Journal of International Management4 (1998) 173–200

1075-4253/98/$–see front matter. © 1999 Elsevier Science Inc. All rights reserved.PII: S1075-4253(98)00012-X

Perceptions of anticompetitive practices in Japan and the market performance of foreign firms

Masaaki Kotabe

a

* and Kent W. Wheiler

b

a

Temple University, The Fox School of Business and Management, The Institute of GlobalManagement Studies, Philadelphia, PA 19122, USA

b

Weyerhaeuser China, Ltd., Shanghai, China

Abstract

Based on an extensive survey of corporate executives living and working in Japan, this study exam-ines the relative rate of occurrence of anticompetitive behavior and its impact on the performance ofU.S. companies operating in Japan. By anticompetitive behavior, we refer to illegal commercial activ-ity outlawed by both U.S. and Japanese statute, such as big rigging, price fixing, and market alloca-tion. Thus, this work goes beyond the extensive body of literature addressing Japan’s infamous, butlargely government sanctioned, barriers and alleged barriers to trade and looks specifically at activitythat even the Japanese government decrees to be criminal and punishable by law. The study finds thatthe occurrence of anticompetitive behavior is perceived differently by the nationality of the managerssurveyed: American executives believe that illegal competitive behavior does occur more frequentlyin Japan than in the United States, while Japanese executives (and those of other nationalities to somelesser extent) do not perceive such a difference. Second, despite their contrary opinions regarding oc-currence, the executives as a general group, regardless of nationality, indicate that anticompetitive be-havior has not had a significant negative impact on their business performance in Japan. This workalso confirms that foreign companies with the best performance in Japan are those that offer superiorproducts and exceptional service backed by scale economies or other sources of bargaining strength,and that long-term growth and performance depend upon the development of sufficient local auton-omy and flexibility to facilitate timely adaptation to local needs and demands. © 1999 Elsevier Sci-ence Inc. All rights reserved.

Keywords:

Anticompetitive practices; Antitrust laws; Corporate performance in Japan; Trade barriers; Entry strategy

* Corresponding author: Phone: 215-204-7704; Fax: 215-204-8029; e-mail: mkotabe@sbm.temple.edu

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1. Introduction

Accusations of Japanese trade barriers are well documented and researched (e.g.,Shimaguchi and Lazer, 1979; Balassa, 1986; Choate, 1990; Yamamura, 1990; Srinivasan,1991; Bergsten and Noland, 1993; Fallows, 1993.). At the macro level, there are those whodeclare that Japan’s trade is normal, considering its factor endowments and particular eco-nomic situation (e.g., Bergsten and Cline, 1985; Saxonhouse, 1993) and those who assert ab-normality (e.g., Lawrence, 1987, 1991; Lincoln, 1990). Others argue that while Japan’s for-mal government controls on foreign direct investment were liberalized, private restrictionscontinued to deny access to foreign firms (e.g., Lincoln, 1990; Encarnation, 1992; Mason,1992). At a micro level, research has been conducted on how foreign firms’ entry to the Jap-anese market has been affected by Japanese government policy (e.g., Johnson, 1982; Kotabe,1985; Krugman, 1987; Uekusa, 1987; van Wolferen, 1989; Yamamura, 1990; Noland, 1993)and

keiretsu

business relationships (e.g., Lawrence, 1991b; Cutts, 1992; Gerlach, 1992;American Chamber of Commerce in Japan, 1993). However, little has been investigated onhow foreign firms operating in Japan have managed to deal with Japanese firms’ businesspractices that may be deemed anticompetitive and how those practices have affected foreignfirms’ market performance (Czinkota and Kotabe, 1993).

In this article, we examine the relative occurrence of 10 types of anticompetitive behavior(i.e., refusal to supply, refusal to deal, market allocation, tied financing, obstruction of distri-bution, retail price maintenance, obstruction of advertising, price fixing, production cartel,and bid rigging), and their impact on the performance of foreign firms marketing manufac-tured products in Japan. The allegations about Japan’s anticompetitive practices centeraround the contention that Japan does not sufficiently enforce its Anti-Monopoly Law(AML). U.S. trade negotiators echoed this accusation during the Structural Impediments Ini-tiative (SII) talks and in the annual SII reviews: “The Government of Japan has not yetstrengthened sufficiently its antimonopoly enforcement regime so that it will effectively de-ter collusive anticompetitive practices that exclude foreign competition in the Japanese mar-ket” (First Annual Report of SII Follow-Up, 1991:7). The United States continues to pressfor greater enforcement of Japan’s AML, while Japan argues that the law and its enforce-ment have been enhanced and that Japan’s Fair Trade Commission (JFTC) is vigorouslyeliminating anticompetitive practices (Second Annual Report of SII Follow-up, 1992).

2. Evidence of anticompetitive behavior

2.1. High prices

One of the basic premises behind fair-trade laws is the enhancement and protection ofconsumer welfare (Bork, 1978; Graglia, 1991). Japan’s Antimonopoly Law declares onepurpose of the law as being to “assure the interests of consumers.” Consumer prices fre-quently are used as a barometer of consumer welfare. In fact, the basic proscription of anti-trust law is that businesses should not have the power to enforce prices above competitivelevels through collusion with competitors or exclusion of rivals (Krattenmaker and Salop,1987). Sustainable price differences for similar goods across different international markets

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has been recognized as a reliable indicator of nontariff barriers to free and open competition(Saxonhouse, 1991). Lawrence (1991b) suggested that “if the Japanese market is contest-able, we should see the potential for entry keeping Japanese prices in line with those of othermarkets” (p. 25).

MITI (1992) conducted a survey of retail prices for a selected array of manufacturedgoods in Tokyo, New York, London, Paris, and Dusseldorf. Tires, cameras, camera lenses,floppy disks, video tapes, color TVs, VCRs, video cameras, and calculators made in Japanand exported to the United States were all more expensive in Japan than in the United States.A joint investigation by MITI and the U.S. Department of Commerce (DOC) found that 42percent of the made-in-Japan goods examined were priced higher in Japan than in the UnitedStates (Japan Economic Institute, 1990). DOC and MITI also looked at relative prices in thetwo countries, comparing exact brands and models in similar retail environments. They dis-covered that two thirds of the manufactured goods were on average 37 percent more expen-sive in Japan (U.S. Department of Commerce, 1991).

However, these findings are not without some controversy. Saxonhouse (1991) ques-tioned the generalizability of these pricing studies based on the nonrandom nature of thesamples used. He cites an analysis of the determinants of the U.S. and Japanese price differ-ences found in the DOC-MITI study, in which Cline (1990) found no statistically significantdifference between the United States and Japanese prices for Japanese-made goods, althoughhe did find a significant difference in U.S. and Japanese prices for goods made in the UnitedStates and Europe (Japan’s prices were significantly higher). Saxonhouse argued that if theJapanese market were highly protected, “both Japanese and foreign products should havemuch higher prices in Japan than abroad” (p. 44). He suggests that foreign firms are attempt-ing to maximize profits through low-volume, high-price sales. However, a random sample ofexports from the United States to Germany and Japan, and of German exports to the UnitedStates and Japan, showed that the exporters were not charging higher prices when selling toJapan, but that Japanese importers were applying unusually high markups on foreign prod-ucts sold in Japan (Lawrence, 1991a; Czinkota and Kotabe, 1993). Overall, there is some ev-idence to support the contention that anticompetitive practices seem to exist in Japan.

2.2. Unfair business practices

Anecdotal cases of various anticompetitive behavior appear frequently in Japan’s dailynewspapers, usually noting that either no or very light punitive action was taken. The state-ments of Japanese government and business leaders support these reports. Naohiro Amaya, aformer Vice Minister of Foreign Affairs, declared that “MITI has never adhered to the ideaof a free economy in a traditional sense. From the start, its role was doomed to conflict withthe principles of free trade” (“MITI seeking new role for itself in mature economics.”

NikkeiWeekly

, May 30, 1992.).For example, Japan’s three largest construction companies, Kajima, Shimizu, and Taisei,

submitted a 33-page document to the JFTC requesting that bid rigging and collusive pricefixing (known as

dango

) be allowed to continue within the construction industry because it isbeneficial to the economy. Among the benefits cited were that

dango

1) helps prevent com-panies from dumping and cutting corners, 2) protects small contractors from the threat of

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bankruptcy, and 3) prevents companies from winning contracts at too high prices, since asuccessful price is decided before bidding (Construction giants define dango as “beneficial”.

