& BUSINESS

25th

REPORT
ANNUALilil"1"[lil""lels-.-.e-.

RESEARCH INSTITUTE FOR ECONOMICSAND BUSINESS ADMINISTRATIONKOBE UNIVERSITY
1979

KOBE
ECONOMIC & BUSINESSREVIEW
25th

ANNUAL REPORTK"vTE.xoes"eqIig.,/gw
RESEARCH INSTITUTE FOR ECONOMICSAND BUSINESS ADMINISTRATIONKOBE UNIVERSITY

1979

CONTENTS
Page
Redundancy of Seafarers and the Practiceof Permanent Employment..,.,,...........................HiromasaYAMAMoTo 1

Japanese Multinational Enterprises:

AViewfromOutside ...,....,..........,,..,..................HidekiYosHiHARA 15

A Comment on the Bazaraa's Algorithm ...............,........Komayuki ITow 37

Effects of Ship's Size and Cargo Lotson the Ocean Freight Rates .......................................Tetsuji SHiMoJo 43

Direct Forign Investments and Foreign Exchange Rate:

A Model of Specific Factors and Non-tradable Goods ...Kazuhiro IGAwA 65

REDUNDANCY OF SEAFARERS AND THE
PRACTICE OF PERMANENT EMPLOYMENTHiromasa YAMAMoTO
In the deep-sea Japanese shipping industry all shipping companies employ
seafarers as permanent employees. In this article the writer explains the reason
why the practice of permanent employment has introduced in the industry after theWorld War II. The next part deals how this practice was evaluated by management

and the seamen's union before recent depressed years. However, main concernof the article is to examine the attitude of labour and management.toward thispractice during recent depressed years. Labour costs, security of employment,
adjustment of employment and also necessity of retaining qualified seafares withincompany are related problems that management and labour have to deal when they
consider the pertinence of the current practice. In the development of depression

a gap of company policy toward this practice has emerged between big companies
and others. Based on the analytical description of those points the writer attempts
to give some perspective to the future of the current practice.

1. Introduction of the practice ofpermanent employment

by deep-sea shipping companies
It was in 1947 that all Japanese deep-sea shipping companies adopted without

exception the practice of permanent employment for seafarers. In order to makeclear the situations, it is better to describe in brief the hiring practice of seafarers by

Japanese shipping companies before the World War II and also the war-time governmental control on maritime labour.
In the prewar period only two liner companies, the N,Y.K. Line and the O.S.K.

Line, employed both oMcers and ratings as permanent employees in the shipping

industry while most shipowners hired seafarers on voyage basis though many ofthem hired captains and a few other oMcers in supervising position continuously.

In those days the Japan Shipowners Association and two seafarers' unions, theJapan Seamen's Union and the Seafaring OMcers Association kept harmonious
labour-management relations. Cooperation ofthem led in 1927 to the establishmentof the Kaiji-Kyodokai, which maintained job exchange oMces for seafarers in main

ports". Most shipowners hired seafarers through it. In the prewar period there
1) The Kaiji-Kyodokai had an another important function as standing negotiating committee
between labour and management to determine the minimum wage and other working conditions.

HIROMASA YAMAMOTO

2

were in general redundancies of seafarers, and consequently shipowners felt no
diMculty of hiring qualified seafarers.

Outbreak of the war with China in 1937 infiuenced severely upon the industrial

relations of the Japanese shipping industry. Under the pressure of militarism
seafarers unions were forced to dissolve in 1940, and the Kaiji`-Kyodokai destined tofollow the same way. Wartime control upon the shipping industry became severer
as the war enlarged. In the final stage of wartime control all merchant vessels andseafaring labour were under the unified control of the Sempaku-Uneikai (Ship
Operation Corporation). For the purpose of fu11 utilization of manpower, thegovernment designated qualified seafarers as drafted worker, and put them into thesingle labour pool, from which the Ship Operation Corporation dispatched necessary

numbers of crew to merchant vessels. Under the supervision of the government
the Corporation determined the wage rates of seafarers and their working conditions,in which provisions of paid vacation and payment of basic wage to seafarers on land
Wh/I'iti-i"g" fot''neXt' 'v'o'

Yage Were'heWIY'iht'r-ddnC'e'd:" Db'ring'W'a'ftirtie'petiod's'e' afare'rs

were provided stability ofincome and employment as permanent employees, though
they were in a status of the drafted workers.

After the end ofwar, wartime economic control was abolished. However, oceantransportation was an exception. In need of emergent import of food and repatriationof overseas armed forces, the Ship Operation Corporation continued its activities

until 1950. At the end of 1945 the All Japan Seamen's Union was reorganized as

the unified organization for oMcers and ratings. Hereafter wages and working
conditions of seafarers were negotiated and agreed between the Ship Operation
Corporation and the A.J.S,U..

In March 1947 the decree on mobilization of seafaring labour was abolished.
In consequence seafarers were released from the status ofdrafted workers. However,they Iost at the same time the legal ground of securing governmental support on

stability of their income and employment. The Ship Operation Corporation was
also expected to be abolished in near future. Fear of unemployment spread widely

among seafarers, and it might become social problem. In order to relieve theuneasiness, the government suggested to the Ship Operation Corporation to negotiatewith the union and also with the Nippon Kaiun Kyokai, the predecessor of theJapan Shipowners Association, on the necessary measures for securing fu11 employ-ment of seafarers. Thus, tripanite negotiation began and concluded an agreement

on employment in the same month. Main points of the agreement were that withthe support of the government the Ship Operation Corporation would continue toemploy seafarer with the same conditions as before, and that when the Corporation

were not be able to hire them due to its dissolution or some other reasons
the Shipowners Association would consend in principle to hire all seafaring employees

REDUNDANCY OF SEAFARERS AND THE PRACTICE OF 3
PERMANENT EMPLOYMENTof the Corporation2).

In April 1949 as a final step of transition to peacetime activities, theShip Operation Corporation determind to utilize the vessels which owned by private
shiponwers on time charter basis instead of bareboat charter basis which had been

the practice3'. At that time the Corporation employed thirty-nine thousand
seafarers, and three fourths of them were crew and reserve personnels working on

board vessels which were owned by private shipping companies. Consequently,
along with that determination of the Corporation, thirty thousand seafaring
employees were required to be hired by respective shipowners. After several negoti-

ations with the Corporation and the union, the Shipowners Association agreed to
employ all of them with the same wages and working conditions as the Corporation`'.

Therefore, henceforth all shipping companies employed seafarers as permanent
employees.
In April 1950 all governmental control over shipping activities were abolished.

However, there was no attempt for shipping companies to change the system of
seafarers' employment.

2. "Joint hiring system"-proposal of the A.J.S.U.

and the response of shipowners
In the annual convention of 1957 the A.J.S.U. adopted the policy, as one of main

policies, to establish the joint hiring system for the purpose of promoting thestability of employment for union members. In the next year the union adopted
the resolution of promoting that policy,

According to the opinion of the union, the current system of permanent employment was effective to attain the stability of employment to sorne degree. However,in that system the stability depends too much upon the activities of each company.

For example, a failure of company policy might result its employees loss ofjob

opportunities. In addition, permanent employment puts inevitably large costburden to small shipowners, because in order to grant crew vacations it becomes
necessary for them to retain reserved members within their companies for every kindofjobs, resulting a high ratio of reserved members against crew for small shipowners

who own only a vessel or two. In consequence, a small shipowner finds diMcultyof granting a member of crew vacation immediately as he wishes when the shipownerdoes not retain adequate reserved personnels. Sometimes he tends to compensate2) Ministry of Transportation, Kai'o Rodo lunen-shi (Ten Years of Seafaring Labour), 1957,
p. 153.

3) In case of bareboat charter the crew is hired by the charterer, but in case of time charterthe shipowner hires crew members.
4) Ministry of Transportation, op. cit., pp. 204-10.

HIROMASA YAMAMOTO

4

a part of vacation days with cash payment. Thus, the union contended that for the
purpose of securing the stability of employment it was desirable to introduce theindustry-w{de device, the :joint ,hiring system.

Outline of the joint hiring system which the A.J.S.U. proposed was as follows;
1. in order to hire seafarers jointly shipping companies would incorporate thejoint hiring corporation (the J.H.C.),

2. the J.H.C. would hire and retain enough numbers of seafarers to dispatchcrew to the vessels which were owned by member companies,
3. when a seafarer was dispatched to some vessel, his wage and allowanceswere paid by shipowner of the vessel. Costs of the paid vacationwas also

covered by the shipowner,
4. when a seafarer came in the status of waiting next duty after his vacation,

allowances were paid by the J.H.C.,

5. costs and expenses oftheJ.H.C. were contributed by member companies, and6. wages and working conditions of seafarers were bargained and determinedby the trade agreement between the J.H.C. and the A.J.S.U.
In explaining the J.H.C. plan, the union made clear its intention that as a realistic

approach the J.H.C. should be incorporated by the joint cooperation of shipping

companies of small-and medium-sized- which found many demerits in the current
system of permanent employment. It was desirable, the union contended, that attt'
the final stage the J.H.C. would enlarge
its activities to dispatch seafarers exclusively'
tt shipping companies.
to all'' 'Opposed to the proposal of the union, the Jurokushakai, the employers' organi-zation which represented sixteen big shipping companies, made public a pamphlet.
It was fu11 of the contention of large shipping companies that the present system ofpermanent employment was an indispensable eiement for attaining the goal of
personnel management5'. As is shown hencefofth, in their contention shipowners
laid stress on the loyalty ofseafarers to employers and also their high morale. Ac-

cording to the opinion of shipowners eMciencies on board ship depend upon competencies, motivation for work and also team work of the crew. In some trades andvessels seafarers are required to have the specialized qualifications to fu1fi1 their duties.

In case of permanent employment system management can select and employ qualified
personnels for a long period. Management can offer adequate training courses for

employees if necessary, without fear of diseconomy due to resignation. Throughpromotion and the increase ofwage which are based on the seniority within company,

management can expect employees' high morale and loyalty to the company, whichlead to friendly cooperation between crew, the improvement of eMciencies and also5) Jurokushakai, Kyodo Koyo no Mondai-ten, undated.

REDUNDANCY OF SEAFARERS AND THE PRACTICE OF 5
PERMANENT EMPLOYMENT

prevention ofdisasters at sea. In contrast, under thejoint hiring system management
cannot hire desirable personnels, and it seems impossible to expect good team work

' ship. • ••• ' ''• '. •' •• • .. ,.
on board
Shipowners asserted also in the pamphlet that the comparison of labour costs
did not justify the introduction of the joint hiring system as the union contended.

According to shipowners' opinion it is true that under the permanent employment
system additional labour costs become necessary in order to retain the reserved

personnel when compared with the hiring system of seafarers on voyage basis.
However, when a company has more than eight vessels, the reserve ratio for every job

is stable6). Therefore, in case of such a company, management cannot expect tolower labour cost when the joint hiring system is introduced. On the other hand,even in case of small shipping companies, they can reduce the costs of reserved

personnel under the permanent employment system through cooperation between
companies of dispatching and rehiring of reserved personnels.

3. Depression and the practice of permanent employment
Since the oil shock of 1973 Japanese shipping companies have suffered fromseverer competition as shipping market went bad to worse. During these years,
especially after 1975 most Japanese shipping companies except a few big ones havenot been able to make profit. There have reported a series of failures of small
Japanese shipowners who had engaged in lumber and tramp trades in the Far East.
In the survey of the Japanese shipping industry of 1976, the ministry of transport

pointed out that competitive power of the Japanese merchant fieet had been
decreasing due to the rapid increase ofits labour costs", To recoup its competitive

power, the survey continued, co-operative actions by labour and management werenecessary to reexamine the current practice of permanent employment and to takesuch adequate measures for the decrease of labour costs as had been adopted bymerchant fleets of other developed countries. For example, improvement of thesystem of employment and remedy of hiring practice which included hiring seafarersof developing countries as a part of crew members were worth to consideration.
Then, as the survey decribed, has the practice of permanent employment resulted
in the increase of labour costs of the Japanese shipping? What kind of device havebeen adopted by the management for the purpose of decreasing labour costs? Dose
6) This assertion is based on the manning scale and also on the vacation clause in the trade
agreement which was effoctive in 1958. In recent years the number of crew has been decreased
due to rationalization and automation on board ship and the paid holidays has been improved
considerably. Consequently the reserve ratio against crew has increased considerably as we will
decribe later.

7) Ministry of Transport, Nihon Kai-un no GenJ'o, July 1976. p. 56.

HIROMASA YAMAMOTO

6

the management need remedy or abandonment of the present practice of permanent

employment? Hereafter we will consider those questions. However, before
considering them it is necessary to sketch briefiy the trend of labour costs of theJapanese shipping.

Labour costs
In recent years labour costs of the Japanese deep sea shipping have inceased
considerably due to the following two reasons: (1) increase of wage and allowances,and (2) rapid increase of the ratio of reserve seafarers against crew (the reserve ratio).

Monthly earnings of seafarers who worked on board ship of the deep sea trade

increased 250 per cent during the period from 1970 to 1975S'. Improvements ofbasic wage and overtime payment led to the increase of monthly earnings. According
to trade agreement shipowners have to contribute to retirement annuity and retiringallowance, and the sum of those contributions is proportionate to basic wage. In
addition, the union succeeded to improve vacation clauses in the negotiations of1974 and 75, and got Ionger holidays and better allovvances. Therefore, overall
increase of wage costs seemed larger than that of monthly earnings9'.

On the increase of the reserve ratio some explanatory comment is needed. The
reason why retaining reserve seafarers within a company comes from the necessity

ofprovidingcrewwithvacation. Accordingly,asperiodofvacationbecomeslonger,
the reserve ratio increases proportionately. By the deep sea agreement of 1974
and l975 a considerable improvement was attained on the length of the compensatedleave on land, which was afforded in compensation of weekend (Saturday and
Sunday) and national holidays that had been spent on board ship, notwithstanding
either at sea or in port. According to the agreement of 1975, when a seafarer had
been in continuous service of six months, he was entitled to take paid vacation andthe compensated leave amounting together to longer than two and a half monthsiO'.

Thus, in order to proyide crew with vacations as was determined by the yacation
8) Figure is based on the Sen-in Rodo Tokei (the Statisties of Seafaring Labour) by the ipinistryof Transport.
9) The writer attempted in other occasion the international comparison oflabour costs between
Japanese ships and those of several O.E.C.D. countries and also fiag of convenience at the date of
1975. According to that estimate labour costs of deep-sea Japanese cargo ships of 10,ooO d.w.t.
were, generally speaking, on higher level of most European countries, while in case oflarge container
ship difference of costs were negligible. Labour costs of cargo ships fiying fiag of convenience
which were manned by Asian crew were nearly a third of those of Japanese ships.

See. H. Yamamoto, International Comparison of Labour Costs; the Deep-sea Shipping(Japanese) in Kaiji Sangyo Kenkyusho, Sen-in Chingin ni kansuru Chosa-Kenkyu, 1977.
10) When in paid vacation, a seafarer was paid basic wage, family-, tanker-, meal-allowancesand several other allowances. When in the compensated leave, he was paid almost the sameamount of wage and allowances except meal allowance.

REDUNDANCY OF SEAFARERS AND THE PRACTICE OF 7
PERMANENT EMPLOYMENT

clauses ofthe agreement, shipowners hadto retain reserve seafarers as many as nearlya half of crew membersiD. In 1950 vacation was twenty five,days after one year's
continuous service. When compared to it,. the recent improvement.on vacation has

been quite large. Together with.increase.of wage costs and the improvement ofvacation, costs of retaing reserve seafarers have also increased considerably.
Here we should pay attention to the fact that increase of the costs of retaining

reserve seafarers does not always come from the practice of permanent employment.

For example, even when a shipowner hires crew on voyage basis, he has to pay
vacation benefits to them. Therefore, so far as increase of the costs of retaing
reserve seafarers is due to the improvement ofvacation, that increase•has no relation

to the hiring practice. Description of the survey that mentioned before might bemisleading.

However, it is also true that in the practice of permanent employment management has to bear some cost burden peculiar to that practice. If a seafarer comesin a status of waiting for next service after his vacation, management has to pay him

an adequate sum of wage and allowances'until he goes on board ship. It is anadditional costs peculiar to the permanent empolyment, which is unnecessary in caseof hiring on voyage basis. Further, there is another reason,that the practice'of
permanent employment might lead to increase of labour cost in depression years.
It is the diMculties for management to adjust employment to deereasing dernand.

Permanent employment and redundancy
rdiMculties of adjusting employment--In the practice ofpermanent employment in Japan, both labour and management
have, as is widely admitted, attached importance to the stability of employment.

During depression period this attitude of labour and management often leads torefrain from discharge of workers if possible. Sometimes it causes an inadequate
adjustment of ernployment to the decreasing demand.

However, in recent years cut down of employees has been carried out by many
companies in the depressed shoreside industries including textile and shipbuilding.

For that purpose various device has been adopted; encouragement Qf spontaneous
retirement through better retirement allowance, replacement of wQrkers to otherjobs within company and lay off. Discharge by nomination was the last resort for
management, because it had often led to serious labour disputes.

In the deep sea shipping industry, which has been also one of the depressed11) Also in order to replace the sick or injured personnel and to provide seafarers training
courses on land, shipowners had to retaiq reserve seafarers. Consequently, under the'conditions
determineq by the qgreement of 1975 the optimal reserve ratio was estimated as about fifty per cent.

8

HIROMASA YAMAMOTO

industries since 1975, cut down of seafarers has not been carried out. Because in
the fall of 1972 the seamen's union succeeded in concluding the agreement of employ-ment security, and in consequence management has had retain idle seafaring labour
force within company. Rapid increase of the reserve ratio during recent few years

has been the combined results of both the improvement of vacation clauses andpoor adjustment of idle working force. Hereafter we will trace the process ofnegotiation on employment security since 1972 in the deep sea shipping industry.
After the historical strike of 1972 which had lasted for three months, shipowners
began to sell ships of conventional type to foreign shipowners, because those ships

were, according to shipowners' opinion, no more able to operate profitably under

new trade agreement. For fear that overseas sales of many Japanese ships would

be detrimental to seafarers' employment, the A.J.S.U. demanded the deep-sea
shipping employers' organizations to stop overseas sales of ships and not to decreaseavailable jobs. After several negotiations, in October 1972 the employers' organi-zations and the union concluded following agreement on stability of employment;
the joint committee on employment would be set up in order to consider practicalmeasures for stability of empJoyment; and when a shipowner had to sell his ship

abroad, he would not discharge his crew and endeavour to provide another job
opportunities by new shipbuilding, etc. In June 1974 on the joint committee on
employment the representatives of the

deep-sea shipping employers' organi-zations admitted the union's demandthat securing job opportunities for

Trend of employment; Seafarers employed
by deep-sea shipping cornpanies(Thousand)50

seafarers who were currently employed

Z,/ ,/ /,by member company was the collective responsibility of the whole group.

40

As shipping market declining,
shipowners continued overseas salesof aged and uneconomical ships. How-

number. of seafarers/g7kkiZif/ij//ZZ(P'.')

80

70

60

30

ever, it became impossible for shipowners to discharge or lay off their

40
20

crews because of the agreement on
stability of employment. They had
to retain redundant seafaring labour

/-

10

/I K
reserve ratlo

within companies, resulting high reserve ratio against crew. Only measurethat management could adopt forbalancing the supply of labour to de-creasing demand was to stop newoil 11975
1970
Source; Ministry of Transportation, Sen-in

Jukyu Sogo Chosa Hokoku, 1978

,30

50

REDUNDANCY OF SEAFARERS AND THE PRACTICE OF9PERMANENT EMPLOYMENT
hiring of seafarers. At the same time management had to provide some posts for
redundant seafarers lest they should be idle. In many cases a replacement of ships

by new construction was not possible during depression. Then, some reserve
seafarers were dispatched to port reliefwork, some to desk work in container termi-

nal and oMce. Some others were ordered to attend on the training course ofautomated apparatus. In some cases, however not often, seafarers were dispatched as acrew to ships flying a flag of convenience, which were under economic control of thecompany. When those device were not enough to provide work for whole redundant seafarers, management had to order the rest ofthem to wait for next duty athome, with pay ofbasic wage and several allowances.

Retaining redundant seafarers was one of the important factors which caused
the increase of labour costs per ship of company fleet than before. It was an additional disadvantage in labour costs comparison that the deep-sea Japanese shipping

had been incurred. Though the big six companies and their aMliated companies
could secure employment of their seafarers, independent small shipowners who had
little financial ability suffered from increased labour costs. In those situations,
there occurred the close down of small shipping companies which had mainly engaged

in near-sea trades. Seafarers who had been employed by those companies losttheirjobsi2), In severe slump, it was quite diMcult for the seamen's union to makeother shipping companies rehire the unemployed, though the collective responsibility
for securing job opportunities had been declared in 1974.

Different responses-big companies and small ones

When we consider the response of the deep-sea Japanese shipowners to theincrease oflabour costs, due attention should be paid to the fact that a large difference

is found in the fleet policy and also employment policy between big companies andsmall and medium sized ones. In the category of big companies we include twentytwo companies which organize the Employers Association of the Deep-Sea Shipping.
The big six nuclear companies such as the N.Y.K., the Mitsui-O.S.K. are included
among them. Though there are differences in the size of fieet and areas of shipping

activities among them, those companies have common features on fieet policy andalso employment policy. In the category of small and medium sized companies
there are fifty companies which organize the Association of Small and Medium sized

Shipowners. The E.A.D.S. and the A.S.M.S. have kept joint bargaining withseamen's union and concluded the unified labour agreement. But in the bargaining
12) According to the estimate of the A.J.S.U., the unemployed seafarers who had worked in
the deep-sea shipping arnounted to nearly four thousand at the end of 1978. A.J,S.U., The Kai-in,
April 1979, p. 8.

10

HIROMASA YAMAMOTO

of 1978 members of the latter claimed separate or individual bargaining by reasonof their economic diMculties, though they did not succeed to attain their aim fu11y.
As the fact that mentioned above shows} a gap ofinterests in bargaining and employ-ment policy has become clear among companies.
Most of big companies cover all or many fields of shipping activities; container-and conventional-liner, tramp, tanker and bulk carriers. Main part of their tanker
and bulk carrier fleet were operated under long term charter. Therefore in recent
depression years those companies have been able to get comparatively stable earnings
through liner service and long term charter of tankers and bulk carriers. In addition,

since about 1970 those companies have developed and eniarged the economic control
over flag of convenience ships through the establishment of foreign subsidiaries andother means'S'. Along with the development of indirect ownership of flag of conve-

nience ships by big companies, the composition of their company fieets have been
also changing. Those companies sold out conventional cargo ships and small bulkers.
They tend to have larger and automated vessels of capital intensive type such as large

container ships and tankers of 150,OOO d.w.t. and over, while they have charteredthose vessels of labour intensive type with long term charter from foreign subsidiaries.

They have also chartered various types of vessels from foreign shipowners according

to market conditions. In consequence, oftotal tonnage which the big six companies
operated in 1975 more than fifty per cent was those chartered from foreign subsidiaries

and other foreign shipowners. Further, generaly speaking, those big companies hayefinancial abilities to carry out the replacement and modernization program ofcompany fieet, It may be supposed that the composition of those company fleets
will change further to more capital intensive type.

