Problems of Foreign Subsidiaries of Smes Compared with Large Companies

Abstract

This study examines the issues faced by foreign subsidiaries of small- to medium-sized Japanese enterprises (SMEs). Institutional theory is used to identify factors including institutional distance, historical legacy, and market orientation at the country level that may create problems, while foreign direct investment theory (FDI) is used at the industry and company level for factors such as industry concentration and technology. Data from 61 Japanese companies (equating to 96 subsidiaries) is gathered on 14 different problems using a questionnaire in Japanese that allows for answers using the 10-point Likert scale.Of the 5 hypotheses tested, 4 are supported by the research results.The remaining 4-part hypothesis that yields mixed results deals with the subsidiaries' activities: (a) the greater the importance of manufacturing locally for export markets, the lower the level of problems; (b) the greater the importance of local procurement for export markets, the lower the level of problems; (c) the greater the importance of importing products for sale locally, the higher the level of problems; and (d) the greater the importance of manufacturing locally for local markets, the lower the level of problems.Although SMEs encounter higher levels of problems with their foreign subsidiaries in operational areas, the level of problems faced with respect to labor and low-price foreign competition is similar to that of large companies. (SRD)

Keywords: Industry concentration, Procurement, Market competition, Localization, Organization theory, Foreign investments, Exports & imports, Labor markets, Subsidiaries, Public policies, Foreign subsidiaries, Market orientation, Manufacturing industries