Convergence or differentiation? American and Japanese transnational corporations in the Asia Pacific

Geoforum 35 (2004) 111–125

www.elsevier.com/locate/geoforum

Convergence or differentiation? American and Japanesetransnational corporations in the Asia Pacific q

Jessie P.H. Poon a,*, Edmund R. Thompson b

a Department of Geography, University at Buffalo-SUNY, Buffalo, NY 14261, USAb College of Management, Ritsumeikan Asia Pacific University, 1-1 Jumonjibaru, Beppu, Oita 874 8577, Japan

Received 22 April 2003; received in revised form 11 August 2003

Abstract

As the global economic environment becomes increasingly driven by the activities of transnational corporations (TNCs) from

different national origins, the question of convergence as opposed to differentiation in patterns of internationalization among TNCs

has begun to intrigue a number of researchers. In this paper, we examine the extent to which the strategic functions of Japanese and

American TNCs in the Asia Pacific have converged over time. We draw from a recent survey of TNCs conducted in Hong Kong and

Singapore. Detailed analysis of TNC functions in both the manufacturing and non-manufacturing sectors suggests that convergence

between Japanese and American TNCs has occurred most in the area of control-coordination functions among manufacturing

firms, arising from a premium placed on intra-TNC organizational stability and isomorphism. On the other hand, substantial

differentiation has occurred in functions that are associated with upstream and downstream processes, with Japanese TNCs em-

phasizing integration in marketing and manufacturing processes as well as forward integration. In contrast, American TNCs tend

to focus on business and product development functions that enable them to exploit product and service differentiation.

� 2003 Published by Elsevier Ltd.

Keywords: Transnational corporations; Convergence; Differentiation

1. Introduction

Recent studies on transnational corporations (TNCs)

have been broadly conducted by two groups of re-

searchers: those who assume that universal principlesdrive the logic of TNCs global activities (the �conver-gence’ school), and, those who assert that TNCs global

form and practices reflect nation-specific trajectories (the

�differentiation’ school). Proponents of international

convergence in TNC competitive structures believe that

unless technology and market contingencies are con-

trolled for, succumbing to findings of nationally based

differences would be far too easy (Delmestri, 1997; Leeet al., 2000). On the other hand, proponents of differ-

entiation suggest that TNC activities should be more

realistically analyzed in terms of �national business sys-

qThis paper has benefited from data that was collected jointly with

Michael Enright.*Corresponding author.

E-mail addresses: [email protected] (J.P.H. Poon),

[email protected] (E.R. Thompson).

0016-7185/$ - see front matter � 2003 Published by Elsevier Ltd.

doi:10.1016/j.geoforum.2003.08.008

tems’ (Whitley, 1991, 1999), �cultural economic geogra-phies’ (Thrift, 1998), or �societal effects’ (Mueller, 1994).

This paper examines how national differences in

strategic functions among TNCs from Japan and the

United States (US) may have converged over time in theAsia Pacific outside of Japan. Specifically, we situate our

analysis within the �convergence-differentiation’ debatewhich has resulted in sharply divided conclusions about

the nature of TNCs global behavior and operations. The

theoretical argument for a universal TNC form and

strategy may be traced to the literature on organiza-

tional ecology (Hannan and Freeman, 1989; Aldrich,

1979; Carroll, 1984). Here, societies are said to bepopulated by organizations whose form and practices

most conform to the properties of the environment. In

the global economy, the mechanism that forces a �fit’between TNC practices and form, and the environment,

lies in competitive and market pressures. Such a fit en-

tails a successful corporate strategy that allows organi-

zational activity to be carried out in an orderly and

efficiently manner. In documenting the rise of large in-tegrated enterprises for example, Chandler (1986)

mail to: [email protected]

112 J.P.H. Poon, E.R. Thompson / Geoforum 35 (2004) 111–125

showed that American, European and Japanese corpo-

rations largely converged to the multidivisional struc-

ture over time. On the other hand, the entry of Japanese

and other TNCs (e.g. from Germany) has also increasedorganizational diversity and encouraged the rise of the

differentiation school. In the latter, firms are seen as

entities that are socially constituted by their environ-

ment, hence firms’ internal resources cannot be divorced

from their societal provenance. Further, different forms

and practices can also result in a similar level of per-

formance and under similar competitive pressures

(Mueller, 1994).In studying the nature of convergence-differentiation,

we recognize that it is not a simple matter to reduce the

complexities of TNC behavior as shaped by national

histories and characteristics. However, in the theoretical

and empirical analyses that follow, we argue that they

can be examined through their effect in terms of the

corporate functions and strategies that are directly re-

flected in the observed behavior of TNCs in the worldeconomy. Our analytical premise is as follows: if con-

vergence has indeed occurred, then TNCs from respec-

tively Japan and the US that have long invested in the

Asia-Pacific outside of Japan will have similar strategic

rationales for doing so and will likewise be similar in the

functions that they perform in the region, whereas for

TNCs from different national origins that have invested

in the region more recently, strategic rationales andfunctions might be significantly different.

Our study draws from the results of a 1998/1999

survey that is based on the responses of over 400 firms

from Japan and US that are located in two major Asian

economies, namely, Singapore and Hong Kong. Spe-

cifically, our analysis attempts to detect if internation-

alization in the Asia Pacific among firms from the two

nationalities leads to greater organizational isomor-phism through the adoption or adaptation of functions

that enhance their performance in the region. There are

two major reasons why the Asia Pacific as a region is of

strategic importance to TNCs: (1) the size and rapid

growth of markets in the region has encouraged a ge-

ography of global production and consumption along

continental lines, namely the Americas, Europe and the

Asia Pacific (Dicken, 2003), and (2) coordinating inter-national investment while countering domestic and

foreign competition increasingly requires a strategy of

regional positioning among TNCs in the Asia Pacific

(Yeung et al., 2001).

We organize the paper as follows. First we review the

arguments leading to conclusions of convergence and

differentiation. Next, we describe the survey instruments

that asked samples of American and Japanese managersto indicate the importance of some 35 strategic func-

tions. The latter’s responses are then analyzed and

compared in terms of time and performance. Conclu-

sions of our findings are finally presented.

2. Convergence and differentiation

2.1. Case for convergence

For convergence arguments, we turn to the literature

on population ecology that deals with organizational

homogeneity and diversity (Aldrich, 1979; Carroll, 1984;

Hannan and Freeman, 1989; Pennings et al., 1998;

Stoeberl et al., 1998). Originally developed within the

context of national boundaries, organizational ecology

theory has been extended to international organizations

like TNCs as well (Rosenzweig and Singh, 1991). Spe-cifically, ecology-based studies are concerned with the

rates of change in biotic forms, in this case, organiza-

tions, with emphasis on the evolutionary dynamics that

determine the propensity of organizations to change.