Situations of small and medium sized shipping companies are quite contrary to
the above. Most of those companies, having no liner service, specialize to tramp,

bulk or tanker shipping. Though a part of their vessels are operated under longterm charter, the rest are operated in free market where they have suffered fromcompetition with flag of convenience and developing countries. Consequently
they have incurred severe damages in slump of tanker and tramp market. Thoughthose companies also began to charter flag of convenience ships under long term
charter basis and some of them established foreign subsidiaries, they could notnecessarily get enough advantages of costs because their financial conditions enabledfull utilization of flag of convenience. Thus, for small and medium sized shipowners,

what they have to do is not how well to make up the long term management policy
but how to survive in slump.

As we have described above, there are cut-clear differences of earnings and13) H. Yamamoto, Bengi-Chiseki-sen to Sen-in Mondai, Keizai Keiei Kenkyu IVenpo, No. 25 (I),1974, pp. 150-64.

REDUNDANCY OF SEAFARERS. AND. THE PRACTICE OF 11

PERMANENT EMPLOYMENT

fleet policy between big companies and small and medium sized companies. These
differences lead to the difference of company policy toward the practice of permanent

employment between them,
In case of big companies there is no symptom of changirig the current practice of

permanent employment. They need to preceed further the modernization programof company fleet which is now under way. 'Modernization program intends to put
automated vessels which are operated by creW of twelve or thirteen members topractical use in near future. For that purpose it is necessary for those companies
to retain well qualified and skilfu1 seafarers within. company and give them pertinent

training on automated apparatus. That seems the main reason why those companies
continued the current practice of permanent employment.

Here we should also pay attention to the problem of adjusting employment•
Big companies have kept the agreement on stability of employment without any
counterproposal notwithstanding the fact that retaining excessive sefaring labour
within company put some cost burden to them. At aglance it looks quite curious•
However, we should be reminded that for the development ofmodernization programof company fleet the co-operation of the union is indispensable. Necessary stepsof modernization program such as amendment of seamen's act, remedies of license
system and reorganization ofjobs on board ships can not be realized if the unionis against them. Most important things that big companies have to do is to maintainco-operative relations with the union. Consequently they do not want to adjust

employment with the cost of delay of the modernization program through thedeteriozation of labour-management relations.
Economic situations have not allow small and medium sized shipowners to follow

the same policy as big companies choosed. Most ofthern are obliged to costdown
labour costs by any means. One of their attempt was the proposal of the joint
hiring organization. In October 1977 twenty-two independent small shipowners,

who were members of the A.S.M.S., proposed the establishment of the joint
hiring organization to the seamen's union. Outline of the proposal was as follows;

1. the group of independent owners would establish the joint hiring organi-zation for the purpose of dispatching crew to ships owned by member.
companles,
2. company would discharge whole seafarers who were employed at the date ofestablishment of the organization, and register all ofthem to the organization,

3. companywouldhireex-employeesfromtheorganizationonvoyagebasis,and
4. when waiting for next duty, a seafarer would be paid unemployment
allowance from the Seafarers' Insurance Fundi4).
14) The Kaiun, No. 603, Dec. 1977.

12

HIROMASA YAMAMOTO

That proposal showed clearly that independent small shipowners were goingto adopt pay-off system, abandoning the practice of permanent employment. At
the same time an abolition of compensated holidays and decrease of the manning
scale were also demanded by them. In face to that drastic proposal, the union
contended that measures for securing stability of employment should be dealed on

the joint comittee of employment, and after negotiations shipowners withdrew
their proposal, though the union agreed to deal with an individual shipowner on

employment problem in an emergent crisis of management.
It seems that small shipowners will propose again to change the present systemof permanent employment into pay-off system so long as slump of shipping market
continues. However, there is little possibility that the union will agree with theintroduction of pay-off system, because employment and income of seafarers will
become unstable under that system. As a counter-proposal thejoint hiring system
will be reconsidered by the union. It is quite diMcult to predict what kind of systemof emp!oyment will be introduced by the future negotiations between small
shipowners and the union. However, it is clear that small shipowners will not beable to continue the practice of permanent employment so long as they have toretain excessive seafaring workers within companies. Medium-sized shipowners
are, if not all, also in similar situations.

In those economic circumstances the agreement on stability of employment will
not be effective to secure employment for small shipowners. If the union sticks tothe agreement, it will result further decrease of job opportunities through bankruptcyof them. Therefore, it seems that small shipowners and the unions are going tonegotiate the measures for adjustment of employment together with the problems
relating to the hiring system.

Among methods of adjusting employment, to stimulate spontaneous retirement
through the improved retirement allowance is seemed most desirable to both parties

concerned. But spontaneous retirement is not supposed to be able to decrease

employment to an adequate level. Then, other methods are to be considered.
Discharge by nomination is far from agreeable to the union. For labour andmanagement lay off is seemed to be the method worth to negotiate. However, lay
off is rather a new and unfarniliar method in Japan, in contrast to the United States

where it has become the well established practice. Therefore, if management andlabour agree to adjust employment by means of lay off, it becomes necessary to
determine the procedure of lay off in details; when, who and how many of them tobe laid off, and guarantee of re-hire. Early retirement with pension right may bealso to be examined by each party.

Employment problem that small and medium sized shipowners have to deal
comes from market conditions, but also from the structural factor that they lack theREDUNDANCY OF SEAFARJIIRS AND THE PRACTICE OF 13
PERMANENT EMPLOYMENT
ability to carry out the modernization program of company fleet. Therefore, when

they reach to agreement with the union on the adjustment of employment andremedies of hiring practice, those agreements destine to be short lived. In theworld market competition declining sector of the deep-sea Japanese shipping industry

will bring new employment problem still further.

JAPANESE MULTINATIONAL ENTERPRISES:A VIEW FROM OUTSIDE
Hideki YosHiHARA
1. Defining Multinational Enterprises
The aim of the paper is to identify Japanese multinational enterprises (industrial

firms) and to take a general view of these enterprises. tt is also expected to makeclear features of Japanese multinationals by comparing with U.S. counterparts.
In the paper the attention is focused upon .the external appearances of the enterprises.

The internal mechanisms and their workings are mostly left untouched.
To identify multinational enterprises, we need to define what these enterprises

are. No unanimous definitions exist at the present timei). In the paper the definition of the Harvard Multinational Enterprise Project is adopted for the following

reasons. First, the Harvard definition is in line with the common understanding
in the field. Second, it is convenient for the comparative analysis between Japaneseand U.S. multinational enterprises.

In the Harvard Project the multinational enterprises are defined as the firms
having the following attributes2) :1. They are large firms. Specifically, they are included in the list of Fortune's
500 largest U.S, industrial firms.

2. They are engaged in manufacturing andlor extractive activities abroad.

3. Their foreign subsidiaries are widely scattered all over the world.
Specifically, they have foreign production subsidiaries in six or more countries.

4. A parent company and its foreign subsidiaries make up a multinational
enterprise system, which has access to a common pool of resources and isreponslve to a common strategy.
Let us adapt this definition to the Japanese setting. In the paper the Japanesemultinational enterprises are defingd as follows:

1. They are included in the President's list of 500 largest industrial firms(September 1975 issue).
2. They have production subsidiaries in five or more foreign countries.

3. They themselves are not subsidiaries of other companies.
1) Yair Aharoni, "On the Definition of a Multinational Corporation," in A. Kapoor and•Phillip D. Grub, eds., The Multinational Enterprise in Transition, Darwin Press, 1972, pp. 3-20.

2) Raymond Vernon, Sovereignty at Bay.
Basic Books, 1971, pp. 4-11.

' The Multinationat Spread of U.S. Enterprises,

HIDEKI YOSHIHARA

16

Overseas production subsidiaries are identified in terms of the following three
attributes. First, they are engaged in manufacturing and/or extractive activities

abroad. Second, management commitment of parent companies is substantial.
Operationally, this means that at least one of the following three conditions is met;

(1) parent company's ownership is 25percent or more, (2) parent company's
ownership is 15 percent or more, and largest among Japanese investors whose total
ownership is 25 percent or more, and (3) full-time topmost management is sent fromparent companies. Third, the date of investment of parent companies is prior to
January 1, 1974, and in operation at the time of the research (the first half of 1976).

The data were obtained from two sources; (1) the published data book Kaigaishinshutsu-Kigyo-Soran (Japanese Multinationals Facts and Figures), l975 edition3'and (2) mail questionnaires sent to prospective
multinational enterpnses.
.

Thirty-seven companies represented in Table 1 are the Japanese multinational
enterprises (industrial). For each of these Japanese multinational enterprises, thetable shows; (1) size ranking in terms of sales, as of 1974, (2) name ofthe company,(3) numbers of foreign production subsidiaries and numbers of foreign countries
where they exist, (4) respective figures of foreign sales subsidiaries, and (5) averageexport ratio (export-to-sales ratio) for the recent past three years.

2. Export-oriented Enterprises

Enterprises engaging in international operations are divided into two majorgroups; (1) multinational enterprises and (2) export-oriented enterprises. The
hallmark of the multinational corporations is their commitment to overseas production. In the case ofexport-oriented enterprises, although their foreign operations

are heavily concentrated on exporting, their overseas production is however nonexistent or at most very limited.

This export-oriented enterprise deserves our attention for the following reasons.

First, there are many such companies in Japan and have played important roles in
the internationalization process of Japanese economy. Second, many of these companies are anticipated to become multinational enterprises in the future. Third,
comparative analysis of these two types of international companies may hopefu11y
highlight characteristics of multinational enterprises.
Export-oriented enterprises are defined in terms of the follovving attributes;
1. size: to be in the President's list of 5oo largest industrial enterprises

2. export: to meet at least one of the two conditions; (1) export ratio is continuously 20 percent or more for the recent past three years, and (2) to have3) The publisher is Toyokeizai-shinposha.

17JAPANESEMULTINATIONALENTERPRISES: AVIEWFROMOUTSIDE

Table l Multinational Enterprises
SerialOverseas produc-

Size (sales)

numberranking1

25

Cornpany nametion subsidiary

Country
Asahi Chemical

Overseas sales
subsidiary

Number Country Number

Export
ratio
(o/o)

6

7

o

o

15.96

7.16
1.70
15.98
27.63

Industry
2

51

Ajinomoto

8

9

4

5

3

Kao Soap
Kanebo

5

6

1

1

8

12

1

1

Kawasaki Steei

6

6

o

o

6

97
30
10
182

Kyokuyo

6

7

1

1

7

31

Kubota

5

5

1

3

8

Sanyo Electric

14

16

5

5

Shikishima Spinning

5

7

o

o

Showa Denko

5

6

1

1

Nippon SteelSekisui Chemical

5

6

o

o

4
5

10

33
237
35

ll

1

12

80
74

9

13

14

54
28
50

15

16

5.76
4.08
30.oo
21.65
7.86
27.73
4.co
4.93

5

6

3

3

Dainippon Ink andChemicals
Dai Nippon Printing

6

6

2

2

5

5

2

2

1.86

Taiyo Fishery

10

11

5

6

12.36

Takeda Chemical

6

6

5

5

4.86

5

5

2

2

31.41

Industries

17

161

Omron Tateisi
Electronics

18

37

Teijin

16

2

2

19

Toyota Motor

6

6

3

3

Tokyo Shibaura ElectricTokoToyobo

9

11

6

8

8

9

2

2

20

3
11

21

428

22

41

7

10

2

2

31.41
27.96
13.63
19.53
23.48

23

34
66
99
4
79
32

Toray Industries

11

10

2

2

23.48

Toppan Printing

5

5

o

24
25

ll

Nichiro Gyogyo Kaisha
Nissan Motor
Nippon Suisan Kaisha

8

9

o
2

7

7

3

3

5

6

o

o

Nippon Electric

6

6

4

5

241

Nippon Paint

5

5

1

1

Hitachi

9

12

4

4

32

7
46
6

33

65

34

8

26
27

28
29
30
31

--

Bridgeston Tire
Matsushita Electric

2

11.06
32.30
7.61
20.43
1.46
14.28

5

5

5

5

18.41

21

26

4

5

20.48

5

7

o

o

5.45

5

6

1

1

26.53

6

9

1

1

19.58

8

10

o

o

17.56

5

5

1

1

7.18

Industrial

Mitsui Mining andSmelting
Mitsubishi Heavy
Industrial

3S

36
37

87
56
390

Mitsubishi Rayon
Unitika
Riken Piston Ring
Industrial

Note Source : Author's Multinational Enterprise Data BaseHIDEKI YOSHIHARA

18

Table 2
SerialNumber
1

430
414
15

3

Overseas produc-

Size (sales)ranking2

Export-oriented Enterprises

Company nametion subsidiary

Country

Overseas sales
subgidiary

Number Country Number

Exportratio(o/o)

Akai Electric
Asahi Optical

1

1

1

1

1

1

1

1

90.66
46.53

Ishikawajima-Harima

3

4

1

1

37.91

24.80
42.30
44.23
35.68

Heavy Industries

4

NTN Toyo Bearing

4

4

5

5

Olympus Optical
Casio Computer

1

1

o

o

2
2

2

6

123
342
298

2

7

21

Kawasaki Heavy

1

1

2

2

5

Industries
8

196

Canon

3

4

5

5

9
IO

75
458

Kuraray

2

2

2

2

l

o

o

121

Kokoku Steel Wire
Koyo Seiko

1

11

3

3

10

12

39

Komatsu

2

3

5

12
5

13

Sakai Textile Mfg.

o
o

o

14

330
172

o
o

o
o

15

32t

Sankyo Seiki Mfg.

o

3

443
268

Sansui Electric

o

o
o

3

16
17
18
19

2

2

Citizen Watch

3

3

o

o

70
73
9

Sharp
Suzuki Motor
Sumitomo Metal

3

3

3

3

1

1

2

2

3

3

1

2

Sasebo Heavy

o

57.76
25.35
51.16
28.11
22.38
23.88
56.78

Industries

20

28.95
79.96
43.98
42.20
29.96
32.73

Industries
21

242

The General (electric)

o

o

o

22

40

Sony

3

3

9

o
10

23

346
470
386
392

Daido Stee1 Sheet Mfg.

o
o
o

o

o

o

Teac
Toyo Kanetsu

o

2

3

o

o

Trio Electronics

o

o
o

3

3

Toyo Kogyo
Toyo Kohan
Nippon Gakki

1

1

5

7

o

o

o

o

4

5

5

5

o
o
2

o
4
o

o

24
25
26
27
28
29
30
31

32
33
34
35
36
37
38
39

20
151

71
209
252

Nippon Metal Industry

248
353

Nippon Stainless Steel

o
o
2
o

o

o
4
o
o

Noritake

2

4

6

6

474

NGK Spark Plug
Nippon Yakin Kogyo

2
o

2

1

1

o

1

1

Pioneer Electronic

1

1

3

The Hakodate Dock

o

o

o

4
o

Hitachi Shipbuilding

1

1

o

o

s

168
138

286
42

Nippon Kogaku
Nippon Kokan& Engineering

40

173

Brother Industries

1

1

2

2

41

19
493
283
48

Honda Motor

48

Mitsumi Electric

4
4

6

2

10
2

Minolta Camera

1

1

3

3

Mitsui Shipbuilding

o

o

o

o

42
43

ag

29.73
48.21
28.83
61.53
37.60
49.68
39.41
31.11
16.11
31.65
43.63
27.95
27.71
31.03
27.43
28.78

44.76
70.73
38.48
31.01
50.43
25.70
65.15
40.88

JAPANESE MULTINATIONAL ENTERPRISES:A VIEW FROM OUTSIDE 19(Table2 continued)
SerialNumber ranking
45
46
47
48

Overseas Produc-

Size (sales)

16
86
163
112

Overseas sales
subsidiarytion subsidiary

Company nameCountry Number

Exportratio

Country Number

Mitsubishi Electric

4

5

9

10

Yamaha Motor

2

2

3

3

Yodogawa Steel
Ricoh

2

2

o

o

3

3

3

3

9.30
68.40
30.30
24.51

Note Source: Author's Multinational Enterprise Data Basesales subsidiaries in five or more foreign countries

3. not to be subsidiaries of other companies
4. not to be multinational enterprises

Data collection and analysis of the same kind were employed to identify theexport-oriented enterprises. The result is represented in Tabel 2. Forty-eightcompanies shown in the table are the Japanese export-oriented enterprises.

3. ProfiIes of Parent Companies

3,1 Size
Table 3 shows that 31 companies (84 percent) out of 37 multinational enterprises

are among the 100 largest firms. There are only 6 companies which are in thesmaller group. Size of the export-oriented enterprises is not so heavily concen-

trated on the largest company group and more evenly distributed in the smallergroup. The largeness of multinational enterprises is again evident in the figures
in Table 4. In terms of sales, the multinational enterprises are 2.5 times as large
as the export-oriented enterprises, and 5.5 tirnes as large as the domestic firms.

In the United States an average size (in terms of sales) of 187 multinational
enterprises is 3.3 times as large as 304 non-multinational large firms`'. Thus, with
Table 3 Size Distribution of Multinational and Export-oriented Enterprises
Size (sales) ranking

Multinational

Export-oriented

Enterprises

Enterprises

Total

INIoo

31

16

47

IOIA-200

2
2

IO
8

12
10
8

201N3oo301-•4oo

1

7

401 --5oo

1

7

8

Total

37

48

85

Note Source: Author's Multinational Enterprise Data Base
4) Vernon, Sovereignt7 at Bay (op, cit.), Table 1-1, pp. 8-9.

(o/o)

HIDEKI YOSHIHARA

20

Table 4Å~•s.

~Size of Multinational Enterprises

Annual sales, 1974
(million yen)

Total assets, 1974

(million yen)

Employees, 1974

459,453445,997

22,399

Export-oriented enterprises (48)185,587

220,686

10,243

Domestic enterprises (415)

83,697

72,6753,504

Large enterprises (5oo)l21,284

114,510

5,549

Multinational enterprises (37)Note

Source :President, September 1975,

extra lssue

and Japanese multinational enterprises sharerespect to the corporate size, both U.S.

the same feature.

3.2 Profitability and GrowthWith respect to profit performance, no significant differences exist among themultinational enterprises, the export-oriented enterprises and the 500 largest industrial

firms. As it is shown in Table 5, after-tax profit as percent of sales in 1974, is 1.8

percent for the multinational enterprises, 2.0 percent for the export-oriented
enterprises and 1.7 percent for the 500 largest industrial corporations. After-tax
profit as percent of total assets in 1974, is 1.8 percent, 1.7 percent and 1.9 percent

respectively. A yearly growth rate of sales over the period from 1969 to 1974 isshown in Table 6. The growth rate shows 15.8 percent for the multinational enterprises, 17.3 percent for the export-oriented enterprises, and 20.6 percent for the
500 fastest grown listed companies. Eighteen enterprises out of the 37 multinationals

are in the 500 fastest grown listed companies. Thus, the growth rate of the 37
multinational enterprises is rather mediocre.

Table 5

Profitability of Multinational Enterprises

Multinational
enterprises (37)
Export-oriented
enterprises (48)
Large enterprises(5oo)

Table 6Growth Rate of Multinational
Enterprises

After-tax profit
as percent ofsales, 1974

as percent ofYearly growth

total assets, 1974

rate (1969-v1974)

1.8

1.8

2.0

I.7

1.7

1.9

After-tax profit

Note Source: President, September 1975,

extra tssue

Multinational
enterprises (37)
Export-oriented
enterprises (48)
Fastest grown listed
enterprises (5oo)

15.8%

17.3%

20.6%

Notes 1. Source: President, October 1975
Sales growth rate (r) is calcu2.
lated in the following way;r = il)l[A!IIB - i

A: Annual sales (1969)
B: Annual sales (1974)

JAPANESE MULTINATIONAL ENTERPRISES:A VIEW FROM OUTSIDE21
3.3 Industry Characteristies
Let us next take a look at the industry characteristics of the 37 multinational
enterprises. Table 7 shows the numbers of the multinational enterprises classified
by the industry. There are eight multinational enterprises in textile industry andseven in electric machinery. These two industries are followed by chemicals (sixcompanies) and foodstuff (five companies).
The pattern ofindustrial distribution is rather different in the case of the export-oriented companies. Electric machinery, transportation equipment, iron and steel,and precision machinery are leading industries. Textile industry has only twoexport-oriented companies.
The trend that textiles and electric machinery are leading industries in themultinationalization process is again evident in Table 8. In textile industry eightcompanies out of 32 large companies are multinational enterprises. The ratio of
multinational enterprises to large corporations is O.25. In electric machinery theratio is O.11 which is higher than the average ratio of O.07 .

In the United States the multinational enterprises are most prominent in suchindustries; motor vehicles, fabricated metals, petroleum, drugs, and other chemicals.

Textile industry has only four multinational enterprises and they occupy only 5.9
percent share in terms of sales5'. So, the pattern of industrial distribution is rather

different between the U.S. and the Japanese multinational enterprises.

Table 7 Industry of Multinational Enterprises
Industry

enterprlses

Export-oriented
enterprlses

Multinational

Total

Foodstuffs (including Fishery)
Textiles

5

o

5

8

10

Pulp and paper productso2oChemicalsPetroleum and coal
Rubber products

6o1

Stone, clay and glass products
Iron and stoe1oNonferrous metals
Fabricated metal products

1

2

o
o
o

o
6

o
1

2

2
9

11

o
o

o

1

Machineryo2Electric machinery

7

11

Transportation equipment

3

10

Precision instruments

o
2

8

7
18
13
8

1

3

37

48

85

Miscellaneous products
Total

Note Source: Author's Multinational Enterprise Data Base5) Ibid., Table 1-2, pp. 14-15.

5

HIDEKI YOSHIHARA

22

Table 8Industty Concentration of Multinational Enterprises(A) Multinational
enterprlses
Ind' ustry(B) Exportroriented(C) Large

enterprlses

enterprlses

Concentration
Number of Concentration
Number of ratio(L(II.)
ratjo (-il}-)companles

companles

Number ofcompames

4

O.67

o

o.oo

6

Miningo1oo

Textiles8

Pulp and paper products
ChemicalsPetroleum and coal
Rubber productsoStone, clay, and glass

o

o.Oo
O.02
O.25
o.oo
O.07
o.oo
O.09
o.oo

o.oo
o.oo
O.06
o.oo
o.oo
o.oo
o.oo
O.08

4

Foodstuffs

9Fishery, agriculture andforestry

6
o
1

2

o
o
o
o
2

52
32

26
87
10
11

24

products

Transportation equipment

3

O.05
Q.05
o,oo
O.05
O.11
O.06

Precision instruments
Misce11aneous products

o

o.oo

8

2

O.13
O.07

1

Iron and steel

2

NOnferrous metals
Fabricated metal products

1oMachinery2

Electric rnachinery

7

37

Total

o

o
5
11

10

48

O.22
o.oo
o.oo
O.13
O.18

41

21
11

40
62
47

O.21
O.73

11

O.07
O.10

IS
5oo

Note Source: Author's Multinational Enterprise Data Base

3.4 Strategy Characteristics
The 187 U.S. multinational enterprises are found to have the following features
regarding their strategic behavior; (1) high R & D intensity, (2) relatiyely heavy

expenditures for advertising, and (3) high product diversity6'. Then, how about
the 37 Japanese multinational enterprises?

The data on R & D, advertisjng, and product diversification are available for
118 very large companies in which 30 multinational enterprises are included7'. So,

these 30 multinational enterprises are compared with the remaining 88 non-multi-

national companies. The result is shown in Table 9. With respect to R & D,
advertising, and product diversification, no significant differences exist between
these two kinds of enterprises. So, the U.S. features don't hold in this case.
6) Ibid., pp. 12-13.

