IDEAS home Printed from https://ideas.repec.org/a/eee/iburev/v14y2005i4p415-439.html
   My bibliography  Save this article

Problems of foreign subsidiaries of SMEs compared with large companies

Author

Listed:
  • Vachani, Sushil

Abstract

This paper draws on institutional theory, supplemented with foreign direct investment (FDI) theory, to explain the level of problems encountered by foreign subsidiaries of Japanese small- and medium-sized enterprises (SMEs) and compares them with large companies. The study confirms the importance of institutional factors such as institutional distance, legitimacy, and the state's coercive influence, as well as factors that FDI theory suggests are associated with multinationals, such as high technology and industry concentration. SMEs differ from large companies in some of the operational areas in which their foreign subsidiaries face high levels of problems, but both seem challenged by problems with labor and low-price foreign competition.

Suggested Citation

  • Vachani, Sushil, 2005. "Problems of foreign subsidiaries of SMEs compared with large companies," International Business Review, Elsevier, vol. 14(4), pages 415-439, August.
    • Handle: RePEc:eee:iburev:v:14:y:2005:i:4:p:415-439
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0969593105000272
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Aitken, Brian & Hanson, Gordon H. & Harrison, Ann E., 1997. "Spillovers, foreign investment, and export behavior," Journal of International Economics, Elsevier, vol. 43(1-2), pages 103-132, August.
    2. Bruce Kogut & Harbir Singh, 1988. "The Effect of National Culture on the Choice of Entry Mode," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 19(3), pages 411-432, September.
    3. Daphne Yiu & Shige Makino, 2002. "The Choice Between Joint Venture and Wholly Owned Subsidiary: An Institutional Perspective," Organization Science, INFORMS, vol. 13(6), pages 667-683, December.
    4. Bruce Kogut & Udo Zander, 1992. "Knowledge of the Firm, Combinative Capabilities, and the Replication of Technology," Organization Science, INFORMS, vol. 3(3), pages 383-397, August.
    5. Jaideep Anand & Bruce Kogut, 1997. "Technological Capabilities of Countries, Firm Rivalry and Foreign Direct Investments," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 28(3), pages 445-465, September.
    6. McDougall, Patricia Phillips & Oviatt, Benjamin M., 1996. "New venture internationalization, strategic change, and performance: A follow-up study," Journal of Business Venturing, Elsevier, vol. 11(1), pages 23-40, January.
    7. Mirjam Schiffer & Beatrice Weder, 2001. "Firm Size and the Business Environment : Worldwide Survey Results," World Bank Publications - Books, The World Bank Group, number 13988.
    8. Andersson, Svante, 2004. "Internationalization in different industrial contexts," Journal of Business Venturing, Elsevier, vol. 19(6), pages 851-875, November.
    9. Andersson, Ulf & Forsgren, Mats & Pedersen, Torben, 2001. "Subsidiary performance in multinational corporations: the importance of technology embeddedness," International Business Review, Elsevier, vol. 10(1), pages 3-23, February.
    10. Sushil Vachani, 1995. "Enhancing the Obsolescing Bargain Theory: A Longitudinal Study of Foreign Ownership of U.S. and European Multinationals," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 26(1), pages 159-180, March.
    11. Chen, Rongxin & Martin, Marc J., 2001. "Foreign expansion of small firms: The impact of domestic alternatives and prior foreign business involvement," Journal of Business Venturing, Elsevier, vol. 16(6), pages 557-574, November.
    12. David J. Teece, 2008. "Technology Transfer By Multinational Firms: The Resource Cost Of Transferring Technological Know-How," World Scientific Book Chapters, in: The Transfer And Licensing Of Know-How And Intellectual Property Understanding the Multinational Enterprise in the Modern World, chapter 1, pages 1-22, World Scientific Publishing Co. Pte. Ltd..
    13. Lorraine Eden & Stefanie Lenway, 2001. "Introduction to the Symposium Multinationals: The Janus Face of Globalization*," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 32(3), pages 383-400, September.
    14. Vachani, Sushil, 1999. "Global diversification's effect on multinational subsidiaries' autonomy," International Business Review, Elsevier, vol. 8(5-6), pages 535-560, October.
    15. Jane W Lu, 2002. "Intra- and Inter-organizational Imitative Behavior: Institutional Influences on Japanese Firms' Entry Mode Choice," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 33(1), pages 19-37, March.
    16. Tsang, Eric W. K., 2002. "Learning from overseas venturing experience: The case of Chinese family businesses," Journal of Business Venturing, Elsevier, vol. 17(1), pages 21-40, January.
    17. Oxley, Joanne E., 1999. "Institutional environment and the mechanisms of governance: the impact of intellectual property protection on the structure of inter-firm alliances," Journal of Economic Behavior & Organization, Elsevier, vol. 38(3), pages 283-309, March.
    18. Chol Lee & Paul W Beamish, 1995. "The Characteristics and Performance of Korean Joint Ventures in LDCS," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 26(3), pages 637-654, September.