Daily Yomiuri

, March 15, 1994). The construction industry, backed by Keidanren, put for-ward the same argument in 1982 when the JFTC attempted to limit the occurrence of dango(Sanekata, 1986). Kajima also issued a manual for company personnel encouraging bettercompliance with the AML that contains the frank admission, “Unfortunately, our own firmhas not been a model of obedience to the Antimonopoly Law” (Four printing companiesfound guilty in bid-rigging.

Mainichi Daily News

, December 15, 1993).Eight companies indicted for fixing prices of plastic food wrap admitted their illegal be-

havior but claimed the indictment was invalid because it was widely known that other indus-tries in Japan also fix prices, and that they were simply singled out as a scapegoat due to U.S.pressure for stronger antitrust enforcement (Plastic wrap companies call indictment unjust.

Daily Yomiuri

, May, 1992).Based on this anecdotal evidence, it is not surprising that “there is a strong belief in the

business community in Japan that agreements to restrict imports, backed by threatened refus-als to deal, appear to be quite prevalent” (First, 1986). However, there is very little actualdata to support this. Using data collected from actual violations in various industries is not anoption, because it does not exist. Criminal sanctions have been used only four times in thehistory of Japan’s antimonopoly enforcement. As will be shown, less than 10 percent of allcases brought before the Japan Fair Trade Commission are ever formally resolved.

2.3. Ineffectual prosecution

Japan’s Antimonopoly Law prohibits three categories of behavior: 1) private monopoliza-tion, 2) unreasonable restraint of trade, and 3) unfair trade practices.

1

Although the first twomay also be considered “unfair,” the distinction is important because the criminal penaltiesand surcharges available under the AML apply only to private monopolization and unreason-able restraint of trade, not to unfair business practices.

2

No criminal penalties or surcharges

1

In 1991, the JFTC issued

The Antimonopoly Act Guidelines Concerning Distribution Systems and BusinessPractices

(hereafter the Guidelines) to clarify enforcement of the AML. The Guidelines describe more than 100types of conduct that may be considered a violation of the AML, under 12 general descriptions: 1) customer allo-cation, 2) boycotts, 3) primary refusals to deal by a single firm, 4) restrictions on trading partners of dealing withcompetitors, 5) unjust reciprocal dealings, 6) other anticompetitive practices on the strength of continuous transac-tion relationships, 7) acquisition or possession of stocks of trading partners and anticompetitive effect, 8) resaleprice maintenance, 9) vertical nonprice restraints, 10) provision of rebates and allowances, 11) interference in dis-tributors’ management, and 12) abuse of dominant bargaining position. Of these, only customer allocation agree-ments and boycotts are described as violations “in principle” of the AML. The legality of the other actionsdepends upon their effect on competition in the market. The guidelines do not address price-fixing cartels, supplyrestriction cartels, purchase volume cartels and bid rigging, other than to note that these activities are, in principle,violations of the AML.

2

Anyone who believes Japan’s AML has been violated can file a report with the JFTC. Following an investiga-tion, if a violation of the law appears to have occurred, the JFTC can issue a recommendation decision to theaccused company, advising it of the illegality of its behavior and suggesting appropriate corrective action. If theaccused accepts the recommendation, the case is closed without any punishment. If the recommendation isrejected, or if the JFTC believes it is in the public interest to do so, a hearing will be convened. Once a hearing isinitiated, the defendant may admit the illegality and propose a solution. If the JFTC accepts the proposal, the hear-

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are available as remedy for unfair business practices (Haley, 1984; Matsushita, 1993). Theonly possible action is for the JFTC to tell the offender to “cease and desist.” There is no pu-nitive penalty. The JFTC could bring criminal charges against an enterprise that fails to com-ply with recommendation, consent, or hearing decisions issued.

Recommendation, consent, and hearing decisions are the formal methods of resolutionstipulated in the AML. In reality, these measures are seldom used (Uesugi, 1986). The vastmajority of cases are settled through a “caution” or a “warning.” A caution is a private com-munication to the party alleged to be in violation of the AML; a warning is considered stron-ger and can be made public. Although informal enforcement is not uncommon in other coun-tries, the JFTC resorts to informal procedures much more frequently than do other countries(Sanekata, 1986). During the SII talks Japan promised to make greater use of formal reme-dies. Recommendations have increased from 7 in 1989 to 22 in 1990 to 30, 34, and 31 in1991 through 1993, respectively (JFTC Annual Reports, 1985–1994).

Japan’s AML includes provisions for criminal sanctions, but since its amendment in 1953criminal indictments have been issued on only four occasions. Two indictments came in1974 against oil cartels, one for production restrictions and the other for price fixing (Ram-seyer, 1985). The production cartel was ruled to have acted illegally, but the defendants wereacquitted because they had acted under the assumption that what they were doing was legal(because they were simply doing what MITI had told them to do). The defendants in theprice fixing case were found guilty, but their prison sentences were suspended. In 1993, eightplastic food wrap companies were found guilty of price fixing and sentenced to fines be-tween ¥6 and ¥8 million (about $60,000–$80,000) in 1993. Prison sentences meted out to the15 executives involved were suspended (8 firms are fined in Tokyo for cartel.

InternationalHerald Tribune

, May 22, 1993).In summary, although the AML stipulates penalties for violation of the law, enforcement

is very lax, raising legitimate questions about the law’s effectiveness at deterring undesirablebehavior. The main sanctions against antitrust violations are criminal penalties, but only theJFTC can initiate criminal prosecution for antitrust violations, and they almost never do. Onthe rare occasion that they take such action, the fines are relatively small and the jail sen-tences for executives are suspended.

By comparison, in the United States criminal antitrust activity has, since 1974, been a fel-ony offense with a maximum $1 million fine and a 3-year jail term per count. Between 1983and 1992 the Antitrust Division of the Justice Department filed nearly 800 criminal cases andwon convictions in 90 percent, resulting in fines of $206 million against 421 individuals and726 corporations (an average of $38,000 for each individual and $262,000 for each corpora-tion), and 237 individuals served time in prison for an average of 6 months (U.S. Departmentof Justice, 1992).

3

ing is terminated and a consent decision is announced, which incorporates the solution proposed. If a consent deci-sion is not forthcoming and the hearing proceeds to a close (a process that can take several years), the JFTC mayissue a hearing decision ordering the defendant to take measures to correct the unlawful behavior. JFTC hearingdecisions can be appealed to the Tokyo High Court.

3

An even greater fear and deterrent for U.S. businesses is the possibility of a private action filed by parties alleg-edly injured by anticompetitive behavior, in which the plaintiffs may sue for treble damages. Private actions have,

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Articles 25 and 26 of the AML allow for private recovery of damages but stipulate that atort claim cannot be filed unless and until the JFTC has issued a decision verifying that theconduct actually occurred and was a violation of the law (Baumol and Ordover, 1985; First,1986; Ishikawa, 1989; Matsushita, 1993). Unfortunately for the plaintiff, as explained above,the JFTC resolves nearly all of their investigations informally by providing a “caution” or“warning” to the accused, not a formal decision, effectively denying opportunity for the in-jured party to bring suit under the AML.

4

A myriad of other obstacles face a potential litigant(Ramsayer, 1985; Richards, 1993). A court fee of up to 1 percent of the damages soughtmust be paid to the courts before the plaintiff can file a lawsuit.

2

Class action lawsuits are notpermitted. There is, by any measure, a shortage of attorneys and judges in Japan (Haley,1990), making it difficult to obtain representation, raising the cost thereof, and tying up casesin court for a minimum of 5 and up to 15 years. The JFTC and Japan’s courts do not have ac-cess to the contempt power in order to enforce their decisions and must rely on voluntarycompliance or the threat of criminal proceedings. Until recently, plaintiffs have not been al-lowed discovery to obtain internal company documents necessary to corroborate their case.

A provision for the assessment of surcharges was added to the AML in 1977. If an enter-prise or association takes action that results in an unreasonable restraint of trade that affectsthe price of goods or services, the JFTC can order the offending operators to pay a surchargeequal to 6 percent (2 percent for retailers or 1 percent for wholesalers) on up to 3 years ofsales revenues of the affected goods. (Due to U.S. pressure during the SII talks, these chargeswere increased in 1991 from 2 percent, 1 percent, and 0.5 percent, respectively). Excepting1990 (during which a cartel of 12 cement companies were assessed a total surcharge of¥ 12.5 billion), surcharges have averaged less than ¥2 billion ($2 million) annually from1977 through 1991, an amount that is “trivial by American standards” (Lipsky, 1991).