Population ecologists believe that organizational change

depends on two conditions, namely the social and the

environmental. When change involves the replacement

of features that diminishes mortality, or, that enhancesorganizational competitiveness, a Darwinistic process of

selection is implied. Alternatively, when change simply

involves the incorporation of social learning that results

in transformation, then adaptation dominates (Hannan

and Freeman, 1984, 1989).

The notion of selection and adaptation is important

because organizational survival and mortality depend

on whether the organization is able to develop resources,strategies, and solutions that fit the environment in

which it is operating. The environment is typically re-

alized in terms of the task environment, and this consists

of a firm’s interactions with all other organizations (e.g.

customers, suppliers, competitors) (Castrogiovanni,

1991). Such a fit is termed ‘‘isomorphism’’. The degree

to which isomorphism occurs between an organization

and its task environment depends on, among otherthings, the nature of competition in the environment.

Firms are subjected to problems arising from the ‘‘lia-

bility of newness’’ (Stinchcombe, 1965; Bruderl and

Schussler, 1990; Henderson, 1999). Not only do younger

organizations take time to establish relationships with

customers, suppliers and institutions, but they also have

to compete with existing organizations that have already

established network stability and embeddedness in theregion. The selection process tends to favor organiza-

tions that have built firm reputation and legitimacy

through reliability and accountability. Reliable firm

performance increases efficiency by minimizing envi-

ronmental uncertainty. Accountability, that is the ability

of firms to account rationally for their actions, increases

efficiency by establishing the norms of corporate deci-

sions in the distribution of resources (Hannan andFreeman, 1984; Barren et al., 1994).

Since organizations with low reliability and ac-

countability tend to be selected out, then organizations

that have both properties will tend to dominate, while

J.P.H. Poon, E.R. Thompson / Geoforum 35 (2004) 111–125 113

those that do not face a high mortality rate. This se-

lection process exerts pressures for convergence in or-

ganization forms and structure over time within a

population in similar environments. Convergence isalso expected to be strong among TNCs because they

operate in an oligopolistic environment, hence they

compete in an environment that is dominated by few

survivors.

Firm age is not the only factor that determines or-

ganizational change and survival. The ‘‘liability of

smallness’’ thesis proposes that the selection process in

the contemporary global economy tends to favor largeorganizations such as TNCs (Singh and Lumsden,

1990). Larger organizations are subjected to greater in-

ertial pressures because they tend to be more complex.

Core aspects, practices and governance of larger firms

are difficult to restructure, dismantle or replaced as

compared to smaller firms which possess fewer resources

to compete for long term labor, market and structural

stability.The above suggests that organizations become more

and more homogenous as they grow older and larger.

The lower mortality rates of organizations that are

bigger and older indicate that organizational survival

rests on a set of factors defining procedural rationality

and social learning that tend to result in homogenous

forms and practices within a population. These produce

organizational stability, which in turn produces con-vergence where the only change involves incremental

change and adaptations that elaborate upon structures,

systems and controls (Lant and Mezias, 1992). A major

mechanism for achieving isomorphism is that of ‘‘mi-

metic isomorphism’’ (DiMaggio and Powell, 1983;

Haveman, 1993). Under mimetic isomorphism, organi-

zations imitate the actions and strategies of other

organizations when faced with environmental uncer-tainties. Newer entrants will tend to imitate the suc-

cessful action or strategy of older and more established

firms, while smaller firms will tend to imitate those of the

larger firm. The spread of the matrix management or

multidivisional corporate structure is a good example of

mimetic isomorphism. Taken together, the ecological

perspective posits a close relationship between organi-

zational and environmental conditions. The selectionprocess favors a set of reproducible structures, forms

and strategies that closely match the environmental

condition. This encourages a process of convergence

such that change is conservative and seeks only to

maintain and sustain relationships and governance

rules.

Isomorphism is also assumed in most economic

analyses of interfirm relationships. Nelson (1991, p. 61)writes that ‘‘In virtually all economic analyses, differ-

ences among firms in the same line of business are re-

pressed. . .’’, and attributes this to the tendency of the

field of Economics to subscribe to a clear objective

performance (e.g. profitability) in evaluating firm com-

petitiveness. National differences are seen in terms of

institutional or market failures rather than discretionary

differences, the latter of which is much more concernedin the particularities of firms. Market forces are ulti-

mately expected to undermine ‘‘artificial regimes’’ that

are isolated from international competition, unleashing

forces of convergence (Hollingsworth and Streeck,

1994).

If firms from different nations wish to sell similar

goods and services in the same global markets, the

convergence school would expect day-to-day behaviorto become more and more similar. While the contin-

gencies of technology may affect the ability of capital

and labor to follow identical production functions, most

economies are nonetheless, expected to reach techno-

logical parity in the long run because technology is

largely transportable and culturally neutral (Doremus

et al., 1998). Local or national variation is regarded as

primarily a problem to be managed within the context ofconverging global control and coordination (Bartlett

and Ghoshal, 1997; Prahalad and Doz, 1987). Evidence

of convergence has been suggested in the research of

Delmestri (1997) in his comparative analysis of Italian

and German machine tool firms, Lee et al. (2000) study

of Korean and Japanese firms, and Liker et al. (1996)

comparison of Japanese and American TNCs. The fol-

lowing view on business and management organizationbest summarizes the convergence school:

It is unlike that differences in management disci-

plines––no matter how wide a gap they create

between competitors––will result in stable, sustain-

able competitive advantage differences between

competitors (Doz, 1997, p. 493).

2.2. National differences

In contrast to the convergence school, comparative

research suggests that there are clear differences in the

way TNCs from different societies solve and coordinatesimilar problems. Much of this research originates from

studies comparing European firms (Maurice et al., 1980;

Mueller, 1994; Sorge, 1991), Japanese and American

firms (Borrus, 2000; Dicken, 2003; Encarnation, 1993,

1999; Duysters and Hagedoorn, 2001; Ernst, 2000;

O’Brien, 1994; Thompson and Poon, 2001; West, 2002),

and Asian Business Systems (Whitley, 1991, 1999; Lee

et al., 2000).The best known comparative works of European firm

organization are embodied in the neo-contingency

school where ‘‘societal effects’’ are seen to determine

TNC form and practices. The central argument behind

neo-contingency is that a firm’s competitive advantage is

reciprocally related to the society’s institutional, orga-

nizational and human resource patterns. That is to say,


societally and institutionally specific organizational

form and practices are correlated to particular economic

niches that are constituted through interdependence

between the industrial structure, organizational cultureand human resources (Sorge, 1991).

