Japanese FDI

JAPANESE FDI in Canada

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last updated 2003 Jan 13 (updated with email from SungJung K. in Feb 2011)

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.	Some of the info in this section comes from http://www.asiapacificbusiness.ca/stats/trade/index.cfm of the Asia Pacific Foundation. WTGR

http://www.tradecommissioner.gc.ca/eng/document.jsp?did=101695&cid=515&o

Feb 27th 2011, student Sung Jung K. in MGTC46 at UTSC emailed to comment

"I have been reading Japanese Investment Trends in Canada from

http://www.tradecommissioner.
gc.ca/eng/document.jsp?did
=101695&cid=515&o

I have some concerns.

According to a a recent survey by the Japan Bank for International
Cooperation (JBIC) indicated that there were 5 Japanese companies among the 480 surveyed that were actively considering an investment into Canada. - I thought the number 5 was a very small number. In terms of percentage,
that is about 0.01% of Japanese companies considering FDI in Canada

Investment
Trends

Sung Jung K. adds

The JBIC Study entitled "Outlook for Japanese Foreign Direct Investment
2009" reported that Canada ranked 20th of "Promising Country/Regions for
overseas business operations over the medium term".
- Japanese businesses are ranking Canada low in their future operations, why
should Canada prioritize doing more business with Japan than what we are
already doing now if they are unwilling to invest in us?

Also, more and more Japanese companies were considering to invest their FDI
in emerging marketssuch as China, India, Brazil and Thailand. Shouldn't
Canada look more into emerging market as well? I think that Canada as a
country is relying too much on risk-free investment partners such as U.S.
and Japan and European countries. In my opinion, Canada should also look
into emerging markets where business profits can be optimized.

Sincerely, Sung Jung K. "

WTGR answers
Thanks Sung Jung, first , you said "Shouldn't Canada look more into emerging market as well? " well, we are, but we just aren't doing it as aggressively as China, USA and Europe.Most of Canada's largest FDI is in resources extraction, specifically mining in high risk regions of Africa, Latin America and former countries of the USSR.Except for R.I.M. and Bombardier and Magna, Canada doesn't have hundreds of large manufacturing companies that produce branded consumer products for a global audience, therefore we don't have the same pressures to do FDI because Canadian companies are not in to that situation as much as large American, European and Asian companies.

CDA-JPN
Business

NIKA
Shigoto

CDA-JPN
Business

NIKA
Shigoto

Before we begin talking about Japanese FDI in Canada, we need a short intro to the bigger picture of Canada-Japan trade.

For people in the Canada-Japan community, there is a slang expression used to describe Canada-Japan stuff, it is simply "nika" - which is a contraction of Nippon - which is what Japanese call their country, and Kanada, which is what Japanese call Canada.

Shigoto is the Japanese word for business.

WTGR

Canada's Trade with Japan in CDN $
	2000	2001
Exports	9,074,83	8,172,995
Imports	16,608,730	14,639,813
Trade	25,683,013	22,812,808

In the mid-1980's and early 1990's Canada enjoyed a trade relationship with Japan that was balanced - neither a strong surplus, nor deficit. In the late 1990's and early 2000's, Canada has begun to develop a marked balance of trade deficit and the total amount of trade has been declining.

Some of the reasons for the decline is Canada's more developed relations with other countries in Asia, particularly South Korea and China - which has partly led to a decline in imports from Japan.

WTGR

Source: Trade Data Online. Industry Canada as quoted on the Asia Pacific Foundation website www.asiapacificbusiness.ca/stats/trade/general_dataset1_japan.cfm

CDA-JPN

Relations

CDA-JPN

Relations

.	While we can expect that a federal government website will put a political spin on the info - it is helpful to look at what the Dept. of Foreign Affairs says about the Canada-Japan relationship. WTGR

http://www.infoexport.gc.ca/ie-en/DisplayDocument.jsp?did=846

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"Bilaterally speaking, Japan is Canada's second largest national export market and source of imports, representing 45% of all our exports to Asia....Japan is also Canada's second largest source of portfolio capital, third largest source of FDI, (concentrated in resource processing and the automotive sector) and third largest source of tourists. This wealth makes Japan a highly desirable partner for Canada in both bilateral and multilateral terms. Even a proportionately small change in the terms of access to Japanese markets and capital can make a big difference to the Canadian economy"

Canadian Embassy, Tokyo 1997

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JAPANESE FDI

The largest foreign investor in Canada is the United States. Historically, England was a big investor in Canada and this was of course due to the fact that Canada was a former colony. While England continues to remain the 2nd largest foreign investor in Canada, in the 1980's, Japanese investment began to grow strong in Canada as Japanese companies doing business in the United States looked to setting up operations also in Canada to serve our growing market.

While the Japanese did not necessarily think of Canada as a very high priority, Canadian government officials and association executives in the 1980's became terribly excited about the prospect of Japanese direct investment in Canada - and the resulting benefits of such things as new manufacturing operations and large scale resource extraction operations that would bring jobs and technology.

