Skip to main content
SpringerLink
Log in

Asset specificity and foreign market entry mode choice of small and medium-sized enterprises: The moderating influence of knowledge safeguards and institutional safeguards

  • Article
  • Published:
Journal of International Business Studies Aims and scope Submit manuscript

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.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Figure 1
Figure 2
Figure 3
Figure 4
Figure 5
Figure 6

Similar content being viewed by others

Notes

  1. 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).

  2. 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.

  3. 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.

References

  • Agarwal, S., & Ramaswami, S. N. 1992. Choice of foreign market entry mode: Impact of ownership, location and internalization factors. Journal of International Business Studies, 23 (1): 1–27.

    Article  Google Scholar 

  • Ahmed, Z. U., Mohamad, O., Tan, B., & Johnson, J. P. 2002. International risk perceptions and mode of entry: A case study of Malaysian multinational firms. Journal of Business Research, 55 (10): 805–813.

    Article  Google Scholar 

  • Aiken, L., & West, S. 1991. Multiple regression: Testing and interpreting interactions. Newbury Park, CA: Sage.

    Google Scholar 

  • Allison, P. D. 1999. Multiple regression: A primer. Thousand Oaks, CA: Pine Forge Press.

    Google Scholar 

  • Allison, P. D. 2002. Missing data. Thousand Oaks, CA: Sage.

    Book  Google Scholar 

  • Anderson, D. R., Sweeney, D. J., & Williams, T. A. 1996. Statistics for business and economics. Mason, OH: Thomson Higher Education.

    Google Scholar 

  • Anderson, E., & Gatignon, H. 1986. Modes of foreign entry: A transaction cost analysis and propositions. Journal of International Business Studies, 17 (3): 1–26.

    Article  Google Scholar 

  • Armstrong, J. S., & Overton, T. S. 1977. Estimating nonresponse bias in mail surveys. Journal of Marketing Research, 14 (3): 396–402.

    Article  Google Scholar 

  • Autio, E., Sapienza, H. J., & Almeida, J. G. 2000. Effects of age at entry, knowledge intensity, and imitability on international growth. Academy of Management Journal, 43 (5): 909–924.

    Article  Google Scholar 

  • Barkema, H. G., Bell, J. H. J., & Pennings, J. M. 1996. Foreign entry, cultural barriers, and learning. Strategic Management Journal, 17 (2): 151–166.

    Article  Google Scholar 

  • Basly, S. 2007. The internationalization of family SME: An organizational learning and knowledge development perspective. Baltic Journal of Management, 2 (2): 154–180.

    Article  Google Scholar 

  • Bloodgood, J. M., Sapienza, H. J., & Almeida, J. G. 1996. The internationalization of new high-potential US ventures: Antecedents and outcomes. Entrepreneurship Theory & Practice, 20 (4): 61–76.

    Google Scholar 

  • Bogner, W. C., Thomas, H., & McGee, J. 1996. A longitudinal study of the competitive positions and entry paths of European firms in the US pharmaceutical market. Strategic Management Journal, 17 (2): 85–107.

    Article  Google Scholar 

  • Bradley, F., & Gannon, M. 2000. Does the firm's technology and marketing profile affect foreign market entry? Journal of International Marketing, 8 (4): 12–36.

    Article  Google Scholar 

  • Brislin, R. W. 1970. Back-translation for cross-cultural research. Journal of Cross-Cultural Psychology, 1 (3): 185–216.

    Article  Google Scholar 

  • Brouthers, K. D., & Brouthers, L. E. 2003. Why service and manufacturing entry mode choices differ: The influence of transaction cost factors, risk and trust. Journal of Management Studies, 40 (5): 1179–1204.

    Article  Google Scholar 

  • Brouthers, K. D., & Hennart, J.-F. 2007. Boundaries of the firm: Insights from international entry mode research. Journal of Management, 33 (3): 395–425.

    Article  Google Scholar 

  • Brouthers, K. D., & Nakos, G. 2004. SME entry mode choice and performance: A transaction cost perspective. Entrepreneurship Theory and Practice, 28 (3): 229–247.

    Article  Google Scholar 

  • Buckley, P. J. 1989. Foreign direct investment by small and medium sized enterprises: The theoretical background. Small Business Economics, 1 (2): 89–100.

    Article  Google Scholar 

  • Burgel, O., & Murray, G. C. 2000. The international market entry choices of start-up companies in high-technology industries. Journal of International Marketing, 8 (2): 33–62.

