Abstract
Entry mode choice is a critical ingredient of international entry strategies, and has been voluminously examined in the field. The findings, however, are very mixed, especially with respect to transaction-cost-related factors in determining the ownership-based entry mode choice. This study conducted a meta-analysis to quantitatively summarize the literature and empirically generalize more conclusive findings. Based on the 106 effect sizes of 38 empirical studies, the meta-analysis shows that the findings of the existing studies are moderated to varying degrees by both study-setting factors and statistical artifacts, although the combined overall effects of transaction cost-based determinants are consistent with the predictions of transaction cost economics. We extensively discuss the implications of meta-analytical results, especially moderating effects of location, country of origin, industry type, and statistical artifacts, highlight the measurement adequacy, equivalence, and multidimensionality of transaction cost determinants, and present our suggestions to improve theoretical inquiries and empirical verifications on entry mode choice.
Similar content being viewed by others
Notes
Other perspectives, such as bargaining power (e.g., Gomes-Casseres, 1990), internalization theory (e.g., Hennart, 1982), and the OLI paradigm (Dunning, 1981; 1993) were also used either to emphasize specific facets or determinants of entry mode decision, or to supplement these three perspectives to present a more holistic framework. These perspectives, for instance, often emphasize the behavioral or environmental parameters to supplement the risk–return analysis underpinned by TCE.
Also within this framework, asset specificity (AS) was defined as the extent to which processes or products are highly proprietary and difficult to imitate. This led later researchers to operationalize AS by R&D intensity or by survey items that reflect the degree of complexity of process, product or investment.
In the sample studies only a few studies provided detailed classification of full ownership into entry modes such as acquisition and greenfield (e.g., Anand and Delios, 1997; Kogut and Singh, 1988). The skewed sample thus makes it difficult for us to break down the ownership types to investigate further the sources of disparity due to OBE measure differences.
References
Agarwal, S (1994) ‘Socio-cultural distance and the choice of joint ventures: a contingency perspective’, Journal of International Marketing 2 (2): 63–81.
Agarwal, S and Ramaswami, SN (1992) ‘Choice of foreign market entry mode: impact of ownership, location and internalization factors’, Journal of International Business Studies 23: 1–27.
Amsden, A, Kochanowicz, J and Taylor, L (1994) The Market Meets its Match: Restructuring the Economies of Eastern Europe, Harvard University Press: Cambridge, MA.
Anand, J and Delios, A (1997) ‘Location specificity and the transferability of downstream assets to foreign subsidiaries’, Journal of International Business Studies 28: 579–603.
Anderson, E (1985) ‘The salesperson as outside agent or employee: a transaction cost analysis’, Marketing Science 4 (Summer): 234–254.
Anderson, E and Coughlan, AT (1987) ‘International market entry and expansion via independent or integrated channels of distribution’, Journal of Marketing 51 (1): 71–82.
Anderson, E and Gatignon, H (1986) ‘Modes of foreign entry: a transaction cost analysis and propositions’, Journal of International Business Studies 17 (Fall): 1–26.
Arora, A and Fosfuri, A (2000) ‘Wholly owned subsidiary vs technology licensing in the worldwide chemical industry’, Journal of International Business Studies 31: 555–572.
Aulakh, PS and Kotabe, M (1997) ‘Antecedents and performance implications of channel integration in foreign markets’, Journal of International Business Studies 28 (1): 145–175.
Bamberger, PA, Kluger, AN and Suchard, R (1999) ‘The antecedents and consequences of union commitment: a meta-analysis’, Academy of Management Journal 42: 304–318.
Bartlett, CA and Ghoshal, S (1989) Managing Across Borders, Harvard Business School Press: Boston, MA.
Birkinshaw, J, Hood, N and Jonsson, S (1998) ‘Building firm-specific advantages in multinational corporations: the role of subsidiary initiative’, Strategic Management Journal 19: 221–241.
Boerner, C and Macher, JT (2001) Transaction Cost Economics: An Assessment of Empirical Research in the Social Sciences, Unpublished manuscript, Georgetown University.