In Sorge’s (1991) relatively well-cited study of British,

French and German machine tool firms, he related the

organizational forms of their firms to the countries’ in-

stitutional arrangements. German firms, also the most

successful of the three European firms, show a pattern of

craft production where organization boundaries are less

sharp (e.g. less segmentation, fewer line-staff and gen-eralist-specialist distinctions), and concluded that these

socio-institutional arrangements have resulted in a

greater competitive advantage for German machine tool

firms than for either French or British firms. Neo-con-

tingency argues that distinctive national patterns of or-

ganization may be identified because organizations

such as TNCs and the society mirror each other struc-

turally.Such an institutional perspective has its variants in

geography for example the notion of ‘‘institutional

thickness’’ and institutional capacities (Amin and Thrift,

1995; Sit and Lie, 2000; Hudson, 2000; Phelps, 2000).

More specifically, societal effects may be captured in a

number of economic geographers’ works which collec-

tively show that TNCs global operations continue to be

spatially embedded because of nationally or even re-gionally constituted social, cultural and regulatory

processes. Those studying TNC activities point to the

way in which markets are locally and institutionally

modified when it comes to labor power (Cox, 1997), the

importance of national/state political and regulatory

systems constituting firm-place relationships (Dicken,

2000), and the ‘‘culture of industrial practices’’ in tech-

nology practices (Gertler, 1995). In short, somewhat inline with neo-contingency arguments, geographers note

that organizational diversity rather than homogeneity

tends to dominate because of locational inertia associ-

ated with the thickness of socio-cultural heritage (Scott,

1999), or, because nationality significantly influences

corporate strategy in terms of specific mixes of home

and host country conditions (Schoenberger, 1997, 1999).

Studies on Chinese business networks by economic geo-graphers, in particular, have argued for a more cul-

tural, and thereby contingent, view of firm organization.

Yeung (1997) suggests that Chinese TNCs build insti-

tutional thickness through emphasis on social networks

than economic relations. This includes extrafirm rela-

tions with state actors, interfirm relations with friends

and joint ventures, and intrafirm relations through

socialization of family members in corporate control.In reviewing the literature on German, Japanese,

American and East Asian TNCs, Dicken (2003, p. 235)

concluded that ‘‘. . . it would be extremely surprising

if the distinctive nature of nationally based TNCs

were to be replaced by a standardized homogenous

form . . .’’.In a separate but related line of argument, the busi-

ness system approach attributes the persistence of or-ganizational diversity to three major factors; namely,

firms’ system of control and coordination, the extent of

specialization and evolution of firm strategies, and the

nature of interfirm coordination (Whitley, 1991, 1999).

In comparing Korean, Japanese and Chinese firms,

Whitley argues that contemporary firm governance

among the three types of firms is shaped by the char-

acteristics of dominant social institutions in their homecountries. Unlike the neo-contingency school which has

focused heavily on institutions supporting firm’s human

resource development, the business system approach

takes a broader view of societal contexts, including po-

litical and financial systems of incentives, and the logic

of relational networks among the Asian firms. Such an

approach also appears to be popular among geogra-

phers studying TNCs from Asia (e.g. Yeung, 2000;Leung, 1993; Hsing, 1996; Aoyama, 2000).

2.3. Convergence or differentiation in the Asia-Pacific?

Rather interestingly, the debate on convergence and

differentiation is paralleled by distinct national differ-

ences among researchers on the issue. Rosenzweig

(1994) charges that overarching presumptions of con-

vergence embodied in universal theories is largely de-

veloped by American scholars, based on economic and

organizational activities observed in American society

(see also McMillan, 1990; Ernst, 2000; Borrus, 2000).Japanese and Asian firms’ relations are governed by

trust, loyalties and obligations, and tend not to have

the properties of economic behavior built around the

‘‘Berle-Means corporation’’ model of the US. Under

the Berle-Means corporation model, ownership is sep-

arated from control, and share ownership is widely

dispersed among individuals, households and institu-

tional investors. It is widely accepted that the nature ofits capital markets, emphasis on equity financing,

and, legal system of anti-trust laws have all greatly

shaped corporate governance in the US (O’Brien, 1994;

Dicken, 2003; Doremus et al., 1998; Thomas and War-

ing, 1999).

On the other side of the coin, Japanese and European

researchers have resisted deterministic models developed

predominantly in American economics and businessschools. Kojima (1973, 1991) was among the first to

propose that the outward investments of Japanese

TNCs are ‘‘different’’ to those of American TNCs. Ad-

vocates of Japanese investment are especially adamant

concerning the uniqueness of Japanese TNCs and cite

evidence of variations in foreign ownership, sectoral

distribution, and industrial organization as the major


features of national differences. 1 Likewise, the Euro-

pean neo-contingency school has promoted Child’s

(1972) notion of ‘‘functional equivalence’’ which rejects

outright convergence in TNC strategic behavior andorganization but allows TNCs from different countries

and cultural contexts to have functionally equivalent

solutions and similar levels of performance. For exam-

ple, American industrial relations may be made up of

collective bargaining, while that of the Japanese system

is based on consensus-building and consultation (Lin-

coln et al., 1986), nevertheless, the two systems result in

similar wage determination. In this case, Japanese andAmerican organizational features may hold similar

goals of tailoring the organization to the environment,

but they also achieve similar objectives through different

institutions.

3. Convergence or differentiation: An analysis

In this section, we address the convergence-differen-

tiation debate in the context of Japanese and US TNC

firms operating in Hong Kong and Singapore based on a

firm survey that was conducted in 1998 and completed

in 1999. Both cities host the largest number of TNCslocated in the Asia Pacific. More specifically, we analyze

the nature of the strategic functions that support the

international expansion of both manufacturing and

non-manufacturing based TNCs. 2 The aim here is to

unpack the organizational principles that underlie two

different firm nationalities and that shape the global

strategies of firms. While European firms such as those

from the United Kingdom (UK) have a rather long hi-story in the region, they are excluded from the analysis

here because of their relatively small numbers compared

to Japanese and American firms. British firms are the

most numerous among European firms operating in the

region, but they still trail Japan and America in terms of

numbers (between one-third to half of firms from Japan

and America). Including British or other European firms

would raise serious difficulties in the analysis and resultsthat follow because of unequal size problems.

1 Japanese scholars argue that Japanese firms are more likely to

engage in joint ventures and minority ownership with their Asian

affiliates as opposed to US TNCs preference for majority ownership.

Japanese TNCs also favor the exploitation of factor cost advantages as

opposed to US TNCs exploitation of ownership advantages. Finally,

cooperative buyer-customer relations are much more characteristic of

Japanese TNC networks unlike the more formal interfirm relations

underscoring US industrial organization, which encourage greater

technology transfer from Japanese to indigenous firms in Asia (Urata,

1999; Kojima, 1991).2 Non-manufacturing-based firms include the following sectors:

retail, wholesale, finance, insurance, trade and transportation.

