A retrospective on: Institutional, cultural and transaction cost influences on entry mode choice and performance

For several decades researchers have focused on the entry mode decision because it is critically important for firms expanding abroad. Despite this attention we still lack clear tools to help managers make effective entry decisions. In this paper I review past research exploring transaction cost and institutional perspectives of mode choice, provide a critique of this literature, and generate suggestions to move our knowledge forward. In addition, I review the limited research exploring entry mode performance, and emphasize the importance of examining the normative merits of proposed theoretical models. I hope these suggestions will lead to the development of prescriptive tools for managers to make better entry mode decisions that result in improved firm performance.

[1]  Rob van Tulder,et al.  Cultural distance, political risk, or governance quality? Towards a more accurate conceptualization and measurement of external uncertainty in foreign entry mode research , 2009 .

[2]  A. V. D. Ven,et al.  Alternative forms of fit in contingency theory. , 1985 .

[3]  W. Scott,et al.  Institutions and Organizations. , 1995 .

[4]  Mauro F. Guillén,et al.  An institutional approach to cross-national distance , 2010 .

[5]  P. M. Podsakoff,et al.  Self-Reports in Organizational Research: Problems and Prospects , 1986 .

[6]  Klaus E. Meyer,et al.  Foreign Investment Strategies and Sub-national Institutions in Emerging Markets: Evidence from Vietnam* , 2005 .

[7]  Keith D. Brouthers,et al.  Resource-Based Advantages in an International Context† , 2008 .

[8]  M. Yamin,et al.  Explaining equity shares in international joint ventures: Combining the influence of asset characteristics, culture and institutional differences , 2014 .

[9]  Paolo Leon.  The Economic Institutions of Capitalism , 1986, The Antitrust Bulletin.

[10]  J. Papastavrou,et al.  Accounting for Endogeneity When Assessing Strategy Performance: Does Entry Mode Choice Affect Fdi Survival , 1998 .

[11]  Keith D. Brouthers,et al.  SME Entry Mode Choice and Performance: A Transaction Cost Perspective , 2004 .

[12]  E. Zajac,et al.  FROM TRANSACTION COST TO TRANSACTIONAL VALUE ANALYSIS: IMPLICATIONS FOR THE STUDY OF INTERORGANIZATIONAL STRATEGIES* , 1993 .

[13]  D. North.  Institutions, Institutional Change and Economic Performance: Economic performance , 1990 .

[14]  C. Oliver.  The Influence of Institutional and Task Environment Relationships on Organizational Performance: The Canadian Construction Industry , 1997 .

[15]  Witold J. Henisz,et al.  Japanese Firms' Investment Strategies in Emerging Economies , 2000 .

[16]  Saul Estrin,et al.  Institutions, resources and entry strategies in emerging economies , 2009 .

[17]  Mike W. Peng,et al.  The Growth of the Firm in Planned Economies in Transition: Institutions, Organizations, and Strategic Choice , 1996 .

[18]  A. Coughlan,et al.  International Market Entry and Expansion via Independent or Integrated Channels of Distribution , 1987 .

[19]  Todd R. Zenger,et al.  Testing Alternative Theories of the Firm: Transaction Cost, Knowledge-Based, and Measurement Explanations for Make-or- Buy Decisions in Information Services , 1997 .

[20]  Douglas Dow,et al.  More than just national cultural distance: Testing new distance scales on FDI in Slovakia , 2010 .

[21]  Kevin Au,et al.  How MNCs Choose Entry Modes and Form Alliances: The China Experience , 1997 .

[22]  Douglas Dow,et al.  Developing a multidimensional instrument to measure psychic distance stimuli , 2006 .

[23]  W. C. Kim,et al.  Global Strategy and Multinationals' Entry Mode Choice , 1992 .

[24]  Keith D. Brouthers,et al.  Transaction cost-enhanced entry mode choices and firm performance. , 2003 .

