Why Do Japanese Companies Exploit Many Expatriates?: Analysis of Overseas Subsidiaries in Japanese Companies

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1 Annals of Business Administrative Science 12 (2013) Available at Online ISSN Print ISSN Global Business Research Center Why Do Japanese Companies Exploit Many Expatriates?: Analysis of Overseas Subsidiaries in Japanese Companies Kiyohiro OKI a) Abstract: A cross table was created to classify 25 overseas subsidiaries of Japanese companies. They were classified under overseas subsidiaries with many expatriates and overseas subsidiaries with few expatriates, as well as overseas subsidiaries with sophisticated functions and overseas subsidiaries with non-sophisticated functions. From the results, it was evident that almost all overseas subsidiaries with sophisticated functions had many expatriates. Japanese companies are often singled out for their tendency to send many expatriates abroad in comparison to the multinational corporations of Europe and the USA. The sophisticated functions of those overseas subsidiaries of Japanese companies were one cause for this tendency. Keywords: Japanese companies, expatriates, overseas subsidiaries, functions of overseas subsidiaries a) Faculty of Commerce, Kansai University, okik@kansai-u.ac.jp A part of this paper was originally published as Oki, Amano, and Nakagawa (2011) in Japanese. 139

2 Oki 1. Introduction Japanese companies tend to send more expatriates abroad from the home headquarters in comparison to the multinational corporations of Europe and the USA (Bartlett & Yoshihara, 1988; Kopp, 1994a, 1994b). 1 However, it has been shown that the numbers of expatriates in overseas subsidiaries of Japanese companies decreased in the first half of the 1990s (Beamish & Inkpen, 1998). Have the numbers of expatriates in overseas subsidiaries of Japanese companies further decreased in the 21st century? Data from the Ministry of Economy, Trade and Industry s Survey of Overseas Business Activities show the numbers of expatriates in overseas subsidiaries for 2004 and From this data, only Japanese companies in the manufacturing industry were selected, and the number of expatriates per subsidiary for 2004 was compared with that for 2007 (Table 1). 2 Table 1 shows that the number of expatriates per subsidiary of Japanese companies increased from 5.81 to 6.56 from 2004 to This suggests that Japanese companies are still relying on expatriates for overseas development. Prior research has explained the reasons for Japanese companies to utilize many expatriates from the perspective of corporate culture and historical background (Bartlett & Ghoshal, 1989; Bartlett & Yoshihara, 1988; Beamish & Inkpen, 1998; Kopp, 1994a, 1994b). Some research has criticized the tendency of Japanese companies to 1 The term expatriates is defined as transferees from the home country and third country nationals to an overseas subsidiary (Delios & Bjorkman, 2000). 2 Industry classifications in 2004 are different from those in The machinery- (except electrical) and instruments-related products classifications were present only in 2007, while stone, clay and glass, primary metal products, general-purpose machines, production machines, and service industry machinery classifications were present only in

3 Why do Japanese companies exploit many expatriates? Table 1. Expatriates in Japanese companies Expatriates per subsidiary Food 3.78 ( 387) 4.75 ( 273) Textile 3.11 ( 416) 3.52 ( 257) Lumber, Paper & Allied products 2.87 ( 131) 5.48 ( 95) Chemical 3.61 ( 991) 4.79 ( 607) Petroleum & Coal 2.83 ( 31) 3.03 ( 31) Stone, Clay & Glass - ( 0) 3.76 ( 145) Primary metal 4.99 ( 189) 3.63 ( 173) Nonferrous metals 5.04 ( 196) 4.27 ( 184) Machinery except electrical 4.35 ( 796) - ( 0) Primary metal products - ( 0) 4.59 ( 240) General-purpose machines - ( 0) 4.76 ( 233) Production machines - ( 0) 4.55 ( 319) Service industry machinery - ( 0) 5.37 ( 153) Electrical equipment 5.47 ( 646) 5.45 ( 444) Information & Communications equipment (I & C) 9.27 (1114) 8.33 ( 838) Transportation equipment (1309) (1272) Instruments-related products 5.19 ( 244) - ( 0) Other manufacturing 4.25 (1156) 4.36 ( 647) Total 5.82 (7606) 6.56 (5911) Note: The numbers of samples are in parentheses. Source: Survey of Overseas Business Activities in 2004 and 2007 utilize many expatriates with the premise that this tendency is a unique characteristic of Japanese companies (Bartlett & Yoshihara, 1988; Kopp, 1994a, 1994b; Legewie, 2002). It has also been reported that Americans working in Japanese companies in the US feel dissatisfaction with Japanese expatriates due to communication issues (Kopp, 1994b). Thus some researches have argued that Japanese companies should decrease the numbers of expatriates in overseas subsidiaries (Bartlett & Yoshihara, 1988; Beamish & 141

