Skip to main content
SpringerLink
Log in

Internalization and experience: Japanese banks’ international expansion, 1980–1998

  • Article
  • Published:
Journal of International Business Studies Aims and scope Submit manuscript

Abstract

We use an interdisciplinary approach to investigate multinational banks’ foreign activities. We bridge core concepts from the stages theory of internationalization to internalization theory, to extend the literature on the defensive expansion hypothesis. Unlike the primarily aggregate levels of analysis employed in previous research on multinational banking, we utilize a firm-level analysis of the internationalization experiences of 21 Japanese banks in the period 1980–1998. We find that banks undertake foreign direct investment to secure internalization benefits by following their existing clients, and to achieve economies of scale in the application of their intangible assets in international markets. The magnitude of these relationships, however, is contingent upon the level of a bank's experience in the host countries. Consistent with predictions from internationalization theory, we find that the motivations for international expansion can change over time.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Figure 1
Figure 2

Similar content being viewed by others

Notes

  1. In the summer of 1999, Dai-ichi Kangyo Bank, Fuji Bank, and the Industrial Bank of Japan merged to form the Mizuho Financial Group. In April 2000, the Chuo Trust Bank and the Mitsui Trust Bank merged to form the Chuo Mitsui Trust Bank. In April 2001, Sumitomo Bank and Sakura Bank merged to form the Sumitomo Mitsui Banking Corporation. Another major merger happened between the Bank of Tokyo and the Mitsubishi Bank, from which the Tokyo–Mitsubishi Bank was formed in 1996. In the first three cases, all the banks involved in the M&As were main banks in their respective horizontal keiretsu groups. In the case of the Tokyo-Mitsubishi Bank, however, only the Mitsubishi Bank was the main bank of a keiretsu group.

References

  • Aliber, R. Z. 1984. International banking: a survey. Journal of Money, Credit and Banking, 16(4): 661–678.

    Article  Google Scholar 

  • Ball, C. A., & Tschoegl, A. E. 1982. The decision to establish a foreign bank branch or subsidiary: An application of binary classification procedures. Journal of Financial and Quantitative Analysis, 17(3): 411–424.

    Article  Google Scholar 

  • Barkema, H. G., Bell, J. H. J., & Pennings, J. M. 1996. Foreign entry, cultural barriers and learning. Strategic Management Journal, 17(2): 151–166.

    Article  Google Scholar 

  • Belderbos, R., & Sleuwaegen, L. 1996. Japanese firms and the decision to invest abroad: Business groups and regional core networks. The Review of Economics and Statistics, 78(2): 2–8.

    Article  Google Scholar 

  • Boddewyn, J. J., Halbrich, M. B., & Perry, A. C. 1986. Service multinationals: Conceptualization, measurement and theory. Journal of International Business Studies, 17(3): 41–58.

    Article  Google Scholar 

  • Brealey, R. A., & Kaplanis, E. C. 1996. The determination of foreign banking location. Journal of International Money and Finance, 15(4): 577–597.

    Article  Google Scholar 

  • Buch, C. M. 2000. Why do banks go abroad? Evidence from German data. Financial Markets, Institutions and Instruments, 9(1): 33–67.

    Article  Google Scholar 

  • Buch, C. M. 2003. Information or regulation: What drives the international activities of commercial banks? Journal of Money, Credit and Banking, 35(6): 851–869.

    Article  Google Scholar 

  • Buch, C. M., & Delong, L. G. 2004. Cross-border bank mergers: What lures the rare animal? Journal of Banking and Finance, 28(9): 2077–2102.

    Article  Google Scholar 

  • Buckley, P. J. 1988. The limits of explanation: Testing the internalization theory of the multinational enterprise. Journal of International Business Studies, 19(2): 181–193.

    Article  Google Scholar 

  • Buckley, P. J., & Casson, M. 1991. The future of the multinational enterprise (2nd ed.). London: Macmillan Publishing.

    Book  Google Scholar 

  • Buckley, P. J., Klijn, E., & Meng, C. 2006. The evolutionary entry strategies of foreign banks in China. Paper presented at the Globalization Challenges for European Business Conference, SDA Bocconi Business School, Milan, Italy.

