Transaction cost‐enhanced entry mode choices and firm performance (original) (raw)
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Service Firms' International Entry-Mode Choice: A Modified Transaction-Cost Analysis Approach
Journal of Marketing, 1993
Some peculiar characteristics of service firms, such as low capital intensity and the inseparability of production and consumption, have necessitated the modification of the traditional transaction-cost framework used to study entry-mode choice. By relaxing some unduly restrictive assumptions of the conventional transaction-cost analysis (TeA) model, the paper argues that firms prefer to start with full-control modes. It postulates that substantial variation in entry-mode choice occurs when firms that are characterized by low asset specificity relinquish control in response to the rising costs of integration or the diminishing ability to integrate. Several hypotheses on the propensity of service firms to employ sharedcontrol entry modes are developed and tested. The results not only provide insights into entry-mode choice by service firms but also indicate how the transaction-cost framework can be broadened to develop a more comprehensive model for understanding entry-mode choice. A FTER a finn decides to enter a certain foreign market, it must choose a mode of entry, i.e., select an institutional arrangement for organizing and conducting international business transactions, such as contractual transfers, joint ventures, and wholly owned operations (Root 1987). The choice of the correct entry mode for a particular foreign market is "one of the most critical decisions in international marketing" (Terpstra and Sarathy 1991, p. 361). The chosen mode determines the extent to which the firm gets involved in developing and implementing marketing programs in the foreign
Modes of Foreign Entry: A Transaction Cost Analysis and Propositions
Journal of International Business Studies, 1986
A "frontier issue" in international marketing is the appropriate choice of entry mode in foreign markets. The objective of this paper is to offer a transaction cost framework for investigating the entry mode decision. This framework provides 1) a theoretical basis for systematically interrelating the literature into propositions, 2) propositions about interactions which resolve the apparently contradictory arguments advanced to date. Specifically, the paper: * illustrates the feasibility of clustering 17 entry modes into the degree of control the mode provides the entrant; * proposes that the most appropriate (i.e., most efficient) entrymode is a function of the tradeoff between control and the cost of resource commitment * advances testable propositions delimiting the circumstances under which each mode maximizes long-term efficiency. The entry mode literature is reviewed in the context of these propositions, and guidelines are derived for choosing the appropriate mode of entry, given certain characteristics of the firm, the product, and the environment.
Transaction cost determinants and ownership-based entry mode choice: A meta-analytical review
Journal of International Business …, 2004
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.
Analysis of the Entry Mode Choice from Both Transaction Costs and Resource Based Theory
Revista Perspectiva Empresarial, 2019
The liberalization of markets opened doors for expansion and increased the level of competition in numerous markets. This explains that firms are increasinglydiversifying across national borders. This phenomenon is related with the international entrepreneurship, since internationalization is an example of a strategy change that can be defined as an entrepreneurial act. In this context, the scholars in international business have given answers to basically three questions: Why, where, and how do companies internationalize. Since the present research deals with entry modes choice, the focus is clearly on “how.” The choice of entry mode constitutes one of the most critical decisions for international strategy success. This research analyzes the entry mode choice from the perspective of both transaction costs and resource based theory, because these perspectives use different assumptions and consider different assumptions. Given this, I propose 4 propositions related with the study of ...
International Journal of Business and Management, Vol. 24, No. 7, pp. 12-28, 2012
Based on a survey of 170 Danish SMEs the paper examines influences on entry mode choices and the financial outcome of these decisions. The main research objectives are divided into two steps: Step 1: To determine the factors influencing the choice of foreign entry modes by Danish companies. Step 2: To determine the relationship between the choice of entry mode and export performance, measured in terms of financial outcome. Drawing from transaction cost theory the authors develop and test a model where different factors affect the level of control chosen by the parent company. This study contributes to the existing entry mode theory by integrating both steps into a theoretical framework that offers substantive explanation of the connection between independent entry mode variables, the choice of entry mode and the resulting export performance. Personal networks and interruption of international activities were the most significant factors for the choice of intermediate modes. The results also show that high control modes can positively affect the bottom line profit through higher market investments and better implementation of cross border strategies. Finally, further research suggestions and implications are provided for companies willing to invest more into foreign markets in order to achieve a higher degree of control and better financial results.
SME Entry Mode Choice and Performance: A Transaction Cost Perspective
Entrepreneurship Theory and Practice, 2004
Although small and medium sized enterprises (SMEs) account for a significant portion of international trade, little is know about how they make international entry mode decisions. Transaction cost theory has been widely used to study entry mode selection for large firms. Here we apply the theory to SME mode choices. Further, we set out to determine if SME transaction cost mode choices provide superior performance to other mode choices. We found that transaction cost theory did a good job of explaining SME mode choice and that SMEs that used transaction cost–predicted mode choices performed significantly better than firms using other modes.
COST, VALUE AND FOREIGN MARKET ENTRY MODE: THE TRANSACTION AND THE FIRM
This paper compares and contrasts the mode of foreign market entry decision from the transaction cost/internalization and organizational capability perspectives. Each of these perspectives operates at a different level of analysis, respectively the transaction and the firm, and consequently differs in the primary arena of attention, namely transaction characteristics and the capabilities of firms. In making the comparison, a key distinction is made between the cost and the value aspects in the management of knowhow, based on which issues pertaining to the transfer of knowledge within and across firm boundaries and the exploitation and enhancement of competitive advantage are closely examined. The main purpose of this paper is to demonstrate the implications of a shift in frame from cost to value in the analysis of decisions related to firm boundaries. Entry into foreign markets is used primarily as a vehicle for the accomplishment of this purpose. The paper shows how the value-based framework of the organizational capability perspective radically and fundamentally shifts the approach towards the governance of firm boundaries and argues that, even though TC/internalization theory raises some valid concerns, the organizational capability framework may be more in tune with today's business context. Some of the assumptions of the TC/internalization perspective, both direct---opportunism, exploitation of existing advantage---and indirect---preservation of the value of knowhow across locational contexts, asymmetry between bounded rationality for transaction and production purposes, are critically examined and questioned. Implications of a shift from a cost to a value-based framework are discussed and the need for a shift in research focus is emphasized.
Foreign Entry Mode and Performance: The Moderating Effects of Environment
Journal of Small Business Management, 2005
As the trend toward economic globalization increases, the internationalization of small and medium-sized enterprises (SMEs) has become an important topic. Research on the performance outcomes of foreign market entry strategies has been primarily considered from the perspective of the multinational corporations. In this paper hierarchical regression analyses were conducted on archival data of 123 publicly held manufacturing SMEs based in the United States to test a contingency model that hypothesizes more of the performance variance is explained when the foreign market entry mode is aligned strategically with domestic and foreign environmental factors.
Institutional Context and Transaction Costs in Entry Mode Choice
2013
The internationalization of Polish companies via equity entry modes is still a phenomenon limited in scope, especially when compared to that occurring in developed countries, however showing a clear upward trend. Within this research framework the following paper presents the results of a qualitative study devoted to the geographical patterns of foreign expansion of Polish companies. The theoretical analysis, based on the eclectic (OLI) paradigm of international production, the internationalization process model and the Strategy Tripod, is focused simultaneously on the determinants of location choice related to host country and firm characteristics. Case study results indicate that host country choice is related to the investment motives. Moreover, the role of location choice criteria depends on the host country level of development.