Direct Foreign Investment in Canada by Sogo Shosha Since 1954

Geographical Review of Japan Vol. 66 (Ser. B), No. 1, 52-69, 1993

Tamiko KURIHARA*

Abstract

The purposes of this paper are to clarify the roles and characteristics of sogo shosha investment and to explore the locations of their economic activities in Canada. Japanese direct foreign investment (DFI) in Canada has been relatively moderate in size while still significant in its impact. Since mature Japanese manufacturers, financial institutions and real estate companies made large investments during the 1980's, the proportion of sogo shosha investment in the total Japanese investment in Canada declined relatively. The expansion and diversifica tion of Japanese DFI in Canada in the last decade stemmed from the changes in investment climate of the host country and the appreciation of yen . Sogo shosha, or the nine largest Japanese general trading companies, have been the chief promoters of Japanese trade and major vehicles for carrying out Japanese overseas investment during the postwar period. Sogo shosha's investment in Canada has focused on the three major sectors; commerce, natural resource development and manufacturing. Investment in commerce resulted in es tablishing their wholly-owned trading subsidiaries and marketing companies. Sogo shosha participate in natural resource development projects and manufacturing joint ventures with minority equity shares and long-term purchasing contracts. Thus, the primary purpose of sogo shosha investment is to enhance their trading activities, and the leverage is enormous despite their relatively small amount of investment. Sogo shosha investment is considered a unique prototype of Japanese DFI. Sogo shosha first emerged in the Canadian economic arena in 1954 after World War II. With the establishment of their wholly-owned trading subsidiaries which are often subordinate to the American counterparts, sogo shosha located their offices in the four strategic cities. Their locational preferences are complex. Nonetheless, the recent relocation of sogo shosha headquar ters to Toronto corresponds to its dominance in the Canadian urban industrial hierarchy . The locational preference of Vancouver over Montreal is a special feature of the Japanese trading companies.

Key words: Canadian urban industrial hierarchy, direct foreign investment, joint ventures, proto type of Japanese DFI, trade, sogo shosha.

an "archetypical" form of postwar Japanese I. INTRODUCTION overseas investment. Canada proves to be an interesting host country since the Canadian Recently Japanese direct foreign investment. economy features a "rich, industrialized, [and] (DFI) has drawn the attention of much of the underdeveloped economy" (LEVITT, 1970, p. world. Japanese manufacturers and financiers 127). are major contributors to that huge investment. With the rapid increase in Japanese invest Thus, investment made by sogo shosha, or the ment in Canada, the number of excellent papers nine largest Japanese general trading com on this topic has grown. WRIGHT (1984 and panies, has been overshadowed. Despite the 1989), RUGMAN(1990) and EDGINGTON(1990b) relatively small amount of sogo shosha in portray overall Japanese direct investment in vestment, this paper attempts to reveal the Canada. MITsuHAsHI (1990) discusses Japanese significance of that sogo shosha investment as investment in conjunction with the Canada-U.S.

* Toyo University , 5-28-20 Hakusan, Bunkyo-ku, Tokyo 112, Japan. Direct Foreign Investment in Canada by Sogo Shosha Since 1954 53

Free Trade Agreement. HAWKINS and HAY tions may be established by the take-over of (1986) and WRIGHT and PAULI (1987) focus on existing local firms or as new ventures. Japan's role in the financial sector. This paper Japanese direct foreign investment should be focuses on the crucial roles of sogo shosha's looked at from both Canadian and Japanese investment and the locations of their economic viewpoints. According to Statistics Canada, activities1). direct foreign investment in Canada amounted The paper first examines the characteristics to Canadian $126 billion at the end of 1990 of postwar Japanese direct foreign investment (Statistics Canada, 1991, p. 15). The largest in in Canada with regard to quantity and sector2). vestor was the United States, and its invest Then, special features of logo shosha invest ment was C$ 79 billion, consisting of 62% of all ment are elucidated within the context of post foreign direct investment in Canada. Japanese war Japanese economic development. Next, direct investment was C$ 5 billion, which was sogo shosha investment in Canada is scrutinized some 4% of the total value of DFI in. Canada in to evaluate the roles and characteristics of their 1990 (Ibid.). investment. Finally, the locations of sogo shosha Based on Japanese government data, the ac offices are delineated from the perspective of cumulated amount of Japanese DFI in Canada the different economic roles of Canada's metro was US$ 5,656 million5) at the end of the fiscal politan areas. year 19906), comprising only 1.8% of the total Japanese DFI in the world. This presents a stark II. JAPANESE DIRECT FOREIGN contrast to Japanese DFI in the United States, INVESTMENT IN CANADA which absorbed 42.0% of the total Japanese overseas investment (Ministry of Finance, 1991, Direct foreign investment is the acquisition p. 26). of foreign securities by individuals or institu Both data sets indicate that Japanese DFI in tions with control over, or participation in, the Canada has been relatively small for both the management of foreign operations. DFI is dis host and the home country in terms of quantity. tinguished from indirect foreign investment, or Nevertheless, both data sources reveal that Jap portfolio investment, in which individuals or anese direct investment in Canada is rapidly institutions acquire the stocks or bonds of for growing. Indeed, Japanese DFI in Canada in eign governments or companies. The purpose creased from C$168 million in 1984 to C$1 of portfolio investment is capital gain without billion in 1989 (Statistics Canada, 1991, p. 60). managing operations. Correspondingly, the annual flows of Japanese Technically, this paper adopts the definition DFI into Canada expanded from $184 million to of DFI used by the Japanese Government. The $1.3 billion during the same period (Ministry of Foreign Exchange Control Law in Japan, Finance, 1991, pp. 62-63). amended in December, 19803~, defines direct for Since the Japanese government data provide eign investment as 10% (25% before the more current and more detailed information amendment), or more, of equity acquisition in regarding industrial sectors than the Canadian foreign operations and loans in those corpora government sources, the following analyses are tions. The 1980 amendment excludes the pur based on the Japanese data. Table 1 shows the chase of real estate, and it is kept statistically amounts and sectors of Japanese investment in separate from investment in the real estate in Canada since 1951. It reveals a large amount of dustry. It should be noted that Japanese DFI investment as well as changes in investment figures include all investment proposals sectors in the 1980's. Specifically, from 1980 to authorized4~ by the Ministry of Finance as well 1990 the total of all Japanese DFI in Canada as withdrawn projects. amounted to $4,848, which consisted of 85.7% Direct foreign investment is accompanied not of the total accumulated investment amount only by capital flows but also by the transfer of during the last four decades. These figures en technology and managerial resources. With dorse the view of sharply increasing Japanese various degrees of ownership, foreign opera investment in Canada. 54 T. KURIHARA

