An Analysis of the Determinants of the Performance of Japanese Manufacturing Investments in NAFTA, Europe and NIEs

抄録

Since the 1980s, Japanese foreign direct investments have become the major means for firms in pursuing their global extension strategy. In recent years, a clear transformation in the structure of the international economy took place in many regions such as North America and Europe by the elimination or reduction of trade barriers among countries and the creation of economic blocs. On the other side, certain newly industrialized economies in the Asia-Pacific region have emerged and have become among the major destinations of inward investment in the world. The success of international expansion has long been a topic of interest in the business strategy literature. The motives and the success of a firm's international expansion are largely determined by its assets and its financial and managerial capabilities. Also, a multinational firm can succeed in host countries through the accumulation of investment experience in foreign markets. In the same way, to succeed in international markets, firms need to select the appropriate ownership structure for its subsidiaries, which is considered as a critical and indispensable decision when investing overseas. The performance can also be influenced by the cultural distance between the host and home countries. The paper aims at providing further evidence on the influence of entry mode, firm-, country-, and industry-specific factors, along with the cultural distance on firm performance using a sample of 890 Japanese-affiliated manufacturing investments in three different economic blocs: NAFTA, Western Europe and the East Asia's NIEs in 1998. The Data is compiled from Japanese overseas investments by firms and countries published by Toyo Keizai Iuc. We selected two measures for the dependent variable and two measures for the cultural distance. Following the past empirical studies, we hypothesize that firms with high firm-specific advantages and entering through wholly owned investment perform better. Results suggest that both size and subsidiary age have a significant relationship with performance. Furthermore, we find that joint ventures are performing better than wholly owned subsidiaries. Cultural distance measured by Kogut and Singh (1988) index is found to be negatively influencing the profitability of these companies.