Profits Elude Japanese Nationals

The more Japanese nationals working in an overseas subsidiary of a Japanese company, the less likely that subsidiary will be profitable. So found a recently-completed Stanford Business School study examining the subsidiaries' profits and strategic roles in various locations. One explanation for the phenomenon might be that a local management team would be more familiar and adaptable with the local environment -- and the parent company might be overestimating similarities between markets -- says Stanford marketing professor David Montgomery. He collaborated on the study with associate professor Takehiko Isobe of the University of Marketing and Distribution Sciences in Kobe, Japan. The findings teach lessons for all multinationals, they say. Japanese subsidiaries' profits were boosted most by scale, experience, and marketing objectives. Those focusing exclusively on manufacturing goals were not as profitable. The study says Japanese multinationals tend to divide activities and allocate them primarily to one location. Asian subsidiaries were more responsible for low-cost manufacturing; European, marketing; and North American, technology/innovation.