Annals of Business Administrative Science 12 (2013) 139–150

Available at www.gbrc.jp http://dx.doi.org/10.7880/abas.12.139

Online ISSN 1347-4456 Print ISSN 1347-4464
©2013 Global Business Research Center

Why Do Japanese Companies Exploit

Many Expatriates?: Analysis of Overseas
Subsidiaries in Japanese Companies
Kiyohiro OKIa)

Abstract: A cross table was created to classify 25 overseas

subsidiaries of Japanese companies. They were classified under
overseas subsidiaries with many expatriates and overseas
subsidiaries with few expatriates, as well as overseas subsidiaries
with sophisticated functions and overseas subsidiaries with
non-sophisticated functions. From the results, it was evident that
almost all overseas subsidiaries with sophisticated functions had
many expatriates. Japanese companies are often singled out for
their tendency to send many expatriates abroad in comparison to
the multinational corporations of Europe and the USA. The
sophisticated functions of those overseas subsidiaries of Japanese
companies were one cause for this tendency.

Keywords: Japanese companies, expatriates, overseas

subsidiaries, functions of overseas subsidiaries

a)
Faculty of Commerce, Kansai University, okik@kansai-u.ac.jp
A part of this paper was originally published as Oki, Amano, and Nakagawa (2011) in Japanese.

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1. Introduction
Japanese companies tend to send more expatriates abroad from
the home headquarters in comparison to the multinational
corporations of Europe and the USA (Bartlett & Yoshihara, 1988;
Kopp, 1994a, 1994b).1 However, it has been shown that the numbers
of expatriates in overseas subsidiaries of Japanese companies
decreased in the first half of the 1990s (Beamish & Inkpen, 1998).
Have the numbers of expatriates in overseas subsidiaries of Japanese
companies further decreased in the 21st century?
Data from the Ministry of Economy, Trade and Industry’s “Survey
of Overseas Business Activities” show the numbers of expatriates in
overseas subsidiaries for 2004 and 2007. From this data, only
Japanese companies in the manufacturing industry were selected,
and the number of expatriates per subsidiary for 2004 was compared
with that for 2007 (Table 1).2
Table 1 shows that the number of expatriates per subsidiary of
Japanese companies increased from 5.81 to 6.56 from 2004 to 2007.
This suggests that Japanese companies are still relying on
expatriates for overseas development.
Prior research has explained the reasons for Japanese companies
to utilize many expatriates from the perspective of corporate culture
and historical background (Bartlett & Ghoshal, 1989; Bartlett &
Yoshihara, 1988; Beamish & Inkpen, 1998; Kopp, 1994a, 1994b).
Some research has criticized the tendency of Japanese companies to

1 The term “expatriates” is defined as transferees from the home country and
“third country” nationals to an overseas subsidiary (Delios & Bjorkman,
2000).
2 Industry classifications in 2004 are different from those in 2007. The
machinery- (except electrical) and instruments-related products
classifications were present only in 2007, while stone, clay and glass,
primary metal products, general-purpose machines, production machines,
and service industry machinery classifications were present only in 2004.
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Table 1. Expatriates in Japanese companies

Expatriates per subsidiary

2004 2007
Food 3.78 ( 387) 4.75 ( 273)
Textile 3.11 ( 416) 3.52 ( 257)
Lumber, Paper & Allied products 2.87 ( 131) 5.48 ( 95)
Chemical 3.61 ( 991) 4.79 ( 607)
Petroleum & Coal 2.83 ( 31) 3.03 ( 31)
Stone, Clay & Glass -( 0) 3.76 ( 145)
Primary metal 4.99 ( 189) 3.63 ( 173)
Nonferrous metals 5.04 ( 196) 4.27 ( 184)
Machinery except electrical 4.35 ( 796) -( 0)
Primary metal products -( 0) 4.59 ( 240)
General-purpose machines -( 0) 4.76 ( 233)
Production machines -( 0) 4.55 ( 319)
Service industry machinery -( 0) 5.37 ( 153)
Electrical equipment 5.47 ( 646) 5.45 ( 444)
Information & Communications
9.27 (1114) 8.33 ( 838)
equipment (I & C)
Transportation equipment 10.78 (1309) 11.32 (1272)
Instruments-related products 5.19 ( 244) -( 0)
Other manufacturing 4.25 (1156) 4.36 ( 647)
Total 5.82 (7606) 6.56 (5911)
Note: The numbers of samples are in parentheses.
Source: Survey of Overseas Business Activities in 2004 and 2007

utilize many expatriates with the premise that this tendency is a

unique characteristic of Japanese companies (Bartlett & Yoshihara,
1988; Kopp, 1994a, 1994b; Legewie, 2002). It has also been reported
that Americans working in Japanese companies in the US feel
dissatisfaction with Japanese expatriates due to communication
issues (Kopp, 1994b). Thus some researches have argued that
Japanese companies should decrease the numbers of expatriates in
overseas subsidiaries (Bartlett & Yoshihara, 1988; Beamish &

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Inkpen, 1998; Kopp, 1994a, 1994b; Legewie, 2002).

