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Distance factors and establishment mode choice of emerging‐market multinationals: The moderating effect of administrative distance
Author(s) -
Rienda Laura,
Quer Diego,
Andreu Rosario
Publication year - 2021
Publication title -
european management review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.784
H-Index - 32
eISSN - 1740-4762
pISSN - 1740-4754
DOI - 10.1111/emre.12486
Subject(s) - geographical distance , transaction cost , emerging markets , hofstede's cultural dimensions theory , business , corporate governance , sample (material) , economic geography , foreign direct investment , politics , mode (computer interface) , quality (philosophy) , international business , industrial organization , marketing , economics , finance , sociology , population , social science , chemistry , philosophy , demography , management , chromatography , epistemology , political science , computer science , law , macroeconomics , operating system
Regulations, governance quality, and political structure are important factors that may alter the cost and difficulties associated with doing business in foreign markets. Emerging‐market multinationals (EMNEs), with an imperative motivation to go abroad and to be competitive in a global landscape, should consider the impact of administrative distance, namely, the regulatory institutional differences between home and host countries. We suggest that the study of administrative distance is particularly important when addressing investment flows from emerging economies to developed ones, because of the differences between them. Drawing on transaction cost theory and institutional perspective, we analyze the moderating effect of administrative distance on the relationship between other cross‐national distance factors—cultural, geographic and economic—and establishment mode choice of EMNEs. From a sample of 357 outward foreign direct investments carried out by Indian firms, our results show that administrative distance moderates the relationship between cultural, geographic and economic distance, and establishment mode decisions.