Houston, w h i l e e i g h t ( e x cept f o r Kanematsu-Gosho) e s t a b l i s h e d o f f i c e s i n S e a t t l e . Other i m p o r t a n t l o c a t i o n s were D a l l a s , D e t r o i t , A t l a n t a , Denver, Washington, D. C , and S t . L o u i s . S i n c e the e a r l y 1970's, sogo shosha have opened many o f f i c e s i n the U n i t e d S t a t e s , e s p e c i a l l y i n the South and West. I n c i d e n t a l l y , g i v e n t h a t Hawaii has had c l o s e c u l t u r a l and h i s t o r i c a l t i e s w i t h Japan and t h a t t h i s s t a t e a l s o a t t r a c t s a l a r g e number of Japanese t o u r i s t s , i t i s noteworthy t h a t none of the n i n e l a r g e s t sogo shosha have o f f i c e s t h e r e . M i t s u i however once had an o f f i c e i n H o n o l u l u but t h i s has now c l o s e d . In Canada, by t h e 1970's most of t h e sogo shosha completed o f f i c e e s t a b l i s h m e n t i n T o r o n t o , M o n t r e a l , Vancouver and C a l g a r y . A l t h o u g h some have moved h e a d q u a r t e r s amongst t h e s e c i t i e s , no f u r t h e r g e o g r a p h i c a l o f f i c e e x p a n s i o n has y e t been d e t e c t e d i n the 1980's. Recent l i t e r a t u r e has d e l v e d i n t o the s p a t i a l d i s t r i b u t i o n of DFI and the r o l e p l a y e d by f o r e i g n - b a s e d f i r m s i n r e g i o n a l economic systems i n the U n i t e d S t a t e s , and w h i l e f o c u s i n g on the m a n u f a c t u r i n g s e c t o r , many c o n c l u s i o n s have r e l e v a n c e t o o v e r a l l economic s h i f t s i n economic 399 a c t i v i t y . M c C o n n e l l has compared the r e g i o n a l and s t a t e s h a r e s of new f o r e i g n i n v e s t m e n t i n m a n u f a c t u r i n g f o r 1974 t h r o u g h 1978 and has d e t e c t e d a s h i f t by 1976 t o the S u n b e l t and P a c i f i c s t a t e s , a l t h o u g h f o r e i g n i n v e s t o r s have g e n e r a l l y l a g g e d b e h i n d the s p a t i a l d e c e n t r a l i z a t i o n t e n d e n c i e s of American m a n u f a c t u r e r s . 5 1 9 However, L i t t l e has i n d i c a t e d t h a t by the p e r i o d 1980-1982 such a l a g was d i s a p p e a r i n g . For example, as f o r changes i n the n a t i o n a l i t y of f o r e i g n i n v e s t o r s , d e c l i n i n g s h a r e s i n Canada, the N e t h e r l a n d s and S w i t z e r l a n d i n t o t a l f o r e i g n i n v e s t m e n t would have r e s u l t e d i n a d e c l i n e i n New England's p o s i t i o n . The i n c r e a s i n g i m p o r t a n c e of Japanese and F r e n c h i n v e s t m e n t may t h u s c o n t r i b u t e t o New England's d e c l i n e , s i n c e Japanese and F r e n c h m a n u f a c t u r e r s seem t o f a v o r o t h e r a r e a s more than the i n d u s t r i a l h e a r t l a n d . 5 2 0 Moreover, 0 h U a l l a c h c i i n has c o n f i r m e d t h a t the s h i f t i n DFI t o the S u n b e l t and the Far West from t h e Snowbelt i n the m a n u f a c t u r i n g s e c t o r of the U n i t e d S t a t e s i s o c c u r r i n g more r a p i d l y than d o m e s t i c s h i f t s i n m a n u f a c t u r i n g . 5 2 1 D i f f e r e n c e s i n l o c a t i o n a l d e c i s i o n s among f o r e i g n m a n u f a c t u r i n g i n v e s t o r s have a l s o been d i s c u s s e d by such as Tong and C h e r n o t s k y . 5 2 2 5 1 9 J a m e s E. M c C o n n e l l , \" F o r e i g n D i r e c t Investment i n the U n i t e d S t a t e s , \" A n n a l s of the A s s o c i a t i o n of American Geographers v o l . 70, no. 2 (June, 1980): 259-270. 5 2 0 J a n e Sneddon L i t t l e , \" F o r e i g n I n v e s t o r ' s L o c a t i o n a l C h o i c e : An Update,\" New E n g l a n d Economic Review ( J a n u a r y / F e b u a r y , 1983): 31. 5 2 1 B r e a n d a n 0 h U a l l a c h a i n , \" S p a t i a l P a t t e r n of F o r e i g n D i r e c t Investment i n the U n i t e d S t a t e s , \" The P r o f e s s i o n a l Geographer v o l . 37, no. 2 (May, 1985): 154-162. 5 2 2 F o r a d e t a i l e d d i s c u s s i o n , see H s i n - M i n Tong, P l a n t 400 Tong has found t h a t the most i m p o r t a n t p l a n t l o c a t i o n f a c t o r s among the e i g h t major f o r e i g n i n v e s t i n g c o u n t r i e s a r e d i f f e r e n t . For example, Canadian m a n u f a c t u r i n g i n v e s t o r s i n the U n i t e d S t a t e s have c o n s i d e r e d the f o l l o w i n g f a c t o r s as most i m p o r t a n t i n p l a n t l o c a t i o n : (1) a v a i l a b i l i t y of t r a n s p o r t a t i o n s e r v i c e s , (2) a v a i l a b i l i t y of s u i t a b l e p l a n t s i t e s , and (3) l a b o r a t t i t u d e s . Japanese m a n u f a c t u r e r s i n the U n i t e d S t a t e s on the o t h e r hand, have r e g a r d e d (1) a v a i l a b i l i t y of s u i t a b l e p l a n t s i t e s , (2) l a b o r a t t i t u d e s , and (3) ample space f o r f u t u r e e x p a n s i o n as the most i n f l u e n t i a l , and F r e n c h m a n u f a c t u r e r s have ranked p r o x i m i t y t o markets as the h i g h e s t . 5 2 3 A c c o r d i n g t o C h e r n o t s k y , b o t h German and Japanese companies have had a common i n t e r e s t i n the c o n v e n i e n c e of the l o c a t i o n of C h a r l o t t e / M e c k l e n b u r g , N o r t h C a r o l i n a . However, German i n v e s t o r s were more co n c e r n e d w i t h s u p p o r t s e r v i c e s and l o c a l e n v i r o n m e n t a l f a c t o r s , w h i l e Japanese i n v e s t o r s have p a i d c l o s e r a t t e n t i o n t o such as r e a s o n a b l e l a n d / r e n t a l or c o n s t r u c t i o n c o s t , as w e l l as the a v a i l a b i l i t y of a c c e p t a b l e p l a n t s i t e s . 5 2 4 As p r e v i o u s l y i l l u s t r a t e d , t h e e x p a n s i o n of sogo shosha i n v e s t m e n t from the t r a d i t i o n a l i n d u s t r i a l h e a r t l a n d t o the S u n b e l t and Western s t a t e s i s a p a r t of the l a r g e r t r e n d of 5 2 2 ( c o n t ' d ) L o c a t i o n D e c i s i o n s of F o r e i g n M a n u f a c t u r i n g I r i v e s t o r s (Ann A r b o r , M i c h i g a n : U n i v e r s i t y M i c r o f i l m s I n t e r n a t i o n a l R e s e a r c h P r e s s , 1979), and H. I . C h e r n o t s k y , \" S e l e c t i n g U.S. S i t e s : A Case Study of German and Japanese F i r m s , \" Management I n t e r n a t i o n a l Review v o l . 23, no. 2 (1983): 45-55. 5 2 3 T o n g , i b i d . , p. 45. 5 2 4 C h e r n o t s k y , ojo. c i t . , p. 53. 401 f o r e i g n m a n u f a c t u r i n g i n v e s t m e n t . F i n a l l y , t he s p a t i a l i m p l i c a t i o n s of MNCs a c t i v i t y a r e d i s c u s s e d t o c a s t l i g h t on the r e l a t i o n s h i p between the f u n c t i o n of a c i t y and t h e l e v e l of economic a c t i v i t y . The development of MNCs has had g r e a t impact on the w o r l d economy, s i n c e t h e s e p r a c t i c e w o r l d w i d e s e a r c h f o r r e s o u r c e s , p r o d u c t i o n and m a r k e t i n g . T h i s a c t i v i t y has ge n e r a t e d a new i n t e r n a t i o n a l d i v i s i o n of l a b o r (NIDL). A c c o r d i n g t o Cohen: In e s s e n c e , what the NIDL r e p r e s e n t s i s a system f o r p r o d u c t i o n on a w o r l d s c a l e i n which even g r e a t e r numbers of pe o p l e a r e i n t e g r a t e d i n t o a c t i v i t i e s c a r r i e d on by l a r g e i n t e r n a t i o n a l p r o d u c t s of goods and by i n t e r n a t i o n a l f i r m s which s e r v i c e t h e s e p r o d u c e r s . Both the work p r o c e s s and the f a c i l i t i e s used t o produce goods and s e r v i c e s a r e o r g a n i z e d a c c o r d i n g t o the demands of f i r m s o p e r a t i n g i n a w o r l d m a r k e t . 5 2 5 W i t h r e g a r d t o the a c t i v i t y and f u n c t i o n of MNCs, Hymer has i n t e g r a t e d space as a concept i n t o t h e d i s c u s s i o n of the NIDL. He has f u r t h e r s u g g e s t e d t h a t t h e r e e x i s t s a s p a t i a l l y uneven development of c o r p o r a t e s t r a t e g y as w e l l as a h i e r a r c h i c a l r e l a t i o n s h i p between c e n t e r s and p e r i p h e r i e s , b o t h g l o b a l l y and n a t i o n a l l y (see C h a p t e r 1 ) . Because the p r o d u c t i o n of goods, m a r k e t i n g and the p r o v i s i o n of s e r v i c e s a r e now c a r r i e d out by MNCs on a w o r l d s c a l e , the s p a t i a l h i e r a r c h y of economic a c t i v i t y has been r e s t r u c t u r e d . Some of the i n t e r n a t i o n a l c e n t e r s of b u s i n e s s 5 2 5 R . B. Cohen, \"The New I n t e r n a t i o n a l D i v i s i o n of Lab o r , M u l t i n a t i o n a l C o r p o r a t i o n s and Urban H i e r a r c h y , \" i n U r b a n i z a t i o n and Urban P l a n n i n g i n C a p i t a l i s t S o c i e t y , ed. M i c h a e l Dear and A l l e n J . S c o t t . (London and New York: Methuen, 1981), p. 288. 402 i n the d e v e l o p e d c o u n t r i e s , p l a c e s such as New York, London and Tokyo, have emerged as \" w o r l d c i t i e s \" i n the new i n t e r n a t i o n a l urban h i e r a r c h y . A c c o r d i n g t o Friedmann and W o l f f , \" i t i s the w o r l d c i t y w h i c h p l a y s a c r u c i a l r o l e i n a r t i c u l a t i n g the g l o b a l system of r e s e a r c h , p r o d u c t i o n , m a r k e t i n g and c a p i t a l a c c u m u l a t i o n . \" 5 2 6 Not o n l y a r e t h e s e w o r l d c i t i e s \" c o n t r o l p o i n t s \" i n the w o r l d economy, a l s o they p l a y a d e c i s i v e r o l e i n the economic l i f e of the n a t i o n and r e g i o n of which they a r e a p a r t . 5 2 7 S i m i l a r l y , Cohen has i n t r o d u c e d \" g l o b a l c i t i e s \" w hich s e r v e as i n t e r n a t i o n a l c e n t e r s f o r b u s i n e s s d e c i s i o n - m a k i n g and c o r p o r a t e s t r a t e g y f o r m u l a t i o n . 5 2 8 The g l o b a l c i t y c o n c e p t i s i d e n t i c a l t o t h a t of the w o r l d c i t y . Cohen has e v a l u a t e d major c i t i e s based on c o r p o r a t e a c t i v i t i e s and f i n a n c i a l f u n c t i o n s , and has c o n c l u d e d t h a t New York, Tokyo and London predominate as w o r l d c e n t e r s of c o r p o r a t i o n s and f i n a n c e . In the U n i t e d S t a t e s , New York and San F r a n c i s c o a r e c l a s s i f i e d as g l o b a l c i t i e s . 