Brouthers, KD (2002) ‘Institutional, cultural and transaction cost influences on entry mode choice and performance’, Journal of International Business Studies 33 (2): 203–221.
Brouthers, KD and Brouthers, LE (2001) ‘Explaining the national cultural distance paradox’, Journal of International Business Studies 32 (1): 177–189.
Brouthers, KD and Brouthers, LE (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.
Carman, JM and Langeard, E (1980) ‘Growth strategies for service firms’, Strategic Management Journal 1: 7–12.
Caves, RE (1982) Multinational Enterprise and Economic Analysis, Cambridge University Press: Cambridge.
Chang, S (1995) ‘International expansion strategy of Japanese firms: capability building through sequential entry’, Academy of Management Journal 38: 383–407.
Chang, S and Rosenzweig, P (2001) ‘The choice of entry mode in sequential foreign direct investment’, Strategic Management Journal 22 (8): 747–776.
Chen, SS and Hennart, J (2002) ‘‘Japanese investors’ choice of joint ventures vs wholly-owned subsidiaries in the US: the role of market barriers and firm capabilities’, Journal of International Business Studies 33 (1): 1–18.
Conner, KR and Prahalad, CK (1996) ‘A resource-based theory of the firm: knowledge vs opportunism’, Organization Science 7: 477–501.
Contractor, FJ and Kundu, SK (1998a) ‘Modal choice in a world of alliances: analyzing organizational forms in the international hotel sector’, Journal of International Business Studies 29: 325–356.
Contractor, FJ and Kundu, SK (1998b) ‘Franchising vs company-run operation: modal choice in the global hotel sector’, Journal of International Marketing 6 (2): 28–53.
Damanpour, F (1991) ‘Organizational innovation: a meta-analysis of effects of determinants and moderators’, Academy of Management Journal 34: 555–590.
Datta, DK and Narayanan, VK (1989) ‘A meta-analytic review of the concentration-performance relationship: aggregating findings in strategic management’, Journal of Management 15: 469–483.
Datta, DK, Pinches, GE and Narayanan, VK (1992) ‘Factors influencing wealth creation from mergers and acquisitions: a meta-analysis’, Strategic Management Journal 13: 67–84.
Davidson, WH (1982) Global Strategic Management, John Wiley & Sons: New York.
Davidson, WH and McFetridge, DG (1985) ‘Key characteristics in the choice of international technology transfer mode’, Journal of International Business Studies 15 (2): 5–21.
Delois, A and Henisz, WJ (2000) ‘‘Japanese firms’ investment strategies in emerging economies’, Academy of Management Journal 43 (3): 305–323.
Dietrich, M (1994) Transaction Cost Economics and Beyond: Towards a New Economics of the Firm, Routledge: London, UK.
Domke-Damonte, D (2000) ‘Interactive effects of international strategy and throughput technology on entry mode for service firms’, Management International Review 40: 41–59.
Dunning, JH (1981) ‘Toward an eclectic theory of international production: some empirical test’, Journal of International Business Studies 11: 9–31.
Dunning, JH (1993) Multinational Enterprises and the Global Economy, Addison-Wesley: New York.
Erez, M and Earley, PC (1993) Culture, Self-Identity and Work, Oxford University Press: New York.
Erramilli, MK (1991) ‘The experience factor in foreign market entry behavior of service firms’, Journal of International Business Studies 22: 479–501.
Erramilli, MK (1996) ‘Nationality and subsidiary ownership patterns in multinational corporations’, Journal of International Business Studies 27: 223–248.
Erramilli, MK, Agarwal, S and Kim, S (1997) ‘Are firm-specific advantages location-specific too?’, Journal of International Business Studies 28: 735–757.
Erramilli, MK and Rao, CP (1993) ‘Service firms international entry mode choice: a modified transaction-cost analysis approach’, Journal of Marketing 57: 19–38.
Farley, JU, Lehmann, DR and Saywer, A (1995) ‘Empirical marketing generalization using meta-analysis’, Marketing Science 14: 36–46.
Fern, EF and Monroe, KB (1996) ‘Effect size estimates: issues and problems in interpretation’, Journal of Consumer Research 23 (2): 89–105.
