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Management International Review

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01.11.2008 | Research Article

FDI Ownership Strategy: A Japanese-US MNE Comparison

verfasst von: Jae C. Jung, Paul W. Beamish, Anthony Goerzen

Erschienen in: Management International Review | Ausgabe 5/2008

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Abstract and Key Results

Much of the extant literature characterizes international joint venture (IJV) as a less stable and less successful form of organization. In this view, the IJV is considered a suboptimal ownership strategy, one where the firm lacks control over its operations, compared to wholly-owned subsidiary (WOS).
We tested this widespread view on IJV and WOS by analyzing a large, longitudinal sample of Japanese MNEs, comparing our results to those from US MNEs reported in Desai et al. (2004a) and Gomes-Casseres/Jenkins (2003).
Japanese MNEs showed a stronger preference for IJVs over the last two decades as compared to US MNEs. IJV performance exceeded WOS among Japanese firms in most sample years, while WOSs outperformed IJVs among US subsidiaries in all sample years.
Clear boundaries exist along the line of country-of-origin, with respect to the generalizability of the extant view toward IJVs.

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Gomes-Casseres and Jenkins ( 2003) compared the performance of majority-owned subsidiaries (where a U.S. firm owned more than 50 percent equity, including wholly owned subsidiaries) and minority-owned subsidiaries (where a U.S. firm owned 10-50 percent equity). Yet, Mataloni and Fahim-Nader (1996) found that ninety percent of the majority-owned subsidiaries in the Bureau of Economic Analysis (BEA) surveys data (which Gomes-Casseres and Jenkins used for their analyses) were wholly owned subsidiaries. Based on Mataloni and Fahim-Nader’s (1996) finding, this research assumes that Gomes-Casseres and Jenkins’ ( 2003) results have direct implications in comparing WOSs and IJVs.

HMEP is a data set tracking international investments by large US MNEs from their earliest beginning up to 1975 (Caves 1998).

Desai et al. (2004a) used all industry data in their analysis, and Gomes-Casseres and Jenkins (2003) used data for non-bank affiliates of non-bank parents. The number of Japanese subsidiaries in the banking industry occupied less than 2.5 percent in the observation years in the Japanese data.

For 1982, 1989 and 1994, when the Benchmark Surveys were conducted, all subsidiaries with sales, assets, or net income in excess of US$3 million in absolute value and their parent firms were required to report subsidiary information to BEA. For other years, when the Annual Surveys were conducted, the cut off standards varied as follows: US$10 million for 1983-1988, US$15 million for 1990-1993, and US$20 million for 1995-1997 (Desai et al. 2004a).

For example, Daishowa Canada Co. is a subsidiary in the pulp mill and paper products industries. It was established in 1981, 100 percent owned by Daishowa Paper Manufacturing. The number of employees in Daishowa Canada suddenly decreased from 140 in 2000 to seven in 2002, after a corporate-wide restructuring embarked in 2001 following the parent firm’s merger with Nippon Paper Industries Company. Yet, Daishowa Canada still had US$91.3 million capital in 2002. For detail information, visit http://www.np-g.com.

For example, Daishowa Canada is owned by Daishowa North America as of 2002. Yet, Daishowa North America has only two employees, while holding US$148.4 million capital.

The NLFC is a Japanese government-owned financial institution that provides business loans to small and medium-sized enterprises. NLFC defines firms with less than 20 employees as Small-Scale Enterprises.

For an exception, Hennart and Larimo (1998) used 10 percent equity as a low cut-off for IJV rather than the 5 percent cut-off.

Among minority-owned subsidiaries, 54 percent of the affiliates are 50:50 joint ventures.

We chose a logistic regression model, rather than a probit model used by Brouthers et al. (2003) because the logistic regression analysis in SPSS 15 allows saving the prediction value, while the probit analysis does not. Yet, both logistic and probit model reported almost identical results with the variables included in our analysis.

Due to page limitations, the ownership strategy table is not reported. It is available upon request.

Although the models were highly significant, they might not be the best ones because the same subsidiaries can reappear in the data set in different years. In this case, fixed-effect models are considered more appropriate. However, when we used a fixed-effect model for performance, it automatically dropped 8,546 observations, leaving only 2,047 observations because no variation was found within groups. It means that a majority of the Japanese subsidiaries reported the same performance outcome, either gain or not, in all years when they were observed. In addition, the fixed-effect model also dropped all industry dummies because of no within-group variance.

Analysis of the 1985 data is not reported because the performance model was non-significant (p-value > 0.1).

Due to page limitations, the means, standard deviations and correlations of the variables and the ownership strategy table are not reported and are available upon request.

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Titel: FDI Ownership Strategy: A Japanese-US MNE Comparison
verfasst von: Jae C. Jung
Paul W. Beamish
Anthony Goerzen
Publikationsdatum: 01.11.2008
Verlag: SP Gabler Verlag
Erschienen in: Management International Review / Ausgabe 5/2008
Print ISSN: 0938-8249
Elektronische ISSN: 1861-8901
DOI: https://doi.org/10.1007/s11575-008-0034-8

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