Abstract
According to transaction cost economics (TCE) reasoning, firms choose equity (as opposed to non-equity) foreign market entry modes to safeguard specific assets. The present paper contextualizes the well-researched relationship between asset specificity and foreign market entry mode choice by introducing knowledge safeguards (international experience, host-country networks, and imitation) and institutional safeguards (property rights protection and cultural proximity) as alternative mechanisms for securing a firm's specific assets. Testing our hypotheses on a sample of 206 small and medium-sized enterprises, we find that knowledge safeguards and institutional safeguards weaken the effect of asset specificity on the choice of equity foreign market entry modes. Contextualizing the relationship between asset specificity and foreign market entry mode choice helps to enhance our understanding of the scope conditions of TCE-based entry mode studies and beyond.
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Notes
Mayer (2006) suggests that although knowledge influences governance choices, governance choices also impact future knowledge gains. As a consequence, firms may make governance decisions on the basis of the desired knowledge acquisition rather than the amount of existing knowledge. We assume this relationship to be less relevant for SMEs. First, resource constraints limit SMEs in their ability to choose equity entry modes that promise future knowledge gains (Calof, 1994). Second, SMEs, as opposed to large MNEs, often possess learning advantages per se, which facilitate knowledge acquisition irrespective of foreign market entry mode (Autio, Sapienza, & Almeida, 2000).
We also controlled for other country effects, using established indices such as the Economic Freedom Index (Meyer, Estrin, Bhaumik, & Peng, 2009), including the dimensions investment freedom, trade freedom, and business freedom. Because of high correlations with the other country variables (i.e., political constraints, cultural proximity, and property rights protection), we decided against including these indices in the final model. However, despite the high correlations, the key findings of our empirical analysis proved to be robust.
We also conducted a robustness check to determine whether the correlation between cultural proximity and property rights protection changes our findings. We reran our models as illustrated in Table 3 while excluding property rights protection and cultural proximity (both consecutively and simultaneously). The results were unchanged, and hence the level of support for our hypotheses remained the same.
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We thank Professor Gabriel Szulanski and three anonymous reviewers for their constructive comments and encouragement throughout the review process.
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Accepted by Gabriel Szulanski, Area Editor, 20 January 2012. This paper has been with the authors for two revisions.
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Maekelburger, B., Schwens, C. & Kabst, R. Asset specificity and foreign market entry mode choice of small and medium-sized enterprises: The moderating influence of knowledge safeguards and institutional safeguards. J Int Bus Stud 43, 458–476 (2012). https://doi.org/10.1057/jibs.2012.12
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DOI: https://doi.org/10.1057/jibs.2012.12