3.1. Data and methodology

To study the global strategy of TNCs, we surveyed

Japanese and American TNCs based in Singapore andHong Kong. These two cities host the largest number of

foreign TNCs of any city in the Asia-Pacific and are

particularly popular destinations for US foreign direct

investment (FDI). Since the late 1980s, both cities have

attracted the highest shares of US FDI, capturing

roughly 44% in 1999 of all inflows into the region

(www.bea.doc.gov). Hong Kong’s laissez-faire tenden-

cies before its return to China, and Singapore’s pro-TNC policies explain the preponderance of foreign

capital in the two cities (Poon and Thompson, 2001).

In Singapore, foreign TNCs account for some two-

thirds of total equity investment in the manufacturing

sector and are responsible for more than 70% of the

country’s manufacturing output. Further, TNCs are a

major source of employment and account for up to 85%

of the country’s direct exports. Foreign investment isalso important in the service sector (Ermisch and Huff,

1999). This is particularly true in the banking sector

which has seen increased liberalization of financial

controls as the city attempts to remain a top interna-

tional financial center in the region. However, economic

development in Singapore is driven by a history of

government intervention, leading commentators to

describe its political economy as a ‘‘nanny state’’(Montagnon, 2000). Like Singapore, Hong Kong also

serves as regional strategic hub for foreign TNCs, with

over 2,000 TNC regional offices based there (Thompson,

2000). Key locational advantages for TNCs have been a

non-interventionist but well regulated financial system,

an internationally oriented business infrastructure, a

concentrated cluster of both foreign and local business

services firms, and a laissez-faire commercial environ-ment. Its proximity to China’s large market has also

increased its locational attraction to manufacturing-

based TNCs. TNCs are further drawn to the two cities

for their geographical positions within the Asia-Pacific

time-zone. Over the last 10 years, Hong Kong and

Singapore have further become Asia’s most desired sites

for hosting the regional headquarters of TNCs (Perry

et al., 1998).Chamber of commerce membership and business di-

rectories in each city were used to draw samples of

Japanese and American firms. In Singapore, a total of

603 pre-tested self-completion survey instruments were

administered to American or Japanese firms. A total of

53 self-identified Japanese and self-identified 88 Ameri-

can firm responses were received. To bolster total

number of cases and to allow unit non-response bias tobe checked for, survey instruments were administered a

second time to non-responding firms. This yielded a

further 32 self-identified Japanese and 42 self-identified

American firm returns, making a total of 215. To test for

http://www.bea.doc.gov


unit non-response bias, the procedure suggested by

Armstrong and Overton (1979) was used. They propose

that respondents replying later to a survey are more

likely to resemble non-respondents than early respon-dents, implying that significant differences between first

and second administration respondents would predict

differences between those in fact responding and those

not. Pearson chi square procedures suggested no sig-

nificant differences between the proportionality of first

and second administration respondents in terms of na-

tional origin (v2 ¼ 0:65, p ¼ 0:42), broad industry sector(v2 ¼ 1:97, p ¼ 0:16), or firm size measured by annualglobal sales (v2 ¼ 0:69, p ¼ 0:41). Hence, there would

appear to have been no significant non-respondent bias,

therefore results might be regarded as reasonably rep-

resentative of the overall population in Singapore. In

Hong Kong, a total of 235 responses from self-identified

Japanese and American TNCs was returned from a

mailing to 648 Japanese TNCs and to 1,396 US TNCs.

As a second mailing was not possible, to check for unitnon-response bias, again following Armstrong and

Overton (1979), early and late responders were com-

pared on a number of demographic characteristics to

test if they differed significantly. No significant differ-

ences were found in respect of national origin

(v2 ¼ 1:72, p ¼ 0:19), broad industry sector (v2 ¼ 0:33,p ¼ 0:57), or firm size measured by annual global sales

(v2 ¼ 2:21, p ¼ 0:82). Hence, again, there would appearto have been no significant unit non-respondent bias,

suggesting the sample to be broadly representative of the

population. After removing non-Japanese and non-

American firms, the final number of returns, 450, makes

17% response rate. This might be considered very re-

spectable for international mail surveys, and compares

well with the response rates reported by other re-

searchers for business surveys in Hong Kong and theAsia-Pacific (Jobber et al., 1991; Harzing, 2000).

3.2. Firm characteristics

Table 1 shows the age of Japanese and American

TNCs for both manufacturing and non-manufacturing

sectors. The table reveals notable differences between the

two nationalities. A relatively higher proportion of

Japanese firms have been in the two economies for more

Table 1

Age of firms by nationality

Age Manufacturing (%)

Japan US

Less than 5 years 1.4 8.7

6–15 years 34.2 45.6

16–25 years 41.0 28.2

More than 25 years 23.3 17.5

Source: Authors’ survey. Based on listwise n ¼ 450.

than 25 years. This share is as high as 33% for non-

manufacturing firms. This contrasts with the share of US

firms that has been operating in the region for the same

period, which is about 17–21%. Conversely, a greaterproportion of US firms is younger. Between 7% and 8%

of US firms have set up operations in the region in the

last five years compared to only about 1.5% from Japan.

The age distribution is also interesting from the point

of view of Japanese firms’ pattern of internationaliza-

tion. Japanese TNCs are said to be late international-

izers having largely joined their Western counterparts in

the global market only in the last century (Encarnation,1999). Yet in Asia, they are among the earliest interna-

tionalizers next to British and other European firms.

This makes the comparisons between Japanese and

American firms in Asia compelling as the strategies of

American firms elsewhere are often assumed to be the

model to converge to (Boyacigiller and Adler, 1991).

In terms of firm size, worldwide sales figures in Table

2 show that manufacturing firms tend to be slightlysmaller at under $1 billion for both nationalities.

Worldwide asset figures also support this. However,

both measures of size also indicate that a higher pro-

portion of large non-manufacturing-based American

firms of over $10 billion may be found: 51% for sales

and 47% for assets. In terms of transnationality, global

reaches of American TNCs are wider, with more than

half of the firms reporting having operations in morethan 30 countries compared to only about 33–35%

for Japanese TNCs.

3.3. Strategic functions of TNCs

An �optimal’ global strategy is driven by a major form

of advantage, namely the ability to develop global

competitive advantages through operational flexibility

that is derived from managing the flow of resources and

information within the multinational network. The ex-

tent to which a strategy can be globalized thus depends

on the extent to which TNCs can maximize functionalintegration of their international activities while still

responding to national differences in product markets

(Bartlett and Ghoshal, 1997; Johansson and Yip, 1994).

