حالت ورود به بازار خارجی: مورد صندوق سرمایه گذاری متقابل ایالات متحده در کانادا

U.S. mutual fund companies offer funds in Canada through two channels: foreign direct investment or trade in advisement services. The total value of U.S.-controlled funds amounts to 18% of the Canadian equity fund market. This paper investigates how the fund-level and firm-level characteristics affect the channel used to enter the Canadian market. Empirical results indicate that the funds offered through FDI are not especially successful in the U.S. market but are associated with dominant companies, whereas the funds offered through trade in advisement services are highly successful in the U.S. market and are from companies with relatively few successful funds.

The Canadian and U.S. mutual fund industries operate as segmented markets due to regulations that restrict the ability of Canadians to buy U.S.-owned mutual funds and Americans to buy Canadian-owned mutual funds. There is, however, an increasing level of U.S. control over funds offered in Canada. There are two methods through which a U.S. mutual fund firm can control a fund in Canada. The firm can incorporate in Canada and offer the fund through its Canadian subsidiary (foreign direct investment or ‘FDI’) or offer it through a Canadian host company by exporting its advisement services (‘advisement’). There are 174 equity funds in Canada controlled by U.S. companies with a total value of $37.3 US billion or 18.2% of Canadian equity market1. This paper investigates the characteristics of U.S. mutual funds offered in Canada, the characteristics of the companies that offer them and how these characteristics affect the method chosen to enter Canada. Markusen (1995) asserts a number of characteristics of firms that perform FDI as stylized facts from a compilation of different studies. These characteristics are incorporated into the model in this paper and the estimation determines their individual contribution to the probability of a company performing FDI or choosing to export. The significance of certain fund and company characteristics suggests the motivation for the move into the Canadian market. The results indicate that if a small firm is attempting to expand upon the success of one fund, the firm will offer just that one fund through advisement. If a large firm is attempting access to a larger market, the firm will enter through FDI and offer a number of average performing funds. This information affords Canadian policy makers and, indeed, policy makers from any small country, a better understanding of the consequence of an increase or decrease of restrictions to foreign entrants on the predominance of certain funds in the home market. Furthermore, it provides deeper insight into the issues pertaining to a joint North American financial market. The model assumes that a firm chooses to enter the foreign market based on its potential profitability reflected by firm-level characteristics in its home market. The firm-level characteristics, in this case, are the asset-weighted average characteristics of the family of funds. In the case of mutual funds, a family of funds is the term used to describe a group of funds offered by the same mutual fund firm. The channel chosen to enter the Canadian market is, in part, solved by a bargaining game with a Canadian host for an advisement fund. The bargaining section predicts that firms that choose the advisement route (‘advisement families’) tend to have only a few outstanding funds in their family. Firms that choose FDI (‘FDI families’) tend to be larger and have a more equal family performance composition. A multinomial logit regression is used to estimate the probability of a U.S. fund being offered in Canada using characteristics of the fund itself and its associated family as regressors. The empirical results indicate that FDI families have a larger market share in the U.S. market than do advisement families and that the funds offered by advisement families are highly successful in the U.S. market in terms of individual fund market share and past returns. Interestingly, funds offered in Canada by FDI families are not particularly successful in the U.S. market in terms of past returns or market share. This suggests that advisement families are not large enough to cover the cost of incorporation but are attempting to expand on the success of individual funds, while FDI families are large enough to cover the costs of incorporation and are attempting to gain access to a larger market. This also suggests that Canadian mutual fund investors gain more from access to funds offered through advisement than through FDI in terms of being able to choose high-performing funds for their investment portfolios. Firm-level studies of equity versus non-equity based foreign investment are usually rooted in either Dunning’s eclectic paradigm (Dunning, 1980) or transaction cost theory (Williamson, 1985). Both theories share similar predictions with respect to firm-level advantages and investment risk. Many of the empirical investigations have focused on manufacturing industries (Gatignon and Anderson, 1988, Tse et al., 1997 and Pang and Tse, 2000). Early explorations into the FDI pattern of service industries (Weinstein, 1977 and Terpstra and Yu, 1988) concluded that service industries do not differ significantly from manufacturing industries in their investment behaviour. More recent investigations (Erramilli and Rao, 1990, Erramilli and Rao, 1993, Ekeledo and Sivakumar, 1998 and Erramilli et al., 2002) determine that the knowledge gained from manufacturing industries’ FDI patterns are not completely applicable to service industries because service industries have a non-linear relationship between age and degree of control of their investments (Erramilli, 1991), are not subject to extremely high costs of integration (Erramilli and Rao, 1993), and the coupling of production and consumption of many service industries heightens the risk of shared ventures (Erramilli, 1990). This paper directly contributes to the service industry literature because there are no known studies of the investment behaviour of the mutual fund industry. Indeed, the only studies focusing on the banking industry (Gray and Grey, 1981, Sabi, 1988 and Erramilli, 1990), the closest line of business to mutual funds, were done before it evolved to be a hard service industry2. The invention of electronic banking, ATM machines and tele-banking allowed the consumption and the production of banking to be decoupled. This paper contributes to the general mode-of-entry literature in two ways. First, it estimates the choice to incorporate in a foreign market with the alternative of exporting relative to not entering the foreign market at all. All of the aforementioned studies that investigate the trade off between equity and non-equity investment, except one (Agarwal and Ramaswami, 1992), compare the characteristics of the two types of known investors to each other. Without comparison to the control group that chose to not leave the domestic market, there is limited inference on the true motivation for foreign investment. Second, this paper extends the FDI pattern investigation to the product level. Especially for firms that choose to only offer one product in a foreign market, an examination of the product-level characteristics offers as much or more information about the motivation for entering the foreign market than firm-level characteristics. The characteristics to be examined in this paper suggest the quality, success and price of the product, offering a variety of policy implications. This paper will proceed as follows. Section 2 outlines the theoretical model of the decision to enter the Canadian market. Section 3 describes in detail the relevant data and estimates the model. Section 4 offers a discussion of the findings and concludes the paper.

This paper investigated the different characteristics of U.S. mutual funds offered in Canada along with their associated families and how these characteristics affect the method chosen to enter Canada. The empirical estimation suggests that U.S. families that choose the FDI route are attempting to gain access to a greater consumer market while being large enough to cover the costs of incorporation. On the other hand, U.S. families that choose the advisement route are not profitable enough to incorporate but usually have one or two very successful (in terms of returns and/or market share) funds in high research categories. This suggests that advisement families are attempting to recapture high research expenditure more than FDI families. Any move to restrict the advisement route into the Canadian market would reduce the access Canadian mutual fund consumers have to high performing funds from the U.S. It is unclear whether access to FDI funds offers any benefit to Canadians other than variety. FDI funds do not have high market share or returns or low MERs compared to other U.S. funds. This suggests that, at least for Canadian consumers, a segregated North American mutual fund market is not in their best interests. It is possible that Canadian investors may benefit from these funds for intangible reasons not accounted for by the factors examined in this paper. Also, this investigation did not compare the U.S.-controlled funds to existing funds in the Canadian market. It is possible that the FDI funds outperform Canadian funds even though they are mediocre American funds. This is an area for future research.