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Scale and timing of foreign direct investment of Japanese electronics firms in the U.S. and Canada

University of British Columbia

This study extends Dunning's eclectic paradigm to develop propositions about factors influencing the foreign direct investment (FDI) of firms. The propositions are tested with data about the FDI of Japanese electronics firms in the U.S. and Canada. The first part of the study employs LISREL structural equation models to analyze the influence of firm-specific assets, i.e., ownership advantages and international management capabilities, on the ability of firms to undertake FDI. Results from the models reveal similar sources of ownership advantages and international management capabilities for Japanese electronics firms in the U.S. and Canada. Ownership advantages are realized in size, technological competence, advertising and exports commitment of the firm. International management capabilities are derived from country spatial distribution, specific country experience and multinationality. While both ownership advantages and international management capabilities significantly influence the scale of FDI of Japanese firms in the U.S., only international management capabilities are significant in Canada. This variation in Japanese FDI behavior is clarified by further analysis of the competitive dynamics existing in the two host countries. The second part of the study examines the relationship between attributes of Japanese electronics firms and the timing of their investment in the U.S. and Canada. It is argued that a useful way to model foreign direct investment (FDI) decisions is to recognize explicitly the uncertainties involved in the decisions. A probabilistic model of FDI is specified. The model assumes that, ceteris paribus, the higher the risk-adjusted expected net benefits from foreign direct investment, the higher the probability of making an investment at a particular moment and thus the probability of investing earlier. It also assumes that uncertainties may be reduced with the passage of time. The models are estimated using Cox (1972) form of proportional hazards regression model. Results generally confirm the hypotheses that size, financial capabilities, as well as possession of some firm-specific strategic assets are significantly related to early FDI. An interesting exception is research and development, which is significant only after the mid-1970s. This is largely attributed to Japanese government's support and the subsequent maturation of firms.

Thesis/Dissertation

application/pdf

2008-07-31

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http://hdl.handle.net/2429/1234

Business Administration

University of British Columbia

UBCV

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