[25]  J. Dunning,et al.  An evolutionary approach to understanding international business activity: The co-evolution of MNEs and the institutional environment , 2009 .

[26]  Keith D. Brouthers,et al.  Institutional, cultural and transaction cost influences on entry mode choice and performance , 2002 .

[27]  Paul W. Beamish,et al.  Ownership Strategy of Japanese Firms: Transactional, Institutional and Experience Influences , 1999 .

[28]  Daphne W. Yiu,et al.  The Choice Between Joint Venture and Wholly Owned Subsidiary: An Institutional Perspective , 2002, Organ. Sci..

[29]  Peter W. Roberts,et al.  Integrating Transaction Cost and Institutional Theories: Toward a Constrained-Efficiency Framework for Understanding Organizational Design Adoption , 1997 .

[30]  Xavier Martin,et al.  The institutional determinants of agglomeration: a study in the global semiconductor industry , 2010 .

[31]  Xavier Martin,et al.  Solving theoretical and empirical conundrums in international strategy research: Linking foreign entry mode choices and performance , 2013 .

[32]  Paul W. Beamish,et al.  The effect of regulative and normative distances on MNE ownership and expatriate strategies , 2004 .

[33]  H. Gatignon,et al.  Modes of Foreign Entry: A Transaction Cost Analysis and Propositions , 1986 .

[34]  Steve Werner,et al.  Is Dunning's Eclectic Framework Descriptive Or Normative? , 1999 .

[35]  Harbir Singh,et al.  The Effect of National Culture on the Choice of Entry Mode , 1988 .

[36]  Jane Lu,et al.  Intra- and Inter-organizational Imitative Behavior: Institutional Influences on Japanese Firms' Entry Mode Choice , 2002 .

[37]  Yigang Pan,et al.  Financial performance and survival of multinational corporations in China , 1999 .

[38]  Paul W. Beamish,et al.  Ownership-Based Entry Mode Strategies and International Performance , 1994 .

[39]  B. Gray,et al.  Bargaining Power, Management Control, and Performance in United States-China Joint Ventures: A Compa , 1994 .

[40]  E. Cleeve.  The Motives for Joint Ventures: A Transaction Costs Analysis of Japanese MNES in the UK , 1997 .

[41]  Peter S. Davis,et al.  Mode of International Entry: An Isomorphism Perspective , 2000 .

[42]  K. Meyer,et al.  The Impact of Institutional and Human Resource Distance on International Entry Strategies , 2009 .

[43]  T. Kostova,et al.  Adoption of an Organizational Practice by Subsidiaries of Multinational Corporations: Institutional and Relational Effects , 2002 .

[44]  W. Dugger.  The Economic Institutions of Capitalism , 1987 .

[45]  Stephen E. Thomsen.  Multinational enterprises and the global economy , 1994 .

[46]  David M. Reeb,et al.  The blockbuster hypothesis: influencing the boundaries of knowledge , 2011, Scientometrics.

[47]  Ling Liu,et al.  Corruption Distance and FDI Flows into Latin America , 2015 .

[48]  Klaus E. Meyer,et al.  Institutions, Transaction Costs, and Entry Mode Choice in Eastern Europe , 2001, Multinational Enterprises and Emerging Economies.

[49]  H. Gatignon,et al.  The multinational corporation's degree of control over foreign subsidiaries : an empirical test of a transaction cost explanation , 1988 .

[50]  O. Shenkar,et al.  Cultural distance revisited: Towards a more rigorous conceptualization and measurement of cultural differences , 2001 .

[51]  Bennet A. Zelner,et al.  Published in: (2000) Economics and Politics 12(1):1-31 The Institutional Environment for Economic Growth , 2022 .

[52]  S. Gray,et al.  The impact of entry mode choice on foreign affiliate performance: The case of foreign MNEs in South Korea , 2008 .

[53]  Richard Deeg,et al.  Comparing capitalisms: understanding institutional diversity and its implications for international business , 2008 .

