Organisation, motivations and case studies of Japanese direct investment in real estate 1985-94

Abstract

Between 1985 and 1994 there was a remarkable rise and decline in Japanese real estate investment abroad which has been little documented or analysed, despite its economic scale and political impact. This paper is a further exploration of the nature and causes of this form of investment, following on from a broader study of its determinants in Pacific Economic Paper No. 271 of September 1997. It provides supporting evidence, through an examination of the organisation and motivations of investors, for the hypothesis that Japanese investors in real estate were predominantly influenced by the financial environment in Japan after the mid 1980s, rather than by more strategic factors such as their firm-specific advantages. According to traditional industrial organisation theory, FDI (foreign direct investment) is associated with investor control over assets and an active managerial role by investors. Hence, the purpose of FDI is to pursue a strategic international expansion by a firm, based on its specific proprietary advantages over local firms (Dunning 1981; 1993). Notably, Hymer (1976) categorised active investment as type II if it involved both control and management; alternatively, inactive investment, without control, is categorised as type I in nature. Evidence is provided that the corporate and financial organisational structure of Japanese real estate FDI did not exhibit type II features to any significant extent. It is argued that the organisational and corporate strengths of Japanese firms explain little of the pattern of real estate FDI over the 10 years in review. The paper concludes that Japanese real estate investment appears to be an exception to the traditional firm-specific model of FDI.