Changing Patterns in Japanese Investment in Canada

Article excerpt

Over the years and for various reasons, Japanese investment in Canada has declined. But at the same time, the motives of Japanese investors began to change, as did the types of industries in which they had traditionally invested. A new appreciation for Canada's educated workforce and a new commitment by political leaders promise to make the commercial relationship between the two countries as strong as it once was.

Canada's commercial relationship with Japan has declined significantly in recent years. By his recent visit to Japan, however, Prime Minister Martin signalled that Canada is interested in strengthening economic ties between the two countries. Within this diplomatic process, Japanese Prime Minister Junichiro Koizumi agreed with Prime Minister Martin to establish the Canada-Japan Economic Framework, an initiative to study how to promote the bilateral economic relationship.

An initial step in promoting and expanding the economic relationship between Canada and Japan is to develop an improved understanding of its history and current status, and the nature of the economic ties, with a specific focus on the organizations that drive them. In this article our objective is to update and enhance readers' knowledge of Japanese foreign direct investment in Canada. Our analysis is based on an extensive survey of the important characteristics of the Japanese parent firms that have invested in Canada. This provides information on the essential characteristics of their Canadian subsidiaries, including the changing investment motives that underpinned the establishment of these ventures.

Trends in Japanese global investment

Although Japan's rate of foreign direct investment slowed once its "bubble economy" deflated, it is still a major presence in the global economy. Yet Canada's share of Japan's foreign direct investment is falling and has been in decline since the 1960s. Canada is now about the 15th largest recipient of Japanese foreign direct investment, behind the United Kingdom, Australia, Brazil, and others.

Historically, the focus of Japan's foreign direct investment has been the United States. Indeed, the U.S. remains a major destination for Japanese foreign direct investment; yet, over the last decade, China has superseded the U.S. to become Japan's primary investment target. This shift has occurred as Japanese companies globalized their operations to lower production costs (e.g., labour) and position themselves to achieve early-mover advantages in the world's biggest market. What is also significant is that the share of Japanese foreign direct investment in virtually all countries aside from China has experienced a significant downturn. This suggests that Canadians (and others) may not necessarily have been complacent, or worse, derelict, as suggested by some commentators. Instead, it appears that major international economic shifts have been in progress. Canada's previous privileged position as a natural destination for foreign investment is becoming increasingly challenged by other countries that can offer significant locational advantages as firms try to improve the price-toquality ratio demanded by consumers.

Since China has virtually unassailable advantages in the cost of labour as well as in the sheer volume and concentration of emerging customers, Canada may be well served by focusing on assets that accentuate this country's strengths. These include an educated workforce, abundant natural resources, world class telecommunications capabilities, a high quality transportation infrastructure, and easy access to the U.S.-the world's richest market.

The characteristics of Japanese firms in Canada

The Japanese firms that invest in Canada tend to be extremely large, diversified, multinational corporations. They have average revenue of $12.2 billion (U.S) and $12.6 billion in assets, yielding an average operating income of $330 million (All figures in this article are expressed in U. …