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Wonjoon Chung School of Labor and Employment Relations (LER) October 3 rd 2012

The dynamics of Japanese firm g rowth in U.S. industries: The Penrose effect Danchi Tan & Joseph T. Mahoney , 2007 Published in Management International Review . Wonjoon Chung School of Labor and Employment Relations (LER) October 3 rd 2012. Introduction.

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Wonjoon Chung School of Labor and Employment Relations (LER) October 3 rd 2012

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  1. The dynamics of Japanese firm growth in U.S. industries: The Penrose effectDanchi Tan & Joseph T. Mahoney, 2007Published in Management International Review Wonjoon Chung School of Labor and Employment Relations (LER) October 3rd 2012

  2. Introduction • The theory of the growth of the firm (Penrose, 1959) • Managerial capability – constraint that limit the rate of growth of the firm: “Penrose effect” • Excess capacity of resource is a source of firm-level growth • Not strong empirical evidence from current literature • Few empirical studies examined whether the Penrose effect exists : Thompson, 1994; Shane, 1996; Tan and Mahoney, 2005, etc. • Demand of managerial resources • Focus on Supply of managerial resources and “When” question

  3. Research purpose • To explore the conditions under which the Penrose effect is more likely to be prevalent • Using the perspective of the supply of managerial resources • To examine the conditions in a international business context

  4. Penrose’s theory of the growth of the firm • What influences the growth of the firm? • Influences from internally experiences managers (Managerial capacities) • Set a limit to the rate of the growth of the firm • Provide an inducement to firm-level growth • Influence the development of new managerial resources • Capacities of internally experienced managers matters on the rate of growth of firms • Different organizational capabilities

  5. Expansion of Penrose’s theory • MNE may experience the Penrose effect differently due to difference in developing new managerial resources 4 factors considered: • Expatriates: influence the development of newly recruited local personnel in the foreign operation • Routines: domestic experiences & international experiences • Uncertainty: the complexity of the local environment

  6. Hypotheses • H1:Multinational firms that send a greater number of expatriates to their overseas operations upon entry into a foreign market are more likely to achieve high growth rates in successive time periods in the market. • H2:Multinational firms with greater home experiences prior to the entry into a foreign market are more likely to achieve growth in successive time periods in the market. • H3:Multinational firms with greater international experience prior to the entry into a foreign market are more likely to achieve growth in successive time periods in the market. • H4:Multinational firms are less likely to achieve high growth rates in successive time periods in a foreign market that is characterized by a high level of uncertainty.

  7. Methodology (1) • Data: Japanese manufacturing affiliates in the U.S. (Excluded non-majority-owned investments with 2 criteria) • The Japanese parent firm is listed in the first of second section of the JSE. • The parent firm entered the particular U.S. industries between 1978~1990 • Level of analysis: the line of business (due to various nature of industries) • Sample size: 118 investment (92 firms in 79 industries) • Analyses using regression models (interaction terms included)

  8. Methodology (2) • Variables • GROWTH (DV) – The percentage change in a Japanese firm’s total employment after 4th and 7th years after entry • PREGROW - The percentage change of the employment in the preceding period • EXPAT – Ratio of expatriate employees • HomeExp – The firm’s foundation year and 1st operation in the U.S industry (in years and logarithmic form) • InternationalExp – 1st overseas operation and 1st operation in the U.S (in years and logarithmic form) • UNCERTAINTY – The variance of error term adapted from Levy (1985) • 8 control variables including SIZE

  9. Results

  10. Conclusions and Future research • Explored the conditions under which a firm is more/less likely to experience the Penrose effect • Firms that are more capable in developing new managerial resources are less exposed to the Penrose effect • Japanese firms were more likely to achieve growth • When they sent more expatriates • When they had greater domestic experiences • When they entered local markets with a lower level of uncertainty • Generalizability issue • Difficulty to access international data • Impact of the expatriates’ characteristics • Firm and local market characteristics

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