4 Oki Inkpen, 1998; Kopp, 1994a, 1994b; Legewie, 2002). However, is it possible that in recent years Japanese companies use many expatriates in overseas subsidiaries for a different reason? Former overseas development of Japanese companies has centered on the transfer of manufacturing activities (Abo, 1994; Bartlett & Ghoshal, 1989). However, in recent years, Japanese companies have tended to bring sophisticated functions such as R&D to the overseas subsidiaries (Asakawa, 2001). 3 Recent research has focused on the innovation from overseas subsidiaries (Doz, Santos, & Williamson, 2001; Frost, Birkinshaw, & Ensign, 2002). As overseas functions become more enhanced, the need for sophisticated skills increases. Have Japanese companies in recent years used more expatriates in overseas subsidiaries to supplement the sophisticated skill? Existing research, however, has not discussed the relationship between the enhancement of functions in overseas subsidiaries and the large numbers of expatriates in overseas subsidiaries of Japanese companies. Based on this question, this paper shows that there is a relationship between the enhancement of functions in overseas subsidiaries and the large number of expatriates from data obtained through field surveys at 25 overseas subsidiaries of Japanese companies. 2. Data This paper utilizes data obtained from field survey interviews at 25 overseas subsidiaries conducted from 2005 to The data samples are overseas subsidiaries randomly chosen from among Japanese overseas subsidiaries expanding into the Asia region that 3 There is also a background of fiercer competition from the rise of companies from developing nations such as China (Ge & Fujimoto, 2004; Li, 2010). 142

5 Why do Japanese companies exploit many expatriates? were found in publications and with each country s Chamber of Commerce. The samples were chosen so that as many industries as possible would be represented. As a result, field surveys were conducted in 25 overseas manufacturing subsidiaries from these five industries: chemical, information and communications equipment, electrical equipment, transportation equipment, and stone, clay and glass. The following data was collected from the field surveys: industry, country, year visited, number of years established, number of employees, number of expatriates, ages of overseas subsidiary at year visited, functions of the overseas subsidiary. By referring to Fujimoto (2001) and Terwiesch, Bohn, and Chea (2001), each function that overseas subsidiaries take on were defined as follows: 4 Product Development (PDD): Activities of product planning, specifications formulation, and development of specific designs Process Development (PCD): Activities of executing the design of production lines for designated product models Pilot Run (PR): Activities of setting up the test production lines developed by Process Development, modifying lines and individual processes while checking the viability of the lines. This included changing process designs. Ramp Up (RU): Activities of realizing full volume production with the given products and processes in order to fulfill cost and quality targets. Mass Production (MP): Activities of setting up the factory production line from Ramp Up and producing the supply of products for the market. In addition to the functions listed above, there is also a Product Modification (PM) function. This is the function of modifying products 4 Because these were manufacturing subsidiaries, functions of sales and marketing were not included. 143

6 Oki Table 2. Profiles of sample companies Industry Country Year visited Age Number of employees Number of expatriates Functions of a subsidiary A chemical Singapore MP B chemical Thailand MP C I & C Singapore MP D I & C Singapore ,069 4 All E I & C Thailand ,000 3 MP F I & C China ,550 0 RU, MP G I & C Singapore MP H I & C Singapore , All I I & C Hong Kong , All J I & C Indonesia , PCD, RU, MP K I & C China , & several MP L I & C China , PDM, MP M electrical equipment China , PDM, PR, RU, MP N I & C Singapore All O I & C China , & PR, RU, several MP P I & C Thailand , All Q I & C China , MP R I & C Thailand , MP S electrical equipment Thailand , All T electrical equipment Thailand , All U electrical equipment Thailand , All V I & C China about 10, All W chemical Indonesia dozens of people 3 MP X stone, clay & glass Thailand , MP Y chemical Thailand MP 144