Gatignon, H and 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: 305–336.
Geyskens, I, Steenkamp, JEM and Kumar, N (1998) ‘Generalizations about trust in marketing channel relationships using meta-analysis’, International Journal of Research in Marketing 15: 223–248.
Ghoshal, S and Moran, P (1996) ‘Bad for practice: a critique of the transaction cost theory’, Academy of Management Review 21: 13–47.
Glass, GV, McGaw, B and Smith, ML (1981) Meta-Analysis in Social Research, Sage: Beverly Hills, CA.
Gomes-Casseres, B (1989) ‘Ownership structure of foreign subsidiaries: theory and evidence’, Journal of Economic Behavior and Organization (January) 11: 1–25.
Gomes-Casseres, B (1990) ‘Firm ownership preferences and host government restrictions: an integrated approach’, Journal of International Business Studies 21: 1–22.
Granovetter, M (1985) ‘Economic action and social structure: the problem of embeddedness’, American Journal of Sociology 91: 481–510.
Grewal, D, Kavanoor, S, Fern, EF, Costley, C and Barnes, J (1997) ‘Comparative vs noncomparative advertising: a meta-analysis’, Journal of Marketing 61: 1–15.
Hedges, LV and Olkin, I (1985) Statistical Methods for Meta-Analysis, Academic Press: New York.
Heide, JB and John, G (1990) ‘Alliances in industrial purchasing: the determinants of joint action in buyer–supplier relationships’, Journal of Marketing Research 27 (February): 24–36.
Hennart, J (1982) The Theory of the Multinational Enterprise, University of Michigan Press: Ann Arbor.
Hennart, J (1988) ‘A transaction costs theory of equity joint ventures’, Strategic Management Journal 9 (4): 361–374.
Hennart, J (1991) ‘The transaction costs theory of joint ventures: an empirical study of Japanese subsidiaries in the United States’, Management Science 37 (4): 482–497.
Herrmann, P and Datta, D (2002) ‘CEO successor characteristics and the choice of foreign market entry mode: an empirical study’, Journal of International Business Studies 33 (3): 551–569.
Hesterly, WS, Libeskind, J and Zenger, TR (1990) ‘Organizational economics: an impending revolution in organization theory?’, Academy of Management Review 15 (3): 402–420.
Hesterly, WS and Zenger, TR (1993) ‘The myth of monolithic economics: fundamental assumptions and the use of economic models in policy and strategy research’, Organization Science 4 (3): 496–510.
Hill, CW (1990) ‘Cooperation, opportunism, and the invisible hand: implications for transaction cost theory’, Academy of Management Review 15: 500–513.
Hill, CWL and Kim, WC (1988) ‘Searching for a dynamic theory of the multinational enterprise: a transaction cost model’, Strategic Management Journal 9 (1): 93–104.
Hofstede, G (1980) Culture’s Consequences: International Differences in Work-Related Values, Sage Publications: Beverly Hills, CA.
Hom, PW, Caranikas-Walker, F, Prussia, GE and Griffeth, RW (1992) ‘A meta-analytical structural equations analysis of a model of employee turnover’, Journal of Applied Psychology 77: 890–909.
Hunter, IJ and Schmidt, FL (1990) Methods of Meta-Analysis: Correcting Error and Bias in Research Findings, Sage: Beverly Hills, CA.
Hunter, JE, Schmidt, FL and Jackson, GB (1982) Meta-Analysis: Cumulating Research Findings Across Studies, Sage: Beverly Hills, CA.
Inkpen, AC and Beamish, PW (1997) ‘Knowledge, bargaining power, and the instability of international joint ventures’, Academy of Management Review 22: 177–202.
Johanson, J and Vahlne, J (1977) ‘The internationalization process of the firm: a model of knowledge development and increasing foreign market commitment’, Journal of International Business Studies 8: 22–32.
Johanson, J and Vahlne, J (1990) ‘The mechanism of internationalization’, International Marketing Review 7 (4): 11–25.
Kim, B, Kim, H and Lee, Y (2002) ‘Modes of foreign market entry by Korean SI firms’, Asia Pacific Journal of Marketing and Logistics 14 (4): 13–35.