However, is it possible that in recent years Japanese companies
use many expatriates in overseas subsidiaries for a different reason?
Former overseas development of Japanese companies has centered
on the transfer of manufacturing activities (Abo, 1994; Bartlett &
Ghoshal, 1989). However, in recent years, Japanese companies have
tended to bring sophisticated functions such as R&D to the overseas
subsidiaries (Asakawa, 2001).3 Recent research has focused on the
innovation from overseas subsidiaries (Doz, Santos, & Williamson,
2001; Frost, Birkinshaw, & Ensign, 2002). As overseas functions
become more enhanced, the need for sophisticated skills increases.
Have Japanese companies in recent years used more expatriates in
overseas subsidiaries to supplement the sophisticated skill? Existing
research, however, has not discussed the relationship between the
enhancement of functions in overseas subsidiaries and the large
numbers of expatriates in overseas subsidiaries of Japanese
companies.
Based on this question, this paper shows that there is a
relationship between the enhancement of functions in overseas
subsidiaries and the large number of expatriates from data obtained
through field surveys at 25 overseas subsidiaries of Japanese
companies.

2. Data
This paper utilizes data obtained from field survey interviews at 25
overseas subsidiaries conducted from 2005 to 2010. The data
samples are overseas subsidiaries randomly chosen from among
Japanese overseas subsidiaries expanding into the Asia region that

3 There is also a background of fiercer competition from the rise of

companies from developing nations such as China (Ge & Fujimoto, 2004;
Li, 2010).
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were found in publications and with each country’s Chamber of

Commerce. The samples were chosen so that as many industries as
possible would be represented. As a result, field surveys were
conducted in 25 overseas manufacturing subsidiaries from these five
industries: chemical, information and communications equipment,
electrical equipment, transportation equipment, and stone, clay and
glass.
The following data was collected from the field surveys: industry,
country, year visited, number of years established, number of
employees, number of expatriates, ages of overseas subsidiary at year
visited, functions of the overseas subsidiary. By referring to Fujimoto
(2001) and Terwiesch, Bohn, and Chea (2001), each function that
overseas subsidiaries take on were defined as follows:4

Product Development (PDD): Activities of product planning,

specifications formulation, and development of specific designs
Process Development (PCD): Activities of executing the design of
production lines for designated product models
Pilot Run (PR): Activities of setting up the test production lines
developed by Process Development, modifying lines and
individual processes while checking the viability of the lines. This
included changing process designs.
Ramp Up (RU): Activities of realizing full volume production with
the given products and processes in order to fulfill cost and
quality targets.
Mass Production (MP): Activities of setting up the factory
production line from Ramp Up and producing the supply of
products for the market.

In addition to the functions listed above, there is also a Product

Modification (PM) function. This is the function of modifying products

4 Because these were manufacturing subsidiaries, functions of sales and

marketing were not included.
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Table 2. Profiles of sample companies

Industry Country Year Age Number Number of Functions

visited of expatriates of a
employees subsidiary
A chemical Singapore 2009 10 83 4 MP
B chemical Thailand 2009 13 150 4 MP
C I&C Singapore 2009 14 170 2 MP
D I&C Singapore 2009 35 1,069 4 All
E I&C Thailand 2008 11 10,000 3 MP
F I&C China 2005 9 2,550 0 RU, MP
G I&C Singapore 2006 34 800 2 MP
H I&C Singapore 2009 6 1,150 14 All
Hong
I I&C 2008 22 45,000 130 All
Kong
PCD, RU,
J I&C Indonesia 2009 15 12,205 29
MP
10 &
K I&C China 2005 9 8,057 MP
several
L I&C China 2005 9 6,150 24 PDM, MP
PDM, PR,
electrical
M China 2005 10 5,500 12 RU,
equipment
MP
N I&C Singapore 2007 11 705 19 All
10 & PR, RU,
O I&C China 2007 12 1,900
several MP
P I&C Thailand 2009 47 13,500 50 All
Q I&C China 2006 4 10,800 33 MP
R I&C Thailand 2007 19 5,592 33 MP
electrical
S Thailand 2009 20 2,850 30 All
equipment
electrical
T Thailand 2009 18 2,800 15 All
equipment
electrical
U Thailand 2009 22 2,209 30 All
equipment
about
V I&C China 2010 16 10 All
10,000
dozens of
W chemical Indonesia 2009 14 3 MP
people
stone, clay
X Thailand 2009 36 1,070 10 MP
& glass
Y chemical Thailand 2009 9 84 4 MP

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that do not require major technological changes at overseas

subsidiaries for products that were developed in Japan. Specifically,
these are modifications such as changes to local language software
and exterior appearances. This function is handled as part of the
early product development function.
The above data from the 25 subsidiaries is organized in Table 2.

