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Learning from age difference: Interorganizational learning and survival in Japanese foreign subsidiaries

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Abstract

This paper extends research on experiential learning of foreign subsidiaries by exploring the temporal conditions under which a foreign subsidiary can benefit from the experience of its sister subsidiaries. Building upon organizational evolution and learning literature, we propose that differences in entry timing among sister subsidiaries provide structural conditions that bound the opportunities for inter-subsidiary learning. We argue that different entry cohorts of sister subsidiaries are beneficial to a focal subsidiary, as they provide non-redundant, complementary experience from their different operational stages, and ignite the motivation to learn. Our empirical analysis of Japanese foreign subsidiaries provides strong evidence that survival is enhanced by the experience of different entry cohorts of sister subsidiaries, but not by that of similar cohorts. Qualitative evidence also shows that multiple channels of experience exchange across sister subsidiaries lead to actual learning. We further show that the survival benefit derived from different cohorts is contingent on the level of environmental change, as well as on the level of experience of the focal subsidiary and its parent firm. Our research highlights the importance of temporal heterogeneity in the internationalization process, and offers implications for the temporal strategy of multinational companies.

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Notes

  1. With regard to the scope of a parent firm's sister subsidiary in measuring its experience, we used geographic region as a main specification. We used this regional specification because Japanese MNCs are typically organized along geographic regions within which sister subsidiaries engage in region-wide interactions. From our interviews, we found that sister subsidiaries have opportunities to interact frequently with each other within regional boundaries (as opposed to across boundaries) in Japanese MNCs. As we mentioned in the empirical analyses, we checked the sensitivity of the scope specification by using alternative specifications such as host country and industry.

  2. Our empirical analysis focuses on a foreign subsidiary's exit as a critical outcome driven by cohort-specific experience. Subsidiary exit has been examined as a critical outcome in the literature on international business (Delios & Beamish, 2001; Li, 1995; Shaver et al., 1997). In particular, we follow the lead of the “survival-enhancing learning” argument (Baum & Ingram, 1998), which explicitly emphasizes the collective importance of internal and external benefits (and costs) from interorganizational experience sharing as a determinant of the ultimate organizational outcome. In a similar vein, our study aims to bring to light the collective significance of cohort-specific experience that can influence a foreign subsidiary's fate.

  3. Among different entry modes, JVs with local partners can access knowledge about local markets from their local partners, and thus can show different patterns of learning opportunities. Unfortunately, a lack of detailed information on local partners prevented us from exploring this direction of research. As another sensitivity check, we performed our analyses by excluding these JVs with a local partner, as we assumed they may have fundamentally different patterns of learning. This analysis provided virtually the same findings as what we report here.

  4. In the country specification, one issue is to consider the geographic proximity between sister subsidiaries as a weight in constructing their experience. For example, US subsidiaries can be dispersed in very different locations. While we do not have data on the within-country location of subsidiaries for all countries, we performed an experimental analysis of the US sample with which we constructed the experience measure to reflect the approximate geographic distance between the state locations of sister subsidiaries. In calculating sister subsidiaries’ experiences, we adjusted them by assigning weights ranging from 0.5 to 1 (0.5 being the most distant cases, such as Washington State and Florida, and 1 being the most proximate cases, such as within the same state). In this experiment we found that the results did not change even if we used the weighted measures of experience. We suspect that sister subsidiaries of a parent firm are usually dispersed (rather than concentrated in one state), so that geographic proximity did not provide significant variations in the measure.

  5. One general criticism can be that our findings are derived from unobserved factors such as the level of innovativeness of the subsidiary. To the extent to which the data are obtainable, we tried our best to control for these factors, including subsidiary- and parent-level variables that can be relevant to subsidiary exit. For example, parent firm’s R&D intensity can capture part of firm-level innovation capability. The baseline hazard rate – which is specific to each stratum of a subsidiary’s industry, country, and year – can also account for much of the variation in innovativeness. Nonetheless, owing to a lack of data availability, we acknowledge the possibility that subsidiary-level unobserved factors such as innovativeness can influence the results.

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Acknowledgements

The authors thank Ulf Andersson and three anonymous reviewers for their invaluable feedback. We truly appreciate the cooperation of senior managers who shared their experience in our field interviews. We are also grateful to Jun Ito, Toshimitsu Ueta, Hu Tianyou, Gregory Dunn and Mary Ryan for their research assistance. This research was supported by the National University of Singapore Research Grants R-313-000-074-112/133 to Young-Choon Kim and R-313-000-088-112 to Jane W. Lu, and the National Research Foundation of Korea Grant funded by the Korean Government (NRF-2010–330-B00100) to Mooweon Rhee.

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  1. NUS Business School, National University of Singapore, Singapore

    Young-Choon Kim & Jane W Lu

  2. Shidler College of Business, University of Hawaii, Honolulu, USA

    Mooweon Rhee

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  1. Young-Choon Kim
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Correspondence to Young-Choon Kim.

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Accepted by Ulf Andersson, Area Editor, 11 June 2012. This paper has been with the authors for three revisions.

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Kim, YC., Lu, J. & Rhee, M. Learning from age difference: Interorganizational learning and survival in Japanese foreign subsidiaries. J Int Bus Stud 43, 719–745 (2012). https://doi.org/10.1057/jibs.2012.19

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