Klein, S (1989) ‘A transaction cost explanation of vertical control in international markets’, Journal of the Academy of Marketing Science 17 (Summer): 253–260.
Klein, S, Frazier, GL and Roth, VJ (1990) ‘A transaction cost analysis model of channel integration in international markets’, Journal of Marketing Research 27: 169–208.
Kogut, B and Singh, H (1988) ‘The effect of national culture on the choice of entry mode’, Journal of International Business Studies 19 (3): 411–432.
Kogut, B and Zander, U (1992) ‘Knowledge of the firm, combinative capabilities, and the replication of technology’, Organization Science 3: 383–407.
Kogut, B and Zander, U (1993) ‘Knowledge of the firm and the evolutionary theory of the multinational corporation’, Journal of International Business Studies 24: 625–645.
Kogut, B and Zander, U (1995) ‘Knowledge, market failure and the multinational enterprise: a reply’, Journal of International Business Studies 26: 417–426.
Kogut, B and Zander, U (1996) ‘What firms do? Coordination, identity, and learning’, Organization Science 7: 502–518.
Kuhn, TS (1962) The Structure of Scientific Revolutions, University of Chicago Press: Chicago, IL.
Kwon, Y and Hu, MY (1995) ‘Comparative analysis of export-oriented and foreign production-oriented firms’ foreign market entry decisions’, Management International Review 35 (4): 325–337.
Lenartowicz, T and Roth, K (1999) ‘A framework for culture assessment’, Journal of International Business Studies 30 (4): 781–798.
Lenartowicz, T and Roth, K (2001) ‘Does subculture within a country matter? A cross-cultural study of motivational domains and business performance in Brazil’, Journal of International Business Studies 32 (2): 305–325.
Li, J (1995) ‘Foreign entry and survival: effects of strategic choices on performance in international markets’, Strategic Management Journal 16: 333–351.
Lu, JW (2002) ‘Intra- and inter-organizational imitative behavior: institutional influences on Japanese firms’ entry mode choice’, Journal of International Business Studies 33 (1): 19–37.
Madhok, A (1996) ‘The organization of economic activity: transaction costs, firm capabilities, and the nature of governance’, Organization Science 7: 577–590.
Madhok, A (1997) ‘Cost, value and foreign market entry mode: the transaction and the firm’, Strategic Management Journal 18: 39–61.
Madhok, A and Tallman, S (1998) ‘Resources, transactions and rents: managing value through interfirm collaborative relationships’, Organization Science 9: 326–339.
Makino, S and Neupert, KE (2000) ‘National culture, transaction costs, and the choice between joint venture and wholly owned subsidiary’, Journal of International Business Studies 31 (4): 705–713.
Meyer, KE (2001) ‘Institutions, transaction costs, and entry mode choice in Eastern Europe’, Journal of International Business Studies 32 (2): 357–367.
Milliken, FJ (1987) ‘Three types of perceived uncertainty about the environment: state, effect, and response uncertainty’, Academy of Management Review 12 (1): 133–143.
Noordewier, T, John, G and Nevin, R (1990) ‘Performance outcomes of purchasing arrangements in industrial buyer–vendor relationships’, Journal of Marketing 54 (October): 80–93.
North, D (1990) Institutions, Institutional Change, and Economic Performance, Harvard University Press: Cambridge, MA.
Oxley, JE (1997) ‘Appropriability hazards and governance in strategic alliances: a transaction cost approach’, Journal of Law, Economics and Organization 13 (2): 387–409.
Padmanabhan, P and Cho, KR (1996) ‘Ownership strategy for a foreign affiliate: an empirical investigation of Japanese firms’, Management International Review 36 (1): 45–66.
Padmanabhan, P and Cho, KR (1999) ‘Decision specific experience in foreign ownership and establishment strategies: evidence from Japanese firms’, Journal of International Business Studies 30 (1): 25–43.
Palenzuela, VA and Bobillo, AM (1999) ‘Transaction costs and bargaining power: entry mode choice in foreign markets’, Multinational Business Review 11 (Spring): 62–75.