Successful implementers of a global strategy are then

expected to share the following dimensions:

Non-manufacturing (%)

Japan US

1.5 7.1

24.7 47.9

40.5 23.6

33.3 21.4

Table 2

Distribution of firm characteristics

Firm characteristics Manufacturing (%) Non-manufacturing (%)

Japan US Japan US

Worldwide sales

<$250m 4.5 10.7 15.9 17.1

<$250m-$lb 56.7 54.7 42.8 36.0

$lb-$10b 14.9 13.3 1.6 10.3

>$10b 23.8 21.3 39.7 31.6

Worldwide assets

<$250m 13.7 11.6 18.7 25.4

<$250m-$lb 43.9 55.0 35.9 27.1

$lb-$10b 12.1 6.2 9.4 6.6

>$10b 30.3 15.9 35.9 40.9

Transnationality (no. of countries of operations)

<10 28.0 23.6 38.0 19.8

11–30 38.7 23.0 26.8 21.3

>30 33.3 53.4 35.2 58.9

Note: Shares are standardized to account for uneven sample size between Japan and US.


(1) the ability to build market shares in strategic coun-

tries, and to reap cost benefits from exploiting inter-

national divisions of labor, and

(2) the development of control and coordination mech-

anism in order to leverage TNCs dispersed resources

while building global competencies.

In this section, we examine the evolution of global

strategies via the development patterns of TNC func-

tions in Singapore and Hong Kong for both manufac-

turing and non-manufacturing firms. From the survey,

firms were asked to rank the importance of some 35

functions on a five point interval measure (1¼ very un-

important, 5¼ very important) to determine their im-

portance in supporting the firms’ global strategy. Weperformed a factor analysis on the functions in order

to derive a reduced classification of the functional roles

of TNCs. 3

3 Under factor analysis, a small number of latent factors may be

extracted that explains why the variables are correlated with one

another. Such a procedure searches for relationships among the

variables, and is appropriate when the observed variables represent

indicators of the latent constructs that are to be measured. As a major

objective of this paper is to extract the functions that drive a firm’s

global strategy, this necessarily calls for exploratory as opposed to

confirmatory factor analysis. There are two reasons for this. First,

exploratory factor analysis is more appropriate when theory genera-

tion as opposed to theory confirmation is the major aim of the

investigation. Second, while confirmatory factor analysis is generally

more powerful for evaluating construct validity, it also requires the

researcher to begin with a-prior hypotheses (including the number of

predetermined factors). Given that very little work has been done that

directly evaluates firm functions and their global strategy, any

predetermination of the nature of correlations between the variables,

or, attempt to match optimally the observed and theoretical factor

structures required of confirmatory factor analysis, is suboptimal for

the study here (Stevens, 1996).

The selection of factors was based on several criteria

including the Kaiser-Guttman’s rule of eigenvalue

greater than 1, the sum of communality (0.70 on our

case), high factor loadings and scree tests. Based on

these criteria, six major TNC functions may be identified

(Tables 3 and 4):

(1) Marketing-production (factor 1). The functionsthat load heavily on this factor are concerned with

marketing-related activities and execution such as sales

planning and market research, as well as the production

aspects of manufacturing such as raw material sourcing,

testing and quality control.

(2) Organization-renewal (factor 2). This factor en-

compasses functions that on the one hand, enable the

organization of final products for distribution to cus-tomers (e.g. packaging, warehousing), or, the develop-

ment of products tailored to local markets (e.g. new

product or process development) on the other. The lat-

ter may be interpreted to reflect a renewal process that

allows a firm to respond continuously to the heteroge-

neity of markets in the Asia Pacific in order to remain

competitive.

(3) Control-coordination (factor 3). This factor relatesdirectly to parent-subsidiary relationships, a crucial di-

mension in the success of global strategies because a

major challenge facing TNCs is how to link their ac-

tivities and resources across their international net-

works in ways that facilitate control and coordination

among its subsidiaries and plants. Much of the work on

this factor has focussed on headquarters’ strategic

control of their subsidiaries (Prahalad and Doz, 1987),or, the development of subsidiaries by TNCs as a

strategy to enhance their responsiveness and coordi-

nation of markets (Taggart, 1998). In this case, the

functions that loaded heavily on this factor are con-

cerned with activities like reporting to parent firms and

Table 3

Factor analysis: strategic functions of manufacturing-based TNCs

Functions Factor 1: market-

ing-production

(eigen¼ 12.4)

Factor 2: organi-

zational-renewal

(eigen¼ 5.8)

Factor 3: control-

coordination

(eigen¼ 3.4)

Factor 4: ser-

vice-support

(eigen¼ 2.4)

Factor 5: entrepre-

neurial-developmental

(eigen¼ 1.9)

Factor 6: dis-

tribution

(eigen¼ 1.6)

Market planning and

execution

0.9219 0.1196 )0.0117 0.0174 0.0068 0.0711

Sales planning 0.9147 0.2481 0.0500 0.0756 0.1162 0.0677

Quality control 0.9147 0.2481 0.0500 0.0756 0.1162 0.0677

Sales/marketing

procurement

0.8825 0.2857 0.0501 0.0962 0.1060 0.0382

Market research 0.7276 0.1816 0.0018 0.4200 )0.0517 0.0185

Testing 0.8825 0.2857 0.0501 0.0962 0.1060 0.0382

Assembly 0.9219 0.1196 )0.0117 0.0174 0.0068 0.0711

Raw material

sourcing

0.7276 0.1816 0.0018 0.4200 )0.0517 0.0185

Basic research 0.0546 0.8510 0.0103 0.2777 )0.0573 0.1371

Applied research 0.1518 0.8994 0.1021 0.1156 0.0469 0.0182

New product

development

0.3953 0.7834 0.0212 )0.0107 0.1218 )0.0309

Process technology

development

0.4038 0.7817 0.0845 0.0916 0.1966 )0.0309

Customer service 0.0546 0.8501 0.0103 0.2777 )0.0573 0.1371

Warehousing 0.1518 0.8994 0.1021 0.1157 0.0470 0.0182

Packaging 0.1518 0.7835 0.0212 0.0107 0.1966 )0.0309Order processing 0.3953 0.7816 0.0845 0.0916 )0.0411 )0.0309Reporting regional

activities to parent

companies

0.0155 )0.0012 0.8904 0.1027 0.0599 0.0055

Coordination of

other operations

0.0454 0.1164 0.8843 0.1742 0.1259 0.0373

Regional liaison

center

0.0639 0.0566 0.8749 0.1457 0.0383 0.0173

Supporting regional

operations

)0.0006 0.0592 0.8634 0.1916 0.0063 0.0572

Monitoring other

regional operations

)0.0231 0.1483 0.8487 0.1538 0.1442 0.1041

Regional strategy 0.0232 )0.0796 0.6473 0.0609 0.2131 )0.1199Capital finance 0.1065 0.1727 0.1607 0.8472 0.1120 0.0193

