research paper series - Stanford Graduate School of Business

Research Paper No. 1507

Strategic Roles and Performances of Japanese Subsidiaries

David B. Montgomery Takehiko Isobe

RESEARCH PAPER SERIES

GRADUATE SCHOOL OF BUSINESS STANFORD UNIVERSITY

STRATEGIC ROLES AND PERFORMANCE OF JAPANESE SUBSIDIARIES’

Takehiko Isobe Associate Professor Department of Commerce University of Marketing and Distribution Sciences 3-l Gakuen Nishimachi, Nishi-ku, Kobe, Japan Phone: 8l-78-794-3516 / Fax: 8l-78-794-6149 Email: [email protected]

David B. Montgomery S.S. Kresge Professor of Marketing Strategy Graduate School of Business Stanford University Stanford, CA 94305-5015 Phone: 650-723-3029 / Fax: 650-725-9932 Montgomery - [email protected]

July 21, 1998

Please send all correspondences to Takehiko Isobe.

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STRATEGIC ROLES AND PERFORMANCE OF JAPANESE SUBSIDIARIES

ABSTRACT The purpose of this paper is to examine factors affecting the performance of Japanese overseas subsidiaries. The following five factors are incorporated in the model: subsidiary location, characteristics of parent company, ownership levels and forms of globalization, strategic roles and objectives of subsidiary, and subsidiary characteristics. Data are collected from 1,148 Japanese subsidiaries and analyzed using a binary logit regression model. The results suggest that subsidiary profit is variously affected by its strategic roles, and that corporate managers should recognize the differences of their impacts. Especially, we conclude that subsidiary profit arises from marketing activities rather than manufacturing activity, and from localization rather than centralization.

Introduction Japanese overseas management has garnered a significant degree of attention from not only the West, but also developing countries. Most of the empirical research in this field has focused on the differences in human resource management (Beechler and Yang, 1994; Pucik and Hatvany, 1983), marketing strategy (Kotabe and Okoraof, 1990; Kotler, Fahey, and Jatusripitak, 1985; Sims, 1986), and global strategy (Hanssens and Johansson, 1991; Johansson and Yip, 1994; Ohmae, 1981; Hamel and Prahalad, 1985) among Japanese, American, and Western European multinational companies (MNCs). Despite the increased interest in Japanese overseas strategies, there is little research focused on the characteristics, strategic roles, and performance of Japanese subsidiaries. To date, the vast majority of research on the subject of international business has treated the entire corporation as a unit of analysis and focused on the corporate level of strategy or the organizational structure. MNCs are not symmetrical in the sense that they adopt different control systems (Ghoshal and Nohria, 1989), strategies (Jarillo and Martinez, 1990), and knowledge flow (Gupta and Govindarajan, 1991) with different subsidiaries. Thus, to examine Japanese international management, the focus must be on the strategies that subsidiaries are following or the roles of each subsidiary within the overall corporate strategy. Although most businessmen and journalists believe that Japanese overseas subsidiaries are managed well, there is little empirical evidence tosupport this. Above all, no empirical research exists as to how different strategic roles and subsidiary characteristics affect performance. The roles or strategies of subsidiaries cannot be ignored since they are a

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source of competitive advantage. Specifically, two primary research objectives of this paper are: 1. To explore the differences in the strategic roles of subsidiaries. It is expected that the strategic roles of subsidiaries are quite different for various geographic locations. 2. To examine the relationships between Japanese subsidiary’s strategic roles and performance. That is, how do strategic roles determine the degree of subsidiary performance? In the next section, we summarize Japanese overseas management. The third section describes the methodology and defines the variables. The fourth section reports the results. The final section discusses the findings.

