The dynamics of Japanese firm growth in U.S. Industries: The Penrose effect

Abstract

This research paper explores the conditions under which a firm is more/less likely to incur the Penrose Effect when expanding in a foreign market. We posit that multinational firms that can accelerate the development of new managerial resources in their foreign operations have greater organizational capabilities to adjust their managerial resources timely in the process of expansion, and thus will be less vulnerable to a severe managerial constraint on the rate of growth. In contrast, factors that impede the development of new managerial resources in foreign operations will prevent multinational firms from growing fast in consecutive time periods. Based on a longitudinal sample of Japanese manufacturing entries in the United States, our empirical results indicate that Japanese firms were able to achieve growth in consecutive time periods when these firms sent more expatriates to the foreign operations at the time of entry, and when these Japanese firms had greater home experience prior to their entry into the U.S. market. On the other hand, Japanese firms were found to be less able to achieve growth in consecutive time periods when a high level of uncertainty characterized the U.S. markets that these Japanese firms entered. AbstractThis research paper explores the conditions under which a firm is more/less likely to incur the Penrose Effect when expanding in a foreign market. We posit that multinational firms that can accelerate the development of new managerial resources in their foreign operations have greater organizational capabilities to adjust their managerial resources timely in the process of expansion, and thus will be less vulnerable to a severe managerial constraint on the rate of growth. In contrast, factors that impede the development of new managerial resources in foreign operations will prevent multinational firms from growing fast in consecutive time periods. Based on a longitudinal sample of Japanese manufacturing entries in the United States, our empirical results indicate that Japanese firms were able to achieve growth in consecutive time periods when these firms sent more expatriates to the foreign operations at the time of entry, and when these Japanese firms had greater home experience prior to their entry into the U.S. market. On the other hand, Japanese firms were found to be less able to achieve growth in consecutive time periods when a high level of uncertainty characterized the U.S. markets that these Japanese firms entered.

Edith Penrose and the future of the multinational enterprise: New research directions

“…Expatriates represent critical knowledge linkages between geographically dispersed economic activity centres inside the MNE. Tan and Mahoney (2007) demonstrate, building upon Penrose's insights, that expatriate managers sent to host countries can influence the learning by host country managers. While host country managers may be effective in developing locationbound knowledge on a stand-alone basis, their absorbing of the tacit knowledge component embedded in extant firm-specific routines is greatly facilitated by expatriates from the parent company.…”

“…Penrose did not herself provide an in-depth discussion of the role of human resources in the international diffusion of the firm's knowledge. However, Tan and Mahoney (2007) and Beamish and Goerzen (2007) provide detailed accounts of the value of expatriates as instruments of tacit knowledge transfer and as facilitators of linking extant internationally transferable knowledge with new location-bound knowledge in MNEs. Expatriates represent critical knowledge linkages between geographically dispersed economic activity centres inside the MNE.…”

The Impact of Added Cultural Distance and Cultural Diversity on International Expansion Patterns: A Penrosean Perspective

“…Future research could adopt a Penrosean perspective, and assess simultaneously the impact of the availability of overall MNE managerial resources and resources made available to – and developed/acquired at – the subsidiary level. Recent findings suggest that managerial services made available to a foreign subsidiary in a particular local context, may support this subsidiary's growth (Tan and Mahoney, 2007). Here, the question arises whether this result is purely a distributional effect, or whether some subsidiaries can benefit more than other ones from such services.…”

Confronting Theories of Firm Growth in Light of Degrees-of-Freedom Analysis

“…Penrose (1956;1959;1971) places particular emphasis on the managerial limits to firm growth. As the administrative cadre is considered an inelastic resource (TAN;MAHONEY, 2007), the firm takes deliberate and costly actions to develop and maintain it internally (JACOBIDES; WINTER; KASSBERGER, 2012). This takes time notwithstanding, hindering firms from growing as smoothly (FOSS, 2002) or quickly as planned (SLATER, 1980).…”