International entrepreneurship in japan – an extended model icon

International entrepreneurship in japan – an extended model


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^ Int. J. Entrepreneurial Venturing , Vol. 2 No. 1













^ INTERNATIONAL ENTREPRENEURSHIP IN JAPAN – AN EXTENDED MODEL


Paul Gaspari*

Sophia University

7-1 Kioi-cho, Chiyoda-ku, Tokyo, Japan

E-mail: paulgaspari@yahoo.com

*Corresponding author


Dr. Parissa Haghirian

Sophia University

7-1 Kioi-cho, Chiyoda-ku, Tokyo, Japan

E-mail: parissahaghirian@gmail.com


Abstract:

The study of international entrepreneurship is a growing one in the academic field. However, studies have been limited and scarce in analyzing the role of expatriates in starting businesses overseas. Using Japan as a case study, the authors propose a model consisting of fourteen variables that can be tested to show the rate of success or failure for a foreign entrepreneur in another country.


^ Key words:

International, Entrepreneurship, Japan, Entrepreneur, SMEs, Ventures, Small Business, Globalization, Foreign, Business


Bibliographical notes:

Paul Gaspari is a graduate student at Sophia University currently in a master’s program focusing on international business development. His thesis topic and research interest is on foreigners who moved to Japan and start their own businesses. He is in the middle of testing the model proposed in this paper through a combination of surveying, interviewing, and other forms of research.


Dr. Parissa Haghirian is an Associate Professor at the Faculty of Liberal Arts at Sophia University in Tokyo. She is further a visiting professor at Groupe HEC in Paris, the Helsinki School of Economics, the Keio Business School, and an adjunct Professor at Temple University in Tokyo. Parissa’s research and consulting interests include knowledge transfer and communication between and within Japanese and Western corporations, market entries of Western firms into the Japanese market, and Japanese consumer behaviour.

  1. ^ Introduction and Background

As the world’s second largest economy with a GDP of around 4.3 trillion USD, Japan remains one of the world’s most attractive areas in which to conduct business (CIA World Factbook Japan, 2008). However, the Japanese economy shows some unique features when it comes to the significance and role of its businesses in their society. As of 2004, roughly 87% of the total number of business enterprises in Japan was considered to be a small business (White Paper, 2007). According to official classifications, a small business in Japan is defined to be one that has less than 300 employees.

Even though a large number of businesses in Japan are considered to be small businesses, the number of entrepreneurs in the Japanese economy has been decreasing, with the most recent data showing this declining figure to be at a rate of around 3% each year from the period of 2001 – 2004. The exit rate for these enterprises also increased at a rate of about 6% each year over the same period (White Paper, 2007).

While the number of innovators and entrepreneurs in Japan declines, its population is aging. By the year 2050, almost 40% of its population will be aged 65 and over (Statistical Handbook of Japan, 2008). In order to maintain an adequate work force to support the aging population, the government is trying to attract foreigners and foreign businesses to Japan. From the years 1997 to 2007, the number of registered foreigners living in Japan nearly doubled from 1,482,707 to 2,152,973. While the number of foreigners entering Japan is increasing, they still only represent 1.6% of the total population of the country (Sato and Kaisei, 2008).

Like so many other countries, Japan has tried to bolster the amount of foreign direct investment in the country. The Japanese government has expressed the desire of doubling the amount of foreign workers and students in Japan by the year 2015 (Arai et al., 2008). The government established an “Invest Japan!” promotion in 2003 designed to double the amount of foreign direct investment and foreign businesses by 2008. As of 2009, there were a little over 2 million registered foreigners living in Japan which was about 16% of Japan’s total population of 127,770,000 (Japan Statistical Handbook, 2009). With the number of able-bodied native workers disappearing due to the aging crisis, Japan may have to look outwards and try to attract foreign innovators who can provide invaluable aid and resources. Japan, “… would aim to compensate for the natural decline in the Japanese population through a mass influx of immigrants, supporting a ‘dynamic Japan’ that maintained economic growth” (Sakanaka, 2009, p. 4). But the political, social, and cultural environment of Japan may not be conducive to their success and keep them within the country. The question therefore arises as to which factors are promoting and hindering the establishment of foreign businesses in Japan.