7) These 118 companies are the sample companies of the Corporate Resources Project Data
Base. The rnultinational enterprises which are not included in this data base are Kao Soap,
Kyokuyo, Shikishima Spinning, Omron Tateisi Electronics, Toko, Nippon Paint and Riken Piston
Ring Industrial. The size ranking of Kao Soap is 97th, but the remaining six companies are all
below 1ooth ranking.

A VIEW FROM OUTSIDE23
JAPANESE MULTINATIONAL ENTERPRISES:
Table 9

---

---

Å~

Strategy Characteristics of Multinational Enterprises

Advertising expenditures

R & D expenditures

Herfindal index

as percent of sales

as percent of sales

t963 1968 1973

Multinational
enterprises (30)Non-multinational
enterprises (88)

1.026

O.489

O.566

O.560

O.536

1.097

O.625

O.646

O.635

O.615

Notes 1. Source: Data Base of Corporate Resources Project. See footnote on page 22.
2. Advertising expenditures and R & D expenditures, both as percent of sales areaveraged for the period 1969-73.

n is defined as Z bi2 where bt is the share of
3. The Herfindal index in each year
i=1

the firm's sales in the ith industry (3-digit indugtrie's).

4. 0verseas Production'Subsidiaries

4.1 Mstory
The 37 multinational enterprises have 310 overseas production subsidiaries.
Table 10 shows these subsidiaries classified by the year when they were establishedor acquired by the parent companies. One hundred and fifty-seven subsidiaries(50.6 percent) were established or acquired in the 1970's. Indeed, three fourths of
310 subsidiaries were newly established or acquired within the ten-year period.

Corresponding U.S. data are shown in Table 11. 0f 3,646 subsidiaries, 2,658(72.9 percent) were established or acquired after 1950. Multinational spread ofU.S, industrial enterprises gained momentum in the late 1950's and thus is rather arecent phenomenon.
As the overseas production subsidiaries have mostly a short history, so theirparent companies have also a short history as the multinational enterprises. According

Table 10

Increase of Foreign Production Subsidiaries

PeriodNumber of subsidiaries (share)

1955-59

13 (4.2%)

Average yearly increase

1960-64
Average yearly increase

1965-69
Average yearly increase

1970-73
Average yearly increase

Total

Notes

1.

2.

2.6
36 (11.6%)

7.2
1ou (33.50/.)20.8
157 (50.6%)

39.3
310 (1oo.O%)

Source: Author's Multinational Enterprise Data Base
When date of establishment or acquisition is unknown, date ofinvestment approval or starting operation is substituted.

HIDEKI YOSHIHARA

24

Table 11

Increase of Foreign Production Subsidiaries of

U.S. MultinatiomaI Enterprises

Number of subsidiaries (share)

Period-1901

47 (1.30/.)

1902-39668 (18.3tt)

17.6

Average yearly increase273 (7.50/.)

1940-50

24.8

Average yearly increase

1951-59903 (24.80/.)

1oo.3

Average yearly increase

1,755 (48•1%e)

1960-67

219.4

Average yearly increase

3,646 (1oo.O%)

Total

Note

Source: R, Vernon, Sovereignty at Ba7, Table 3-2, p. 62

Table 12 Increase of Multinational Enterpreise
Period1955-59
1960-64
1965-69
1970-73

70

Number of companies (share)o( o.o o/.)1

( 2•70/e)

927
2(24 • 3 %e)

71
72
73

17

Total

37

(73.oe/,)3
5(1oo.O%)

Note Source: Author's Multinational Enterprise Data Baseto the data shown in Table 12, twenty-seven (73.0 percent) companies became multi-

national in 1970's. In the most recent year of 1973, seventeen companies became
mulatinational. Thus, in the case of Japanese industrial enterprises, it may well
be said that multinationalization process has gained momentum in the 1970's.

4.2 GeographicalPattern
The home grounds of Japanese overseas production are the developing countries,
especially in Asia. As it is shown in Table 13, 166 (53.5 percent) subsidiaries arelocated in Asia, and tben 64 (20.6 percent) subsidiaries are in Latin America. Only
47 (15.2 percent) subsidiaries are found in the advanced countries.

This geographical pattern is in sharp contrast with the U.S. case. There are
1,881 (51.6 percent) subsidiaries in Canada and Europe (see Table 14). Asia andAfrica have only 454 (12.5 percent) subsidiaries.

When we take a look at the geographical distribution by country basis, Indonesia

ranks first having 32 production subsidiaries. In Table 15 twelve countries are

JAPANESE MULTINATIONAL ENTERPRISES:A VIEW FROM OUTSIDE 25
Table 13

Geographical Distribution of Oyerseas Production Subsidiaries

Numbers of subsidiaries

Area(share)Asia
The Middle and Near East

166

(53 .5 O/.)( 2.6e/.)EuropeNorth America

8
20
12

( 3•9 %o)23

( 7.40/.)Latin America
Oceania17( 5.50/.)47263(15.2%)Developing Area
Total

310

aoo.oo/.)Africa( 6.se/.)M

Advanced Area

(2o.6 e/.)(84 • 8 %e)Source: Author's Multinational Enterprise Data Base
The advanced area covers Europe, North America, Australia and
New Zealand. The other countries are in the developing area.

Notes 1.

2.

Table 14 Geographical Distribution of Foreign Production Subsidiaries of
U.S. Multinational Enterprises

Numbers of subsidiaries

Area(share)Canada"3(12.2%)

Latin America

950(26.1O/.)

Europe1,438(39 . 4 O/.)Southern dominions

361( 9.90/.)Asia and other Africa

454(12.5O/.)

Total

3,646

(1 oo .o o/.)Note Source: R. Vernon, Sovereignty at Bay, Table 4-3, p.

124.

Table 15 Major Host Countries

Country

Numbers of subsidiaries(share)U.S.A.

16( 5.2 %)

Australia
Brazil11

Mexico11

Republic of China

26
10
32
14

(3.5 )(8.1 )(3.5 )(8.4 )(3.2 )

Hong Kong
Indonesia

Korea
Malaysia
Philippines

Singapore
Thailand

25

21
11

Sub total

17
25
219

Total

310

(10.3 )

(4.5 )(6.8 )(3.5 )(5.5 )( 8.1 )
(70.6 )
(1oo.O%)(including other countries)

Note Source : Author's Multinational Enterprise Data BaseHIDEKI YOSHIHARA

26

Table 16

Industry of Oyerseas Production Subsidiaries

Industry
Fishery, agriculture and forestry

MiningFoodstuffs
TextilesPulp and paper products
ChemicalsPetroleum and coal

Numbers of subsidiaries(share)
.

3)
(27
4)
(o o)
(10 6)
(o o)
(1 6)
(o o)
(2 9)
(1 9)
(o 3)
(3 2)
(27 1)
(5 8)
(o o)
(3 2)
(1

.

.

o
5

Stone, clay, and glass productsoIron and steel

9Nonferrous metals
Fabricated metal products

6

.

(6 5)

33

Rubber products

.

.

.

'

1

Machinery

10

Electric machinery

84

Transportation Equipment

18

Precision instrumentsoMiscellaneous products

10

Total

(8 11 o)

25
4
2e
85
o

.

.

.

-

310

(1oo. oo/.)Note Source : Author's Multinational Enterprise Data Base

Table 17

Manufacturing Processes and Products of Su
Textiles and Electric Machinery

Manufacturing processes and products

bsidiaries of

Number of subsidiaries

Textiles

85

Silk products

o
10
4
o

Cotton products
Wool products

Hempen products
Raw materials for synthetic fibers

1

Polymerization and fiber manufacturing
Spinning and false twisting

14

34

Weaving and knitting
Dyeing and finishing
Apparel products

12
6
2
2

Other textile productsElectric machinery
Industrial electric machinary
Electric home appliances

84

Communication equipment and computers253
5Components

20

Other electric machinery

4

Notes 1. Source: Author's Multinational Enterprise Data Base
2. Subsidiaries' (textiles) manufacturing processes are classified according to theirmost upstream processes.
3. As for "Spinning and false twisting" through "Apparel produ'cts," products
are synthetic textiles and!or sysnthetic mixed with natural textiles.

A VIEW FROM OUTSIDE27
JAPANESE MULTINATIONAL ENTERPRISES:
represented which have 10 or more subsidiaries. These countries have in total 219(70.6 percent) subsidiaries. Of these twelve countries eight are in Asia, and two

in Latin America. There are only two advanced countries, U.S.A. and Australia,
which•have 10 or more subsidiaries.

4.3 IndustryCharacteristics
In Table 16, 310 overseas production subsidiaries are classified by their industry.
Eighty-five subsidiaries are in textile industry and 84 in electric machinery industry.
These two outstanding industries are followed by chemicals (33 subsidiaries), forestry

and fishery (25), foodstuff (20), and transpotation equipment (18).

Table 17 shows industry characteristics in more detail in the two industries,
textile and electric machinery. In textile industry synthetic fibers occupy central
role. Sixty-nine subsidiaries are in synthetic fibers industry. Ofthese 69 subsidiaries,

14 have polymerization and fiber manufacturing process, 34 have spinning and/or
false twisting process, and 12 have process of weaving and knitting.

In electric machinery, 53 subsidiaries are in electric home appliances. They
manufacture and sell a variety of goods; radio and TV sets, refregerators, air con-ditioners, batteries, and others. Subsidiaries manufacturing components amountto 20. 0verseas assembling of major electric home appliances companies has
recently pulled electric components manufactures to go abroad.
Table 18 Industry of Parent Company and Industry of Subsidiary
Industry ofparent companles

All subsidiaries

Subsidiaries engaging
in the same industry

Matching rate

as parent companlos

Fishery, agriculture and forestry

33

o

23
o

69.7e/.

MiningFoodstuffs

9
88

8

85

88.9
96.6

TextilesPulp and paper productsooChemicals

35

31

Petroleum and coal

o

o

88.6
1oo.O

Rubber products

55Stone, clay, and glass products
Iron and steel

o

o

11

9

81.8

Nonferrous metals

7

3

42.9

Fabricated metal productsooMachinery

10

6

EleCtric machinery

84

84

Transpotation equipment

1814Preclslon lnstrumentsooMiscellaneous products

10

10

310

278

Total

Note Source: Author's Multinational Enterprise Date Base

60.0
1oo.O
77.8
100.0
89•7O/e28 HIDEKI YOSHIHARA
Let us next see whether or not overseas subsidiaries are engaged in the same
industry as their parent companies. According to the data represen'

ted in Table 18,

278 (89.7 percent) subsidiaries are in the same industry as their parent companies.
When we look into activities of individual subsidiaries and compare them with theirparent companies' activities, then similarity of industry becomes even stronger thanthe data show. For example, four fishery parent companies have in total 33
subsidiaries, of which 10 are not in fishery industry. But these 10 subsidiaries arein foodstuff industry. Their products are processed sea food products.

5. 0wnershipPattern
In this section we take a look at ownership pattern of the 37 Japanesemultinational enterprises and compare it with that of the U.S. counterparts.

Table 19 shows ownership of the parent companies classified by the area ofthe overseas production subsidiaries. At the bottom row of the table, 310 subsidiaries

are classified by the parent companies' ownership. There are 165 subsidiaries in
the minority ownership (10tNv49 percent) category. Wholly-owned (95rN,100 percent)subsidiaries are only 50.

When we pay attention to the area, it is clear that the parent's ownership differs

among the areas. The parent's ownership is highest in Europe, then followed by

Latin America and Oceania. The lowest area is the Middle and Near East, thenfollowed by Africa. Average ownership of the developing area is 51.9 percent andsubstantially lower than the advanced area (64.3 percent). But, simple dichotomyof ownership pattern is not observed. In the advanced area sixteen subsidiaries
Table 19 Ownership of Parent Companies, Classified by Areave,rs...hepE,.gf,,p,aEeo/el ig,,
25

Area Å~

-49

''

Asia
The Middle and Near East
AfricaEuropeNorth America
Latin America
Oceania

Advanoed area
Developing area
All subsidiaries (share)

50

1

78
6
15
2
9
17
4

2
32

14

8

117

20

17

2
3
o
2
9

16

o
o
1
4
4
3

Averageownership

51

95

--94

•-1oo

37
o
1
5
1
18
5

18
o
1
4
7
16
4

so.so/.

9
58

14
36

64.3
51.9

53.7

34

131

28

67

50

(11.oo/.)(42.3)(9.0)(21.6)(16.1)

Notes 1. Source: Author's Multinational Enterprise Data Base
2. The advanced area covers Europe, North Arnerica, Australia and New Zealand.
The other countries are in the developing area.

32,5
39.0
80.0
57.7
61.0
59.2

A VIEW FROM OUTSIDE29
JAPANESE MULTINATIONAL ENTERPRISES:
are in the minority ownership category. On the other hand, in the developing area
thirty-six subsidiaries are wholly-owned by their parent companies.

Comparative data of Japanese and U.S. multinational enterprises are shownin Table 20. In the case ofU.S. multinationals, 1,733 (61.8 percent) subsidiaries arewholly-owned, and the minority-owned subsidiaries are 646 (23.0 percent). Contrasting ownership pattern is evident in the Japanese multinationals; wholly-owned
subsidiaries are 50 (16.1 percent) and minority-owned ones are 193 (62.3 percent).

Regarding area differences in the ownership pattern, U.S. and Japanese multinationals again differ each other. In the case ofAmerican multinational enterprises,

the same ownership pattern is observed both in the developing area and the advanced

area. In the advanced area wholly-owned subsidiaries are 944 (62.9 percent),
majority-owned ones are 215 (14.3 percent), and minority-owned ones are 341(22.7 percent). Corresponding figures for the developing area is 789 (60.5 percent),

210 (16.1 percent) and 305 (23.4 percent). On the other hand, ownership patternof Japanese multinationals is rather different between the developing area and theadvanced area, For example, wholly-owned subsidiaries are 14 (29.8 percent) in
the advanced area, but 36 (13.7 percent) in the developing area. Thus, relative
share of wholly-owned subsidiaries in the advanced area is more than twice as large
as in the developing area. The opposite pattern is observed for the minority-owned
subsidiaries; 51.1 percent in the advanced area versus 64.3 percent in the developingarea.

The above comparative analysis of ownership data of Japanese and U.S. multi-

Table 20

Ownership Pattern of Japanese and U.S. Multinational Enterprises

Ownership ofparent companles.

Subsidiaries in theSubsidiaries in theadvanced area

developing area

Wholly-owned

Japanese 14(29.80/.)

Japanese 36(13.7%)

Japanese 50(16.10/.)(95-1oo O/.)

U.S. 944 (62.9 )U.S. 789 (60.S )Majority-owned

Japanese 9(19.1 )Japanese 58(22.1 )U.S. 1,733 (61.8 )Japanese 67(21.6 )Total subsidiaries(51- 94 0/.)U.S. 215(14.3 )U.S. 210(16.1 )U.S. 425(15.2 )Minority-owned(s- soo/.)Japanese 24(51.1 )Japanese 169 (64.3 )Japanese 193 (62.3 )U.S. 341 (22.7 )U.S. 30S (23.4 )U.S. 646 (23.0 )Total

Japanese 47 (1oo.Oe/.)Japanese 269 (1oo.Oe/.)Japanese 310 (1oo.O O/.)u.s. 1,soo(1oo.oo/.)u.s. 1,3o4(1oo.oo/.)u.s. 2,so4aoo.oo/.)Notes
1. Source: Author's Multinational Enterprise Data Base. J. M. Stopford and L. T. Wells,Jr., Managing the Multinational Enterprise, Basic Books, 1972, Table 7-3, p. 142.
2. Subsidiaries in Japan, Spain, Sri Lanka, India, Mexico, Pakistan are not included in the

U.S. case.
3. Minority-owned category means 10-50% for the Japanese case.
4. In the case of U.S. multinational enterprises, ownership data are as of the time of estab-lishment or acquisition of subsidiaries. In the Japanese case, ownership data are as of1974 or 1975.

HIDEKI YOSHIHARA

30

national enterprises thus shows us Japanese ownership pattern ; a majority of overseas

production subsidiaries are joint ventures and this tendency toward joint ventures
is more evident in the developing area than in the advanced area.
Let us next see whether ownership pattern is.different or not among industries.

Table 21 shows• ownership of parent companies classified by the industry ofsubsidiaries. , Average ownership in iron and steel is only 24.4 percent and lowest.
Textile (41.5 percent) and foodstuff (44.5 percent) are substantially lower than theoverall average of 53.7 percent. On the other hand, electric machinery (67.0 percent)is on the higher end of the scale. This industry has-30 wholly-owned subsidiaries.

Let us see ownership pattern of two Ieading industries, textile and electricmachinery, in more detail. According to the data shown in Table 22, in textile
industry relatively low ownership of parent companies is observed in almost every

subsidiary regardless its manufacturing processes or products. Only in apparelproducts parent's ownership (62.5 percent) is higher than the overall average of 53.7
percent.

In electric machinery subsidiaries assembling electric home applicances haverelatively low parent's ownership (56.5percent). On the other hand, parent's
ownership of subsidiaries manufacturing electric and electronics components is very

high (88.0 percent). Thirteen subsidiaries are wholly-owned by parent comapnies.

Table 21

Ownership of Parent Companies, Classified by Industry of Subsidiaries

Ownership of parent
companies ( e/.)

10

25

-24

-49

Fishqry, agriculture and foretry

111

Miningo

1Industries Å~of subsididries Å~
Foodstuffs

3

10

Textiles

16

42

o

o
14
o

Pulp and paper products
ChemicalsPetroleum and coal
Rubber products

2

95
A.1oo

3

7

3

53.6e/,

1

1

1

62.8

o
9

7
14
o
9
o
2

o
4
o

41.5

6

60.5

o
2

2

1

o

o
o

1

4

4

2

31

5

16

o
o
30

1

8

3

3

3

o

o

o

o

o

1

3

1

2

3

62.2

34

131

28

67

50

53.7O/.

o

o

6

3

Nonferrous metals
Fabricated metal products

o

3

o
2

o

Total

".5

o
o

Stone, clay. and glass products
Iron and steel

Electric machineryTransportation equipment
Precision instruments
Miscellaneous products

51

o
o
o
o

o
o

o
2
o
o

Machinery

Averageownership

--94

50

1

Note Source: Author's Multinational Enterprise Data Base.

53.8

24.4
46.3
90.0
49.3
67.0
57.3

JAPANESE MULTINATIONAL ENTERPRISES:A VIEW FROM OUTSIDE31
Table 22

Ownership of Parent Companies, Classified by Manufacturirig Processes
and Products of Subsidiaries in Textiles and Electric Machineryof parent>.Å~, .. companies(O/o)•XXOwnership''tt'SE -'-x...x
Manufacturing

processes and productsX

51

95-94O/.

•-1oo o/.

Averageownership

5

2

1

43.2%

3

1

45.8
50.0
45.8

10

25

-sv24 O/

N49 O/.

2

10

soo/.

TextilesCptton products

Wool products
Raw materials for synthetic
fibersPolymerization and fiber

1

2

5

4

3

Spinning and false twisting

6

5

2

20
6

2

Weaving and knitting
Dyeing and finishing
Apparel products

2

2

4

manufacturing

Other textile productsElectric machinery
Industrial electric rnachinery
Electric home appliances

Communication equipment
and computers

1

39 7
37 9

l

1

1

1

35 2
62 5
41 5

2

98.5O/.

11

56.5
77.8

1

1

2

26
2

5

9

3

Components

2

5

13

Other electric machinery

1

2

1

Notes 1.

2.

88.0
72.3

Source: Author's Multinational Enterprise Data Base.
As for the definition of manufacturing processes and products of textile industry,
see notes of Table 17.

In Table 23 ownership is represented by company basis. In textile industry
Toyobo has relatively high parent's ownership (60.2 percent) and Shikishima Spinning

has low parent's ownership (25.3 percent). Toray Industries and Teijin, two leading
companies in textile industry, have similar ownership pattern.

In electric machinery Toko's nine subsidiaries are all wholly-owned. The
subsidiaries are located in Korea, Republic of China, Hong Kong, Singapore,
Malaysia, Brazil and Malta. They manufacture various electric and electronics
components. Substantial portion of their products are exported to foreign markets
including Japan.
Different ownership pattern of Sanyo Electric and Matsushita Electric Industrial

also attracts our attention. They are leading companies in electric home appliancesindustry in Japan, and forerunners in overseas assembling. Matsushita has 25
production subsidiaries abroad, and Sanyo has 16. Their ownership pattern is in
sharp contrast. First, average parent's ownership of Matsushita is 70.0 percent
which is much higher than Sanyo's 49.1 percent. Second, wholly-owned subsidiaries
are nine in Matushita, but only two in Sanyo. Third, Japanese trading companies

HIDEKI YOSHIHARA

32

Table 23xx

Ownership of Parent Companies, Classified by IndividualCompanies in Textiles and Electric Machinery

E Ownershipofparent
"'

"---.

x companies (O/.)

10

25•-J24 0/.

tv49 O/.

N940/.

Å~

Textiles

ToyoboKanebo2

73

Unitika2

52

Shikishima Spinning
TeijinToray Industries
Mitsubishi Rayon

2

5

1

11

3

1

4

10
2

3

2

4

4

Asahi Chemical Industry

1

Total

45

16

3

1

Average

95

51

soo/.

Nloo% ownership
6o.2o/.

2

39.2
43.9
25.3
42.6
39.5
31.0
54.7

1

1

1

2

3

9

15

4

3

5

73.9O/.

1

1

46.5
72.8
71.5
70.0
49.1
1oo.O
66.2

42.1

Electric Machinery

Hitachi4Tokyo .Shibaura Electric

7

1

Om'ron 'Tdteisi Electronics

1

Nippon Electric

3

3

1

3

6

3

7

9

1

10

1

2

2

2

31

5

16

30

Matsushita Electric Industrial

Sanyo Electric

1

Toko

9

Total

Note Source: Author's Multinational Enterprise Data Base.
Table 24

Breakdown of Japanese Partners of Subsidiaries-------

Number of subsidiaries (share)
H-'H---L

Subsidiaries having no Japanese partners

153(49.4O/.)157(50.6 )

other than parent cornpanies
Subsidiaries having other Japanese partners

in addition to parent companies

I

Industrial companies

Trading companies

Others

{

27

( 8.7

)

150

(48.4

)

1

( O.3

)

Note Source: Author's Multinational Enterprise Data Baseare present as partners in seven subsidiaries of Sanyo, but in only one of Matsushita(see Table 23). This last point leads us to unique characteristics of Japanese ownership pattern: joint ventures with multi•-Japanese-partners.

Table 24 shows that more than half of 310 subsidiaries, 157 (50.6 percent), haveone or more Japanese partners in addition to their parent companies. Of these
157 subsidiaries, trading companies are partners in 150 subsidiaries, industrial
enterprises are partners in 27, and a bank is partner in one subsidiary. Thus, nearly

half of the total overseas production subsidiaries have trading companies as their

33
JAPANESE MULTINATIONAL ENTERPRISES: A VIEW FROM OUTSIDE

Table 25 Ownership of All Japanese Partners

Å~--

--

Advanced area-Å~

Wholly-owned(95-1 oo O/.)