  • Caves, R. 1996. Multinational enterprise and economic analysis (2nd ed.). Cambridge, UK: Cambridge University Press.

    Google Scholar 

  • Chang, S. J. 1995. International expansion strategy of Japanese firms: Capability building through sequential entry. Academy of Management Journal, 38(2): 383–407.

    Article  Google Scholar 

  • Cho, K. R. 1985. Multinational banks: Their identities and determinants. Ann Arbor, MI: UMI Research Press.

    Google Scholar 

  • Contractor, F. J., & Kundu, S. K. 1998. Modal choice in a world of alliances: Analyzing organizational forms in the international hotel sector. Journal of International Business Studies, 29(2): 325–356.

    Article  Google Scholar 

  • Deephouse, D. 1999. To be different, or to be the same? It's a question (and theory) of strategic balance. Strategic Management Journal, 20(2): 147–166.

    Article  Google Scholar 

  • Delios, A., & Beamish, P. W. 2001. Survival and profitability: The roles of experience and intangible assets in foreign subsidiary performance. Academy of Management Journal, 44(5): 1028–1038.

    Article  Google Scholar 

  • Delios, A., & Henisz, W. J. 2003. Political hazards, experience and sequential entry strategies: The international expansion of Japanese firms, 1980–1998. Strategic Management Journal, 24(11): 1153–1164.

    Article  Google Scholar 

  • Demirgüç-Kunt, A., & Levine, R. 1996. Stock market development and financial intermediaries: Stylized facts. The World Bank Economic Review, 10(2): 291–321.

    Article  Google Scholar 

  • Dunning, J., & Kundu, S. 1995. The internationalization of the hotel industry: Some findings from a field study. Management International Review, 35(2): 101–133.

    Google Scholar 

  • Eriksson, K., Johanson, J., Majkgard, A., & Sharma, D. D. 1997. Experiential knowledge and cost in the internationalization process. Journal of International Business Studies, 28(2): 337–360.

    Article  Google Scholar 

  • Erramilli, M. K. 1991. The experience factor in foreign market entry behavior of service firms. Journal of International Business Studies, 22(3): 479–501.

    Article  Google Scholar 

  • Erramilli, M. K., & Rao, C. P. 1990. Choice of foreign market entry modes by service firms: Role of market knowledge. Management International Review, 30(2): 135–140.

    Google Scholar 

  • Fieleke, N. S. 1977. The growth of US banking abroad: An analytical survey. In Key issues in international banking. Federal Reserve Bank of Boston. pp: 9–40.

    Google Scholar 

  • Goldberg, L. G., & Saunders, A. 1981. The growth of organizational forms of foreign banks in the US. Journal of Money, Credit and Banking, 13(3): 365–374.

    Article  Google Scholar 

  • Graham, E., & Krugman, P. 1994. Foreign direct investment in the United States (3rd ed.). Washington: Institute for International Economics.

    Google Scholar 

  • Gray, J. M., & Gray, H. P. 1981. The multinational bank: A financial MNC? Journal of Banking and Finance, 5(1): 33–63.

    Article  Google Scholar 

  • Greene, W. 2000. Econometric analysis (4th ed.). Upper Saddle River, NJ: Prentice-Hall.

    Google Scholar 

  • Grubel, H. G. 1977. A theory of multinational banking. Banca Nazionale del Lavoro Quarterly Review, 123: 349–363.

    Google Scholar 

  • Guillen, M. F. 2003. 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. Journal of International Business Studies, 34(2): 185–198.

    Article  Google Scholar 

  • Hultman, C. W., & McGee, L. R. 1989. Factors affecting the foreign banking presence in the US. Journal of Banking and Finance, 13(3): 383–396.

    Article  Google Scholar 

  • Johanson, J., & Vahlne, J. -E. 1977. The internationalization process of the firm: A model of knowledge development and increasing foreign market commitments. Journal of International Business Studies, 8(1): 23–32.

    Article  Google Scholar 

  • Kostova, T., & Zaheer, S. 1999. Organizational legitimacy under conditions of complexity: The case of the multinational enterprise. Academy of Management Journal, 24(1): 64–81.