Background Two opposite approaches have been argued in the academic field of international business. On the one hand, companies can seek to maximize worldwide performance through integration, and select countries for their potential contribution to total corporate benefits. This is called a global strategy. By the mid-1980s, numerous academics articles were lauding the merits of pursuing global strategy. As many industries were identified as having global structural characteristics, the main objective of MNCs became reducing their costs through product standardization. Levitt (1983) stressed the need for standardization because of the growing similarity of what citizens of different countries want to buy, thereby diminishing the country differences. Increasing economies of scale, improvements in transportation and communication, and increasing homogenization of tastes and needs among countries, have

all contributed to the globalization of markets. In this context, MNCs seek to attain competitive advantage by integrating each value chain activity in their subsidiaries around the world. This integration of value activities has been suggested to be more successful than multidomestic activities (Levitt, 1983, Porter, 1986, Hout, Porter, and Rudden, 1982). Yip (1989) showed the benefits of the global strategy: cost reduction, improved quality of products and programs, enhanced customer preference, and increased competitive leverage. In the multidomestic strategy, on the other hand, companies select countries on the basis of their stand-alone potential for revenue, growth, and profit. In contrast with a global strategy, in a multidomestic strategy, all or most of the value chain is established in every country, and the managers in each country make competitive moves without regard for what happens in the host or other countries. Responsiveness towards the special characteristics of local markets facilitated by a multidomestic strategy appears to be beneficial and helps subsidiaries deal with the increasing demands of local governments, as well as differences in tastes or intrinsic market conditions. The overseas management practice of many Japanese companies is the global strategy, which seeks a cost advantage through standardized products, global scale manufacturing, and a worldwide distribution network. In global strategy, strategic decision making is made to maximize the benefit to the collective organization so that activities are integrated across the world. From the management control system point of view, the notion of the global strategy hasconsiderable appeal for corporate managers, largely because such strategies are best managed through tight central control. A number of writers have pointed to Japanese-style management as a source of competitive advantage. The socialization process of Japanese companies can be a powerful

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mechanism for building identification with and commitment to the organization as a whole v

(Ouchi, 1977). Japanese MNCs have strong motivation to closely align the values and norms of the host-country subsidiary managers with those of the parent company. This will lead subsidiary managers to build up closer identification and commitment to the entire company rather than simply to the focal subsidiary. Notwithstanding the above statements, however, the global strategy has many drawbacks. If a subsidiary is expected to create specific knowledge or innovation, the parent company should give the necessary latitude for autonomous decision-making and slack resources. In addition, if the parent company is unfamiliar with the local environment, the subsidiary should have a greater degree of decentralization in order to attain higher performance (Lawrence and Lorsch, 1967). Yuen and Kee (1993) reported that while the human resource management policies and practices of American overseas subsidiaries reflected greater headquarters and organizational influences, those of Japanese overseas subsidiaries reflected greater host-country influences. Japanese social values, industrial structure, and management style were strikingly different from those of the West. Up to now, it has been said that the characteristics of Japanese international management are as follows: (1) Because unlike the Western European and American companies, many Japanese companies have little experience doing business overseas, they did not have marketing abilities to-adjust to the specific countries (Bartlett, 1986). Therefore, Japanese companies often pursue a cost advantage strategy that is mainly based on manufacturing activities.

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(2) As one of the main objectives of a global strategy is to maximize worldwide performance through integration, a subsidiary is unlikely to expect innovative activities. It reduces the firm’s effectiveness in individual countries if over-centralization hurts local motivation and morale. Excess concentration results in lower responsiveness and flexibility. (3) The Japanese overseas subsidiary is tightly managed and controlled by the parent company. The subsidiary’s role is to execute the directions of the parent company correctly and quickly. Important functions and decision-making autonomy are rarely transferred to the subsidiary. Although subsidiaries have typically responded promptly to corporate initiatives, globalization is sometimes resisted by subsidiary managers who fear the loss of autonomy and personal contribution. (4) As many Japanese companies execute the well-integrated strategy, close and frequent communication between parent and subsidiaries is needed. Thus, the top manager in a subsidiary tends to be Japanese irrespective of the existence of excellent local talent. This characteristic is also due to the Japanese language, which is difficult for non-Japanese to use for communication. (5) Japanese MNCs employed some types of culture control other than rational or formal control (Jaegar, 1983). Because cultural control needs considerable communication between a parent company and its subsidiary, there increasingly are Japanese expatriates assigned to the top manager position. (6) The Japanese companies tend to send many Japanese people to the subsidiaries, because they would like to transfer Japanese management techniques, such as informal decision-making, quality circles, job rotation, and selection policy, which are