5 2 9 N o y e l l e has examined on an i n t e r n a t i o n a l s c a l e by MNCs, based on a t h r e e - t i e r e d c l a s s i f i c a t i o n system of U.S. c i t i e s , the s p a t i a l impact of the r e s t r u c t u r i n g of i n d u s t r y . The f u n c t i o n of urban c e n t e r d e t e r m i n e s a c i t y ' s r a n k i n g a c c o r d i n g t o a t h r e e - t i e r e d urban h i e r a r c h y : 1) d i v e r s i f i e d p r o d u c e r s e r v i c e c e n t e r s or n o d a l c e n t e r s , 2) s p e c i a l i z e d 5 2 6 F r i e d m a n n and W o l f f , op_. c i t . , p. 4. 5 2 7 I b i d . , pp. 4-5. 5 2 8Cohen, op_. c i t . , p. 308. 5 2 9 I b i d . , pp. 300-308. 403 p r o d u c e r s e r v i c e c e n t e r s , and 3) dependent c e n t e r s . 5 3 0 Key s e r v i c e s a r e l i k e l y t o c o n t i n u e t o grow almost e x c l u s i v e l y i n c i t i e s of the f i r s t two t i e r s , w i t h a h i g h c o n c e n t r a t i o n of employment i n c o r p o r a t e o f f i c e s , p r o d u c e r s e r v i c e s and p u b l i c s e c t o r s e r v i c e s , w h i l e t h e dependent c e n t e r s a r e l i k e l y t o remain h i g h l y s p e c i a l i z e d (and t h e r e f o r e a r e v u l n e r a b l e t o economic swings) e i t h e r i n p r o d u c t i o n a c t i v i t y o r i n consumer s e r v i c e s . 5 3 1 S p a t i a l d u a l i s m i n terms of the dichotomy between d e c i s i o n - m a k i n g , s e r v i c e - o r i e n t e d c e n t e r s and dependent, p r o d u c t i o n - o r i e n t e d c e n t e r s has r e s u l t e d i n a s t r u c t u r a l d u a l i s m i n the l a b o r f o r c e . I n c r e a s i n g b i f u r c a t i o n of l a b o r a ppears as a dichotomy between p r i m a r y independent workers ( m o s t l y managers, p r o f e s s i o n a l s and t e c h n i c i a n s ) and s e condary workers ( a s s e m b l e r s i n m a n u f a c t u r i n g , c l e r i c a l employees, or l o w - s k i l l e d s e r v i c e w o r k e r s ) . 5 3 2 Thus, economic a c t i v i t y by MNCs has had a g r e a t impact on the n a t i o n a l and i n t e r n a t i o n a l economies, both g e o g r a p h i c a l l y and f u n c t i o n a l l y . The d e c i s i o n f o r i nvestment i n one r e g i o n i n f l u e n c e s not o n l y t h a t p a r t i c u l a r r e g i o n , but because of the h i g h l e v e l of i n t e r d e p e n d e n c y a l s o o t h e r r e g i o n s . The f u n c t i o n s of the c i t i e s a r e r e f l e c t e d i n the s e r v i c e s p r o v i d e d by the c i t i e s t h e m s e l v e s . 5 3 0 T h i e r r y j . N o y e l l e , \"The I m p l i c a t i o n s of I n d u s t r y R e s t r u c t u r i n g f o r S p a t i a l O r g a n i z a t i o n i n the U n i t e d S t a t e s , \" i n R e g i o n a l A n a l y s i s and t h e New I n t e r n a t i o n a l D i v i s i o n of L a b o r , ed. F. M o u l a e r t and P. W. S a l i n a s ( B o s t o n : K l u w e r - N i j h o f f P u b l i s h i n g , 1983), p. 125. 5 3 1 I b i d . , p. 126. 5 3 2 I b i d . , pp. 128-129. 404 Expansion of sogo shosha b r a n c h o f f i c e s r e f l e c t s the v i t a l i t y of economic a c t i v i t y and the e x i s t e n c e of markets i n t he South and West i n the U n i t e d S t a t e s , s i n c e c e n t r a l t o the l o c a t i o n d e c i s i o n i s t h e a v a i l a b i l i t y of a p o t e n t i a l market of s u f f i c i e n t s i z e t o su p p o r t the o f f i c e . 5 3 3 I t s h o u l d be remembered t h a t the major economic a c t i v i t y of sogo shosha i s commercial r a t h e r than the p r o d u c t i o n of manufactured goods per se. The amount of sogo shosha i n v e s t m e n t i s not g r e a t , e s p e c i a l l y when compared w i t h i n v e s t m e n t by o t h e r m a n u f a c t u r e r s , but because of o r g a n i z a t i o n a l , f i n a n c i a l and f u n c t i o n a l a b i l i t y , g e o g r a p h i c a l and s e c t o r a l e x p a n s i o n of sogo shosha i n v e s t m e n t seems t o a f f e c t the w e l l - b e i n g of l o c a l economies and appears t o c o n t r i b u t e t o the r e s t r u c t u r i n g i n h o s t c o u n t r i e s of a new i n t e r n a t i o n a l urban h i e r a r c h y . C o n c l u s i o n H i s t o r i c a l l y , sogo shosha i n v e s t m e n t as a r e p r e s e n t a t i v e of Japanese DFI i n the U n i t e d S t a t e s has d e c l i n e d s i n c e the e a r l y 1970's d e s p i t e an a b s o l u t e i n c r e a s e , s i n c e the Japanese m a n u f a c t u r e r s and the f i n a n c i a l community have a l s o u n d e r t a k e n l a r g e DFI. In 1984, sogo shosha investment i n the U n i t e d S t a t e s a c c o u n t e d a p p r o x i m a t e l y f o r 10 p e r c e n t of the t o t a l Japanese DFI i n 5 3 3 J . H. Dunning and G. Norman, \"The Theory of the M u l t i n a t i o n a l E n t e r p r i s e : An A p p l i c a t i o n t o M u l t i n a t i o n a l O f f i c e L o c a t i o n , \" Environment and P l a n n i n g A v o l . 15 (1983): 681 . 405 t h a t c o u n t r y . However, the a c t u a l i n v e s t m e n t amounts g r o s s l y u n d e r s t a t e the i n f l u e n c e of t h e s e Japanese companies which i s extended t h r o u g h l o n g - t e r m , e x c l u s i v e p u r c h a s i n g c o n t r a c t s as w e l l as t h r o u g h m a n a g e r i a l and t e c h n o l o g i c a l a c t i v i t y . Moreover, the i n v o l v e m e n t of sogo shosha i n v a r i o u s i n d u s t r i a l j o i n t v e n t u r e s a l s o e n a b l e s an i n f l u e n c e on economic a c t i v i t i e s i n s p i t e of m i n o r i t y s h a r e h o l d i n g p o s i t i o n s . A l t h o u g h the r e l a t i v e amount of sogo shosha investment t o t o t a l Japanese i n v e s t m e n t has d e c l i n e d , a b s o l u t e i n c r e a s e s i n amount have been accompanied by g e o g r a p h i c a l and s e c t o r a l e x p a n s i o n of sogo shosha i n v e s t m e n t , as obs e r v e d i n the U n i t e d S t a t e s . S i n c e the U n i t e d S t a t e s i s the w o r l d ' s l a r g e s t and most a f f l u e n t market, sogo shosha have f o c u s e d i n v e s t m e n t on commerce by e s t a b l i s h i n g wholly-owned t r a d i n g s u b s i d i a r i e s and a g r e a t number of m a r k e t i n g companies. Sogo shosha investment i n U.S. commerce has amounted t o a p p r o x i m a t e l y US$1,237 m i l l i o n , a c c o u n t i n g f o r 21.3 p e r c e n t of the t o t a l i n v estment i n t h i s s e c t o r by a l l Japan. In a d d i t i o n , of the t o t a l Japanese g l o b a l i n v e s t m e n t i n commerce, 60.1 p e r c e n t has been i n the U n i t e d S t a t e s . Thus, the p r o p o r t i o n of sogo shosha i n v e s t m e n t i n U.S. commerce i s s i g n i f i c a n t . A c c o r d i n g t o C a p p i e l l o , i n the U n i t e d S t a t e s the pa i d - u p c a p i t a l of the n i n e l a r g e s t sogo shosha t r a d i n g s u b s i d i a r i e s amounted t o r o u g h l y US$1,615 m i l l i o n , 5 3 \" and 5 3 \" T h e d i f f e r e n c e between amounts c a l c u l a t e d by C a p p i e l l o and the w r i t e r s h o u l d be n o t e d . 406 those t r a d i n g s u b s i d i a r i e s i n the U n i t e d S t a t e s h a n d l e d r o u g h l y 12 p e r c e n t of t o t a l American a n n u a l e x p o r t s . 5 3 5 Not o n l y d i d sogo shosha permeate American commercial t r a n s a c t i o n s , t hey a l s o p e n e t r a t e d those of the Japanese. I t s h o u l d be r e c a l l e d t h a t sogo shosha h a n d l e d 44.2 p e r c e n t of the Japanese e x p o r t s and 68.0 p e r c e n t of Japanese i m p o r t s i n FY1984. Thus, sogo shosha commercial a c t i v i t y has pervaded the w o r l d ' s two l a r g e s t markets and the a c t i v i t y i n the i n t e r n a t i o n a l market i s s t r i k i n g . In s h o r t , sogo shosha have i n f l u e n c e d b o t h the w o r l d and the American economic s t r u c t u r e s . As a g e o g r a p h i c a l m a n i f e s t a t i o n of such a c t i v i t y , s i n c e New York has been a hub of economic a c t i v i t y i n the U n i t e d S t a t e s , sogo shosha have h e a v i l y i n v e s t e d i n New York f o r the e s t a b l i s h m e n t of wholly-owned t r a d i n g s u b s i d i a r i e s . The he a d q u a r t e r s of major companies a r e l o c a t e d i n New Yor k , where d e c i s i o n s on i n t e r n a t i o n a l economic s t r a t e g i e s a r e made. The f u n c t i o n and the l o c a l e of these d e c i s i o n - m a k i n g b o d i e s q u a l i f y New York t o be a \" w o r l d c i t y . \" W i t h s e c t o r a l e x p a n s i o n , s t r a t e g i c l o c a t i o n a l e x p a n s i o n has a l s o been n o t e d , e s p e c i a l l y i n C a l i f o r n i a , Texas and F l o r i d a . T h i s l o c a t i o n a l e x p a n s i o n of i n v e s t m e n t , p a r t i c u l a r l y i n commerce and m a n u f a c t u r i n g , c o r r e s p o n d s t o the growth and s h i f t of dom e s t i c economic a c t i v i t i e s t o the West and S u n b e l t a r e a s . T h i s i s i l l u s t r a t e d by the g e o g r a p h i c a l e x p a n s i o n of sogo shosha branch and 5 3 5 C a p p i e l l o , op_. c i t . , p. 28. 