    Google Scholar 

  • Kotha, S., Rindova, V. P., & Rothsermel, F. T. 2001. Assets and actions: Firm-specific factors in the internationalization of US Internet firms. Journal of International Business Studies, 32(4): 769–791.

    Article  Google Scholar 

  • Lewis, M., & Davis, K. 1987. Domestic and international banking. Oxford: Philip Allan.

    Google Scholar 

  • Li, J. T., & Guisinger, S. 1992. The globalization of service multinationals in the “Triad” regions: Japan, Western Europe and North America. Journal of International Business Studies, 23(4): 675–696.

    Article  Google Scholar 

  • Llewellyn, D. T. 1996. Banking in the 21st century: The transformation of an industry. In M. Edey (Ed.), The future of the financial system. Sydney: Reserve Bank of Australia, Alken Press, Australia, pp: 141–179.

    Google Scholar 

  • Lu, J. W., & Beamish, P. 2004. International diversification and firm performance: The S-curve hypothesis. Academy of Management Journal, 47(4): 598–609.

    Article  Google Scholar 

  • Luo, Y., & Peng, M. 1999. Learning to compete in a transition economy: Experience, environment, and performance. Journal of International Business Studies, 30(2): 269–295.

    Article  Google Scholar 

  • Makino, S., & Delios, A. 1996. Local knowledge transfer and performance: Implications for alliance formation in Asia. Journal of International Business Studies, 27(5): 905–927.

    Article  Google Scholar 

  • Martin, X., Mitchell, W., & Swaminathan, A. 1995. Recreating and extending Japanese automobile buyer–supplier links in North America. Strategic Management Journal, 16(8): 589–619.

    Article  Google Scholar 

  • Miller, S. R., & Eden, L. 2006. Local density and foreign subsidiary performance. Academy of Management Journal, 49(2): 341–356.

    Article  Google Scholar 

  • Miller, S. R., & Parkhe, A. 1998. Patterns in the expansion of US banks’ foreign operations. Journal of International Business Studies, 29(2): 359–389.

    Article  Google Scholar 

  • Mitchell, W., Shaver, J. M., & Yeung, B. 1992. Getting there in a global industry: Impacts on performance of changing international presence. Strategic Management Journal, 13(6): 419–432.

    Article  Google Scholar 

  • Miwa, Y., & Ramsayer, J. M. 2006. The fable of the keiretsu: Urban legends of the Japanese economy. Chicago: University of Chicago Press.

    Book  Google Scholar 

  • Molyneux, P., Remolona, E., & Seth, R. 1998. Modeling foreign bank performance and lending behavior. Financial Markets, Institutions and Instruments, 7(4): 26–41.

    Article  Google Scholar 

  • Morck, R., & Yeung, B. 1991. Foreign acquisitions: When do they make sense? Managerial Finance, 17(6): 10–17.

    Article  Google Scholar 

  • Moshirian, F. 2001. International investment in financial services. Journal of Banking and Finance, 25(2): 317–337.

    Article  Google Scholar 

  • Moshirian, F., & Van der Laan, A. 1998. Trade in financial services and the determinants of banks’ foreign assets. Journal of Multinational Financial Management, 8(1): 23–38.

    Article  Google Scholar 

  • Nachum, L. 2003. Liability of foreignness in global competition? Financial service affiliates in the City of London. Strategic Management Journal, 24(12): 1187–1208.

    Article  Google Scholar 

  • Nigh, D., Cho, K. R., & Krishnan, S. 1986. The role of location-related factors in US banking involvement abroad: An empirical examination. Journal of International Business Studies., 17(3): 59–72.

    Article  Google Scholar 

  • Rugman, A. M. 1981. Inside the multinationals. London: Croom Helm.

    Google Scholar 

  • Rugman, A. M., & Verbeke, A. 2003. Extending the theory of the multinational enterprise: Internalization and strategic management perspectives. Journal of International Business Studies, 34(2): 125–137.

    Article  Google Scholar 

  • Sabi, M. 1995. What's behind the growing presence of foreign banks in the US? A test of the conventional hypothesis. Journal of International Financial Markets, Institutions and Money, 5(4): 51–59.

