The Role of Experiential Knowledge and Subsequent Investment Decisions on the Profitability of Japanese Companies in Brazil

Ano: 2010 | Volume: 7 | Número: 1

Autores: Mário Henrique Ogasavara

Palavras-chave: experiential knowledge, subsequent fdi, performance, profitability

Resumo Inglês:

This study attempts to empirically investigate how firms’ experiential knowledge and the decision to invest
sequentially in the host country are associated with the performance of their overseas subsidiaries. This research
advances prior studies by adopting an objective performance measure based on the profitability ratio at the
subsidiary level. Using a random-effect model of GLS regression applied to a panel data of Japanese firms
established in Brazil, the results provide theoretical and practical implications showing that experiential
knowledge is positively associated with subsidiary profitability. Local experiential knowledge can be acquired
by managing subsidiaries for a long time in the host country, but also by increasing the number of investments in
the local market. In practical terms, the subsidiary profitability ratio becomes higher when the parent firms have
established more than five investments in the host country, although further investigation is needed to examine
the direction of this relationship. Moreover, there is a significant association between subsidiary performance
and the parent firms’ experience in culturally similar markets to Brazil. The benefit of learning from international
markets suggests that operating in countries with a similar culture transforms their experience into a competitive
advantage.