    Article  Google Scholar 

  • Burt, R. S. 1992. Structural holes: The social structure of competition. Cambridge, MA: Harvard University Press.

    Google Scholar 

  • Calof, J. L. 1994. The relationship between firm size and export behavior revisited. Journal of International Business Studies, 25 (2): 367–387.

    Article  Google Scholar 

  • Chang, S. J., van Witteloostuijn, A., & Eden, L. 2010. From the editors: Common method variance in international business research. Journal of International Business Studies, 41 (2): 178–184.

    Article  Google Scholar 

  • Cheng, H.-L., & Yu, C.-M. J. 2008. Institutional pressures and initiation of internationalization: Evidence from Taiwanese small- and medium-sized enterprises. International Business Review, 17 (3): 331–348.

    Article  Google Scholar 

  • Child, J., Rodrigues, S. B., & Frynas, J. G. 2009. Psychic distance, its impact and coping modes. Management International Review, 49 (2): 199–224.

    Article  Google Scholar 

  • Cho, K. R., & Padmanabhan, P. 2005. Revisiting the role of cultural distance in MNC's foreign ownership mode choice: The moderating effect of experience attributes. International Business Review, 14 (3): 307–324.

    Article  Google Scholar 

  • Coleman, J. S. 1988. Social capital in the creation of human capital. American Journal of Sociology, 94 (S1): 95–120.

    Article  Google Scholar 

  • Coviello, N., & Munro, H. 1997. Network relationships and the internationalisation process of small software firms. International Business Review, 6 (4): 361–386.

    Article  Google Scholar 

  • Dedigama, A. C. 2009. International property rights index (IPRI) – 2009 report. Washington, DC: Property Rights Alliance.

    Google Scholar 

  • Delios, A., & Beamish, P. W. 1999. Ownership strategy of Japanese firms: Transactional, institutional, and experience influences. Strategic Management Journal, 20 (10): 915–933.

    Article  Google Scholar 

  • Delios, A., & Henisz, W. J. 2000. Japanese firms’ investment strategies in emerging economies. Academy of Management Journal, 43 (3): 305–323.

    Article  Google Scholar 

  • Dikova, D., & van Witteloostuijn, A. 2007. Foreign direct investment mode choice: Entry and establishment modes in transition economies. Journal of International Business Studies, 38 (6): 1013–1033.

    Article  Google Scholar 

  • Ellis, P. 2000. Social ties and foreign market entry. Journal of International Business Studies, 31 (3): 443–469.

    Article  Google Scholar 

  • Ellis, P., & Pecotich, A. 2001. Social factors influencing export initiation in small and medium-sized enterprises. Journal of Marketing Research, 38 (1): 119–130.

    Article  Google Scholar 

  • Erramilli, M. K., & D’Souza, D. E. 1993. Venturing into foreign markets: The case of the small service firm. Entrepreneurship Theory & Practice, 17 (4): 29–41.

    Google Scholar 

  • Erramilli, M. K., & D’Souza, D. E. 1995. Uncertainty and foreign direct investment: The role of moderators. International Marketing Review, 12 (3): 47–60.

    Article  Google Scholar 

  • Erramilli, M. K., & Rao, C. P. 1993. Service firms’ international entry-mode choice: A modified transaction-cost analysis approach. The Journal of Marketing, 57 (3): 19–38.

    Article  Google Scholar 

  • Forsgren, M. 2002. The concept of learning in the Uppsala internationalization process model: A critical review. International Business Review, 11 (3): 257–277.

    Article  Google Scholar 

  • Gassmann, O., & Keupp, M. M. 2007. The competitive advantage of early and rapidly internationalising SMEs in the biotechnology industry: A knowledge-based view. Journal of World Business, 42 (3): 350–366.

    Article  Google Scholar 

  • Gatignon, H., & Anderson, E. 1988. The multinational corporation's degree of control over foreign subsidiaries: An empirical test of a transaction cost explanation. Journal of Law, Economics, and Organization, 4 (2): 305–336.

    Google Scholar 

  • Geyskens, I., Steenkamp, J.-B. E. M., & Kumar, N. 2006. Make, buy, or ally: A transaction cost theory meta-analysis. Academy of Management Journal, 49 (3): 519–543.

    Article  Google Scholar 

  • Granovetter, M. 1985. Economic action and social structure: The problem of embeddedness. American Journal of Sociology, 91 (3): 481–510.

    Article  Google Scholar 

  • Granovetter, M. 2005. The impact of social structure on economic outcomes. Journal of Economic Perspectives, 19 (1): 33–50.

