INVESTING IN A COMMON FUTURE

Tim Bollinger

EXECUTIVE SUMMARY

This survey examines foreign direct investment (FDI) through three indirectly-related case studies. Each study is independent of the others, although all have Japanese investment capital. No attempt has been made to draw broad conclusions about the general impact of FDI upon the New Zealand economy. Nonetheless, some common threads have been discovered, and each study focuses on evidence in favour of, or contrary to, commonly-held assumptions about the value of FDI in relation to important issues such as trade development, employment opportunities, and technology transfer. An attempt has also been made to assess the role of each investment within its specialised sector, and more especially its social and economic impact on its immediate community. The investments can therefore be viewed in the broader patterns of social and economic development in this country. A summary table itemising advantages and disadvantages to the respective companies, and to New Zealand, is found at the end of this section.

Juken Nissho Ltd (JNL) is examined in relation to the timber industry, particularly in the Wairarapa region. This study focuses on Masterton's Waingawa Mill, one of three processing plants controlled by JNL throughout the North Island.

Shiseido (NZ) Ltd is viewed as a market leader in the New Zealand cosmetics industry and in its geographical position on the boundary between two of Auckland's most disparate communities in the wards of Tamaki and Eastern Bays.

The Millbrook Country Club Ltd is examined in relation to the tourism and property markets in the 'micro-economy' of the Queenstown-Lakes District.

The three investments vary in dollar value and commercial scope. The Shiseido investment, for example, has a $3 million expansion programme which has created an extra eight jobs. Shiseido is important mainly for its new focus on export production. The company's origins lie in a 'market-access' arrangement established under the restrictive import licensing regime that existed in 1971.

In contrast, Juken Nissho Limited's investment in the Wairarapa consists of a $40.5 million crown forest licence and a $60 million-plus processing facility creating over 250 new jobs. This constitutes less than a third of JNL's total forestry investment in New Zealand since buying the resource in the state asset sales of the early 1990s. 1

The Millbrook Country Club is also a substantial investment, more than $40 million, and has created between 80 and 120 full- and part-time jobs. It is important both because it constitutes a new departure for New Zealand tourism and because it creates new plant in an industry where development is needed to meet the expected demand.

The regions in which these investments have been made vary widely in their population make-up, employment characteristics and level of economic development.

The Juken Nissho and Millbrook investments stand out because of their impact on their communities, the former for its creation of jobs in a region of marked unemployment and for its massive impact on a changing regional industry, forestry, and the latter for its important part in the expansion of one of New Zealand's most heavily-capitalised regional economies, the Queenstown-Lakes District. Economic growth is as problematic for that local community as underdevelopment is elsewhere, given a rapidly expanding population and increasing demands upon local resources from growth in tourism.

The role of local authorities in investment promotion is also discussed. Auckland and Queenstown authorities are less directly active in aiding the establishment of international investment links than the Wairarapa's local administration. Auckland, like Queenstown, already enjoys large quantities of off-shore investment, but suffers the special problems of a non-cohesive urban environment where the distribution of economic benefits fail to be directly felt by vast portions of the affected community. This appears to be a stumbling block for the development of a positive local attitude towards foreign investment, in marked contrast to the Wairarapa and Queenstown communities which have successfully cultivated a climate of community support for ongoing investments.

As far as reasons for investing are concerned, Juken Nissho and Shiseido represent the interests of large global corporations whose recent New Zealand developments are just one part of a broader strategy of internationalisation. Juken Nissho's New Zealand investment matters to the joint venture partners because it assures future access to a renewable resource and helps them to develop new product markets in Japan. The third case study, the Millbrook resort, is a one-off entrepreneurial investment and, unlike the others, is a joint-venture of Japanese, Hong Kong and New Zealand financial interests. All three investments must be seen as enterprises which are forward looking and long term because of their commitment to the construction of new plant.

These examples also appear to indicate that Japanese international business may be especially sensitive to the tenor of public opinion in their host countries. Each company has demonstrated an exemplary concern for public relations and acts of corporate citizenship. All three companies run deliberately conceived programmes of community support and participation in those communities, and each claims a broad social and national economic concern that extends beyond its corporate objectives.

On balance, the contribution of these investors in new technology, market access, and opportunities for local skill development appears equal to that which New Zealand offers them in return, in locally-developed forestry technology for example, in the entrepreneurial skills and market knowledge of New Zealand's tourism and cosmetics industries, and in the predominantly literate and numerate labour force that has been maintained here.

Transfer of imported technology for the direct benefit of their respective industries would appear to be slight. All three companies have triggered further investment in expansion by local competitors, most notably in the forest industry, but the new technologies brought in by the Japanese investors are of a nature or scale to remain specific to their operations for some time. The most notable exception is in the human resource and management area where Juken Nissho and Shiseido appear to have close relationships with service providers so that their corporate goals encompass the interests of the client company and vice versa, with varying degrees of shared information, management, training and so on. The landscape engineering and planning technology developed for the Millbrook Resort and successfully transferred to subsequent enterprises is locally derived, although its development might not have been possible without the substantial input of off-shore capital.

Of the Government policies which influence investment, changes to import tariffs and licensing, and to the state regulation of overseas investment, seem to have had the greatest affect on the investment decisions of the foreign companies examined.

Traditionally domestic suppliers such as Shiseido have successfully internationalised their operations as a result of such policy changes. Most of Shiseido's raw materials come from overseas, as does its plant, equipment and marketing technology. The low transaction costs associated with importing the various technologies and materials are a major strategic advantage to the company in its international operations. By contrast, the Employment Contracts legislation appears to constitute a relatively minor attraction. Advantages of resource access heavily outweigh anticipated labour costs as a motivation for investment in all three examples.