Japan is but one of many countries that attract a constant stream of FDI and ventures by foreigners. With different cultures and rules existing in a place unfamiliar to the foreign businessman, the authors of this paper hope to provide a theoretical framework of foreign entrepreneur experiences based on existing studies relating to foreign entrepreneurship. They will first look at the historical research done on the topic of entrepreneurship. They will then examine the research already performed in the area of international entrepreneurship. They will then use Japan as a case study to examine several variables that could influence success on a foreign firm in another country. It is the goal of the authors’ that their model be tested and studied not just in terms of Japan but in other countries and used to add to the body of knowledge that exists in the area of international entrepreneurship.

  1. ^ Previous Research on the Study of Entrepreneurship

The concept of entrepreneurship was first described by the Irish economist Richard Cantillon in 1732 (Minniti and Lévesque, 2008). He studied entrepreneurship as it relates to supply and demand theory and said that the role of the entrepreneur was to bear risk. The study of entrepreneurship in the modern era as an academic research topic though is a relatively young and limited field (Dean et al., 2007). It is still, for all intents and purposes, in the theory building stage (Harrison and Leitch, 1996). Busenitz et al. looked at the number of journal articles published on entrepreneurship compared to other academic fields and found the number to be quite low. They also found that studies tended to be connected to other areas of research and that entrepreneurial theory was still not specifically developed (2003).

Previous studies of entrepreneurship have looked at the topic in a variety of areas and compared it to a number of different fields (Minniti and Lévesque, 2008). Some of these studies have looked at entrepreneurship’s effects on the economy from a macro level, the impact and influence of social networks, and how an owner’s personality characteristics have influenced the success of the venture. A number of studies have shown that links exist between the rise of entrepreneurship in a country to its economic growth (Minniti and Lévesque, 2008). Companies owned by foreign entrepreneurs are usually found to have increases in innovation and output in a country (Dachs et al., 2007). This has been seen as one reason that governments wish to promote new business ventures.

In regards to the actual definition of an entrepreneur, several studies exist. Entrepreneurs can be defined as individuals who act when presented with business opportunities in a market (Eckhardt and Shane, 2003). Several studies look at the use of the word “entrepreneur”and define it as more than someone who starts a business. These studies look at the cultural ramifications and the nature of the risk involved. Bird and Mitsuhashi (2003) define entrepreneurship as, „... the activity of disrupting the current state of affairs by risking a personal stake in the creation of value by organizing resources to exploit an opportunity” (p. 129).

Several studies have attempted to define the difference between an entrepreneur and a small business owner such as Carland et al. (1984), Jenkins and Johnson (1997), and more recently with Runyan et al. (2008). According to Carland et al., an entrepreneur is someone who operates a business solely for profit and growth. Many other definitions of the occupation of entrepreneur exist and the category is often differentiated from that of a small business owner. Jenkins and Johnson (1997) classify a small business owner as someone who creates a business in order to achieve his or her own personal goals. For the purpose of this paper, we do not differentiate between a small business owner and an entrepreneur.

  1. ^ Previous Research on the Study of International Entrepreneurship

International Entrepreneurship mostly deals with the internationalization decisions and processes of SMEs and/or new ventures (Fink et al., 2008). Most empirical studies within this topic area thus focus on the reasons for selecting a country in which to start a business. They list psychic and cultural distance, geographic distance, and market size as the major reasons for target country selection (Coviello and Munro, 1997; Davidson, 1980; Ojala and Tyrväinen, 2007). Building on several existing theories, Mtigwe proposes a theory of international entrepreneurship that defines it as, “a courageous managerial value creation process through which an individual engages in innovative, proactive, calculated risk-taking behaviour designed to prosecute foreign business opportunities presented by multinational market successes and imperfections for financial and non-financial rewards” (Mtigwe, 2006, p. 17). According to Mtigwe’s research, the primary area of study for international entrepreneurship has been simply looking at companies who are exporting to other countries. Few studies exist that focus on the role of entrepreneurship from the ground-up within a foreign country. One example of this type of would be Clydesdale’s (2008) study comparing the programs used by New Zealand and Canada to attract foreign entrepreneurs to their countries and found that policies in place by these governments were not conducive to helping the foreigners succeed.

