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Are strategy-performance relationships contingent on macroeconomic environments? Evidence from Japan’s textile industry

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Abstract

This study examines the dynamic relationships between product and international diversification, keiretsu financing, and economic performance of the listed firms in Japan’s textile industry. Panel data analysis shows that the performance effects of those strategic factors are contingent on macroeconomic environments, rather than showing consistent relationships. The potentially positive or negative effects of particular diversification strategies and keiretsu financing are neutralized in the munificent environments, as exogenous macroeconomic factors overwhelm endogenous decision-making by the management. In the scarce setting, by contrast, it is those strategic factors that influence financial outcomes. Keiretsu financing moderates the relationship between international diversification strategy and profitability positively only during times of economic scarcity.

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Notes

  1. Mean values of country scope in the textile industry measured as 1.894 in STP1 and 2.234 in STP2 are noticeably lower than the Japanese manufacturing firms in general. Delios and Beamish reported a mean value of 7.28 for the manufacturing firms in Japan as of 1996.

  2. We run the regression with mean-centered country scope and its squared term as well, and the squared term was insignificant as expectedly.

  3. While the diversified business groups or kigyo shudan may be important in some industries including automobiles and electronics, there has been little relevance of these structures in the textile industry, because the textile firms, except for the largest few, have stayed outside the group structure (Hikino et al., 1998; Miyazaki, 1980; Morikawa, 1992).

  4. The few apparel-making companies were ultimately excluded from the sample, as the dynamics and product diversification patterns in that industry are quite different than the textile ones. After this sorting-out procedure, there remained a sample of 76 companies. Please note that the entries of the firms are all in same dates. The only exception is Hogy Medical, which becomes listed in December 1991. As for the exit of companies, there are only 3 exits for the reasons of bankruptcy, merger or acquisition (Daiichibo, Bisai Wool Spinning and Orix Interior), which means a lack of a total 4 observations in the total set of 355 observations. As we checked to see if the control of those 4 points caused any statistical disturbance, no disruptions were observed in the outcomes as expectedly.

  5. The whole sample included 76 firms in the initial sample covering all listed textile firms. Five firms were removed from the sample whenever any substantial missing data or doubt regarding a firm’s qualitative diversification classifications existed. As we conducted analysis of variance analysis and t-tests to compare the variables of interest if the exclusion of five cases caused any bias, no bias was observed.

  6. While Geringer et al. (2000) use endogenously and inferentially determined periods in their study, they suggest that identification of time periods from detailed exogenous models such as macroeconomic indicators is even more appropriate to further analysis of their findings. In a similar study, for instance, Chung and Beamish (2005) employ the Asian Economic Crisis as a natural research setting based on quarterly declines in real GDP to divide their sample into two distinct time periods.

  7. Results obtained from analyses of variance for STP 2 were previously presented in Colpan, 2006, while those for STP 1 are published for the first time in this article.

  8. For a detailed explanation of specialization ratios and related ratios, see Rumelt, 1974, 9–32.

  9. When a company’s parent firm exhibits an identifiable long-term tie to a particular commercial bank, that company is also considered to be financed through yushi keiretsu. That is because usually parent company obtains necessary external financing for its subsidiaries utilizing yushi keiretsu ties. This definition of yushi keiretsu is revised from that of Colpan, 2006.

  10. Industry growth and macroeconomic settings are often used interchangeably to represent the “environmental munificence”(Dess & Beard, 1984; Kotha & Nair, 1995). These two categories are deliberately separated in the present research, because given a certain macroeconomic setting individual industries usually exhibit different growth rates.

  11. The significance levels of Levene’s Test of the homogeneity of variances of the dependent and of the covariates were checked, and the results showed values greater than 0.10 that assured the equal variances assumptions of the model was not violated. We also estimated the results with generalized-least squares analysis, which is not sensitive to bias from heteroscedasticity and/or autocorrelation (Bergh & Holbein, 1997).

  12. Mean values of country scope in Table 1 are based on the absolute values of country scope, rather than their log-transformed values used in the regressions. Dummies for industry participation and time-related effects are not shown for clarity of presentation.

  13. A closer look to the performance means and standard deviations in the munificent and scarce macroeconomic environments illustrated in Table 1 reveals the changing dynamics of firms’ profitability. In the munificent environment, the average performance of firms is relatively high (0.024) compared to the scarce environment (where average profitability is 0.014). The standard deviation on the other hand is relatively low (0.028) in the first munificent phase, while the deviation increases more than twice (to 0.062) in the second depressed time period.

  14. The industry dummies are not significantly different from each other in the 1990s, whereas the industry categories, spinning, weaving wool, dyeing, and plastic films, sheet, floor coverings, synthetic leather become positive and significant in the 1980s.

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Authors and Affiliations

  1. Institute for Technology, Enterprise and Competitiveness, Doshisha University, Karasuma Imadegawa, Kamigyo-ku, Kyoto, 602-8580, Japan

    Asli M. Colpan

  2. Graduate School of Management, Kyoto University, Yoshida Honmachi, Sakyo-ku, Kyoto, 606-8501, Japan

    Asli M. Colpan

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Correspondence to Asli M. Colpan.

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I would like to thank Andrew Delios (former Editor-in-Chief), Takashi Hikino, Mike Peng (current Editor-in-Chief), Toru Yoshikawa, and the two anonymous reviewers for their criticism and suggestions. I also acknowledge helpful comments from seminar participants at the Academy of Management meeting in Hawaii (2005); Annual Conference of the Academic Association for Organizational Science in Japan (2006); Asia Pacific Economic and Business History Conference (2006); and Institute of Industrial Relations, Walter A. Haas School of Business, University of California, Berkeley (2005). Funding from the Japan Society for the Promotion of Science, and Center of Excellence (COE) program of Institute for Technology, Enterprise and Competitiveness, Doshisha University is gratefully acknowledged.

Appendix

Appendix

Table 4 Tests of mean differences of macroeconomic environment munificence.
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Table 5 Tests of mean differences of strategic groupings.
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Table 6 Scheffe method of multiple comparisons between strategic groupings.
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Colpan, A.M. Are strategy-performance relationships contingent on macroeconomic environments? Evidence from Japan’s textile industry. Asia Pac J Manage 25, 635–665 (2008). https://doi.org/10.1007/s10490-007-9069-9

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