Vertical Keiretsu and International Market Entry: The Case of the Japanese Automobile Ancillary Industry

Abstract

This study investigated whether small Japanese automobile ancillary firms followed the major Japanese automakers in setting up production facilities in the United States. Based on Dunning's eclectic theory of foreign direct investment and resource dependence theory, hypotheses were generated to explain the determinants of foreign investment of Japanese suppliers. It was hypothesized that mutual dependencies between the major Japanese automobile firms and their suppliers, firm-specific ownership advantages, profitability, and keiretsu affiliation influenced the foreign direct investment of the first-tier automobile ancillary firms into the United States. Data on the entire population of 446 Japanese automobile ancillary manufacturers were obtained from archival sources. Logistical regression analyses indicated that keiretsu affiliation, previous international experience, small size, lower dependence of supplier firms on the automobile assembly firm, and higher dependence of core firms on affiliate firms all contributed to this foreign direct investment.