Foreign governments like New Zealand and Canada are looking to attract FDI and foreign entrepreneurs due to the numerous benefits that they can bring to a country. Studies have been done linking FDI to specific benefits on host countries (Peng and Beamish, 2007; Erdal and Tatoglu, 2002). Specific research done by Cho (2003) shows that FDI by SMEs has grown and plays a crucial role in the economic growth of host countries. Morris (2001) concludes that increases in GDP and improvements in the quality of life all stem from an increase in a country’s entrepreneurship levels. The government of Japan, therefore, should be examining foreign entrepreneurship in the country as a means of increasing their overall GDP.

  1. ^ Entrepreneurship in Japan and the United States

Harada (2005) performed a study measuring the potential for greater entrepreneurship in Japan. He found that several variables such as market size, market growth, and the unemployment rate affect the level of entrepreneurship in the country. The role of the small business in Japan was also analyzed in Dana’s study (1998). He found that Japanese small businesses often work together and, like Japanese society, the individual (or firm in this case) does not usually stand alone and act individually. Instead, firms develop close business working relationships for mutual support, especially within particular industries. These patterns of doing business are leftovers from previous eras within Japanese society. Even though a country’s ways of conducting business may be adapting and changing due to improved technology and more transactions overseas, cultural traditions may still be present and strong in some countries (Barkema and Vereulen, 1997).

On the topic of foreigners entering Japan and trying to do business in the country, Czinkota and Kotabe (1990, 1993, 2000) have written several papers discussing trade barriers that exist in Japan and tracked changes made in the business environment to encourage more FDI. One reason that foreigners may encounter what they perceive to be barriers in in a country like Japan is because they come from backgrounds that seem to promote and even encourage new ventures. To illustrate this point, we describe the role of new ventures in the United States.

Whereas Japan has low levels of new entrepreneurship, other countries such as the United States have realized the importance that small businesses and new ventures play to their overall GDP. With a GDP of around 14 trillion USD, the United States has the resources to support its many various business enterprises, especially its smaller ones (CIA World Factbook, 2008). These small businesses represent 99.7% of all employer firms in the country (Small Business Administration, 2008). They also account for 58% of total U.S. employment and 40% of the country’s gross national product (De Zoysa et al., 2007). The reliance of SMEs for economic growth in Japan is nowhere near as dependent as it is in the United States.

While having the world’s highest GDP figures, the United States and Japan, in the area of entrepreneurship and small business ownership, are very different from one another. According to Hofstede’s list of cultural dimensions, the U.S. rates higher in the individualism categories while Japan places greater emphasis on avoiding uncertainty and thinking long-term. Japan also consistently ranks low while the U.S. constantly ranks high on the Global Entrepreneurship Monitor survey, a bi-annual survey that describes the entrepreneurship environment across many different countries (Global Entrepreneurship Monitor, 2008).

In their study on entrepreneurial values and ethnicity, Morris and Schindehutte compare Americans to the Japanese (Morris and Schindehutte, 2005). American entrepreneurs are traditionally seen as being more independent, individualistic, more tolerant of ambiguity, and driven to success. Japanese entrepreneurs tend to be more focused on mutual obligation, creating harmony amongst others, avoiding shame and failure, and prefer to work in teams based on mutual consensus decision-making.

Comparative studies also exist that examine the differences between specific entrepreneurs and the entrepreneurial environment of different countries. Suzuki et al. (2002) performed a comparative study that looked at entrepreneurs in Silicon Valley and Japan and found key differences between them on a four factor scale. There are few studies though that examine the situation of American entrepreneurs who live and start a business in a foreign country. While studies have been done on SMEs in Japan, and foreign corporations in Japan, there is a need to look at the impact of SMEs owned by specific groups of foreigners in Japan. For example, there is no particular study that looks at the influence that foreigners have had on changing some of the conditions and challenges to venture growth overseas. In particular, a look at the foreign entrepreneur in Japan has never been analyzed according to existing literature. With Japan having such a low level of entrepreneurship and a country like the United States having such a high entrepreneurship level, the two countries make for an interesting comparison in which to develop a model that can be applied to all expatriates who wish to start a business overseas.

