The politics of institutionalization: the impact of foreign ownership and control on Japanese organizations

Abstract

The existence of distinctive and durable business systems has been a well-researched feature of the ‘varieties of capitalism’ literature. Organizational practices of firms belonging to and operating in these business systems reflect institutional logics that are unique to each particular system. However, the last decade has seen a large growth in cross-border mergers and acquisitions (M&A), including acquisitions by firms from one business system of firms from another. A model is presented, utilizing an institutional framework and focusing on the acquisition of Japanese companies by foreign firms, to analyse and predict the trajectory of organizational change in such cases.

Keywords:

• cross-border M&A
• employment practices
• institutional theory
• Japan
• organizational change

Notes

1. Source: Recof Corporation: website: www.recof.co.jp

2. The term ‘Western’ here is used to denote a more ‘market-oriented’ approach to corporate governance and a greater emphasis on shareholders, fully recognizing that countries, particularly in Europe, will have developed a particular brand of capitalism that can differ considerably from that of even a neighbouring country. Our assertion is that in post-War Japan, shareholders have had particularly low status and that a distinction between Japanese and ‘Western’ forms of capitalism is valid, even if there is a number of ‘Western’ varieties.

3. Control is not a straightforward concept under Japanese law. Renault holds 44% of Nissan's outstanding share capital, and therefore does not in theory control the firm, but owning one-third of a company gives effective working control, as it enables the blocking of special resolutions, such as to change the company's articles of association, removing directors, etc.

4. While the number of cases may appear small, the five cases do represent a reasonable proportion, and fair cross-section of major (i.e. over US$500 mn) acquisitions of Japanese firms by foreign companies during the period under study (1999–2002).