U.S. Distribution Entry Strategy of Japanese Manufacturing Firms: The Role of Keiretsu

Abstract

This article identifies the determinants of three modes of foreign market entry into distribution activities—arm's-length contracts, joint ventures, and wholly owned subsidiaries—and assesses the impact of unique institutional structures on the decision. We examine 310 Japanese manufacturers' entries into the U.S. market and find evidence that keirestu affiliation significantly increases the likelihood that contracts are chosen, suggesting common keiretsu membership by manufacturers and general trading companies mitigates agency problems in contractual delegation of foreign distribution activities. Regading the choice between joint ventures and wholly owned subsidiaries, relaxed capital and information constraints increase the likelihood that keiretsu firms establish wholly owned subsidiaries. J. Japan. Int. Econ., March 2000, 14(1), pp. 43–72. Anderson Graduate School of Management, University of California, 110 Westwood Plaza, Los Angeles, California 90095-1481; A. T. Kearney, 222 West Adams, Chicago, Illinois 60606 Copyright 2000 Academic Press.Journal of Economic Literature Classification Numbers: E23, L22, L14.