Japanese general trading companies and ‘free-standing’ FDI after 1960

Ken’ichi Yasumuro

This chapter examines the historical evidence concerning the foreign direct investment (FDI) of nine Japanese sogo shosha or general trading companies (GTCs) in the 1960s and 1970s. It is argued that parallels can be drawn between Japanese FDI in this period and British FDI in the nineteenth century, which predominantly took the form of ‘free-standing companies’ (FSCs). There are good reasons for believing that foreign affiliates organised by Japanese GTCs usually have limited life cycles and often die at an early age. It is suspected that the major cause of such high mortality of the GTCs’ foreign affiliates lies not in managerial failure, but is due to the strategic features of the projects. Based on this argument, the concept of FSC is expanded and the idea of free-standing style FDI is used to analyse GTCs’ FDI projects. Finally, from the results of this analysis, it is asserted that free-standing type FDI will become common in service multinationals and that it is different from ‘classic’ MNE investment. Free-standing type FDI is classified as a market-making investment. Finally, it is suggested that research on free-standing type FDI is one of the most useful approaches to developing a new theory of service multinationals.

Patterns of free-standing type FDI: the issue of freestanding companies

Mira Wilkins (1988a, 1988b) first identified the importance of FSC at an international conference held at the European University Institute in 1983 (Ohtowa 1996). Wilkins suggested that the majority of British FDI from 1870 to 1914, especially those investments in the United States, Africa and Asia, were carried out by FSCs. According to her view, FSCs formerly classified as ‘indirect’ (portfolio) investments were in fact a form of FDI, as they involved managerial control from the home economy (Jones 1996:33-6). British and Dutch FSCs were widely spread over the developing world, especially in the colonies (Jones 1996:34). This type of firm registered and raised equity capital in London, or some other European financial centre, and owned overseas operations in a specific region, but undertook no domestic production operation whatsoever (Casson 1997:217).


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The Multinational Traders


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