7 Why do Japanese companies exploit many expatriates? that do not require major technological changes at overseas subsidiaries for products that were developed in Japan. Specifically, these are modifications such as changes to local language software and exterior appearances. This function is handled as part of the early product development function. The above data from the 25 subsidiaries is organized in Table Analysis This paper examines the relationship between the function of the overseas subsidiaries and the number of expatriates. In order to do this, the overseas subsidiaries with many expatriates and the overseas subsidiaries with few expatriates are first classified according to the following procedure. Table 1 shows the average number of expatriates for each industry. The number of expatriates for each company and the number of expatriates per industry, to which the company belongs, were compared and the overseas subsidiaries were then classified as having more expatriates than the average number of expatriate per industry (many) or not (few). The comparison year (either 2004 or 2007) was selected by choosing the year nearest to the year in which each company was surveyed, 5 and then compared to the average number of expatriates. As a result, nine companies A, B, C, D, E, F, G, W, and Y, were classified as overseas subsidiaries with few expatriates. On the other hand, the classification of overseas subsidiaries with sophisticated functions and overseas subsidiaries with non-sophisticated functions was made on the basis of whether they have a function equal to or higher than Pilot Run. This is because overseas subsidiaries with only Ramp Up and Mass Production 5 Only companies F, K, L, and M were compared with the average number of expatriates for 2004; the others were compared with average number of expatriates for

8 Oki functions are not involved in the development of products and processes which need sophisticated technology and skills. In fact, the analysis performed on Japanese companies in the 1990s revealed that not many overseas subsidiaries of Japanese companies performed process development and/or product development (Cho, 1994). As a result, these 13 companies D, H, I, J, L, M, N, O, P, S, T, U, and V were classified as overseas subsidiaries with sophisticated functions. Table 3 shows the results of the above classifications organized into a 2 2 cross table. With a Chi-square of (p = ), 6 a statistically significant trend can be seen for overseas subsidiaries to utilize many expatriates when they perform sophisticated functions. One notable point is that of the 13 overseas subsidiaries with sophisticated functions, there was only 1 company (8%) that utilized few expatriates. This implies that one cause for the use of many expatriates by Japanese companies is the sophisticated functions of the Japanese companies overseas subsidiaries. The sole company occupying the sophisticated functions and few Table 3. Contingency table of expatriates and functions) Expatriates of an overseas subsidiary Functions of an overseas subsidiary Non-sophisticated (RU & MP or MP) Sophisticated (more than RU) Total Few (less than average) Many (more than average) Total Note: Chi-square = , p = Using Fisher s exact test, p =

9 Why do Japanese companies exploit many expatriates? expatriates cell is company D, an overseas subsidiary manufacturing PCBs (printed circuit boards) that was established in Singapore in On their initial expansion, company D was supplying PCBs to a different subsidiary in Singapore; however, the subsidiary purchasing their supply was subsequently shut down. Because of that, company D was put in the unique position of having to develop their own customer base with no financial, technological, or human resource assistance from their headquarters. Therefore, they had to have their own product development functions. 4. Discussion and Future Research The four overseas subsidiaries included in the non-sophisticated functions and many expatriates cell had unique characteristics of having many more employees and not being in equipment-intensive industries, such as chemical industries, in comparison to the eight overseas subsidiaries included in the non-sophisticated functions and few expatriate. In regard to numbers of employees, there were three companies that had 5,000 or more employees. Although these overseas subsidiaries did not have what this paper calls sophisticated functions, they did require sophisticated knowledge of production activities. Several Japanese companies possess sophisticated knowledge regarding production activities (Abo, 1994; Ohno, 1988). Because expatriates perform an important role when this knowledge is transferred to overseas subsidiaries (Oki, 2012), it is to be expected that the Japanese companies possessing sophisticated knowledge regarding production activities would send many expatriates in order to support the production activities of many employees. From the analysis of 25 overseas subsidiaries of Japanese companies, this paper clarifies that there are only a few overseas subsidiaries with sophisticated functions and expatriates. If 147