Developing area

Total

Number of

Number of

Number ofsubsidiaries

subsidiaries

subsidiaries(share)(share)(share)20(42.6e/.)Majority-owned(51-94%)Co-owned

9(19.1O/.)10(soe/.)(21.3 Yo)

Minority-owned(1o-4ge/.)8(17.0 %o)Total(average ownership)

47

54

74

(2o.s o/.)(23.9 0/.)82
(31.2e/.)91(29.4 %)

35

45

(13.3 0/.)(1 4.5 0/.)

92

1oo

(3s.o o/.)(32.3 O/.)

263

310

(1 co O/.)

(1oo%)(1 oo %)

(74•3 O/e)(63•7 %o)

(65.3 0/.)Note Source: Author's Multinational Enterprise Data Basepartners. Of these trading companies general trading companies (Sogoshosha)
are most important. They have played an important role in the multinational spreadof Japanese industrial enterprises.

It may be that Japanese partners have common interests and that they cooperatively behave to safeguard their common interests against local partners. If

so, total ownership of Japanese partners may be relevant. Table 25 represents
ownership pattern in terms of total ownership of Japanese partners. An overall
average ownership is now 65.3 percent and 11.6 percent higher than that of parent
companies (see Table 19). Minority-owned subsidiaries are now 100 (32.3 percent).
Wholly-owned subsidiaries increase to 74 (23.9 percent) from 50 (16.1 percent).

Let us next compare this new ownership pattern with the U.S. pattern. (seeTable 25 and Table 20). Relative share of wholly-owned subsidiaries is 23.9 percent

in the Japanese multinationals and 61.8 percent in the U.S. counterparts. Thus,

there still exists a fundamental difference between the Japanese and the U.S.
multinationals.

6. ForeignCommitment
In this last section we take a glance at the foreign content of operations of the

37 Japanese multinational enterprises. The foreign commitment is measured interms of the following four ratios;(1) foreign direct investment to paid capital(2) foreign direct investment to total assets(3) sales of overseas production subsidiaries to sales of parent companies

HIDEKI YOSHIHARA

34(4) employees of overseas subsidiaries to employees of parent companies

Table 26 represents these ratios for each of the 37 companies. Considering
very high debt ratio of average Japanese companies, the third and the fourth ratios
seem more relevant than the first and the second ratios as an index of the foreign

Table 26

SerialSize(sales)number ranking
1

2
3

4
5

6

Foreign Content of Operations of Multinational Enterprises (%)

Company name

25
51

Asahi Chemical Industry

97
30
10

Kao Soap

Invest-Invest-

ment

ment

capitalassets

1.85
5.56
2.23
2.64
O.51
l2.57

IPaid

Kanebo

24.12
80.70
51.52
50.oo

Kawasaki Steel

6.61

Kyokuyo120.ooAjinomoto

182
31
33
237
35
1
80
74
54
28
50

Nippon SteelSekisui Chemical
Dainippon Ink & Chemicals
Dai Nippon Printing
Taiyo Fishery
Takeda Chemical Industries

161

Omron Tateisi Electrics

37
3

TeijinToyota Motor

102.44
90.79
20.oo

20

11

Tokyo Shibaura Electric

7.16

21

428

22
23
24
25

41

Toko
Toyobo170.59
63.36
20.49
13.08
13.41
20.59

7
8

9
10
11

12
13
14
15
16
17
18
19

26
27
28
29
30
31

32
33
34
35
36
37

34
66
99
4
79
32

ITotalKubota

2.6e

O.35

Sanyo Electric

20.96
13.33
21.09

Shikishima Spinning

Showa Denko

6.3S

2.18
1.06
2.35
O.60

14.29
11.27
24.68
41.33

O.62
O.89
2.16
2.96

7.23

O.71
6.28
7.62
1.49

O.67
13.36
6.20

46.oo
28.86

2.27
1.36
O.79
1.06
3.82
2.46

7.36

o 78
7 53

Mitsubishi Heavy Industries

116.55
69.58
31.69
15.24

Mitsubishi Rayon
Unitika

42.07
20.09

Toray Industries

Toppan Printing

Nichiro Gyogyo Kaisha
Nissan Motor
Nippon Suisan Kaisha
Nippon Electric

241

Nippon Paint

7
46
6
65
8
87
56
390

HitachiBridgestone Tire
Matsushita Electric Industriai

Mitsui Mining and Smelting

Foreignproduc-ees

tion/Sales

7Em-

9.39

16 .1665 .98ployees

3.37

42. 99
2. 32

11.43

51.73
126.70
15.23

6.23

3.27
5.41

6.88

5.99

21.42
23.19

7.63
15.03

7.77
1.53
41.50
9.27
7.52

11.57
121.43
16.96
10.53
45 .39109 .78
8

5.56

97

9 85
17 17

9.33

19 16

2.82

8.19
11.14
38.79
77.45
4.35
54.65
33.28

M

8.60

o 81
3 03
1 84

1.62

4

Foreign
employ-3 79

Riken Piston Ring Industrial

Notes 1. Source: President, May 1976, pp. 112-127. Kaigaishinshutsu-Kigyo-Soran,

edition, pp. 24.
2. See the text on pp. 33--35 for the definition of the foreign content ratios.

1975

35
JAPANESE MULTINATIONAL ENTERPRISES: A VIEW FROM OUTSIDE

commitment. Regarding the third ratio there is only one multinational enterprise(Toko) that exceeds the 20 percent level. As for the fourth ratio eleven companies
exceed the 20 percent level. Thus, the foreign commitment of Japanese multinational
enterprises is still limited. Domestic operations still occupy a dominant positionin many Japanese multinational enterprises. This may be due to the fact thatmultinationalization of Japanese industrial enterprises is a recent phenomenon.

ONTHEBAZARAA'SALOGORITHM
A COMMENT
Komayuki ITow
1. Introduction

The algorithm in Mokhtar S. Bazaraa's paper "An EMcient Cycle Coordinate
Method for Optimizing Penalty Functions", Naval Research Logistics Quarterly,Vol. 22, No. 2, pp. 399Npp. 404 (June 1975) consists of two Steps. We take issue
with Step 2, which has some facts that should be paid attention to concerning choiceof parameters. Our purpose of this comment is to discuss the above problem
with Step 2.

Consider the following non-linear programming:

Minimize f(x) (1)Subject to:gi(x);}rO i-- 1, 2, ..., m (2)h,(x)=O i=1, 2, ... k. (3)By a penalty function technique, this constrained non-linear problem can be trans-

formed into an unconstrained problem of the form

Minimize f(x)+ZI(x) (4)

XERn
where

I(x)== il](max (O, g,(x)))2+]Shi2(x) (5)i=1 i=1

a : a large positive number.

2. Bazaraa'sAlgorithm
Bazaraa's algorithm uses the imperfect line search as a line search, which has
been developed by him. However it is not described here because it has no relation
with the discussion in the following section.

The following notation and terminology is used.
di =i th coordinate axis, di is a vector of zeros, except one at the i th position.

yi+i==n-dimensional vector obtained from yi by optimizing along di.
d==initial step size.

d.i. ==minimum step size used.
B ==reduction rate of the step size.

KOMAYUKI ITOW

38

Z==initial penalty parameter.

Z...==maximum penalty parameter used.
r==penalty acceleration factor.

s=minimum displacement allowed per iteration.
t== iteration counter.
xt+i==best available n-dimensional vector at the end of iteration t.

I=switching factor beyond which the parameter and/or the step sizeare changed.
Ixl=denotes the sum of the absolute values of the x components.
p(x, Z) --f(x) + ZI(x).
Initialization Step

Choose an arbitrary xi and choose the above parameters.

Letyi=xi, i=t=1, and go to Step1
Step 1: Find the imperfect minimum ofp(yi+ptdi, Z) with step size d. Let theminimum be pt* and yi+i =yi+pt'di. Ifi<Ln, replace i by (i+1) and repeat Step 1.
Otherwise go to Step 2.

Step2: Let xt+i=y,+i. Iflx,+i-xt12e, let i=1,yi=xt+i, and repeat Step 1.
Now suppose that lxt+i-xt <e. If a}iiRm.. and d<A.i., then stop, with optimal
xt+i. Otherwise check whether 2d is smaller than or greater than or equal to L In
the former case, a is replaced by ra and in the latter case, Z is replaced by 2Zi and ti

is replaced by Max(BA, d.i,). Let i=1, ]i==xt+i, and •repeat Step 1.

Bazaraa recommends that the following table may be helpful as a general guideline for the selection of parameter values when the above algorithm is applied:

Tablel ParameterValues
Parameterd

Recommended.........
Range ..................

dmin

p

2

O.1 toO.oooo1

O.l toO.1 to1oo.Oto 5.0to O.OOOI

O.1

1.0

to O.oo1

O.4

1.0

1,OOO,ooO 1oo.O toO.Ol

to 2,O7{ma.rr

c-3, Problems with the algorithm
According to Bazaraa's paper, if M<l, then d is kept constant and the penalty
parameter increased. On the other hand, if ad;;}il, then d is reduced, whereas Z
is slightly increased. This device helps in executing incomplete minimization withsmall initial value of Z and large value of A, while executing more precise minimization with small value of d, during later stages of the optimization.

His explanation appears to be right. We have found, however, that thealgorithm does not work effectively if selections of several parameters are not suitableto problems. The following description would give us a better understanding oflA COMMENT ON THE BAZARAA'S ALOGORITHM 39•
this point.

Let a combination of parameters be selected from Tabre 1. We define case A
as .Zd<l and case .B as•ZA->L Let case B .occu'r after case A occurred tb times
and let Z, A be Ro, do when case A occurred first.

At the case A d is kept constant and Zis replaced' by rZ. Theref rer'eZodo;}i:l (6)Tto-'ZoAo<l (7)must hold, and also

holds immediately before the occurrence of case B. The following inequality isderived from the above both inequalities;log(llZoAo) log(i!ZoAo)log r+1>to2}r
log r

(8)

where logr>O, for logr>Oholds because r25 at Table 1. There exists an integer
satisfying this inequality (8) because log lfaodo>O for Xodo(<D.

On the other hand, in the last step of case B

Zotio;}rl (9)2Bmust hold with the exception ofA===d.i.. Thereforell

2B ;}2 z,zt,>1 (10)The inequality

log(llZotio)log(112B)

log r

+1>

log r

+1>to (11)is derived from the inequality (8) and (10).

Likewise, let case A occur after case B occurred ti times. And let Z, d be Zi,
di when case B occurred first.
When case B occurs, Z is replaced by 2Z and d is replaced'by max (BA, d.i.).

Then(2B)tiZ,d,<l (12)must hold with the exception ofd==d.i.. As described above,(2B)ti'-iZ,d,2})l (13)holds immediately before the occurrence of case A.
The following inequalty is derived from both inequaties (12) and (13);log(llZiAi)log(l/Ridi)+1 l;}r ti>

log2B

log23

(14)

where log(l/Zidi)f!O, for these ai and Ai have values in a series of case B, that is toKOMAYUKI ITOW

40

say, Ziai }rl, and also log2B<O because B:E{O.4 according to Table 1.
Thus, there exists an integer ti satisfying the above inequality (14). The existenceof these integers to and ti shows that the algorithm has fluctuations between case A

and case B.
Also, in the last step ofthe case A

ZIAIrmusthold. Thereforell<l (15)r<zidi <1 (16)

From the above description concerning tilog(11r)log(llZiAi)+1>
log 2B log 2B+ll}iit, (17)holds.

Let us consider the exceptional case d==d.i.. Minimum step size d.i. is kept
constant. When A.i. is used at case B, the following inequality (18) holds at thesame condition as that of the inequality (9) :Zodo;l}rl (18)2awhere a is greater than B and is determined by the definition d==max{Bri, d.i.}.
After this event, case A continues, and at the time of the occurrence of case B,

Zridmin>riAmin2}ll (19)holds. Thereafter case A never occurs. Of course when A.,i. is used in a series ofcase B, the inequality (12) holds. Therefore case A never occurs thereafter.
Now let us consider the constraint between to and ti.

Setlog(ll23)
A==
log r

(20)

or
1 log(1/r)

A== log2B (21)

Let the inequality (20) be substituted into (11) and the inequality (21) into (17).
The following inequalities (22) and (23) are gained;

A+1>to (22)11A+1>t, (23)This shows that either to:E{;1 or ti:{gl must hold. IfA is less than one, to is equal toA COMMENT ON THE BAZARAA'S ALOGORITHM
zero or one. This fact results in the frequent occurrence of case B, which suggeststhat the switching factor l does not work effectively.

Suppose A< 1,log(112B)<1
log rthat is,This inequality is rewritten as follows,

2Br>1 (24)

Speaking of B, r which do not satisfy the inequality (24), B==O.1 and r=5 are all
we can find at Table 1. As compared with the search at case B only, his algorithm
does, at least, make the intended improvement through switching factor since it cantake case A. However, our above discussion shows that the previously described,
by himself, eMciency cannot be realized by his algorithm.

41

EFFECTS OF SHIPS' SIZE AND CARGO LOTS
ON THE OCEAN FREIGHT RATES
Tetsuji' SHIMoJo

1. Expansion of Ships' Size

As the seaborne trade of goods, especially of the bulky materials becomes
more active and steady, the tools to carry them, the ships become larger in their size.

If the capacity to collect, store and handle these massive cargo is assured, and thedepth and width of ships are admitted in canals or ports, the Iarger sized ships enjoy

lesser transport costs per unit. These phenomena are seen in general as well as in
the shipping.
As for ships, their building costs are a function of size while other conditions

are equal". According to available figures ofthe annual weighted average of ships
prices for a few categories calssified by size, the gross prices for each year show alinear correlation with the size. In other words, denoting the gross price by P and
the size by S, we can approximately express

P=aS+b.
In this case, a represents the costs for steel and b other fixed costs such as machinery.

Transport costs for cargo depend on the operating costs of ships. The operating
costs of ships can be classified into three categories, ship owning expenses (indirect

ship costs), fundamental management expenses (direct ship costs) and navigationand cargo expenses (voyage costs). Among these costs, the voyage costs consistingof fuel, port and cargo expenses increase for larger ships, but the wages for seamen, amajor item of the direct costs, do not depend significantly on the size of ships.

As the cargo capacity increases greatly according to the size of ships, we can
expect more utility in proportion to size, in form ofcarrying capacity of the ship in a

private carrier, or in form of freight revenue in a common carrier. The relation
between costs and utility will show us a rule of the economy of scale, for the larger
the ships' size may be, the greater the utility per cost will become.

Marshall said, "A ship's carrying power varies as the cube of her dimensions,while the resistance offered by the water increases only a little faster than the squareof her dimensions; so that a large ship requires less coal in proportion to its tonnage

than a small one. It also requires less labour, especially that of navigation: while

to passengers it offers greater safety and comfort, more choice of company and
1) See Appendix I.

"TETSUJI SHIMOJO

better professional attendance. In short, the small ship has no chance ofcompetingwith the large ship between ports which large ships can easily enter, and between
which the traMc is sufficient to enable them to fi11 up quickly2"'.

In such a situation and with increasing seaborne trade the tendency of expansionof the size of tankers and bulk carriers has become more apparent since the end of1950's. The tendency was so speedy as shown in Table 1. There also appears aqualitative change such that different rates are quoted and fixed for different size ofships in the recent shipping exchanges.
Table 1

Year

All

1955

3095

Trend of Average Size of World Fleet

3574

4.2
1.2

3686

4.3

3831

1966

6.4

1967

4104

1969
1970

7.0

1971

"91

1973

1974
1975

1976

21363

5646
5794

23053

2011
1.2

12.1

23331

23955
2,6

1977

1.3

11.9

5.2

2011

22755

l9085

5369

3.5

9.3

5.5

20Sl

21995

17461

5087

5.6

7.3

4,6

2083

20829

16269

4864

6.9

6.5

4.0

2115

19492

15280

4676

2161

S.6

8.3

4.1

1972

5.0
18454

14114
3.5

22oo

17574

13187

4338

4.2

7.5

3.0

2267

16871

12263

4210

7.4

5.6

2,9

2401

15713

11615

4092

2438
9.3

5.2

-O.03
1968

7.5
14378

11040
3.2

2463

13369

10372

3978

4.6

5.2

3.8

2492

12780

9856

3745
2.3

1965

.2566

9454
1.6

1964

2563

9127
1.0

1963

5.2

25192

2041
O,3

23399

(Source) Calculated from Lloyd's Register of Shipping, `Statistical Tables'.
(Unit) G/T., Rate of Increase %. For reference, annual rates ofincrese are 2.9 O/. for All

ships, 5.7% for Tanker, 4.8% for Bulk Canier, and -1 % for Others.
2) Marshall, Alfred,

Others

2563

74oo
2.9

1960

Bulk Carrier

TankerPrinciples of Economics, London,

1952, p. 241 (footnote).

2091

EFFECTS OF SHIPS' SIZE AND CARGO LOTS ON THE

OCEAN FREIGHT RATES

Here we would like to pick some topics of change in the shipping market related
to the expansion of the size of ships, and to discuss the empirical studies we have madefor some of.these changes.

2. World Scale System and Ships' Size

Before WW II, it was common to express freight rates per ton in dollars ofshillings for transport of crude oil by tankers as for other cargo carried by tramps.

As the number of loading and unloading ports for crude oil increases, it becomes,

however, inconvenient to compare rates between different routes. During WW II,
British government adopted a rate system to her requisitioned British ships. The
rate system assured an equal daily net return for every kind of tankers on whateverroute the oil companies might operate them. This was so called MOT rate system,
in which a standard rate was given for every pair of loading and unloading ports.

After the war, the tanker market came back to the free market, but the MOT
rate system was taken over, and since then, the expression of plus or minus so-and-so

percent of the base rate became popular all over the world. In the United States
where a similar rate system was in force during the war, the USMC rate system wasapplied to the routes not covered by the MOT rate system.

As time went on, however, these rate systems became unsuitable for the actual
requirements of most routes. So that the Scale Rate (1952), the ATRS Rate (1956),
the Intascale Rate (1962) and other scale systems were proposed and used instead.
And at last the Worldscale Rate System, a revised Intascale Rate came to be used since

September 15th, 1969, by the brokers in London and New York.
The current Worldscale Rate system adopts a diesel tanker of 19500 tons deadweight and of 14 knots, as the standard ship, which consumes 28 tons of heavy oil
a day at sea and 5 tons in port, and which incurs $18oo of ship's expenses a day.
The Worldscale rates are based on the estimated expenses per ton of crude oil carriedon the respective routes. These rates are periodically revised due to the changes in
the unit prices of fuel and the port charges.

The freight rates in the tanker contracts are expressed in percentage of theBase Rate for the respective route, and at present almost all rates reported from themarkets are based on this systemS}.

The reasons for such a scale system are related to the simplification of various
calculation at the time ofcontracts. Norman arranged these effects in the following
manner4) ;3) The Base rate is sometimes called "Reference Rate" or "Standard Rate."
4) Norman, Victor D., `An Assessment of the World Scale System', presented at the Intertanko

Annual Meeting, March 18, 1977.

45

46

TETSUJI SHIMOJO.

a) .Simplificationofcommunication: Simpleexpressionoffreightrates.
b) Simplification ofcontract: Simple expression ofoptional clauses.

c) Simplification of modification: Automatic revision of freight rate forlong term contract.

d) Simplificationofcomparison: Comparisonofcorrespondentratesbetween
routes can be macte easily.

Norman pursued theoretically to compare the rates by routes according to
the above classification, and concluded tha•t •the Worldscale system was not very
convenient for the rate comparison because the fuel prices were almost identicaland the fuel costs were the dominant part for navigation costs. He proposed toreplace the "standard" vessel of the unrealistic 19500 t.d.w. and 14 knots by a"composite" vessel, to divide the current base rate into two parts, a fixed part ofcharter hire and a variable part of operating cost, and to revise the base rates

every 3 months.
For a tanker owner, the most important problem is to decide to which route heshould assign his tanker, or which tanker he should offer for assignment. The
comparison of rates means in a sense to ask if a certain tanker can make the sameprofit on different rQutes with same level of Scale Rates. When it can make thesame profit in spite of differing routes, then the Scale Rates can be said to satisfy
its objectives.

The same profit may be assured in case of a• flat base rate (or Wloo in customary
notation) ifthe tanker is a standard vessel. But even ifit is a standard tanker, in thecase where the rate is not WIOO, it can be expected that the profitability varies

considerably according to routes. According to Norman's calculation, as seen in
Table 2, the net return per day varies more on shorter routes.

In another sense, the comparison of rates means to ask how profit may vary
applying the same level ofScale Rates to different types oftankers. As we have seen,
it is clear that the same rates bring greater net returns to the larger types of tankers.

Norman further made a comparison of the profitability of different types of tankers
on several principal routes in case ofWloo. As can be seen in Table 3, the greater

Table 2 Costs and Net Return by Route (Standard Ship)

Route

PG/W.Europe
PGIJapan

PGIUSAC
Med./USAC

Operating Cost
pe'r day ($)

2548
2496
2496
2627

Net Return per day

W50

W150

-374
-348
-348
-413

3974
3948
3948
4014

(Source) Norman `Assessment of World Scale System' p. 10.

EFFECTS OF SHIPS' SIZE AND CARGO LOTS ON THE

OCEAN FREIGHT RATES

return are taken by the larger tankers.

It is not very fruitful, however, to compare only the profitabiJity of different

types of tankers at the same level of rates. That is the very economy of the scale,and it is rather self evident that larger vessels make greater profits under such anassumption. Behind a problem which tanker an owner should assign to a certain
offer of carriage, there exists another aspect of the problem.
Tab}e 3 Net Return and TCE for Various Sized Ships ($)

MIT

50ooO

MIT

PG/W.

Route

PGI

Japan

PGI

Med.!

EuropeNet Return

8137

7932

7984

7645

TCE

4.96

4.84

4.87

4.66

Net Return

l2543

12164

12318

12020

TCE

5.47

5.30

5.37

5.24

Net Return

19387

18764

19065

18565

TCE

5.91

5.72

5.81

5.66

Net Retrun

49385

47817

TCE

6.55

6.34

Net Return

46833

45439

TCE

6.21

6.03

USAC

USAC

MaxlMinin TCE
1,06

1.04

700oo

MIT

1ooOOOMIT

230000

1.04

1.03

T/T

2300001.03(Source) Norman `Assessment of World Scale System' p. I3.

MaxlMin in TCE was calculated by Shimojo.

What I am interesting in is to calculate the scale rates jn such a way that thedifferent types of tankers earn the same profit on a certain route, based on the Base

Rate Tables by routes. In the most simple case, it can be said otherwise to look up
a break-even Scale Rates by route and by size of tankers.

In case we apply the Worldscale System in practice, we can prepare a table ofdaily net return or of TCE (time charter equivalent) by route and by size, rearranged

from the Base Rate Tables by route according to size of tankers. Or, it seems to us
more convenient to prepare a daily net return table arranged by route and by several
levels of scale rates for a certain tanker. It is very easy for an owner to prepare suchtables for all tankers owned by him.
In any way, there are several levels of scale rates, several routes and several

sizes of tankers. There must be a 3-dimensional table. When we try to make asimpler table of two dimensions from the original one, which dimension should
we simplify? For the owner of a tanker, it is most convenient for his particular

47

48

TETSUJI SHIMOJO

tanker to have a table of only two dimensions, of scale rates and routes.

For our purpose, however, it may be desirable to prepare a table showing such
scale rates by route and by size which produce zero net return. But unfortunately,at times, it may be impossible to prepare such a table as the the necessary information

on port charges or ships' expenses are not available for all types of tankers, even if

we can use the information which were used in compilation of Base Rates for theWorldscale System and which were only for the standard vessels.