407 r e p r e s e n t a t i v e o f f i c e s . In s h o r t , l o c a t i o n a l p r e f e r e n c e s were i n the economic c o r e and growth r e g i o n s of the U n i t e d S t a t e s . T h i s l o c a t i o n a l e x p a n s i o n conforms t o the g e n e r a l domestic economic p a t t e r n , which maximizes sogo shosha i n f o r m a t i o n and i n t e l l i g e n c e g a t h e r i n g c a p a c i t y . However, except f o r a few c a s e s , because of the n a t u r e of i n v e s t m e n t s and the r e l a t i v e l y s m a l l amounts compared t o the s i z e of the U.S.' economy, sogo shosha i n v e s t m e n t s have p l a y e d o n l y a l i m i t e d r o l e i n d e t e r m i n i n g the s c a l e and d i r e c t i o n of growth of a p a r t i c u l a r a r e a w i t h i n the U n i t e d S t a t e s . On the o t h e r hand, i t s h o u l d be s t r e s s e d t h a t sogo shosha have been p l a y i n g and w i l l c o n t i n u e t o p l a y a vanguard r o l e f o r Japanese i n v e s t o r s i n the U n i t e d S t a t e s . As the two r e c e n t a u t o m o b i l e c a s e s have i l l u s t r a t e d , Japanese m a n u f a c t u r e r s and f i n a n c i e r s remain dependant upon the m a r k e t i n g and i n f o r m a t i o n g a t h e r i n g c a p a b i l i t i e s of the sogo shosha. Because of t r a d e f r i c t i o n w i t h J apan, Japanese m a n u f a c t u r e r s have begun l o c a l p r o d u c t i o n i n o r d e r t o o f f s e t a p a r t of e x p o r t s from Japan and t o f o r e s t a l l p r o t e c t i o n i s m . The U n i t e d S t a t e s i s a p r i n c i p a l buyer of Japanese ma n u f a c t u r e d p r o d u c t s , w h i l e i t i s a l e a d i n g s e l l e r of f o o d s t u f f s and raw m a t e r i a l s . T h e r e f o r e , sogo shosha were i n v o l v e d i n b o t h t h e s e m a n u f a c t u r i n g and r e s o u r c e - b a s e d v e n t u r e s , which e x e m p l i f y the r o l e t h a t sogo shosha have p l a y e d i n the opening up of new markets i n the U n i t e d 408 S t a t e s . I n t h i s sense, sogo shosha investment has been a c a t a l y s t t o draw more Japanese DFI. I t has been t h e seed f o r the Japanese h a r v e s t which f o l l o w e d . In Canada, sogo shosha investment p r e s e n t s d i f f e r e n t f e a t u r e s . F i r s t , because Japanese m a n u f a c t u r e r s and f i n a n c i e r s have not c a r r i e d out l a r g e - s c a l e d i r e c t i n v e s t m e n t i n Canada, the r e l a t i v e l y g r e a t e r i m p o r t a n c e of sogo shosha among Japanese i n v e s t o r s p e r s i s t s . C o n s e q u e n t l y , i n 1981 sogo shosha i n v e s t m e n t r e p r e s e n t e d about o n e - t h i r d of a l l Japanese i n v e s t m e n t i n Canada, which c o n t r a s t s w i t h the p i c t u r e i n the U n i t e d S t a t e s . At the end of J u l y 1984, sogo shosha i n v e s t m e n t i n the U n i t e d S t a t e s amounted t o US$1,614 m i l l i o n , w h i l e t h i s was o n l y C$180 m i l l i o n i n Canada, and was thus p r o p o r t i o n a t e t o the s m a l l s i z e of the l a t t e r market. Another d i f f e r e n c e i n sogo shosha i n v e s t m e n t i n the U n i t e d S t a t e s and Canada i s t h a t s i n c e the e a r l y 1970's g e o g r a p h i c a l and s e c t o r a l e x p a n s i o n has been s l i g h t i n Canada. Investment has c o n c e n t r a t e d i n n a t u r a l r e s o u r c e s , a g r i c u l t u r e and f o r e s t r y , and r e s o u r c e - o r i e n t e d m a n u f a c t u r i n g i n d u s t r i e s , whose p r o d u c t s were d e s i g n e d t o be s h i p p e d back t o Japan. In the s e p r o j e c t s , t r o i k a - s t y l e j o i n t v e n t u r e s were o f t e n adopted w i t h m i n o r i t y e q u i t y s h a r e and l o n g - t e r m p u r c h a s i n g c o n t r a c t s . The impact of sogo shosha economic a c t i v i t y i s g r e a t e r on the s m a l l Canadian market than on t h a t of the U n i t e d S t a t e s . Sogo shosha have p l a y e d a s i g n i f i c a n t r o l e i n 409 l a r g e - s c a l e r e s o u r c e development p r o j e c t s and the p r o s p e r i t y of the l o c a l economies of c e r t a i n r e s o u r c e - b a s e d towns have depended g r e a t l y on t h e i r s t r a t e g i e s i n t h i s r e s p e c t . Such i s p a r t i c u l a r l y so i n a s t a p l e economy. For example, the copper and c o a l m i n i n g i n d u s t r i e s of B r i t i s h Columbia and A l b e r t a were d e v e l o p e d almost w h o l l y f o r the Japanese market. In terms of r e g i o n a l c o n c e n t r a t i o n , sogo shosha i n v e s t m e n t has f o c u s e d on O n t a r i o and B r i t i s h Columbia so t h a t as a r e s u l t of the l a t t e r ' s g e o g r a p h i c a l p r o x i m i t y t o Japan, and t h e abundance of n a t u r a l r e s o u r c e s o b t a i n e d t h r o u g h the Japanese s t r a t e g y of o f f s h o r e e x p l o i t a t i o n , B r i t i s h Columbia h o s t s the l a r g e s t amount of sogo shosha i n v e s t m e n t i n r e s o u r c e - b a s e d i n d u s t r i e s and commerce. T h i s c o n c e n t r a t i o n of inve s t m e n t i n B r i t i s h Columbia i s u n i q u e . Large i n v e s t m e n t i n m a n u f a c t u r i n g as w e l l as i n p e t r o l e u m and n a t u r a l gas e x p l o i t a t i o n by o t h e r i n d u s t r i a l i z e d c o u n t r i e s such as the U n i t e d S t a t e s and the U n i t e d Kingdom, a r e u s u a l l y made i n o t h e r r e g i o n s of Canada. S i n c e the e a r l y 1970's, A l b e r t a has a t t r a c t e d more r e s o u r c e - r e l a t e d i n v e s t m e n t . Sogo shosha c o m m e r c i a l investment has c o n c e n t r a t e d i n O n t a r i o as w e l l as i n B r i t i s h C o lumbia. The O n t a r i o share i s e x p l a i n e d by the f a c t t h a t C e n t r a l Canada i s the i n d u s t r i a l h e a r t l a n d and major p o p u l a t i o n c e n t e r of Canada. T h i s type of i n v e s t m e n t f o c u s e s upon the c o r e r e g i o n of a c o u n t r y ' s economic a c t i v i t i e s . The s m a l l s i z e of the Canadian market 410 l i m i t s sogo shosha commercial e x p a n s i o n . Vancouver, T o r o n t o , and t o a l e s s e r e x t e n t , M o n t r e a l , s e r v e as the c e n t e r s of b u s i n e s s t r a n s a c t i o n s i n Canada. In sum, sogo shosha investment has been i m p o r t a n t t h a n k s t o the s p e c i a l s k i l l s and s e r v i c e s p r o v i d e d , i n a d d i t i o n t o modest i n v e s t m e n t . These have had a d i s c e r n i b l e impact on the la n d s c a p e of Canada as i n new mines, and a s s o c i a t e d towns and s e t t l e m e n t s i n the c a s e of B r i t i s h C o l u m b i a . Even though such impact has been l e s s o b v i o u s i n the U n i t e d S t a t e s the sogo shosha were n e v e r t h l e s s the vanguard f o r o t h e r Japanese i n v e s t o r s . Japanese c o m m e r c i a l p e n e t r a t i o n as c a r r i e d out by sogo shosha i n the U n i t e d S t a t e s and o t h e r p a r t s of the w o r l d i n d i c a t e s t h e s i g n i f i c a n c e of t h e i r economic a c t i v i t y . T h i s e m p i r i c a l s t u d y shows t h a t the American and Canadian economies a r e i n t e r l a c e d i n the w o r l d economy t h r o u g h Japanese sogo shosha i n v e s t m e n t . 41 1 CONCLUSION T h i s t h e s i s has examined the s p a t i a l and s e c t o r a l c h a r a c t e r i s t i c s of postwar Japanese d i r e c t f o r e i g n i n v e s t m e n t w i t h p a r t i c u l a r r e f e r e n c e t o i n v e s t m e n t i n d e v e l o p e d c o u n t r i e s . A t t e n t i o n has been f o c u s e d upon the r o l e of sogo shosha investment i n the U n i t e d S t a t e s and Canada as an example of what i s c o n s i d e r e d an a r c h e t y p i c a l form of Japanese i n v e s t m e n t . The i n t r o d u c t i o n p r e s e n t e d f i v e r e s e a r c h q u e s t i o n s t o be i n v e s t i g a t e d (see page 13). W h i l e the r e s e a r c h r e s u l t s i n d i c a t e t h a t i t i s d i f f i c u l t t o s e p a r a t e the answers t o the q u e s t i o n s , the f o l l o w i n g f i v e c o n c l u s i o n s a r e emphasized. F i r s t , t h e i n t e r n a l c o n d i t i o n s of Japan have c o n s i d e r a b l y i n f l u e n c e d Japanese DFI. The changes i n governmental p o l i c i e s of DFI from r e s t r i c t i o n t o l i b e r a l i z a t i o n and the development of the Japanese economy has l e d t o a c o n s i d e r a b l e growth of Japanese DFI. Japanese DFI has been i n c r e a s i n g l y s i g n i f i c a n t on the i n t e r n a t i o n a l f i n a n c i a l scene s i n c e 1969 when the Japanese government began t o l i b e r a l i z e i t s p o l i c i e s f o r DFI. The amount of Japanese DFI can be l i n k e d t o the l e v e l of economic development and can be r e g a r d e d as an i n d i c a t o r of economic p e r f o r m a n c e . U n t i l 1968 Japan was s u f f e r i n g from postwar b a l a n c e - o f - p a y m e n t s c o n s t r a i n t s a f t e r which Japan became a net c r e d i t o r . 412 W i t h r a p i d economic growth i n Ja p a n , the i n c r e a s i n g i n t e r n a t i o n a l c o m p e t i t i v e n e s s of Japanese manufactured p r o d u c t s c o n t r i b u t e d t o the e a r n i n g of f o r e i g n c u r r e n c y , which was u t i l i z e d t o import n a t u r a l r e s o u r c e s and f o o d s t u f f s . W h i l e the Japanese economy was m a t u r i n g and i t s companies were a c c u m u l a t i n g m a n a g e r i a l r e s o u r c e s , the Japanese i n c r e a s e d DFI which was then accompanied by s e c t o r a l and g e o g r a p h i c a l e x p a n s i o n on a w o r l d s c a l e . ' By the same t o k e n , investment i n n a t u r a l r e s o u r c e development has been a s c r i b e d t o the s c a r c i t y of n a t u r a l r e s o u r c e s i n Japan. To s e c u r e a s u p p l y of n a t u r a l r e s o u r c e s i s one of the most i m p o r t a n t purposes of Japanese i n v e s t m e n t . S h i f t s from l i g h t t o heavy and c h e m i c a l i n d u s t r i e s , then t o e n e r g y - c o n s e r v a t i v e , k n o w l e d g e - i n t e n s i v e h i g h t e c h n o l o g y i n d u s t r i e s have encouraged investment i n l a b o r - i n t e n s i v e l i g h t m a n u f a c t u r i n g i n d e v e l o p i n g c o u n t r i e s and have promoted the r e l o c a t i o n of e n e r g y - i n t e n s i v e i n d u s t r i e s a b r o a d . T r a d i t i o n a l l y , Japanese DFI was c o n c e n t r a t e d i n commerce i n d e v e l o p e d c o u n t r i e s and n a t u r a l r e s o u r c e - o r i e n t e d s e c t o r s b o t h i n d e v e l o p e d and d e v e l o p i n g c o u n t r i e s . S i n c e the l a t e 1960's because of a l a b o r s h o r t a g e i n a d d i t i o n t o h i g h wage l e v e l s e x p e r i e n c e d by Japan Japanese m a n u f a c t u r e r s have und e r t a k e n o f f s h o r e p r o d