Insurance 0.1319 0.1520 0.2321 0.7939 0.2678 )0.0292Trade finance 0.1892 0.1638 0.2591 0.7795 0.0674 )0.0055Accounting/auditing 0.2214 0.1523 0.4793 0.5888 0.2545 )0.1207Non-material

procurement

0.1311 0.2136 0.2066 0.5331 0.1876 0.0431

Regional IT

management

0.1923 0.1949 0.2447 0.3196 0.6568 0.0655

Personnel

development

0.0437 0.1036 0.2806 0.3150 0.6464 )0.0501

Business

development

0.0208 0.2705 0.2007 0.2978 0.6175 0.0121

Product development 0.3224 0.4123 0.1938 0.0837 0.4394 0.0329

Land distribution 0.0886 )0.0866 )0.1480 0.0524 0.1688 0.7323

Coordinate regional

distribution

)0.0168 0.0725 0.0313 )0.0054 )0.2529 0.6795

Coordinate global

distribution

0.0851 0.0815 0.0901 0.0659 0.0234 0.6712


coordinating operations in the region. Functions here

are largely associated with those of a regional head-

quarter.

(4) Service support (factor 4). The major functions

associated with this factor are largely related to finance

infrastructure such as trade or investment capital and

accounting issues which provide ancillary services to the

manufacturing process.

(5) Entrepreneurial-developmental (factor 5). A suc-

cessful global strategy requires the ability of a firm to

create new market and business opportunities, hence

functions here are aligned with factors that require

Table 4

Factor analysis: strategic functions of non-manufacturing-based TNCs

Factor 1: mar-

keting-produc-

tion

(eigen¼ 13.4)

Factor 2: orga-

nizational-re-

newal

(eigen¼ 5.5)

Factor 3: con-

trol-coordina-

tion (eigen¼ 3.1)

Factor 4: service-

support

(eigen¼ 2.4)

Factor 5: entre-

preneurial-devel-

opmental

(eigen¼ 1.8)

Factor 6: distri-

bution

(eigen¼ 1.5)

Sales and marketing

procurement

0.9097 0.2284 0.0221 0.0284 0.0691 0.0279

Sales planning and

execution

0.8801 0.2510 0.0023 0.0447 0.2140 0.0598

Market planning 0.8766 0.1977 0.0813 0.1953 )0.0272 0.0808

Market research 0.7681 0.3500 0.0038 0.2626 )0.1082 )0.0387Testing 0.9097 0.2284 0.0221 0.0284 0.0691 0.0279

Quality control 0.8801 0.2510 0.0023 0.0447 0.2140 0.0598

Assembly 0.8766 0.1977 0.0813 0.1953 )0.0272 0.0808

Raw material sourcing 0.7681 0.3500 0.0038 0.2626 )0.1082 )0.0387Warehousing 0.2208 0.9192 0.0281 0.1407 0.1156 )0.0518Applied research 0.2208 0.9190 0.0281 0.1407 0.1156 )0.0518Basic research 0.1930 0.8738 0.0787 0.1632 0.1263 )0.0028New product development 0.2435 0.8624 0.0429 0.1649 0.0822 0.0207

Process technology

development

0.4196 0.7570 0.1563 0.0343 0.0254 0.0861

Customer service 0.1930 0.8738 0.0787 0.1632 0.1263 )0.0028Packaging 0.2435 0.8623 0.0429 0.1649 0.0822 0.0207

Order processing 0.4196 0.7570 0.1563 0.0343 0.0254 0.0861

Regional liaison 0.0601 0.0928 0.8550 0.1167 0.0079 )0.0832Reporting regional

operations

0.0016 )0.0530 0.8421 0.0178 )0.0056 )0.2055

Monitoring regional

operations

0.2118 0.0876 0.7773 0.1839 0.0959 )0.1233

Coordination of other

operations

)0.0767 0.0962 0.7588 0.1818 0.2780 0.1950

Supporting regional

operations

0.0622 0.0577 0.7287 0.2036 0.3732 0.1244

Regional strategy )0.0389 0.0083 0.5841 0.0877 0.4479 )0.0196Personnel development )0.0368 0.0328 0.5180 0.2323 0.6695 0.0109

Trade finance 0.1873 0.2076 0.1765 0.8430 0.0874 0.0300

Capital finance 0.1951 0.2177 0.2181 0.8271 0.1250 0.0350

Insurance 0.2851 0.1768 0.1822 0.7309 0.2431 0.0353

Accounting/auditing 0.1341 0.3365 0.1720 0.6552 0.1307 0.1230

Business development 0.0729 0.1685 0.2554 0.1757 0.8284 )0.0625Product development 0.1835 0.3438 0.0797 0.1084 0.7462 0.0091

Regional IT management 0.2276 0.1900 0.3965 0.2243 0.4970 0.0229

Land distribution 0.0377 )0.0263 0.1047 0.0652 0.0322 0.8407

Coordination of regional

distribution

)0.0001 0.0103 0.0842 0.1567 )0.1012 0.7855

Coordination of global

distribution

0.1711 0.1469 0.1047 0.1162 0.2321 0.5326

4 Between 70% and 75% of manufacturing and non-manufacturing

firms loaded significantly on factors 1 and 2 respectively. The

corresponding shares for factors 3 to 6 were 60 to 65%.5 Factor scores have been widely used by geographers to examine

differences in spatial structures, for example, in migration (Pandit,

1994) and information flows (Mitchelson and Wheeler, 1994).


softer assets such as human resources or design and

development in order to spearhead entrepreneurial ini-

tiatives in national environments that are complex

(Bartlett and Ghoshal, 1997).

(6) Distribution (factor 6). Functions in this factor are

primarily established to ensure that goods and services

are distributed not just to Asian markets but that help

build efficient logistical integration as well.All six factors for both manufacturing and non-

manufacturing firms are identical, both in terms of func-

tions and in terms of the magnitude of variance explained

by each factor. For example, the first factor, marketing-

production explains about one-third of the variance in

both sectors while factor six on distribution explains be-

tween 4% and 5% variance. The six factors identified here

describe the range of strategic functions that have been

developed to help advance the global strategy of TNCs. 4

To examine the extent that convergence might have

occurred between the TNCs, we conducted a two way

analysis-of-variance (ANOVA) on the factor scores of

the six factors by age and nationality. 5 We divided firms


into three major age groups: those who have been in-

vesting and operating for more than 25 years, those

between 11 and 25 years, and those below 10 years. This

provides a post hoc way of charting the firms’ evolutionby �slicing’ their evolution into three time periods, that

is, beginning, intermediate and ageing phases. Firm age

only allows us to chart the static evolution of firms’

strategies, but it is a central variable in ecology-based

models, and empirical studies on firm convergence

(Duysters and Hagedoorn, 2001). While not a perfect

analytical strategy, nevertheless, if convergence has in-

deed occurred, we would expect the functions not todiffer significantly among the two firm nationalities. The

results are presented in Tables 5 and 6. In terms of age,

there is a significant difference between older and

younger firms in control-coordination functions for

manufacturing based TNCs and service support for

non-manufacturing based TNCs. For nationality, dif-

ferences between Japanese and American firms are

rather striking. Manufacturing-based Japanese TNCsemphasize organizational-renewal as well as service

support roles, while American TNCs emphasize an en-

trepreneurial-developmental role. Non-manufacturing

based Japanese TNCs also emphasize service support,

but focus on marketing-production functions as well.