From 1986-1996, Tim Richardson was heavily involved in Canada-Japan business development and served as Executive Director of the Canada-Japan Trade Council, and also was an executive with The Japan Society. In addition Richardson also worked for the federal government and the provincial government on Japanese investment attraction projects. Along with writing various articles and giving speeches on Japanese investment, Richardson was the person who (for the federal government) conducted the annual detailed corporate database on Japanese investment in Canada.

When economists and politicians compare the United States and Canada, they often use a rough comparison of a 10:1 ratio.

In the case of Japanese investment in North America, Canadians in the 1980's and early 1990's never saw Japanese FDI in Canada approach anywhere near 10% of the FDI that went in to the USA - in fact the %'age was closer to 2% and 3% which caused many government officials in Ottawa and Toronto to be quite bitterly disappointed.

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Some of the key reasons why Japanese FDI in Canada never approached 10% of Japanese FDI in the U.S.A.

geography - Canada is spread along a very wide east-west axis with most of the links on the continent running north-south. It was easier for Japanese plants in Detroit to simply produce a bit extra for the Canadian market in Detroit and ship it north to Toronto, rather than build a separate plant in Toronto.
population - Although Canada has a decently sized population of 30 million, the distances between the 3 main cities of Vancouver, Toronto and Montreal prohibit a company in one location serving all three markets
economy - during the 1980's and 1990's the Canadian economy did not always perform as wellas the U.S. economy and lower Canadian currency rates made it more expensive for Canadian companies and Japanese subsidiaries in Canada to import Japanese goods and services on the same proportionate level as the American market.
politics - during the 1980's and 1990's there were a number of times that Japanese-USA trade friction caused Japanese corporate executives to make moves to appease American interests for fear of trade sanctions

eg. the Japanese cut the tariff they had on importing soybean oil into Japan from the USA, but did not cut the tariff they had on importing canola oil into Japan from Canada - this allowed American farmers a competitive advantage

DOBSON

Dr. Wendy Dobson
www.mgmt.utoronto.ca/faculty/bios/dobson.htm
has been teaching international business topics at the University of Toronto for many years. Since 1993, Dr. Dobson has been Director, Institute for International Business. In addition to her teaching situation she is also well known as an authority on several international trade issues, including investment patterns. Dr. Dobson has published widely on investment topics and a recent article is available at
www.mgmt.utoronto.ca/bicpapers/199907.pdf .

You should read the introduction, and page 10-13

Japanese
Government

Canada-Japan relations from the perspective of the Japanese government
"JAPAN AND CANADA IN A CHANGING ASIA"
Speech By Takashi Koezuka, Minister, Embassy of Japan
To The 1999 Far Horizons Conference, Queen's University, March 6, 1999
http://www.embassyjapancanada.org/JapanCanadaRelations/Speeches/koezuka1.html

Koezuka-sans speech is great to read because it contains a good intro about how the Japanese bubble economy grew in the 1980's then burst, and how it is recovering.

"Back in the late 1980's Japan's economy was booming. ...Japan was in what is now referred to as a "bubble economy". This bubble was inflated by high asset and land prices. Then the bubble economy burst....As the 1990's have progressed, however, it has become evident that the country's economic problems are more serious than was initially thought. "

"Japan continues to struggle with the aftermath of the bubble economy and especially with the lingering bad debt problem. When real estate and share prices dropped, many borrowers were no longer able to pay off their loans. This left the banks and other financial institutions with large portfolios of non-performing loans. Japan's economic woes have been compounded by a significant increase in bankruptcies and a rise in the unemployment level. As a result of the bad loan problem and capital depreciation, many banks have tightened their lending practices. This has led to what is referred to as a "credit crunch."

Canadian
Government
on Japan

Canada-Japan relations from the perspective of the Canadian government.

http://www.infoexport.gc.ca/docs/view-e.asp?did=851&gid=22

"Japan is Canada's third largest source of FDI after the US and UK. Total cumulative Japanese FDI to Canada, on a notification basis, amounted to C$12 billion at the end of FY1995 (March '96). Japanese investment in Canada is concentrated in five sectors: forestry, the auto industry, mining, merchandise distribution and financial and other services"

http://www.dfait-maeci.gc.ca/ni-ka/menu-e.asp

http://www.dfait-maeci.gc.ca/ni-ka/overview/relations-e.asp
"there is evidence of some net disinvestment as Japanese companies have scaled back on their global operations. On the basis of 1998 Canadian statistics, estimated accumulated FDI stands somewhere in the range of $9 billion. According to an annual survey conducted by the Canadian Embassy in Tokyo, there has also been some decline in indirect investment in Canadian securities, from $40 billion to about $36 billion as of March 31 last year."

Any time a university student reads information on the opinions of a business situation you should always ask yourself 2 questions.