u c t i o n of l i g h t m a nufactured goods i n d e v e l o p i n g c o u n t r i e s , e s p e c i a l l y i n So u t h e a s t A s i a and L a t i n A m e r i c a . The d e v a l u a t i o n of the yen a g a i n s t major f o r e i g n c u r r e n c i e s and 413 the s h i f t from a f i x e d t o a f l o a t i n g exchange r a t e system i n 1971 d e t r a c t e d from the a b i l i t y t o m a i n t a i n i n t e r n a t i o n a l c o m p e t i t i v e n e s s by Japanese m a n u f a c t u r i n g , and r e s u l t e d i n i n c r e a s i n g i nvestment i n o v e r s e a s m a n u f a c t u r i n g . The f i r s t o i l c r i s i s of 1973 f u r t h e r encouraged Japan t o i n v e s t i n energy development i n the w o r l d . In the d r i v e t o economic m a t u r i t y , s i n c e the e a r l y 1970's Japan e n c o u n t e r e d t r a d e f r i c t i o n w i t h o t h e r d e v e l o p e d c o u n t r i e s which was then f o r c e d t o i n v e s t i n m a n u f a c t u r i n g i n th e s e i n d u s t r i a l i z e d c o u n t r i e s . Hence, Japanese DFI r e f l e c t s b o t h the domesti c and i n t e r n a t i o n a l economic e n v i r o n m e n t s . A c c o r d i n g l y , the f o c u s of Japanese DFI was s h i f t e d t o meet new economic c o n d i t i o n s . In a d d i t i o n , economic, p o l i t i c a l , s o c i a l and c u l t u r a l f a c t o r s bestowed d i s t i n c t c h a r a c t e r i s t i c s on Japa n e s e - t y p e MNCs, sogo shosha. In o t h e r words, the v e h i c l e f o r DFI i s a l s o a p r o d u c t of the s p e c i a l f e a t u r e s of the home c o u n t r y m i l i e u . The c o r o l l a r y i s t h a t g i v e n t he f a c t t h a t t h e i r s p e c i a l f u n c t i o n a l and o r g a n i z a t i o n a l c a p a b i l i t i e s make sogo shosha d i f f e r e n t , the sogo shosha model of uniqueness p e r s i s t s i n c o n t r a s t w i t h American/European m u l t i n a t i o n a l s . Second, the investment c l i m a t e s of ho s t c o u n t r i e s a l s o have i n f l u e n c e d Japanese DFI. Throughout the postwar h i s t o r y of Japanese DFI, the U n i t e d S t a t e s as a s i n g l e c o u n t r y has h o s t e d the l a r g e s t amount of DFI. In the i n i t i a l s t a g e s of Japanese DFI, s i n c e the m o t i v e s of DFI were t o c u l t i v a t e an a f f l u e n t market and t o o b t a i n n a t u r a l r e s o u r c e s i n t h e 414 U n i t e d S t a t e s , investment f o c u s e d on the commerce and r e s o u r c e - b a s e d s e c t o r s . However, s i n c e the e a r l y 1970's, thank s t o t r a d e f r i c t i o n and a r i s e of p r o t e c t i o n i s m , Japan commenced investment i n U.S. m a n u f a c t u r i n g f o r l o c a l p r o d u c t i o n t o o f f s e t some e x p o r t s from Japan. In g e n e r a l , the U n i t e d S t a t e s has p r o v i d e d a f a v o r a b l e i n v e s t m e n t c l i m a t e . The w o r l d ' s l a r g e s t and most a f f l u e n t market, few c o u n t r y r i s k s from p o l i t i c a l i n s t a b i l i t y , the a v a i l a b i l i t y of advanced t e c h n o l o g y , d e v e l o p e d m a r k e t i n g and f i n a n c i a l i n s t i t u t i o n s , as w e l l as a d e v e l o p e d i n f r a s t r u c t u r e , have a t t r a c t e d f o r e i g n i n v e s t m e n t , though the u n i t a r y t a x and n a t i o n a l s e c u r i t y r e g u l a t i o n s have d e t e r r e d some DFI. As l o n g as the U n i t e d S t a t e s remains the most i m p o r t a n t t r a d i n g p a r t n e r of Japan and has c l o s e economic and p o l i t i c a l t i e s , Japanese DFI i n t h a t c o u n t r y w i l l f u r t h e r i n c r e a s e . At the same t i m e , Japanese DFI has become i n c r e a s i n g l y i m p o r t a n t r e l a t i v e t o o t h e r f o r e i g n c o u n t r y i n v e s t m e n t . I t was ranked t h i r d a f t e r the U n i t e d Kingdom and the N e t h e r l a n d s a t t h e end of 1983. Thus, Japanese DFI i s becoming more s i g n i f i c a n t t o b o t h home and host c o u n t r i e s . The e x a m i n a t i o n of Japanese DFI and sogo shosha investment l e a d s t o the t h i r d c o n c l u s i o n t h a t the r o l e of Japanese DFI has become c r u c i a l i n the i n t e r n a t i o n a l economy. In a n o t h e r h o s t c o u n t r y , Canada, the amount of Japanese DFI has been s m a l l , c o n c e n t r a t i n g on r e s o u r c e - b a s e d i n d u s t r i e s . A new t r e n d of i n v e s t m e n t i n m a n u f a c t u r i n g has 415 appeared; however, the s i z e of the Canadian economy, s p a r s e l y d i s t r i b u t e d markets and a s t r o n g u n i o n movement a r e major d e t e r r e n t s . The p r a c t i c e of the former F o r e i g n Investment Review Act has l e f t a p s y c h o l o g i c a l a f t e r e f f e c t s i n c e the Japanese a n t i c i p a t e a r e o c c u r r e n c e of s i m i l a r l y r e g u l a t o r y measures i n t h e f u t u r e . The comparison of Japanese DFI between the U n i t e d S t a t e s and Canada e l u c i d a t e s the i n f l u e n c e of host c o u n t r y i nvestment c l i m a t e s on the p a t t e r n s of DFI. T h i r d , the p a t t e r n s and m o t i v e s of Japanese DFI can be summarized i n the f o l l o w i n g t h r e e p o i n t s . 1) Investment i n n a t u r a l r e s o u r c e development forms an i n d i s p e n s a b l e p a r t of DFI, r e g a r d l e s s of whether the h o s t c o u n t r y i s d e v e l o p e d or d e v e l o p i n g . 2) In the e a r l y stage of i n v e s t m e n t , most of the m a n u f a c t u r i n g investment was c o n c e n t r a t e d i n d e v e l o p i n g c o u n t r i e s , p a r t i c u l a r l y i n A s i a and L a t i n A m e r i c a . T h i s i n v e s t m e n t was d e s i g n e d t o u t i l i z e cheap l a b o r and t a x i n c e n t i v e s . M a n u f a c t u r i n g i n v e s t m e n t i n d e v e l o p e d c o u n t r i e s was q u i t e l i m i t e d but has g a t h e r e d momentum because of r e c e n t t r a d e f r i c t i o n , e s p e c i a l l y w i t h the U n i t e d S t a t e s and t h e E.C. c o u n t r i e s . 3) Other investment i n d e v e l o p e d c o u n t r i e s has been m a i n l y i n commerce, f i n a n c e and i n s u r a n c e , and s e r v i c e s i n the U n i t e d S t a t e s and Europe, i n o r d e r t o smooth commercial a c t i v i t i e s and t o c u l t i v a t e o v e r s e a s markets. Investment i n f i n a n c e and i n s u r a n c e e s t a b l i s h e d a f o o t h o l d i n the 416 E u r o - d o l l a r markets t h a t have expanded g r e a t l y s i n c e 1973. Compared w i t h i n v e s t m e n t by o t h e r i n d u s t r i a l i z e d c o u n t r i e s , Japanese DFI i s c h a r a c t e r i z e d by r e l a t i v e l y s m a l l - s c a l e p r o j e c t s , l a r g e i n v e s t m e n t i n d e v e l o p i n g c o u n t r i e s , s m a l l i n v e s t m e n t i n m a n u f a c t u r i n g , and key inv o l v e m e n t of sogo shosha. W i t h the r e c e n t f l o r e s c e n c e of o v e r s e a s i n v e s t m e n t by m a n u f a c t u r e r s and the f i n a n c i a l community of Japan, some of t h e f e a t u r e s of above-mentioned J a p a n e s e - t y p e DFI w i l l b e g i n t o change, a l t h o u g h Japanese DFI w i l l r e t a i n i t s d i s t i n c t i v e n e s s u n l e s s changes o c c u r i n the Japanese economic s t r u c t u r e or i n the s u r r o u n d i n g i n t e r n a t i o n a l economic s i t u a t i o n . F o u r t h , o v e r s e a s sogo shosha investment has dominated postwar Japanese DFI. Because Japan has r e l i e d h e a v i l y on ov e r s e a s n a t u r a l r e s o u r c e s and f o o d s t u f f s as w e l l as on f o r e i g n e x p o r t m a r k e t s , the e s t a b l i s h m e n t of comme r c i a l networks by sogo shosha has been c r u c i a l from the e a r l y s t a g e s of Japan's economic development. To enhance comm e r c i a l a c t i v i t i e s sogo shosha have i n v e s t e d heavy amounts of c a p i t a l t o e s t a b l i s h wholly-owned t r a d i n g s u b s i d i a r i e s i n the U n i t e d S t a t e s and Canada. A l s o i n v o l v e d t h r o u g h m i n o r i t y s h a r e h o l d i n g and lo n g - t e r m p u r c h a s i n g c o n t r a c t s were m a n u f a c t u r i n g v e n t u r e s and n a t u r a l r e s o u r c e development p r o j e c t s . In t h e s e , j o i n t v e n t u r e f o r m u l a e were e x t e n s i v e l y adopted where sogo shosha c a r r i e d out v e n t u r e s w i t h Japanese p a r t n e r s , o f t e n w i t h i n the same keiretsu group, t o g e t h e r w i t h f o r e i g n l o c a l p a r t n e r s . 417 S c r u t i n y of s e c t o r a l and s p a t i a l sogo shosha i n v e s t m e n t p a t t e r n s r e v e a l s t h a t sogo shosha investment has not g e n e r a l l y had a major impact on the p r o s p e r i t y of r e g i o n a l economies i n the U n i t e d S t a t e s . R a t h e r , i t has conformed t o the major t r e n d of domesti c economic growth p a t t e r n s . Thus, the s p a t i a l impact of sogo shosha investment i s minor, except f o r s i n g l e r e s o u r c e - b a s e d a r e a s . Sogo shosha economic a c t i v i t y has c o r r e s p o n d e d t o major c e n t e r s of comm e r c i a l and f i n a n c i a l t r a n s a c t i o n s and t r a n s p o r t a t i o n nodes, which have e n a b l e d the f u l l u t i l i z a t i o n of a broad scope of i n f o r m a t i o n and i n t e l l i g e n c e g a t h e r i n g o p p o r t u n i t i e s . As mature Japanese m a n u f a c t u r e r s and f i n a n c i e r s began investment i n t h e e a r l y 1970's, the r e l a t i v e amount of sogo shosha i n v e s t m e n t i n t h e U n i t e d S t a t e s d e c l i n e d d e s p i t e an a b s o l u t e i n c r e a s e i n amount. However, American sogo shosha t r a d i n g s u b s i d i a r i e s p e n e t r a t e d the U.S. economy t h r o u g h huge commercial t r a n s a c t i o n s , and w i t h s e c t o r a l and g e o g r a p h i c a l e x p a n s i o n of inve s t m e n t i n the U n i t e d S t a t e s , sogo shosha have been f o r e r u n n e r s f o r o t h e r Japanese i n v e s t o r s . I n Canada, sogo shosha p l a y e d a d e c i s i v e