A subnational analysis of Japanese direct investment in Canada

Abstract

This application of mind examines longitudinal aspects of Japanese foreign direct investment in Canada. In looking at the longitudinal aspects, the focus was upon a descriptive analysis of access and exit rates and upon an econometric analysis of the determinants of subsidiary survival and exit. In these analyses, we,find that exit rates are related to subsidiary-level variables of that kind as business size, expatriate avocation levels, equity-ownership levels, and ingress mode. The sector and region in which the investments are made is also related to subsidiary survival, with manufacturing-sector subsidiaries located in Ontario being the least likely to exit. The arises of our study suggest that region and industry interact, the one and the other to draw investment to a region and to influence the likelihood of survival of foreign-owned businesses. Furthermore, the focus upon regional issues for Canada displays that even within a small lay open economy subnational (interprovincial) variance can have important issues on the characteristics and performance of foreign direct investment.

Resume

La presente etude porte sur l'evolution de investissements directs japonais d l'etranger, realises au Canada. De fafon plus precise, cette recherche s'interesse, sur une base longitudinale, a l'analyse descriptive de taux d'entree et de sortie ainsi qu'a l'analyse econometrique de facteurs expliquant la survie ou la sortie de filiales japonaises. A la lumiere de ce analyses, il ressort que le taux de sortie sont influences par certaines caracteristiques de filiales telle que la taille, la proportion d'expatries, la part du capital-action et le manner d'entree. Le secteur et la region ou l'investissement s'ef fectue influencent egalement le chances de survie dune filiale ; la probabilite la plus foible de quitter le pays appartiendrait aux filiales manufacturieres situees en Ontario. Le resultats de l'etude suggerent que la region et l'industrie interagissent de facon a attirer le investissements dons une region donnee et d influencer le chances de survie de compagnies appartenant a de interets strangers. Ce resultats sur le disparites regionales du Canada suggerent que meme ae l'interieur d'une economie de marche restreinte, la variance sousnationale (ou interprovinciale) peut avoir d'importantes repercussions sur le caracteristiques et la performance de investissements directs a l'etranger.

The increasingly prevalent part that Japanese multinational enterprises (MNEs) have played as sources of outward foreign direct investment (FDI) in the 1980 and 1990 has been matched by the agency of a growth in empirical studies of Japanese FDI (UNCTAD, 1997) lately much has been written about the locational determinants of Japanese FDI (eg Yamawaki, 1993) the motivations of Japanese MNE for FDI (eg Kogut & Chang, 1991) and the determinants of foreign ingress strategies and entry modes (eg Hennart & Park, 1993) The majority of studies upon Japanese FDI, as well as upon trade and investment in general, have adopted a cross-sectional approach to analysis. However, as is becoming increasingly apparent in the literature upon FDI, there is an evolutionary constituting to a firm's and a country's FDI (eg Chang, 1996) and cross-sectional analysis is not suited to the application of mind of longitudinal patterns in FDI strategies.

Along with the cross-sectional emphasis in existing studies upon FDI, there has also been a focus upon the nation as the geographical unit of analysis. However, a number of studies point to the significant and important differences that can be observ in the pattern of investment within countries. This variance in the nature of investment appears both in geographically large and populous countries like as the United States (Kasoff, Benedict, & Lauer, 1997) and geographically smaller and les populous countries like the United Kingdom (Dicken, Tickell, & Yeung 1997) In this close attention we extend the literature upon the subnational characteristics of FDI by the agency of exploring the regional characteristics of Japanese investment in Canada.

Our objective is to explore the determinants of subsidiary exit. Our analysis of subsidiary exit focusses upon business-level determinants, while considering industrylevel and regional issues on subsidiary survival. The focus upon the subsidiary as the unit of analysis permits a departure from the industry-level studies that have wait oned to dominate in the empirical literature upon entry and exit. As well, looking at regional influences within Canada permits us to demonstrate in what manner subnational factors can be important results even in small open trading economies.

The nearest two sections review literature upon entry, exit, and survival and provide a general description of tends in Japanese investment in Canada. We put in motion from this review to a discussion of our research methodology and the be deriveds of a multivariate analysis of the determinants of subsidiary survival and exit. In the concluding section, we discuss the implications of our findings for management practice and public policy.