Table 1. Japanese direct foreign investment in Canada (In million dollars, %)

Notes: Following an amendment to the Foreign Exchange Control Law, figures since December 1980 (1) include 10% or more of equity acquisition (25% before amendment) in foreign corporations and loans to those corporations, and (2) exclude real estate. Figures for transportation and real estate industry are since fiscal 1981. Up to 1980, figures for these categories were included in "Others." Total figures do not always match up to the sum totals, because of rounding off. Source: Ministry of Finance, ed., Zaisei Kenkyu Tokei Geppo No. 476, 1991, pp. 62-63.

Prior to 1980, investment was focused in the industries: transportation equipment (9.7%), three major sectors: manufacturing (36.6%), es electrical equipment (3.2%), and ordinary ma pecially lumber and pulp (17.0%); mining chinery (2.9%). Each of these three industries (29.8%); and commerce (18.8%). These indicate received over 90.0% of its total investment that Japanese prime interests have been in se within the last decade. curing the supply of Canadian forest and miner Among the non-manufacturing industries, al resources for Japan. Equally important, the three new sectors attracted Japanese invest establishment of commercial networks has had ment in addition to traditional investment con great weight due to the promotion of the bilat centrations in mining and commerce. The real eral trade between Japan and Canada. estate industry, finance and insurance, and ser Since 1980 there have been new develop vices received 13.4%, 11.9%, and 10.5% of the ments in investment sectors. The manufactur total Japanese investment, respectively. ing industry continued to capture the lion's Since the Japanese government data are not share of investment of $2,282 million, account broken down by geographical location, data in ing for 47.1% of the total Japanese investment Shukan Toyo Keizai are often used as a surro between 1980 and 1990. In the manufacturing gate. BLAIN and NORCLIFFE(1988) report that sector, the lumber and pulp industry remained from 1965 to 1984 British Columbia and Ontar the largest recipient (23.0%). A new phenome io accounted for 72% of all projects. Moreover, non was the diversification of investment to projects within these provinces were highly assembly type manufacturing and high tech concentrated in Vancouver and Toronto, and Direct Foreign Investment in Canada by Sogo Shosha Since 1954 55 each city accounted for nearly one-third of the To sum up, the initial Japanese DFI in Canada Canadian total'. Contrastingly, resource-related centered in resource-oriented sectors such as investments dominate in Vancouver, whereas the lumber and pulp industry and the mining trading activities are of greatest importance in industry. Investment in commerce was a pre Toronto. Investment projects were located in requisite for trade between Japan and Canada. Calgary and Montreal as well (p. 149). In the 19.80's Japanese DFI continued to be During the 1980's the geographical pattern of funneled into these sectors. Furthermore, it was investment concentration has been slightly diverted into new sectors: manufacturing such modified due to the changes in investment as transportation, the real estate industry, amount and sector. With the growth of invest finance and insurance, and services. Geographi ment in the manufacturing industry such as cally, Japanese DFI has been concentrated in automobiles and electronics and in the financial British Columbia and Ontario, and to a certain and service industries, Ontario has increased in extent in Alberta and Quebec. The last decade importance as the locus of Japanese investment. saw Ontario attracting further Japanese invest Considering the fact that the former industry ment. The expansion and diversification of requires diverse and supportive suppliers and Japanese DFI in Canada are ascribed to the the latter large markets, Ontario's supremacy in changes in investment climate of the host coun these regards is easily explained. try as well as the appreciation of the yen. The changes in investment amount and Vigorous investment activities by large Japa sector in the 1980's, which in turn were reflect nese manufacturers, financiers and real estate ed in location, stem largely from four major companies in the 1980's contributed to the rela factors. First, revisions of the Canadian Bank. tive decline of sogo shosha's investment in the Act, effective January 1981, contributed to the proportion of overall Japanese DFI in Canada. increase in Japanese investment in the financial Certainly, investments prior to 1965 were made sector. Prior to 1981, the presence of foreign mostly by trading companies (BLAINand NoR banks in Canada was restricted to representa cLIFFE, p. 143). Later, WRIGHT estimated that tive offices, which could neither accept deposits sogo shosha had invested the equivalent of $179 nor make loans. After the revisions, a limited million in Canada, as of 1981, that is, 20% of all number of foreign banks are permitted to open Japanese investment in Canada (WRIGHT,1984, full-service branches in Canada8~ (WRIGHT,1984, p. xx)10).Since that time the ratio of sogo shosha pp. 64 and 66). Second, the Japanese yen has investment to total Japanese DFI has further appreciated against the U.S. and Canadian dol declined. Nevertheless, the continuing and sig lars since the Plaza Accord of 1985. Apprecia nificant roles of their investment will be ver tion of the yen spurred Japanese investors to ified in section III. make further foreign investment. Third, the Ca nadian federal government changed from the III. CHARACTERISTICS OF DIRECT FOR Liberal Party to the Progressive. Conservative EIGN INVESTMENT BY SOGO SHOSHA Party in 1984. Accordingly, in 1985 the Foreign Investment Review Agency was replaced by Sogo shosha are large Japanese general trad Investment Canada, which encouraged foreign ing companies. They handle a wide variety of investment into Canada. Finally, the Canada commodities with large transaction volumes, U.S. Free Trade Agreement was signed in 1988. and adopt global business strategies. In this Some Japanese manufacturers, such as car paper, sogo shosha refer to the nine largest trad makers, anticipated the creation of a huge ing companies, that is, C. Itoh, Sumitomo, Maru single market, by setting up their assembly beni, Mitsui, Mitsubishi, Nissho Iwai, Tomen, plants in Canada. Therefore, the changes in eco Nichimen, and Kanematsu, ranked by their nomic and political environment of the home sales in 1990 (MORIMOTO,ed., 1991, p. 45). and host countries contributed to the expan Sogo shosha have played crucial roles in the sion of Japanese DFI in Canada for the last postwar Japanese economic development. They decade9). remain key players in commerce, and have 56 T. KURIHARA taken a major role in Japanese overseas invest trading activities. Even though they are inde ment. In 1973 the overseas loan and investment pendent companies in principle, they are close by the nine sogo shosha amounted to 261,800 ly linked to their parent companies in Japan for million yen, which accounted for 66.0% of the all facets of business transactions. However, the overseas loans and investment made by the top degree of subsidiaries' autonomy is different in twenty companies ( Shukan Toyo Keizai, 1973, different countries. According to EDGINGTON p. 2). At the early stage, DFI by sogo shosha (1990a), the essential function of an Australian made up a large part of Japan's overall foreign subsidiary was a go-between for the local sup investment. With the rapid growth of invest pliers and the parent company and its custom ment by Japanese manufacturers, financial in ers in Japan, but the Mitsubishi American