Law and economics literature regarding liability rules shows that higher sanctions causeindividuals to avoid liability by reducing their level of activity and by increasing care (Sny-der, 1990). As noted above, the probability of prosecution for anticompetitive behavior in Ja-pan and penalties that would result is extremely low. “This dearth of enforceable deterrents. . . has led to exactly the consequences one would expect: a ‘cooperative’ economy charac-terized by widespread cartelization” in Japan (Ramseyer, 1985:637). On the other hand, theextraterritorial application of U.S. antitrust laws has generally kept U.S. companies operatingin Japan from acting like Japanese counterparts (Kotabe and Helsen, 1998:141–144).

Considering the evidence provided by the history of antitrust enforcement in Japan, thecontention that anticompetitive behavior exists and acts as a deterrent to foreign firms’ oper-ations deserves further examination. This research therefore asks two questions: 1) Do vari-

since the 1960s, accounted for over 90 percent of all antitrust litigation in the United States, not without somequestionable consequences (Baumol and Ordover 1985; Neale and Stephens, 1988). But in the more than 40 yearssince enactment of Japan’s AML, private actions have been filed less than a dozen times, and only one has beensuccessful (Haley, 1984; Ramseyer, 1985; Sanekata, 1986; Ishikawa, 1989; Lipsky, 1991).

4

The plaintiff could file a tort claim under Article 709 of the Civil Code (Matsushita, 1993), but in that case theburden of proof lies with the plaintiff. The plaintiff must establish intent to harm and actual damage. For example,a private damage case filed against an oil cartel for price fixing was dismissed even though the existence of thecartel was confirmed, because the plaintiffs failed to prove that kerosene prices would have been lower in theabsence of the cartel (Toyama et al., 1983; Ramse1yer, 1985).

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ous anticompetitive behaviors occur more frequently in Japan than in the United States? and2) Is the occurrence of anticompetitive behavior in Japan related negatively to the perfor-mance of U.S. companies operating in Japan? Consistent with the existing literature that fo-cuses on manufacturing industry, we limit our research scope to U.S. manufacturing firmsoperating in Japan. Based on the foregoing literature review, the following overriding re-search hypotheses are established:

H

1

: Anticompetitive behavior is perceived to occur more frequently in Japan than in theUnited States.

H

2

: Anticompetitive behavior in Japan is perceived to have a negative impact on theperformance of U.S. companies marketing manufactured goods in Japan.

2.4. Other factors influencing market performance

To test the second hypothesis, anticompetitive behavior is introduced into a conceptualframework (Fig. 1) consisting otherwise of components that have been repeatedly found tohave a significant influence upon a firm’s performance: characteristics of the market envi-ronment in which the business operates, characteristics of the firm and its competitivestrengths, and the strategies used by the firm. Our interest lies in examining the impact of

Fig. 1. Conceptual framework. Note: The focus of this study is highlighted in italic. Items used in this con-ceptual framework are listed in the Appendix.

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Japanese firms’ anticompetitive practices in the presence of market, firm, and strategy fac-tors characterizing U.S. corporate strategy in Japan.

2.4.1. Market characteristics

It is a well established tenet within industrial organization literature that how organiza-tions behave, the strategies they follow, and their ultimate performance are influenced by theenvironment in which they operate (e.g., Bain and Qualls, 1987). Characteristics of the envi-ronment are generally beyond the control of management, although corporate decisions andactions obviously influence and shape the environment. Market growth rate, concentrationamong suppliers, number of buyers, availability of substitutes, entry and exit barriers are as-pects of the environment which have an influence upon firm performance (Porter, 1980;Buzzell and Gale, 1987).

Industry conditions such as profit margins and market growth rates are expected to have acorresponding influence upon the individual firm’s market performance. Characteristics ofthe industry that could serve as structural barriers to entry and expansion (e.g., market domi-nance by a few competitors, restricted distribution, and limited suppliers) will have a favor-able effect on the performance of incumbent firms.

2.4.2. Sources of firm advantage

Numerous studies have established the critical relationship between a firm’s market per-formance and its competitive strengths relative to competitors (e.g., Porter, 1980; Day andWensley, 1988; Prahalad and Hamel, 1990). Competitive advantage can arise from superior-ity in many different skills and resources: marketing, advertising, pricing, product differenti-ation, control of raw materials, bargaining power, innovation, economies of scale, sales forceefficiency, service, quality, and customer knowledge (Wernerfelt, 1984; Kotabe, 1990; Ca-vusgil and Zou, 1994). In fact, testing various hypotheses about which factors create thegreatest advantages has been fertile ground for research across many business disciplines.Work based on the PIMS data base has provided a huge volume of empirical evidence of thelinks between various components of the strategy mix and performance (Buzzell and Gale,1987).

2.4.3. Structure of control

A relationship between strategy and performance, in both domestic and foreign environ-ments, has long been postulated (Bilkey, 1982; Cooper and Kleinschmidt, 1985; Buzzell andGale, 1987; Christensen et al., 1987). An organization’s strategies are implemented to opti-mize the interaction between the organization’s internal characteristics and the characteris-tics of its environment, ultimately affecting the organization’s performance within that envi-ronment (Gupta and Govindarajan, 1991; Cavusgil and Zou, 1994). International marketingstrategies that contribute to successful performance require specific focus on, and adaptationto, local market conditions, which in turn requires some degree of decentralization and localdecision making autonomy.

The standardization of marketing strategies for global markets has been much debated(Walters, 1986). Overall findings suggest that strategy standardization is at best difficult andimpractical. Samiee and Roth (1992) conclude that common views about marketing strategystandardization rarely have been supported empirically, except that product standardization

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may produce favorable results, if proactively pursued (Kotabe, 1990). In general, adaptationof marketing mix variables to the local market has been shown to be an important ingredientof success in foreign markets (Bilkey, 1982; Cooper and Kleinschmidt, 1985; Cavusgil andZou, 1994).

To the extent that marketing mix variables must be adapted and customized to meet localneeds, tastes, and competitive practices, the required changes can be made more efficiently ifdecision making authority over such factors is decentralized with significant local autonomy(Gupta and Govindarajan, 1991; Doyle et al., 1992). Autonomy is positively correlated withorganizations that are flexible and effective in responding to environmental contingencies(Datta and Grant, 1990), and particularly so in a culturally distant country like Japan (Lazeret al., 1985). Thus, a greater degree of local autonomy is expected to have a positive influ-ence upon firm performance in the foreign market.

3. Methodology

3.1. Research instrument

Although much has been said about the occurrence of anticompetitive behavior in Japanand the inadequate enforcement of the Anti-Monopoly Law (AML), empirical investigationof illegal, anticompetitive practices is almost nonexistent. As explained earlier, data regard-ing occurrence and injury is not available due to JFTC prosecution practices. In a study ofextraterritorial antitrust, Townsend (1980) found U.S. executives extremely reluctant to talkopenly about antitrust issues. When the United States designated Japan as an unfair tradingnation under Section 301 of the Omnibus Trade Act and began investigating barriers to woodproducts, supercomputers, and satellites, not a single U.S. business in those industries, noteven those who had privately requested government action, would go public with specificexamples of anticompetitive practices (Rockwell, 1989).

This paucity of research and the reluctance of business executives to go public with spe-cific accusations is understandable. As noted earlier, in an environment where the probabilityof successful prosecution is low, and the negative consequences could be high (including thepossibility of alienation and retaliation), maintaining silence and attempting simply to workwithin the system may be the most reasonable course of action. Therefore, considering thedifficulties of collecting data concerning such a sensitive topic, a research instrument wasdesigned to allow respondents to indicate the relative occurrence and impact of various anti-competitive activities without disclosing specific information about the parties involved.This is done by inquiring into the occurrence of specific activities that are,

in principle

, vio-lations of Japan’s antimonopoly law, relative to their practice in the United States. Ten spe-cific examples of anticompetitive behavior were selected from the JFTC Guidelines. Re-spondents were asked to indicate on a 5-point scale (“much less often” to “much moreoften”) the frequency of occurrence in Japan of the described behavior relative to occurrencein the United States The midpoint of the scale indicated that the relative frequency is thesame, without specifying the rate of occurrence (i.e., if the behavior is widespread in bothmarkets or does not occur at all in both markets, the appropriate response in either casewould be at the midpoint of the scale). By investigating the relative frequency of occurrence

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rather than the actual rate of occurrence, respondents could provide data regarding the extentof the problem without divulging sensitive information. Even when indicating that the be-havior occurs more or less in one market or the other, executives were not required to iden-tify the practicing parties or provide further detail.