  1. ^ A Model for International Entrepreneurship based on the present environment in Japan

Model Development

To examine the antecedents of international entrepreneurship in Japan, a qualitative research design was applied. Such a design is considered to be appropriate when the phenomenon examined requires an explorative investigation that provides the flexibility for identifying new variables and the new relationships among them.

About twenty different people and five Chambers of Commerce were interviewed in order to get a comprehensive overview of participants’ perceptions on the business environment in Japan for entrepreneurs and foreigners. The people interviewed were 4 women and 16 men who operate businesses in various industries across Japan. Most of the people interviewed have lived in Japan for over ten years. A set of open questions served as a flexible guidance for the interviews. This set of questions was further developed as we advanced in our studies (Rubin and Rubin, 1995). Their input into various issues as business owners in Japan led to the formulation of the variables included in our model. The results of this qualitative analysis were supported with extensive literature research. In this paper the performance of a new enterprise founded by a non-Japanese in Japan is measured along three dimensions: sales figures, firm’s size (number of people) and the personal satisfaction level of the entrepreneur. In our model, we assume that the entrepreneurs’ characteristics, the enterprises’ characteristics, and the business environment’s characteristics are prerequisites that have a direct impact on the success of enterprises of international entrepreneurs in Japan.

In the following subsections the antecedents of successful international entrepreneurship in Japan are presented. Figure 1 summarizes these influence factors.


Figure 1. An Extended Model of International Entrepreneurship


Entrepreneur`s Characteristics

H1: Entrepreneur's Age (+)
H2: Education Level (+)
H3: Gender (+)

H4: Prior Business Experience (+)

H5: Time Spent in Japan (+)

H6: Language Competency (+)








International

Enterprize Performance


-Sales

-Firm Size (# of People)

- Personal Satisfaction Level



Enterprise Characteristics

H7: Industry/Level of Competition (+)

H8: Initial Capital (+)

H9: Association Membership (+)




Japanese Business

Environment Characteristics

H10: Unique Japanese Business Practices (-)

H11: Rigid Quality/Standards (-)

H12: High Operational Costs (-)

H13: Additional Japan-specific Costs (-)

H14: Entrepreneurial Environment (-)



International Enterprise Performance

Success for an entrepreneur can be measured in a variety of ways, both quantitative and qualitative. Typical quantitative measurements of success include sales growth, market share, profit level, and ROI (Murrary et al., 2007) while other qualitative measurements include product/service quality, new product development, and employee satisfaction (Alpay et al., 2008). We will focus on sales growth, the increase in firm size defined by the number of employees, and the satisfaction level of the owner as the measures of success in this model.

Recent studies have begun including ownership satisfaction as a measure of firm success (Hmieleski and Corbett, 2008). In their study, Runyan et al. note that some small businesses have no intention of really growing and their owners are perfectly satisfied with a stable profit performance (2008). In his book, Henry Mintzberg found that a firm’s size can influence its success (Mintzberg, 1978). Box also discusses how a firm’s small size is often seen to be positively correlated with successful growth rates in firms (2007). This is further supported by the research done by Serrasqueiro and Nunes into Portuguese SME’s (2008). They found that a positive correlation between the size of a business and its performance in a market. According to Cooper and Artz (1995), many individuals start their own businesses for personal satisfaction as opposed to monetary gain. It is therefore important to also measure a business owner’s satisfaction with his company as a determinant of success in future model testing. With the ways that success can be measured in the model defined, we now present the different factors of variables and explain our hypothesises for each one.

Entrepreneur`s Characteristics

The entrepreneur’s skills, abilities, and attitudes, as well as his or her personality, are factors which play an important role in the success or failure of a business based on the personal aspects of the owner in the new country. These include attitudes towards risk and a passion for the business, prior experience in a managerial position or prior business ownership, time spent in the foreign country, and competency in the foreign language. Studies have shown that an individual’s attitude, such as his desire to achieve success (McClelland, 1961) and his likelihood to take risks (Begley and Boyd, 1987), can influence the success of the business. An entrepreneur’s attitude and personal factors are shown to be important in the growth of the business in several other existing studies (Drucker, 1984; Pansiri and Temtime, 2008).