stitutions and real estate companies, sogo subsidiary became a more independent orga shosha's DFI has declined relatively in overall nization. This contrast stemmed from different Japanese DFI, but still comprises its essential roles. The former subsidiary supplied Austra component. Thus, the characteristics of sogo lian raw materials for the world markets, while shosha's investment needs to be further ex the latter was a net importer of Japanese prod plored. ucts (pp. 106-108). In order to understand sogo shosha's invest In addition to trading subsidiaries, invest ment activities, their functions and organiza ment in commerce has resulted in the creation tional structure are summarized here. The key of marketing companies. Some marketing com functions of sogo shosha are trade, information panies are sogo shosha's wholly-owned special collection and financial services. Organization ized subsidiaries such as cotton companies. ally, they are situated at the core of keiretsu, or Some marketing companies are joint ventures industrial groups, along with their main banks. between sogo shosha and Japanese manufactur Their major functions and position at the orga ers in order to sell their products. Although the "departure nizational structure have enabled sogo shosha -from-traders" phenomenon has ap to develop the organizer/coordinator role, peared, there are still many manufacturers who which is crucial in overseas ventures. Sogo depend on sogo shosha to market their products shosha organize and coordinate consortia of due to the superb information collection ability companies within their affiliated keiretsu group, (KURIHARA,1991, pp. 157-158). or with other keiretsu groups (YOUNG, 1979, Until the early 1970's Japanese DFI in manu TSURUMI, 1984, KOJIMA and OzAWA, 1984, and facturing and resource development projects KURIHARA,1991). were joint ventures in which sogo shosha were Sogo shosha have concentrated their overseas often included as inseparable partners. Accord investment in three major sectors; commerce, ing to the Ministry of International Trade and natural resource development and manufactur Industry, trading companies were involved in ing. Since sogo shosha's core activity is trade, 81 out of 165 development-and-import projects which includes foreign, domestic and offshore undertaken by the Japanese (WAKASUGI,1973, trade, their largest investment was in com p. 233). Under the development-and-import for merce. As of March 1988, 800 billion yen, mula, capital, technology and equipment are namely 44% of the total nine sogo shosha's over furnished to foreign countries with Japan re seas direct investment, was directed to com ceiving natural resources in return. merce (Nihon Boeki-kai,1990, p. 9). Investment The last two decades have seen sogo shosha's in commerce took place in the form of sogo function persist as vital organizer in natural shosha's wholly-owned trading subsidiaries and resource development projects. Sogo shosha their marketing companies. often take minority equity shares with long As early as in the 1950's, sogo shosha embark term purchasing contracts, for their major pur ed in overseas investment to establish their poses are to secure supplies of imports to Japan branches and wholly-owned subsidiaries to and to reduce external vulnerability (Hoop and build their worldwide commercial networks. YOUNG, 1979, p. 68). Since natural resource de These overseas subsidiaries are crucial for their velopment projects require a huge amount of Direct Foreign Investment in Canada by Sago Shosha Since 1954 57 capital, the minority equity share position ventures in manufacturing and natural re makes it possible for sogo shosha to participate source development projects with minority in many projects and to reduce their business equity shares and long-term purchasing con risks. tracts. As we have seen business partners are With the sharp increase in labor cost in Japan often affiliated companies within the same kei during the 1960's, labor-intensive manufactur retsu group. Because of these characteristics, ing industries shifted their locations from sogo shosha will continue to be a catalyst in Japan to developing countries which supplied drawing more Japanese DFI to host countries. cheap labor. Since these manufacturers possess The amount of sogo shosha investment is analo neither huge capital, nor advanced technology, gous to the tip of an iceberg, and their leverage or managerial resources, sogo shosha were indis is enormous. pensable for their manufacturing operations. These joint ventures often took a characteristic IV. DIRECT FOREIGN INVESTMENT IN form, or a "troika style," that is, involving a CANADA BY SOGO SHOSHA concerned Japanese company, a trading firm, and a local business (YOSHIHARA,1981, p. 70). In The presence of sogo shosha in Canada took this scheme, the Japanese manufacturer and the place as early as in the 1950's. Direct foreign trading company most likely belong to the investment by sogo shosha has been intertwined same keiretsu group. The objectives of sogo with their trading activities. Therefore, the shosha's investment in this case are the expan characteristics of sogo shosha investment in sion of their trade volume and the strengthen Canada are discussed focusing on the three ing of their commercial ties with manufactur major sectors: commerce, natural resource de ers. velopment and manufacturing. Sogo shosha's involvement in manufacturing Sogo shosha's vital investment in commerce, joint ventures continued after more mature as noted above, aims to establish wholly-owned Japanese manufacturers commenced DFI in the trading subsidiaries. The initial presence of sogo 1970's. Since Japanese electrical and automo shosha in Canada was as branch offices or tive industries have made large investments, offices11) of either their parent companies or sogo shosha's DFI in manufacturing have American subsidiaries. These offices were lo become relatively smaller. Still, sogo shosha ac cated in the three major metropolises, Montreal, tively participate in manufacturing joint ven Toronto and Vancouver, in the mid-1950's tures in developed countries as well as in devel (Figure la). oping countries. Sogo shosha eventually set up their own With sogo shosha's participation, Japanese separate Canadian subsidiaries. Among the DFI took place in both resource-oriented invest nine trading companies, the present Mitsui ment and labor-intensive investment which are Canada was the first trading subsidiary in the regarded as "trade-oriented" by Kojima. This postwar period, and was established in 1956 by type of investment is made in areas where the Daiichi Bussan, from which the present home country is losing and a host country is Mitsui12) emerged (Japan Business History Insti gaining a comparative advantage. Consequent tute, 1977, appendices p. 24). Mitsui remains the ly, it promotes trade between the two countries largest sogo shosha in Canada in terms of its (KoJIMA, 1977, pp. 75-91). Indeed, DFI by sogo capital and sales. In 1990 the sales of Mitsui shosha is distinguished from DFI by mature were C$ 2,680 million, almost twice as large as Japanese manufacturers and financiers whose the second largest sales of Mitsubishi (Table 2). investment is more market-oriented. Thus, sogo Nichimen Canada and Tomen Canada were shosha's DFI is considered archetypical Japa founded as recently as in 1974 (Shukan Toyo nese DFI. Keizai, 1992, pp. 734 and 736). Present paid-up In sum, sogo shosha's overseas direct invest capital of the nine trading subsidiaries amounts ment is characterized by the establishment of to C$ 96.56 million, consisting of some 23% of wholly-owned trading subsidiaries, and joint the total sogo shosha investment in Canada (ap 58 T. KURIHARA