Prior to answering any questions, all respondents were asked to identify one business unitwithin their organization having considerable long-term significance to their company’s ob-jectives in Japan and respond to all questions in reference to that business line only. This wasintended to avoid what has been a methodological weakness in some studies of firm perfor-mance that have collected data at the overall company level (Cavusgil and Zou, 1994). Con-ditions, practices, and performance can vary widely across various product-market venturesof the same firm. Investigating at the overall firm level can result in confounded findings.Firm performance success can be more accurately analyzed at the product level rather thanthe firm level.

Evidence exists that formal barriers to imports have been reduced and the degree of accessto markets in Japan has improved (McKinney, 1989; American Chamber of Commerce in Ja-pan, 1991). The Japanese government has officially recognized “the necessity to enhance theoverall deterrent effect against antimonopoly violations” (Second Annual Report of SII Fol-low-Up, 1992:96) and, since 1989, has taken some steps to enhance enforcement of the AMLsuch as increasing the maximum allowable surcharges and criminal fines. This research wastherefore designed to measure the effect of current anticompetitive activities on recent per-formance (the past 3 years) and does not attempt to investigate the influence of currently de-funct behaviors or policies that may have historically served as market barriers.

3.2. The sample

To investigate the occurrence of anticompetitive behavior in Japan relative to the UnitedStates, and the effect on U.S. business efforts to market manufactured goods in Japan, infor-mation was solicited from U.S. manufacturing companies that are actually doing business inJapan and that have advanced sufficiently in their commitment, development, and experiencesuch that they have their own offices and operations established in Japan. This is not a largepopulation. The U.S. Department of Commerce reports that almost 85 percent of the total ex-ports of manufactured goods from the United States come from about 250 firms, and onlyabout 220 of the

Fortune

500 industrial firms actually have a business presence in Japan(Allen, 1994). Using the 1994 membership directory of the American Chamber of Com-merce (ACCJ) in Japan, we identified 187

Fortune

500 companies. An additional eight pri-vate companies of similar size, also ACCJ members, were added to the sample. The “com-pany voting” member, in almost every case the highest ranking officer in Japan, wascontacted. Thus, the sample consists of U.S. manufacturing companies that have establisheda physical presence and a workforce in Japan.

The assistance of a high-ranking, influential U.S. business executive in Tokyo was solic-ited to encourage participation in the study. He mailed a letter to each of the 195 executivesin the sample informing them of the impending study, introduced the authors, and requestedcooperation with the study. The U.S. executive’s message was followed by a letter from theauthors explaining the nature of the study and notifying the executives that they would be

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called within a few days to arrange for an appointment. Each executive then received a per-sonal call requesting his or her cooperation. In order to maximize participation, those whoagreed to participate in the study were given three options: 1) mail questionnaire, 2) tele-phone interview, or 3) personal interview. In all three cases, an identical data collection in-strument was used. Mail questionnaires included a stamped return envelope and a cover let-ter with instructions. The same instructions were relayed verbally during the telephone andpersonal interviews. All the telephone and personal interviews were conducted by one of theauthors while in Japan. Results were tested for significant differences in response patterns bydata collection methodology. In no case were responses on the mail questionnaires signifi-cantly different from the responses recorded in the telephone and personal interviews.

3.3. Profile of the respondents

Responses were received from 131 of the companies contacted. Two of the responseswere unusable (the respondents reported that they had no domestic competition for the prod-ucts they were selling in Japan), resulting in 129 usable responses from a sample of 195, withan effective response rate of 66.2%. Approximately two thirds of the respondents used themail questionnaire, 22 percent was interviewed via telephone, and the balance (14 percent)was personally interviewed in their Tokyo offices.

Although data were collected exclusively from executives of U.S. companies, this doesnot imply that only Americans responded. Many U.S. companies have their Japan operationsled by executives who are Japanese citizens or other nationalities. One half of the respon-dents were Americans, 70 percent of whom have been with their current company for morethan 10 years (39 percent have more than 20 years experience with the same company). Al-most two thirds of the U.S. executives, 61 percent, have been involved with their company’sJapan business for more than 5 years (28 percent have more than 10 years experience withtheir business in Japan). Thirty-nine percent of the respondents were Japanese. As would beexpected, these Japanese executives had much more experience working in Japan (nearlytwo thirds have more than 20 years experience). Fifteen executives of other nationalities(e.g., Canada, Australia, and various European countries) accounted for 11.6 percent of therespondents, most (80 percent) of whom have been working for the same company for atleast the past 10 years.

An analysis of variance (ANOVA) was performed to test for significant differences in re-sponse patterns by nationality of respondents. U.S. and Japanese executives did vary in theirassessment of the occurrence of anticompetitive behavior in Japan relative to its occurrencein the United States (i.e., Americans believe that it occurs more often while Japanese do not).This is an important finding and will be discussed later.

The responding companies represent 24 industries. No single industry accounts for morethan 11 percent of the data. About two thirds (62.8 percent) of the companies responded inreference to industrial products, while the balance were marketing consumer goods. No sig-nificant differences were detected in response patterns between the types of products.

Only 16.3 percent had worldwide annual sales of less than $1 billion, and one half hadsales in excess of $5 billion. These companies have a considerable amount of experience inJapan. Over one half (53.5 percent) have operated there for more than 20 years.

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3.4. Operationalization of the variables

3.4.1. Occurrence of anticompetitive behavior

The method used to collect information regarding the relative occurrence of anticompeti-tive behavior was described briefly earlier. Japanese newspaper articles related to anticom-petitive practices were scanned to compile an initial list of apparent activities. These werecompared with information contained in the JFTC Guidelines, resulting in 10 specific de-scriptions of anticompetitive behavior that are violations, in principle, of Japan’s AML.

5

The10 scenarios used in the study are presented in Appendix A.

As indicated earlier, respondents were asked to indicate on a 5-point scale of “much lessoften” to “much more often” the frequency of occurrence in Japan of the described behaviorrelative to occurrence in the United States. For example, respondents were asked only aboutthe relative frequency of “a group of manufacturers mutually agree to fix the price of a prod-uct.” The term “price fixing” did not appear in the questionnaire. Respondents were notasked to judge or comment upon the legality or fairness of the practice, and they were in-structed to answer exclusively in reference to markets in which their business unit competes.

These 10 items were analyzed for occurrence and impact on performance both individu-ally and in the aggregate. A principal components factor analysis of the 10 behaviors loadedon one factor with high internal consistency (Cronbach

a

5

0.92). A summated variable,BEHAVIOR, was constructed for subsequent aggregate analysis.

6

3.4.2. Impact of anticompetitive behavior

It is possible that foreign executives may incorrectly perceive anticompetitive behavior tohave a negative impact on the performance of their operations in Japan even if there is no sta-tistical basis for that perception. To check the congruence between the statistical findingsand executives’ perceptions, respondents were asked to indicate, on a 5-point scale rangingfrom “strongly disagree” to “strongly agree”, if their performance in Japan had been affectedadversely by the occurrence of the anticompetitive behavior. Principal components factoranalysis shows that responses to the 10 situations loaded similarly on one factor, accountingfor 58.0% of the variance, with high internal consistency (Cronbach

a

5

0.94). A summatedvariable, IMPACT, was constructed for subsequent aggregate analysis.

3.4.3. Market characteristics

A list of 14 aspects of a market environment was compiled, all of which have been shownin previous studies to have an impact on performance (Buzzell and Gale, 1987). Respondentswere asked to indicate on a 5-point scale ranging from “very low” to “very high” the positionthat best described the conditions of the market in which their business unit operates in Ja-pan. Principal components factor analysis with varimax rotation identified four factors. Thelast two of the factors were dropped due to difficulty in interpreting the factor and low inter-nal consistency (Cronbach

a

of 0.35 and 0.34, respectively). Clean, logical interpretations

5

Whether the activity is actually a violation of the law would depend upon the impact upon competition, whichwould have to be determined by a JFTC investigation of the specific circumstances surrounding each case.

6

For multiple-item measures, summated variables were constructed unless otherwise noted.

M. Kotabe, K.W. Wheiler/Journal of International Management 4 (1998) 173–200

185

were possible with the remaining two factors and consistent with the literature that has beenreviewed. Those factors accounted for 61.8% of the variance.

