Advertisement

Journal of International Business Studies

, Volume 43, Issue 5, pp 525–535 | Cite as

Travel time and the liability of distance in foreign direct investment: Location choice and entry mode

  • Kevin K Boeh
  • Paul W Beamish
Research Note

Abstract

Measures of geographic distance are often used to proxy for the impact of spatial separation on firm decisions and performance. We develop a construct, dyad travel time, to measure the friction of interacting and costs of uncertainty from ex post behavioral monitoring across non-collocated sites. We measure the actual time required to travel between 1171 parent–subsidiary dyads, and show that dyad travel time (but not geographic distance) has significant predictive power in firm governance and location decisions. While prior literature has independently modeled these, we specify a simultaneous model offering stronger support for the interrelation of these decisions.

Keywords

geographic distance travel time entry mode transaction costs FDI 

Notes

References

  1. Andersen, O. 1997. Internationalization and market entry mode: A review of theories and conceptual frameworks. Management International Review, 37 (Special Issue): 27–42.Google Scholar
  2. Anderson, J. E., & van Wincoop, E. 2004. Trade costs. Journal of Economic Literature, 42 (3): 691–751.CrossRefGoogle Scholar
  3. Brouthers, L. E., Yan, G., & McNicol, J. P. 2008. Corruption and market attractiveness influences on different types of FDI. Strategic Management Journal, 29 (6): 673–680.CrossRefGoogle Scholar
  4. BTS. 2011. US BTS airline on-time performance data. Washington DC: US Bureau of Transportation Statistics.Google Scholar
  5. Buckley, P. J. 2004. Cartography and international business. International Business Review, 13 (2): 239–255.CrossRefGoogle Scholar
  6. Cantwell, J. 2009. Location and the multinational enterprise. Journal of International Business Studies, 40 (1): 35–41.CrossRefGoogle Scholar
  7. Coeurderoy, R., & Murray, G. 2008. Regulatory environments and the location decision: Evidence from the early foreign market entries of new-technology-based firms. Journal of International Business Studies, 39 (4): 670–687.CrossRefGoogle Scholar
  8. Coughlin, C. C., Terza, J. V., & Arromdee, V. 1991. State characteristics and the location of foreign direct investment within the United States. Review of Economics and Statistics, 73 (4): 675–683.CrossRefGoogle Scholar
  9. Davidson, W. H. 1980. The location of foreign direct investment activity: Country characteristics and experience effects. Journal of International Business Studies, 11 (2): 9–22.CrossRefGoogle Scholar
  10. Davidson, W. H., & McFetridge, D. G. 1985. Key characteristics in the choice of international technology transfer mode. Journal of International Business Studies, 16 (2): 5–21.CrossRefGoogle Scholar
  11. Delios, A., & Beamish, P. W. 2001. Survival and profitability: The roles of experience and intangible assets in foreign subsidiary performance. Academy of Management Journal, 44 (5): 1028–1038.CrossRefGoogle Scholar
  12. Delios, A., & Henisz, W. J. 2000. Japanese firms’ investment strategies in emerging economies. Academy of Management Journal, 43 (3): 305–323.CrossRefGoogle Scholar
  13. Dunning, J. H. 1980. Towards an eclectic theory of international production: Some empirical tests. Journal of International Business Studies, 1 (11): 9–31.CrossRefGoogle Scholar
  14. Dunning, J. H. 1998. Location and the multinational enterprise: A neglected factor? Journal of International Business Studies, 29 (1): 45–66.CrossRefGoogle Scholar
  15. Geyskens, I., Steenkamp, J.-B. E., & Kumar, N. 2006. Make, buy, or ally: A transaction cost theory meta-analysis. Academy of Management Journal, 49 (3): 519–543.CrossRefGoogle Scholar
  16. Ghemawat, P. 2001. Distance still matters: The hard reality of global expansion. Harvard Business Review, 79 (8): 137–148.Google Scholar
  17. Goerzen, A., & Beamish, P. W. 2003. Geographic scope and multinational enterprise performance. Strategic Management Journal, 24 (13): 1289–1306.CrossRefGoogle Scholar
  18. Gulati, R. 1995. Does familiarity breed trust? The implications of repeated ties for contractual choice in alliances. Academy of Management Journal, 38 (1): 85–112.CrossRefGoogle Scholar
  19. Hansen, M., & Lovas, B. 2004. How do multinational companies leverage technological competencies? Moving from single to interdependent explanations. Strategic Management Journal, 25 (8–9): 801–822.CrossRefGoogle Scholar
  20. Head, K., Ries, J., & Swenson, D. 1995. Agglomeration benefits and location choice: Evidence from Japanese manufacturing investments in the United States. Journal of International Economics, 38 (3–4): 223–247.CrossRefGoogle Scholar