Age

The age at which an owner starts a business may be a factor in its success for a variety of reasons. A younger entrepreneur may have more energy and patience to try out new things while an older entrepreneur may have access to more capital and personal connections with his business. Kropp et al. (2008) found a negative correlation between the age of someone at the time of the venture’s start-up and the start-up decision. The older the person starting the business, the more successful was the venture. The age of an entrepreneur when he or she begins the business has been shown to determine the productivity and success of a firm (Harada, 2004). We therefore suggest the following hypothesis:

H1: The greater the age of the entrepreneur, the better the performance of the newly founded enterprise.

^ Education Level

Herron and Robinson’s study (1993) lists several factors that affect entrepreneurial patterns of behaviour, one of which is the education and training a person receives. In various studies, those with higher education are seen to exhibit better managerial qualities and therefore are more likely to become entrepreneurs (Calvo and Wellisz, 1980; Le, 1999). This leads to our second hypothesis:

^ H2: The greater the educational level of the entrepreneur, the better the performance of the newly founded enterprise.

Gender

Several studies exist which look at the role of female owners of small businesses (Sandberg, 2003). Justin Tan’s study on female entrepreneurs found that gender plays a role in influencing success. Women were less likely to take risks in the pursuit of greater profit and so had a higher performance level than men (Tan, 2008). This idea is also seen in older studies such as one done by Johnson and Storey (1993). Other studies on expatriate women overseas depict their harassment in a foreign business environment, especially in countries like Japan that are very male-oriented which could influence their success chances (Insch et al., 2008). In our model, we therefore predict that:

^ H3. Male entrepreneurs are likely to be more successful than female entrepreneurs.

Prior Business Experience

Business experience may be a factor in the growth of a new SME venture. One of the key indicators of potential success for an entrepreneur is the possession of a wide variety of experiences (Vesper, 1990). There should also be a positive relationship between the experience of a business manager and the performance of the company (Skyes, 1986). Kolodinsky and Simmonds (1999) examined prior studies on the links between manager experience and firm success. They believe that the more experiences and variety that a manager achieves, the more likely that the business will prosper. A person with experience starting a business may be familiar with hiring new employees, inventory management, and paperwork processing. With a wide variety of experiences, a person may be able to utilize their existing business contacts to ensure greater success in the venture. We therefore propose controlling for prior business experience in our model and theorize that:

^ H4: The more business experience the entrepreneur possesses, the better the performance of the enterprise.

Time Spent in the Foreign Country

Evans et al. (2008), in their study on the effects of psychic distance and a firm’s success in new markets, identify international experience as a key success factor in the growth of a firm overseas. Klatt (2004) looked at a sample of 100 firms that went international between 1993–1994, and examined if they had grown some nine years later. He found that most of the companies were able to overcome their challenges by dealing with the culture and choosing to remain in the country. They earned valuable experience operating overseas and were therefore able to grow their own business. An individual entrepreneur that has spent years in Japan, for example, compared to a newly arrived person wanting to start his own company in Tokyo, could have an advantage in his start-up venture because he knows the country better and understands how to operate and get things done in the society. This gives us our next hypothesis regarding time spent in a foreign country.

^ H5: The longer the time the foreign entrepreneur has spent in Japan, the better the performance of the enterprise.

Foreign Language Competency

Most countries have their own unique language and communication styles. Hornby et al., in their study on the impact of the Internet for international SMEs, saw foreign language as an important factor that companies would need in order to expand and start ventures overseas (2002). Bae and Choe (2001) looked at a case study of Korean engineers working under Korean American managers and found a common language to be an important factor in overcoming cultural and business misunderstandings. Japan for example has a very complicated language with many polite forms of verbs and ritual expressions as well as a complex written language. Since many documents and business conversations are done in very polite Japanese, an obstacle facing a foreign business owner in Japan would be to fully understand the language in order to conduct business. The understanding of the foreign language would have to be controlled then in the study.

^ H6: The better the foreign language skills of the entrepreneur, the better the performance of the enterprise.


Enterprise Characteristics

At the same time, certain characteristics may exist in the business that may influence its success. These influencing variables may be the industry and the level of competition of the business, the business’s actual size, how much initial capital was invested into the business, and whether the owner is affiliated with any groups or organizations that can promote the business.