Table 2. Sogo shosha in Canada

Note: Nissho (Canada) Ltd. was established in 1959. The company name was changed to Nissho Iwai Canada Ltd . in 1968 when Nissho and Iwai & Co., Ltd. were merged in Japan. Sources: Canadian Business, 1991, pp. 104-127, Shukan Toyo Keizai, 1992 , pp. 726-742, and interviews by the author.

proximately C$ 420 million)13) American direct investment into Canada cre Despite the independence of Canadian sogo ated a branch-plant economy in this country. shosha, they are closely linked to American Since American multinationals often control trading subsidiaries as well as to their parent their Canadian subsidiaries, especially in manu companies in Japan. Their positions are often facturing, important decisions are likely made subject to the American counterparts. Some in the parent companies in the United States. trading companies installed a "General Man Consequently, this hierarchical relationship is ager for North America" who takes charge of all reflected in sogo shosha's business conduct. Sogo North American operations14). "The General shosha in Japan often deal with American mul Manager" is the president of the American sub tinationals directly by bypassing American sidiary while he wears another hat as chairman subsidiaries in Canada regarding business of the Canadian subsidiary. Although some transactions. This, in turn, affects the position companies have abolished this system, Maru of sogo shosha's Canadian subsidiaries, which beni still practices it15). are often bypassed by parent sogo shosha con This continental subordination is ascribed to cerning key business .decisions16). In this sense, three major factors. First, the Canadian market the positions of Canadian and Australian sogo is much smaller than the American one. Given shosha subsidiaries are similar. In a nutshell, the that Canadian purchasing power per capita is small size of the Canadian market, the location almost equivalent to the American level, the of its major market, and high dependency on Canadian economy (US$ 529 billion in 1989) is American DFI have contributed to Canadian one-tenth the American economy (US $ 5,201 trading subsidiaries being subject to their billion) in terms of Gross National Product American counterparts. The General Manager (M0RIM0T0, p. 11). for North America is a reminder of the persis Second, the geographical distribution of Ca tence of this hierarchy. nadian population is heavily concentrated in Investment in commerce may take another two central provinces. Ontario and Quebec pos form, by establishing marketing companies. sessed some 62% of the total Canadian popula Some marketing companies are sogo shosha's tion in 1991 (Statistics Canada, 1992a, p. 6.94), wholly-owned specialized subsidiaries, and and form the principal market in Canada. To some are joint ventures between trading com ronto and Montreal are the centers of this panies and Japanese manufacturers. Two region, and are geographically close to New automotive marketing companies are typical York which is the economic hub in the United examples illustrating the long-term relation States. ships between sogo shosha and Japanese manu Finally, after World War II the influx of facturers. Direct Foreign Investment in Canada by Sogo Shosha Since 1954 59