    Article  Google Scholar 

  • Guillén, M. F. 2003. Experience, imitation, and the sequence of foreign entry: Wholly owned and joint-venture manufacturing by South Korean firms and business groups in China, 1987–1995. Journal of International Business Studies, 34 (2): 185–198.

    Article  Google Scholar 

  • Hair, J. F., Anderson, R. E., Tatham, R. L., & Black, W. C. 1995. Multivariate data analysis: With readings. Englewood Cliffs, NJ: Prentice Hall.

    Google Scholar 

  • Hannan, M. T., & Freeman, J. 1984. Structural inertia and organizational change. American Sociological Review, 49 (2): 149–164.

    Article  Google Scholar 

  • Henisz, W. J. 2000a. The institutional environment for economic growth. Economics and Politics, 12 (1): 1–31.

    Article  Google Scholar 

  • Henisz, W. J. 2000b. The institutional environment for multinational investment. Journal of Law, Economics, and Organization, 16 (2): 334–464.

    Article  Google Scholar 

  • Henisz, W. J., & Delios, A. 2001. Uncertainty, imitation, and plant location: Japanese multinational corporations, 1990–1996. Administrative Science Quarterly, 46 (3): 443–475.

    Article  Google Scholar 

  • Henisz, W. J., & Delios, A. 2002. Learning about the institutional environment. In P. Ingram & B. Silverman (Eds), The new institutionalism in strategic management: 339–372. Advances in International Management New York: JAI Press.

    Chapter  Google Scholar 

  • Henisz, W. J., & Williamson, O. E. 1999. Comparative economic organization: Within and between countries. Business and Politics, 1 (3): 261–278.

    Article  Google Scholar 

  • Hennart, J.-F. 1988. A transaction costs theory of equity joint ventures. Strategic Management Journal, 9 (4): 361–374.

    Article  Google Scholar 

  • Hennart, J.-F. 1991. The transaction costs theory of joint ventures: An empirical study of Japanese subsidiaries in the United States. Management Science, 37 (4): 483–497.

    Article  Google Scholar 

  • Hesterly, W. S., & Zenger, T. R. 1993. Crossroads – the myth of a monolithic economics: Fundamental assumptions and the use of economic models in policy and strategy research. Organization Science, 4 (3): 496–510.

    Article  Google Scholar 

  • Hoetker, G. 2007. The use of logit and probit models in strategic management research: Critical issues. Strategic Management Journal, 28 (4): 331–343.

    Article  Google Scholar 

  • House, R. J., Hanges, P. J., Javidan, M., Dorfman, P. W., & Gupta, V. 2004. Culture, leadership, and organizations: The GLOBE study of 62 societies. Thousand Oaks, CA: Sage.

    Google Scholar 

  • Hui, C. H., & Triandis, H. C. 1985. Measurement in cross-cultural psychology: A review and comparison of strategies. Journal of Cross-Cultural Psychology, 16 (2): 131–152.

    Article  Google Scholar 

  • Hymer, S. H. 1976. The international operations of national firms: A study of direct foreign investment. Cambridge, MA: The MIT Press.

    Google Scholar 

  • Institut für Mittelstandsforschung. 2004. SMEs in Germany: Facts and figures 2004. Bonn: Institut für Mittelstandsforschung.

  • Jaccard, J. 2001. Interaction effects in logistic regression. Thousand Oaks, CA: Sage.

    Book  Google Scholar 

  • Javidan, M., & House, R. J. 2001. Cultural acumen for the global manager: Lessons from Project GLOBE. Organizational Dynamics, 29 (4): 289–305.

    Article  Google Scholar 

  • Javidan, M., Dorfman, P. W., Luque, M. S., & House, R. J. 2006. In the eye of the beholder: Cross cultural lessons in leadership from Project GLOBE. The Academy of Management Perspectives, 20 (1): 67–90.

    Article  Google Scholar 

  • King, A. A., & Shaver, J. M. 2001. Are aliens green? Assessing foreign establishments’ environmental conduct in the United States. Strategic Management Journal, 22 (11): 1069–1085.

    Article  Google Scholar 

  • Kogut, B., & Singh, H. 1988. The effect of national culture on the choice of entry mode. Journal of International Business Studies, 19 (3): 411–432.

    Article  Google Scholar 

  • Kostova, T. 1999. Transnational transfer of strategic organizational practices: A contextual perspective. Academy of Management Review, 24 (2): 308–324.

