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Foreign Direct Investment by Japanese Electronics Firms in the United States and Canada: Modelling the Timing of Entry

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  • Benjamin Tan

    (Nanyang Technological University)

  • Ilan Vertinsky

    (The University of British Columbia)

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    Abstract

    This paper examines the relationship between attributes of Japanese electronics firms and the sequence of their investments in the U.S. and Canada. It is argued that a useful way to model foreign direct investment (FDI) decisions is to recognize explicitly the uncertainties involved in them. A probabilistic model of FDI is specified. The following hypotheses are incorporated in the model: 1) the higher the risk-adjusted expected net benefits from foreign direct investment, ceteris paribus, the higher the probability of making an investment at any particular moment and thus the probability of investing earlier; 2) risk-adjusted expected net benefits from FDI by a firm are a function of its possession of certain types of intangible, transportable assets; 3) the uncertainties involved with FDI may be reduced with the passage of time and with increased experience with foreign operations; 4) parent company attributes that facilitate market intelligence capabilities permit early recognition of investment opportunities; and 5) timing of entry may reflect strategic considerations such as responding to growing foreign market opportunities, the need to ensure market access and the presence of opportunities to obtain abnormal profits due to market concentration. The models are estimated using Cox's proportional hazards regression model. Results generally confirm the hypotheses that size and financial capabilities, as well as possession of some knowledge-based, firm-specific strategic assets, are significantly related to early FDI. They also confirm that timing of entry is affected by market opportunities and in some cases by the need to ensure market access. We did not find evidence in this sector that differences in market concentration significantly affected the timing of FDI. Analyses are also provided of inter-period changes in the importance of different types of intangible assets in explaining earlier FDI as well as changes that reflect differences in host country environments.© 1996 JIBS. Journal of International Business Studies (1996) 27, 655–681

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    Bibliographic Info

    Article provided by Palgrave Macmillan in its journal Journal of International Business Studies.

    Volume (Year): 27 (1996)
    Issue (Month): 4 (December)
    Pages: 655-681

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    Handle: RePEc:pal:jintbs:v:27:y:1996:i:4:p:655-681

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    Cited by:
    1. Jan Hendrik, Fisch, 2011. "Real call options to enlarge foreign subsidiaries - The moderating effect of irreversibility on the influence of economic volatility and political instability on subsequent FDI," Journal of World Business, Elsevier, vol. 46(4), pages 517-526, October.
    2. Trevino, Len J. & Grosse, Robert, 2002. "An analysis of firm-specific resources and foreign direct investment in the United States," International Business Review, Elsevier, vol. 11(4), pages 431-452, August.
    3. Tan, Benjamin & Erramilli, Krishna & Liang, Tan Wee, 2001. "The influence of dissemination risks, strategic control and global management skills on firms' modal decision in host countries," International Business Review, Elsevier, vol. 10(3), pages 323-340, June.
    4. Melnyk, Valentyna & Giarratana, Marco & Torres, Anna, 2014. "Marking your trade: Cultural factors in the prolongation of trademarks," Journal of Business Research, Elsevier, vol. 67(4), pages 478-485.
    5. Lu, Jane W., 2003. "The evolving contributions in international strategic management research," Journal of International Management, Elsevier, vol. 9(2), pages 193-213.
    6. Fisch, Jan Hendrik, 2008. "Internalization and internationalization under competing real options," Journal of International Management, Elsevier, vol. 14(2), pages 108-123, June.
    7. Lyroudi K. & Subeniotis D. & Georgopoulos N., 2002. "Foreign Direct Investment: The Case of Eastern Europe," European Research Studies Journal, European Research Studies Journal, vol. 0(3-4), pages 71-90, July-Dece.
    8. Bürgel, Oliver & Fier, Andreas & Licht, Georg & Murray, Gordon, 2001. "Timing of international market entry of UK and German high-tech start-ups," ZEW Discussion Papers 01-51, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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