Exploratory study on two types of the mechanisms for Japanese companies to control overseas operations and their impacts on financial performance

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  • 日系企業の海外事業における２つのコントロール・メカニズムと業績
  • ニッケイ キギョウ ノ カイガイ ジギョウ ニ オケル 2ツ ノ コントロール ・ メカニズム ト ギョウセキ

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Abstract

<p>This exploratory study aims to analyze how Japanese companies utilize two types of the mechanisms to control overseas operations and what their impacts on financial performance of overseas businesses are, based on the Internalization Theory. The two control mechanisms include “formal mechanism,” e.g. control by ownership, and “organizational mechanism,” e.g. control by shared values. While having increased foreign direct investment stocks, Japanese companies have produced a relatively low investment return. The more a company expands operation overseas, the more external factors it should manage in the more complex business environment. In that sense, organizational management can be linked with financial performance of overseas business.</p><p>This study, covering 106 Japanese listed companies of machinery, electric machinery and precision machinery sectors, examines: to what extent they utilize a formal control mechanism, i.e. secure the majority of the shares in their group companies; what the characteristics of their top management they have on the assumption that those can influence organizational control mechanism; and how both of them relate with profitability and overseas sales growth.</p><p>Our findings are: (1) almost all the companies have strengthened the control of their entire groups, but no obvious tendency could be found between taking-control activities and the profitability and overseas sales growth; (2) family businesses, defined as companies whose founder or founding family own and/or run businesses, achieved higher profitability and overseas sales growth than non-family businesses; (3) several non-family businesses can achieve higher profitability and overseas sales growth, while some family businesses underperform the averages.</p><p>This study presents an approach and results of the analysis on factors for success of overseas businesses from the viewpoint of control mechanism. The future research will use more data sets, cover a wider range of industries, apply comparative case studies of high and lower performers and enhance research design so as to cover effects of shareholders' presence or diversity of the board on control mechanisms.</p>

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