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difficult to formalize. In turn, these activities may cause the motivation and morale of the subsidiaries’employees to decline. While it has been noted that such particularities of Japanese management style are sources of Japanese international competence, it is not clear that Japanese parent companies and their subsidiaries achieve good performance. Much research about Jananese management has involved case studies of individual I

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companies, and statistical research using large samples are lacking. This paper investigates Japanese overseas management from the subsidiary’s point of view. The reason why this paper focuses on subsidiaries is that they have quite different strategies, roles, objectives, and characteristics. What strategic roles are the Japanese subsidiaries charged with? What characteristics do parent companies and their subsidiaries have, and how do the characteristics impact on the subsidiaries’ performance? These issues are very important for practitioners and academics because building appropriate control systems, organizational structures, and evaluation measurements are difficult without an understanding of the strategy and characteri.stics of the overseas subsidiary.

Research Design Sample and Methodology The sample is collected from the Japanese Overseas Investments (Toyo Keizai, 1994) which surveys Japanese subsidiaries. The data used here includes 1,148 Japanese subsidiaries which include three manufacturing industries: mechanical engineering (342), electronics and electric equipment (519), and transportation (287); and three locations: Asia

(532), Western Europe (271), and North America (345). Our unit of analysis is the subsidiary so that the some subsidiaries in the samples have the same parent company. Two phases of analysis were conducted. In the first phase, the General Linear Model (GLM) was used to identify the distinguishing characteristics of each location. As the data in this study were composed of three industries and three locations, we have to examine to what degree industry and location impact performance. We examine the significant differences on industry and location using the analysis of variance (ANOVA). This methodology was employed to explain the variation in subsidiary performance. In the second phase, a binary logit regression was used to determine the impact of independent variables on subsidiary performance. Subsidiary performance listed in the Japanese Overseas Investments is divided into three profit levels of surplus, even, and deficit. We integrate the even and deficit performance measures into one, because the number of even and deficit subsidiaries are relatively small.

where

the intercept parameter, and

is a row vector of slope parameters for the

elements of x. The regression coefficients indicate the impact of the independent variables on the probability that the subsidiary profit will be a surplus. If a coefficient shows a

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positive sign, it means that an increase in the independent variable increases the probability of surplus.

Independent Variables This paper adopts independent variables such as subsidiary locations, characteristics of a parent company, ownership and forms of globalization, strategic roles of subsidiaries, and characteristics of subsidiaries, which are expected to have an impact on the profits of Japanese subsidiaries. The characteristics of parent companies. The level of subsidiary profit depends in large part on the overall strategies and characteristics of its parent company. Parent size is proxied by parent sales, and measured by the log value. We assume that the larger the parent size, the more likely that the parent has enough resources to obtain economies of scale, although with diminishing impact as reflected in the log transform. Parent experience is also an important factor for subsidiary profit, because management in foreign countries is more complex than that in domestic business. We assume that the more a parent has experience in foreign countries, the more likely it has enough knowledge of international management. In this paper, parent experience is proxied by the percentage of foreign production to total production. The ownership and form of globalization: A firm’s choice between wholly-owned subsidiary and equity joint venture also impacts subsidiary profit. Equity joint venture is likely to be beneficial if a company lacks the knowledge of local conditions or the specific technology of local firms (Hennart, 1991). It has been reported that the transfer of tacit know-how and specific technologies to a joint venture is more difficult than that to wholly-