Toyota Canada Inc., formerly known as the strikes in Australia and the United States made Canadian Motor Industries Holding Ltd., was Canadian coal more attractive. Even before the established in Ontario in 1964 by Mitsui and oil crises, Mitsubishi negotiated with Kaiser Toyota as a distributor of Toyota automobiles Steel Company of California, on behalf of nine and their parts17). The company was ranked Japanese companies. Agreement was reached in 84th among Canada's largest 500 companies in 1968 to take 45 million tonnes over a fifteen 1990, with sales of C$1,505 million (Canadian year period (LANGDON,1983, p. 126). Business, 1991, pp. 106-107). Toyota and Mitsui In 1982 the Canadian federal and British Co each hold half shares of C$10 million (Shukan lumbia provincial governments announced a Toyo Keizai,1992, p. 734). mega-project "Northeast Coal Development Another car marketing company is Mazda Project in B.C." after they succeeded in gaining Canada Inc. set up in Ontario in 1968. The Japanese acceptance of seven million tonnes capital of C$1.3 million is owned by Mazda per annum, starting in 1983 and continuing for (60% of its equity) and C. Itoh (40%) (Ibid., p. 15 years (Ibid., p. 129). This C$ 2.5 billion project 740). Even though both Toyota and Mazda was to develop new Quintette and Bullmoose have grown into . full-fledged multinationals coal mines in the northeast of British Columbia. with accumulated financial and managerial re The two governments financed the necessary sources, they have chosen to retain close busi infrastructure including railways, roads, and ness relationships with sogo shosha. Thus, these the coal port at Ridley Island near Prince two ventures exemplify that sogo shosha are Rupert, and the Tumbler Ridge new town site still considered important business partners by (Province of British Columbia), while Japanese leading Japanese manufacturers. companies agreed to long-term coal prices and Following investment in commerce, sogo tonnage sufficient to cover all the costs (LANG shosha have directed a large amount of money DON, 1990, p. 137). into natural resource developments. Sogo Quintette coal turned out to be very expen shosha have been especially interested in Cana sive. Consequently, the Japanese companies dian mineral resources such as iron, lead, zinc, pressed Quintette Coal Ltd. to reduce the price nickel and copper. At first, they imported these after facing an oversupply of coal and falling mineral resources. Then, in the late 1950's and world prices. In order to settle the dispute be 1960's sogo shosha switched to development tween Quintette Coal Ltd. and a consortium of and-import contracts, in which they provided Japanese steel mills over coal prices, the inter capital and received goods in exchange. For national arbitration process was used18~. Cur example, in 1957 Sumitomo and Mitsui provid rent shareholders of Quintette Coal Ltd. are ed Cowichan Copper Co. with capital for infra Denison Mines Ltd. (50% of C$ 425 million), structure in order to import copper from Van Mitsui Mining Overseas Company Ltd. (12.5%), couver Island in British Columbia (Sumitomo, Tokyo Boeki Ltd. (10.49%), Charbonnages de 1972, p. 482). In 1965, the Mitsubishi and Sumi France (12.01%), Sumitomo (5%), and others tomo groups signed a development-and-import (10%) (Shukan Toyo Keizai, 1992, p. 741). Final contract with Granisle Copper Ltd., Vancouver. assessment of the success of this controversial The two groups invested C$ 7.5 million; 30% by project is yet to be carried out. Mitsubishi and 70% by Sumitomo, and, in Among the manufacturing industries, the return, they agreed to purchase copper for 10 lumber and pulp industry has attracted the years (Ibid., pp. 484 and 798). largest amount of Japanese investment. Two The 1970's saw a proliferation of Japanese prominent pulp companies illustrate sogo investment in energy-related ventures, and sogo shosha's involvement in Canadian forest re shosha took an active part in coal development sources. Crestbrook Forest Industries Ltd. in projects either as an organizer or an indispensa B.C. was a joint venture of the troika type, and ble partner. The oil crises of 1973 and 1979, was founded by Mitsubishi, Honshu Paper and increased demand for coking and thermal coal Crestbrook Timber in 1967 (Mitsubishi, 1986, p. by Japanese steel companies and sporadic 589, and 1987, p. 395). In 1990 the sales of the 60 T. KURIHARA

Figure 1. Location of sogo Direct Foreign Investment in Canada by Sogo Shosha Since 1954 61

Notes 1. One office location identifies one merged company. Accordingly, Nissho Iwai and Kanematsu are each represented by one office on Figures la-b, even though they were each two companies respec tively before the mergers. 2. The status of an office indicates the latest one. When a head office was moved,, its location is spotted where the head office was located for a longerr period of time during the decade. 3. In 1986 Kanematsu moved its head office from Toronto to Mississauga which belongs to the Toronto Metropolitan Area. Thus, it is indicated as a head office in Toronto.

Sources: The limited company histories and a large number of difficult-to-locate annual reports and other company records.

shosha offices in Canada. 62 T. KURIHARA company came to C$ 220 million, ranked 344 of 24.5% of the capital of C$ 167 million, and Canada's largest 500 companies (Canadian Busi Magna the remainder (Shukan Toyo Keizai, ness, 1991, pp. 118-119). Currently, each of 1992, p. 743). Honshu Paper and Mitsubishi holds 26.8% of To sum up, logo shosha investment in com the company's capital of C$ 92.96 million, while merce, natural resource development and man local shareholders have 46.4% (Shukan Toyo ufacturing, fits in with promotion of their trade Keizai, 1992, p. 740). mainly between Canada and Japan. Sogo The other is Daishowa-Marubeni Internation shosha's key investment establishes the nine al Ltd. (DMI) in B.C. It was a joint venture trading subsidiaries and marketing companies among Marubeni, Daishowa Paper and Weld such as those in the automobile sector. More wood of Canada Ltd. in 1969. At the same time over, sogo shosha participate in many joint ven Cariboo Pulp & Paper Co. was set up as a mar tures in natural resource development with mi keting company for DMI (Marubeni, 1984, p. nority equity shares and long-term purchasing 67). At the end of 1991 the capital of DMI was contracts. As well, sogo shosha are involved C$12 million, owned by Marubeni (50%) and with many manufacturing joint ventures with Daishowa Paper (50%) (Shukan Toyo Keizai, minority equity shares. These ventures include 1992, p. 733). both traditional resource processing industries With the diversification of Japanese invest and assembly-type industries. The major pur ment, sogo shosha's investment in manufactur poses of sogo shosha's commitment are procure ing also expanded from the resource-oriented ment of materials and sales of the products. industries, such as pulp, to the assembly-type Canada has hosted many of these troika scheme and high tech industries. Here is another troika ventures. Because of these special features, sogo scheme observed in 1989. Mitsui, Daikyo and shosha investment is characterized as a proto Magna International Inc. established DDM Plas type of Japanese overseas investment, and their tics Inc, in Ontario to produce automobile plas influence extends well beyond their immediate tic parts for CAMI Automotive Inc., a joint ven investment amounts. Sogo shosha investment ture between Suzuki Motors and General has played a significant role in facilitating trade Motors of Canada, in Ingersoll, Ontario. The and investment between the host and the home initial capital of C$ 20 million was funded by country. Daikyo (40%), Mitsui (10%) and Magna Inter national (50%) (Shukan Toyo Keizai, 1990, p. V. OFFICE LOCATIONS OF SOLO SHOSHA 480)19). IN CANADA Another case is Atoma International Inc., a subsidiary of Magna International Inc., in On The locations of sogo shosha offices in Canada tario. Since 1989 Mitsubishi has pursued a mu are traced from the 1950's to the present to tually collaborative business relationship with identify characteristics and patterns of office Atoma, which specializes in automotive interior distribution. Particular attention is paid to the systems and components. Mitsubishi provides headquarters, for these locations are closely re