    Google Scholar 

  • Seth, R., & Quijano, A. M. 1993. Growth in Japanese lending and direct investment in the United States: Are they related? Japan and the World Economy, 5(4): 363–372.

    Article  Google Scholar 

  • Seth, R., Nolle, D. E., & Mohanty, S. K. 1998. Do banks follow their customers abroad? Financial Markets, Institutions and Instruments, 7(4): 1–25.

    Article  Google Scholar 

  • Shaver, J. M., Mitchell, W., & Yeung, B. 1997. The effect of own-firm and other-firm experience on foreign direct investment survival in the United States, 1987–92. Strategic Management Journal, 18(10): 811–824.

    Article  Google Scholar 

  • Tallman, S., & Li, J. T. 1996. Effects of international diversity and product diversity on the performance of multinational firms. Academy of Management Journal, 39(1): 179–196.

    Article  Google Scholar 

  • Thornton, J. 1992. The cost of capital and the multi-nationalization of Japanese banking. International Economic Journal, 6(4): 85–94.

    Article  Google Scholar 

  • Tschoegl, A. E. 1982. Foreign bank entry into Japan and California. In A. E. Rugman (Ed.), New theories of multinational enterprise. London: Croom Helm, pp: 196–216.

    Google Scholar 

  • Tschoegl, A. E. 2000. International banking centers, geography and foreign banks. Financial Markets, Institutions and Instruments, 9(1): 1–32.

    Article  Google Scholar 

  • Ursacki, T., & Vertinsky, I. 1992. Choice of entry timing and scale by foreign banks in Japan and Korea. Journal of Banking and Finance, 16(2): 405–421.

    Article  Google Scholar 

  • Williams, B. 1996. Determinants of the performance of Japanese financial institutions in Australia 1987–1992. Applied Economics, 28(9): 1153–1165.

    Article  Google Scholar 

  • Williams, B. 1997. Positive theories of multinational banking: Eclectic theory versus internalization theory. Journal of Economic Surveys, 11(1): 71–100.

    Article  Google Scholar 

  • Williams, B. 2002. The defensive expansion approach to multinational banking: Evidence to date. Financial Markets Institutions and Instruments, 11(2): 127–203.

    Article  Google Scholar 

  • Yamori, N. 1997. Do Japanese banks lead or follow international business? An empirical investigation. Journal of International Financial Markets, Institutions and Money, 7(4): 369–382.

    Article  Google Scholar 

  • Yamori, N. 1998. A note on the location choice of multinational banks: The case of Japanese financial institutions. Journal of Banking and Finance, 22(1): 109–120.

    Article  Google Scholar 

  • Yannopoulos, G. N. 1983. The growth of transnational banking. In M. Casson (Ed.), The growth of international business. London: Allen & Unwin, pp: 26–57.

    Google Scholar 

  • Zaheer, S., & Mosakowski, E. 1997. The dynamics of the liability of foreignness: A global study of survival in financial services. Strategic Management Journal, 18(6): 439–464.

    Article  Google Scholar 

Download references

Acknowledgements

This research was supported by NUS Academic Research Grants (R-313-000-095-112 and R-313-000-052-112) and by a Social Sciences and Humanities Research Council of Canada Grant (#410-2001-0143). Special thanks go to the four reviewers and the Deputy Editor-in-Chief, Lorraine Eden, for their patient and insightful guidance in our development of this manuscript. All errors remain as our own.

Author information

Authors and Affiliations

  1. Department of Business Administration, University of Illinois at Urbana-Champaign, Champaign, IL, USA

    Lihong Qian

  2. Department of Business Policy, National University of Singapore, Singapore

    Andrew Delios

Authors
  1. Lihong Qian
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Andrew Delios
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Lihong Qian.

Additional information

Accepted by Lorraine Eden, Departmental Editor, 14 March 2007. This paper has been with the authors for two revisions.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Qian, L., Delios, A. Internalization and experience: Japanese banks’ international expansion, 1980–1998. J Int Bus Stud 39, 231–248 (2008). https://doi.org/10.1057/palgrave.jibs.8400317

Download citation

  • Received:

  • Revised:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1057/palgrave.jibs.8400317

Keywords

Search

Navigation