    19. John H Dunning, 1988. "The Eclectic Paradigm of International Production: A Restatement and Some Possible Extensions," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 19(1), pages 1-31, March.
    20. Bruce Kogut & Udo Zander, 1993. "Knowledge of the Firm and the Evolutionary Theory of the Multinational Corporation," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 24(4), pages 625-645, December.
    21. J Michael Geringer & Louis Hebert, 1991. "Measuring Performance of International Joint Ventures," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 22(2), pages 249-263, June.
    22. Rugman, Alan M. & Brewer, Thomas L. (ed.), 2001. "The Oxford Handbook of International Business," OUP Catalogue, Oxford University Press, number 9780199241828.
    23. Francisco L. Rivera-Batiz & Luis A. Rivera-Batiz, 2018. "The Effects of Direct Foreign Investment in the Presence of Increasing Returns due to Specialization," World Scientific Book Chapters, in: Francisco L Rivera-Batiz & Luis A Rivera-Batiz (ed.), International Trade, Capital Flows and Economic Development, chapter 14, pages 371-396, World Scientific Publishing Co. Pte. Ltd..
    24. Sushil Vachani, 1998. "A Preliminary Framework For Explaining The "Success" Of The International Ventures Of Small- And Medium-Sized Companies," Journal of Enterprising Culture (JEC), World Scientific Publishing Co. Pte. Ltd., vol. 6(04), pages 429-455.
    25. Westhead, Paul & Wright, Mike & Ucbasaran, Deniz, 2001. "The internationalization of new and small firms: A resource-based view," Journal of Business Venturing, Elsevier, vol. 16(4), pages 333-358, July.
    26. Jane W. Lu & Paul W. Beamish, 2001. "The internationalization and performance of SMEs," Strategic Management Journal, Wiley Blackwell, vol. 22(6‐7), pages 565-586, June.
    27. Leonidou, Leonidas C., 1995. "Export stimulation research: Review, evaluation and integration," International Business Review, Elsevier, vol. 4(2), pages 133-156, June.
    28. Farok J Contractor & Sumit K Kundu, 1998. "Modal Choice in a World of Alliances: Analyzing Organizational Forms in the International Hotel Sector," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 29(2), pages 325-356, June.
    29. Peter J. Buckley & Mark Casson, 1985. "The Economic Theory of the Multinational Enterprise," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-349-05242-4, December.
    30. Benjamin M Oviatt & Patricia Phillips McDougall, 1994. "Toward a Theory of International New ventures," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 25(1), pages 45-64, March.
    31. Donald J Lecraw, 1984. "Bargaining Power, Ownership, and Profitability of Transnational Corporations in Developing Countries," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 15(1), pages 27-43, March.
    32. Morck, Randall & Yeung, Bernard, 1992. "Internalization : An event study test," Journal of International Economics, Elsevier, vol. 33(1-2), pages 41-56, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Stoian, Carmen & Filippaios, Fragkiskos, 2008. "Dunning's eclectic paradigm: A holistic, yet context specific framework for analysing the determinants of outward FDI: Evidence from international Greek investments," International Business Review, Elsevier, vol. 17(3), pages 349-367, June.
    2. Dominguez, Noémie & Mayrhofer, Ulrike, 2017. "Internationalization stages of traditional SMEs: Increasing, decreasing and re-increasing commitment to foreign markets," International Business Review, Elsevier, vol. 26(6), pages 1051-1063.
    3. Ojala, Arto, 2015. "Geographic, cultural, and psychic distance to foreign markets in the context of small and new ventures," International Business Review, Elsevier, vol. 24(5), pages 825-835.
    4. Anja Heinicke, 2018. "Performance measurement systems in small and medium-sized enterprises and family firms: a systematic literature review," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 28(4), pages 457-502, February.
    5. Maximilian Palmié & Marco Zeschky & Stephan Winterhalter & Philipp Walter Sauter & Naomi Haefner & Oliver Gassmann, 2016. "Coordination mechanisms for international innovation in SMEs: effects on time-to-market and R&D task complexity as a moderator," Small Business Economics, Springer, vol. 46(2), pages 273-294, February.
    6. Vachani, Sushil & Doh, Jonathan P. & Teegen, Hildy, 2009. "NGOs' influence on MNEs' social development strategies in varying institutional contexts: A transaction cost perspective," International Business Review, Elsevier, vol. 18(5), pages 446-456, October.
    7. Yifei Sun & Ke Wen, 2007. "Country Relational Distance, Organizational Power and R&D Managers: Understanding Environmental Challenges for Foreign R&D in China," Asia Pacific Business Review, Taylor & Francis Journals, vol. 13(3), pages 425-449, July.
    8. Hsiang-Lin Cheng & C.-M. J. Yu, 2012. "Adoption of Practices by Subsidiaries and Institutional Interaction within Internationalised Small- and Medium-Sized Enterprises," Management International Review, Springer, vol. 52(1), pages 81-105, February.