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owned subsidiaries (Teece, 1977; Kogut and Zendar, 1993), because a parent is afraid of the partner’s free riding on the goodwill capital. Incentives for such opportunistic behavior can be reduced if one parent obtains control over all resources. Ownership is measured by the percentage of Japanese parent shareholdings. Acquisition will be particularly preferred when the opportunity cost of delaying entry is high, that is, when time becomes a key source of competitive advantage. Acquisitions, however, sometimes decrease the motivation and morale of the acquired management team, and increase bureaucratic cost. Full acquisition may not be desirable, especially when large differences in corporate culture or the nationality of the buyer and the firm acquired cause organizational problems. Acquisition is measured by a dummy variable equal to one if the Japanese parent chooses a form of globalization through acquisition, and by zero otherwise. The strategic roles of subsidiaries: Table 1 shows the independent variables related to strategic roles and their attributes. Each role is measured by a dummy variable equal to one if a subsidiary is expected to fill a given strategic role, by zero otherwise. [Insert Table 1 about here] According to previous studies, international strategies of a subsidiary are divided into: 1) integration strategy, 2) local responsiveness strategy, and 3) differentiation strategy. Jarillo and Martinez (1990) suggested that the strategies of the overseas subsidiary could be composed of two dimensions, which-are the degree of integration and local responsiveness. Integration is recognized as the physical, information, and knowledge flow to create competitive advantage developed through worldwide scale and scope economies. The strategic roles such as “utilization of low labor cost, ” “constitution of a worldwide

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production network,” “export to Japan,” “export to third countries,” and “constitution of a worldwide distribution network” can be categorized into the factors of integration. Local responsiveness is to adjust to the local environment. This dimension, however, has two meanings; one includes the strategic factors like “expansion in a local market,” and the other includes the political factors like “avoidance of trade friction.” In addition, local responsiveness includes transferring appropriate autonomy to promote and motivate the local manager and employees. Gupta and Govindarajan (1991) have focused on the knowledge flow, which creates and transfers innovations. In a similar vein, Ghoshal and Bartlett (1989) focused on the creation, diffusion, and adaptation of innovation as a key function of the subsidiary. In this study, variables such as “research and development” and “developing new businesses” correspond with the innovation category. The characteristics of subsidiaries: We adopted four variables including the number of Japanese employees, subsidiary size, subsidiary age, and nationality of top management as subsidiary characteristics. As the existence of Japanese employees and Japanese top managers may promote the transfer of manufacturing and marketing techniques, know-how, skills, technologies, and management systems from the parent company to the subsidiary, these factors are expected to affect subsidiary profit. The number of Japanese employees and subsidiary age are measured by absolute values, subsidiary size by the- log value of the amount of subsidiary employees, and nationality of top management in the subsidiary by a dummy variable equal to one if s/he is Japanese, by zero otherwise.

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Results Results of ANOVA The General Linear Model (GLM) procedure was first used to test the significant differences of industries and locations on subsidiary profit. Table 2 shows a category influence on the performance by locations (Asia, Western Europe, and North America), industries (mechanical engineering, electronics and electric equipment, and transportation), and their interactions. This result indicates that location has a significant impact (F-value = 10.92,

while industry and the interdependence of industry and location have no

significant effect. [Insert Table 2 about here] This result suggests that national environment is more significant and important than industry differences at least for these three industries. As Ghoshal and Bartlett (1990: 606) pointed out, “the uniqueness of the MNCs as an organizational form arises from the fact that its different constituent units are embedded in different national environments” and hence, are subject to differing institutional regimes (Scott, 1992). Table 3 presents the mean scores of each variable for Japanese subsidiaries located in Asia, Western Europe, and North America, respectively. ANOVA tests are conducted to explore the differences of variables among three locations, and suggest that the mean scores in Asia are substantially different from those in Western Europe and North America. [Insert Table 3 about here] The mean scores of five strategic roles in Asia including “utilization of low labor cost” (.419), “constitution of a worldwide production network” (.349), “export to Japan” (. 139), “export to third countries” (. 167), and “good treatment by local government” (.218)