^ Industry/Level of Competition

An industry may be crowded and difficult for a new company to enter, especially one in a foreign country. The industry of the entrepreneur may therefore influence its success and growth. Studies in entrepreneurship often examine the industries of the firm and use that to see if there are any significant differences in firm success (Pansiri and Temtime, 2008). New enterprises are usually founded in niche markets or in business areas with less competition. We therefore assume that new businesses are more successful in areas with less competition and propose the following hypothesis.

^ H7: The lower the level of competition, the better the performance of the enterprise.

Initial Capital

Firms with access to a significant amount of starting capital have a better chance for success (Becchetti and Trovato, 2002; Kawai and Urata, 2002). They can afford to pay the various expenses required with starting a business. The company can also continue to operate while losing money for those first couple of years before they are able to turn a profit. A high initial capital also put into the business may also influence potential investors to contribute to the business as well. The initial capital put into the business is also an important figure to measure when looking at the growth rate of a company in terms of it as a success factor.

^ H8: The greater the initial starting capital, the better the performance of the enterprise.

Association Membership

Associations and organizations try to encourage and promote the success of their members. Various studies exist that show that both informal and formal networks are linked to not only a firm’s survival but also its growth (Parker, 2008). Ibata-Arens, in examining SMEs in Kyoto, found that the informal network and business cluster there encouraged the growth of each individual member (2008). Aidis et al. (2008) also found that even memberships in informal associations such as in Russia can contribute to the success of the business. In their study of entrepreneurial firms in Australia, Canada, Ireland, and New Zealand, Loane and Bell (2006) found that firms were able to use their existing networks to develop knowledge of international markets which would help their overall competitiveness in the international market.

With many more businesses using their network contacts to help them overseas, networks are becoming particularly important for foreigners trying to start businesses in other countries (Clydesdale, 2008). In a collectivistic country like Japan, membership in an association plays a dominant role. We therefore suggest the following hypothesis:

^ H9: The greater the involvement the owner has in associations and group memberships, the better the performance of the enterprise.


Japanese Business Environment Characteristics

While the previous three factors of variables relate to the likelihood of success for a foreign entrepreneur, numerous factors relating to the country’s business situation can have an opposite effect on the business. Japan, as our case study, has numerous characteristics that make it unique as a country, especially with the business world.


^ Uniqueness of Country Business Practices

Every country has its own rules and regulations to conduct business, both officially and unofficially. While some of these business practices may be common across several countries throughout the world, there exist many unique practices within different countries. For example, Aidis et al. (2008) examined the role of unique business practices in Russia and found that they had an effect on the entrepreneurial environment in that country.

Japan is a country known for unique business practices. Czinkota and Kotabe (2000) identified several practices in the business world that are unique to Japan that can impede foreigners from doing business. Other countries demonstrate unique business practices as well. The problems these practices can cause for an entrepreneur are elaborated in several studies (Helms, 2003). Close business linkages and keiretsu-style, cross-shareholding relationships between companies are a practice in Japan that can influence the success of a business (Colpan, 2008). For a foreign company, challenges exist that can impede company growth due to the control and tight relationship of native businesses in Japan. Tsalikis and Seaton (2008) as well Demise (2005) point out that Japan has a high level of collusion between companies and the government which could prevent the growth of foreign-owned firms. In addition to keiretsu and supplier relationships, other practices such as life-time employment may impact a foreign firm with his or her Japanese employees. We therefore propose that a country’s unique business practices may influence the growth of a firm.

^ H10: The more unique the country’s business practices that are perceived by the entrepreneur, the lower the performance of the enterprise.

Rigid Quality/Standards

When a country goes international, they have to learn which regulations and standards exist within their specific industry. Some of these standards can directly stop the sale of a foreigner’s product or service in a new country. Fliess and Kim (2008) looked at the impact of non-tariff barriers to trade on 136 firms in the environmental sector. They found that in many countries around the world, firms experience problems with technical regulations and standards not found in their own government.

In their analysis on international standards for project management in German and Sweden, Ahlemann et al. (2009) note that not only do different standards exist within different countries, but monitoring bodies also exist that interpret standards differently. It is therefore not always easy to distinguish which standards are the rule and which are just country-specific traditions.