r o l e i n p u r s u i n g n a t u r a l r e s o u r c e development, which has had an impact on l o c a l economies. A l o c a t i o n a l m a n i f e s t a t i o n of such impact i s the c r e a t i o n of r e s o u r c e - b a s e d f r o n t i e r towns i n N o r t h e a s t e r n B r i t i s h C o l u m b i a . C o n s e q u e n t l y , because of s p e c i a l f u n c t i o n a l and o r g a n i z a t i o n a l a b i l i t i e s , sogo shosha w i l l c o n t i n u e t o be a c a t a l y s t i n dr a w i n g more Japanese DFI t o h o s t c o u n t r i e s . The 418 amount of sogo shosha i n v e s t m e n t i s analogous t o the t i p of an i c e b e r g , and the l e v e r a g e i s enormous. F i n a l l y , i t can be argued t h a t not any s i n g l e h y p o t h e s i s , or t h e o r y can e x p l a i n Japanese DFI i n the p e r i o d s i n c e 1951. T h i s t h e s i s has shown t h a t Japanese DFI has e v o l v e d w i t h i n a framework of c h o i c e t h a t i s e f f e c t e d by the environments of home and h o s t c o u n t r i e s ; and t h a t t he s e c t o r a l and s p a t i a l p a t t e r n s of Japanese DFI have been c o n s t a n t l y c h a n g i n g i n response t o wider developments i n the w o r l d monetary and t r a d i n g system. T h i s has i n v o l v e d an i n c r e a s i n g s h i f t i n the share of d i r e c t f o r e i g n i n v e s t m e n t i n N o r t h America from t h e sogo shosha t o the m a n u f a c t u r i n g companies and f i n a n c i a l i n s t i t u t i o n s . However, t h r o u g h o u t t h i s c h anging scene, the sogo shosha have remained a c o n s t a n t component, e x e r c i s i n g c a r e f u l ' r i s k a v o i d i n g ' i n v e s t m e n t p o l i c i e s d e s i g n e d t o ensure l o n g - t e r m s u p p l y , a c o n s t a n t f l o w of commodities from which they can earn commission and s u f f i c i e n t i n v e s t m e n t i n f o r e i g n companies t o p r o v i d e i n f o r m a t i o n c r u c i a l t o t h e i r s u c c e s s i n the market p l a c e . T h i s i s l i n k e d t o the c l o s e sogo shosha r e l a t i o n s h i p s i n keiretsu g r o u p i n g s t o m a n u f a c t u r e r s and f i n a n c i a l i n s t i t u t i o n s . 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CANADA Department of E x t e r n a l A f f a i r s P a c i f i c Bureau A s i a and P a c i f i c Branch P a c i f i c Trade Development D i v i s i o n (PPT) J . T. Power F o r e i g n Investment Review Agency George M c l l h i n n e y M i n i s t r y of S t a t e Economic and R e g i o n a l Development O p e r a t i o n s Branch Deputy S e c r e t a r y H a r r y Swain M i n i s t r y of S t a t e Economic and R e g i o n a l Development P e t e r Campbell S t a t i s t i c s Canada B a l a n c e of Payments D i v i s i o n Frank B. Y. Chow SOGO SHOSHA C. I t o h & Co., L t d . S u b s i d i a r i e s & A f f i l i a t e s Dept America Team C. I t o h & Co. (America) I n c . C o r p o r a t e P l a n n i n g Dept. C. I t o h & Co. (Canada) L t d . V i c e P r e s i d e n t & S e c r e t a r y T r e a s u r e r C. I t o h & Co. (Canada) L t d . Ma s a h i r o Yamamoto K e n ' i c h i Fukuda N o r i o N e g i s h i Inoue Kanematsu-Gosho L t d . P u b l i c R e l a t i o n s Department A s s o c i a t e Manager T o m i i c h i A r a i 452 Kanematsu-Gosho (Canada) I n c . G e n e r a l Manager Naden Harbour Timber L i m i t e d P r e s i d e n t Jun N i s h i k a w a Tetsuo Awae Marubeni C o r p o r a t i o n Overseas P r o j e c t Dept. Manager of A d m i n i s t r a t i o n & P l a n n i n g Sec. Marubeni Canada L t d . A s s i s t a n t G e n e r a l Manager A s s i s t a n t T r e a s u r e r Marubeni Canada L t d . Takao Yokuyasu T a k e s h i K o s h i o M a s a h i r o Murakami M i t s u b i s h i C o r p o r a t i o n M a r k e t i n g & C o o r d i n a t i o n Dept The Americas & Oceania Team The America & O c e a n i a Team M i t s u b i s h i Canada L i m i t e d Chairman of the Board V i c e P r e s i d e n t T e t s u y a Yamamoto Y o s h i a k i H o r i u c h i A r t h u r S. Hara M a s a t o s h i Kawakami M i t s u i & Co. L t d . Americas & Oceania Department Overseas P l a n n i n g D i v i s i o n Manager M i t s u i & Co. (Canada) L t d . S e n i o r V i c e P r e s i d e n t V i c e P r e s i d e n t V i c e P r e s i d e n t Takeo M o c h i z u k i H i r o n o b u Yamaoka K a z u h i r o Terazono M i t s u n a r i N i t t a Nichimen C o r p o r a t i o n A f f i l i a t e d Companies Department G e n e r a l Manager I . Motomatsu N i s s h o - I w a i C o r p o r a t i o n Overseas P l a n n i n g & A d m i n i s t r a t i o n Dept. The Americas O f f i c e A s s i s t a n t Manager Y o s h i t a k a K i t a n o Energy P l a n n i n g & C o - o r d i n a t i o n O f f i c e Yasukazu Kashimura N i s s h o - I w a i Canada L t d . E x e c u t i v e V i c e P r e s i d e n t Kazuo Kazumi Sumitomo C o r p o r a t i o n Investment Department Overseas Investment S e c t i o n Manager Kazufumi Tomita Sumitomo C o r p o r a t i o n of Ame r i c a Dept. of G e n e r a l A f f a i r s Y o s h i y u k i Kamijima Sumitomo Canada L i m i t e d A d m i n i s t r a t i o n Department Manager H i r o y u k i Kaneko Toyo Menka K a i s h a , L t d . Overseas Department America Team A s s i s t a n t t o Manager Toyomenka Canada L t d . P r e s i d e n t Masao Y o s h i d a T. F u j i s a k a OTHER ORGANIZATIONS American Embassy Commercial S e c t i o n Commercial S p e c i a l i s t H i r o m i U s h i j i m a The Bank of Japan F o r e i g n Department F o r e i g n Investment D i v i s i o n C h i e f Yasutada S a s a k i Canadian Embassy Commercial O f f i c e r Y a s u j i r o Yabe 454 T h i r d S e c r e t a r y (Commercial) P e t e r H. D r a b b l e The E x p o r t - I m p o r t Bank of Japan Research I n s t i t u t e of Overseas Investment S e n i o r Economist Makoto S a k u r a i R e s e a r c h I n s t i t u t e of Overseas Investment Economist M a s a h i t o Ikeda The E x p o r t - I m p o r t Bank of Japan Susumu Kondo The I n d u s t r i a l Bank of Japan, L t d . I n t e r n a t i o n a l Investment S e r v i c e s Department Deputy G e n e r a l Manager M i t s u r u Misawa Japan E x t e r n a l Trade O r g a n i z a t i o n Overseas A c t i v i t i e s Department F a c i l i t i e s O p e r a t i o n D i v i s i o n A s s i s t a n t D i r e c t o r T. K o i t a b a s h i JETRO Overseas R e s e a r c h Dept. The Americas D i v i s i o n A s s i s t a n t D i r e c t o r M i t s u o T a k i i KEIDANREN I n t e r n a t i o n a l Economic A f f a i r s Department Deputy D i r e c t o r K a t s u h i r o F u j i w a r a Overseas M e r c h a n d i s e I n s p e c t i o n Co., L t d . D i r e c t o r Ohyama ACADEMICS AND OTHERS U n i v e r s i t y of Tokyo P r o f e s s o r K o i c h i Hamada H i t o t s u b a s h i U n i v e r s i t y The I n s t i t u t e of Economic Re s e a r c h P r o f e s s o r S adayuki Sato Osaka U n i v e r s i t y The I n s t i t u t e of S o c i a l and Economic R e s e a r c h P r o f e s s o r Tokyo Aoyama Law O f f i c e A t t o r n e y a t Law Sueo S e k i g u c h i Hideo Ohta 456 APPENDIX B Sogo Shosha Investment i n the U n i t e d S t a t e s and Canada: G e o g r a p h i c a l Area and I n d u s t r y Sogo shosha Investment in the United States by Industry (In Thousand Dollars, %) 1973 1978 1984 Foodstuffs Text i1es Lumber & Pulp Chemicals Ferrous & Non-ferrous metals Ordinary machinery E l e c t r i c a l equipment Transportation equipment Other manufacturing Manufacturing sub-total 1296 275 2212 84 80 220 720 382 5268 0.5 0. 1 0.8 0.0 0.0 0.1 0.3 0. 1 2.0 1 1984 15245 1503 706 3319 895 4 729 5667 40053 1 .4 1 .8 0.2 0. 1 0.4 0. 1 0.0 0. 1 0.7 4.6 17623 371 1 104 2089 134020 790 300 310 15320 174269 1 . 1 0.2 O.O 0. 1 8.3 0.0 0.0 0.0 0.9 10.8 Agriculture & Forestry F i sher i es M i ni ng Construction Commerce Finance & Insurance Services Transportat i on Real estate Others 4708 252179 97 91 4720 1207 12 1 .8 94 .0 0.0 0.0 1 .8 0.4 0.0 12289 9281 2 784523 588 5157 2063 10052 3047 1 .4 1 . 1 0.0 90.5 0. 1 0.6 0.2 1 . 2 0.4 50696 96289 125 1236828 563 1041 7905 16383 29995 3. 1 6.0 0.0 76.6 0.0 0. 0. 1 1 Total 268282 100.0 867057 100.0 1614094 100.0 (Source: Shukan Toyo Keizai, Special Issues: Japanese Multinationals, Facts & Figures, 1973 ed., 1978 ed. , and 1984 ed., with supplements of those special issues of 1974 ed., 1975 ed., 1979 ed., 1980 ed., 1985 ed. and 1986 ed.) Sogo Shosha Investment in the United States by State (In Thousand Dollars, %) 1973 1978 1984 Alaska 600 0.2 7099 0.8 7300 0.5 C a l i f o r n i a 1617 0.6 1 14381 13.2 170803 10.6 Colorado 3000 1 . 1 8126 0.9 900 0. 1 Connect i cut 104 0.0 750 0.0 Del aware 1708 0.6 3214 0.4 21 132 1 . 3 F1 or i da 225 0. 1 13727 1 .6 15560 1 .0 Georgia 1728 0. 1 Hawai i 315 0. 1 2697 0.3 5461 0.3 111i no i s 341 0. 1 1673 0.2 17 131 1 . 1 Indiana \u00E2\u0080\u00A2 1 0.0 Kentucky 6000 0.4 Maine 675 0. 1 450 0.0 Mary1 and 60 0.0 300 0.0 Massachusetts 17 0.0 72 0.0 161 0.0 Michigan 150 0.0 1617 0. 1 Mi nnesota 1117 0. 1 Mississippi 40 0.0 1000 0. 1 Missouri 3700 0.2 New Jersey 826 0.3 7204 0.8 8016 0.5 New York 248090 92.5 675303 77.9 1181972 73.2 North Carolina 500 0.2 390 0.0 1426 0. 1 Ohio 84 0.0 431 0.0 5031 0.3 Oregon 4220 0.5 6894 0.4 Pennsy1 vani a 30 0.0 20 0.0 255 0.0 South Carolina 150 0.0 1300 0. 1 Tennessee 2500 0.3 43264 2.7 Texas 6840 2.5 7582 0.9 59267 3.7 Washi ngton 3125 1 . 2 17238 2.0 51559 3 . 