US distribution entry strategy of Japanese manufacturing firms:: The role of Keiretsu

This article identifies the determinants of three modes of foreign market entry into distribution activities-arm's-length contracts, joint ventures, and wholly owned subsidiaries-and assesses the impact of unique institutional structures on the decision. We examine 310 Japanese manufacturers' entries into the U.S. market and find evidence that keirestu affiliation significantly increases the likelihood that contracts are chosen, suggesting common keiretsu membership by manufacturers and general trading companies mitigates agency problems in contractual delegation of foreign distribution activities. Regarding the choice between joint ventures and wholly owned subsidiaries, relaxed capital and information constraints increase the likelihood that keiretsu firms establish wholly owned subsidiaries.