    Google Scholar 

  • Li, L., & Qian, G. 2008. Partnership or self-reliance entry modes: Large and small technology-based enterprises’ strategies in overseas markets. Journal of International Entrepreneurship, 6 (4): 188–208.

    Article  Google Scholar 

  • Little, R. J. A., & Rubin, D. B. 1987. Statistical analysis with missing data. New York: Wiley.

    Google Scholar 

  • Lu, J. W., & Beamish, P. W. 2001. The internationalization and performance of SMEs. Strategic Management Journal, 22 (6/7): 565–586.

    Article  Google Scholar 

  • Masten, S. E. 1995. Empirical research in transaction cost economics: Challenges, progress, directions. In J. Groenewegen (Ed), Transaction cost economics and beyond: 43–64. Amsterdam: Kluwer.

    Google Scholar 

  • Mayer, K. J. 2006. Spillovers and governance: An analysis of knowledge and reputational spillovers in information technology. Academy of Management Journal, 49 (1): 69–84.

    Article  Google Scholar 

  • Mayer, K. J., & Salomon, R. M. 2006. Capabilities, contractual hazards, and governance: Integrating resource-based and transaction cost perspectives. Academy of Management Journal, 49 (5): 942–959.

    Article  Google Scholar 

  • Mentzer, M. S. 1993. The limits of control in the multinational corporation. International Journal of Commerce and Management, 1 (1/2): 55–72.

    Article  Google Scholar 

  • Mesquita, L. F., & Brush, T. H. 2008. Untangling safeguard and production coordination effects in long-term buyer–supplier relationships. Academy of Management Journal, 51 (4): 785–807.

    Google Scholar 

  • Mesquita, L. F., & Lazzarini, S. G. 2008. Horizontal and vertical relationships in developing economies: Implications for SMEs’ access to global markets. Academy of Management Journal, 51 (2): 359–380.

    Article  Google Scholar 

  • Meyer, K. E., & Nguyen, H. V. 2005. Foreign investment strategies and sub-national institutions in emerging markets: Evidence from Vietnam. Journal of Management Studies, 42 (1): 63–93.

    Article  Google Scholar 

  • Meyer, K. E., Estrin, S., Bhaumik, S. K., & Peng, M. W. 2009. Institutions, resources, and entry strategies in emerging economies. Strategic Management Journal, 30 (1): 61–80.

    Article  Google Scholar 

  • Nakos, G., & Brouthers, K. D. 2002. Entry mode choice of SMEs in Central and Eastern Europe. Entrepreneurship Theory and Practice, 27 (1): 47–63.

    Article  Google Scholar 

  • Norton, E. C., Wang, H., & Ai, C. 2004. Computing interaction effects and standard errors in logit and probit models. The Stata Journal, 4 (2): 154–167.

    Google Scholar 

  • Oviatt, B. M., & McDougall, P. P. 1994. Toward a theory of international new ventures. Journal of International Business Studies, 25 (1): 45–64.

    Article  Google Scholar 

  • Oxley, J. E. 1999. Institutional environment and the mechanisms of governance: The impact of intellectual property protection on the structure of inter-firm alliances. Journal of Economic Behavior & Organization, 38 (3): 283–309.

    Article  Google Scholar 

  • Pan, Y., & Tse, D. K. 2000. The hierarchical model of market entry modes. Journal of International Business Studies, 31 (4): 535–554.

    Article  Google Scholar 

  • Podsakoff, P. M., & Organ, D. W. 1986. Self-reports in organizational research: Problems and prospects. Journal of Management, 12 (4): 531–544.

    Article  Google Scholar 

  • Poppo, L., & Zenger, T. 2002. Do formal contracts and relational governance function as substitutes or complements? Strategic Management Journal, 23 (8): 707–725.

    Article  Google Scholar 

  • Provan, K. G. 1993. Embeddedness, interdependence, and opportunism in organizational supplier–buyer networks. Journal of Management, 19 (4): 841–856.

    Article  Google Scholar 

  • Puck, J. F., Holtbrügge, D., & Mohr, A. T. 2009. Beyond entry mode choice: Explaining the conversion of joint ventures into wholly owned subsidiaries in the People's Republic of China. Journal of International Business Studies, 40 (3): 388–404.

    Article  Google Scholar 

  • Rasheed, H. S. 2005. Foreign entry mode and performance: The moderating effects of environment. Journal of Small Business Management, 43 (1): 41–54.

    Article  Google Scholar 

  • Sapienza, H. J., Autio, E., George, G., & Zahra, S. A. 2006. A capabilities perspective on the effects of early internationalization on firm survival and growth. Academy of Management Review, 31 (4): 914–933.

