Sme Entry Mode Choice and Performance: a Transaction Cost Perspective

Topics: Transaction cost, Cost, Costs Pages: 2 (579 words) Published: November 19, 2012
Introduction
International entry mode choice is considered a critical strategic decision. In an attempt to understand this choice, scholars have primarily focused on transaction cost theory Previous literature have failed to examine how the transactional cost model applies to smaller entrepreneurial firms.” Small and medium-sized enterprises (SMEs) are not smaller versions of larger companies, but mainly due to their size they tend to interact differently with their environment. The Authors could identify no studies of SME entry mode choice that have examined the three main causes of transaction costs: asset specificity, behavioral uncertainties, and environmental uncertainties. By examining the entry mode behavior of SMEs, they can determine whether they follow similar patterns as their larger counterparts and whether the strategic decision processes that influence success for larger companies have validity in smaller firms. In this article they hope to make two important contributions to the SME international literature. First, by examining the applicability of transaction cost theory to SME inter- national entry mode choice, we hope to extend the generalizability of transaction cost theory for entry mode choice to this large and growing sector of the global economy Transactional costs and mode choices

Transaction cost (TC) theory has been widely used in entry mode research to explain why large companies utilize different modes in expanding abroad. The existing literature suggests that companies adopt a certain organizational structure—markets (non-equity modes) versus hierarchies (equity modes)—when expanding abroad based on how efficient one structure is compared with the alternative structure. Transaction cost theory suggests that asset specificity, behavioral uncertainties, and environmental uncertainties create two main costs: market transaction costs and control costs Asset specificity

Asset specificity refers to the physical and human resources,...
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