  21. Hennart, J. F. 2001. Theories of the multinational enterprise. In A. Rugman & T. Brewer (Eds), Oxford handbook of international business: 127–150. Oxford: Oxford University Press.CrossRefGoogle Scholar
  22. Hitt, M. A., Hoskisson, R., & Kim, W. C. 1997. International diversification: Effects on innovation and firm performance in product-diversified firms. Academy of Management Journal, 40 (4): 767–798.CrossRefGoogle Scholar
  23. Howell, J. M., Neufeld, D. J., & Avolio, B. J. 2005. Examining the relationship of leadership and physical distance with business unit performance. The Leadership Quarterly, 16 (2): 273–285.CrossRefGoogle Scholar
  24. Hymer, S. H. 1960. The international operations of national firms: A study of direct foreign investment, PhD dissertation, MIT, Cambridge, MA.Google Scholar
  25. Johanson, J., & Vahlne, J.-E. 1977. The internationalization process of the firm: A model of knowledge development and increasing foreign market commitments. Journal of International Business Studies, 8 (1): 23–32.CrossRefGoogle Scholar
  26. Johanson, J., & Vahlne, J.-E. 2009. The Uppsala internationalization process model revisited: From liability of foreignness to liability of outsidership. Journal of International Business Studies, 40 (9): 1411–1431.CrossRefGoogle Scholar
  27. Kang, J.-K., & Kim, J.-M. 2010. Do foreign investors exhibit a corporate governance disadvantage? An information asymmetry perspective. Journal of International Business Studies, 41 (8): 1415–1438.CrossRefGoogle Scholar
  28. Keshk, O. M. 2003. CDSIMEQ: A program to implement two-stage probit least squares. Stata Journal, 3 (2): 157–167.Google Scholar
  29. Mitchell, W., Shaver, M., & Yeung, B. 1994. Foreign entrant survival and foreign market share: Canadian companies’ experience in United States medical sector markets. Strategic Management Journal, 15 (7): 555–567.CrossRefGoogle Scholar
  30. Nachum, L., & Zaheer, S. 2005. The persistence of distance? The impact of technology on MNE motivations for foreign investment. Strategic Management Journal, 26 (8): 747–767.CrossRefGoogle Scholar
  31. Poppo, L., & Zenger, T. 1995. Opportunism, routines, and boundary choices: A comparative test of transaction cost and resource-based explanations for make-or-buy decisions. Academy of Management Journal, 38 (1): 42–46.Google Scholar
  32. Poppo, L., & Zenger, T. 2002. Do formal contracts and relational governance function as substitutes or complements? Strategic Management Journal, 23 (8): 707–725.CrossRefGoogle Scholar
  33. Rangan, S., & Sengul, M. 2009. Information technology and transnational integration: Theory and evidence on the evolution of the modern multinational enterprise. Journal of International Business Studies, 40 (9): 1496–1514.CrossRefGoogle Scholar
  34. Rosenkopf, L., & Almeida, P. 2003. Overcoming local search through alliances and mobility. Management Science, 49 (6): 751–766.CrossRefGoogle Scholar
  35. Sinnott, R. W. 1984. Virtues of the Haversine. Sky and Telescope, 68 (2): 158–170.Google Scholar
  36. Strange, R., Filatotehev, I., Yung-chih, L., & Piesse, J. 2009. Insider control and the FDI location decision: Evidence from firms investing in an emerging market. Management International Review, 49 (4): 433–454.CrossRefGoogle Scholar
  37. Sundaram, A. K., & Black, J. S. 1992. The environment and internal organization of multinational enterprises. Academy of Management Review, 17 (4): 729–757.Google Scholar
  38. USCB. 2007. Census 2000 survey. Washington DC: US Census Bureau, American Factfinder Database.Google Scholar
  39. Venkatraman, N., & Grant, J. 1986. Construct measurement in organizational strategy research: A critique and proposal. Academy of Management Journal, 11 (1): 71–87.Google Scholar
  40. Williamson, O. E. 1979. Transaction-cost economics: The governance of contractual relations. Journal of Economic Issues, 22 (2): 233–261.Google Scholar
  41. Williamson, O. E. 1991. Comparative economic organization: The analysis of discrete structural alternatives. Administrative Science Quarterly, 36 (2): 269–296.CrossRefGoogle Scholar
  42. Woodward, D. P., & Rolfe, R. J. 1993. The location of export-oriented foreign direct investment in the Caribbean basin. Journal of International Business Studies, 24 (1): 121–144.CrossRefGoogle Scholar
  43. Zaheer, S. 1995. Overcoming the liability of foreignness. Academy of Management Journal, 38 (2): 341–363.CrossRefGoogle Scholar
  44. Zhao, H., Luo, Y., & Suh, T. 2004. Transaction cost determinants and ownership-based entry mode choice: A meta-analytical review. Journal of International Business Studies, 35 (6): 524–544.CrossRefGoogle Scholar

Copyright information

© Academy of International Business 2012

Authors and Affiliations

  1. 1.School of Business, Pacific Lutheran UniversityTacomaUSA
  2. 2.Richard Ivey School of Business, Western UniversityLondonCanada

Personalised recommendations