Abstract
New-technology-based firms (NTBFs) embarking on a strategy of rapid internationalisation choose foreign market entries that minimise transaction costs and the related risks of failure. Means to reduce the young firms' vulnerability to the appropriation of intellectual capital are particularly important influences on early foreign market choices. We explore the effect of the institutional dimension, specifically the national regulatory environment, on the location choices and the speed of internationalisation by British and German NTBFs. We provide evidence that entrepreneurial young firms choose to enter country markets offering better regulatory protection for their intellectual property. This decision is moderated by a home regulatory regime bias. In contrast, we observe that the speed of internationalisation is influenced less by the foreign regulatory regime and more by industry and firm characteristics. We also observe that managerial experience influences the location choices of NTBFs facing regulatory hazards.
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Notes
As an example, in the most recent “Ease of doing business” ranking made by the World Bank (2006), the United Kingdom was ranked 6th and Germany 21st in the world, or 4th and 15th respectively for OECD countries only.
We use the term “hazard” to describe a set of diverse uncertainties emanating from the international business environments in which the firm trades that threaten or erode the economic rents of the firm (Henisz, 2000).
This size classification is popularly used for small and medium-sized enterprise information. See, for example, UK government VAT registrations.
In order to check the validity of our measure of political risk, we tested alternatively the index suggested by Djankov, La Porta, Lopez-de-Silanes, and Shleifer (2002). It is in practice an index of political rights. Higher ratings indicate countries that come closer to the “ideals” defined by the checklist criteria of: (1) free and fair elections; (2) government by freely elected individuals; (3) existence of opposition parties or other competitive political groupings; (4) an opposition with influence and independent authority; and (5) self-determination for the country, or an extremely high degree of autonomy. The source is Freedom of the World Data. The outcomes were corroborated. However, we retain the Institutional investor index primarily because of its focus on investor protection.
Unfortunately no data were produced for former communist countries or Middle East countries. This omission explains the loss of observations in our sample.
In our sample, German companies were more likely to seek patent protection on company innovations than their UK peers, who often preferred to use trade secrets.
Initial findings from a follow-up survey of 1997 respondents in 2003 confirm the continued dominance of capital-extensive modes of internationalisation.
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Acknowledgements
The authors gratefully acknowledge the financial support of the Anglo-German Foundation for the Study of Industrial Society in helping fund this ongoing research programme. We would also wish to thank the generosity of Drs Georg Licht and Marc Cowling for permission to share their panel database. We are also indebted to the valuable guidance of Witold Henisz and three anonymous referees in helping craft this paper.
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Accepted by Anand Swaminathan, Special Issue Editor and Witold Henisz, Special Issue Editor and Departmental Editor, 31 August 2007. This paper has been with the authors for two revisions.
APPENDIX
APPENDIX
See Table A1.
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Coeurderoy, R., Murray, G. Regulatory environments and the location decision: evidence from the early foreign market entries of new-technology-based firms. J Int Bus Stud 39, 670–687 (2008). https://doi.org/10.1057/palgrave.jibs.8400369
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DOI: https://doi.org/10.1057/palgrave.jibs.8400369