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are extensively higher than those of Western Europe and North America, suggesting that manufacturing activities tend to be located in Asia. In addition to the strategic roles mentioned above, the subsidiary scale (number of employees) located in Asia is higher than that in other areas. These findings mean that the function of a Japanese subsidiary in Asia is to be the manufacturing and export base for the world. In Western Europe, the scores of marketing activities such as “expansion in a local market” (.904) and “constitution of a worldwide distribution network” (.228), are higher than those in Asia and North America. Unlike strategic roles in Asia and Western Europe, the subsidiaries located in North America are expected to perform innovative activities so that both scores of “research and development” (.139) and “developing new businesses” (.046) are relatively high in North America in contrast to Asia and Western Europe. The results show that Japanese subsidiaries have significantly different characteristics and strategic roles in each geographic location. Yip (1989) clearly pointed out that in global strategy, costs are reduced by breaking up the value chain so that activities may be concentrated in different countries. The results provide considerable support for the notion that, in general, Japanese MNCs adopt a global strategy. In addition, we should state that both scores of “number of Japanese employees” and “nationality of top manager” in North America are highest. From his extensive interview survey, Yoshihara (1995: 20) pointed out that the top manager tends to be a Japanese when the subsidiary- occupies animportant position to the Japanese parent’s overall global strategy, that is, when the subsidiary size is large, the Japanese parent owns 100 percent of equity share, and the subsidiary locates in the country where market size is large.

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Results of a binary logit regression The results of a binary logit regression for the full sample are presented in Table 3, which has two models which includes strategic roles of subsidiaries (strategy model) and excludes them (structure model). Although both models in Table 4 are statistically significant and different (see Hauser, 1978; Tybout and Hauser, 1981), the strategy model has lower value of Akaike Information Criterion (AIC) than the nested structure model. This suggests that the strategy model is preferred in terms of fit to the data and that the strategic roles of Japanese subsidiaries add significant explanatory power to the likelihood of subsidiary profit. Thus our use of strategic roles is empirically justified. We use PROC LOGISTIC of SAS as an analytical tool. If the estimated regression coefficient is positive, the given independent variable tends to increase the probability that subsidiary profit will be surplus, a negative coefficient signals the opposite. [Insert Table 4 about here] As reasoned above, both parent sales (.179, production

and the percentage of foreign

in the strategy model have significant positive impact on

subsidiary profit. The subsidiaries of large firms may be able to attain higher performance than those of small firms, given that large firms have more abundant slack resources, multiple technological competencies, and positive relationships with local government. In addition, it seems to correlate parent firm size with the number of its subsidiaries. Since this may mean that large-firms on average globalize more than small firms, the effect of parent size on its subsidiaries performance seems to include several factors such as risk dispersion of sales or production.

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Like previous research (Yoshihara, 1995; Anand and Delios, 1997), an acquisition (.390) has a negative but insignificant impact on subsidiary profit. Many studies that examine the relationship between entry mode and performance find that an acquisition performs poorly compared with a new venture (e.g. Porter, 1987). For example, Woodcock et al. (1994) and Nitschet al. (1996) suggested that acquisition entry modes on average underperform new venture entry modes because of their higher ownership/resource commitment costs and internationalization/management control costs. This study also finds unique results concerning the impacts of strategic roles on subsidiary profit. Manufacturing or low cost activities including “constitution of a worldwide production network”

and “export to Japan”

have

negative and significant effects. In addition, “utilization of low labor cost” (-. 142) also has a negative but non-significant impact on profit. In contrast, marketing activities, such as “expansion in a local market” and “constitution of a worldwide distribution network”

1)

show a positive and

significant impact on profit. These findings support previous research in the academic field of international marketing and strategy. Takeuchi and Porter (1986) focused on globally uniform marketing such as global brand names and advertising. Ohmae (198 1) suggested that many Japanese companies increasingly supply their products in all major Triad regions of the world to establish a cost advantage. Kotabe and Omura (1989) have found that Japanese MNCs engage more extensively in coordination of their networks of sourcing activities on a global scale to establish scale economies in production and marketing than do Western European MNCs.