1. is the person that made that statement really in a position to know that information is accurate
2. is the person that made that statement objective: are they free from having any bias

In the case of Japanese FDI in Canada - most of the resources you will find available talk about the situation in a positive way - it is tough to find anybody talking negatively about any Japanese withdrawal of investment from Canada. Most of the people writing about Canada-Japan business and trade are consultants, academics or government people who make their living of promoting the image that the relationship is healthy and growing.

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The BCNI (Business Council on National Issues) is a corporate membership based lobbying group based in Ottawa. On the BCNI website is an article written by Sam Boutziouvis which is somewhat critical of the Japanese FDI situation and it is worth looking at his writing.

Boutziouvis writes

"After decades of relative success in a rather comfortable, complementary relationship, our trade and investment patterns essentially have become stagnant. The value of bilateral trade flows over the past decade has grown very little, especially when compared with our overall trade picture. Bilateral investment flows have increased, but remain at low levels. Despite growth in the knowledge-based economy, the mix of products being traded has changed only marginally over the past decade."

Canadian government contacts re: Japan
http://www.dfait-maeci.gc.ca/ni-ka/contacts/menu-e.asp

New Japanese
FDI in Canada

.	Contemporary examples of new Japanese FDI in Canada are quite varied. Here are some situations below which you should familiarize yourself with.

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Mitsubishi Gears for Entry into Canadian Vehicle Market, Selects First Dealers
"Japan's Mitsubishi Motors has selected 31 dealers across Canada as the company prepares its autumn [2002] entry into the Canadian vehicle market. Three dealers were selected in BC, four in the Prairies, seven in Quebec, two in the Atlantic provinces, and 15 in Ontario. Mitsubishi hopes to initially sell 20,000 vehicles a year, or about 1.3% of the Canadian vehicle market. In the next five years, Mitsubishi intends to capture 2% of the market, requiring up to 150 dealerships across the country. Mitsubishi intends to target younger drivers, who make up 40% of the company's US sales."
Information summarized from National Post.

Japan’s Marubeni Corp. and Four Partners Agree to Expansion of Aluminum Plant
"Marubeni Corp., which holds a 6.67% share in Aluminerie Alouette, of Sept-Iles, Quebec, is making a C$96.6 million investment as part of a C$1.41 billion expansion of the plant with the four other shareholders, Alcan, Austria Metall, Norsk Hydro, and Societe generale de financement du Quebec. Construction will begin in the spring of 2003, with the first metal to be produced by February 2005. The deal makes Marubeni Japan's largest aluminum smelter."
information from The Japan Society Oct 2002 news bulletin

Sapporo Bento Chain to Open Store in Vancouver
"A Sapporo-based chain called Bentos,that sells prepackaged meals, announced that it will open a store in Vancouver in March 2003 -- its first store outside Japan. Bentos plans to use the Vancouver store to study the North American market in preparation for a franchising operation."
Information summarized from Nikkei Ryutsu Shimbun. Press Release. Release by the Asia Pacific Foundation of Canada

New
Canadian
FDI
in
Japan

.	Not all of the FDI between Japan and Canada has been one-way. As Canadian companies grow bigger, they are investing in Japan where a market of 127+ million people with a high GDP per capita is very attractive.

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1. Four Seasons Opens Hotel in Central Tokyo Oct 2002
"Four Seasons Hotels and Resorts will open its new 57-room luxury hotel in Tokyo tomorrow [2002 Oct 12]. Rates at the hotel, which is located near Tokyo Station, will be in the range of C$633 per night. Four Seasons has one other hotel in Tokyo - the 280-room Chinzan-So hotel. The company is also considering opening a business resort within 300km of Tokyo."
Information summarized from Nikkei Ryutsu Shimbun. Release by the Asia Pacific Foundation of Canada

2. Ivanhoe Energy Creates New Subsidiary in Japan Nov 2002
"Vancouver-based Ivanhoe Energy has incorporated a new subsidiary in Japan to facilitate the participation of Japanese companies in the gas-to-liquids (GTL) project Ivanhoe is negotiating in Qatar. GTL Japan Corporation is currently 100% owned by a subsidiary of Ivanhoe Energy. GTL technology uses the Fischer-Tropsch synthesis process to convert natural gas into liquid synthetic fuels. The fuels can be used to run diesel engines, jet and natural gas turbines and can also be used in fuel cells."
Release by the Asia Pacific Foundation of Canada

.		In 1989 a large mission of senior Japanese executives came to Canada for a coast-to-coast trip that was quite significant for the subsequent direction of Japanese FDI in Canada in the 1990's. In 1991, when Japanese FDI was still hot, Prof. Richardson, who was working on Bay Street at the time, was interviewed in TIME magazine in a special report on Japanese investment

.		Here is a scan of the section of the article featuring the comments by Richardson - the essential points are related to Canada-Japan relations being effected by Japan's relationship with the U.S.