An analysis of determinants of entry mode and its impact on performance

Using the transaction cost framework, this paper examines the determinants of entry mode choice by multinationals and the impact of the entry mode choice on performance in a unified framework. Using a database of foreign investment in China from 1979 to 1992, we find that the hypothesized effects of transaction cost factors on entry modes are supported. We also find that foreign investment projects whose modes are selected according to the prescription of the transaction cost theory are more successful than those whose modes are selected otherwise.

[1]  John W. Clarr.  Cooperative Strategies in International Business , 1990 .

[2]  John R. Nevin,et al.  Performance Outcomes of Purchasing Arrangements in Industrial Buyer-Vendor Relationships , 1990 .

[3]  D. Teece.  TRANSACTIONS COST ECONOMICS AND THE MULTINATIONAL ENTERPRISE An Assessment , 1986 .

[4]  Sabine Reddy,et al.  The choice between mergers/acquisitions and joint ventures : The case of Japanese investors in the United States , 1997 .

[5]  C. Hill,et al.  Searching for a dynamic theory of the multinational enterprise: A transaction cost model , 1988 .

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

[7]  Michael Y. Hu,et al.  The Wealth Effect of International Joint Ventures: The Case of U.S. Investment in China , 1991 .

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

[9]  International production of the United States and Japan in Korean manufacturing industries : A comparative study , 1983 .

[10]  David H. Kent.  JOINT VENTURES vs. NON-JOINT VENTURES: AN EMPIRICAL INVESTIGATION , 1991 .

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

[12]  高 尚全,et al.  China's economic reform , 1996 .

[13]  S. Ramaswami,et al.  Choice of Foreign Market Entry Mode: Impact of Ownership, Location and Internalization Factors , 1992 .

[14]  Peter Hwang,et al.  An eclectic theory of the choice of international entry mode , 1990 .

[15]  Stephen Tallman,et al.  International Cooperative Venture Strategies: Outward Investment and Small Firms from NICs1 , 1994 .

[16]  Yigang Pan.  Influences on Foreign Equity Ownership Level in Joint Ventures in China , 1996 .

[17]  Jiatao Li,et al.  Comparative Business Failures of Foreign-Controlled Firms in the United States , 1991 .

[18]  Kang Rae Cho,et al.  Ownership Strategy for a Foreign Affiliate: An Empirical Investigation of Japanese Firms , 1996 .

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

[20]  Jan B. Heide,et al.  Transaction Cost Analysis: Past, Present, and Future Applications , 1997 .

[21]  G. Walker,et al.  Profit Centers, Single-Source Suppliers and Transaction Costs , 1991 .

[22]  R. Dahlstrom,et al.  An Empirical Investigation of Ex Post Transaction Costs in Franchised Distribution Channels , 1999 .

[23]  HennartJean-François.  The Transaction Costs Theory of Joint Ventures , 1991 .

[24]  W. Leung.  The duration of international joint ventures an foreign wholly-owned subsidiaries , 1997 .

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

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

[27]  James A. Brickley,et al.  An Agency Perspective on Franchising , 1991 .

[28]  J. Anand,et al.  Location Specificity and the Transferability of Downstream Assets to Foreign Subsidiaries , 1997 .

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

[30]  Peter J. Buckley,et al.  An Economic Model of International Joint Venture Strategy , 1996 .

[31]  Peter J. Buckley,et al.  The Growth of International Business. , 1983 .

[32]  Jiatao Li.  Foreign entry and survival: effects of strategic choices on performance in international markets , 1995 .

[33]  S. Tamer Cavusgil,et al.  Trends in international business thought and literature: A review of international market entry mode research: Integration and synthesis , 1996 .

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

[35]  M. Erramilli.  The Experience Factor in Foreign Market Entry Behavior of Service Firms , 1991 .

[36]  A. Alchian.  Uncertainty, Evolution, and Economic Theory , 1950, Journal of Political Economy.

[37]  Benjamin Gomes-Casseres,et al.  Ownership structures of foreign subsidiaries : Theory and evidence , 1989 .

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

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

[40]  Harbir Singh,et al.  Industry and Competitive Effects on the Choice of Entry Mode. , 1989 .

[41]  G. Hofstede,et al.  Culture′s Consequences: International Differences in Work-Related Values , 1980 .

[42]  O. Williamson,et al.  Markets and Hierarchies: Analysis and Antitrust Implications. , 1977 .

[43]  Stephen R. Foerster,et al.  The Transmission of U.S. Election Cycles to International Stock Returns , 1997 .

[44]  Peter J. Buckley,et al.  A theory of co-operation in international business , 1987 .

[45]  P Lorange,et al.  Competition vs. cooperation: a benefit/cost framework for choosing between fully-owned investments and cooperative relationships , 1998 .

[46]  S. Wan,et al.  Investment in China , 1995 .

[47]  T. Pedersen,et al.  Nationality and Ownership Structures: The 100 Largest Companies in Six European Nations , 1996 .

[48]  James A. Brickley,et al.  The choice of organizational form The case of franchising , 1987 .

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

[50]  W. Shan,et al.  Environmental Risks and Joint Venture Sharing Arrangements , 1991 .

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

[52]  Michael Y. Hu,et al.  Country-of-Origin Effects of Foreign Investments in the People's Republic of China , 1993 .

[53]  Michael Y. Hu,et al.  Foreign ownership in Chinese joint ventures: A transaction cost analysis , 1993 .

[54]  C. P. Rao,et al.  Service Firms’ International Entry-Mode Choice: A Modified Transaction-Cost Analysis Approach , 1993 .

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