The Dynamics of Japanese Firm Growth in U.S. Industries: The Penrose Effect

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.