Fortunately we can use a table supplied by R.S. Platou A!S, Oslo, although it

contains only a single route (Ras Tanura/Rotterdam via Cape of Good Hope)5'•
The table contains daily net returns and TCE for 38 scales of rates between W20
to W200 and for 24 types of tankers. We can choose the scale rates for each typeof tankers that make zero net return on the route.

The break-even scale rates by types of tankers from Platou's conversion tablesfrom 1976 to 1978 are shown in Table 4, together with TCE corresponding to therespective scale rates. The differences of the break-even scale rates and the break-even TCE by size of tankers and by type of engines appear very clearly. Thesefigures can also be read as unit costs by size of tankers.

The calculation of the relation of the total costs and the ships' size are shown inAppendix II. The total freight costs measured by the scale rate and the total chartercosts measured by TCE are explained by the ships' size in linear equationse', and theeffects of turbine engines on costs are expressed by parameters on dummy variables.

The total charter costs in 1978 (equation No. 6 in Appendix II), for example, aredivided into $157,160 for fixed costs and $354 for size proportional costs per 1,OOO
tons d.w., and tankers of average size, a 163,4oo tonner is shown to require $210,463

for monthly charter hire. While the total freight costs measured by the scale rates

in 1978 (equation No. 3) consist of, 32,060Å~17.55=$562,653 of fixed costs and181.9Å~17.55 ==$3,192 of proportional costs per 1,ooO t.d.w. when a base rate of$17.55 for the route in 1978 is used, an average tanker of 163,400 t.d.w. requires$1,145,241 for freight revenue for one voyage.

By the way, let's consider the significance of parameters for a turbine dummy.
As for charter costs, turbine tankers are cheaper by about $10,Ooo than diesel tankers,

while for freight costs, on the contrary, turbine tankers cost $7,583 more for one
voyage than diesel tankers, with the exception for charter costs for turbine tankers
in 1977, which is not significant as the estimated error being too large.

5) R. S. Platou AIS, `Tanker Trip to T/C Conversion Tables and Net Return', Oslo, Jan.
1978, etc.

6) In contrast, Goss calculated the total costs per day and the costs per 1000 GIT per day inlog linear forms. Results are shown in Appendix III. Goss, R. O. and M. C. Mann, `The Costof Ships' Time', cited in Goss, R. O. "Advances in Maritime Economics", Cambridge, 1977.

EFFECTS OF SHIPS' SIZE AND CARGO LOTS ON THE

49

OCEAN FREIGHT RATESTable 4 Break-even Rate and TCE in Las TanuralRotterdam
l976
Size

D/W

Eng.

Scale

M
M
M
M
M
M
M
M
M
M
M
M

150.0
114.3

195oo
280oo
35000
55000
55ooO
T
70000
70000
T
85000
850oo
T
1OOOOOlOOOOO T
13OOOO
13ooeoT
150000150000T
21ooOO
21OOOO T
230000230000T
250000250000T
2850ooT
3SOOOO T
415(X)O

T

Rate

96.0
69.9
90.0
63.7
76.7
55.8
66.3
51.1

59.5
45.0
51.0
42.7
47.6
35.3
30.7
34.2
37.1
32.8

35.4
31.9
31.8
28.2

TCE

1977-1978

1977

Size Eng.

Scale
Rate TCE
Rate

$

Dlw

6.84
4.88
4.09

195oo
25000
32000
50000
75000
75000
85ooO
85000
1OOOOO
1OOOOO
1300001300001500oo15000021OOOO
21OOOO
230000230000250000250000285000285000350000415ooO

3.01
2.91

2.62
2.54
2.26
2.19
2.07
1.97
1.79
1.72
1.69
l.63
1.31
1.26
1.28
1.22
1.20
1.15
1.05

O.92
O.81

1978

TEiE

Scale

$

M
M
M
M
M
T
M
T
M
T
M
T
M

195.4
131.3
108.9
84.4
66.7
81.2
57.8
69.6
51.7

M

34.1

T
T

M

T

M
M

T

T
T
T

612
43.7
50.4
40.6
47.0
38.0
32.8
36.1
32.3
34.7
29.0
31.1
31.6
28.0

7.34
5.86
4.67
3.58
2.70
2.62
2.26
2.20

$

162.8
128.6
107.3
81.3
61.1
74.1

1.95
1.87
1.55
1.49
1.41
1.42
1.11
1.06
1.06
1.01
1.01

O.96
O.91

O.88
O.77
O.68

56.0
67.4
50.5
59.6
43.8
49.5
39.8
45.1

34.2
37.7
32.7
35.7
32.9
34.3
30.4
31.5
28.2
26.7

(Source) Conversion Tables of R. S. Platou A/S.
Figures between Scale Rates are calculated by pro rata.

When we adopt a linear equation for the total costs, we have got a comparatively

good approximation in view of the determination coeMcients. But when we adopt
a log linear equation for net returns or TCE per unit such as

C=aw-b,we can get a much better fitness. We tried to include the turbine dummy in thiscasetoo. The results are shown in Table 5. The significance ofthe turbine dummy
will be deemed as a multipler to the costs for turbine tankers.

This type of equation is used very frequently to measure elasticity. Here, theelasticities of the unit costs or break-even freight rates to the ship's size are expressedas

E={iC/ dporv idpCv ' ll; =-b'
In other words, an exponent for lli is the proportion of the variation of the freightrates to the variation of the ship's size, the proportion which we can call `Ship's Size

7.51
5.97
4.78
3.51
2.48
2.38
2.22
2.15
1.95
1.85
1.64
1.50
1.41
1.34
1.16
1.10
1.10
1.04
1.01

O.96
O.90
O.86
O.73
O.66

TETSUJI SHIMOJO

50

Effect'.

This is the subject of our present paper.
Table 5

Relations between Break-even Points and Size

Ci = Break-even Scale Rate (Base Rate = 1oo)C2 :== Break-even TCE ($)

T = Turbine dummy
PV ==: Ship's Size (TDW)Ci = 778.1 . W-•O•5S2 . 1.127T

1976(73.4) (29.3) (3.8)

R2=O.9759 S=7.3e/. d==2.18
Ci =- 959.1 . W-O•623 e l.l5sT

1977(109.1) (45.9) (6.5)

R2=O.99oo S==5.10/.f d=1.54
Ci = 907.5 . PV-O•6i4 . 1.120T

1978(112.9) (47.1) (5.3)

R2=O.9907 S=4.80/. d=1.53
C, = 41.28 . PV-O•643 . 0.953T

1976(179.5) (63.3) (3.0)

R2=O.9954 S=3.70/.i d==O.76
C2 = 70.94 . PV-O•774 . 0.972T

1977(170,O) (68.7) (1.5)

R2=O.9960 S==420/. d=-O.74
1978

C2 = 69.35 . PV-D-768 . 0.944T(234.4) (94.3) (4.4)
R2 == O.9979 S == 3.0 0/. d== O.86

3. Ship's Size and Shipping Markets
It is easy to recognize that the larger ships can earn greater net returns if the same

freight rates can be obtained on the same route. As we have seen above, the larger
ships can bear lower freight rates and be operated profitably with lower charter hire

rates. And this fact is said to be the reason for the tendency of a comparative
decrease in the shipping market levels along with an increase of larger ships.

Many studies based on the size distribution of world fleet or, more simply,
on average sized ships at each point of time have appeared to explain the tong-term
trend of the shipping markets.

Hawdon, in his re-examination of Zannetos' freight level determining formulawhich uses a reciprocal of the laid-up tonnage ratio, trys to explain the considerable

difference in fitness of the same form of equation R=a+b (11LU) seen between
Zannetos' period (1950-1960) and the period thereafter (1961-1971) as a resultof the appearance of combination carriers, the expansion of ship's size, the change
in operating costs etc. (Correlation coeMcients are O.831 for Zannetos' period andO.539 for the later period respectively, by annual data.)7' He estimates also supply
functions of shipping services in which the dependent is the reciprocal of the laid-up
7) Hawdon, D., `Tanker Freight Rates in the Short and Long Run',

University of Surrey, 1977.

EFFECTS OF SHIPS' SIZE AND CARGO LOTS ON THE

51

OCEAN FREIGHT RATES

tonnage ratio and the explanatory variables are

R: freight rates for tanker cargo,
DR: freight rates for dry cargo,

F: tonnage oftankers,
CC: tonnageofcombinationcarriers,
AS: average size oftankers,

BC: bunkercost,
Lab: labour cost, and

PS: priceofship.
An example of his results is the following:-1.78Lab
11LU=-104.37+.37R+O.9DR+1.31F-7.23CC!F+.25AS+3.56BC
(.89)(2.55) (3.17) (.30) (.65) (.84) (.33) (1.44)+.22PS(.62)

R2===.85 s==18.48 d===2.25 OLS
In fact, this function seems to lack suMcientsuggested
information. It has beenlong before that the average size of ships as well as the average speed must be considered to explain the long-term trend of shipping supply and freight levels in addition

to other growing indicators. The average size is, however, rarely applied as an
explanatory variable in shipping supply function. Is it considered that the average
size has less effect on the shipping supply than the average speed? Hawdon contri-

buted to make us reconsider such a problem.
There is a study which uses the average size in the process of calculating the ship-ping supply8'. In this study, the volume of the tramp shipping supply in the unit ofeMciency ton was calculated basing on the carrying capacity per month of a tramp
ship of average size and average speed on the wheat trade route from the North Pacific

to Japan, using the tramp statistics issued by W.G. Weston Ltd.
In this case, the average size contributes to an increase of shipping supply, andhas a negative effect on the freight level. In many other studies on estimates of thefreight level determining functions, the technical progress or the tendency of ex-

pansion of the average size and the average speed of ships are taken up only to
explain the unfitness of these estimated functions9'.

There is another study interesting us. Miyashita uses the ratio of the average
size of laid up tonnage to the average size of whole tonnage as an operation ratioiO'.
8) Shimojo, T., `Shipping Markets in 1950's (5)-Supply of Shipping Services and Freight

Level=, "Kaiun", 1960.
9) Shimojo, T., `Quantitative Analyses on the Shipping Markets-A Survey of Studies Weighting on Japanese works-, Kobe University of Mercantile Marine, 1973.
1O) Miyashita, Kunio, `A Measurement on the Investment Behavior in the Tanker Industry'"Kokumin Keizai Zasshi" Vol. 137, No. 4, 1978.

TETSUJI SHIMOJO

52

According to him, the decision planning investment in the tanker industry can be
explained by the operation ratio of free tankers and combination carriers and thegrowing rate in transport demand in tons. For the operation ratio, Miyashita
utilizes such a variate as [(Arithmetic average size of tankers and combination

carriers owned by independent owners)1(Arithmetic average size of tankers andcombination carriers laid-up)]. And he says to explain the reason: `Even if theshort term planning of investment is affected by the immediate future state of theoperation ratio in the oil tanker market, the former is also affected to a degree by

the expectation to the future. And the expectation seems to depend much more
upon the average size than on laid-up tonnage itself'ii).

The ordinary concept of the operation ratio represents a ratio of tonnage ex-cluding the laid-up tonnage to the whole tonnage at a certain point of time.
Meanwhile, Zannetos' reciprocal laid-up tonnage ratio seems to be a concept emphasizing the operation ratio which is a complement of the laid-up tonnage ratio
to 1. The concept is based on the experience that the freight level explained by theconcept will never fall down below a certain level because of the lay-up point.
To express the supply curve of shipping services, a hyperbolic model is frequently

used. In the simplest form, it is(R-a) (1-B)-C,
where R denotes the freight level, B the operation ratio, and a and C are constants.
It represents a hyperbola in the north-west side of two straight lines, R=a and B = 1.

As 1 means 100 O/. operation ratio, 1-Bis the ratio ofidle tonnage or laid up tonnage

ratio. So, ifLUdenotes the laid up ratio, thenC1
R= a+ 1-B==a+CLu ,and the freight level R is expressed by the reciprocal ofLU. We should better understand the Zannetos' theory in this manner.

Instead of this concept, Miyashita has used a very similar concept of Zannetos'

reciprocal laid-up ratio, by dividing both numerator and denominator by the respective numbers of ships. Denoting whole tonnage by A, laid-up tonnage by L,
and respective numbers of ships by a and l respectively, Zannetos' reciprocal oflaid-up ratio is

IA
LIA L
and Miyashita's operation ratio is

Ala A lLll=e
L a'11) Miyashita, ibid, p. 102.

EFFECTS OF SHIPS' SIZE AND CARGO LOTS ON THE 53
OCEAN FREIGHT RATES

Not only for tankers, but shipping services, the supply scheme is represented by aJ-shaped curve. As the ship's cost per unit depends upon the ship's size and tonnageof larger ships is naturally much greater than that of smaller ships, the J-sahped curvein the supply scheme is rather popular. Based on the curve, Miyashita seems toassume that the average size of the laid-up tonnage represents the operation ratio.

In addition to the relation quoted by Hawdon, Zannetos pursued the relations

between laid-up tonnage and freight rates in several other manners. But he did
not show much interest in the ship's size. This might be due to the fact that in hisdays the trend for larger tankers was not yet very prominent. As seen in his data,

T-2 tankers or tankers of similar size were dominant, and only a few tankers of
45,OOO tons d.w. or so were seen in fixtures several years aheadi2).

Since then, however, the importance of the ship's size has gradually been noted.

Zannetos did not fail to point out: the average sizes in tonnage ordered, deliveredand scrapped have shown very interesting contrasts, and the ship's size was one of
the most important factors in his model of long term charter hirei3'. In the Iatter
case, the ship's size effects (in our own terminology, or a parameter on ship's sizein a log linear equation) on long term charter hire were -O.193 for the higher portionand -O.213 for the lower portion.

Serghiou who studied under Zannetos' guidance the various factors affecting
tanker rates attempted to explain the single voyage rates in the short term S withthe operating costs of marginal vessels RM, the proportion of tonnage being operated
in the spot market Xi, the proportion of the capacity of a particular ship to that ofa marginal vessel X2, and the proportion of laid-up tonnage in the whole tonnage
X3i`'. In this case, the marginal vessel represents a certain ship's size range at which
partial quantity of fixtures accumulated from smaller side of ship's size ranges comesup to 5 O/. of whole quantity of fixtures.

In the process of estimating his theoretical equations, Serghiou utilized theoperation costs by size for each year based on the following equation of Polemisi5).

1971 C==12.8680 va-O•5989i R2=O.973
1972 C=12.6416 PV-O•5790i R2=O.948

1973 C=13.1422 W-Oi55860 R2=O.912
1974 C==17.9869 W-O•6i4ii R2=O.965
1975 C=19.6263 W-Oi57790 R2=O.945
And for the year 1976 he calculated them with the annual rate ofchange in Base Ratefor the PG/UK route (1.11Å~C of 1975). It is very interesting for us to note that
12) Zannetos, Zennon S., `The Theory of Tank-ship Rates', MIT Press, 1966.
I3) Zannetos, ibid. Fig. 5.13 in p. 123 and Chapter 10 in pp. 251 --.

14) Serghiou, Serghios S., `Transportation costs and Oil Prices'. MIT Master Thesis, Feb.
1978.

15) Polemis, `Tanker Time Charter Rates', MIT Master Thesis, 1976.

54

TETSUJI SHIMOJO

the marginal vessel had been 45-55 (OOO t.d.w.; same thereafter) in 1971, 55-65 in1972 to 1973, 75-100 in 1974 to 1975, and 100--150 in 1976.

He analysed a modified equation for 1630 fixtures on the PGIUK route forvarious periods from September 1971 to December 1976 by

SIRm=allbX2cX3d.
Here, SIRm was the proportion of a particular spot rate to the cost of the marginal

vessel at the respective point of time. His purpose was to clarify the economy
of scale by explaining the proportion in rate and cost with the proportion of size tothat of the marginal vessels. His results are shown in Table 6, it does not en sureentire satisfactory because of the unconformity between his objectives and themethod he used.
Table 6 Analyses of Tanker Rates (Serghiou)

S : Spot Rates
Rm: Operating Cost for Marginal Vessel
Xi : Ratio ofTankers operated in Free Market
S!Rm == aXibX2cX3d
X2 : Ratio ofShip's Size to Marginal Vessel
X3 : Ratio of Idle Tonnage.

PeriodWhole Period

Low Period High Period

Deperessed P.

Peak Period

1971-9--•l971-9t-•1972-12 1973-1-1973-12'v1976"12 1973'11

1975-l•v
1975-12

1973-6•v
1973-11

508

168

235

1976-12
No. of Fixtr.

1630

1122

10.47818.82486.8176

11.3705

5.5873(79.5)(76.3)(17.5)(11.5)(10.3)-1.1167-O.6225-O.8096-1.0191-O.3664(34.2)(22.7)

(9.0)

(5.3)

(3.6)

c

-O.2778-O.3512-O.1744-O.5582-O,2057(l3.5)(20.0)(6.0)(15.8)(5.0)

d-O.3887-O.24an+O.8671-O.3813+1.0869(36.6)(27.8)

(9.1)

(3.9)

(6.6)

O.6858O.3042

O.6223
O.5866

O.3436
O.4316

O.6179O.2881
O.691

a
b

R2
d.w.

1.3

In any way, however, it is worth noting that he attempted to explain individual
spot rates by the peculiarity of the respective ships and the macro-scopic indicators

which was prevailing in the market at the respective time. It can be considered as
an inheritance of Zannetos.

4. Ship's Size Effeet on Indiyidual Rates
The factors affecting individual freight rates can easily be understood throughthe jtems in the dajly market reports of shipping exchanges. The items identifying
a fixture from another are : (a) loading and unloading ports, or route, (b) commodity

EFFECTS OF SHIPS' SIZE AND CARGO LOTS ON THE 55
OCEAN FREIGHT RATES

and its shape, (c) quantity of cargo, (d) ship to be used, (e) date of readiness orcancelling date, (f) principal terms of contract. These six items and- the date of
fixture are the determining factors for freight ratesi6).

We would like to summarize them into the following four elements in order
to simplify our discussion.

(l) Route: Cargo is always indivisible from its route, so that we will combine
these two items into one. This item, however, is a non-numeric variate.

(2) Size: Cargo lot is also indivisible from ship's size. We will take it up as
cargo tonnage in fixtures.

(3) Prepositive time: Days from date of fixture to date of readiness as well asdays needed for execution of contract are one of the most important factors affecting

rates through expectation in the future. We will combine them into one concept,
prepositive time. Prepositive time is defined as [(days frorn date of fixture to dateof readiness)+(days needed for execution of contract)!2]i7'.

(4) Date of fixture: Shipping markets, as well known, vary from time to time.
The time is a vital factor affecting rates. We will defer till another occasion our
analysis of factors modifying the market level at a certain time, and, here, will consider
the date of fixture as a factor affecting individual rates.

The data used here are fixture reports of the free tanker market. We havepicked up mainly spot voyage charter contracts for crude oil on the principal world
routes during the six years from 1970 to 1975i8'. The freight rates are expressed
according to the Worldscale. We selected only fixtures to load the crude oil at the
Caribean Sea, Persian Gulf, West Africa, and Meditarranean ports and to discharge
it on the Atlantic Coast of the United States, the European Contionent, the United

Kingdom, and Japan. Number of fixtures picked up for the period was 9573.
Our objective is to observe and analyze the effects of the four above mentioned
factors on the individual rates. At this stage, the first problem is to find the mostappropriate form of equation to express our model.
For the ship's size and cargo lots, as we have seen, a log linear equation is con-sidered to be the most proper. But there are some diMculties with respect to the
prepositive timei"'. We will attempt, here, for the time being, the foliowing three
types of equations:16) Shimojo, T., `Determining factors of the freight rates and their influences', Annual Reviewof the Japanese Shipping Economics Association, No. 9, 1975.

17) Shimojo, T., `Expectation in the Shipping Exchanges', Economic and Business Review,No. 22, 1976.
18) Collected from Maritime Research Inc. `Chartering Annual' 1970-1975.

19) See Appendix II in Shimojo, T., `Some Bargaining Process Models in the Shipping Exchanges', Economic and Business Review No. 23, 1977.

56 TETSUJI SHIMOJO
R=aPV'P" (a)R=aJVblOcp (b)R=aMblOcp+dp2 (c)where the freight rates are represented by R, the ship's size by Wand the prepositive

time by P. For the other two factors, route and date, we have evaded to make them
explanatory variables by estimating these equations seperately by route and date.
But we have partially neglected the differences among the routes as we have adopted

the Worldscale rates in order to assume as if they were for the same route. Data
have been classified into 72 months20'.

The results are shown in Table 7 and 8, where the effects of the ship's size gives
a rather satisfactory estimation, regardless of the type of equation applied. Leaving
the prepositive time for another occasion, let us here observe only the size effects.
As we have already seen, the cost elasticity of tankers in relation to their size

ranges from -O.5 to -O.7. Although we have considered only 1976 and the following

years but not for the period covered by these data, we can assume them to be ofsimilar value as those estimated by Goss and Polemis. As far as we see in Table 7
and 8, however, size effectsb vary from time to time. Eliminating the ones that is

not apparently significant, they range between -O.Oll (Aug. 1973) and -O.793(Dec. 1975). The absolute value will be for greater if we calculate only a particularroute.

Small absolute values of size effects mean that there is no difference between
rates by size, and that the larger ships enjoy greater profit regardless of the freightlevel. From the reverse point of view, if the absolute value of size effects is large,

it means that the larger a ship is the less she can earn, and that the market is lessfavourable for larger ships when the absolute size effects of rate is greater than thesize effects of cost. By comparing the size effects observed here with the size effectsof cost, we can judge whether the market of a given period is favourable for larger
ships or not.

Our problem is to find out what makes the market comparatively favourable
for larger ships sometimes and less favourable at other times. As far as we can see

in Table 7 and 8, the absolute values of size effects are generally smaller inmore prosperous periods, or the larger tankers have enjoyed greater profits in those

prosperous periods. This tendency, however, faded away in 1974 and after, and,on the contrary, an unfavourable market for larger tankers became conspicuous.
The favourable market for larger tankers derives from the bias of larger lotsin the size distribution of cargo. In such a market, there are insuMcient occasions20) In the results of calculation of the same data classified into 313 weeks, we found a better
estimation in some parts. But there is too little apparent improvement in view of the ship's size
effects to be introduced here.

EFFECTS OF SHIPS' SIZE AND CARGO LOTS ON THE

OCEAN FREIGHT RATES

for larger lots of cargo to find appropriate ships while there is a surplus of ships forsmaller lots of cargo. Such a connection is easily understood from the fact that thesize distribution of tankers is constant in the short run, although the lot distributionof cargo does not appear in any statistical data.

Let us arrange the problems we have faced here. There is the phenomena called
economy of scale can apparently be seen in ships. As the cost per unit of larger
ships is lower, an identical freight rate or an identical charter hire rate will bringiarger ships greater profits. We have expressed the degree of lower costs by aparameter named `size effect'.

In the actual market, however, we can find many differences in the relation
between freight rates by size. There are fewer differences in some periods between
freight rates for larger and smaller ships, but in other periods there can be greater
discounts on freight rates for larger ships than their size effects of costs2".

Such phenomena naturally depend on differences between the size distributionof the fleet available in the market at a given time and the lot distribution in cargodemanding shipping services at that time. Compared with the lot distribution ofcargo, the size distribution of the fleet is completely inelastic, and it can not adapt

itself to the changes in the lot distribution. Therefore, by watching the trend of
freight rates by size, we can learn the changes in the lot distribution of cargo.