2 Unknown 964 0.4 Total 268282 100.0 867057 100.0 1614094 100.0 459 F o o d s t u f f s Sogo shosha Investment i n A l a s k a (In Thousand D o l l a r s ) 1 973 600 A g r i c u l t u r e & F o r e s t r y M i n i n g T r a n s p o r t a t i o n T o t a l 600 1978 6873 50 21 155 7099 1984 5000 2300 7300 Sogo shosha Investment i n C a l i f o r n i a F o o d s t u f f s T e x t i l e s Lumber & P u l p C h e m i c a l s F e r r o u s & N o n - f e r r o u s m e t a l s O r d i n a r y machinery E l e c t r i c a l equipment T r a n s p o r t a t i o n equipment Other m a n u f a c t u r i n g M a n u f a c t u r i n g s u b - t o t a l A g r i c u l t u r e & F o r e s t r y M i n i n g Commerce F i n a n c e & I n s u r a n c e T r a n s p o r t a t i o n R e a l e s t a t e O t h e r s 1973 60 30 75 100 265 1 327 20 5 1 978 450 1 4553 1503 447 539 1 7492 1 585 93306 1 09 708 1 1 40 40 1 984 495 513 50 1 105935 300 310 245 107849 1 956 2096 55441 1 64 700 21 98 400 T o t a l 1617 114381 1 70803 Sogo shosha Investment i n C o l o r a d o (In Thousand D o l l a r s ) 1973 1978 Ch e m i c a l s M i n i n g 3000 8100 Commerce 26 T o t a l 3000 8126 Sogo shosha Investment i n C o n n e c t i c u t 1973 1978 Ch e m i c a l s 4 O r d i n a r y machinery 100 M a n u f a c t u r i n g s u b - t o t a l 104 Commerce T o t a l 104 Sogo shosha Investment i n Delaware 1973 1978 Ch e m i c a l s 50 F e r r o u s & N o n - f e r r o u s m e t a l s 1 M a n u f a c t u r i n g s u b - t o t a l 51 M i n i n g 1708 1160 Commerce 1 S e r v i c e s 2 T r a n s p o r t a t i o n R e a l e s t a t e 2000 O t h e r s T o t a l 1708 3214 461. Sogo shosha Investment i n F l o r i d a ( In Thousand D o l l a r s ) 1973 1978 1984 C h e m i c a l s 462 810 F e r r o u s & N o n - f e r r o u s m e t a l s 4 Other m a n u f a c t u r i n g 105 261 M a n u f a c t u r i n g s u b - t o t a l 105 727 810 Commerce 120 13000 9750 T r a n s p o r t a t i o n 0 R e a l e s t a t e 5000 T o t a l 225 13727 15560 Sogo shosha Investment i n G e o r g i a 1973 1978 1984 T e x t i l e s 203 Ch e m i c a l s 100 M a n u f a c t u r i n g s u b - t o t a l 303 C o n s t r u c t i o n 125 Commerce 1300 T o t a l 1728 Sogo shosha Investment i n Haw a i i 1973 . 1978 1984 A g r i c u l t u r e & F o r e s t r y 100 Commerce 100 400 S e r v i c e s 15 45 R e a l e s t a t e 300 2497 5016 T o t a l 315 2697 5461 462 Sogo shosha Investment i n I l l i n o i s ( I n Thousand D o l l a r s ) 1973 1978 1984 F e r r o u s & N o n - f e r r o u s m e t a l s 5 4000 E l e c t r i c a l equipment M a n u f a c t u r i n g s u b - t o t a l 5 0 4000 A g r i c u l t u r e & F o r e s t r y Commerce 239 1 274 245 12486 F i n a n c e & I n s u r a n c e , 97 399 399 T o t a l 341 1673 17131 Sogo shosha Investment i n I n d i a n a 1 973 1978 1 984 Commerce 1 T o t a l 1 Sogo shosha Investment i n Kentucky 1 973 1 978 1 984 F e r r o u s & N o n - f e r r o u s m e t a l s 6000 T o t a l 6000 Sogo shosha Investment i n Ma i n e 1 973 1 978 1 984 O r d i n a r y machinery T o t a l 675 675 450 450 463 Sogo shosha Investment i n M a r y l a n d ( I n Thousand D o l l a r s ) 1973 1978 1984 Commerce 60 300 T o t a l 60 300 Sogo shosha Investment i n M a s s a c h u s e t t s 1973 1978 1984 Che m i c a l s 89 Commerce 10 65 65 Ot h e r s 7 7 7 T o t a l 17 72 161 Sogo shosha Investment i n M i c h i g a n 1973 1978 1984 F e r r o u s & N o n - f e r r o u s m e t a l s 1467 Commerce 150 150 T o t a l 150 1617 Sogo shosha Investment i n Mi n n e s o t a 1973 1978 1984 T e x t i l e s 1117 T o t a l 1117 Sogo shosha Investment i n M i s s i s s i p p i 1973 1978 1984 F e r r o u s & N o n - f e r r o u s m e t a l s 40 1000 T o t a l 40 1000 464 Sogo shosha Investment i n M i s s o u r i ( I n Thousand D o l l a r s ) 1973 1978 1984 A g r i c u l t u r e & F o r e s t r y 3700 T o t a l 3700 Sogo shosha Investment i n New J e r s e y 1973 1978 1984 F e r r o u s & N o n - f e r r o u s m e t a l s 1276 O r d i n a r y machinery 120 120 240 M a n u f a c t u r i n g s u b - t o t a l 120 1396 240 C o n s t r u c t i o n 2 Commerce 506 639 5556 T r a n s p o r t a t i o n 200 870 2220 R e a l e s t a t e 4297 T o t a l 826 7204 8016 465 Sogo shosha Investment i n New York ( I n Thousand D o l l a r s ) 1 973 1978 1 984 T e x t i l e s F e r r o u s & N o n - f e r r o u s m e t a l s M a n u f a c t u r i n g s u b - t o t a l 45 45 542 542 578 72 650 A g r i c u l t u r e & F o r e s t r y M i n i n g Commerce F i n a n c e & I n s u r a n c e S e r v i c e s R e a l e s t a t e O t h e r s 247970 75 625 665783 80 51 55 118 3000 62000 1090638 993 41 68 23523 T o t a l 248090 675303 1181972 Sogo shosha Investment i n N o r t h C a r o l i n a 1973 1978 1984 T e x t i l e s C h e m i c a l s 200 90 176 Commerce 300 300 1250 T o t a l 500 390 1 426 466 Sogo shosha Investment i n Ohio ( I n Thousand D o l l a r s ) 1973 1978 1984 F o o d s t u f f s 5000 C h e m i c a l s 84 100 F e r r o u s & N o n - f e r r o u s m e t a l s 31 31 M a n u f a c t u r i n g s u b - t o t a l 84 131 5031 Commerce 300 T o t a l 84 431 5031 Sogo shosha Investment i n Oregon 1973 1978 1984 F o o d s t u f f s 800 1274 F e r r o u s & N o n - f e r r o u s m e t a l s 1501 M a n u f a c t u r i n g s u b - t o t a l 2301 1274 A g r i c u l t u r e & F o r e s t r y 1919 3100 Commerce 2520 T o t a l 4220 6894 Sogo shosha Investment i n P e n n s y l v a n i a 1973 1978 1984 F e r r o u s & N o n - f e r r o u s m e t a l s 20 0 Commerce 30 255 T o t a l 30 20 255 Sogo shosha Investment i n South C a r o l i n a 1973 1978 1984 T e x t i l e s 150 1300 T o t a l 150 1300 467 Sogo shosha Investment i n Tennessee ( I n Thousand D o l l a r s ) 1973 1 978 1984 C h e m i c a l s F e r r o u s & N o n - f e r r o u s m e t a l s M a n u f a c t u r i n g s u b - t o t a l 1 4 2000 2014 Commerce O t h e r s 2500 38750 2500 T o t a l 2500 43264 Sogo shosha Investment i n Texas 1973 1978 1984 F e r r o u s & N o n - f e r r o u s m e t a l s E l e c t r i c a l equipment T r a n s p o r t a t i o n equipment Other m a n u f a c t u r i n g M a n u f a c t u r i n g s u b - t o t a l 720 720 4 729 733 500 15025 1 5525 M i n i n g Commerce T r a n s p o r t a t i o n O t h e r s 1 620 4500 651 9 330 26893 1 621 9 330 300 T o t a l 6840 7582 59267 Sogo shosha Investment i n Washington 1973 1 978 1984 F o o d s t u f f s Lumber & P u l p Other m a n u f a c t u r i n g M a n u f a c t u r i n g s u b - t o t a l 636 221 2 277 31 25 3861 4867 8728 5854 54 50 5958 A g r i c u l t u r e & F o r e s t r y Commerce T r a n s p o r t a t i o n O t h e r s 801 0 500 41 695 500 1 55 3250 T o t a l 3125 1 7238 51 559 Sogo Shosha Investment i n Canada by I n d u s t r y ( In Thousand C a n a d i a n D o l l a r s , %) 1973 1978 1984 F o o d s t u f f s Tex t i 1 e s Lumber & P u l p C h e m i c a l s F e r r o u s & N o n - f e r r o u s m e t a l s O r d i n a r y m a c h i n e r y E l e c t r i c a l equipment T r a n s p o r t a t i o n equipment Other m a n u f a c t u r i n g M a n u f a c t u r i n g s u b - t o t a l 13676 681 47 .0 2 . 3 813 9051 15680 6 930 0 . 8 9 . 2 16 .O 0 . 0 0 . 9 2368 34531 6 1308 1 . 3 19.2 0 . 0 0 . 7 14356 49 .4 26480 27 .0 38213 21 .2 A g r i c u l t u r e & F o r e s t r y F i s h e r i es Mi n i ng C o n s t r u c t i o n Commerce F i n a n c e & I n s u r a n c e S e r v i c e s T r a n s p o r t a t i on Real e s t a t e O t h e r s . 4000 546 9885 300 13.8 1 .9 34 .0 1 .0 4092 1 1806 53924 835 1000 4 . 2 12 .0 5 4 . 9 0 . 9 1 .0 10092 43236 86773 658 1210 5 .6 24 .0 48 . 2 0 .4 0 . 7 T o t a l 29087 100.0 98137 100.0 180182 100.0 4> ON 00 Sogo Shosha Investment i n Canada by P r o v i n c e ( In Thousand C a n a d i a n D o l l a r s , %) 1973 1978 1984 A l b e r t a B r i t i s h C o l u m b i a Mani toba New Brunswick Onta r i o Quebec Unknown 22027 6205 763 92 75 .7 21 .3 2 .6 0 .3 2586 36567 17 40749 18218 2 . 6 37 .3 0 . 0 4 1 . 5 18.6 17667 103878 4040 52908 1689 9 . 8 57 .7 2 .2 29 .4 0 . 9 T o t a l 29087 100.0 98137 100.0 180182 100.0 4> 470 Sogo Shosha Investment i n A l b e r t a (In Thousand Canadian D o l l a r s ) 1 973 1 978 1 984 F o o d s t u f f s 683 1243 F e r r o u s & N o n - f e r r o u s m e t a l s 6 M a n u f a c t u r i n g s u b - t o t a l 689 1 243 A g r i c u l t u r e & F o r e s t r y 92 92 M i n i n g 1 243 7733 Commerce 8600 F i n a n c e & I n s u r a n c e 563 O t h e r s 0 T o t a l 2586 17667 Sogo Shosha Investment i n B r i t i s h Columbia 1 973 1 978 1 984 F o o d s t u f f s 130 1 126 Lumber & P u l p 1 3676 1 5680 30491 F e r r o u s & N o n - f e r r o u s m e t a l s 681 924 1 308 M a n u f a c t u r i n g s u b - t o t a l 14356 16734 32925 A g r i c u l t u r e & F o r e s t r y 4000 4000 1 0000 M i n i n g 453 2174 31710 Commerce 2917 12520 27925 F i n a n c e & I n s u r a n c e 1 39 109 T r a n s p o r t a t i o n 300 1 000 1210 T o t a l 22027 36567 103878 471 Sogo shosha Investment i n Manitoba ( I n Thousand Canadian D o l l a r s ) 1973 Commerce T o t a l 1978 1 7 1 7 1 984 Sogo shosha Investment i n New Brunswick 1 973 1978 Lumber & P u l p T o t a l 1 984 4040 4040 Sogo Shosha Investment i n O n t a r i o 1973 C h e m i c a l s M a n u f a c t u r i n g s u b - t o t a l M i n i n g Commerce F i n a n c e & I n s u r a n c e T o t a l 6205 6205 1978 6 6 8389 32220 1 34 40749 1 984 6 6 3793 49108 52908 Sogo Shosha Investment i n Quebec T e x t i l e s Commerce F i n a n c e & I n s u r a n c e 1 973 763 1 978 9051 91 67 1 984 1 1 40 549 T o t a l 763 18218 1689 472 APPENDIX C Sogo Shosha Investment i n the U n i t e d S t a t e s and Canada: SPSS C r o s s t a b u l a t i o n s 1. Crosstabulation of State by Type of Industry in the United States COUNT ROW PCT COL PCT TOT PCT STATE A 1 a s k a IND FOODSTUF TEXTILES LUMBER CHEMICAL FERROUS ORDINARY ELECTRIC TRANSPOR OTHER MA AGRI CULT ROW FS S & NON-FE MACHINE AL EQUIP TAT ION E NUFACTUR URE & FO TOTAL 1| 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10| C a l I f o r n i a C o l o r a d o C o n n e c t i c u t D e l a w a r e F1 o r i da G e o r g i a 22 25 26 27 28 29 30 COLUMN (CONTINUED) TOTAL 1 5 0 . 0 11.1 .5 2 3 . 9 22 .2 1 .0 9 4 . 6 2 1 1 1 3 3 . 3 11.1 .5 9 4 . 6 1 2 . 0 5 0 . 0 .5 1 2 . 0 2 5 . 0 .5 13 38 3 1 2 . 0 5 0 . 0 .5 2 3 .9 100.0 1 .0 1 100.0 2 5 . 0 . 5 1 5 0 . 0 33 . 3 .5 1 2 0 . 0 5 .6 .5 2 1 .0 4 2 . 0 18 9 . 1 3 1 .5 2 1 .0 2 1 .0 1 2 . 0 33 . 3 .5 3 1 . 5 2 3 . 9 25 .0 1 .0 8 4 . 1 2 1 .0 51 25 . 9 2 1 .O 5 2 . 5 3 1 . 5 3 1 . 5 197 100 .0 4> 1. Crosstabulation of State by Type of Industry i n the United States COUNT ROW PCT COL PCT TOT PCT STATE A l a s k a IND MINING CONSTRUC COMMERCE FINANCE SERVICES TRANSPOR REAL EST OTHERS ROW TION & INSURA TATION ATE TOTAL 12| 13| 14| 15| 16| 17| 13 I 19| C a l i f o r n 1 a C o l o r a d o C o n n e c t i c u t Del aware F1 o r i da G e o r g i a 22 25 26 27 28 29 30 1 5 0 . 0 14 . 3 .5 1 2 .O 14 .3 .5 27 5 2 . 9 27 .0 13.7 2 3 .9 6 6 . 7 1 .0 1 2 . 0 12 .5 . 5 2 3 . 9 25 .0 1 .0 + + 1 5 0 . 0 1 .0 .5 2 4 0 . 0 28 .6 1 .0 1 2 0 . 0 1 .0 .5 1 2 0 . 0 25 .0 . 5 1 33 . 3 1 .0 .5 1 33 . 3 12.5 .5 1 33 . 3 12.5 .5 1 33 . 3 100 .0 .5 1 33 . 3 1 .0 .5 (CONTINUED) COLUMN TOTAL 7 3 .6 1 . 5 100 50 .8 3 1 . 