Table 3. Population of census metropolitan areas in Canada (In thousands)

Note: Population is based on the boundaries of C.M.A.s at time of that particular census. Sources: Statistics Canada, Profile of Census Metropolitan Areas and Census Agglomerations: Part A, pp. 32-110, and Filion, ed., The Canadian World Almanac and Book of Facts 1991, p. 92. Direct Foreign Investment in Canada by Sogo Shosha Since 1954 63 lated to the functions of a city, the economic the fastest growing cities since 1941 because of well-being in the area20), and the particular and the expansion of the oil industry. contrasting needs of the Japanese companies. The 1970's saw the completion of the estab In 1954 Tomen and Gosho, one of the prede lishment of Canadian trading subsidiaries. cessors of present Kanematsu, commenced After the merger of Kanematsu and Gosho in opening their offices in Montreal. These early 1967, Kanematsu Canada, then Kanematsu offices belonged to the parent company of Gosho Canada, was founded in 1972 with its Gosho (Kanematsu, 1990, p. 328)21)and Tomen's headquarters in Montreal. Only two years later American trading subsidiary (Tomen, 1991b, p. the head office was moved to Toronto. In 1974 510) (Figure la). The two offices were upgraded Tomen Canada and Nichimen Canada were cre to branches in the later 1950's. ated. Tomen placed its head office in Toronto Montreal was the largest metropolitan center while Nichimen25) located in Montreal (Figure in Canada at that time (Table 3). In addition to lc). Note that Nichimen was developed from a the city's large market, its proximity to the cotton trader, and thus its strength resided in United States and the developed clothing indus the textiles, as well. try in that area induced the opening up of Mon An outstanding development in the 1970's treal offices of sogo shosha, since both Tomen was the expansion of offices in Calgary (Figure and Gosho started as cotton traders, and tex lc). Calgary is the second largest city in Alberta tiles remained the most important components and a booming city due to the burgeoning pe of their trade. troleum industry , which attracted sogo shosha As previously described, Mitsui first estab particularly after the oil crises. In 1972 Mitsui lished a wholly-owned trading subsidiary in moved its office from Edmonton to Calgary, Canada in 1956. Next was the present Nissho while in 1974 Nissho Iwai opened up its Edmon Iwai in 1959. Their head offices22) were located ton office. in Toronto, which was then the second largest A Halifax office was opened by Marubeni in metropolis in Canada (Table 3). In both Montre 1972 and closed shortly thereafter in 1977. The al and Toronto three additional sogo shosha also major function of this office was to export Ca opened their offices in each center. nadian fish such as herring, smelt and squid to The third largest city, Vancouver, has been a Japan26). Marubeni was distinguished from strategic point for the traders. Because Vancou other trading companies by being financially ver is a gateway port to the Pacific Ocean and a involved in some packing firms that canned break-of-bulk point, through which most trade salmon and trout in Canada (KURIHARA,1986, in commodities between Canada and Japan pp. 372-373). Later the company withdrew goes, six sogo shosha set up branches and offices from marine products-related ventures since there in the 1950's. buying processed fish in the markets was profit In the 1960's four other sogo shosha estab able enough27). lished their independent Canadian trading sub The 1980's saw the relocations of headquar sidiaries; Marubeni in 1960, Sumitomo in 1961, ters (Figure id). C. Itoh moved its head office Mitsubishi in 1965 and C. Itoh in 1969. The from Montreal to Calgary in 1981, then to Van locations of their headquarters were in Toronto couver in 198328). Tomen shifted its head office (Marubeni), Vancouver (Sumitomo23) and Mitsu from Toronto to Vancouver in 1982. The head bishi) and Montreal (C. Itoh) (Figure lb). With quarters of these two companies remain in Van the establishment of the Canadian trading sub couver at present. sidiaries, the branches and offices which for In contrast, three companies, Nissho Iwai, merly belonged to either parent companies or Nichimen and Mitsubishi, ultimately moved American subsidiaries were reassigned to the their head offices to Toronto. Nissho Iwai relo newly established ones. cated its head office from Toronto to Vancouver In 1965 Mitsui opened an office in Edmonton in 1983, since the company was involved in to engage in the energy-related business24). prospective energy projects, especially the ill Edmonton is the capital of Alberta and one of fated LNG development in Alberta. With a shift 64 T. KURIHARA