Rajan, KS and Pangarkar, N (2000) ‘Mode of entry choice: an empirical study of Singaporean multinationals’, Asia Pacific Journal of Management 17: 49–66.
Ronen, S and Shenkar, O (1985) ‘Clustering countries on attitudinal dimensions: a review and synthesis’, Academy of Management Review 10: 435–454.
Root, FJ (1987) Foreign Market Entry Strategies, AMACOM: New York.
Rosenthal, R (1984) Meta-Analytical Procedures for Social Research, Sage: Beverly Hills, CA.
Shelanski, HA and Klein, PG (1995) ‘Empirical research in transaction cost economics: a review and assessment’, Journal of Law, Economics, and Organization 11 (2): 335–361.
Shenkar, O (2001) ‘Cultural distance revisited: toward a more rigorous conceptualization and measurement of cultural differences’, Journal of International Business Studies 32 (3): 519–536.
Shrader, RC, Oviatt, BM and McDougall, PP (2000) ‘How new ventures exploit trade-offs among international risk factors: lessons for the accelerated internationalization of the 21st century’, Academy of Management Journal 43 (6): 1227–1247.
Silverman, B (1999) ‘Technological resources and the direction of corporate diversification: toward an integration of the resource-based view and transaction cost economics’, Management Science 45 (8): 358–378.
Silverman, BS, Nickerson, JA and Freeman, J (1997) ‘Profitability, transactional alignment, and organizational mortality in the US trucking industry’, Strategic Management Journal 18: 31–52.
Simon, HA (1991) ‘Organizations and markets’, Journal of Economic Perspectives 5: 25–44.
Stottinger, B and Schlegelmilch, BB (1998) ‘Explaining export development through psychic distance: enlightening or elusive?’, International Marketing Review 15 (5): 357–372.
Teece, DJ (1986) ‘Transactions cost economics and the multinational enterprise: an assessment’, Journal of Economic Behavior and Organization 7 (1): 21–46.
Terpstra, V and Yu, C-M (1988) ‘Determinants of foreign investment of US advertising agencies’, Journal of International Business Studies 19 (1): 33–46.
Williamson, OE (1975) Markets, Hierarchies: Analysis, Antitrust Implications, Free Press: New York.
Williamson, OE (1979) ‘Transaction-cost economics: the governance of contractual relations’, Journal of Law and Economics 22 (2): 233–261.
Williamson, OE (1985) The Economic Institutions of Capitalism, The Free Press: New York.
Williamson, OE (1991) ‘Comparative economic organization: the analysis of discrete structural alternative’, Administrative Science Quarterly 36: 269–296.
Williamson, OE (1992) ‘Markets, hierarchies, and the modern corporation’, Journal of Economic Behavior and Organization 17: 335–352.
Williamson, OE (1996) The Mechanisms of Governance, Oxford University Press: New York.
Woodcock, G, Beamish, P and Makino, S (1994) ‘Ownership-based entry mode strategies and international performance’, Journal of International Business Studies 25: 253–273.
Zander, U and Kogut, B (1995) ‘Knowledge and the speed of the transfer and imitation of organizational capabilities: an empirical test’, Organization Science 6: 76–92.
Zhao, H and Zhu, G (1998) ‘Determinants of ownership preference of international joint ventures: new evidence from Chinese manufacturing industries’, International Business Review 7: 569–589.
Acknowledgements
This study is supported by respective summer research grants from the John Cook School of Business and Saint Louis University. We thank Professor Brian Silverman and three anonymous reviewers for their valuable comments.
Author information
Authors and Affiliations
Corresponding author
Additional information
Accepted by Brian Silverman, Departmental Editor, 1 June 2004. This paper has been with the authors for two revisions.
Rights and permissions
About this article
Cite this article
Zhao, H., Luo, Y. & Suh, T. Transaction cost determinants and ownership-based entry mode choice: a meta-analytical review. J Int Bus Stud 35, 524–544 (2004). https://doi.org/10.1057/palgrave.jibs.8400106
Received:
Revised:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1057/palgrave.jibs.8400106