5 4 2 .0 8 4 . 1 8 4 . 1 2 1 .0 51 25 . 9 2 1 .0 5 2 . 5 3 1 . 5 3 1 . 5 6 197 3 . 0 100.0 1. Crosstabulation of State by Type of Industry i n the United States COUNT ROW PCT COL PCT TOT PCT STATE Hawai i 111 1 no 1s K e n t u c k y Ma i ne M a r y l a n d IND FOODSTUF TEXTILES LUMBER CHEMICAL FERROUS ORDINARY ELECTRIC TRANSPOR OTHER MA AGRICULT FS S & NON-FE MACHINE AL EQUIP TATION E NUFACTUR URE & FO 1| 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10| 31 33 37 39 40 41 M a s s a c h u s e t t s 42 M 1 c h l g a n 1 6 . 7 5 .6 .5 1 6 . 7 5 0 . 0 . 5 4 26 . 7 5 0 . 0 2 . 0 ROW TOTAL 3 1 . 5 15 7 .6 1 100.0 5 .6 . 5 1 100.0 33 . 3 . 5 1 5 0 . 0 2 5 . 0 .5 1 100.0 5 .6 .5 COLUMN 9 9 (CONTINUED) TOTAL 4 . 6 4 . 6 2 1 .0 4 2 . 0 18 9 . 1 3 1 . 5 2 1 0 2 1 .0 3 1 . 5 1 . 5 2 1 .0 1 . 5 8 197 4.1 100.0 1. Crosstabulation of State by Type of Industry i n the United States COUNT ROW PCT COL PCT TOT PCT 1ND MINING STATE Hawai1 1111 no 1s K e n t u c k y M a i n e Mary1 and 31 33 37 39 40 41 M a s s a c h u s e t t s 42 M i c h i g a n COLUMN (CONTINUED) TOTAL CONSTRUC COMMERCE FINANCE SERVICES TRANSPOR REAL EST OTHERS ROW TION & INSURA TATION ATE TOTAL 12| 13| 14| 15| 16| 17| 18| 19| 7 3 .6 1 33 . 3 1 .0 .5 1 3 3 . 3 2 5 . 0 . 5 1 3 3 . 3 12.5 . 5 8 5 3 . 3 8 . 0 4 . 1 1 6.. 7 33 . 3 .5 1 100.0 1.0 .5 1 5 0 . 0 1 .0 . 5 100 50 .8 3 1 .5 4 2 . 0 8 4 . 1 8 4 . 1 6 3 . 0 3 1 . 5 15 7 .6 2 1 .0 197 100.0 1. Crosstabulation of State by Type of Industry i n the United States COUNT ROW PCT COL PCT TOT PCT STATE IND FOODSTUF TEXTILES LUMBER CHEMICAL FERROUS ORDINARY ELECTRIC TRANSPOR OTHER MA AGRICULT ROW FS S 8. NON-FE MACHINE AL EQUIP TATION E NUFACTUR URE & FO TOTAL 1| 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10| M i n n e s o t a M i s s i s s i p p i M i s s o u r i New J e r s e y New York 43 44 45 50 52 53 N o r t h C a r o l 1na 55 O h i o 1 5 0 . 0 11.1 .5 COLUMN 9 (CONTINUED) TOTAL 4 . 6 1 100.0 11.1 . 5 5 9 . 3 5 5 . 6 2 .5 9 4 . 6 1 100.0 5 .6 . 5 1 11.1 33 . 3 . 5 1 1 .9 5 .6 .5 1 33 . 3 2 5 . 0 .5 1 5 0 . 0 5 .6 .5 1 100 .0 12.5 . 5 2 1 .0 4 2 . 0 18 9 . 1 3 1 . 5 2 1 .0 2 1 .0 3 1 . 5 8 4 . 1 9 4 .6 54 27 . 4 3 1 . 5 2 1 .0 197 100.0 4> 1. Crosstabulation of State by Type of Industry i n the United States COUNT ROW PCT COL PCT TOT PCT IND MINING STATE CONSTRUC COMMERCE FINANCE SERVICES TRANSPOR REAL EST OTHERS TION & INSURA TAT I ON ATE 12| 13| 14| 15| 16| 17| 18| 19| M l n n e s o t a M i s s i s s i p p i M i s s o u r i New J e r s e y New York 43 44 45 50 52 53 N o r t h C a r o l 1na 55 O h i o 1 1 .9 14.3 .5 COLUMN 7 (CONTINUED) TOTAL 3 .G 5 5 5 . 6 5 . 0 2 . 5 37 68 . 5 3 7 . 0 18.8 2 66 . 7 2 . 0 1.0 100 50 .8 3 33 . 3 37 . 5 1 .5 2 3 .7 5 0 . 0 1 .0 4 2 . 0 8 4 . 1 4 7 . 4 5 0 . 0 2 .O 8 4 . 1 4 7 .4 66 . 7 2 . 0 ROW TOTAL 1 .5 9 4 . 6 54 27 . 4 3 1 .5 2 1 .0 6 197 3 . 0 100.0 00 1. Crosstabulation of State by Type of Industry i n the United States STATE O r e g o n COUNT ROW PCT COL PCT TOT PCT 57 IND FOODSTUF TEXT ILES LUMBER CHEMICAL FERROUS ORDINARY ELECTRIC TRANSPOR OTHER MA AGRICULT ROW FS S & NON-FE MACHINE AL EQUIP TATION E NUFACTUR URE & FO TOTAL 1| 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10| 1 25 .O 11.1 . 5 1 2 5 . 0 12.5 . 5 4 2 .O 58 P e n n s y l v a n i a 1 5 0 . 0 5 .6 .5 2 1 .0 60 S o u t h C a r o l 1 n a 1 100.0 11.1 . 5 T e n n e s s e e 62 1 3 3 . 3 5 .6 . 5 3 1 . 5 T e x a s 63 2 13.3 11.1 1 .0 1 6 . 7 33 . 3 . 5 15 7 . 6 Washi n g t o n 67 4 4 0 . 0 44 .4 2 . 0 1 10 .0 5 0 . 0 .5 1 10 .0 33 . 3 . 5 10 5 . 1 COLUMN 9 (CONTINUED) TOTAL 4 . 6 9 4 . 6 2 1 .0 4 2 . 0 18 9 . 1 3 1 .5 2 1 .O 2 1 .0 3 1 . 5 8 4 . 1 197 100.0 1. Crosstabulation of State by Type of Industry in the United States COUNT ROW PCT COL PCT TOT PCT 57 IND MINING CONSTRUC COMMERCE FINANCE SERVICES TRANSPOR REAL EST OTHERS STATE O r e g o n Pennsy1 van i a 58 60 S o u t h C a r o l 1na T e n n e s s e e T e x a s W a s h i n g t o n 62 63 67 TION 12 | 1 3| 14| 2 5 0 . 0 2 . 0 1 .0 1 5 0 . 0 1 .0 .5 ROW & INSURA TATION ATE TOTAL 15| 16 | 17| 18| 19| 4 2 . 0 2 13.3 2 8 . 6 1 .O COLUMN 7 TOTAL 3 .6 1 3 3 . 3 1 .0 .5 9 6 0 . 0 9 . 0 4 . 6 1 10 .0 1.0 .5 1 6 . 7 12 .5 . 5 2 2 0 . 0 25 .0 1 .0 100 50 .8 3 1 . 5 4 2 . 0 8 4 . 1 8 4 . 1 1 3 3 . 3 16.7 . 5 1 10 .0 16.7 . 5 6 3 . 0 2 1 .0 15 7 .6 10 5. 1 197 100.0 CHI-SQUARE D . F . SIGNIFICANCE MIN E . F . CELLS WITH E . F . < 5 S T A T I S T I C VALUE SIGNIFICANCE 649 .02664 442 0 .0000 0 .005 481 OF 486 ( 99.0%) K E N D A L L ' S TAU B K E N D A L L ' S TAU C 0 . 0 3 4 5 3 O.02843 0 .2686 O.2G86 4> 00 O NUMBER OF MISSING OBSERVATIONS = 2 . Crosstabulation of Capital Classification by Type of Industry in the United States COUNT ROW PCT COL PCT TOT PCT 1 $ 1,OOO - 5 0 , 0 0 0 IND FOODSTUF FS TEXTILES LUMBER CAPR 1| 1 4 . 0 11.1 .5 2 | - - + -CHEMICAL FERROUS ORDINARY ELECTRIC TRANSPOR OTHER MA AGRICULT S & NON-FE MACHINE AL EQUIP TATION E NUFACTUR URE & FO 31 41 51 61 71 81 91 101 2 8 . 0 22 .2 1 .0 1 4 . 0 5 .G .5 1 4 . 0 5 0 . 0 . 5 4 12 ROW TOTAL 25 12.7 $ 5 1 . 0 0 0 2 150 ,00 1 5 . 3 11.1 .5 2 10.5 100.0 1 .0 1 5 . 3 25 .0 .5 1 5 . 3 12.5 . 5 19 9 . G $ 1 5 1 , 0 0 0 3 5 0 0 , 0 2 5 . 1 22 .2 1 .0 3 7 .7 3 3 . 3 1 .5 1 2 . 6 25 .0 .5 1 2 . 6 5 0 . 0 . 5 2 5 . 1 6 6 . 7 1 .0 3 7 . 7 37 .5 1 . 5 39 19.8 >$500.000 6 5 .3 6 6 . 7 3 . 0 3 2 . 6 33 . 3 1 .5 2 1 .8 5 0 . 0 1 .0 17 14.9 94 . 4 8 . 6 3 2 . 6 100.0 1.5 1 .9 5 0 . 0 .5 1 .9 5 0 . 0 . 5 33 3 2 . 6 37 . 5 1 .5 1 14 57 . 9 COLUMN 9 9 (CONTINUED) TOTAL 4 . 6 4 . 6 2 .0 4 .0 18 9 . 1 2 .0 2 1 .0 197 100.0 CO 2. Crosstabulation of Capital Classification by Type of Industry in the United States IND CAPR $ 1 ,000 $ 5 1 , 0 0 0 COUNT ROW PCT COL PCT TOT PCT 1 5 0 , 0 0 0 2 150 ,00 MINING CONSTRUC COMMERCE FINANCE SERVICES TRANSPOR REAL EST OTHERS $ 1 5 1 , 0 0 0 >$500,000 3 5 0 0 , 0 COLUMN TOTAL TION 12 13| + . 1 4 . 0 14.3 . 5 6 5 .3 8 5 . 7 3 . 0 7 3 .6 + + 1 2 .6 100.0 . 5 1 .5 & INSURA 14| 15| 13 52 .0 13 .0 6 .6 22 56 .4 2 2 . 0 11.2 52 4 5 . 6 5 2 . 0 26 .4 100 50 .8 3 2 .6 100.0 1 .5 3 1 . 5 1 4 . 0 25 .0 .5 13 6 8 . 4 13 .0 6 . 6 TATION ATE 16 | 17| 18| 2 2 8 . 0 8 . 0 2 5 . 0 2 5 . 0 1.0 1.0 1 5 . 3 12.5 .5 1 2 .6 25 .0 . 5 2 1 .8 5 0 . 0 1 .0 4 2 . 0 2 5. 1 25 .0 1 .0 4 3 . 5 5 0 . 0 2 . 0 8 4 . 1 19| \u00E2\u0080\u0094 + ROW TOTAL 1 2 . 6 16.7 . 5 5 5 4 . 4 4 . 4 6 2 . 5 8 3 . 3 2 . 5 2 . 5 8 6 4.1 3 . 0 25 12 . 7 19 9 . 6 39 19.8 1 14 57 .9 197 100.0 CHI-SOUARE D . F . 6 5 . 3 9 0 5 9 51 S T A T I S T I C SIGNIFICANCE 0 .0847 VALUE MIN E . F . CELLS WITH E . F . < 5 0 . 096 65 OF SIGNIFICANCE 72 ( 90.3%) K E N D A L L ' S TAU B K E N D A L L ' S TAU C -0 .03196 -0 .02803 O. 2976 0 .2976 NUMBER OF MISSING OBSERVATIONS = 0 3. Crosstabulation of Employment Size Class by Type of Industry i n the United States COUNT ROW PCT COL PCT TOT PCT EMPR 0 - 1 9 1 IND FOODSTUF TEXTILES LUMBER FS 1| 2 | CHEMICAL FERROUS ORDINARY ELECTRIC TRANSPOR OTHER MA AGRICULT ROW S & NON-FE MACHINE AL EQUIP TATION E NUFACTUR URE & FO TOTAL 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10| 5 5 .8 5 5 . 6 2 .8 4 4 .7 4 4 . 4 2 .2 2 2 . 3 100.0 1 . 1 2 2 . 3 11.1 1 . 1 1 1 .2 3 3 . 3 .6 2 2 . 3 100.0 1 . 1 1 1 . 2 100 .0 .6 1 1 . 2 33 . 3 .6 4 4 .7 8 0 . 0 2 .2 86 47 . 5 2 0 - 4 9 1 3 . 0 11.1 .6 1 3 . 0 11.1 .6 7 21 .2 38 . 9 3 .9 33 18.2 50 -99 1 4 . 8 11.1 .6 2 9 . 5 5 0 . 0 1 . 1 2 9 . 5 11.1 1 . 1 2 9 . 5 6 6 . 7 1 . 1 1 4 . 8 3 3 . 3 .6 1 4 . 8 2 0 . 0 .6 2 1 11.6 100-199 2 12.5 22 .2 1 . 1 1 6 . 3 11.1 .6 2 12.5 5 0 . 0 1 . 1 2 12.5 11.1 1 . 1 16 8 .8 200 -499 1 7. 1 11.1 .6 1 7. 1 11.1 .6 3 21 .4 16.7 1 . 7 14 7 . 7 >500 1 9 . 1 11.1 .6 2 18.2 11.1 1 . 1 1 9 . 1 3 3 . 3 .6 1 1 6 . 1 COLUMN 9 9 2 4 18 3 2 (CONTINUED) TOTAL 5 .0 5 . 0 1.1 2 .2 9 . 9 1.7 1.1 3 1 .7 5 2 .8 18 1 100.0 co Co 3. Crosstabulation of Employment Size Class by Type of Industry i n the United States IND EMPR 0 - 1 9 20 -49 5 0 - 9 9 100-199 200 -499 >500 COUNT ROW PCT COL PCT TOT PCT MINING CONSTRUC COMMERCE FINANCE SERVICES TRANSPOR REAL EST OTHERS ROW TION & INSURA TAT ION ATE TOTAL 12| 13| 14| 15| 16| 17| 18| 19| 1 5 83 2 1 1 .2 100 .0 .6 42 48 .8 44 .2 23 . 2 1 1 .2 5 0 . 0 .6 5 71 2 5 83 2 5 5 .8 100 .0 2 .8 23 6 9 . 7 24 . 2 12.7 8 38 . 1 8 .4 4 .4 1 4 . 8 33 . 3 .6 + + 1 4 . 8 5 0 . 0 .6 1 3 . 0 14 .3 .6 1 4 . 8 14.3 .6 1 4 . 8 16 . 7 .6 1 6 . 3 16 . 7 .6 8 5 0 . 0 8 .4 4 . 4 9 64 . 3 9 . 5 5 . 0 5 4 5 . 5 5 .3 2 .8 2 18.2 66 . 7 1 . 1 + + + COLUMN 6 1 95 TOTAL 3 . 3 .6 52 .5 3 1 . 7 2 1 . 1 7 3 .9 6 3 . 3 5 2 .8 86 47 . 5 33 18.2 2 1 11 .6 16 8 . 8 14 7 . 7 1 1 6 . 1 181 100 .0 CHI-SQUARE D . F . SIGNIFICANCE 103.46297 85 0 .0845 NUMBER OF MISSING OBSERVATIONS = 17 MIN E . F . 0.061 CELLS WITH E . F.< 5 101 OF 108 ( 93.5%) S T A T I S T I C K E N D A L L ' S TAU B K E N D A L L ' S TAU C VALUE SIGNIFICANCE - 0 . 1 2 0 0 4 - O . 1 0 1 7 6 0 .0248 0 .0248 4> CO 4. Crosstabulation of Type of Industry by Equity Classification in the United States I NO FOODSTUFFS T E X T I L E S LUMBER COUNT ROW PCT COL PCT TOT PCT 1 EOUITYR 95-100% 5 0 . 1 - 9 4 . 9% 1| 2 | 4 44 .4 4 . 8 2 . 0 50% 25 -49 .9% .1 -24 % 3| 4 | 1 11.1 6 . 7 . 5 1 11.1 2 . 6 .5 2 22 . 2 9 . 5 1 .0 5 5 5 . 6 6 . 0 2 . 5 1 5 0 . 0 1 .2 . 5 3 33 . 3 7 .7 1 . 5 2 22 . 2 5. 1 1.0 9 ROW TOTAL 5| 9 4 . 6 1 5 0 . 0 6 .7 .5 4 CHEMICALS 50 5 1 2 0 3 0 50 5 1 2 0 1 0 5 6 1 6 5 FERROUS & NON-FE 33 3 5 6 33 3 27 8 7 1 4 8 15 8 12 8 3 0 5 3 0 2 5 + - + + + + --6 1 2 ORDINARY MACHINE 33 3 66 7 2 6 5 1 5 1 0 ELECTRICAL EQUIP COLUMN (CONTINUED) TOTAL 2 100.0 5 .3 1.0 84 21 4 2 . 6 10.7 15 7 .6 38 19.3 39 19.8 9 4 . 6 2 1 .0 4 2 . 0 18 9 . 1 3 1 .5 2 1 .0 197 100 .0 co 4. Crosstabulation of Type of Industry by Equity C l a s s i f i c a t i o n i n the United States COUNT ROW PCT COL PCT TOT PCT IND EQUITYR 95-100% 5 0 . 1 - 9 4 . 50% 9% 1| 2 | 25 -49 .9% . 1 - 2 4 . 9 ROW % TOTAL 3 | 4 | 5 | . _ + + + 8 TRANSPORTATION E OTHER MANUFACTUR 1 5 0 . 0 6 .7 . 5 1 5 0 . 0 2 .6 .5 1 33 . 3 1 .2 .5 2 6 6 . 7 5 .3 1 .0 13 CONSTRUCTION 1 100.0 6 . 7 . 5 COMMERCE 14 15 47 47 .0 5 6 . 0 2 3 . 9 16 16 .0 76 . 2 8 . 1 + + -\u00E2\u0080\u00A2 9 9 . 0 6 0 . 0 4 . 6 18 18.0 47 . 4 9 . 1 FINANCE & INSURA COLUMN (CONTINUED) TOTAL 10 10.0 2 5 . 6 5 . 1 - + + 3 100.0 7 . 7 1 .5 84 42 .6 21 10.7 15 7 . 6 38 19.3 39 19.8 2 1 .0 3 1 . 5 10 3 1 1 3 8 AGRICULTURE & FO 37 5 12 5 12 5 37 5 4 . 1 3 6 6 7 2 6 7 7 1 5 5 5 1 5 + + + + - + + 12 5 1 1 7 MINING 7 1 4 14 3 14 3 3 . 6 6 0 6 7 2 6 2 5 5 5 100 50 . 8 3 1 . 