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Hamel and Prabalad (1985) through a detailed analysis of the tire and TV markets, showed that cost advantages were less durable than brand and distribution advantages, especially when an investment in world-scale manufacturing was not linked to an investment in global distribution. In turn, this global distribution is beneficial only if a company has a wide range of production to support investments in key technologies across products and businesses. Their suggestion is that, each activity such as marketing, manufacturing, or technology alone, can not be a source of international competitive advantage. Instead, the key success factor to win international competition should be based on interrelations among worldwide production, distribution, product-line width, new product development, and core technologies. Both differentiation variables, “research and development ” (-. 134) and “developing new businesses” (-.618), have a negative but insignificant impacts. Japanese companies tend to centralize most key value-added activities including R&D, manufacturing, and marketing at headquarters in Japan, while their foreign subsidiaries operate with low levels of slack resources and local autonomy. Consequently, Japanese subsidiaries have created relatively few innovations. For example, Ghoshal and Bartlett (1988) reported that all new products introduced by Matsushita Electric Industrial Co. between 1983-1986 were developed by the parent company in Japan. Another variable, “avoidance of trade friction” (- 1.085,

has a negative and

significant impact on the likelihood. of positive subsidiary profitability.. While it seems to be difficult to explain this finding, one plausible explanation is that in our samples, 53 of the 78 subsidiaries whose strategic role is to avoid trade friction locate in North America and

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engage in the electric industry. That is, subsidiary profit located in the mature and competitive markets tend to be low. Likewise parent characteristics, subsidiary size

176,

and age

have a positive and significant impact on subsidiary profit. Small subsidiaries perform poorly due to “ a liability of smallness” (Aldrich and Auster, 1986), because small scale doesn’t enable a cost advantage to be established. In addition, new subsidiaries are confronted with “a liability of newness” (Stinchcombe, 1965). Since MNCs operating in a foreign country often experience uncertainty and vulnerability, subsidiary experience can reduce these risks. The results of the number of Japanese employees in the foreign subsidiary (-.024, and nationality of top manager

1, in the structure model) are extremely

interesting and surprising, since both variables have negative impact on performance. Several researchers have suggested that a local top manager or management team would be more familiar with the local environment than the foreign parent firm, and develop strong identification and commitment to the local subsidiary (Tung, 1982). Gupta and Govindarajan (199 1: 779) noted that host-country nationals are likely to have a more comprehensive understanding of the local sociocultural, political, and economic environments; in contrast, expatriate managers are likely to have more understanding of the MNCs overall global strategy. The foreign parent company tends to misunderstand local or regional market conditions, typically overestimates the similarities between markets, and often has only a superficial understanding of the subsidiaries.

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Conclusion This study may be the first empirical research of factors including strategic roles which impact on subsidiary performance of Japanese MNCs. The primary objectives of this study are (1) to explore the differences of strategic roles in different geographical locations, and (2) to examine what factors impact subsidiary profit. We show the relationship between subsidiary profit and strategic roles, offer empirical research within a comprehensive framework, and investigate Japanese international competence from the subsidiary’s point of view. As expected, our results show that a subsidiary has different characteristics and strategic roles in each location. For example, a subsidiary is relatively more responsible for low cost manufacturing in Asia, one in Western Europe for marketing activity, and one in North America for innovative activity. These results show that Japanese MNCs tend to divide value-added activities, and allocate each activity primarily to each location. We adopt five factors including geographic areas, characteristics of parent company, ownership and form of globalization, strategic roles of subsidiary, and subsidiary characteristics. The results show that subsidiary profit is positively affected by scale, experience, and marketing activities such as “construction of a worldwide distribution network” and “expansion to local market.” In contrast, manufacturing activities including “construction of a worldwide production network” and “export to Japan” have a negative impact on performance. These findings mean that Japanese subsidiary profit seems to depend on marketing activities rather than manufacturing activities. As Hamel and Prahalad (1985) pointed out, global competitive advantage depends on the nature of the interrelation of each value

