Transaction cost determinants and ownership-based entry mode choice: a meta-analytical review

Abstract

Entry mode choice is a critical ingredient of international entry strategies, and has been voluminously examined in the field. The findings, however, are very mixed, especially with respect to transaction-cost-related factors in determining the ownership-based entry mode choice. This study conducted a meta-analysis to quantitatively summarize the literature and empirically generalize more conclusive findings. Based on the 106 effect sizes of 38 empirical studies, the meta-analysis shows that the findings of the existing studies are moderated to varying degrees by both study-setting factors and statistical artifacts, although the combined overall effects of transaction cost-based determinants are consistent with the predictions of transaction cost economics. We extensively discuss the implications of meta-analytical results, especially moderating effects of location, country of origin, industry type, and statistical artifacts, highlight the measurement adequacy, equivalence, and multidimensionality of transaction cost determinants, and present our suggestions to improve theoretical inquiries and empirical verifications on entry mode choice. Journal of International Business Studies (2004) 35, 524–544. doi:10.1057/palgrave.jibs.8400106

An overview of Hofstede-inspired country-level culture research in international business since 2006

“…They conclude that ''the most glaring need in type I studies at the country level (where culture is used as an independent variable) is to explain the conflicting findings regarding the effects of cultural distance on various organizational decisions such as entry mode choice'' (KLG, 2006, p. 302). Meta-analyses on cultural distance analyzing several of these 'organizational decisions' that appeared since KLG's article was published show inconclusive results (Tihanyi et al, 2005;Magnusson, Baack, Zdravkovic, Staub, & Amine, 2008;Reus & Rottig, 2009;Zhao, Luo & Suh, 2004;Morschett, Schramm-Klein, & Swoboda, 2010). One possible reason for these inconsistencies regarding the effect of cultural distance, for example on modes, is that these organizational decisions have been studied separately, whereas location choice, governance mode, entry mode, and performance outcomes are interrelated as part of important strategic decisions.…”

Ownership mode, cultural distance, and the extent of parent firms’ strategic control over subsidiaries in the PRC

“…With regard to agency theory, uncertainty arises, when a principal (here the HQ) cannot accurately assess the agent's (here the subsidiary) performance (Anderson & Gatignon, 1986). This uncertainty can for instance occur, when a company lacks experience or knowledge in certain foreign markets (Zhao, Luo, & Suh, 2004). This often goes along with or is rooted in cultural distance, which can lead to certain forms of remedies in agency costs.…”

Determinants of Equity-Based and Co-Operative Foreign R&D and Impact on the Parent Firm’s Performance

“…Finally, we control for a firm's affiliation to a specific industry (propensity equation; nine dummies) or sector (mode equation; three dummies) 13 to account for an "omitted variable bias" (for definition of the industries/sectors see Table 2). The relevance of industry/sector effects is demonstrated by Zhao et al (2004) in their meta-analysis of empirical studies. It turned out that "industry type" significantly moderates the influence of the core explanatory variables postulated in the seminal paper of Anderson and Gatignon (1986).…”

“…Moreover, some empirical studies add to these "transaction cost variables" one or several of the mentioned variables extending the core of the OLI paradigm such as, for example, the motives of foreign presence or sector affiliation (for a review of the theoretical and empirical entry mode research see Sarkar and Cavusgil, 1996;Datta et al, 2002;Zhao et al, 2004;Brouthers and Hennart, 2007;Morschett et al, 2010). …”