JAPANESE FOREIGN DIRECT INVESTMENT TO AUSTRALIA A Essays

JAPANESE FOREIGN DIRECT INVESTMENT TO AUSTRALIA: AN ASSESSMENT OF CURRENT PERFORMANCE, CAUSES, AND PROSPECTS Khondaker M. Rahman Professor in Business Administration Graduate School of Business Administration Nanzan University, Nagoya, Japan and Visiting Professor School of Commerce and Marketing FABIE, CQ University Australia Bldg. 19, Level 2, Bruce Highway North Rockhampton, QLD 4702, Australia Phone: +61 7 4923 2695 e-mail: [emailprotected] Sheikh F. Rahman Professor of Accounting School of Commerce and Marketing FABIE, CQ University Australia 108 Lonsdale Street, Level 7 Melbourne, VIC 3000 Australia Phone: +61 3 8662 0810 e-mail: [emailprotected] Mohamed O. Elsayed Lecturer in Accounting School of Commerce and Marketing FABIE, CQ University Australia Bldg. 34, Level 1, Bruce Highway North Rockhampton, QLD 4702, Australia Phone: +61 7 4930 9893 e-mail: [emailprotected] JAPANESE FOREIGN DIRECT INVESTMENT TO AUSTRALIA: AN ASSESSMENT OF CURRENT PERFORMANCE, CAUSES, AND PROSPECTS ABSTRACT This paper examines Japanese foreign direct investment (FDI) in Australia in its historical continuity and change and postulates on the underlying factors. For research methods, it resorts to archival sources and qualitative induction and deduction logic. Findings suggests that there are four driving forces, namely, severe scarcity of manufacturing inputs, high cost of labour, accumulation of surplus funds for investment abroad, and firm-specific and internally created management resources in Japan have propelled its FDI to Australia. In addition to these imperatives in Japan, Australia's three sets of national advantages, namely, the advantage or resource endowments, created and nurtured advantage of an affluent domestic market, and the advantage from its historical role in promoting globalization, have attracted Japanese FDI. Especially, these national favourable conditions have enticed the market and resource-seeking Japanese multinational corporations (MNCs) to select Australia for direct investment and other business operations. Japan's trade frictions with the USA and other developed countries, instability in its resource procurement sources, and imperfections in its domestic labour and capital markets further drove its MNCs to invest in Australia. Australia, on the other hand, embraced Japanese FDI and MNCs since these were stable in nature and promising for a continued business and economic engagement. Australia also finds Japan as a partner for promoting and harvesting additional benefits from business and economic globalisation in the Asia-Pacific region, where Japan plays a significant role. Both countries' strengths, weaknesses, and national interest work centripetally and centrifugally to benefit from their mutual engagement and advantage. Keywords: ASEAN, Asia-Pacific, Australia, Australia-Japan FDI, comparative advantage, driving forces, global competitiveness, Japan, Japanese outward FDI, MNCs, Oceania, regional trade and investment blocs. 1. INTRODUCTION Japan's aggregate annual outward FDI flow to Australia has increased from barely US$1 million in 1965 to US$468 million in 1985, to US$1.854 billion in 2004 (JETRO 2008). Its FDI stock in Australia has also increased constantly from US$6.881 billion in 2001 to US$19.107 billion in 2008. Australia alone receives about 6.0 per cent of Japan's outward FDI, and is increasingly consolidating its position as a major receiver of Japanese FDI and MNCs, which has heightened interest among researchers (Anderson 1998, Bayari 2004, CEDA 1997, De Silva 2006, Ishii 2000, Kumarashinge Hoshino 2009, Tanno 2005, Tsumori 2001). This paper examines Japanese FDI to Australia in its historical continuity and change, and postulates the factors that have caused such movement of FDI to this country. The paper resorts to archival data sources and qualitative induction and logical deduction to conduct the research. As a prelude to investigate various factors that induce FDI, it examines various FDI theories, and develops a logical basis of analysis and explanation. The paper proceeds as follows: First, it makes an investigation into the flow of FDI from Japan to Australia from bilateral as well as global perspectives. Then, with a brief overview of the major theoretical arguments of FDI by MNCs and nations, it examines the competitive advantages available in these two countries that initiated, proliferated, and sustained their FDI businesses. Finally, summarising the research findings, it concludes that Japanese FDI to Australia will further flourish due to both nations' historical reliance on mutual advantages and/or endowments. 2. WORLD'S OUTWARD FOREIGN DIRECT INVESTMENT AND JAPAN World Investment Report (UNCTAD, 2009) shows that world's aggregate outward FDI has increased and reached a record high level of US$1.997 trillion (at current prices and current exchange rates) in 2007 (see Table 1). It was in the range of US$632-US$735 billion during the first four years of the current millennium (Khondaker, 2006), but rebounded and amounted to US$881 billion in 2005 and US$ 1.323 trillion in 2006 (UNCTAD, 2008). Major suppliers of FDI included the USA, UK, Canada, Austria, Belgium and Luxembourg, Denmark, Finland, France, Germany, Italy, Netherlands, Norway, Portugal,