of interest from natural resources to manufac number of immigrants from abroad and mi turing related business, the company moved its grants from other provinces (SIMMONS and head office back to Toronto in 1988. In 1983 BOURNE, 1989, pp. 34-35). It has become the Nichimen relocated its head office from Montre dominant metropolis by creating the largest al to Toronto. The present Montreal office market in the country. belongs to the jurisdiction of Nichimen Ameri Toronto's strategic location in industrial ca. southern Ontario has also contributed to its Mitsubishi took two steps to move its head growth. The Industrial Heartland of Canada office. First, the company moved its president (YEATES,1987, pp. 109-147) overlaps the metro and chief executive officer from Vancouver to politan corridor stretching from Windsor to Toronto, while retaining the registered corpo Quebec City. Since Toronto is surrounded by rate head office and Chairman of the Board of numerous other industrial centers, its industrial Directors in Vancouver (KURIHARA, 1986, p. power is unmatched elsewhere in Canada. 368). Then Mitsubishi designated Toronto as an Measured by the degree of control exercised official head office in 1986. According to the by Canadian and foreign corporations located Chairman, Mitsubishi is already strong in west in Toronto and Montreal, the two largest metro ern Canada so the company has had to politan centers are the leaders in the four major strengthen its business in the East29). sectors of finance, manufacturing, services and A new development in the 1980's was the resources in the Canadian economy. "Toronto opening of an office in Whitby near Toronto by is at the apex of the Canadian urban industrial Nissho Iwai in 1987. Only a year later the office hierarchy, and Montreal is clearly second" was moved to Ingersoll, where the forenamed (DRIEDGER,1991, p. 175). CAMI plant is located. This decision was also The Canada-U.S. Free Trade Agreement of motivated by Nissho Iwai's desire to be engaged 1988 has reinforced this trend. As previously in manufacturing related business in southern mentioned, since some Japanese manufacturers Ontario. were afraid of being excluded from the newly As recently as in 1990 Sumitomo moved its established market, they set up their plants in headquarters from Vancouver to Toronto. At the Industrial Heartland. Sogo shosha have also present seven out of nine sogo shosha have their been drawn to Toronto, for the greater number head offices in Toronto, while the rest are in of business opportunities in this area . Vancouver (Figure 1e). The province of Quebec's language policy, The movement of head offices from Vancou the existence of the largest market, the strate ver to Toronto in the 1980's and 1990's may be gic location of the Industrial Heartland, the attributed to a number of social, economic and locus of large corporations and the Free Trade political factors. By 1981 Toronto had became Agreement, have all contributed to the suprem the largest urban center in Canada, surpassing acy of Toronto in the Canadian urban industri Montreal. During the 1970's the acceleration of al hierarchy. The relocation of sogo shosha the drive for protection of the French-language headquarters to Toronto in the 1980' s and in Quebec encouraged the exodus of many Eng 1990's is an indicator of the growth of this lish-speaking Quebecers. The Parti Quebecois, metropolitan center. which won the 1976 provincial election, passed Figure 1e summarizes the distribution of sogo language legislation establishing French as the shosha offices in Canada in the 1990's. Toronto province's sole official language. As a result, has seven headquarters and two branches; Van many English-speaking residents left Montreal, couver two headquarters, six branches and one and anglophone companies relocated to Toron office; Montreal four branches and five offices; to. Thus, these political, social and cultural pres Calgary one branch and five offices; and Inger sures explain why Montreal has fallen behind soll one branch. Based on the number and the Toronto. size of sogo shosha offices, Toronto is the most In addition to the influx of people from significant, and Vancouver is second . Montreal Quebec, Toronto attracts a considerable is ranked third followed by Calgary which is Direct Foreign Investment in Canada by Sogo Shosha Since 1954 65 fourth. vestment is in commerce, through the establish This ranking is different from the above ment of their trading subsidiaries and market mentioned Canadian urban industrial hierar ing companies. The troika scheme has been chy, in which Montreal is second. Because sogo adopted in manufacturing joint ventures. Par shosha are engaged in the bilateral trade and ticipation in natural resource development proj investment activities, Vancouver is more sig ects comes along with minority equity shares nificant for sogo shosha than Montreal. Con and long-term purchasing contracts. Hence, the sequently, it can be concluded that the office three principal types of sogo shosha investment locations of sogo shosha reflect the growth and are trade-oriented and uniquely archetypical economic success of Canadian urban centers as Japanese DFI. Despite their relatively small in the case of the expansion to Calgary in the amount of investment, the leverage is enor 1970's and the recent relocation of headquar mous, since sogo shosha have been involved in ters to Toronto. Moreover, the distribution of many joint ventures with minority equity sogo shosha offices is distinctive in emphasizing shares. Sogo shosha investment is a catalyst to the significance of Vancouver. This may well draw other Japanese investment into Canada. reflect perceptions of the growing importance The postwar presence of sogo shosha in of Vancouver as the Canadian gateway to the Canada has been traced back to 1954. Eventual Pacific Rim as well as geographical proximity ly, all nine sogo shosha have set up their wholly to Japan. owned trading subsidiaries. The Canadian trad ing subsidiaries, however, are often subject to VI. CONCLUSION their American counterparts, due to the small size of the Canadian market, the location of its Japanese direct foreign investment in Canada major market and high dependency on Ameri has been relatively moderate in size, but is still can DFI. significant in its impact. In fact, the 1980's saw Their economic activities are also reflected in the rapid increase in investment and the diver the location of sogo shosha offices. Toronto, sification of investment sectors. Since mature Montreal and Vancouver have been the loci of Japanese manufacturers, financial institutions sogo shosha offices since the 1950's, and Calgary and real estate companies were the major con since the 1970's. These locational preferences tributors to this trend, the proportion of sogo are attributed to a number of factors: the func shosha investment in the total Japanese invest tions and size of a city, the proximity to domes ment in Canada has declined relatively. Geo tic and Japanese markets, the locale of the In graphically, British Columbia and Ontario have dustrial Heartland, federal and provincial gov been the two leading host provinces of Japa ernment policies, and companies' strategies. In nese DFI. During the 1980's Ontario attracted particular, the relocation of sogo shosha head further Japanese investment. The expansion quarters to Toronto in the 1980's and 1990's and diversification of Japanese DFI in Canada confirms Toronto's position at the top of the for the last decade were attributed to the Canadian urban industrial hierarchy. The pref changes in investment climate of the host coun erence for Vancouver over Montreal is a signifi try and the appreciation of the yen. cant feature of the Japanese trading companies. Sogo shosha, or the nine largest Japanese gen eral trading companies, have been the chief Acknowledgements promoters of Japanese trade and major vehicles for bringing in Japanese overseas investment I would like to express my sincere appreciation to during the postwar period. Their organizational numerous government officials and business people, and functional characteristics enable sogo especially people at sogo shosha, in Japan and Canada, shosha to play a crucial role in organizing and for their precious time and valuable information. I am coordinating overseas projects. deeply grateful to Emeritus Professor Frank C. LANG DON and Professors Terry G. MCGEE and David W, In Canada sogo shosha have been engaged in EDGINGTON at the University of British Columbia and various investments. The most important in Professors Larry S. BOURNE and Jim SIMMONS at the 66 T. KURIHARA