5 197 100 .0 00 ON 4. Crosstabulation of Type of Industry by Equity C l a s s i f i c a t i o n i n the United States COUNT ROW PCT COL PCT TOT PCT IND SERVICES EOUITYR 95-100% 5 0 . 1 - 9 4 . 50% 25-49 .9% . 1 - 2 4 . 9 9% % 1| 2 | 3 | 4 | 5| ROW TOTAL 16 17 TRANSPORTATION REAL ESTATE OTHERS 18 19 COLUMN TOTAL 3 1 4 75 0 25 0 2 0 7 9 2 6 1 5 5 -- - + -- - + + - - + - - + 3 1 2 2 8 37 5 12 5 25 0 25 0 4 1 3 6 4 8 5 3 5 1 1 5 5 1 0 1 0 -- - + -- _ + + _ - + - - + 4 1 3 8 50 0 12 5 37 5 4 1 4 8 4 8 7 7 2 0 5 1 5 - + -- _ + + _ - + - - + 5 1 6 83 3 16 7 3 0 6 0 2 6 2 5 5 84 4 2 . 6 21 10. 7 15 7 .6 38 19.3 39 19.8 197 100 .0 CHI-SOUARE D . F . 105 .56793 68 S T A T I S T I C SIGNIFICANCE 0 .0024 VALUE MIN E . F . 0 .076 84 OF SIGNIFICANCE CELLS WITH E . F . < 5 90 ( 93.3%) K E N D A L L ' S TAU B K E N D A L L ' S TAU C NUMBER OF MISSING OBSERVATIONS - 0 . 0 7 7 3 7 - 0 . 0 6 9 8 9 0 .0928 0 .0928 4^-oo 5. Crosstabulation of Type of Industry by Purpose of Investment i n the United States PURP COUNT ROW PCT COL PCT 1 2 3 4 5 6 IND - + - - + - - + ---\u00E2\u0080\u0094 - + - -+- - + -1 5 2 0 o 4 0 FOODSTUFFS 55 6 22 2 0 0 0 0 44 .4 0 .0 21 7 40 0 . 0 0 _ , 0 0 2 .9 _, 0 .0 2 1 0 0 0 8 0 T E X T I L E S 1 1 1 0 0 0 0 0 0 88 .9 0 0 4 3 0 0 0 0 0 0 5 .7 0 .0 + - - + - \u00E2\u0080\u0094 - + ----\u00E2\u0080\u0094 - + - \u00E2\u0080\u0094 - + - - + -3 1 0 0 0 1 0 LUMBER 50 0 0 0 0 0 0 0 50 .0 0 .0 4 3 0 0 0 0 0 0 0 . 7 0 0 + -- - + -- \u00E2\u0080\u0094 - + --\u00E2\u0080\u0094 \u00E2\u0080\u0094 -+ - \u00E2\u0080\u0094 - + - - + -4 0 0 0 1 3 1 CHEMICALS 0 0 0 0 0 0 25 0 75 .0 25 0 0 0 0 0 0 0 20 0 2 . 1 5 6 + -- \u00E2\u0080\u0094 - + -\u00E2\u0080\u00A2 \u00E2\u0080\u0094 -+-- \u00E2\u0080\u0094 \u00E2\u0080\u0094 - + --\u00E2\u0080\u0094 \u00E2\u0080\u0094 - + - - + -5 1 0 0 1 15 0 FERROUS & NON-FERROU 5 9 0 0 0 0 5 9 88 2 0 0 4 3 _. . _ -0 0 _. . 0 0 20 0 10 7 0 0 6 0 0 0 0 3 0 ORDINARY MACHINERY 0 0 0 0 0 0 0 0 100 0 0 0 0 0 0 0 0 0 0 0 2 1 0 0 7 0 0 0 0 2 1 ELECTRICAL EQUIPMENT 0 0 0 0 0 0 0 0 100 0 50 0 0 0 0 0 0 0 0 0 1 4 5 6 8 0 0 0 0 2 0 TRANSPORTATION EQUIP 0 0 0 0 0 0 0 0 100 0 0 0 j 0 0 0 0 0 0 0 0 1 4 0 0 COLUMN 23 5 1 5 140 18 TOTAL 13 8 3 0 0 6 3 0 83 8 10 8 ROW TOTAL 9 5 .4 9 5 .4 2 1 .2 4 2 .4 17 10. 2 3 1 . 8 2 1 . 2 2 1 . 2 167 1 0 0 . 0 PERCENTS AND TOTALS BASED ON RESPONDENTS (CONTINUED) 5 . Crosstabulation of Type of Industry by Purpose of Investment i n the United States PURP COUNT ROW PCT COL PCT I NO 1 I OTHER MANUFACTURING 10 AGRICULTURE & FOREST MINING COMMERCE 12 14 15 FINANCE & INSURANCE SERVICES TRANSPORTATION OTHERS 16 17 19 COLUMN TOTAL 0 0 . 0 0 . 0 7 100.0 30. 4 4 57 . 1 17.4 2 2 . 1 8 .7 0 0 . 0 0 . 0 0 0 . 0 0 . 0 2 66 . 7 8 .7 0 0 . 0 0 . 0 23 13.8 33 . 3 2 0 . 0 0 0 . 0 0 . 0 1 33 . 3 2 0 . 0 O 0 . 0 0 . 0 0 0 . 0 0 . 0 0 0 . 0 O .O 2 2 8 . 6 4 0 . 0 0 0 . 0 0 . 0 1 14.3 2 0 . 0 0 0 . 0 0 . 0 1 1 . 1 100 .0 1 1 . 1 2 0 . 0 0 0 . 0 0 . 0 O 0 . 0 0 . 0 0 0 . 0 0 . 0 0 0 . 0 0 . 0 o 0 . 0 0 . 0 o 0 . 0 0 . 0 2 66 . 7 1 .4 1 14 .3 0 . 7 2 28 .6 1 . 4 92 9 7 . 9 65 . 7 O 0 . 0 0 . 0 2 100.0 1 . 4 0 0 . 0 0 . 0 0 0 . 0 0 . 0 0 0 . 0 0 . 0 1 33 . 3 0 . 7 0 0 . 0 0 . 0 O 0 . 0 0 . 0 0 0 . 0 0 . 0 2 100.0 1 . 4 5 3 . 0 1 0 . 6 5 3 .0 140 8 3 . 8 PERCENTS AND TOTALS BASED ON RESPONDENTS 0 0 . 0 0 . 0 2 28 .6 11.1 3 42 . 9 16 . 7 10 10.6 5 5 . 6 1 100.0 5 .6 0 0 . 0 0 . 0 0 0 . 0 0 . 0 0 0 . 0 0 . 0 18 10.8 ROW TOTAL 3 1 .8 7 4 .2 7 4 . 2 94 56 . 3 1 0 . 6 2 1 .2 3 1 .8 2 1 . 2 167 100 .0 oo 212 VALID CASES 33 MISSING CASES 6. Crosstabulation of Province by Type of Industry i n Canada COUNT ROW PCT COL PCT TOT PCT STATE A1 b e r t a I NO FOODSTUF LUMBER CHEMICAL FERROUS OTHER MA AGRICULT MINING FS S & NON-FE NUFACTUR URE & FO 1| 3 | 4 | 5 | 9 | 10| COMMERCE FINANCE TRANSPOR ROW & INSURA TAT ION TOTAL 121 14| 15| 17| 1 O n t a r i o Quebec B r i t i s h C o l u m b i a New B r u n s w i c k COLUMN TOTAL 1 12.5 33 . 3 2. 1 2 7 . 7 66 . 7 4 . 2 3 6 . 3 1 12.5 100.0 2. 1 1 12.5 33 . 3 2 . 1 4 5 0 . 0 30. 8 8 . 3 1 12.5 5 .6 2. 1 3 11 .5 7 5 . 0 6 . 3 2 7 . 7 100.0 4 . 2 2 7 . 7 66 . 7 4 . 2 9 34 . 6 6 9 . 2 18.8 6 23 . 1 33 . 3 12.5 1 100 .0 25 .0 2 . 1 1 10 .0 100.0 2 . 1 9 9 0 . 0 5 0 . 0 18.8 2 66 . 7 11.1 4 .2 4 8 . 3 1 2 . 1 2 4 . 2 3 6 . 3 13 27 . 1 18 37 .5 1 3 . 8 5 0 . 0 2. 1 1 33 . 3 5 0 . 0 2 . 1 2 4 . 2 1 3 .8 100. O\" 2 . 1 8 16 . 7 26 54 . 2 1 2 . 1 10 20 . 8 3 6 . 3 1 48 2.1 100.0 CHI-SQUARE D. F . SIGNIFICANCE MIN E . F . CELLS WITH E . F.< 5 50 .40723 36 S T A T I S T I C 0 . 0 5 6 0 VALUE 0.021 48 OF SIGNIFICANCE 50 ( 96.0%) K E N D A L L ' S TAU B K E N D A L L ' S TAU C 0 .35946 0 .31250 0 .0017 0 .0017 o 7. Crosstabulation of Capital Classification by Type of Industry in Canada COUNT ROW PCT COL PCT TOT PCT CAPR IND FOODSTUF LUMBER CHEMICAL FERROUS OTHER MA AGRI CULT MINING COMMERCE FINANCE TRANSPOR ROW FS S 5 NON-FE NUFACTUR URE 5 FO & INSURA TAT ION TOTAL 1| 3 | 4 | 5 | 9 | 10| 12| 14| 15| 17| 1 $ 1,OOO - 5 0 , 0 0 0 $ 5 1 , 0 0 0 2 150 .00 $ 1 5 1 , 0 0 0 - 5 0 0 , 0 >$500,000 COLUMN TOTAL 1 2 5 . 0 33 . 3 2 . 1 2 5. 1 6 6 . 7 4 . 2 3 6 . 3 4 10.3 100.0 8 . 3 4 8 . 3 1 2 5 . 0 100.0 2 . 1 2 5 0 . 0 11.1 4 . 2 1 5 0 . 0 100.0 2 . 1 1 5 0 . 0 5 .6 2 . 1 1 33 . 3 33 . 3 2 . 1 1 33. 3 7 . 7 2 . 1 1 33 . 3 5 .6 2 . 1 2 5. 1 100 .0 4 .2 2 5. 1 66 . 7 4 . 2 12 30 .8 92 . 3 25 .0 14 3 5 . 9 77 .8 29 .2 2 5. 1 100 .0 4 . 2 1 2 . 6 100.0 2 . 1 1 2 . 1 2 4 .2 1 2 . 1 3 6 . 3 13 27 . 1 18 37 .5 2 4 .2 4 8 . 3 2 4 . 2 3 6 . 3 39 8 1.3 48 100.0 CHI-SQUARE D . F . SIGNIFICANCE MIN E . F CELLS WITH E . F . < 5 4 4 . 8 4 6 8 0 27 S T A T I S T I C 0 .0169 VALUE 0 .042 38 OF 40 ( 95.0%) SIGNIFICANCE K E N D A L L ' S TAU B K E N D A L L ' S TAU C 0 .07279 0 .04861 0 .2835 0 .2835 8. Crosstabulation of Employment Size Class by Type of Industry i n Canada EMPR 0 - 1 9 COUNT ROW PCT COL PCT TOT PCT IND FOODSTUF LUMBER CHEMICAL FERROUS OTHER MA AGRICULT MINING COMMERCE FINANCE TRANSPOR FS S & NON-FE NUFACTUR URE & FO & INSURA TAT ION 1| 3 | 4 | 5| 9 | 101 12| 14| 151 17| 1 1 4 . 8 3 3 . 3 2 . 1 1 4 . 8 25 .0 2 . 1 1 4 . 8 100.0 2 . 1 1 4 . 8 33 . 3 2 . 1 9 42 .9 7 5 . 0 19.1 6 2 8 . 6 3 3 . 3 12.8 2 9 . 5 100 .0 4 . 3 ROW TOTAL 21 44 . 7 2 0 - 4 9 12 33 2 1 12.5 100.0 2 . 1 6 75 .0 33 . 3 12.8 8 17 .0 5 0 - 9 9 1 2 0 . 0 3 3 . 3 2 . 1 3 6 0 . 0 16.7 6 . 4 1 2 0 . 0 100.0 2 . 1 5 10.6 100-199 1 16 . 7 2 5 . 0 2 . 1 2 33 . 3 100 .0 4 . 3 1 16 . 7 33 . 3 2 . 1 2 33 . 3 11.1 4 . 3 6 12.8 200 -499 1 5 0 . 0 33 . 3 2 . 1 1 5 0 . 0 5 .6 2 . 1 2 4 . 3 >500 2 4 0 . 0 5 0 . 0 4 . 3 3 6 0 . 0 25 .0 6 . 4 5 10.6 COLUMN TOTAL 3 6 . 4 4 8 . 5 1 2 . 1 2 4 . 3 1 2 . 1 3 6 . 4 12 2 5 . 5 18 38 . 3 2 4 . 3 1 47 2.1 100.0 CHI-SQUARE D . F . SIGNIFICANCE MIN E . F . CELLS WITH E . F . < 5 S T A T I S T I C VALUE SIGNIFICANCE 6 5 . 7 3 1 5 9 45 0 .0235 0 .043 58 OF 60 ( 96.7%) K E N D A L L ' S TAU B - 0 . 1 1 8 4 7 0 .1618 -P-K E N D A L L ' S TAU C - 0 . 1 0 6 4 7 0 .1618 )5 9. Crosstabulation of Type of Industry by Equity C l a s s i f i c a t i o n i n Canada COUNT ROW PCT COL PCT TOT PCT EQUITYR 95-100% IND 5 0 . 1 - 9 4 . 9% 1| 2 | - + + 50% 3| 25 -49 .9% 4 | ' 1-24.9 51 ROW TOTAL 1 2 1 3 FOODSTUFFS 66 7 33 3 6 3 22 2 6 3 4 2 2 1 + + + + + + 3 1 2 1 4 LUMBER 25 0 50 0 25 0 8 3 33 3 22 2 6 3 2 1 4 2 2 1 CHEMICALS FERROUS & NON-FE OTHER MANUFACTUR 10 AGRICULTURE & FO 12 MINING 2 6 6 . 7 11.1 4 . 2 4 30 .8 22 . 2 8 . 3 COLUMN 18 (CONTINUED) TOTAL 3 7 . 5 2 4 . 2 3 6 . 3 1 100.0 6 . 3 2 . 1 1 5 0 . 0 11.1 2 . 1 1 5 0 . 0 6 . 3 2 . 1 1 100.0 6 . 3 2 . 1 1 33. 3 6 . 3 2 . 1 1 7 . 7 11.1 2. 1 8 6 1 . 5 5 0 . 0 16 . 7 9 18.8 16 33 . 3 1 2 . 1 2 4 .2 13 27 . 1 48 100.0 9. Crosstabulation of Type of Industry by Equity Classification in Canada IND COMMERCE COUNT ROW PCT COL PCT TOT PCT 14 EQUITYR 95-100% 5 0 . 1 - 9 4 . 50% 1| 2 | 25-49 .9% . 1 - 2 4 . 9 ROW 3 | - - + -% 4 | - - + -5| 1 1 61 .1 G1 . 1 2 2 . 9 2 11.1 100.0 4 . 2 2 11.1 6 6 . 7 4 .2 3 16.7 33 . 3 6 .3 15 FINANCE & INSURA 17 TRANSPORTATION COLUMN TOTAL 1 100.0 5 .6 2 . 1 18 37 . 5 2 4 . 2 TOTAL 18 37 .5 2 4 . 2 1 2 . 1 3 9 16 48 6 .3 18.8 3 3 . 3 100.0 2 100.0 12.5 4 .2 CHI-SQUARE D . F . SIGNIFICANCE MIN E . F . CELLS WITH E . F . < 5 4 1 . 5 2 6 3 5 36 S T A T I S T I C 0 . 2 4 2 5 VALUE 0 0 4 2 48 OF 50 ( 96.0%) SIGNIFICANCE K E N D A L L ' S TAU B K E N D A L L ' S TAU C -0 .31828 -O.29297 0 .0042 0 .0042 10. Crosstabulation of Type of Industry by Purpose of Investment i n Canada PURP COUNT ROW PCT COL PCT IND 1 FOODSTUFFS 3 LUMBER 4 CHEMICALS 5 FERROUS & NON-FERROU 9 OTHER MANUFACTURING 10 AGRICULTURE & FOREST 1 3 100.0 12 .0 MINING COMMERCE 12 14 COLUMN TOTAL 3 7 5 . 0 12 .0 0 0 . 0 0 . 0 1 5 0 . 0 4 . 0 100.0 4 . 0 2 6 6 . 7 8 . 0 12 100 .0 48 .0 3 17.6 12 .0 25 5 5 . 6 33 . 3 25 .0 0 0 . 0 0 . 0 0 0 . 0 0 . 0 33. 3 4 . 5 2 5 0 . 0 5 0 . 0 O 0 . 0 0 . 0 0 0 . 0 0 . 0 0 0 . 0 0 . 0 1 33 . 3 2 5 . 0 0 0 . 0 0 . 0 0 0 . 0 0 . 0 4 8 . 9 1 2 5 . 0 100.0 0 0 . 0 0 . 0 0 0 . 0 0 . 0 0 0 . 0 0 . 0 0 0 . 0 0 . 0 1 100.0 4 . 5 0 0 . 0 0 . 0 1 5 0 . 0 100.0 5 0 . 0 4 . 5 0 0 . 0 0 . 0 0 0 . 0 0 . 0 O 0 . 0 0 . 0 0 0 . 0 0 . 0 0 0 . 0 0 . 0 1 33 .3 4 . 5 0 0 . 0 0 . 0 0 0 . 0 0 . 0 0 0 . 0 0 . 0 0 0 . 0 0 . 0 0 0 . 0 0 . 0 17 100.0 77 . 3 1 2 .2 1 2 . 2 22 4 8 . 9 G I 1 33 . 3 10 .0 1 25 .0 10 .0 O 0 . 0 0 . 0 0 0 . 0 0 . 0 0 0 . 0 0 . 0 O 0 . 0 0 . 0 0 0 . 0 0 . 0 7 4 1.2 7 0 . 0 10 22 . 2 ROW TOTAL 3 6 . 7 4 8 . 9 1 2 .2 2 4 .4 1 2 . 2 3 6 . 7 12 26 . 7 17 37 . 8 45 100 .0 PERCENTS AND TOTALS BASED ON RESPONDENTS (CONTINUED) 10. Crosstabulation of Type of Industry by Purpose of Investment i n Canada PURP COUNT ROW PCT COL PCT IND FINANCE 8. INSURANCE 1 I 15 17 TRANSPORTATION COLUMN TOTAL 0 0 . 0 0 . 0 0 0 . 0 0 . 0 3 I 0 0 . 0 0 . 0 0 0 . 0 0 . 0 0 0 . 0 0 . 0 0 0 . 0 0 . 0 25 5 5 . 6 O 0 . 0 0 . 0 4 8 . 9 0 0 . 0 0 . 0 1 2 .2 0 0 . 0 0 . 0 1 2 .2 1 100.0 4 . 5 22 4 8 . 9 1 100.0 10 .0 + + 0 0 . 0 0 . 0 + + 10 22 . 2 ROW TOTAL 1 2 . 2 1 2 . 2 45 100.0 PERCENTS AND TOTALS BASED ON RESPONDENTS "@en . "Thesis/Dissertation"@en . "10.14288/1.0097298"@en . "eng"@en . "Geography"@en . "Vancouver : University of British Columbia Library"@en . "University of British Columbia"@en . "For non-commercial purposes only, such as research, private study and education. Additional conditions apply, see Terms of Use https://open.library.ubc.ca/terms_of_use."@en . "Graduate"@en . "Japanese direct foreign investment in the United States and Canada by sogo shosha since 1951"@en . "Text"@en . "http://hdl.handle.net/2429/27123"@en .