A Chinese MBA's Blog

Sea Jin Chang. "International Expansion Strategy of Japanese Firms: Capability Building th[1]rough Sequential Entry." Academy of Management Journal. 38.2 (1995): 383-407. Proquest. UWW Library. Whitewater, WI. 22 Mar.2007 <http://proquest.umi.com/>

In this article, Dr. Sea Jin Chang, Professor of Strategy and International business at Korea University and Stern School of Business of New York University, examines the sequential entry process of Japanese electronic manufacturing firms in the US during the period of 1976-1989.

Samples- the sum total is 98- used in his research are these companies whose main businesses were classified as electronics and electrical machinery and were listed in the Tokyo stock exchange in 1985. Four sets of variables are used, including lines of business- their size and competitive advantages, firm- relationship between previous experience and further entries, industry characteristics and macroeconomic measures- exchange rate. He also used a partial likelihood hazard specification to estimate the Japanese direct investment.

The overall evidence suggests that Japanese firms are building capabilities to operate overseas through sequential entry. The firms first entered the U.S. market with their core businesses and those in which they had a strong competitive advantage over local firms to reduce hazard of failure. Learning from early entries enabled them to launch further entries into noncore business and into areas of weaker competitive advantage. Rather than make one-short or full-scale acquisitions, Japanese companies appear to pursue incremental and sequential entry.

Professor Chang's study is very helpful and thoughtful for my research of China's products' future in the US market. It's well known that just before 30 years ago Japanese products were almost worthless compared with today's high-quality profile. The experiences of these Japanese companies' development in the U.S., as well as their lessons and processes, are very useful and could be good examples for the Chinese counterparts.  Along with the establishment of a reputation as a manufacturer for the other nations, more and more Chinese companies are not satisfied with their roles of just being a manufacturer and are eager to build their own brands. It's a big problem for them to consider how to enter a new market.

At the same time, I also find that there are some limitations in Chang's study.  To begin with, this research does not include how to choose different modes of foreign entry, such as acquisitions versus establishing new plants. The entry strategy, an incremental expansion pattern, is very clear, but the tactic still needs to be clarified. Next, does this pattern, although has got proven by Japanese companies, suit Chinese or other countries' firms? How do different cultural and institutional backgrounds influence marketing policy? Finally, considering this research was completed more than ten years ago, nowadays, when we are coming into a time of globalization and internationalization, what adjustment should be taken?

In general, this paper will give my research topic more depth. Besides this paper, I will search more papers regarding what a foreign company should do when it tries to enter the U.S. market.