The effect of the magnitude and direction of institutional distance on the choice of international entry modes Articles uri icon

publication date

  • January 2015

start page

  • 122

end page

  • 132

issue

  • 1

volume

  • 50

international standard serial number (ISSN)

  • 1090-9516

electronic international standard serial number (EISSN)

  • 1878-5573

abstract

  • This paper analyzes the relation between institutional regulative distance and the choice of international entry mode. The study contributes to existing literature by considering the relative positions of the origin and destination countries on this relation, examining the possibility that institutional distance may exert an asymmetric effect. The results, using a database of European firms and multilevel analysis techniques, indicate that entry in countries with lower levels of regulatory development than that of the origin is related to modes that require a lower resource commitment. Conversely, entry in countries with higher levels of regulatory development is related to higher resource commitment modes. These findings suggest that the direction of institutional distance is important for the choice of international entry mode.

keywords

  • Regulative distance; Direction of institutional distance; Foreign market entry; Institutional theory; Transaction cost economics; Multilevel analysis