It is easy to divide the market in such a way that the different size of ships
supplies different services. But any size of ships has the possibility to be substituted

to a similar size of ships, and a cargo lot can be split or consolidated into anotherlot size. Our ultimate objective is to make up a market model including as wide a
domain as we can by means of suMcient consideration ofmutual substitution between
the size distribution of the fleet and the distribution of cargo.

5. Application to the market model
There is the size distribution of ships on one hand, and there is the lot distributionof cargo on the other hand. Even if there are suMcient of ships and cargo to makean equilibrium, the individual ships or the individual lots of cargo can not always
find their appropriate partners. Some sizes of ships may be scarce and at the same

moment some sizes may be in surplus.
This means that it is not suMcient to assume only one supply scheme for the
shipping market model. If one assumes that only one commodity is exchanged ina market, then different ships with different sizes must be exchanged in respective21) This is seen not only in the tanker market. We applied the same analyses on the charter
hire rates of recent tramp rnarkets. The figures calculated from the tramp market reports areshown in Appendix IV.

57

TETSUJISHIMOJO

58

Table 7Date

2,"-O,lll-O.094

Rt

lesa

O.146

O,26L

2,66

-O.136

O,452
O.047
O:103

2.ss

3

4

124

'2,73

-- O.IS3

e,es3

s

1sc

-O,13t-O.oo3.

6
7

2SI

2,69
2,78

-- O,123

O.026

89

2.4g

-O.041

s

l24

2.St

-- O.028-o.oos.
-O,OS9-o,e7t-o,ost-O,IS6'2.Gl-o,en.

-O.1oo-

9

]02

2.67

-- O.OS6

ro

103

2.S3

.- e,o14

lt

119

2.62

12

107

2.62

-o,e2s-O,os9

1

2,14

O.033

2

138
123

2.IS

-O.oo3.

3

149

1,90

O,041

-O.lcoO.061-O.1l1

4
s

ISZ
120

2,SO
2.49

6

108

2.S7

7

8S

3.7t

-r O,173-- O.413

s

76
76

3.oo
3,4S

-O,249-O,391

9
]o

129

2JS

-- O.213

11

I17

l2

92

2,34
3.17

-O.I08-O,2SO1972

2,43-o.e2o-o.e27

O.oo1
e.oo2

O,402
O,t6S

O.11S

O.16t

2.SO

o.ooo

O.222

O.067

3.77

-O."9

O,Oll

3.11

-O,276-O.415-- O,Ot4

o.esg
O,066

O,376
O,S38
o,sos
O,282
e,oss

2.23

-O,079O,OIOo,cos
O.oo2.

O.046

2.29

-- O,IS3

O.M7

3.21

-- O.274-O.O18

O.607

3,21

-O.079-o.tos-O.l66-O.41S-O,23S-O.197-O.213-o.ogg-O.241

2.62

--

O,co7

"- O.378-o.oo;

e.217
o.63g

2.62

3.St
3.8g

-o.47g-o.sss-O.440-O,136-O,119-O.202-O,oo3.'-O.029

O.762

3.6]

4,23

O.841

4,24
3.67

O,oo2.

-- O.137

O.061-- O.os8.- O,10S

2.3S

.-

O.IS4

O.3S2
O,43S

3,t4

--

O,S77'

3.20-O,234

e.143
O,179
O.07S

2.37

O.021.

-O,1ou

O.46S

2.76

O,co6

O,126
O.317
O,437

2.79

-O.ou9-O.11S-O.07S-O,12S-O.ll9-O.os1-O.213

S76

12

]59

3.IS

-O,222-O,162-O.I09

2,3S
2,69

-O.M2

-O.102-O.IL6-O,086-O,123-O.174-- O.029,

5
6

211

2.74
3.oo

104

2,81

-- O.075-- O.l30

7

1"

3,35

-O,194-O,OIO.
-O.070-O,121-O.S73-O.J43

1

]11

3.62

96

3.83

12S

4,18
4,54
4.I2
4.03

12

11

4.24
3.97
3.99
3,72
4.32
4.87

J

ltl

4,S9

2

sc

4,3t

3

1os

141

4.46
4,S3
4,76
4.42
4.37
4.3S

92

4,71

11S
120
7S

5,39
s,os
S.6S

4
5
6
7
s
9
10
11

l2

87
100
105

1so

O.l67

-:O,2S2-- o.es3-O.so3-O.363-O.42S-O.S2S-O.440-O,co7-o.4gs-O,432-O.417-- O,346-e,486'-O,6tl-O.SS2-O.sc6-O.S9S-O,6S9-O.6S3-O.S47-O.S3I-O,S49-O,606-O,76t-O.6"-O.79t- mark mcans tyaluc beins less than 1. R:-- O.oo1.

-O.O13.
-O,110-O.119-O.130-O.114-O.068-O,028.
-O.O17.
O.05S-O,106-O.OS6-o,cos-O.087-O.IS9-O.219-O.230

o,ooo
O,co8
O,129
e,673

3Jl
2.4S
2.43

2,68
2.49

2.73
3.4:

1,Ol

3,53
2,7S

O.042

O,Olt

--

O.037

-O.020LO.072-O.oo1.

O.oo1

O.S29

O.oo7
o,ooo

O.S8I

O,OC)9O.O14-o.ooo.
LO.co1-O.08S

O,OIO

O.S6t

O.283

e.o7o
O.667
O,2tl

O.t78
O,43S
O,S23

2,Sl

-O.OIO-O.oo7-O.OL3

O,310

2.3t

O.396

3,02

-O.L68-O.368-O.co8-O.S34-O.429-O.I70-O,162-O.20L-O,237-O.ou7-O.199

O.S6S

3.lg

-e,ns

-O.Oll

O.2oo
o.lg3

2,36
2.73

2.9t

-O.ou6-O.130-O.086-O.127-O.1S4O.OIS-o,ooo

O.07S
O.474
O,124

2.71

-O.OSI-O.20S-O.022-O,Ot6o,ooo
o,ooo-

O,427

o.oos
O.OIO

-O,eol-O,oo1

O.238-O.IL6-O,S74-O.369-O,024-O.027

O.eo1
O.ool

o.og3

-O.020-O.30S-O,36S-O,431-O.S20-O.439-O.412-e,4co-e.432-O.029

O,oo2

O.682

O,020
--

O,oo1

-O.022-O,033

O.606
O,6t8
O.S06
O.703
O,7S9
e.783

O.O06

-e,coso,oot.

-O.oo1.

-o,coso,ooo.

-O.O13o.ooo.

-O.OL2.

-O,OIO-O.oo3-O.O06

O.S79
O,3SS

3,47

2.59
2.78•

3.0S

O,076
e.477
O.os3
e.388
O.428
O,074

2,S3

3.40
2.SO

--

-O,071

2J6

O,co7.

-O.OS8

O.160

2.84

e.131
--

-- O,O13'O.13S

3.13-O,O09-O,033

O.667
O.S36

4.9S

-o,ei2-O.O04.
-O,co2.
-o,oot.

O.67S

3.6S

O.600

3,87

O.614

4,22

O.803
O.70S
O.7S3
O,777

4,SS

aso2

4.02
4,Ol

O.Oll

o.eto.

-o,ooo.

-o,oos-O.040

o,ooo

O."7

O,oo2

--o.log
O.oo2.

e.o13

O,so2
O.SS9
O.S7S

O.OIO
e.ot3

-o.oo1.
-O,O09-e.e26-O.024-O.027e.ooo.

-O,oo1-o,ooto.coo.

O,384
O.187
O.431

'O.co1

O,53t

e.oot

O,348

o.oot

O,411

O,oo2

o.s6g

-O.Ot3o,ooo.

O.19S

O.oo7.
O,oo7.

-o.oo[-o.cot.

-O.O14o.ooot'O,19t'O,406

O.239

'

S.06

-O,601
-•

O,685

3.6S
3.S9

4.2S
4,56

O.704
O.;64
O,779
O.so8
e,733
O,742
O,837

4.II

O,so1

4.oo

4.10
4,26
4.oo
4,07
3.83
4.3S

4.S9

O,721

4.33

O.063

O.6SS
O.877
O.6i5
O.760
O,S30
O.796
O,789

4.S5

4.71

O,918

S.46

o,cos

S,10

O.S79

S.73

-o.oos-O,19S-O,os2-O.277

3.69

3.17

O,732

o.e61

2.50
2.S6

2.44

3,83

O,so3

O.476
e.4gs
O.S60
O.2S7

2.61

2,S2

-O.O04.
-O.030.
-e.166-O.04S.
-o.lg2

O,2M

O.517

e.oos
O,61S

O.oo7

-- O.20S

3.10

11

IS3
124
169
132

2J2

O,S23

O.04S

-o.oro

le

9

3.S9

-- O,021.

2
3

O,07S
O.OIO

o,2g4
O.16]
e.222

2,7g

O.368

O.oo8

-O.O09O,437-•

o.ooo.

-o,ooo.

-O,Ot8.

4.95
3,89

e.oos

-O.1L3-O,ISt-O,19S-O.232

86

2.lg

O,260

-O,121

O.OS7

]3S

o.e24

O.lt6
O.OS9

Oool

zso

-O,"6

12

O.oo2

o.ooo.
o.ooo.

2.S6-Q.171

11-O.Ol4.
-O.040-O.06S

O,336
O,162

-- O,t60

3,13

2.67

-O.061

3.73

2,86

O.2oo
O.Ot6

O,ooI.

2.S6

2.Sl-- O.ou3

2.S3-O,OIO-O,{M2.

o.oso

ZS7

161

2,70

o,e63

o,ooo

1.87

2,76
3,02
2.29
2.96

10

O,324

O,120

O,oo3

--

-o,ooo-o.eoo

2.le

13S
14S
l3S

8

2.S4

e.I47
O.030
O.tS7

O.oo7
o.oo]

-O,oo5-O,oo8-O.O06-O,026-o.oos.

O,O17

107
IS8
137

109
126

2,73

2.76

O,063

s

145

2.42
2,S3

O.O17

-O,137

150

O.ISt

O,111

O,oooe-- O.189

8o,eo4-o.ooo.
-O.col-O.oo2-O,O04

O,093

o,oss

-O.421

120

O,l31

O.077

-O,039-O.070-O.OL9.
-O.oc7-O.070o,ooo.

o.oos.

-O,S41

t34
13S-O,031.

-o,ooo-O.oo3

O.OS6

O,036

-O,oo2.

1,86

S7

s
6
7

-- O.114

2,4S
2,S3

2.S8

2.11

4

4

2.76

e,oco
O.2tS

O,216
O.667
O.794
O.SS2
O,S67
O,319
O,193

9

2.72

O,os3

O,041

le

2.72

O.095
O.075

O,020

.- O.121

4

O.076

O,llS

-O.t67•2,S3

O.oo2.

O,Olt

O,022.

-O.to8'

179

e.472

-o.ooo-O.OCM-o,ooo.

3,66
4.16

l73
ISS

O.17S

o,ooo

-O.02t.
-O,oo1.

3,23

172-O,Ot7.
-O.OIO

O.oo1.

-O.ll3-O.109-O.09S-O.IS7-o.s3g-O,t22-O,028.
-O,036-O.co2.

2.63

O.039

2.62

t

2.66

O.466
O.079

2.12

I08

3

d

O,280

O.O17

i36

2

c

-O.027`o.oos-O.co7

e.o16

131

9

2.71

2,49

b

O.026

1

s

O,ltO

-O.l23-e,osg-O,146-O,137

2,71

loga

e

-- e,o4o.

3

7

O,093
O,os6

--

R2

RL,

b

2.67
2.62

2

6

197S

c

2.S9

1971

J974

b
--

R=a"tb1orp.tp!

R=aFVbtorp

log•a

220
242
236

'

2

1973

R==arvb1"eFixture1970

Size and Prepositiye Time Effects

4.82
S.03
4.4S
4,37
4.33

Fixture Rates in World scale,

O.34S-O,318-O.379-e,"7-- O,S30-O,438-O.428-O,492-O,"1-O,439-O,374-o.sos-O,611-O.S83-O,sc9-O.61S-O.6S3-O,721-O.S49-e,s3o-O.S4S-O.600-O,771-O.703-O,7paIit: Tons Fixcd,

O.oo9-o,oos-O.oo7.
-O.OIO-O.oo3•-O.Ot4-O,024-O,(M4'O.727

e.7os
O,820
O.802

-o,ooo.
-O,O04.

O.733

o.oog

-O,033

O,727
O,878

O,O14

O,630

-O,033-O.O17

O.761

O.eo8

-O,02S-O,03S-O.O09-O,OS2

O.72I

O.83t

O.796
O.79S
O.91S
o.eo4
O.8St

3,80

4,ll

4.06
4,32

3.7S
4.41

4,92

rrO,4t7-O,340-O.4co-O,609O.Ol2.

O.oo2
O.oo4
o.ooo.
---O.020-O.063-o.oso-o.oso-o.e6o-O.08i-e.o71

O.O09
e.oos
O.oo2
o.cos
O,oo7
o.oos.

O,oo1

O.t36
e.671
O.S66

O,Sll

O.73S
O.7S4
O.8]S
O,S02

4.SS
4,32

-O.S84O,oo8.

-O.oo1.

O.731

-o.s"

-O,O19.4.5S-O.6t2-O.6S4-O.650-O,S46-O.S30-O.S37-e.611-O.7S[-O,688-O.793o,cot,

e.oo2
o,ooo.
o.ooo.
O.OCM
O.O04.
o.ooo.

O.7t9
O.727
O.S77

4,82
4.8S
4,47
4,37
4,31

4,63
S.45
S.07
S.73

P: Prcpositiye Time

-O,032.
-O.os2-O,OS9-O.O17.
-O.oo3'
O.089-o.te7-o,e4s-O,064e.oo1.

-O,02tO,Ot3
e.oos
O.oo2.

O.68t

O.7S9
O,830
O.796
O,S02
O,921

O.80S

O.880

LOTSON THE
EFFECTSOFSHIPS' SIZE AND CARGOOCEAN FREIGHT RATESSize and Prepositive

Table 859

Time Effects by Route

Rrarvb 10cp.dp2
CtriblUKC

CsriblUSAC

Date
70.

Fixture

1

t13

2
3

113

4
s

su

47
co

bcd

O.12jO.149-O.02-0273O.O"..O,oo2.
-o.161o.2ss-e.ous-- o."2e.cos-o.e12

•--

11

7

46

ro.11s!-o,ets.e.oo3.

11

63

--

12

49'

ss

s

so

fi

16

7

Sl

a

13

S5

LL

y

12
72.

,

-6
-7 e.31o,-o.s2eo,on--11 -"t--re.os1.o.ege.--o.on.

O.04SO.O13.0.eo1.
-e.n4.-o.os6.o.ols.
•-o.o7o-o,o12e,oos.
O,046.-O.497O,14S.-o,essc,o7t-o.ets

10

SL

lt

12

63
es

1

ca

--

2

ss
e3
69

,

2S

s
6
7

34

e

so

Sl

36
S6

o.lege,ls7--e.o33

6

6t
41

.- O.227O.U2.-O,026,-O.SU,O.039..O,co2.
-o.Lsso.oss-e.o16.- o.]3so,e14-e.oLl.
-o.o4so.lss-e.o21

7S7-emlo.eos-o.co2

s
9

3
s

7S.

-e,lsl--o.olo.o,co2.

4t

46-O,OS4--O.O14•O.oo3.

S7
TG-o.12oo.cos.o,eoo.

]e
Jt

ss

12

"

t

33

2
3

2S
3S

4

2S

s

27

6

31

7

24

s

21

g

22

10

3S

o.ose.o.geo--o,ns.

--ST-o,tg(..-o,oo7.e.ooe.

7--o.ln.-o,oo1.e,ooo.

e,oj6.o.co1.o.nm.
-O.2L7-e.069O.O14.
-- o.26go,el"--epo7-O.aS4,:,117rO.41S-ems,-e.o2o.o.oo3t-- o.ts6o.oss.-a.oi"-- o.Nl-Ho.ero•e,oo6-- e.2T9O,06t-O.027.
-o.11g-o.e2eo.oos,-- o.7coo.oso-b.en.'-o.664e.o6s.-o,Dts,-o.se3o.o7s-o.ele-- O.24ZO.024.-O.O09.
-e,]ll-o.on.o.ooj.
-o.lfle.23f-o,os[-O.osI-O.:S3O,os1-O.2S7O.OSt-O.Oi2-O,079O.O17•TO.oo2

4

74.

-F-

-o.3eg-o,e64..e,olt.

j-o.:s4o.Osl.--O.bl3.
-- e.4so-o.ets.e.oos.
-o.lss.re,e76.e.oll.

-

-

.--

'

-

-

-

m
.
-

o.s67--o,o14'O/co)!

-O,127O,064.-e.oo3.
p- e.ss3--e.n6.o,e".

'---o,scse,t21-o,oN•-o,4ss-o,eu.o.on.
-O.S67O.OSI.-O.OLO.
-- e.slso.sco•-e.13o,-O,32S-O,O04.0.co1•-O.3so-O.O06.0.coS.
-o,237O.On.r-O.OOt.

'

4S

i2

"

-O,SS7--O.040'O.OIS.

l

ro

23

27

-O.SN-O.42S.O.tro•-O,M44,e"4.-1.SII.

--O,S22.-t.071.0.S9S.

16

"2S
26
•2L

S7
s•

31
IS

-O,674-3.4S91.2SS-O."2-e.332O.Soo-O.674O,S9S-O.2scr•-o."7o.go6.-e.ls2.
-O.4S2O,493,-O.07G.
-O.32SO.261-O.03S-O.633O,OSI.--O.Olor

t4

IS
L6

11

7-m

-o.3ss-2,o3se,y3'

S5-O.S14-O.022.0.004.

"2T-O,494O.03S-O.ooj--"'---.----e.sroe.ets.-e,oos.
'mark metns t yalve beins1ess thtpt L.

--tH---i-

H
H
-

--

6
6

s

R: Fixturt Rates in Wet:d sc11t, bF:-------m-"--e------------------mM---'----m--"-------"-"--i-be-------.--L--o.lo2,o.ls?-•o.o13.

-O.OIS.1,IS7.-O.143-OM6•-O,ro2O.O19-- e.31g-o.1ss.o.ols.
-O.O"•-O.OtO.O.oo2.
-0217,1,44S.-O.141.

O,127eM9--O,e36---6. -029S-t.390O.219'-rm
T-o.1ro-o,sss•e.os7.

7

pO.SS2-OSSLO.10S

-6

-•

`

--

s

6

-6

a2

ao33.o,J"-oro"

76-O.OIL.O.co2.0.0tX}.
--

O.O06.--O.coi.O.OOO

ro24

o.eco.-o,oo4e.ajcl

3S.--O,MlO.op2--O.Oll

30
11
19

28

va
ro
29

"

33
2g
23

-o.ls3-o.ino.elo

14-o.3sie.ol]•-o,ooe.

-O.?Ck.O.Oro.O,OOO-- O.139-O.SltO.osi-O.L7SO,OL9-O.Oco.

H
ri
-HH

-O.MO,046-O.OV--o.Isso.o21-o.oo1
o,:to--o,on"
e,oo2
---

.- O.424e,131-O.e14

IS-O.392O.osj-O.ooS.

9-O.6S7-O,SSS.O.04S.

12
2S-e,2tse.en-e.eoo.

g--e.t7s-o,oog.o.ooe,-8-o.lw--o.oleo.ooo

32 '- e.oss-e.o4to.oo;"-o.e73o.oot.-o.ooo.
-o,e26-o.ool.-o.eoo

47-- o.oeg.o,oos.-e.cot

4t-e.oN.-e,ose.e,oos.
-o.nse.13t.-o.et7.
-O.4es--O,I36.0.00S.
-o.16so,eo4--o.oo1.

46
21
29

-o.2oso.e4o-o,oo2
e.3!so.ptG-e.coj.
-O.1roO.OS9.-O.O[".

4Z

.-

to
4S
-9

-O.3S7O.M-O,021-e,336-o.ols.o.ooo.
va '- o.26go.Loo.-e.olo.
49 -O.127O.022.-O.co2,
es -o.4e"--e.oloro,oo1.

9-O.OSI.O.14S,-O.Ol2•-o.e7o.o.on.-o.co4.

-e.stt-].es7o.J"

7--O,616O,OIS.-O.oo2.

"61 -o,mo.o)6.o.ecv.

7--

O.S:S-1.917,0236.

2S-e."oo,org-o,o"4-o.4es-o.261o.ero'-O.9tS--O,.

--.--.---

-9
eH912

-o.s"-e.o3?.o.oos.

IS-o.seg-1.6t4.o.as3.

-"H--

17
2t

-e,1"o,2-6-o,o2s-e."6o.s"-o,or4-O.S92O,14-.-O.021.
-o.sG6-.e.3sso,oc6
4S -o.2ege.on.-o.oot.
23.e,"so,s7".-o.ttog.
-1.lco-O.OIS'O.Oli•

19-O,Soo1.S91-O,2",13
2t-O,616O.IS7.-e.022.

9-O,S62O.2S7.-O.031.

--

o.gsso,on.o,oo4.

--inTens Fixed,

markets and matched with similar
It is much more complicated.

-

t4

y

-H-p--h
HHh--H"--ny-- O,269-O.]Oj.O,03".
-o.o".o.on.--e.oo4.
-- O.sc3O.Oss--O,eo2-e.6g4e.o3s.-o.co3.

-o.nsalo7--qeoG-O.ISS-O.102O,OOP-o.3"]o.3o6-o.e33-02tl-O.OStO,oo1.

-e.t66o.e"-o,eo2
e.oro.-o.ng.o,on.

H
lo
H
H
H

o.oso.o.lss.-o,els.

' s -o,633e.Jss-o.ee6-s-o,"t-o.y3e.o36.
H
15
O,7"-1.17SO.16S--'n-''H---m----.---O.S72t.2S7-e.t73

of cargo lots. In

L--H-H--lt-O,26t--7.le9l,ooS

R: Prepositlvc Time

.
slzes

-------tHH--H----HH-m------h--m----H
ri---N-----H--hm----H--h-.----.

-o.osto.o67.-e.co7.
o,o77.-o,ns.e,o-t.

24-o.3"s'--o,sroo.esg-sLOs-

different-•.--.s-

29

O.O"S.S,IPI-O,39S'-O.64SO,102•-O.co3.

s39"47 -o.o3s.-o.eog.e.oDo.
-O.124O.031-e.oo3

IO

11

22

S2

"

-----

le

-- O.SSIO.17G-O.O17-O.onS-O.021.0.0co.
49 -O.104-O,022O.oo1
2S -o.z66o.el"l--o.oo1.

-e.14Lo.o"-o.ooo

----h

l6

16
10

-O.33SO.OSS.--O.oo7.

106-o.ssg--e.ls2.o.ols-

o,m6o,lgo•--o.e2j.

-e.217O.or7-O.co2

Sl

63

O.OS7-O,033O.oo1---o,tsgo.elo-e.oco

O.12I.e.16S.-O.e17,
O.137,e,172,-O,O19.

17-- o.e"s.-o.3ta.e.e31.

22

es
74

-O,07S•-O,4LOO.049-O.22SO.2SS.--O.OIS.

IS

O.IG2O.027•-O.oo2,-o.ts2o.os3--e.oo3-O.:coO.1os.--O.O13-

s16

O.02tO.O02.-O.OOO.

o.ogG-o,1"o.o"76---la--.

o,oo3--o,oos.-O.eco.