    9. Matolcsy, Zoltan & Wakefield, James, 2017. "Multinational headquarter control of wholly owned foreign subsidiaries," The British Accounting Review, Elsevier, vol. 49(3), pages 275-293.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Michael Nippa & Jeffrey J Reuer, 2019. "On the future of international joint venture research," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 50(4), pages 555-597, June.
    2. Hitt, Michael A. & Li, Dan & Xu, Kai, 2016. "International strategy: From local to global and beyond," Journal of World Business, Elsevier, vol. 51(1), pages 58-73.
    3. Keith D. Brouthers & Liang Chen & Sali Li & Noman Shaheer, 2022. "Charting new courses to enter foreign markets: Conceptualization, theoretical framework, and research directions on non-traditional entry modes," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 53(9), pages 2088-2115, December.
    4. Snejina Michailova & Siah Hwee Ang, 2008. "Institutional Explanations of Cross-border Alliance Modes: The Case of Emerging Economies Firms," Management International Review, Springer, vol. 48(5), pages 551-576, November.
    5. Morschett, Dirk & Schramm-Klein, Hanna & Swoboda, Bernhard, 2010. "Decades of research on market entry modes: What do we really know about external antecedents of entry mode choice?," Journal of International Management, Elsevier, vol. 16(1), pages 60-77, March.
    6. Lu, Jane W. & Beamish, Paul W., 2006. "Partnering strategies and performance of SMEs' international joint ventures," Journal of Business Venturing, Elsevier, vol. 21(4), pages 461-486, July.
    7. Arora, Ashish, 1999. "Exploring the internalization rationale for international investment: wholly owned subsidiary versus technology licensing in the worldwide chemical industry," DEE - Working Papers. Business Economics. WB 6430, Universidad Carlos III de Madrid. Departamento de Economía de la Empresa.
    8. Kotler, Philip & Manrai, Lalita A. & Lascu, Dana-Nicoleta & Manrai, Ajay K., 2019. "Influence of country and company characteristics on international business decisions: A review, conceptual model, and propositions," International Business Review, Elsevier, vol. 28(3), pages 482-498.
    9. Stephanie A. Fernhaber & Patricia P. McDougall & Benjamin M. Oviatt, 2007. "Exploring the Role of Industry Structure in New Venture Internationalization," Entrepreneurship Theory and Practice, , vol. 31(4), pages 517-542, July.
    10. Fernández, Zulima & J.Nieto, María, 2002. "International involvement of smes: the impact of ownership," DEE - Working Papers. Business Economics. WB wb025821, Universidad Carlos III de Madrid. Departamento de Economía de la Empresa.
    11. Buckley, Peter J. & Hashai, Niron, 2014. "The role of technological catch up and domestic market growth in the genesis of emerging country based multinationals," Research Policy, Elsevier, vol. 43(2), pages 423-437.
    12. Liedong, Tahiru Azaaviele & Peprah, Augustine Awuah & Amartey, Abednego Okoe & Rajwani, Tazeeb, 2020. "Institutional voids and firms' resource commitment in emerging markets: A review and future research agenda," Journal of International Management, Elsevier, vol. 26(3).
    13. David Tanganelli & Jean-Louis Schaan, 2014. "Japanese subsidiaries in the European Union: Entry modes and performance," Cogent Economics & Finance, Taylor & Francis Journals, vol. 2(1), pages 1-9, December.
    14. Canabal, Anne & White III, George O., 2008. "Entry mode research: Past and future," International Business Review, Elsevier, vol. 17(3), pages 267-284, June.
    15. Xuelian Piao & Jon Jungbien Moon, 2019. "When does knowledge similarity help foreign firms improve performance?," Asian Business & Management, Palgrave Macmillan, vol. 18(4), pages 301-323, September.
    16. Andreas Bausch & Mario Krist, 2007. "The effect of context-related moderators on the internationalization-performance relationship: Evidence from meta-analysis," Management International Review, Springer, vol. 47(3), pages 319-347, June.
    17. Eapen, A., 2007. "Essays on international market entry : Strategic alliance governance and product segment entry," Other publications TiSEM a234be6d-ae99-4be2-9365-2, Tilburg University, School of Economics and Management.
    18. Mehmet Demirbag & Martina McGuinness & Hüseyin Altay, 2010. "Perceptions of Institutional Environment and Entry Mode," Management International Review, Springer, vol. 50(2), pages 207-240, April.
    19. Fainshmidt, Stav & White, George O. & Cangioni, Carole, 2014. "Legal Distance, Cognitive Distance, and Conflict Resolution in International Business Intellectual Property Disputes," Journal of International Management, Elsevier, vol. 20(2), pages 188-200.
    20. Morresi, Ottorino & Pezzi, Alberto, 2011. "21 years of international M&As and joint ventures by Italian medium-sized listed firms: Value creation or value destruction?," Research in International Business and Finance, Elsevier, vol. 25(1), pages 75-87, January.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:iburev:v:14:y:2005:i:4:p:415-439. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/wps/find/journaldescription.cws_home/133/description#description .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.