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activity, such as R&D, manufacturing, and marketing. Global sourcing strategy (Kotabe and Omura, 1989) is one clear example. Success in global competition requires marketing research capability and worldwide distribution channels supported by low cost and worldscale plants. The competitive advantage of Japanese companies, such as Matsushita or Toyota, results from channel and distribution management. Just in time would not function well if the company does not have the marketing capabilities. As suggested above, subsidiary strategic roles have variously influenced subsidiary performance. Thus, MNC managers should recognize the differences in impact in order to construct effective evaluation systems and understand which subsidiaries contribute to their overall strategy and performance. The most remarkable result of this research is that the number of Japanese employees and Japanese top manager has a negative impact on performance. Yoshihara (1995) pointed out that many Japanese MNCs hesitate to appoint a host country national to be a top manager because of their concern, for example, that such a non Japanese manager will not follow the overall strategies or policies of the parent companies and thereby destroy trust with Japanese employees. On the other hand, the one major reason why in Japanese subsidiaries a number of Japanese employees are needed stems from the dependence on the Japanese management control system. For example, Ouchi (1980) suggested that Japanese management control is based on cultural and clan control which is strikingly different .-from the behavioral and outcome principles of the West. In order to transfer Japanese management policies to Japanese subsidiaries, more Japanese employees are need to be sent out to subsidiaries. Our results show this increase in Japanese employees

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(i.e. transaction cost) will diminish the likelihood of subsidiary profit. Japanese strategists might well want to take cognizance of this in their global planning. To effectively implement a global strategy, a parent company must find ways to coordinate worldwide operations and centralize operations and decision-making at the headquarters. Japanese subsidiaries tend to be operated and controlled exclusively by a Japanese management style. Our findings may suggest that Japanese MNCs need to resolve this trade-off between subsidiary performance and their overall global strategies.

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Table 1 Summary of Strategic Roles Strategic Roles Utilization of low labor cost Constitution of a worldwide production network Export to Japan Export to third countries Expansion in a local market Constitution of a worldwide distribution network Research and development Developing new businesses Avoidance of trade friction Good treatment by local government L

I

Strategic Attributes Integration strategy Integration strategy Integration strategy Integration strategy Local responsiveness strategy Integration strategy Differentiation strategy Differentiation strategy Local responsiveness strategy Local responsiveness strategy u

U

U

J

u

U

J

u

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Table 2 Influences of Location and Industry on Subsidiary Profit Category Location Industry Location x Total

F-value 10.92 1.05 3.71

22 Table 3 Means and Differences among Variables: ANOVA Analysis

Variables Subsidiary profit Characteristics of parent company Sales Percentage of foreign production Ownership and form of globalization Acquisition Ownership Strategic roles of subsidiary Utilization of low labor cost Constitution of a worldwide production network Export to Japan Export to third countries Expansion in a local market Constitution of a worldwide distribution network Research and development Developing new businesses Avoidance of trade friction Good treatment by local government Subsidiary characteristics Number of Japanese Number of employees Firm age Nationality of top-manager Number of samples

Means Western Europe

North America 519

Differences (F-values) Asia vs. Asia vs. W.Europe vs. N.America W.Europe N.America 32.64 *** 14.84 *** 1.68

2.268 16.163

2.088 11.287

2.265 10.874

10.23 *** 12.95 ***

.07 17.47 ***

.006 4.139

.069 4.429

.092 4.472

29.67 *** 91.70 ***

41.83 *** 109.71 ***

.419 .349 .139 .167 .778 .077 .017 .021 .017 .218

.030 .151 .015 .lll .904 .228 .048 .007 .085 .037

.035 ,232 .049 ,023 .867 .174 .139 ,046 .llO .023

4.043 4.611 9.660 .609 532

4.317 3.560 8.069 .590 271

7.307 3.877 9.63 1 .794 345

159.72 36.65 33.02 14.37 19.94 38.34 6.48 2.01 22.09 47.27

*** *** *** *** *** *** ** *** ***

.41 10.28 *** 11.33 *** .32

191.09 13.72 18.39 30.19 10.67 19.80 54.74 4.68 37.46 70.32

6.72 *** .ll 1.02 2.84 *

*** *** *** *** *** *** *** ** *** ***

.14 6.49 5.59 22.86 2.14 2.74 14.62 8.29 1.14 .98

32.96 *** 8.88 *** .07 33.26 *** p