The first factor, ATTRACT, consists of five items that indicate the growth and profit con-ditions of the market (Cronbach

a

5

0.74). The second factor, STRUCTUR, contains fivemeasures of the structure of the market that could serve as barriers to entry or expansion, aspostulated by entry theory (Cronbach

a

5

0.78). For example, if there are few competitors,suppliers, distributors, substitute products, and/or customers, the incumbents may have agreater possibility of creating effective structural barriers to new entrants.

3.4.4. Firm characteristics

Twelve dimensions of competitive strength were selected from the literature. Respondentswere asked to rate their business unit relative to their competitors in Japan on a 5-point scaleof “much lower” to “much better.” Item cleansing and principal components factor analysiswith varimax rotation resulting in three factors: SERVICE, PRODUCT, and CLOUT.

SERVICE represents the ability of the firm to provide and continually improve the qualityof its service (Cronbach

a

5

0.80). An effective salesforce is important to this factor as it isgenerally the salesforce that has the closest and most frequent contact with the customer. Thesales representative’s personal attention to quality can create or detract from a firm’s qualityimage. The factor PRODUCT accounts for competitive advantage that can arise from supe-rior characteristics of the firm’s products: a differentiated and wide variety of product offer-ings, incorporating the latest technology and improvements (Cronbach

a

5

0.80). The thirdfactor, CLOUT, represents areas of strength through economies of scale and a stronger bar-gaining position with customers (Cronbach

a

5

0.62). These factors accounted for 66.6% ofthe variance.

3.4.5. Structure of control

As noted in the literature review, two aspects of a company’s strategy are crucial to suc-cessful performance in foreign markets: strategic focus and managerial autonomy. Of course,this does not imply a complete change of the marketing mix variables for each market, or ab-solute local control. In many cases only slight modifications are required to what otherwisewould be considered a standardized approach. But management must be willing to adapt tolocal market needs and conditions. In order to meet market demands in a timely and effectivemanner, management must allow some degree of local autonomy.

To determine the extent to which businesses had adapted their strategies to focus specifi-cally on the needs and demands of customers in Japan, respondents were asked to indicatetheir agreement with five statements on a 5-point scale from “strongly disagree” to “stronglyagree.” Agreement with these statements would indicate that the strategic thrust of a com-pany is to build and grow their business in Japan, rather than to merely maintain or pull back(Burke, 1984). It is interesting and encouraging to note that of the 129 companies participat-ing in the survey, 89 percent scored higher than 3.0 on a composite of these measures, whichwould appear to indicate that the vast majority of U.S. organizations in Japan are attemptingto build their operations there.

To measure the degree of local managerial autonomy, a 5-point scale ranging from “totalcontrol” to “no control” was used, and executives were asked to indicate the degree of localmanagement control over product, pricing, promotional, and investment decisions for the Ja-

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pan market. Principal components analysis confirms that these items represent the level ofstrategic focus (FOCUS; Cronbach

a

5

0.73) and managerial autonomy (AUTONOMY;Cronbach

a

5

0.79), accounting for 54.9% of the variance.

3.4.6. Performance

Common measures of performance are market share and profitability (e.g., Burke, 1984;Buzzell and Gale, 1987; Kotabe, 1990; Doyle et al., 1992). Executives were asked to assessthe performance of their business unit on three criteria, relative to their three largest compet-itors in Japan, using a 5-point scale of “much lower” to “much higher”: 1) market share,2) pretax profits, and 3) return on investment. Principal components factor analysis sup-ports one factor, PERFORM, to represent the construct of recent firm performance (Cron-bach

a

5

0.70).Recently, Prahalad (1994) introduced the concept of “opportunity share.” According to

this idea, in some cases it may be more appropriate to measure performance by how well onecaptures future opportunities rather than judging by current or past profits and market share.Opportunity share seems an appropriate measure in this situation considering that many ofthe U.S. firms doing business in Japan currently have a relatively small share of the market.Yet, as noted earlier, the vast majority are growing and building their operations in Japan.Therefore, in an attempt to capture this construct, executives also were asked to evaluatetheir likelihood of improvement during the next 3 years on the same three dimensions (mar-ket share, pretax profits, and return on investment), relative to their three largest competitors.Principal components factor analysis loads the three variables well on one factor (PROS-PECT) with high internal consistency (Cronbach

a

5

0.73).

3.4.7. Control variables

As noted earlier, the views of Japanese and American executives regarding the relativefrequency of anticompetitive activity in Japan vary considerably. Differences in nationalitycould have some bearing on the operation of the model. Thus, the nationality of the respon-dent (American, Japanese, or other) is introduced into the model as a control variable NATION.

A company’s experience in a market also could be an important influence on perfor-mance, although the competitive advantage provided by experience would most likely di-minish over time as other businesses became equally seasoned participants. Several re-searchers have found a positive correlation between international business experience (andthe knowledge that experience brings) and better performance (Davidson, 1980). The num-ber of years of operation in Japan was used as a surrogate measure of the firm’s level of ex-perience (EXPERT).

The variables and their measurement items are summarized in the Appendix.

4. Analyses and results

4.1. Hypothesis 1

It was hypothesized that anticompetitive behavior was perceived to occur more frequentlyin Japan than in the United States. As explained earlier, to test this hypothesis executives inJapan were given descriptions of 10 types of anticompetitive behavior and asked to indicate

M. Kotabe, K.W. Wheiler/Journal of International Management 4 (1998) 173–200 187

the rate of occurrence in Japan relative to the United States by using a 5-point scale on whichthe midpoint implied no difference in the relative rate of activity. A mean score significantlydifferent from 3.0 would denote a perceived rate of occurrence in Japan distinct from prac-tices in the United States. Mean scores were computed for each of the 10 types of anticom-petitive behavior individually and in the aggregate as the factor BEHAVIOR. These weretested for significant difference (p , 0.05) from a hypothetical mean of 3.0. The results areshown in Table 1.

This analysis indicates that anticompetitive behavior does occur more frequently in Japanrelative to the United States, supporting the hypothesis. This is true in both the aggregate(BEHAVIOR) and individually for six of the 10 types of anticompetitive behavior investi-gated: bid rigging, price fixing, market allocation, tied financing, production cartels, and re-fusal to supply. These findings must be qualified, however, because as noted earlier, an analy-sis of variance by nationality of executive showed substantial differences in their perceptionsof anticompetitive activity. When mean scores are calculated according to the respondent’snationality, the results are striking. U.S. executives felt that all 10 types of behavior occurmore frequently in Japan than in the United States, while Japanese executives felt that noneof the activities happens more often in Japan. Executives of other nationalities (e.g., Cana-dian, Australian, and European) fell between these two extremes, indicating that they believebid rigging, price fixing, and tied financing are more common in Japan than in the UnitedStates.

Table 1Relative occurrence of anticompetitive behavior in Japan

Mean rating

Anticompetitive behavior All American Japanese Other F-value P-value

Bid rigging 3.54 3.87 3.11 3.67 9.11 0.0002Price fixing 3.53 3.80 3.13 3.73 6.57 0.002Market allocation 3.43 3.68 3.13 3.43 4.70 0.01Tied financing 3.39 3.51 3.21 3.50 1.47 0.23Production cartel 3.27 3.46 3.02 3.30 3.79 0.03Refusal to supply 3.22 3.57 2.77 3.21 7.89 0.0006Retail price maintenance 3.16 3.48 2.80 3.17 5.02 0.01Obstruction of distribution 3.13 3.33 2.86 3.21 4.63 0.01Refusal to deal 3.08 3.32 2.83 2.92 4.38 0.01Obstruction of advertising 2.90 3.22 2.51 3.00 10.02 0.0001Behavior (Cronbach a 5 .92) 3.21 3.52 2.88 3.28 8.20 0.0006

MANOVA (Wilks l 5 0.61, F 5 1.90, p 5 0.017; Hotellings T 5 0.59, F 5 2.00, p 5 0.011) suggests thatthere are significant differences in mean responses to 10 types of anticompeteitive behavior among executives ofAmerican, Japanese, and other nationalities. Individual ANOVA using Duncan’s multiple comparison method re-veals that in all cases except for tied financing, the mean responses of U.S. executives are significantly higher thanthose of Japanese executives. However, no significant differences were observed either between executives of theUnited States and other nationalities or between those of Japanese and other nationalities. Only in the case of tiedfinancing is no sigificant difference observed among executives across all nationalities.

Scores in boldface indicate a significant difference (p , 0.05) from a mean of 3.0. Scores significantly higher(lower) than 3.0 suggest that relative occurrence of anticompetitive behavior is perceived to be more (less) fre-quent in Japan than in the United States.

