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Institutional, cultural and transaction cost influences on entry mode choice and performance

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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 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.

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Notes

  1. Scott (1995) conceptualizes institutional forces into three distinct groups, regulative, normative and cognitive. Regulative forces include laws and rules. Normative forces include values and norms. Cognitive forces are the frames or conception of reality by which meaning is made. Regulative forces have their root in economics, while normative and cognitive forces are rooted in sociology (Peng & Heath, 1996). In this study we concentrate on the economic forces of institutional theory (regulative forces) since these forces are most commonly found in entry mode research (e.g., Brouthers & Brouthers, 2000; Delios & Beamish, 1999; Gomes-Casseres, 1990).

  2. Although scholars such as Tse, Pan, and Au (1997) suggest that transaction cost theory ignores location specific costs, Williamson (1985) does consider location cost differences (1) when discussing the costs of finding, negotiating and enforcing a contract and (2) in his site specificity form of asset specificity. We include the differences in finding, negotiating and enforcing contracts as a transaction cost variable. However, transaction cost concepts of location specific assets tend to differ from our location specific costs, which are conceptualized as country-specific investment risks, market potential, and regulations restricting mode choice.

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Acknowledgements

The author would like to thank Patricia Plugge and Alfonso Dozzi for their research assistance, and BUREAU van DIJK for providing access to the AMADEUS database. The author would also like to thank Tom Brewer and the anonymous reviewers for their helpful comments.

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  1. University of East London, London, UK

    Keith D Brouthers

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Correspondence to Keith D Brouthers.

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This article was previously published in Journal of International Business Studies (2002) 33: 203–221.

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Brouthers, K. Institutional, cultural and transaction cost influences on entry mode choice and performance. J Int Bus Stud 44, 1–13 (2013). https://doi.org/10.1057/jibs.2012.22

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