Transaction cost determinants and ownership-based entry mode choice: a meta-analytical review

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.

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Notes

  1. 1.

    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.

  2. 2.

    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.

  3. 3.

    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.

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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.

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Correspondence to Hongxin Zhao.

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Accepted by Brian Silverman, Departmental Editor, 1 June 2004. This paper has been with the authors for two revisions.

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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

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Keywords

  • entry mode
  • meta-analysis
  • FDI