The combined results of Tables 3–6 may be summa-

rized as follows. First, as manufacturing-based TNCs

evolve over time in the Asia Pacific, strategic functionsthat are associated with control and coordination be-

come increasingly important. Table 5 shows that there is

no difference between Japanese and American compa-

nies on this, indicating that some level of convergence

may be implied. The picture is a little more complex for

non-manufacturing TNCs. In this case, both nationali-

Table 5

Manufacturing-based TNCs: differences in functions by age and nationalitya

Functions Firm age means Difference

agebOld firms

(>25

years)

Moderately

old firms

(6–25 years)

Young firms

(<5 years)

Marketing-

production

0.1018 )0.0138 )0.4591 No differe

Organizational-

renewal

)0.0658 0.0723 )0.2947 No differe

Control-coordi-

nation

0.1982 )0.0407 )0.7654 Old and

moderatel

old

firms> you

firms

Service support 0.0287 0.0056 )0.2183 No differe

Entrepreneurial-

developmental

)0.0568 0.0081 0.2525 No differe

Distribution 0.0494 0.0487 )0.0357 No differe

***, ** and * are 1%, 5% and 10% significance levels respectively.aMeans are based on factor scores from factor analysis.b Based on Duncan’s multiple range test, p < 0:05.c F -statistics are based on type III sums of squares.

ties place significance on service support functions over

time, but Table 6 also shows that the factor scores are

significantly higher for Japanese than American TNCs.

Indeed a consistent pattern from the factor analysis andANOVA results is that Japanese TNCs tend to em-

phasize service support functions whether they are

manufacturing or non-manufacturing based as com-

pared to their American counterparts. However, given

that older American firms are also placing a greater

emphasis on service support functions than younger and

newer American firms to Asia, it is not unreasonable to

conclude that American TNCs are converging some-what to the Japanese pattern.

One reason driving convergence in these functions lies

in mimetic isomorphism where newer entrants tend to

imitate the actions of older firms in order to ensure

survival and decrease mortality rates. In this case, newer

firms imitate more entrenched firms’ strategies of sur-

vival and coherence through control-coordination and

service support functions for manufacturing and non-manufacturing based TNCs respectively. This point

needs to be elaborated further. A central TNC dilemma

relates to the internal and external organizational dy-

namics of its international operations. On the one hand,

subsidiaries of Japanese and American TNCs in the Asia

Pacific are confronted with the external demands of

different national and local environments. On the other

hand, the parent firm faces the pressure of integratingits various subsidiaries to ensure some level of intra-

organizational consistency and internal isomorphism.

Control-coordination functions such as monitoring, re-

porting and regional coordination allow the subsidiary

to replicate routines and governance procedures that

realize the parent firm’s control imperatives. Replication

by F -valuec Firm nationality means Difference by

nationalitybF -valuec

Japan US

nce 0.11 0.0755 )0.0329 No difference 0.14

nce 0.86 0.3861 )0.1682 Japan>US 10.17��

y

ng

4.11�� )0.0451 0.0196 No difference 0.63

nce 0.09 0.3345 )0.1457 Japan>US 6.99��

nce 0.16 )0.2829 0.1233 US> Japan 4.7��

nce 0.10 0.1846 )0.0804 No difference 2.08

Table 6

Non-manufacturing-based differences in functions by age and nationalitya

Functions Firm age means Difference

by agebF -valuec Firm nationality

means

Difference by

nationalitybF -valuec

Old firms

(>25 years)

Moderately

old firms

(6–25 years)

Young firms

(<5 years)

Japan US

Marketing-

production

0.1358 0.0949 )0.4062 No difference 1.25 0.4534 )0.2015 Japan>US 5.36��

Organizational-

renewal

0.1652 )0.1032 )0.0130 No difference 0.71 0.2167 )0.0892 No difference 0.24

Control-

coordination

0.2564 )0.1349 )0.0138 No difference 0.37 0.0043 0.0002 No difference 0.83

Service support 0.5366 )0.0994 )0.3371 Old

firms>moder-

ately and

young firms

3.57�� 0.3680 )0.1244 Japan>US 4.10��

Entrepreneurial-

developmental

0.1947 0.0140 )0.2770 No difference 0.18 )0.1690 0.0403 No difference 0.41

Distribution 0.1227 0.0360 )0.0753 No difference 0.79 0.2516 )0.0817 Difference 0.21

***, ** and * are 1%, 5% and 10% significance levels respectively.aMeans are based on factor scores from factor analysis.b Based on Duncan’s multiple range test, p < 0:05.c F -statistics are based on type III sums of squares.


and imitation are therefore tools for forcing isomor-

phism internally within the organization, and externallywithin the larger regional-environmental context. Like-

wise for service support, it is fairly well-established that

financial flows such as trade and capital finance are

significant tools of corporate control (Asakawa, 2001),

and therefore a mechanism for forcing an environmental

‘‘fit’’ in TNCs governance structures. Subsidiaries in

global industries are typically dependent on the parent

firm for capital investment and financial resources whileparent firms rely on financial transactions to ensure a

greater similarity within the organization. Japanese

firms are found to insist on stronger internal controls

and organizational isomorphism than American TNCs

(Rosenzweig and Singh, 1991). The above then suggests

that globalization increases environmental complexity

arising from tensions that are associated with external

market heterogeneity. Hence, TNCs are faced withpressures to respond to local markets through strategies

of control-coordination and service support.

Second, Tables 3–6 also indicate evidence for differ-

entiation thereby providing some support for the neo-

contingency-business systems schools of thought. The

tables reveal that Japanese manufacturing TNCs tend to

emphasize both organization-renewal and service sup-

port functions while American manufacturing TNCsemphasize entrepreneurial-developmental roles. Rosen-

berg and Steinmueller (1988) have forcefully argued that

Japanese industries are characterized by a preoccupation

with a continual stream of small improvements that in-

volve much forward integration and attention to the

distribution process. This may explain their reliance on

research and development activities (organizational-

renewal). Further, Japanese R&D activities are also

characterized by strong coordination in the marketing

department andmanufacturing operations (see Belbedos,2001) thereby underscoring the strong marketing-

production factor. Differences in parent firms’ institu-

tional environments also contribute to differentiation.