Researchers have identified Japan as a country with high quality standards for their products (Namiki, 2005). Japan is often viewed by the United States as a country with difficult standards for foreign products. Especially within the food industry, Japan is worried about tainted beef or food products from other countries loaded with too many pesticides (Martin, 2007). If a foreign country cannot meet these standards with their product or service, they will not be a success in the Japanese market.

^ H11: The more rigid the country’s standards are perceived by the entrepreneur, the lower the performance of the enterprise.

High Operational Costs

A high level of debt has been shown to impact firm performance negatively (Serrasqueiro and Nunes, 2008). The greater the expenses to run a business, the more operational debt incurred. Lower overall costs are important, especially for a foreign firm operating overseas. Li and Li (2008) found that a low cost leadership strategy worked for foreign businesses in China. Firms able to bring down their costs, and that pass those savings on to their consumers, can have a better potential for growth. Technology, human resources, medical insurance, electricity, rent, etc. are all costs that can be impacted by geographic location and the country in which a foreign firm chooses to operate.

In Japan, for example, companies are expected to pay for the transportation costs of their employees while in the United States; this practice is not as common. High operational costs are therefore a factor in operating a business in a foreign country. In our model, this leads to the following hypothesis:

^ H12: The higher the operational costs of the enterprise, the lower the performance of the enterprise.

Country-Specific Costs

Japan is a country with multiple costs not associated with the day-to-day operating of a business. They are essentially unique costs that only exist if a person is trying to conduct or establish a business in that country. There are high real estate prices and freight costs greater than other developed nations. For example, guarantors are needed for things such as business transactions and renting rooms. If a foreigner does not have access to a Japanese person to act as a guarantor, then he or she may have to rent one.
There are also plenty of instances of “gift money” given in business transactions such as renting a new apartment (Moultrap, 1997).

There are also a number of costs associated with after-purchase servicing (Czinkota and Kotabe, 2000). All over the world, unique business costs are said to exist within specific countries. Even in an industry like health care, different costs may be associated depending on which country a person is currently residing (Perkins et al., 2009). We therefore present the following hypothesis:

^ H13: The greater the additional country-specific costs of the enterprise, the lower the performance of the enterprise.

Entrepreneurial Environment

Box (2008), in his study on the birth and survival of firms in Sweden, linked the economic environment of a firm’s country to the success of its business ventures. Countries with higher rates of GDP tend to have more successful small businesses (Tambunan, 2008). Mintzberg also found that an environment plays a role in a firm’s sucess (Mintzberg, 1978). Clysdedale (2008) has observed that government programs that try to attract foreign entrepreneurs often end in failure and suggests that the government is not doing enough to create a beneficial environment for venture growth. North’s (1990) research into the role of institutions identifies them as a major influence on a country’s economic environment and a growth in entrepreneurship. He notes that a country’s institutions essentially create the “rules of the game” for developing businesses.

Laws, policies, and regulations that promote, monitor, and countrol business can have a major impact in a company’s growth. Government programs that support small business and entrepreneurs have been shown to positively influence business growth (Honjo and Harada, 2006; Tambunan, 2008). But in terms of financing, the Japanese government has the tendency to give loans to larger firms that have been in business for several years as opposed to new companies that have just started (Kawai and Urata, 2002). Overall, we can assume that if the entrepreneurial environment is perceived as a positive one, starting a new venture would be much easier. We therefore propose:

H14: The better the entrepreneur’s perception of the enterpreneurial envrionment, the better the performance of the enterprise.

^

Summary and future research



The purpose of this paper is the development of a performance model for international entrepreneurship in Japan. An explorative field experiment was conducted to gain insight in the performance of international enterprises in the Japanese market. The analysis covers the different aspects of entrepreneurs, the enterprise which was established, and the particularities of the Japanese business environment. Based on these results, a conceptual model for determining successful performance of international enterprises in Japan has been developed. Future research challenges remain in the area of improvement of the model. As a next step, we plan a quantitative investigation consisting of surveying and additional interviews in order to determine the relevancy of the various influence factors as well as their dependences on the performance of international enterprises in the Japanese market.


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