[54]  Benjamin Gomes-Casseres,et al.  Firm Ownership Preferences and Host Government Restrictions: An Integrated Approach , 1990 .

[55]  L. Håkanson.  Management international review , 2005 .

[56]  Keith D. Brouthers,et al.  Boundaries of the Firm: Insights From International Entry Mode Research , 2007 .

[57]  Paul W. Beamish,et al.  Equity Joint Ventures and the Theory of the Multinational Enterprise , 1987 .

[58]  Paul W. Beamish,et al.  Entry Mode and Performance of Japanese FDI in Western Europe , 1996 .

[59]  Ajai S. Gaur,et al.  Institutional Environments, Staffing Strategies, and Subsidiary Performance , 2007 .

[60]  Prasad Padmanabhan,et al.  Decision Specific Experience in Foreign Ownership and Establishment Strategies: Evidence from Japanese Firms , 1999 .

[61]  C. Hill.  Cooperation, Opportunism, and the Invisible Hand: Implications for Transaction Cost Theory , 1990 .

[62]  David A. Griffith,et al.  The effect of cultural distance on entry mode choice, international diversification, and MNE performance: a meta-analysis , 2005 .

[63]  Sanjeev Agarwal,et al.  Socio-Cultural Distance and the Choice of Joint Ventures: A Contingency Perspective , 1994 .

[64]  Kent E. Neupert,et al.  National Culture, Transaction Costs, and the Choice Between Joint Venture and Wholly Owned Subsidiary , 2000 .

[65]  Paul G. Simmonds,et al.  The combined diversification breadth and mode dimensions and the performance of large diversified firms , 1990 .

[66]  Lowell W. Busenitz,et al.  Country Institutional Profiles: Unlocking Entrepreneurial Phenomena , 2000 .

[67]  Gregory E. Osland,et al.  A transaction cost perspective on foreign market entry strategies of US and Japanese firms , 1998 .

[68]  J. M. Geringer,et al.  Measuring Performance of International Joint Ventures , 1991 .

[69]  J. Hennart,et al.  Japanese Investors' Choice of Joint Ventures Versus Wholly-owned Subsidiaries in the US: The Role of Market Barriers and Firm Capabilities , 2002 .

[70]  Bernhard Swoboda,et al.  DECADES OF RESEARCH ON MARKET ENTRY MODES: WHAT DO WE REALLY KNOW ABOUT EXTERNAL ANTECEDENTS OF ENTRY MODE CHOICE? , 2010 .

[71]  J. Hennart,et al.  Down with MNE-centric theories! Market entry and expansion as the bundling of MNE and local assets , 2009 .

[72]  Michael Y. Hu,et al.  An analysis of determinants of entry mode and its impact on performance , 2002 .

[73]  Peter G. Klein,et al.  Empirical Research in Transaction Cost Economics: A Review and Assessment , 1995 .

[74]  Jeffrey H. Dyer.  EFFECTIVE INTERFIRM COLLABORATION : HOW FIRMS MINIMIZE TRANSACTION COSTS AND MAXIMIZE TRANSACTION VALUE r , 1998 .

[75]  Taewon Suh,et al.  Transaction cost determinants and ownership-based entry mode choice: a meta-analytical review , 2004 .

[76]  Steve Werner,et al.  Real Options, International Entry Mode Choice and Performance , 2008 .

[77]  Shaomin Li,et al.  The Impact of Order and Mode of Market Entry on Profitability and Market Share , 1999 .

[78]  J. Hennart,et al.  The transaction costs theory of joint ventures: an empirical study of Japanese subsidiaries in the united states , 1991 .

[79]  Rodney C. Shrader.  Collaboration and Performance in Foreign Markets: The Case of Young High-Technology Manufacturing Firms , 2001 .

[80]  S. Masten.  Transaction costs, mistakes, and performance: Assessing the importance of governance , 1993 .