188 M. Kotabe, K.W. Wheiler/Journal of International Management 4 (1998) 173–200

It is surprising that the U.S. and Japanese executives hold such opposite views regardingthe occurrence of anticompetitive behavior, especially considering that the executives are allemployed as senior officers with U.S. companies. Differences in culture and experience canlead to divergent perceptions and interpretations of identical activities. We had initiallysought to avoid culture-specific complications by polling executives of U.S. companies ex-clusively. In addition, the respondents were given identical descriptions of various behaviorsand were asked to indicate the relative frequency only, not the legality of the behavior, so asto make it unlikely that the responses would vary by nationality due to differences in inter-pretation of, or experience with, fair trade laws. For example, it was assumed that executivescould disagree on whether bid rigging is a violation of antitrust laws without hampering theirability to judge relative frequency of occurrence. But this does not appear to be the case.Clearly, the U.S. executives see what they judge to be anticompetitive behavior occurringmore frequently in Japan than do the Japanese executives. Furthermore, the Japanese execu-tives’ perception that the relative occurrence of the anticompetitive behaviors described wasrelatively similar in both the United States and Japan is not necessarily without basis, either.As evidenced in a recent battle between Kodak and Fuji Photo Film over their respective an-ticompetitive practices, Japanese executives are aware of competitive practices in the UnitedStates and Japan and genuinely believe that there is as much anticompetitive behavior in theUnited States as there is in Japan (Fuji Photo to Kodak: Stand on your own. Nikkei Weekly,October 23, 1995). Another possible, but less likely, explanation for the different points ofview could be that the Japanese respondents may not be sufficiently familiar with the com-petitive climate in the United States. They may have had few questions about the anticom-petitive nature of the acts described but could believe that the behavior is more common inthe United States than is actually the case. However, over two thirds of the Japanese respon-dents have been with their American employer for more than 5 years, which should implysome familiarity with American business practices. They undoubtedly had participated inbusiness meetings with U.S. executives during which various strategies and business prac-tices of the company and its competitors were reviewed. Their employers would have beenrather reckless if they had not informed their Japanese officers about U.S. antitrust rules andtheir extraterritorial application to the company.

Nationalistic pride is a possible, but less probable, explanation for the differences in theexecutives’ evaluations. A U.S. executive, frustrated by an inability to succeed in Japan,could overstate the occurrence of anticompetitive behavior. Likewise, Japanese executives,wanting to protect Japan’s reputation and honor, could understate the level of activity. Thispossibility seems unlikely, however, because it is not consistent with the responses to thebalance of the questionnaire. No other critical response patterns varied by nationality, partic-ularly the assessment of the impact of anticompetitive behavior, which will be reviewed later.

In conclusion, the first hypothesis is answered affirmatively by U.S. executives workingin Japan but rejected by their Japanese colleagues. U.S. executives clearly believe they facemore anticompetitive behavior in Japan than they do in the United States. In particular, bidrigging, price fixing, market allocation, tied financing, production cartels, and refusal to sup-ply are areas of greater perceived activity. Yet, Japanese executives of U.S. companies donot agree that anticompetitive behavior occurs more frequently in Japan. Executives of theother nationalities fall between these two divergent opinions.

M. Kotabe, K.W. Wheiler/Journal of International Management 4 (1998) 173–200 189

4.2. Hypothesis 2

The second hypothesis concerns the relationship between anticompetitive behavior andthe performance of U.S. companies operating in Japan. An analysis of covariance was per-formed using recent performance (last 3 years) and the prospect for future performance (next3 years) as the dependent variables (PERFORM and PROSPECT, respectively). Independentvariables included factors for market attractiveness (ATTRACT), market structure (STRUC-TUR), competitive strengths in service (SERVICE), product offerings (PRODUCT), econo-mies of scale and bargaining position (CLOUT), local managerial autonomy (AUTON-OMY), and adaptation to the Japanese market (FOCUS). The factor BEHAVIOR,aggregating the 10 anticompetitive activities, was also an independent variable.7 The com-pany’s years of experience in Japan (EXPERT) and the nationality of the respondent (NA-TION) were included as control variables. The model had good explanatory power (R2 5 40and 32%, respectively). The results are shown in Table 2.

7In our preliminary analysis, we suspected that anticompetitive behavior (BEHAVIOR) might moderate therelationships between the various predictor variables and the performance of U.S. firms. Using an approach toinvestigating contingency relationships developed by Sharma et al. (1981), we performed a three-stage moderatoranalysis but found that BEHAVIOR is not a moderator variable but rather a predictor variable. Therefore, in sub-sequent analysis, we considered BEHAVIOR as a predictor variable. We also performed regression analysis,using each individual type of anticompetitive behavior as a predictor variable. The regression analyses producednearly identical results, so only the aggregate results are reported.

Table 2Analysis of covariance of factors influencing recent performance (PERFORM) and future performance (PROSPECT) of U.S. firms in Japan

PERFORM PROSPECT

FactorCoefficientestimate t-value

Coefficientestimate t-value

Intercept 20.85 — 1.49 —BEHAVIOR 0.13 1.00 20.14* 21.35ATTRACT 20.13 21.07 20.21** 22.14STRUCTUR 0.18** 1.70 0.26*** 3.04SERVICE 0.25** 2.12 0.06 0.60PRODUCT 0.18* 1.44 0.14* 1.40CLOUT 0.31*** 3.07 0.18** 2.28AUTONOMY 0.11 1.19 0.16** 2.09FOCUS 0.00 0.03 0.20** 1.95EXPERT1 0.14*** 2.72 20.02 20.57NATION1

Japanese 0.30 1.61 0.09 0.62Other 20.13 20.52 20.56*** 22.71American — — — —

R2 40.1*** 32.0***

* p , 0.10; ** p , 0.05; *** p , 0.01.1 two-tailed t-tests; all others are one-tailed t-test.

190 M. Kotabe, K.W. Wheiler/Journal of International Management 4 (1998) 173–200

Contrary to the hypothesis, anticompetitive behavior (BEHAVIOR) is not significantly re-lated to the recent performance of U.S. companies in Japan. The most significant factors indetermining performance are experience (EXPERT) and the company’s strengths derivedfrom economies of scale and an advantageous bargaining position (CLOUT). The influenceof market structure was as expected, with greater numbers of competitors, distributors, sup-pliers, etc. (STRUCTUR) facilitating ease of entry and better performance. Not surprisingly,other competitive strengths derived from superior service (SERVICE) and the product at-tributes (PRODUCT) also proved important to recent performance. These findings are plau-sible since some U.S. companies have been operating in Japan long enough to adapt, andperhaps even benefit from, anticompetitive practices. Anheuser-Busch selling its beer at in-flated domestic prices, Martin Marietta’s bid-rigging and fat margins, and many of the musicrecord companies being subsidiaries of U.S. companies that benefit from the retail pricemaintenance are just a few such examples.

When these executives look ahead at performance in the coming years, a somewhat differ-ent set of variables becomes important. Anticompetitive behavior (BEHAVIOR) seems to besomewhat negatively related to future performance (p , 0.10). Executives apparently feelthat they have been able to successfully penetrate the Japanese market and achieve their cor-porate performance objectives despite the occurrence of such activities. However, as theylook ahead and consider further growth and expansion (their “opportunity share”), they stillseem to be concerned that anticompetitive practices could inhibit their performance. Consid-ering the situation of many U.S. companies in Japan, this is not an unreasonable evaluation.In many industries, U.S. companies have the highest market share of any foreign competitorsand they earn very good profits on their Japan sales. However, those market shares are rela-tively limited when compared with their domestic competitors. The executives seem to con-tinue to be concerned that as they attempt to gain an even larger share of the market, the anti-competitive behavior of domestic firms could worsen and restrict their expansion.

Product strengths (PRODUCT), bargaining position, and economies of scale (CLOUT)continue to be consequential variables enhancing future performance, with local managerialautonomy (AUTONOMY) and the adaptation of marketing mix variables to local needs,tastes, and competitive practices (FOCUS) increasing in importance. This is not surprising,as these are factors that research consistently shows to be essential for successful interna-tional market expansion. For example, Czinkota and Kotabe (1993) asked executives, policymakers, and researchers how foreign companies could improve their ability to penetrate theJapanese market. Market research, product adaptation, collaborative ventures, and overallbetter business strategy were seen as more beneficial than trade negotiations.

SERVICE loses some of its significance when looking toward future performance. Thismay at first seem surprising, until one considers the well deserved reputation of Japanesecompanies for service (Lazer et al., 1985). It may be that U.S. companies find it necessary toplace great emphasis on service when entering a market and winning new customers. Overthe long term, however, once parity is reached with domestic Japanese suppliers on servicequality, it may be more difficult to gain a competitive advantage in this area.