    Article  Google Scholar 

  • Sarkar, M., & Cavusgil, S. T. 1996. Trends in international business thought and literature: A review of international market entry mode research: Integration and synthesis. The International Executive, 38 (6): 825–847.

    Article  Google Scholar 

  • Schwens, C., & Kabst, R. 2009. How early opposed to late internationalizers learn: Experience of others and paradigms of interpretation. International Business Review, 18 (5): 509–522.

    Article  Google Scholar 

  • Schwens, C., Eiche, J., & Kabst, R. 2011. The moderating impact of informal institutional distance and formal institutional risk on SME entry mode choice. Journal of Management Studies, 48 (2): 330–351.

    Google Scholar 

  • Scott, W. R. 1995. Institutions and organizations. Thousand Oaks, CA: Sage.

    Google Scholar 

  • Shane, S., Venkataraman, S., & MacMillan, I. 1995. Cultural differences in innovation championing strategies. Journal of Management, 21 (5): 931–952.

    Article  Google Scholar 

  • Shaver, J. M., Mitchell, W., & Yeung, B. 1997. The effect of own-firm and other-firm experience on foreign direct investment survival in the United States, 1987–92. Strategic Management Journal, 18 (10): 811–824.

    Article  Google Scholar 

  • Shenkar, O. 2001. Cultural distance revisited: Towards a more rigorous conceptualization and measurement of cultural differences. Journal of International Business Studies, 32 (3): 519–535.

    Article  Google Scholar 

  • Slangen, A. H. L., & van Tulder, R. J. M. 2009. Cultural distance, political risk, or governance quality? Towards a more accurate conceptualization and measurement of external uncertainty in foreign entry mode research. International Business Review, 18 (3): 276–291.

    Article  Google Scholar 

  • Taylor, C. R., Zou, S., & Osland, G. E. 1998. A transaction cost perspective on foreign market entry strategies of US and Japanese firms. Thunderbird International Business Review, 40 (4): 389–412.

    Article  Google Scholar 

  • Teece, D. J. 1986. Transactions cost economics and the multinational enterprise: An assessment. Journal of Economic Behavior & Organization, 7 (1): 21–45.

    Article  Google Scholar 

  • Van de Veijver, F., & Hambleton, R. K. 1996. Translating tests: Some practical guidelines. European Psychologist, 1 (2): 89–99.

    Article  Google Scholar 

  • Williams, D. E. 1992. Motives for retailer internationalization: Their impact, structure and implications. Journal of Marketing Management, 8 (3): 269–285.

    Article  Google Scholar 

  • Williamson, O. E. 1985. The economic institutions of capitalism: Firms, markets, relational contracting. New York: Free Press.

    Google Scholar 

  • Williamson, O. E. 1991. Comparative economic organization: The analysis of discrete structural alternatives. Administrative Science Quarterly, 36 (2): 269–296.

    Article  Google Scholar 

  • Williamson, O. E. 1998. Transaction cost economics: How it works; where it is headed. De Economist, 146 (1): 23–58.

    Article  Google Scholar 

  • Zelner, B. A. 2009. Using simulation to interpret results from logit, probit, and other nonlinear models. Strategic Management Journal, 30 (12): 1335–1348.

    Article  Google Scholar 

  • Zhao, H., Luo, Y., & Taewon, S. 2004. Transaction cost determinants and ownership-based entry mode choice: A meta-analytical review. Journal of International Business Studies, 35 (6): 524–544.

    Article  Google Scholar 

Download references

Acknowledgements

We thank Professor Gabriel Szulanski and three anonymous reviewers for their constructive comments and encouragement throughout the review process.

Author information

Authors and Affiliations

  1. Department of Human Resource Management, Small and Medium-Sized Enterprises, and Entrepreneurship, University of Giessen, Giessen, Germany

    Birger Maekelburger & Ruediger Kabst

  2. Faculty of Business Administration and Economics, Heinrich-Heine University Düsseldorf, Düsseldorf, Germany

    Christian Schwens

Authors
  1. Birger Maekelburger
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Christian Schwens
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Ruediger Kabst
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Birger Maekelburger.

Additional information

Accepted by Gabriel Szulanski, Area Editor, 20 January 2012. This paper has been with the authors for two revisions.

Rights and permissions

Reprints and permissions

About this article

Cite this article

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

Download citation

  • Received:

  • Revised:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1057/jibs.2012.12

Keywords

Search

Navigation