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The determinants of expatriate staffing by Japanese multinationals in Asia: control, learning and vertical business groups

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Abstract

We empirically examine the determinants of the decision whether or not to appoint an expatriate as the managing director of overseas affiliates for a sample of 844 Japanese manufacturing affiliates operating in Asia in 1995. Confirmation is found for hypotheses derived both from a control and coordination perspective on expatriation and from a knowledge creation and learning perspective. Strategic dependence of the parent on the affiliate increases the propensity to appoint expatriates, whereas localisation of the affiliate reduces it. Organisational experience in the country, both by the affiliate and by the firm, increases the probability that host country nationals will be appointed. Inter-firm relationships within vertical keiretsu groups impact on expatriation policies through inter-organisational knowledge exchange in host countries and the mitigation of localisation requirements owing to intra-group transactions.

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Notes

  1. See Finkelstein and Hambrick (1996) for an overview of the impact of top management on the functioning of the organisation.

  2. The reported percentage in a study by Harzing (2001) was only somewhat lower (62.5%).

  3. See, for example, Tung (1984), Bartlett and Yoshihara (1988), Banai (1995), and Beamish and Inkpen (1998). In the mid 1980s, this also led to a number of high-profile court cases in the US in which local US managers alleged discriminatory treatment by their Japanese employers.

  4. In this sense, we follow Beechler and Yang (1994) by framing our working hypotheses in the tradition of the ‘HRM fit school’ or contingency approach to the transfer of Japanese HRM practices: Japanese HRM practices will be transferred abroad to a foreign affiliate or adapted to local conditions depending on the environment and strategic positioning of the affiliate.

  5. A second major category of business groups, horizontal keiretsu, are large bank-centred and trading firm-centred diversified groups of basically independent firms (Nakatani, 1984; Goto, 1982). Here group firms are not an extension of internal labour markets, and there is no evidence of group influences on HRM practices. We abstract from horizontal groups in this paper.

  6. Although Boyacigiller (1990) suggested that such inter-company linkages should be taken into account in future research, this issue has not yet received due attention.

  7. This organisation is also the result of a ‘hive off’ strategy by large industrial firms, establishing individual divisions into separate firms. For instance, Denso, one of the largest car component manufacturers in the world, was originally spun off from Toyota (Odagiri, 1992). Toyota maintains a minority shareholding in the firm.

  8. Mixed results were obtained for the impact of subsidiary age and the role of previous experience of the parent firm in the country.

  9. A third approach that may be grouped under the coordination and control perspective is a focus on information processing interdependence (Kumar and Seth, 1998).

  10. For instance, Toyota recently started such a formal training programme for its foreign management executives. See ‘Global Executives Wanted at Toyota’, Nikkei Weekly (2002), 13 October 2000.

  11. The distribution over countries for the 884 affiliates sample was similar to that of the full sample; nor did averages for other variables significantly differ, such that sample selection bias is not expected to affect the empirical results.

  12. We could not identify third-country national appointments as a third type of executive staffing policy. Such appointments, however, are almost non-existent in Japanese multinationals. Tung (1982) reports no third-country national appointments, and Peterson et al. (1996) report very limited use of this type of staffing policy in their respective samples of Japanese multinationals.

  13. The close integration between Hong Kong affiliates and manufacturing affiliate operations in Guangdong (PRC) often blurs the distinction between Hong Kong and PRC sales and makes ‘local’ sales often more difficult to determine than the sum of Hong Kong and PRC sales. We therefore treated both sales in China and sales in Hong Kong as ‘ local’ for Hong Kong and China affiliates.

  14. We treat these different dimensions of strategic dependence as potentially having separate additive impacts on expatriation policies, rather than extracting a principal component. The correlation between the two variables is slightly negative because smaller equity stakes are more common in large overseas affiliates and in affiliates of smaller firms with fewer financial resources. Our specification tests whether, given the equity position, relative size has an additional impact. We note that both operational variables are imperfect measures of the degree of strategic dependence and may to an extent pick up other influences (such as the bargaining power of joint venture partners over managerial appointments in the case of smaller parent equity stakes). The data available did not allow the use of more direct measures of dependence, for example, the presence of critical technological or marketing resources in the affiliate.

  15. The database contains information on the year of investment (the year the parent acquired the affiliate in the case of acquisitions), allowing us to measure the effective years of affiliate–parent operating experience. The data do not allow us to further identify which affiliates were acquired, but in practice Japanese acquisitions in the Asian electronics industry are very rare. Belderbos et al. (2001) find only three cases of acquisitions in a sample of 190 Japanese electronics affiliates in Asia drawn from a survey by the Japanese Ministry of International Trade and Industry (MITI, 1996).

  16. For example, Martin et al (1995, 1998) and Belderbos and Carree (2002). Belderbos et al. (2001) find evidence of substantially increased local procurement of parts and components by Japanese affiliates in the case where the host country has attracted agglomerations of Japanese manufacturing plants.

  17. In addition, North East China has once been a colony of Japan (Manchuria). Belderbos and Carree (2002) find a relatively strong agglomeration of Japanese affiliates in this part of China, in particular the Dalian area.

  18. For example, ‘Japan firms slow to promote locals’, Nikkei Weekly, 25 March 2002.

  19. There is some emerging evidence that the strong reliance on expatriate managers by Japanese firms is indeed declining (Beamish and Inkpen, 1998).

  20. Several reports on Japanese firms’ operations in Asia allude to the high costs and inflexibility associated with a reliance on expatriate managers. For example, ‘Sony employs color purple to motivate China plant workers’, Nikkei Weekly, 10 March 2003; ‘Japanese firms slow to promote locals, Nikkei Weekly, 25 March 2002. A 2003 survey by the Japan Bank of International Cooperation found that ‘securing local managers’ was the most important management concern for Japanese affiliates operating in China.

  21. See Beamish and Inkpen (1998) for examples, and ‘Global Executives Wanted at Toyota’, Nikkei Weekly, 13 October 2000.

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Acknowledgements

This paper benefited from comments by Anand Swaminathan, Ingmar Björkman, three anonymous referees, and participants in the 2002 Strategic Management Society Meetings in Paris and the 2003 Annual EIBA Conference in Copenhagen.

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Authors and Affiliations

  1. Katholieke Universiteit Leuven and Technische Universiteit Eindhoven, The Netherlands

    René A Belderbos

  2. Universiteit Maastricht, The Netherlands

    Mariëlle G Heijltjes

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  1. René A Belderbos
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  2. Mariëlle G Heijltjes
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Correspondence to René A Belderbos.

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Accepted by Professor Anand Swaminathan, Departmental Editor, 24 September 2004. This paper has been with the author for one revision.

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Belderbos, R., Heijltjes, M. The determinants of expatriate staffing by Japanese multinationals in Asia: control, learning and vertical business groups. J Int Bus Stud 36, 341–354 (2005). https://doi.org/10.1057/palgrave.jibs.8400135

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