Institutional, Cultural and Transaction Cost Influences on Entry Mode Choice and Performance

Abstract

In this study, we examine foreign market entry mode choice and firm performance for a sample of European Union firms. Examining both financial and non-financial performance measures, we attempt to determine if firms that select their entry mode based on transaction cost, institutional context, and cultural context variables perform better than firms that make other mode Research effortsin the areaof international entry mode selection have tended to concentrateon transactioncost explanations (Makino and NeupertAnderson and Gatignon, 1986). However, recently scholars such as Brouthers and Brouthers (2000) and Delios and Beamish (1999) have begun extending transaction cost entry mode theory by choices. We found that mode choice did matter. Firms whose mode choice could be predicted by the extended transaction cost model performed significantly better, on both financial and non-financial measures, than did firms whose mode choice could not be predicted by the extended transaction cost model. Implications for future research are discussed.including culturalcontext and institutionalcontext variables, as well as transactioncost variables.

International new ventures as “small multinationals”: The importance of marketing capabilities

“…The results of our research may help to explain the findings of these authors. Indeed, they would appear to suggest that, in order to analyze the suitability of an entry mode for INVs, the characteristics conditioning entry must be taken into account (Brouthers, 2002;Brouthers & Nakos, 2004). Along these lines, this study complements the work of Hashai and Almor (2004).…”

“…This diversity in empirical results is also accompanied by a great diversity in theoretical arguments concerning the influence of each entry mode on firm performance (Yip, 1982, and1982a). Therefore, rather than propose a better entry mode for an INV, it would appear more appropriate to propose a model that helps INVs choose between different entry modes by taking into account the circumstances in which entry occurs (Brouthers, 2002;Brouthers &Nakos, 2004, and. Based on this approach, it is argued that it is not a matter of better or worse modes, but rather of the correct choice of a mode that will yield the best results.…”

“…Based on this approach, it is argued that it is not a matter of better or worse modes, but rather of the correct choice of a mode that will yield the best results. The choice of a specific mode will positively influence performance when firms make this choice in accordance with the circumstances surrounding entry (Brouthers 2002;Brouthers &Nakos, 2004, and.…”

“…In specifying the entry modes, we followed studies that have considered entry modes as a spectrum of involvement and, consequently have tried to overcome the dichotomy between equity and non-equity modes (Burgel & Murray, 2000;Brouthers, 2002;Wei et al, 2005). Accordingly, to construct an entry mode index, the CEOs were asked how frequently (from 1 = never to 5 = always) their businesses had opted for each of the following ten entry modes to grow in foreign markets: brand licensing, commercialization agreements, franchising, production agreements, direct export, joint-venture, acquisition of a sufficiently high capital share to control a business that was operating in the new market, acquisition of 100% of the capital of an already existing business and creation of a new business or a subsidiary.…”

“…Of the possible factors influencing the choice of entry modes involving higher commitment of resources (Brouthers 2002;Brouthers & Nakos 2004), INVs' knowledge of foreign markets is key to understanding that choice. The greater the knowledge the more likely it is that the INV will use methods involving a higher resource commitment Vahlne 1977, and1990).…”