Japanese firms are known to be far more oriented to

expanding market shares than profit maximization, and

are also more committed to long-term capital investment

(Johnson, 1995). They attach greater importance to

market intelligence and product customization as part oftheir strategy to circumvent protectedmarkets in the Asia

Pacific. The importance that TNCs place here on mar-

keting and service support is consistent with studies

elsewhere that have shown the rapid expansion of offices

in Asia among Japanese TNCs to support sales and ser-

vices (Edgington and Hayter, 2000). While research and

development (R&D) activities are largely retained back

home, Japanese TNCs pursue development and design(D&D) in Asia because of strategies that are aimed at

accelerating the speed at which products or services reach

the Asian markets. It appears therefore that Japanese’

greater emphasis on organizational-renewal functions

reflect their approach to innovative management and

the focus on refinement of products and services.

Concentration on entrepreneurial-developmental fun-

ctions such as business and product development byAmerican firms also strengthens the differentiation the-

sis. American TNCs are driven by more formal relations

and institutions back home (O’Brien, 1994). They are

more inclined to set up de facto international market

product and service standards where information is

owned as proprietary properties by parent companies.

Because of a propensity to exploit ownership advantages

from building such proprietary systems, they also tend


to exploit divisibility (Borrus, 2000). Hence American

firms tend to build competitive advantages through

strategies that enhance product differentiation as op-

posed to product renewals by the Japanese. That is tosay, they are more preoccupied with externally oriented

product and service driven strategies.

The analysis thus far does not offer a clear-cut con-

clusion to the convergence-differentiation debate. On the

one hand, it appears that environmental competition is

most intense in the arena of the market, narrowing the

scope for survival, and forcing TNC conformity in terms

of control-coordination and service support func-tions over time. On the other hand, societal effects

through the dominance of parent country culture also

results in differentiated deployment of strategic tools

between the two nationalities. It is important to note

that ecology-based arguments recognize the importance

of environmental ‘‘munificence’’ which refers to the

scarcity and abundance of resources needed by firms to

operate in an environment. Convergence is expectedwhen resources are scarce as this intensifies competition

and the selection process. But when resources are

abundant, then firms are less preoccupied with goals

of survival, and are more willing to use a wider range

of strategic tools.

Based on this reasoning, Japanese TNCs greater

emphasis on organizational-renewal and marketing-

production, and, American TNCs on entrepreneurial-developmental functions in the manufacturing sector,

reflect different environmental contexts back home

(supplier–customer–competitor–regulator relationships).

In the case of Japanese firms, pressures from the capital

market back home are much less resulting in reduced

threats of corporate takeovers, and thereby higher mu-

nificence. This, coupled with a strong business-govern-

ment relationships and a mercantilist orientation, havecreated an incentive system that motivates firms to

concentrate on downstream activities where product and

process development, customization and technology are

much more intimately tied to market and customer

needs. Turpin (1995) has argued that while Japanese

firms in the 1980s had focused on zero-defect products,

they are increasingly emphasizing zero-defects in cus-

tomer service as well. Our analysis appears to be con-sistent with such an observation and supports the

conclusion that Japanese TNCs are more inclined to

compete by product innovation and market research

and expansion (Kotha et al., 1995). The nature of the

capital market and patenting system in the US on the

other hand, tends to favor firms that are more interested

in Schumpetarian and upstream-based innovations back

home rather than establishing a production system thathelps to defend market positions overseas (Nelson,

1991). Instead, American TNCs in Asia rely on business

and product development functions to support a strat-

egy of product and service differentiation.

4. Conclusion

The central inquiry of this paper has been to try to

examine if Japanese and American TNCs would evolveto similar functional strategies in their operations in the

Asia Pacific. A central tenet driving the convergence

proposition is that organizations tend to adapt resources,

structures and controls towards co-alignment. As selec-

tive pressures favor firms that are older and larger, the

latter also forces TNCs to become more and more iso-

morphic with environmental characteristics. Among

national firms then, internationalization and globaliza-tion should initiate a process of learning and socializa-

tion among firms that make any one set of nationally

determined strategy increasingly difficult to sustain

over time. Theorization of convergence implicitly

assumes universality and more often than not, the uni-

versal model is based on American firms that are devel-

oped in American institutions, culture and geography

(Boyacigiller and Adler, 1991). This weakness has beenseverely criticized by differentiation proponents who

reject the low-context orientation of American-based

models, contending instead that national differences

in institutions and governance significantly influence, if

not determine, the organizational behavior of TNCs

abroad.

Our study has focused on a static analysis of struc-

tural firm convergence by attempting to chart the evo-lution of TNCs and their differentiated deployment of

strategic functions to manage global resources across

time. Specifically, we identified six strategic functions,

namely, organizational-renewal, marketing-production,

control-coordination, service support, entrepreneurial-

developmental and distribution as the major mecha-

nisms used by TNCs to balance the conflicting demands

of globalization and control. For manufacturing-basedfirms, Japanese TNCs tend to place a greater emphasis

on organizational-renewal and service support functions

in their Asian operations whereas American TNCs tend

to emphasize entrepreneurial-developmental functions.

For non-manufacturing based firms, Japanese TNCs

also differ from their American counterparts in terms of

their greater focus on marketing-production and service

support functions. These results suggest that Japaneseand American TNCs do not configure their resources

similarly internationally. American entrepreneurial-

developmental strategy appears to be based on firms’

desire to differentiate themselves from their competitors,

whereas Japanese marketing-production and organiza-

tional-renewal functions are much more concerned with

embedding market positions (see also Kotha et al.,

1995). Despite these divergent patterns however, there isalso some indication that convergence has occurred at

some level. In particular, like Japanese firms, American

firms that have been in Asia for a more established pe-

riod of time also rely on service support functions to


control their Asian operations. Hence older American

firms appear to have converged to that of Japanese in

functions related to financial controls. Both older Jap-

anese and American TNCs also favor the use of control-coordination instruments to manage their operations in

Asia. Such a strategy is consistent with the TNC liter-

ature that sees the global integration of subsidiaries

by regional headquarters as a major organizational sta-

bility.

In sum, the results point to a certain degree of inertia

among American and Japanese TNCs regarding orga-

nizational change in international environments. Whileselection and mimetic convergence may not have been

completely absent as was seen in the case of service

support functions, by the same token, the reproduc-

ibility of structures from home country would seem also

to have contributed to persistent differentiation. Fur-

ther, younger TNCs do not imitate all of the strategies

of older firms, just a selective few. Functional equiva-

lence appears to be more common than outright con-vergence, and pressures for convergence appear to have

been mediated by some degree of contingency that

suggest that TNCs will likely continue to exhibit na-

tional characteristics in international environments.

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Convergence or differentiation? American and Japanese transnational corporations in the Asia Pacific

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