3. Analysis
This paper examines the relationship between the function of the
overseas subsidiaries and the number of expatriates. In order to do
this, the overseas subsidiaries with many expatriates and the
overseas subsidiaries with few expatriates are first classified
according to the following procedure. Table 1 shows the average
number of expatriates for each industry. The number of expatriates
for each company and the number of expatriates per industry, to
which the company belongs, were compared and the overseas
subsidiaries were then classified as having more expatriates than the
average number of expatriate per industry (many) or not (few). The
comparison year (either 2004 or 2007) was selected by choosing the
year nearest to the year in which each company was surveyed,5 and
then compared to the average number of expatriates. As a result,
nine companies A, B, C, D, E, F, G, W, and Y, were classified as
overseas subsidiaries with few expatriates.
On the other hand, the classification of overseas subsidiaries with
sophisticated functions and overseas subsidiaries with
non-sophisticated functions was made on the basis of whether they
have a function equal to or higher than Pilot Run. This is because
overseas subsidiaries with only Ramp Up and Mass Production

5 Only companies F, K, L, and M were compared with the average number of

expatriates for 2004; the others were compared with average number of
expatriates for 2007.
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functions are not involved in the development of products and

processes which need sophisticated technology and skills. In fact, the
analysis performed on Japanese companies in the 1990s revealed
that not many overseas subsidiaries of Japanese companies
performed process development and/or product development (Cho,
1994). As a result, these 13 companies D, H, I, J, L, M, N, O, P, S, T,
U, and V were classified as overseas subsidiaries with sophisticated
functions.
Table 3 shows the results of the above classifications organized into
a 2 × 2 cross table. With a Chi-square of 9.4193 (p = 0.0021),6 a
statistically significant trend can be seen for overseas subsidiaries to
utilize many expatriates when they perform sophisticated functions.
One notable point is that of the 13 overseas subsidiaries with
sophisticated functions, there was only 1 company (8%) that utilized
few expatriates. This implies that one cause for the use of many
expatriates by Japanese companies is the sophisticated functions of
the Japanese companies’ overseas subsidiaries.
The sole company occupying the “sophisticated functions and few

Table 3. Contingency table of expatriates and functions)

Functions of an overseas subsidiary

Expatriates of
an overseas subsidiary Sophisticated
Non-sophisticated
(more than Total
(RU & MP or MP)
RU)

Few (less than average) 8 1 9

Many (more than average) 4 12 16

Total 12 13 25
Note: Chi-square = 9.4195, p = 0.0021

6 Using Fisher’s exact test, p = 0.0036.

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expatriates” cell is company D, an overseas subsidiary

manufacturing PCBs (printed circuit boards) that was established in
Singapore in 1974.
On their initial expansion, company D was supplying PCBs to a
different subsidiary in Singapore; however, the subsidiary
purchasing their supply was subsequently shut down. Because of
that, company D was put in the unique position of having to develop
their own customer base with no financial, technological, or human
resource assistance from their headquarters. Therefore, they had to
have their own product development functions.

4. Discussion and Future Research

The four overseas subsidiaries included in the “non-sophisticated
functions and many expatriates” cell had unique characteristics of
having many more employees and not being in equipment-intensive
industries, such as chemical industries, in comparison to the eight
overseas subsidiaries included in the “non-sophisticated functions
and few expatriate.” In regard to numbers of employees, there were
three companies that had 5,000 or more employees. Although these
overseas subsidiaries did not have what this paper calls
“sophisticated functions,” they did require sophisticated knowledge
of production activities. Several Japanese companies possess
sophisticated knowledge regarding production activities (Abo, 1994;
Ohno, 1988). Because expatriates perform an important role when
this knowledge is transferred to overseas subsidiaries (Oki, 2012), it
is to be expected that the Japanese companies possessing
sophisticated knowledge regarding production activities would send
many expatriates in order to support the production activities of
many employees. From the analysis of 25 overseas subsidiaries of
Japanese companies, this paper clarifies that there are only a few
overseas subsidiaries with sophisticated functions and expatriates. If
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future research considers that sophisticated functions need

sophisticated knowledge from many expatriates as well as the
production activities performed by large numbers of employees also
need sophisticated knowledge, the reasons for Japanese companies
using many expatriates can be explained considerably well.
At the same time, the results of this paper also suggest that the
overseas subsidiaries of Japanese companies have not yet become
independent enough to perform sophisticated functions without
participation from the home country. Bartlett and Ghoshal (1989)
and Bartlett and Yoshihara (1988) perceive this characteristic of
Japanese companies as the evil of Japanese companies in
concentrating resources and power in the home headquarters and
not focusing on the subsidiary. More research is needed to answer
whether this is actually a unique phenomenon of Japanese
companies, or a phenomenon perceived during the transition of the
overseas subsidiary’s enhancement of functions.

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Received March 12, 2013; April 24, 2013

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