Experience (EXPERT) has diminishing value over time, as expected. Market attractive-ness (ATTRACT) has a substantial impact on opportunity share, but, in the opposite direc-tion of what was anticipated, perhaps for fear that high growth and fat margins will attract in-

M. Kotabe, K.W. Wheiler/Journal of International Management 4 (1998) 173–200 191

creased competition. Another unusual outcome is the significant negative coefficient forexecutives of non-Japanese, non-American nationality. These foreign business leaders ap-parently have lower expectations for future performance than their U.S. or Japanese counter-parts. One possibility for this finding may be their more pessimistic view of the directionU.S.–Japan relations are headed. Another cause could be their greater familiarity with theeconomic situation in Europe and some attribution of future negative consequences for all in-ternational trade.

Interestingly, ANCOVA results regarding the impact of anticompetitive behavior on re-cent performance are consistent with executives’ perceptions. Concurrent with their evalua-tion of the relative frequency of the 10 anticompetitive practices, executives also were askedto assess the impact of each activity on their business. Using a 5-point scale, we found thatonly mean scores significantly greater than 3.0 would indicate a negative influence upon per-formance. As shown in Table 3, there is not even a single case, within the total group of re-spondents or by nationality, where it can be said that a particular behavior negatively affectsperformance. On the other hand, it can be said (p , 0.05) that these executives believe thatprice fixing, obstruction of distribution, retail price maintenance, production cartels, and ob-struction of advertising do not adversely affect U.S. business performance in Japan. Al-though U.S. and Japanese executives disagreed on the rate of occurrence, they do agree thatanticompetitive behavior has not had a negative impact on their firm performance.

In summary, the second hypothesis is not supported. The occurrence of anticompetitivebehavior in Japan does not appear to be negatively related to the recent business performanceof U.S. companies marketing manufactured goods. This finding must be qualified, however,because U.S. executives do expect that such behavior could become an impediment as theyexpand their presence in Japan.

Table 3The perceived effect of anticompetitive behavior in Japan on U.S. business

Mean rating

Anticompetitive behavior All American Japanese Other F-value P-value

Refusal to supply 2.93 2.95 3.12 2.71 0.57 0.57Bid rigging 2.99 2.95 2.91 2.90 0.01 0.99Refusal to deal 2.82 2.76 2.98 2.54 0.89 0.41Market allocation 2.82 2.92 2.79 2.50 0.75 0.47Tied financing 2.82 2.69 2.98 2.79 0.74 0.48Price fixing 2.75 2.74 2.80 2.58 0.17 0.84Obstruction of distribution 2.66 2.51 2.86 2.64 1.04 0.36Retail price maintenance 2.60 2.49 2.68 2.69 0.34 0.71Production cartel 2.59 2.55 2.72 2.27 0.77 0.46Obstruction of advertising 2.39 2.31 2.45 2.46 0.22 0.80

MANOVA (Wilks l 5 0.88, F 5 0.50, p 5 0.97; Hotellings T 5 0.14, F 5 0.49, p 5 0.97) suggests that nosignificant differences exist in the impact of anticompetitive behavior on U.S. business performance as percevedby executives of American, Japanese, and other nationalities. Individual ANOVA on each of the 10 anticompeti-tive practices also shows no significant difference.

Scores in boldface indicate a significant difference (p , 0.05) from a mean of 3.0. Scores significantly higher(lower) than 3.0 suggest that relative occurrence of anticompetitive behavior is perceived to be more (less) fre-quent in Japan than in the United States.

192 M. Kotabe, K.W. Wheiler/Journal of International Management 4 (1998) 173–200

5. Conclusions and implications

The findings of this research are both clear and surprising: U.S. executives working in Ja-pan believe that anticompetitive behavior occurs more frequently in Japan than it does in theUnited States. Japanese executives of U.S. operations in Japan do not agree, claiming thatthere is very little difference in the anticompetitive climates of the two countries. What issurprising is that despite their contrary opinions regarding occurrence, the executives agreethat anticompetitive behavior has not had a negative influence on their business performancein Japan, although they foresee the potential for adverse consequences upon their future per-formance. These findings have important implications for U.S. and Japanese business andgovernment officials.

5.1. Implications for business executives

It is troubling that even among the executives of U.S. companies in Japan, American andJapanese managers appear to interpret competitive behavior quite differently. If the execu-tives of U.S. companies cannot agree, it is not surprising that the leaders of Japan’s corpora-tions express puzzlement when accusations of anticompetitive behavior are raised by theUnited States. Clearly additional educational efforts are needed to help business people ofeach nationality understand how various types of behavior are perceived, interpreted, andcountered.

U.S. executives must better understand what types of competitive behavior are allowedunder Japan’s Antimonopoly Law and normal business practices and how the extraterritorialreach of U.S. antitrust law covers their operations in Japan. Due to erroneous assumptions ofillegality, U.S. businesses may be disadvantaged to the extent that they refrain from practicesengaged in by their Japanese competitors. Japanese executives must better understand whattypes of behavior their U.S. trading partners consider to be anticompetitive and take steps toeither explain why such practices are allowed in Japan, or, if the activity is a violation of Ja-pan’s antitrust laws, eradicate the practice.

Japan’s Fair Trade Commission (JFTC) has recently undertaken greater efforts to educateJapanese businesses of what constitutes anticompetitive behavior. In addition, organizationssuch as the U.S.–Japan Business Council, the American Chamber of Commerce, Keidanren,and the Japanese Chamber of Commerce and Industry could work together to sponsor oppor-tunities for joint education of American and Japanese executives. Dialogue must be in-creased to improve mutual understanding of what is acceptable competitive behavior andwhat is not.

Although it is a logical assumption that anticompetitive behavior would have a negativeinfluence on the business performance of firms that do not collude, the respondents in thisstudy have indicated otherwise. This finding is consistent with prior research in which non-exporters have been found to perceive export barriers as more formidable obstacles than isactually the case for those who are exporting (Bilkey, 1982; Kedia and Chokar, 1986). Acompany that perceives an anticompetitive threat may abort plans to enter a market withoutsufficiently testing the accuracy of those perceptions. The findings of this study should en-courage businesses interested in establishing operations in Japan and keep them from prema-turely abandoning strategies due to perceived obstacles.

M. Kotabe, K.W. Wheiler/Journal of International Management 4 (1998) 173–200 193

As has been shown time and time again, the key to successful entry into Japan remains agood business strategy centered around quality products and services that have been adaptedto the local market through careful market research (e.g., Czinkota and Kotabe, 1993). Theresults summarized earlier in Table 2 reaffirm that foreign companies with the best perfor-mance in Japan are those which offer superior products and exceptional service backed byscale economies or other source of bargaining strength. Direct experience and participationin the market is vital, although the contribution toward performance appears to diminish overtime. The long-term growth and performance of U.S. companies in Japan also depend upontheir developing sufficient local autonomy and flexibility to facilitate timely adaptation to lo-cal needs and demands.

Executives indicated a concern that as they expand their operations in Japan, anticompeti-tive behavior could become a deterrent. Further research toward an understanding of howbusinesses have thus far avoided negative consequences of anticompetitive acts would beparticularly useful to these executives. Such barriers can be overcome, and foreign compa-nies need a better understanding of the means whereby this is accomplished. These execu-tives also can continue to pressure Japanese business organizations (e.g., Keidanren), con-sumer organizations, the Japanese government, and their respective governments to worktogether for the control and elimination of anticompetitive behavior.

5.2. Implications for trade officials

Lincoln (1990), Bergsten and Noland (1993), and others claim that the complete removalof alleged trade barriers would not eliminate Japan’s surplus with the United States, althoughit could have a noticeable impact. Haley (1990) and Richards (1993) both argue that betterantitrust enforcement in Japan will not improve the trade imbalance. Ryans (1988) found thatwhile nontariff barriers did influence firm performance in Japan, they were a less importantfactor than some of the more traditional marketing variables. Considering these variouspoints, combined with the findings of this study, it is likely that trade negotiators and execu-tives who insist on aggressive antitrust enforcement in Japan in anticipation of more openmarkets, greater sales, and more balanced trade will be disappointed.

On the other hand, to the extent that anticompetitive behavior does actually occur in Ja-pan, these observations do not diminish the pertinence of calls for the removal of such barri-ers and for more effective AML enforcement. A stronger and more effective enforcement re-gime will help improve Japan’s image as a fair trading partner, a development that wouldhave benefits for Japan, the United States, and the world economy.

