Added distance, entry mode choice, and the moderating effect of experience: The case of British MNEs in emerging markets

Abstract

Distance has been viewed as a crucial determinant of the internationalization strategy of firms.Nonetheless, in recent years, there has been considerable debate with regards to, first, the type of distance considered most important when it comes to explaining the internationalization strategy of firms, and, second, how distance should be measured. In our study, we argue that a developed market multinational enterprise (DMNE)'s decision regarding the mode of entry into an emerging market (EM) will be affected by the geographic and administrative distance between the locations in which the MNE has previously held operations. Drawing our arguments on transaction costs economics (TCE) and Internalization Theory, we propose that, for low and high geographic and administrative distance, DMNEs will opt to enter EMs via a wholly owned subsidiary, while for moderate levels of distance via a joint venture. Furthermore, we argue that DMNEs' previous international experience in EMs will have a positive effect on the suggested U-shaped relationship, alleviating the negative effects associated with the coordination and knowledge dissipation costs incurred as a result of the level of distance. Our study contributes to existing literature both theoretically-notably via the examination of underresearched facets of distance on entry mode choice-and also methodologically-through the adoption of a novel methodological approach in measuring distance. We test our hypotheses against a data set comprising 316 entries of FTSE 250 British MNEs in 39 EMs spanning the period 1971-2010. K E Y W O R D Sadded administrative distance, added geographic distance, emerging markets, foreign market entry, international experience

Measuring Experience in International Business: A Systematic Literature Review

“…International experience is a relevant variable that helps to alleviate some of the threats encountered during the internationalisation process (Barkema et al, 1996;Szymura-Tyc, 2013). Firms with higher levels of international business experience are better prepared to face possible adversities in the internationalisation process, cope with complex differences in the new market, and end up managing associated costs of doing business in an international environment more effectively (Batsakis & Singh, 2019). However, several authors use this concept differently (Szymura-Tyc, 2013).…”

“…However, several authors use this concept differently (Szymura-Tyc, 2013). Authors like Batsakis & Mohr, 2017;Batsakis & Singh, 2019;Chung et al, 2015;Love et al, 2016;Tan & Sousa, 2019 measured international business experience through the number of years the firm has been involved in international activities. Moreover, other authors (among which Chetty, Eriksson, & Lindbergh (2006), Dow & Larimo (2009), Rabbiosi, Elia, & Bertoni (2012) and Slangen & Hennart (2008)) measured experience through the firm's network extension, while others, including , Putzhammer, Fainshmidt, Puck, & Slangen, (2018) and Tang & Gudergan (2018), combined both criteria to measure experience in international business.…”

“…International experience is an important and intangible asset that can facilitate the internationalisation process and alleviate risks and problems related to the liability of foreignness (Barkema, Bell, & Pennings, 1996in Batsakis & Singh, 2019. Firms with higher levels of international business experience are better prepared to mitigate potential problems during the internationalisation process, cope with complex differences in the new market, and end up managing associated costs of doing business in an international environment more effectively (Batsakis & Singh, 2019).…”

“…International experience is an important and intangible asset that can facilitate the internationalisation process and alleviate risks and problems related to the liability of foreignness (Barkema, Bell, & Pennings, 1996in Batsakis & Singh, 2019. Firms with higher levels of international business experience are better prepared to mitigate potential problems during the internationalisation process, cope with complex differences in the new market, and end up managing associated costs of doing business in an international environment more effectively (Batsakis & Singh, 2019). Even though internationalisation is widely accepted as an important source of value for companies and it is a wide subject of research, there is still much to be studied about international experience and how to assess it (Slim & Slimane, 2006;Sommer, 2012;Tang & Gudergan, 2018).…”

“…Despite the consolidation of globalisation, and the growing number of multinational companies, research in international businesses is still inconclusive regarding the measurement of international experience (Loncan & Nique, 2010;Tang & Gudergan, 2018). Different authors have opted for different ways to measure experience in international business, namely through the number of years the firm has been engaged in international activities (Batsakis & Mohr, 2017;Batsakis & Singh, 2019;Chung, Park, Lee, & Kim, 2015;Love, Roper, & Zhou, 2016;Tan & Sousa, 2019), through the firm's network extension (Chetty, Eriksson, & Lindbergh, 2006;Dow & Larimo, 2009;Rabbiosi, Elia, & Bertoni, 2012;Slangen & Hennart, 2008; just to name a few) while others, such as , Putzhammer, Fainshmidt, Puck, & Slangen, (2018) and Tang & Gudergan (2018), even combined both to measure experience in international business. Other measures have also been proposed, such as indices or composite indicators (Ietto-Gillies, 1998;Sullivan, 1994;UNCTAD, 1995).…”