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Experience, imitation, and the sequence of foreign entry: wholly owned and joint-venture manufacturing by South Korean firms and business groups in China, 1987–1995

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Abstract

The evolution of foreign entry in the form of joint ventures and wholly owned manufacturing operations is examined as a staged process shaped by experience and imitation dynamics at the firm, group, and industry levels of analysis. The expansion of South Korean firms into China between 1987 and 1995 lends support to the staged view of foreign entry. Over time, technology-intensive firms are more likely to abandon joint-venture entry modes, owing to contractual hazards. Firms in the same business group are found to imitate each other's choice of joint ventures and wholly owned plants. Firms in the same industry mimic each other's choice of wholly owned plants, though not of joint ventures.

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Notes

  1. By the end of 1995 only three Korean firms had established subsidiaries in China for trading purposes exclusively. These investments were ignored in the empirical analysis.

  2. Similar results were obtained using either a counter of the number of entries by the same firm or a dummy variable coded as 0 before the first entry and as 1 thereafter. The two variables are very highly correlated with each other, a situation similar to that found in other studies (Chang, 1995; Kogut and Chang, 1996).

  3. In South Korea, the so-called ‘R&D efficiency expenses’ are generally reported by firms: they include the year-on-year rate of change, R&D depreciation, development expenses, and ordinary R&D expenses. This measure approximates the value of the cumulative stock of R&D expenses. Thus it captures the firm's R&D effort over the years, as opposed to during a single year. This measure was normalized by the firm's age. Given that this definition departs from the usual one in the USA or Europe, regression analyses were also conducted without this variable. Similar results were obtained.

  4. Interview, International Business Division of the Ministry of Trade, Industry and Energy, Seoul, 30 May 1997.

  5. Dummy variables were created for nine different industries: food processing (omitted), textiles and apparel; chemicals, petroleum and rubber; stone, clay and glass; metals; machinery; electrical equipment; transportation equipment; and other manufacturing. The use of more finely grained time period or industry dummies resulted in a lack of convergence of the regression models.

  6. The breakdown of first plants between joint ventures and wholly owned plants was similar to the overall pattern. The firms with the largest numbers of plants were Sangyong Cement (eight), LG Electronics (seven), and Daewoo Electronics and Samsung Electronics (six each). Excluding these firms from the sample one at a time did not change the results reported below.

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Acknowledgements

Funding from the International Centre for the Study of East Asian Development (ICSEAD), Kitakyushu, Japan, is gratefully acknowledged. Hai-Kyung Jun provided invaluable assistance in assembling the dataset, and Dr. Yong-Won Kwon made several sources of data available. Vit Henisz gave me superb advice as to several theoretical and methodological issues. I also thank three reviewers and the editor, Bernard Yeung, for helpful comments and suggestions.

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  1. The Wharton School & Department of Sociology, University of Pennsylvania, Philadelphia, PA, USA

    Mauro F Guillén

  2. Instituto de Empresa, Madrid, Spain

    Mauro F Guillén

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Correspondence to Mauro F Guillén.

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Accepted by Tom Brewer; outgoing Editor, August 2002.

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Guillén, M. Experience, imitation, and the sequence of foreign entry: wholly owned and joint-venture manufacturing by South Korean firms and business groups in China, 1987–1995. J Int Bus Stud 34, 185–198 (2003). https://doi.org/10.1057/palgrave.jibs.8400016

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  • DOI: https://doi.org/10.1057/palgrave.jibs.8400016

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