10 Oki future research considers that sophisticated functions need sophisticated knowledge from many expatriates as well as the production activities performed by large numbers of employees also need sophisticated knowledge, the reasons for Japanese companies using many expatriates can be explained considerably well. At the same time, the results of this paper also suggest that the overseas subsidiaries of Japanese companies have not yet become independent enough to perform sophisticated functions without participation from the home country. Bartlett and Ghoshal (1989) and Bartlett and Yoshihara (1988) perceive this characteristic of Japanese companies as the evil of Japanese companies in concentrating resources and power in the home headquarters and not focusing on the subsidiary. More research is needed to answer whether this is actually a unique phenomenon of Japanese companies, or a phenomenon perceived during the transition of the overseas subsidiary s enhancement of functions. References Abo, T. (Eds.). (1994). Hybrid factory: The Japanese production system in the United States. New York, NY: Oxford University Press. Asakawa, K. (2001). Evolving headquarters-subsidiary dynamics in international R&D: The case of Japanese multinational. R&D Management, 31, Bartlett, C. A., & Ghoshal, S. (1989). Managing across borders: The transnational solution. Boston, MA: Harvard Business School Press. Bartlett, C. A., & Yoshihara, H. (1988). New challenges for Japanese multinationals: Is organizational adaptation their Achilles heel? Human Resource Management, 27, Beamish, P. W., & Inkpen, A. (1998). Japanese firms and the decline of the Japanese expatriate. Journal of World Business, 33, Cho, D. (1994). Nihonkigyo no takokusekika to kigyonai gijutsuiten [Multinationalization and technology transfer of Japanese companies]. 148

11 Why do Japanese companies exploit many expatriates? Soshiki Kagaku [Organizational Science], 27, (in Japanese). Delios, A., & Bjorkman, I. (2000). Expatriate staffing in foreign subsidiaries of Japanese multinational corporations in the PRC and the United States. International Journal of Human Resource Management, 11, Doz, Y., Santos, J., & Williamson, P. (2001). From global to metanational. Boston, MA: Harvard Business School Press. Frost, T. S., Birkinshaw, J. M., & Ensign, P. C. (2002). Centers of excellence in multinational corporations. Strategic Management Journal, 23, Fujimoto, T. (2001). Seisan manejimento nyumon [Management text]. Tokyo, Japan: Nihon Keizai Shinbunsha (in Japanese). Ge, D., & Fujimoto, T. (2004). Quasi-open product architecture and technological lock-in: An exploratory study on the Chinese motorcycle industry. Annals of Business Administrative Science, 3, doi: /abas.3.15 Kopp, R. (1994a). International human resource policies and practices in Japanese, European, and United States multinationals. Human Resource Management, 33, Kopp, R. (1994b). The rice-paper ceiling. Berkeley, CA: Stone Bridge Press. Li, Z. (2010). Future international business strategy of Chinese automotive manufacturers: A case study on their overseas operations in the Russian market. Annals of Business Administrative Science, 9, doi: /abas.9.13 Legewie, J. (2002). Control and coordination of Japanese subsidiaries in China: Problems of an expatriate-based management system. International Journal of Human Resource Management, 13, Ohno, T. (1988). Toyota production system: Beyond large-scale production. New York, NY: Productivity Press. Oki, K. (2012). A Japanese factory in Thailand: Seeking acceptance of kaizen activities. Annals of Business Administrative Science, 11, doi: /abas Oki, K., Amano, T., & Nakagawa, K. (2011). Nihonkigyo no kaigai tenkaini kansuru jisshobunseki: Hongoku chushinshugi wa kokufuku sareteirunoka? [An empirical analysis of Japanese multinational 149

12 Oki companies: Do they overcome their ethnocentrism?] Akamon Management Review, 10, (in Japanese). Terwiesch, C., Bohn, R. E., & Chea, K. S. (2001). International product transfer and production ramp-up: A case study from the data storage industry. R&D Management, 31, Received March 12, 2013; April 24,

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