.-

14

r-

-e.t"-e.eol-e.oet

3.9S2S,O19-1.0LS

6o,o27.-o.oo1.e.ooo.

pte.oog•--o.cos.o.ooo.

ls3t-L-i--"s-6

o.oo2.-o.oo6o,oDe.
23 -O.OS9O.027--O,co2
20 -- e.o31e.olt-o.cot
2S -o,esl-e,o16o.ooo.
ro .- o.oro.o.oog--o.ooo
se -- o.113o.esT--o.oos.
.-Sl-------

2S

o.ooso.coso.ooo

,30

-s

--

-

17

o.4rot.-et'-o.tss.

o.ns-e.o"o.oos-O.os3O.OS6.-O.OOS•-o.ttg--e,etgo.ooo-- e.on.o,os3--o.oo6
13 -- O.t16.0.6SS.-O,07"
oo -- o.yle.et4.Lo,co1.

23-O.023.0.coL.-O.OO[)

179

bcd

Hxturc-o.ocgo,1"--e.oro-o.en-o.ooso.ooo

O,1921.2SS-O.IY-6-1,os6-4.IWO.16t.

o.ls6-o.noo.on-o.roso.o3s-e.oo2.
-e.31gFo.2"'o.ost.

--------th-------O.S21O.2so•-O,O"•-O.S6SO,co2.0.coi.

lt

10

91

-

1
jl

'
'
-H -O.SS6-O.4t3.0.074.
13

3S

O,"S-O.31SO.049-7 -O.2692.01S-O.to3
ti

'
-

-9

'

P.G,tjAPAN

bcd bed
HHH"
Hmew- --Fixture--------- a3J4-L2seO.2]1.---L--"--O,344O,osS.-O.O09.

--

s-

P,G,iUKC

P,G,IUSAC

Fixture0211O,16]--eM3------h.
-t----.---------u------------m---wP.
-r------H--m-H"-------ny--Mm----------------"--

-6

-

IS

`s61

------

H9 -e,sgse.s36.-o,ous.

y43-O.270.-i.172.0.1zz.

-O.6ss1.0t7-O.ISS-o,o16.e.o3s•o.coo.

-o,t2ge.osl--o.o12.

"

2

9

73,

14

9
lo

O.M7O.7W--O,llS.

-- o.to7e.oog.-o.co2.
-e.2s2o.oos.-e.ao2'

s4
4

O.199.-O.149,O,OIO.

o.2sgho.em-o.coo.

IS
3"

oo
4g

bed

r-

O,ODGO.OtS.-O.coor

s
9
la

23

--

.-

3e

7L ,

-o.en.--o.t4go.ot6

s

9
7

--

6
7

3j

9

Fixlarereality,

however,.

Let us take up only

the ship's size.

A cargo lot of,say,

100,OOOtons willbematched not only with a

100,OOOtonner but also a 120,OOOtonner or larger tankers.

In recent years

cargo are reported, and not a few tankers havecargo than their capacity.
Weshould not overlook suchmanyfixtures

accepted 20 or 3oo/.

lessof partTETSUJI SHIMOJO

60

substitutions in the ship's size22).

Suppose a cargo with a lot of L tons and a tanker of capacity of PV tons. If the'freight
rates R are determined by the market size effects'''R=aL-B,''then as L must be less than PV in general,

aL-P>aW-P,
the shipowner's economy of scale x is

x==( i)-P=( Lur )P>1•
Is this always suMcient?
In fact, the total freight revenue he will earn is

TR==L.aL-P =aLi'-P,
and the maximum freight revenue he can expect in the same market will be

XR == W-aW-.P=a PVi-e.
Then the ratio will be

TRIIR=( l} )i-p,
so that the closer L is to va' the more favourable it will be for the shipowner.

Serghiou, in spite of his very detailed research on oil prices, failed to obtain

any information about the lot size of crude oil shipments: who decides and how is
the size of lots. We understand that the size of crude oil shipments depends on thetank size and the processing capacity of the oil refineries. If so, the average size ofthe cargo lot will increase every year.

The ship's size, corresponding to the trend, has been increased by about 5.7%
a year during the last 20 years. When the expansion of the ship's size may exceedthat of the cargo lots, then the market size effects will be smaller (larger in absolutevalue). As the effects of accepting smaller lots of cargo for larger ships will be
proponional to (LfW)'-P, regardless of their costs, the smaller the ratio of thelot tothe ship's size is, the smaller the effects will be, And it can be said that the larger
the absolute value of the market size effect is the smaller the loss in the operation ofa ship with a small lot of cargo will be.

One point is to be noted. The trend to expand the absolute value ofmarket size
effect due to the surplus of larger ships has the effect of decreasing the loss ratio

arisen from the part cargo. In other words, if a shipowner allows a certain rate ofloss, the smaller the absolute value of the market size effects is, the smaller a ratio22) We will neglect here the consecutive voyage relating to prepositive time or the temporal
substitution. It is clear that much more substitutions are possible if we consider a larger rangeof time.

EFFECTS OF SHIPS' SIZE AND CARGO LOTS ON THE

OCEAN FREIGHT RATES%

L/Wloo
90
80

70
60
50

40
30
(LIW)i-p

20
10

O -O.1 -O.2 -O.3 -O.4 -O.5'-O.6 -O.7 -O.8 -O.9 -1,O -B
Fig. 1 Market Size Effects and Loading Ratioof part cargo will he be able to accept. This also means that the range of substitut'ion
between different ship's sizes will be larger as the absolute value of the market size
effects will be bigger.

This relation is shown in Fig. 1, in which the vertical axis denotes the percentage

of cargo to the capacity as well as the percentage of real freight revenue to the expected revenue with fu11 load, while the horizontal axis denotes the market size effect.

For example, when the market size effect is -O.6, 80% of the part cargo will make
91O/. of the freight revenue. And when the market size effect is -O.7, even 700/.
of the part cargo can make 90 O/. of the freight revenue.

In the recent tanker market, there are often part cargo fixtures of as small as
70 O/. but no fixtures of smaller part cargo. From these facts we can guess that 90 O/.

of the freight revenue may be the limit of compromise in the short run, If we use
this figure, the lower limit of part cargo, or the range of substitution among theships' size will be a function of the market size effect, and can be expressed by-!})LO.9i-p.

w

In connection with the above, however, there is a more important fact. The
market size effect is determined by the relation between the lot distribution of cargo

6162 TETSUJI SHIMOJ9
offered and the size distribution of ships available in the market, but the fixturesutilized for this calculation'are: not reflecting the'real size distribution of ships but

merely a nominal one. Becau.se, the larger the absolute value of the market size
effect is the larger the difference between ships size and cargo lot in each fixture may
be, and the larger the latter is, the cheaper the actual freight revenue per ton of theship will be, even if the freight rate is comparatively high for a small cargo lot.

In any way, suÅëh phenomena are finally derived from the difference between
the lot distribution and the size distribution. So we must not skip these two premises

in our discussion on the rriarket modeL ' .
The market model w.e are preparing has a data file on the world fleet on one
hand with as re,alistic a structure as possible, and a data file on cargo generated fromas realistic a distri6vtion as possible on the other hand. We have to classify andsummarize these two files as a first. step in our model simulation. In these files, as
we have seen above, the principal ite.ms are route, kind of commodity, lot size, dateof readiness, etc. for the cargo file and kind of ship, size, position, date of availablility

etc. for the ship fiIe. .. We have observed only the ships' size and the cargo Iots inthis paper. The information we got through the discussion will be useful for our
deSiginn OtfhghteraMd2.trikoentalrll teriiet modeis, 66th 'the demhnd and suppiY schemes have

only a 2-dimensional relation between quantity and price. We are going to prepare

multidimensional demand and supply schemes for our own rnodel. One of theadditional dimensions is the size effect jn ships and cargo. In other words, what

we have discussed in this paper is one of the new dimensions to be added to ourown demand and supply schemes.
' 'We plan to discuss another new dimension, the prepositive time effect, in greater

detail, and the other dimensions of route, kinds of ships and cargo will be studied

next. These dimensions are unavoidable for the shipping market model, because
we have often experienced that an item can be easily separated from another in the

demand scheme while they may be connected with the close substitution in the
supply scheme, or vice versa.
Due to this fact, most available statistical data on the shipping market are very

inconvenient for analysis. Hence we have to proceed by preparing raw and unprocessed data for ships and cargo, and make up our own endogeneous variablesin the course of the model simulation23'. (October 16, 1978)

23) This type of model is named `•Behavioural Distribution Model', for more detail of which
see Shimojo. T., `On the Behavioural Distribution Model', Discussion paper presented to theInstitute for Shipping Research, Bergen, Norway, 1977.

EFFECTS OF SHIPS' SIZE AND CARGO LOTS ON THE

OCEAN FREIGHT RATESAppendix I Relation between Ship's Price and Size (Tanker)(Size)

19,OOOtdw 41.5

1975
1974
1973
1972

(2123.7)

2635.3(2208.4)(1932.1)(2352.4)(2094.5)

1971

1970
1969
]968
1967
1966
1965
1964
1963
1962

1525.7(1398.1)(1377.8)(1436.2)

1345.21265.4(1308.0)(l466.7)

1961

1417.41121.0

1960
l959
1958
1957
1956
1955
1954
1953

(l195.3)(1295.9)(1 649.7)

1240.71198.9856.91124.83092.73606.43029.5(2717.4)(3173.7)(2704.3)(1934.9)(1773.0)(1747.3)(1821.4)(1834,4)(1797.0)(]857.4)(2082.7)

2195.4
1942.22070.92245.23158.22328.2
1954.71610.2
202S.2

220

265

330

(6589,7)99oo.O

81co.O
6534.eS84S.56966.04914.04239.03847.53780.03712.53739.54131.0(10722.3)(11594.7)
12110.511209.5
10891.5(14097.0)
16962.012837.012837.014883.0
1oo32.0901354716.05256.04392.04680.0(4943.9)(4018.6)

2817.0(2581.3)

2781.02619.02889.02943.03042.03411.09108.08338.010296.0
7766.06072.05676.05368.0(5772.8)

9169.09328.07022.56360.0(6267.6)6863.5(3472.0)(2943.8)(3138.9)(3403.1)

4032.04131.0(Source) Calculated from Japan Maritime Research Institute `History of 22 years in
Post War Shipping Markets', Tokyo, 1975-5, pp. 138-139.
Adopted mid-values for respective ranks of size and total price in million Yen. Figriresin ( ) are estimated by interpolation or extrapolation.

When an equation P=:aS+b is adopted for the data of each year, we get the following
relations, where P is Price in mil. Yen and S is Size in 1000 TDW.

Year

1975 P==38.5S+1392.25 R--O,9996
1974 P==43.8S+1683.5 R=O,9918
1973 P=35.0S+1543.4 R==O.9973
1972 P==34.9S+1269.0 R=O.9934
1971 P=36.5S+1658.9 R-O.8961
1970 P=:27.IS+1579.6' R=O.9766

1969 P==22.8S+1oo5 R==O.9977
1968 P=19.5S+1254 R--O.9936
1967 P=19.8S+1046 R-O.9987
1966 P-=24.2S+ 446 R=O.9999
1965 P==20.7S+ 975 R=O.9973
1964 P==24.6S+ 657
1963 P=-24.4S+ 843
1962 P==27.4S+ 94S

1961 P==!34.5SÅÄ 760

1960 P=36.4S+ 428
1959 P=27.3S+ 675
1958 P==30.5S+ 715
1957 P=33.5S+1011
1956 P==40.7S+ 466
1955 P=33.6S+ 559
1954 P=33.5S+ 219
1953 P==40.0S+ 363
Units for a and b are 1000 Yen and mil. Yen respectively. R is correlation coeMcients, butthey are calculated only partially as the others have insuMcient degree of freedom.

63

"

TETSUJI SHIMOJOAppendix II Relations between Break-even Total Costs and Size

TCi ==: Break-even Scale Rate x Size (Total Freight Costs) •TC2 == Break-even TCE Å~ Size (Total Charter Costs per Month)

T = Turbine Dummy
or == Size (TDW)
1976

TC, == 29942+7136.6T+201.4PV(17.8) (3.6) (21.2)
R2-=O.9636 S=4459.2 d==1.884
1977

TC, = : 32319+1oo30.6T+182.7JV(28.8) (7.7) (29.6)
R2=:O.9827 S--2925.0 d==1.469
1978

TC, == 32064.9+7583,6T+181.9M(31.2) (6.4) (32.2)
R2=O.9844 S=2678.0 d=O.691
1976

TC2 =r 144043.6-8129.5T+578.6PV(22.8) (1.09) (16.1)
R2=O.9264 S=16782.6 d==O.280
1977

TC2 = 156832.2-391s.6T+ 347.6 va'.(37.2.) (O.81) (15.1)
R2-O.9166 S==10963.1 d===b.647
1978

TC, = 157164.4-9897.9T+354.0PV(38.2) (2.08) (15.7)
R2=O.9191 S=10709.8 d=O.371
Relation
between Costs and Size (Goss)
AppendixM

Y=:aXb Costs per day
Y = c.\d Costs per day per 1000 D.W.
a

b

R2

c

d

R2

Tanker

7.557

Bulk carrier
G. C. carrier

4.183

OBO vessel

O.275
22.47
8.525
687.5

O.963
O.949
O.916
O.958
O.949
O.999
O.151

7,510
4,184
6,509
275.3
2,248
8,209
693,8oo-O.475-O.432-O.477-O.192-O.299-O.373-O.8oo

O.956
O.915
O.9oo
O.599

Container vessel

O.524
O.568
O.522
O,808
O.701
O.622

Types of Ships

6.540

RORO vessel
LASH vessel

O.161

Diseount rate in future prioe is 10%.

Goss `Advances of Maritime Economics', pp 150-151.

Appendix IV Ship's Size Effects in Recent Tramp Markets
lst Quarter 1978 Time Charter Rate (59 fixtures)

R =158912PV-i•03S R2==O.991 S==5.1%(89.5) (81.6)
2nd Quarter 1978 Time Charter Rate (118 fixtures)
R = 20494 PV -O•8i6 R2= O.976 S = 6.2 %.

(79.6) (68.9)
May 1978 Trip Time Charter Rate (92 fixtures)

R==13731Wt-O-767 R-2=O.992 S==3.4%.
(130,5) (107.5)
June 1978 Trip Time Charter Rate (105 fixtures)

R=10875W-O•743 R2=O.998 S==1.50/.
(2852) (231.9)

O.771
O.998
O.828

DIRECT FOREIGN INVESTMENTS AND FOREIGNEXCHANGE RATE: A MODEL OF SPECIFIC
FACTORS AND NON•-TRADABLE GOODS
Kazuhiro IGAwA

1. Introduction
After the foreign exchange rate system moved from an adjustable-peg exchange
rate system to a flexible exchange rate system, the value of the U.S. Dollar depreciatedwith respect to that of most of the other currencies, especially the German mark and

the Japanese Yen. At the same period or with a short time lag, we experienced achange in the stream of direct foreign investments. Here, we use this word in awide sense that foreign investments accompanied with real capital movements.

The main streams of direct foreign investments were from the United Statesof America to other countries (especially to Europe), when the U.S. Dollar wasover-valued. However, after the depreciation ofthe Dollar, the direct foreign invest-

ment U.S.A. from European countries and Japan increased remarkably. In thepresent framework we wish to explain this phenomena.
Aliber in his pioneering works [1], analized the relation between the foreignexchange rate and direct foreign investments. Thereafter, the behavior of multinational firms, mainly their financial aspects have been analyzed. However it seems

that we have no comprehensive theory on direct foreign investments related to thechanges in the foreign exchange rate in a general equilibrium framework. The
purpose of this paper is to propose such a framework, in which we can treat the above

problems.

A basic framework for the production side which represents direct foreign
investments and real capital movements was given by Mundell [10]. He used theHeckscher-Ohlin-Samuelson (H-O-S) model, where the ratios of endowments ofgeneric factors ofproduction play the important rules, and the model itself is theoreti-

cally interesting. However, the application of the H-O-S model to the complex
real world phenmenon seems to be very limitted.

If we assume specific factors for production, as emphasized by Harrod [6],we will get a more powerfu1 production framework to explane actual world problems,with stronger assumptions of "specific for industry". A specific factor model-two

goods-the three factors H-O-S type model-was developed by Ikemoto [7] and Jones[9] and it has been applied to the problems related to direct foreign investments by

KAZUHIRO IGAWA

66

Caves [3] and Amano [2].
We adopt the specific factor model, in this paper, as a framework for production

side of direct foreign investment, with the additional assumption that.each country

has its own non-tradable (non-traded or domestic) goods. Adding to this a demandside, a general equilibrium framework will be obtained.
The assumption ofthe existence ofnon-tradable goods is called for by the analysisof the effects of the foreign exchange rate movements as emphasized by DornbuschI5]. With non-tradable goods, a change in the foreign exchange rate affects therelative prices of goods in the following way. For the country whose currency isdepreciated (appreciated) the prices of tradable goods increase (decrease) in relation

to non-tradable goods. However, the relative prices among tradable goods are ambigous. Therefore, to get interesting ralations from changes in relative prices the existenceof non-tradable goods plays an important role. As the majority of situations of pro-duction are determined by the relative prices of goods, non-tradable goods bring on

interesting conclusions. Not only from the theoretical point but also from therealisticpoint the share ofnon-tradable goods in each country is not negligible, andit seems necessary to make clear the role of these non-tradable goods.
The proposition of this paper is :"real capital moves from an appreciating country to a depreciating country"

We will explain this through the following procedure. In the next section, weinvestigate the production side and get the relations between relative prices andrental for specific factors, among others. In section 3, we investigate the demandside to complete a general equilibrium frame work and show market equlibrium
conditions. In section 4, we get relations between relative prices and the foreignexchange rate and will explain the above proposition. In the last section, we sum-

marize our conclusions and mention the limitations of our analysis and remaining

problems.

2. Produetion relations with specific factors

In this section, we specify the production side, assuming situations used in thespecific factor model by Ikemoto and Jones. In the model real capitals are industry
specific and they do not move among different industries while the other relations
are similar to the H-O-S model.
0ne of the strong limitation of these type models is that they neglect the financial

aspects in the production. Although, the financial aspects may be important for the
production in a firm, we consider these aspects only as a demand function for money,
as will'be shown in the following section. This implies that the production relations

are mainly determined by the technological conditions.

DIRECT FOREIGN INVESTMENTS AND FOREIGN EXCHANGE RATE: 67
A MODEL OF SPECIFIC FACTORS AND NON-TRADABLE GOODSAs the properties of the production relation of the specific factor model are
well known, it will be surncient here to outline them briefly. To visualize the model,

it may be helpful to emphasize the following points:(i) each country has two kinds ofindustries, a tradable and a non- tradable

goods industry.

' for each industry
tt and it cannot be used in a different(ii) real capital is specificindustry. '(iii) tradable goods industries in different countries produce homogeneous
goods and the specific factor for the industries can freely move from one

country to the other.
(iv) non-•tradable goods industries in different countries may produce hetero-

genous goods and specific factors for each industry do not move interna-

tionally.
(v) there exist no markets for real capital stocks.

Production relations of a country are expressed by the following system of
equations (notations in foreign countries are expressed with asterisks).

Production function:e, =L,f, (K,IL,) ; 2,*=L,*f,* (K,*/L,*)(i-- 1,2) (i- 1,2)
where, ei (22) is the output level of tradable (non-tradable) goods in the horne coun-try, Li (L2) is the labor input in the tradable (non-tradable) goods industry and Ki(K2) is the specific capital input in the tradable (non-tradable) goods industry.

Factor endowment :L,+L, == L ; L,*+L,* =L*

K,=:K2 ;K2*=:K2*
where K2 and L are the factor endowment levels.
Factor price and marginal productivity:

Ofi/O(Ki/Li)=ri ;0fi"/O(Ki"ILi")==ri'
pOf2!O(K2/L2)=r2 ; p"Of2'/O(K2"/L2")=r2'
w=f,-(K,/L,)of,/a(K,IL,) ; w*=f,*-(Ki*/Li*)ofi*/a(K,*IL,*)==p{f,-(K,IL,)Of,10(K,IL,)} =p*{f,*-(K,*IL,*)Of,*/O(K,*/L,*)}
where, ri (r2) is the rental for capital in the tradable (non-tradable) goods industry

in terms of tradable goods and w is the wage for labor in terms of tradable goods.
p is the relative price of non-tradable goods to tradable goods.

In the above system, we have ten variables and eight equations for each country
and therefore, eight variables ei, e2, Li, L2, K2, ri, r2 and w (which are treated as

endogenous) can be expressed by two variables p and Ki, which are treatedas exogenous variables in production. Of course, the exogenous variables become

68 KAZUHIRO IGAWA
endogenous in the general equilibrium framework. .
honieFrcOoMuntthr;,aeOhVe:eS\fiteeVarOifabe?eUsagt:'tnhS'h:teeWxib/iregsest.tthheepfOeiricOeWnitnaggereciha/inOg"esSfi.rtt:gvariables (for example k==dxlx)(1) e, == -,e. p+,ek k, ; e,* == -,e. p*+,ek* k,*

A' A IL A(2) e2=e, p-ek Ki ; e,*= e,* p*- ek* Ki*(3) Li == -iLp P+zLk ki ; Li"=-iLp' P"+iLk" ki"AAA A(4) L,==,L.p-,L,K, ; L,*===,L.*P-,Lk*K,*(s) D== m. p+ or, k, ; iv*= M.* p*+ or.* k,*(6) fi=:-Rp P- Rk l?i ; fi" == -Rp" P" -Rk' ki"(7) f,=,R,p-2Rk l?i ; f2* =,R.* p*-,Rk* liri*
where, the coMcients of p and ki in each equation express the panial elasticities
and they are positive if they have no minus sign. These relations are all familliar
and it seems not necessary to show the processes of getting them.
In section 4, we will show that p decreases (p" increases) and Ki increases (Ki"decreases) after a depreciation (appreciation) of the foreign exchange rate in thehome (foreign) country. Combining these results to the above relations (1)tv(7),we will get the following results about the effects of changes in the foreign exchange
rate:(i) In the depreciating (appreciating) country, ei increases (2i" decreases),e2 decreases (e2* increases), Li increases (Li* decreases), L2 decreases (L2"increases) and r2 decreases (r2' increases). The change in the wage isambigous in terms of tradable goods but increases (decreases) in termsof non-tradable goods in the depreciating (appreciating) country.

(ii) The changes of rental in the tradable goods industry are ambiguous. We
can explain this in the following way. After a depreciation in the homecountry (therefore an appreciation in the foreign country), p decreases

and p" increases. When real capitai does not move internationally ri
increases and ri* decreases. Therefore, real capital in the tradable goods

industry moves from the foreign country to the home country until ri
decreases and ri* jncreases and they become equal. The new equilibrjum
levels of ri and ri" may be above or below their initial levels.

3. Demand relations and market equilibrium
In this section, we specify the demand side following Dornbusch and show themarket equilibrium conditions. Goods are aggregated into two groups-tradable
and non•-tradable goods-and financial assect are aggregated into one asset called

69
DIRECT FOREI6N INVESTMENTS AND FOREIGN EXCHANGE RATE:
A MODEL OF SPECIFIC FACTORS AND NON-TRADABLE GOODS

money or currency. National income is distributed between expenditure for goods

and accumulation.of money. Assuming a separable utility function, demand foreach goods can be expressed as a function of relative price and real expenditure.