University of Toronto for their useful comments on Mitsui was dissolved into 223 separate com an earlier draft. A traveling grant from the Depart panies in 1947. After the mergers of spin-off ment of Economics, Toyo University, is also appreci companies, the present Mitsui was formed in ated. Finally, I dedicate this paper to Emeritus Profes 1959. sor Masahide SHIKI who retired from Ochanomizu 13) Calculated by the author, based on data from University in 1992 for his long-term enthusiastic sup Shukan Toyo Keizai (1992, pp. 726-744) and in port. terviews. Data on Rockwell International Sus (Received Nov. 20, 1992) pension Systems is not available. (Accepted June 5, 1993) 14) Telephone interview with T. KAMO, Americas- Europe section, international corporate planning Notes department, Marubeni Corporation, 25 May, and facsimile 29 May 1992, Tokyo. 1) A detailed discussion of the overall investment 15) Telephone interview with S. A5AMA, president, in Canada by sogo shosha in terms of investment Marubeni Steel Corporation, 28 February 1992, amount, sector and location is not part of this Tokyo. paper. 16) Ibid. 2) See KURIHARA(1990) for a summary of the histo 17) Letters from Y. INAGAKI,overseas coordination ry of Japanese overseas investment after World and administration division, second overseas de War II. partment, Mitsui & Co., Ltd., 18 May and 12 June 3) The Foreign Exchange Control Law amendment 1992, Tokyo. in April, 1991 came into effect as of January 1, 18) The panel ruled that the price should be reduced 1992. However, it has had little effect on the to C$82.40 on January 1, 1991 from C$94.90 on matters discussed in this paper. April 1, 1990. The current world coal price is 4) In the 1980 amendment, the authorization of approximately C$ 62 per tonne (Canada Japan Japanese overseas investment changed from ap Trade Council Newsletter, May-June, 1990, p. 4). proval by the Ministry of Finance to prior decla 19) The capital of DDM Plastics Inc. was increased to ration to the Ministry. C$50.5 million. The ownership of the company 5) Hereafter, the dollar indicates the U.S. dollar, was changed as follows: Daikyo (55.6%), Suzuki unless otherwise specified. (33.5%) and Mitsui (11.1%), as of December 1991 6) The Japanese government data are given for the (Shukan Toyo Keizai,1992, p. 733). In this paper, fiscal year which starts in April and ends in the percentages of sogo shosha's equities indicate the following March. total equities possessed by both parent sogo 7) Although most projects are recorded by their shosha and their subsidiaries. location, a few that involve several locations are 20) See KURIHARA(1991) for provincial gross domes recorded by the main site of investment or by tic product. the corporate head office. 21) Source for office locations: Kanematsu history, 8) There are two important qualifications. First, annual reports, and interviews with T. FUJIWARA, total assets of all foreign banks are limited to 8% associate general manager, overseas relations de of the total domestic assets of all banks in partment, and with K. SHoNo of public relations Canada. Second, each foreign bank must limit its department, 11 May 1992, Tokyo. assets in Canada to 20 times its deemed capital 22) Source for office locations: Nissho Iwai histories , base (WRIGHT, 1984, p. 66). annual reports, and facsimile from M. KAWAGUCHI 9) See KURIHARA(1990) for a detailed discussion on and H. SUZUKI, international planning depart the Canadian investment climate as compared ment, 27 August and 31 August 1992, Tokyo. with the American one. Also see KURIHARA 23) Source for office locations: Sumitomo history, (1991) for changes in the economic and political annual reports, and facsimile 13 March; tele environment in Canada and Japan. phone interview with T. ISHIHARA, overseas 10) The aggregate data of Shukan Toyo Keizai can planning and coordination department no. 1, 4 not be directly compared with the Japanese gov September 1992, Tokyo. ernment data, because the latter include both 24) Source for office locations: Mitsui histories , planned, yet unmaterialized projects and already annual reports, and INAGAKI,op. cit. withdrawn projects. 25) Source for office locations: Nichimen history, 11) In this paper, all those offices which are smaller annual reports, and facsimile from I. KAwANISHI, than branch offices in terms of staff numbers are public relations department, 30 September 1992, classified as offices. Thus, they include represent Tokyo. ative offices, local offices and detached offices. In 26) KAMO,op. cit. addition, branches often keep their own ac 27) Ibid. counts. 28) In 1983 Vancouver became an operational head 12) By the occupation General Headquarters order quarters where the company president resided, Direct Foreign Investment in Canada by Sogo Shosha Since 1954 67

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1954年以降の総合商社による対加直接投資

栗原武美子*

この論文は,カナダにおげる総合商社(ここでは,戦資比率は少数であるが,商社は資源の長期購入契約を結んだり,製品の販売を一手に引き受ける。このように, 後の日本貿易ならびに海外直接投資の主たる担い手たる九大総合商社をさす)の直接投資の基本的特徴と,その総合商社の投資額は相対的に小さいが,その貿易促進力経済活動の立地を明らかにすることを目的としている。および合弁事業の組織力はきわめて大きい。このようなカナダにおける日本の直接投資は,これまで相対的に総合商社の投資活動は,他に類を見ないものであり,そは決して大きくなかった。しかし,近年の投資額の増加の意味で日本の海外直接投資の独特の原型と考えられは,カナダにおける日本の直接投資の影響力をますまする。高めっっある。この直接投資の重要な担い手の一つであ総合商社は1954年よりカナダの経済界で経済活動をる総合商社に関しては,確かに1980年代に入って,日行なってきた。市場の小規模性,オンタリオ・ケベック本の対加直接投資総額に占める割合において,相対的に州を中心とする市場の位置,アメリカ資本への強い依存その地位が低下したと言える。なぜなら,受入国の投資というカナダに特殊な要因が,100%子会社のカナダ現環境の変化と円高により,日本の製造業者や金融機関, 地法人の経済活動に影響し,このためカナダ会社は,し不動産会社が巨額の投資を行なうようになったからであばしば同じ親会社によるアメリカ現地法人よりも下位にる。にもかかわらず,日本の対加直接投資における総合位置づけられている。商社は主要4都市に事務所を開設商社の中心的役割は少しも低下していない。しているが,その立地選好は様々な要因の複合である。カナダへの総合商社による投資は,主として商業,資近年では,トロントがカナダの都市階層や経済活動の首源開発および製造業の3分野に集中している。商業投資位を占めていることに対応して,トロントへの本社の移は,自己資本100%の現地法人組織子会社や,販売会社転がなされている。また,米加企業が一般に選好するモの設立が中心である。商社が天然資源開発プロジェクトントリオールよりも,日加貿易の窓口であるヴァンクーや製造業の合弁事業に参加する際,多くの場合商社の出ヴァーを選好するのが,日本の商社の特徴である。

* 〒112東京都文京区白山東洋大学経済学部