Academic journal article Multinational Business Review

Network Development and Firm Performance: A Field Study of Internationalizing Japanese Firms

Academic journal article Multinational Business Review

Network Development and Firm Performance: A Field Study of Internationalizing Japanese Firms

Article excerpt

ABSTRACT:

This paper explores the potential competitive advantages from the development of an internal network of subsidiaries and external network of alliances. Given the broad scope and lack of systematic investigation in prior research, clinical field research was conducted in eleven Japanese subsidiaries in China. Our in-depth interviews revealed that there are benefits and costs associated with the development of both subsidiary networks and alliance networks. While there are exploitation and exploration benefits from subsidiary network development, internationalizing firms (especially smaller firms) are subject to the liability of foreignness. Alliance network development is an effective way to mitigate this liability if internationalizing firms choose the right alliance strategy.

INTRODUCTION

Multinational corporations (MNCs) have been increasingly viewed as organizations that excel through creating and transferring knowledge on a worldwide scale (Hedlund, 1986; Cantwell, 1991; Kogut & Zander, 1993; Porter, 1990; Vernon, 1979). Concurrent with this knowledge-based view of MNCs, there has been growing interest in studying MNCs as interfirm networks consisting of parent firms, their crossborder subsidiaries and other institutions with which the different units of MNCs interact (Ghoshal & Bartlett, 1990; Nohria & Ghoshal, 1997; Gulati & Gargiulo, 1999). Central to this network view of MNCs is the recognition that what make MNCs unique are their interorganizational networks through which MNCs develop knowledge and capabilities in heterogeneous institutional environments (Frost, 1998). In the process of internationalization, MNCs accumulate knowledge and develop capabilities (Cui, 1998). They do this essentially through the development of two kinds of networks, an internal network of subsidiaries and an external network of alliances. The former enables the MNCs to accumulate knowledge through experience-derived learning (Johanson & Vahlne, 1977; 1990; Chang, 1996) from a network of subsidiaries situated in various locations and industries. The latter allows the MNCs to build up knowledge through tapping into the experience base of partners that constitute their alliance networks (Tsang, 1999). Either source of knowledge accumulation points to the potential competitive advantages arising from network development. To date, however, there exists little systematic evidence on the form of competitive advantages from network development or the conditions under which MNCs benefit from such network development. This study is undertaken to explore these issues by conducting clinical field research (Wright, Lane & Beamish, 1988) on the network development of internationalizing MNCs and the competitive advantages arising from such networks.

Following Eisenhardt's (1989) argument that case studies should be inductive with a clean theoretical slate, we conducted our interviews in a semi-structured approach with openended questions to allow managers to freely express their understanding of the network development and its impact on the performance of subsidiaries and parent firms. Our indepth interviews at eleven Japanese subsidiaries in China provided tangible examples as to how network development influenced firm performance. The interviews revealed that there are benefits and costs associated with the development of both subsidiary networks and alliance networks. While there are exploitation (Buckley & Casson, 1976; Hennart, 1982; Rugman, 1982) and exploration benefits (Porter, 1990; Kogut, 1985; Shan & Song, 1997) associated with subsidiary network development, internationalizing firms, especially smaller firms, are subject to the liability of foreignness (Hymer, 1976). Alliance network development is an effective way to mitigate this liability if internationalizing firms choose the right alliance strategy (Jarillo, 1989; Zacharakis, 1997; Beamish, 1999). We discuss and analyze three popular alliance strategies to provide guidance to managers in the formulation of their alliance strategies. …

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