(8) Di =Di(p, e) (iny-1, 2)
where, Di is the demand for tradable goods and D2 is the demand for non-tradable
goods and e is real expenditure in terms of tradable goods. We assume, considering
finance for production, that a stock demand for money is expressed as a function ofhomogeneous of degree one with respect to the price levels ofgoods and a value ofdomesticproducts. Thatis,(9) a -a (p, q)
where "a"' is the real demand for money balance in terms of tradable goods andq is the real domestic product in terms of tradable goods. It may be appropriate(or consistent) to use real national income instead of real domestic product.

However, the conclusions in this paper do not change seriously by using real
national income and we can avoid some complexities by using real domestic product.

As national income and expenditure are fiow concepts, we must derive a fiow

demand for money (hoarding). Assuming a stock adjustment type of a hoarding
function, the fiow demand for money can be expressed as(10) h =s (a-m)
where h is the real hoarding and m is the existing real money balance, both in termsof tradable goods andsis the adjustment speed. Budget constraint is(11) y==e+hwhere y is the national income in terms of tradable goods, which is determined by
the factor income.

Differentiating demand function for goods and using constraint (11), we will
get the following relations(12) dD,==-D,D.p-(c,/p)dh+(c,lp)Ykyki
where Dp is the compensated elastisity of demand for non-tradable goods, which is
positive, and c2 is a marginal propensity to spend on non-tradable goods, which isnormally positive. Yk is the elasticity of real national income with respect to realcapital input in the tradable goods industry, and it will normally be positive becauseof an increase in wage.
Differentiating equation (10) and assuming that existing money stock is constant,
we will get the following relations(1 3) dh == H.P+H,k,+s/mPi

H.=s{Oa/Op+(Oa/Oq) (Oq/Op)}p>O
Hk ==s(Oalaq) (Og/OKi)Ki>O
where Pi is the price of tradable goods in the home currency. The signs of Hp and70 KAZUHIRO IGAWA
Hk are clear because the increase in prices of goods or national products increases

the demand for money stock, that is OalOp and OalOq are positive, and Oqlap and
OqlOKi are. positive from relations in production.

So far the specifications are about the home country and we hav.e the similar
relations for the foreign country in the following way.

(11)" y"=e"+h"(12)* dD2*=-D2'Dp"P"-(c2"lp")dh'+(c2'ip")Yk"y"liii'

D,*>O, c,*>O, Y,*>O(13)* dh*=H.*P*+H,*k,*+s*/m*Pi*

H.*>O, H,*>O
We are now in the position to show equilibrium conditions. Market clearing
conditions for non-tradable goods for both countries are(14) e2(p,Ki)-Di(p,e)=O
for the home country and(15) e2*(p*, Ki*)-D2"(p", e")=O
for the foreign country. The market clearing condition for tradable goods is

ei-Di+9,*-D,*==O
This can be rewritten as follows, taking account of the budget constraints (11) and(11)" and the above market clearing conditions (14) and (15).

(16) h+h*=O
As the tradable goods are homegeneous for both countries, the commodity
arbitrage ensures the following relations(17) Pi=Pi"nwhere, rr is the foreign exchange rate (home currency value per unit of foreign
currency).

Real capital used for production of tradable goods is also homogeneous for bothcountries and free international movements ensure the same rental in terms of
tradable goods and thus
(1 8) ri = ri'
World endowment of the specific factor for tradable goods is assumed to be fixed as

K and thus(19) K,+K,*=K
Of course, the level of the specific factor used in some countries is not necessarilyequal to the level owned by the residence in that country.' From these equilibrium
conditions, (14), (15), (16), (17), (18), (19), and combining them with the previous

production and demand relations, we can determine p, Ki, p* and Ki* (which areDIRECT FOREIGN INVESTMENTS AND FOREIGN EXCHANGE 71
RATE:
A MODEL OF SPECIFIC FACTORS AND NON-TRADABLE GOODS
treated as exogenous in production) and Pi

and Pi" for given level of n.

4. The effects of a•-chapge in the foreign exchange rate

In this section, we investigate the relation of international real capital move-ments to the foreign exchange rate, which is treated as an exogenous parameter inthis paper.

From the market clearing condition for non-tradable goods (14) and using relations (2) and (12), we will get the following relation.

AA

e22.P- e2ekKi+D,D.P-(c,lp) Y,yK,== -(c,!p) dh
We can rewrite this as(20) p=-Adh+Bk,
A=c2/(22ep+D2Dp)p>O
B= {e2ek+(c,/p) y,y} /(e,e.+D,D.)>o
For the foreign country, we will get a similar relation as(20)* p*==-A*dh*+B*lgr,*

A*>O, B*>O
Combining these with the relations for hoarding functions (13) and (13)', wewill get(21) p=:-GAsmP,+GEk,
G-1/(1+AH.)>O
E== B-AH,(21)* p*==-G*A*s*m*A*+G*E*llii*
G" = 11(1 +A'H.")>O

E*=B*-A*Hk*
where, the sign of E is theoretically ambiguous. However, as the direct effects "B"ofa change in Ki onp will dominate the indirect effects through hoarding "AHK",
E will normally be positive. With similar reasonings, E* will be positive.

From the conditions of equilibrium in international capital movements (18) andrelations (6) in production, we get-RpP-RkKi=-Rp*P'-Rk*Ki"
AA
Using the equation (19), we can rewrite this ask,==-Jp+J*p*
J=R./(R,+Rk*)>O
J*=R."1(Rk+Rk")>O
Putting into this the relations (21) and (21)" and using (19), we can get the following
relations

KAZUHIRO IGAWA

72(22) 16,==NJGAsmP,-NJ*G*A*s*m*P,*
N= : 11(1 +JGE+J*G*E*)>O
Furthermore, using the equation (17), lei can be expressed as(23) .lgii==N(JGAsm-J"G"A's"m")A+NJ"G"A"s"m"fi(23)" Kt"=-N(JGAsm-J"G"A's"m")Pi"-AllJ6Asmit
From this equation, we can guess that liii is positively related to ft (thereforeki" is negatively related to ft), assuming that JGAsm is not much different from
J"G'A"s'm'. That is, the specific factor for tradable goods moves from the foreignexchange rate appreciating country to the depreciating country.

Putting relations (21) and (21)" into hoarding relations (13) and (13)",respectively, we will get(24) dh==GsmPi+(H,GE+Hk)kt(24)" dh"=G's"m"Pi"+(Hp"G"E'+Hk")ki"
Putting these into the market clearing condition for tradable goods (16) and using
relations (17) and (19), we will get(25) Pi=ZG"s"m"fi-Z(HpGE+H'k-Hp'G"E"-Hk")ki
Z==11(Gsm+G"s"in")>O(25)" Pi'=='ZGsmfi+Z(HpGE+Hk-Hp"G"E"-Hk")ki"
From these relations, we can guess that Pi will increase less than proportionallywith an increase in z and Pi" will decrease less than proportionally with a decreasein (11n), assuming (HpGE+Hk) is not much different from (Hp' G"E'+Hk").
That is, the price of tradable goods increases in a foreign exchange rate depreciating

country and it decreases in an appreciating country.

Using equations (23), (25) and (23)", (25)", we can solve ki, Pi and ki", Pi"
as a function of it. However, relations previously guessed will not be changed.

The changes ofp and p' are dominated by the changes in Pt and Pi", respectively, and p will decrease and p" will increase when n increases. As Pi and Ki increase (Pi" and Ki' decrease), h will increase (h" will decrease). This means that thecurrent account improves (deteriorates) for a foreign exchange rate depreciating(appreciating) country. However, the service account will normally deteriorate(improve) for the depreciating (appreciating) country, because of a decrease (anincrease) ofincome from abroad-or the increase of rental payments to abroad. Of
course, the trade balance improves in the depreciating country and deteriorates in
the appreciating country.

5. Conclusion
The intuitive explanations of the analysis of the previous three.
sectlons
are as

73
DIRECT FOREIGN INVESTMENTS AND FOREIGN EXCHANGE RATE:
A MODEL OF SPECIFIC FACTORS AND NON-TRADABLE GOODS

follows. When the foreign exchange rate ofa country depreciates, the real money
balance decreases in the country bec.ause of an increase in the price of tradable goods.

Therefore, accumulation of financial assets (money hoarding) is called for and theexpenditure decreases. The decrease in expenditure reduces the demand for nontradable goods and the relative price of non-tradable goods for tradable goods declines. This change in the relative price stimulates production oftradable goods andthe rental of the specific factor for tradable goods increases. Therefore, real capital•

moves into the tradable goods sector in the country. Adjustments in the opposite
direction will happen in an appreciating country.

In the above framework, we share the limitations of the H-O-S production modelsuch as perfect competition, substitutable production function, diminishing marginal

productivity and constant returns to scale. However, these limitations do not seemto be serious and do not change the basic idea of the general equilibrium analysis

framework.
An alternative approach to a direct foreign investment is an analysis of the
behavior of firms. In this analysis, direct foreign investment is considered to be
one of the aspects of the growth of firms, which accumulate human and real capitalembodied technique ofmanagement and production. Ifa firm has an advantage inhuman and real capital, it is natural to use them where they produce high profits.

The place may be a foreign country. Thus, this theory emphasizes specific factors
for a firm.

This theory and ours are mutual complementary in this paper. If we want to
see the growth of direct foreign investment of firms, the theory of firm specificfactors will be usefu1. If we want to see the equilibrium level of direct foreign
investment of an aggregated industry, the industry specific factor theory will be
usefu1 and this theory will explain the problems of direct foreign investment ofa country related to the foreign exchange rate.

Finally we have mentioned the important role of non-tradable goods and factors.

In this paper, we emphasized that the existence of non-tradable goods ensures un-

ambiguous relations between relative prices, international movements of capitaland foreign exchange rate. In addition to these relations, rental for an internationally immobile capital and wage for laber, which also are immobile factors,
will decrease in a depreciating country in terms of foreign currency. Therefore, thepurchasing power of a foreign appreciating currency increases in the depreciating
country. This will also increase the incentives for direct foreign investment by theappreciating country in a depreciating country. However, this aspect is beyond
the scope of this paper.

KAZUHIRO IGAWA

74

References[1] -Aliber, R. Z., "A Theory of Direct Investrr;ent," in C. P. Kindleberger (ed.)
The International Corporation, M.I.T. Press 1970.

[2] Amano, A., "Specific Factors, Comparative Advantage and International
Investment," Economica, Vol. 44, No. 174, May 1977.

[3] Caves, R.E., "International Corporations: The Industrial Economics ofForeign Investment," Economica, Vol. XXXVIII, No. 149, Feb. 1971.
[4] Dorbusch, R., "Currency Depreciation, Hoarding and Relative Prices," Journalof Political Economy, Vol. 81, No. 4, July/August 1973.

[5] , "Devaluation, Money and Non-Traded Goods," Amereican Economic
Review, Vol. 73, No. 5, Dee. 1973.
[6] Harrod, R. F., International Economics, revised and 4th ed., London, 1957.
[7] Ikemoto, K., "Specific factors of production and the comparative cost theory,"

Kobe University Economic Review, No. 1,5, 1969.

[8] , "Direct foreign investments and the specific factors model," Kobe
University Economic Review, No. 21, 1975.

[9] Jones, R. W., "A Three-Factor Model in Theory, Trade and History," inJ. N. Bhagwati, R. W. Jones, R. A. Mundell and J. Vanek, eds. Trade, Balanceof Payments and Growth: Papers in International Economics in Honor of C. P.

Kindleberger, Amsterdam: North-Holland. 1971.
[10] Mundell, R. A., "International Trade and Factor Mobility," American Economic

Review, 47, June 1957.

REVIEW
KOBEECONOMIC & BUSINESSCONTENTS
NO. 19 (1972)
Patterns of Export Trade of Argentina and Brazil:
A Comparative Study..............,......................................;Fukuo Kawata
Entrepreneurship in America.............................................................Taarakatsu-Inoue

Generarization of Two-Gap Theory......................................................Hikoji Katano

Accounting Measurement and Homomorphism..........................,............Isao Nakano

An Interpretation of Two Stage Least Squares
Estimators as Indirect Least Squares
Estimators in the Overidenthied Case.......,................Hiroshi Sadamichi
A Note on the One-dimensional Random Search.....,........................Komayuki Itow
Exchange Rate Systems and Distribution of
Seigniorage ...............................................................Kazuhiro Igawa

NO. 20 (1973)
An Analysis of the Brazilian
Balance of Payments: 1960-1972,.,,...................................Fukuo Kawata

International Money Flow and
the Multinational Corporations .,..,,.................................Masahiro Fujita

Estimation of Investment Allocation
Ratios of Japanese Economy: 1960-1969...........................Hi( oji Katano

Available Jobs and Employment inJapanese Foreign-going Shipping..............................Hiromasa Yamamoto
Homomorphism and Business Income Measurement.................................Isao IVakano
Assets Choice and Optimal International Reserves ..............................Kazuhiro Igawa

NO. 21 (1975)
Regional Development Policies of Japan in Recent Quarterof the Twentieth Century .......,........................................Minoru Beika

National Income and Expenditure
at Factor Cost in Japan 1955-1970:
A Macro-Accounting for Growing Economy .....................Nobuko Nosse
EMciency and Acceptability in Optimal Growth Path . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Hikoji Katano

An Equitable Distribution of the Costs and Benefits of Economic
Integration ....................,.......................................Yoshiaki IVishimukai

Japanese Business Abroad: Past, Present and Future ...........................Hideki Yoshihara

NO. 22 (1976)
Pioneering in Australian Direct Trade
Life of F. Kanematsu, 1845-1913 .......,............................Tadakatsu Inoue

Productivity Bargaining and the Change of Labour
Management Relations in the Japanese Foreign-going
Shipping: 1965-1973 ..................................,.............Hiromasa Yamamoto
On an Interpretable Depreciation Method .................,.,............................Isao Nakano

A New Type of Data Banking System-BEICA System- ...................................................Hiroshi Sadamichi
ExpectationintheShippingExchange............,......................................TetswfiShimojo

International Capital Movements andReal Capital Accumulation .............................................Kazuhiro Igawa

Legal System of the Free Movenient of Workers qnd Migtation
Trends in the European Economic Community ...........................Kunio Soh

NO. 23 (1977)
Alternative Approaches to the
Accounting for Education ......,..,......................................Nobuko Nosse

Personnel Management of Japanese Companies
in Thailand:AField Paper .............................................Hideki Yoshihara

Eyaluation of Performance Using
Multiple Criteria ...........,...................,...........................Komayuki Itow

Some Bargaining Process Models in
the Shipping Exchange ....,..............................................Tetsuii Shimojo

Asset Diversification under the Flexible
Exchange Rate System ..........,..................,.....................Kazuhiro Igawa

NO. 24 (1978)
The Demand for International
Currencies and Reserves ................................................Masahiro FuJ'ita

Nobua Mtyata
Studies for the Prediction of Shipping Markets-A Survey and their Applications-,...............,..............Tetsuji Shimojo
A Note on the International Transmission of
Policy Effects under Flexible Exchange Rates .,................Kazuhiro Igawa

A Control Estimation Approach toTime-varying Parameter Models..........................................Yttkio Uchicla

KOBE UNIVERSITY ECONOMIC REVIEW 24, 1978
Edited by Faculty of Economics,
Kobe University, Kobe, JapanCONTENTS
Three Topics on Marxian
Fundamental Theorems ...........,,....................

..................Nobuo Okishio

Masakazu Kitano
Theoretical Analysis of
the International Economic Order .............,...
Empl,oyment and Income Distribution under
Neutral and Biased Technical Progress ...........
Determinants of Industrial Market Concentration in Japanese
Manufacturing Industries ..............................,...............Ki7oshi Ikemoto. ..............Hideyuki Adachi. .....................Koji ShinJ'o"tltlMl-•t-,,.ttlllUle.A,,",.llUltlt",•ek-•.4nllllt,-,h,t,.tllnPle-",w-t"nM,•"-"•,11"Mb.",,"--"lllll)"eh",-""HP}.n,,`e•,lst1111P,,N,w,IUIIItb,Jtinv,"tttPb,l

THE ANNALS OF THE SCHOOL OF
BUSINESS ADMINISTRATIONKOBE UNIVERSITY 1979
Edited by the School of Business Adrninistration,

Kobe University, Kobe, JapanCONTENTS
The Information Content of Annual Aecounting

Income Numbers of German CorporationsA Review of German Aocounting Standards andSome Preliminary Empirical Results- ............Prof. Dr. A.G. Coenenberg

and Dr. E. Brandi
Some Thoughts on the Determination ofLabor-Inputs ............................................................KazuhisaMatsuda

A Quarterly Model of the Japanese
Flexible Exchange Rates System .......................................Akihiro Amano

A Quarterly Economic Analysis ofConference Freight Levels .......,...,.................................Kunio Mi7ashita-ltllnlt,•h,,cny-tlllltlS"lhit,,ttlllMb.eh,,-tqllntP-h,nye,.,n"lllb-1,,"t,tlMl:ll,•hh".,Ulllltl,J,,,,r,llunllp-e-,,,1-tnlllle,-th,".,IMMb.R-lt-qnnne.n"w,tlS"Pl,.e,

KOBE UNIVERSITY LAW REVIEWInternational Edition No. 12, 1978''

Edited by Faculty of Law
Kobe University, Kobe, JapanCONTENTS
L'expression politique de catholicisme
avant la premiere querre mondiale ..............................Tomokazu Nishikawa
Schadensersatzsumme bei Personenschaden .......................,..................Michio Nishihara

Land Reclamation and the Protection of the Sea andthe Seashore Surrounding Japan ....................,..................Yasutaka Abe

INSTITUTE FOR EcoNoMrcs AND
RESEARCH

BUSINESSADMINISTRATION,
KOBE UNIVERSITY

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HISTORICAL SKETCH
In 1919, a research organization named the Institute for Commerce wasfounded in Kobe Higher Commercial School, one of the chief predecessors ofKobe University, with a gift made by F. Kanematsu & Company, a leading
mercantile firm in Kobe. The organization was designed to carry on and facilitate integrated research on business and commerce and to formulate andpublish the results of these studies and investigations in such form as to makethem available to the business community.

With the founding of Kobe University of Commerce, successor of Kobe
Higher Commercial School, in 1929, the Institute extended its research ac-

tivities by adding several divisions. One was the famous Latin-American
Library, which soon became the center of research in this field in Japan. A
room for statistics equipped with various computing machines was establishedand began publication of Jdiyo- To-kei Keizai monthly and Sekai Bo-eki To-kei
annually. A filing room was prepared to deposit press clipping files systemat-

ically arranged by topics and dates. Another room was designed to become
the center of all possible original records and data having to do with the beginning and progress of Japanese business.

On the campus of Kobe University of Commerce, another organization
named the 'Institute for Business Mechanization was founded in 1941 utilizing

business machines donated by thc IBM Corporation and others. With Professor Yasutaro Hirai as its head a broad and forward-looking plan for business mechanization in Japan was developed.

In 1944, Kobe University of Commerce changed its name to Kobe University of Economics. After the War, however, the University was consolidated with three other colleges in Hy6go Prefecture to become Kobe University.

With this development, the two Institutes were also amalgamated into the
Research Institute for Economics and Business Administration, Kobe University. At present, the Institute, with its twenty four fu11-time professional

staff members, carries on studies and investigations in international economy,business administration, and information systems in Japan.

LOCATION AND BUILDINGSThe Research Institute for Economics and Business Administration is
located on the campus of Kobe University, Rokko, Kobe. It consists of two

three-storied buildings. One is named the Kanematsu Kinenkan and has afloor space of about 2,900 square meters, which includes a president's room,
forty-one oMces, six rooms used as a library, a room for statistics, etc. An-otherisbuiltin1964. It has a floor space of about 1,900 square meters,
which is chiefly used as the Documentation Center for Business Analysis, alibrary and a conference room,

ORGANIZATION
Under the directorship of the president, the Institute operates
research groups. Each research group and its sections are as follows:

A Group ofInternational Economy(1) International Trade(2) International Finance(3) MaritimeEconomy(4) Latin-AmericanEconomy(5) OceanianEconomy(6) International Labour Relations

B GroupofBusinessAdministration(1) InternationalManagement(2) Business Administration and Information Systems(3) Accounting(4) Business Statistics

with twoBesides the regular work of the Institute, research committees may be creat-ed to carry on any special work requiring the joint study of academic andbusiness circles. At present, there are five standing research committees,
as follows: Experts Group on the World Trade Structure, Committee of Inter-national Finance, Committee of lnformation Systems, Committee of Oceanian

Economy and Committee of Maritime Labour.
For convenience and greater eMciency in carrying out its research activities, the Institute has a general othce which is responsible for 1) the collection

and preservation of a comprehensive collection of books, periodicals, pamphlets, and original records and data of finance, trade, commerce, industry
and business generally; 2) the classification, cataloguing, indexing arranging,annotation and compilation of these research rnaterials; and 3) the formulation and publication of the results of the investigations and studies accomplished by the professional staff members of the Institute.

As an affiliated institute, the Documentation Center for Business Analysis
has been established in 1964. It is the first systematic information facilities in

the field of business administration in Japan that has been recognized andauthorized by the Ministry of Education. The purpose is to collect and to
make intensive control of all kinds of materials on business administrationand to make them available to scholars, universities, governments, and business world with the aid of modern documentation techniques.

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RESEARCH INSTITUTE FORECONOMICS & BUSiNESS ADMINISTRATIONKOBE UNIVERSITY

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Director : Tadakatsu INouE
Secretary: lisaburo TARuMoTO

GROUPOFINTERNATIONAL
i GROUPOFBUSINESSECONOMICRESEARCH [i ADMINISTRATiONRESEARCH
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Seij{ SAsAKI Professor ofMaritime Minor i Tadakatsu lNouE Professer of lnternationall
Economy: ManagementiDr. of Economics I

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I Akio MoRl Professor ef BusinessJiro YAo Professor of rnternatienat i FinanceF{nance i Dr. of Business Adrnin{sDr. of Economics i tration

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Toru KANo Professor of lnternatienal l' Nobuko NossE Professor of Business

Lawi Statisticsl: Dr. of Business Admlnis-

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Masahiro FuJITA Professor of lnternatienal : .

Finance :: tratlon:of Accounting
Dr. of Economics
1,Professor
Isao NAKANof

Hikoji KATANo Professor of lnternational i' Hideki YosH[HARA Associate Professor ofTrade
4 iL iDr, of Economics

International Management

Ph. D. in statistlcs l HirOShi SADAMIcHl Associate Professor of,l' Business Statist{csHiromasa YAMAMoTo Professor of lnternational i' Ph. D. in Econometrics

Labour Relations li Komayuki lTow Associate Professer ofYeshiakl NlsHTMuKAI Profcssor of Regional l Binsiness Administration

study on Latin l and lnformation systems

America ll• I Hidetoshi YAMAJ! Research Associate of

Tetsuji
SHIMoJo,
Maritime
Economy l

Associate professor of l AccountingiKazuhiro lGAwA Associate Prefessor of lInternational Trade ilKen{chi lsHIGAK[ Associate Professor of i

Oceanian Economy ilShoji NlsHwiMA Research Associate of lReg{onal Study on il

Latin America l'}Kazue SH[MoMvRA Research Associate of lli
Oceanian EconomyliOffice : The Kanematsu Memorial Hal1

KOBE UNIVERSITYROKKO, KOBE JAPAN

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