Lincoln (1990) points out that “even if American perceptions are exaggerated and one-sided, the sense that Japan gains at American expense in the current trade system will furthererode support for the system” (p. 5). The perception of unfair Japanese trading practices is akey element in explaining why U.S. congressional support for liberal trade has declined.“Regardless of whether such beliefs are accurate, the important thing is that they exist. Theperception that Japan cheats in the marketplace damages not only Japan’s long-term credibil-ity and standing abroad but also the fabric of a free trade system upon which Japan so heavilydepends” (Toyama et al., 1983:609). It is in Japan’s own interest, more so than the benefitsthat would accrue to any of her trading partners, to take steps to improve the country’s fair

194 M. Kotabe, K.W. Wheiler/Journal of International Management 4 (1998) 173–200

trade image. Adequately enforcing the AML could contribute considerably to such a change.It is recommended that trade officials from both the United States and Japan continue to pur-sue the goals set out in the Structural Impediments Initiative (SII) relative to strengtheningJapan’s Fair Trade Commission and more effectively enforcing Japan’s Anti-Monopoly Law.

U.S. trade officials may also find it useful to better educate government policy makers andU.S. firms regarding the nature of Japanese competitive practices and what different ap-proaches might improve the probability of success in Japan. Concurrently, the United Statesmust help American executives understand the extraterritorial application of U.S. antitrustlaws to their Japan operations, specifically in reference to areas where U.S. and Japaneselaws and practices may vary.

6. Limitations of the study

The survey sample included only large multinational U.S. companies that have the bulk ofU.S. business experience operating in Japan but that also have the resources and power tomost effectively deal with and minimize the impact of whatever anticompetitive behaviorthey may confront. These companies have established a critical presence in Japan and ac-count for the bulk of U.S. goods exported and/or manufactured there. The survey did not in-clude business firms that may have faced anticompetitive barriers so overwhelming that theyeither chose not to make an attempt or were compelled to abandon the effort. Our conversa-tion with American executives we interviewed also seems to suggest that most of those com-panies that had retreated from Japan had done so without seriously investing their time andresources in setting a foothold on the Japanese market. Therefore, while it is not clear to whatextent their retreat was genuinely attributable to Japanese anticompetitve behavior, theremay be some bias toward underestimating the impact of the occurrence of anticompetitivebehavior on firm performance.

Validation studies have found that executives’ personal evaluations of performance are con-sistent with objective measures from internal or published information (Dess and Robinson,1984). However, there remains a possibility of overconfidence and overestimation in using self-assessments of business performance. The measures of performance and competitive strengthused in this study might be biased due to their reliance upon executives’ evaluations of theirown company’s accomplishments. Unfortunately, performance figures specifically for the Ja-pan operations (or any particular market) of the Fortune 500 companies surveyed generallyare not public information. Only aggregated, worldwide sales and revenue statistics are pub-lished by these companies. To the extent that verifiable and objective measures of perfor-mance and competitive strength can be obtained, it could improve the quality of future research.

Appendix A: Anticompetitive scenarios (BEHAVIOR, Cronbach a 5 0.92; IMPACT, Cronbach a 5 0.94)

1. Refusal to Supply: A manufacturer informs independent distributors or end users thatthe manufacturer will not supply products if the distributors or end users purchasecompeting products.

M. Kotabe, K.W. Wheiler/Journal of International Management 4 (1998) 173–200 195

2. Refusal to Deal: Manufacturers or distributors inform independent suppliers that theywill discontinue purchases if the suppliers sell materials to competing businesses.

3. Market Allocation: A group of manufacturers or distributors mutually arranges not todeal with each other’s customers.

4. Tied Financing: A financial firm provides financing for a distributor or end user onthe condition that the recipient deals exclusively with a manufacturer who has a rela-tionship with the financial firm.

5. Obstruction of Distribution: A manufacturer causes an independent distributor to re-strict promotion of a competitor’s new product until the manufacturer develops acompetitive product.

6. Retail Price Maintenance: A manufacturer agrees to repurchase from a retailer unsoldinventory at the price paid by the retailer on condition that the retailer maintains themanufacturer’s suggested retail price.

7. Obstruction of Advertising: A manufacture threatens to withdraw its advertisementsunless advertisements for a competing product are rejected.

8. Price Fixing: A group of manufacturers mutually agree to fix the price of a product.9. Production Cartel: A group of manufacturers mutually agree to restrict production

and supply of a product.10. Bid Rigging: Companies bidding for a specific project hold mutual consultations

prior to the bidding to determine which company will win the contract.

Characteristics of the market (see Table A1)

Market attractiveness (ATTRACT, Cronbach a 5 0.74)

Market growth rate (1991–1993)Expected long-term (1994–2000) market growth rateAverage industry gross margins (1991–1993)Average industry pretax profits (1991–1993)Outlook for future profits (1994–2000)

Market structure (STRUCTUR, Cronbach a 5 0.78)

Number of competitorsNumber of substitute productsNumber of component suppliersNumber of distributorsNumber of customers

Sources of firm advantage

Service competitiveness (SERVICE, Cronbach a 5 0.80)

Quality of serviceService improvementsSalesforce effectiveness

196 M. Kotabe, K.W. Wheiler/Journal of International Management 4 (1998) 173–200

Tab

le A

1M

easu

rem

ent i

tem

s Mea

nSt

d. d

ev.

AT

TR

AC

TST

RU

CT

UR

SER

VIC

EPR

OD

UC

TC

LO

UT

FOC

US

AU

TO

NO

MY

PER

FOR

MPR

OSP

EC

TE

XPE

RT

AT

TR

AC

T1

2.74

0.72

(0.7

4)ST

RU

CT

UR

13.

450.

830.

188

(0.7

8)SE

RV

ICE

23.

210.

790.

395*

20.

205*

*(0

.80)

PRO

DU

CT

22.

760.

580.

277*

20.

134

0.47

5*(0

.80)

CL

OU

T2

2.94

0.87

0.17

42

0.19

6**

0.35

4*0.

393*

(0.6

2)FO

CU

S33.

860.

850.

255*

20.

123

0.32

4*0.

339*

0.15

2(0

.73)

AU

TO

NO

MY

43.

320.

810.

225*

*0.

241*

*0.

083

0.10

22

0.06

30.

168

(0.7

9)PE

RFO

RM

23.

140.

840.

145

20.

010

0.30

9*0.

308*

0.43

9*0.

126

0.11

3(0

.70)

PRO

SPE

CT

23.

690.

650.

048

0.18

50.

152

0.22

8*0.

237*

0.16

90.

146

0.34

0*(0

.73)

EX

PER

T5

3.80

0.15

22

0.07

80.

037

0.08

10.

106

0.02

10.

005

0.15

50.

266*

0.08

6(n

/a)

* p

, 0

.01;

**

p ,

0.0

5.N

umbe

rs in

par

enth

eses

are

Cro

nbac

h al

phas

.1

1 5

ver

y lo

w to

5 5

ver

y hi

gh.

2 1

5 m

uch

low

er to

5 5

muc

h be

tter.

3 1

5 s

tron

gly

disa

gree

to 5

5 s

tron

gly

agre

e.4

1 5

no

cont

rol t

o 5

5 to

tal c

ontr

ol.

5 1

5 0

–5 y

ears

to 5

5 m

ore

than

20

year

s.

M. Kotabe, K.W. Wheiler/Journal of International Management 4 (1998) 173–200 197

Product competitiveness (PRODUCT, Cronbach a 5 0.80)

Product differentiationBreadth of product lineTechnological innovationInitiating product improvements

Size advantage (CLOUT, Cronbach a 5 0.62)

Bargaining position with customersEconomies of scale

Structure of control

Strategic focus on Japan (FOCUS, Cronbach a 5 0.73)

Increase market shareIncrease investmentAggressive sales goalsHeavy promotionProduct adaptation

Managerial autonomy (AUTONOMY, Cronbach a 5 0.79)

Control of product managementControl of pricingControl of promotionControl of investment

Current performance 1991–1993 (PERFORM, Cronbach a 5 0.70)

Market sharePretax profitsReturn on investment

Performance prospect 1994–2000 (PROSPECT, Cronbach a 5 0.73)

Market sharePretax profitsReturn on investment

Nationality of the executive (NATION, a single item)—American, Japanese, or other

Firm’s Japan experience (EXPERT, a single item)—number of years of operation in Japan

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