1. The Dynamics of Japanese Firm Growth in U. S
The Dynamics of Japanese Firm Growth in U.S. Industries: The Penrose Effect
Danchi Tan & Joseph T. Mahoney
Management International Review, 47(2):
Presented by Julie ao, Fall 2016

2. Overview
The study goes beyond the focus (whether the Penrose Effect exists) and explores under what conditions are the Penrose Effect more likely to exist
Empirical work on the Penrose Effect in international contexts (Japanese investments in the U.S.)
Multinational firms are more capable in developing new managerial resources
Research Focus: Concerning the conditions under which firms are likely to face greater managerial constraints on the rate of growth.

3. Penrose Effect
The impact of managerial constraints on firms is cited as Penrose Effect (Marris 1964, Shen 1970).
The concept indicates that firms that grow fast in one time period are likely to stagnate in the successive time period.
A lack of managerial resources is the major obstacle
The capacities of internally experienced managers have important influences on the growth rate of a firm

4. Framework Dynamic Supply of Managerial Resources
Subsidiary Characteristics
Dynamic Supply of Managerial Resources
Growth Rate in the Foreign Market
Parent Characteristics
Local Market Characteristic

5. Subsidiary Characteristics (Expatriates Utilization)
H1: Multinational firms that send a greater number of expatriates to their overseas operations upon entry into a foreign market are more likely to achieve high growth rates in successive time periods in the market.
Expatriates Utilization allows the multinational headquarters to institute the corporate culture and management policies in the operation, and to train newly recruited local personnel
Less serious managerial constraint

6. Parent Characteristic (Prior Domestic Experience)
H2: Multinational firms with greater home experience prior to the entry into a foreign market are more likely to achieve growth in successive time periods in the market.
Multinational firms that have greater domestic experience have a more complete and reliable set of routines
Routines accelerate the development of local personnel’s ability

7. Parent Characteristic (Prior International Experience)
H3: Multinational firms with greater international experience prior to the entry into a foreign market are more likely to achieve growth in successive time periods in the market.
Greater international experience prior to it entry Have experienced more diverse opportunities to deal with issues, maintain control and coordination
More comprehensive set of routines

8. Local Market Characteristic (Uncertainty)
H4: Multinational firms are less likely to achieve high growth rates in successive time periods in a foreign market that is characterized by a high level of uncertainty.
In a highly uncertain local market, managers need more time and efforts
Uncertainty can slow down the development of new managerial resources
More serious managerial constraint

9. Methodology Characteristics of Japanese companies:
Japanese companies pursue long-term growth
Japanese parent firm is listed in the first or second section of the Japanese Stock Exchange
The U.S. was the leading destination of FDI outflow from Japanese firms
The sample is from annual issues of Japan’s Expanding Manufacturing Presence in the U.S: A Profile and Kaigai Shinshutsu Kigyo Soran
Initial sample is 324 investments (207 firms in 165 four-digit SIC industries)
Sample size is 118 investments (92 firms in 79 industries)

10. Variables
Dependent variable: % change in a Japanese firm’s total employment in given U.S. industry between 4th and 7th years after entry (GROWTH)
Explanatory variable: % change of employment between 1st and 4th years (PREGROW)
Independent variables:
EXPAT: Ratio of expatriate to total employees in first affiliate
HomeExp: Proxy for a firm’s home experience by years between founding and entry
InternationalExp: Proxy for a firm’s international experience by years between first overseas operation and US entry
UNCERTAINTY: Proxy for uncertainty in US market by Levy’s measure (1985)
Control variables:
Acquisition strategies & Joint ventures, diversification of portfolio
R & D, Marketing, Financial Support, size at time of observation, and overall industry growth

11. Results H1 H2 H3 H4

12. Conclusions
Japanese firms were more likely to achieve growth in consecutive time periods when these firms sent more expatriates to the foreign operation at the time of entry.
Japanese firms were more likely to achieve growth in successive time periods when they had greater home experience prior to their entry into the given market.
Japanese firms were less likely to achieve growth in consecutive time periods when the entered local markets had a high level of uncertainty.

13. Discussions Using samples from other home and/or host countries
Exploring the impact of the characteristics of expatriates on the development of local personnel in the foreign operation
Exploring other factors that might moderate the level of the managerial constraints that a firm may face in the process of expansion

14. Future Research
Focus on transporting expatriates among strategic alliances
Combining with knowledge-based view
How to pick the right expatriates for multinational companies?
What exact contributions do the expatriates provide?
More on Penrose Effect
Do different industries have different results?
Comparing the Penrose Effect in different industries but the same multinational firms