Institutional distance and entry mode choice by Brazilian firms

Abstract

Purpose -The purpose of this paper is to examine the influence of institutional distance, firm and industry characteristics on the establishment mode strategy of Brazilian multinationals -the choice between an acquisition and a greenfield investment. Design/methodology/approach -The authors build upon the recently developed of Institutional Theory an analytical framework, decomposing the institutional distance between formal institutions (economic, financial, political, administrative, demographic, geographic and knowledge distance) and informal institution (cultural distance), and we used control variables related to firm and industry levels. Findings -The results suggest a possible association between entry by acquisition and factors related to the firm-level and formal institution (financial, political and demographic distance). Findings also suggest a strong relationship between greenfield investments and informal institution (cultural distance) and industry-level factors. Praticallimitations -The authors believe that the managers of Brazilian companies should use the variables adopted in this study as criteria to identify the factors that influence entry strategy abroad. Socialimplications -Another possible contribution concerns the scope of the government because results demonstrated the weight that formal institutions place on the entry process into foreign countries. Originality/value -This study contributes to the ongoing academic discussion regarding entry modes in different ways. First, this study contributes, given the novelty of its proposal: no quantitative studies were found to have analyzed establishment mode choice in Brazil. Another contribution is the finding related to the association between entry mode and institutional distance between countries. ResumenEl Propósito -Examinamos la influencia de la distancia institucional y características de la empresa y la industria en la estrategia de modo de establecimiento multinacionales brasileñas -la elección entre una adquisición y una inversión de Greenfield. La Metodologia -Construimos sobre la recientemente desarrollada teoría institucional un marco analítico, descomponiendo la distancia institucional entre las instituciones oficiales (económica, financiera, política, administrativa, demográfica, geográfica y distancia del conocimiento) y la institución informal (distancia cultural) y controlamos por variables relacionadas con los niveles de la MRJIAM 12,2

The Impact of Institutional Distance on the Choice of Multinational Enterprise’s Entry Mode: Theory and Empirical Evidence from Vietnam

“…Such transfers are more difficult to achieve if the subsidiary is a locally acquired firm located in a country with institutional dissimilarities. Therefore, when the institutional distance between the home and host countries increases, the business costs and the levels of uncertainty related to business operations in the host countries also increase (Dikova, 2012;Chueke & Borini, 2014).…”

“…In this study, we first added parentcompany age which is calculated by using the difference between the year of the parent firm's founding and 2015. The information about the founding year is taken from the website of the parent company (Harzing, 2002;Chueke & Borini, 2014). It is deemed that the older the parent company, the higher the company's experience will be.…”

“…The reason is that MNEs often need local resources or market knowledge to achieve their strategic goals (Meyer, Estrin, Bhaumik, & Peng, 2009). These factors are crucial to the success of their overseas operation which is reflected by the subsidiary's performance and its competitive advantage (Chueke & Borini, 2014). Accordingly, the optimal mode of entry provides an important means for the MNEs to manage challenges in the local market (Meyer, 2001).…”

“…International business scholars (Anand & Delios, 2002;Hennart & Slangen, 2015;Dikova & van Witteloostuijn, 2007;Brouthers & Brouthers, 2000;Dikova, 2012;Brouthers, 2002;Chueke & Borini, 2014) have examined and analysed MNEs' entry modes. They found that the choice between greenfield investment and acquisition depended on a few factors such as the investing firm's resources and capabilities (Anand & Delios, 2002;Hennart & Slangen, 2015) and the firm's need to minimise transaction costs (Dikova & van Witteloostuijn, 2007;Brouthers & Brouthers, 2000;Dikova, 2012;Brouthers, 2002;Chueke & Borini, 2014). Most of these studies focussed on developed economies.…”

“…Hence, the type of relationships established by foreign firms with the local partners in these economies also differed widely (Giroud, 2007;Meschi, Phan, & Wassmer, 2016;Vo & Le Hoang, 2017). Second, the rich stream of entry mode research has focused mainly on countries with developed economies (Slangen & Hennart, 2008;Brouthers & Brouthers, 2003), Eastern European economies (Dikova, 2012) and emerging economies (Chueke & Borini, 2014). Analyses of the effect of institutional distance affecting the choice of the MNE's entry mode within a transition economy in Vietnam, where economic reforms had been implemented but where political reforms were rejected, can create new insights.…”