Sme Entry Mode Choice and Performance

Introduction International entry mood choice is considered a critical strategic decision. In an attempt to understand this choice, scholars have primarily focused on transaction represent theory Previous literature have failed to examine how the transactional cost deterrent example 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 find no studies of SME entry order choice that have examined the three main causes of transaction costs asset specificity, behavioral uncertainties, and environmental uncertainties. By examining the entry rule 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 imp ortant 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 achievemental 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 structuremarkets (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 re sources, which may lose value in another use, that a company employs to complete a specific task.A firm that possesses strange technology and know-how has to take extra precautions (and incur additional costs) in order to protect its differentiated assets from falling into the hands of competitors. When asset specificity is low, firms will incur hardly a(prenominal) costs in protecting their know-how from competitors. Low asset-specific investments involve the use of generally available familiarity hence, firms are not concerned about protecting this knowledge from competitors, since competitors already have access to the knowledge.When asset specificity is low, firms tend to use market-based non-equity modes of entry. When asset specificity is high, firms are more concerned with protecting proprietary knowledge or technology from competitors. Hypothesis1 SMEs will tend to prefer non-equity modes of entry when assets specificity is low, but tend to prefer equity modes of entry w hen asset specificity is high. Behaviour uncertanty Transaction cost theory suggests firms position two types of uncertainty behavioral and environmental.Behavioral uncertainties arise from the inability of a company to predict the behavior of individuals in a foreign country. According to transaction cost theory, behavioral uncertainty may lead to opportunistic behavior involving cheating, distortion of information, shirking of responsibility, and other forms of dishonest behavior. Internationalization theory suggests that firms develop skills at positive international operations through experience.Through learning, firms develop expertise in managing foreign operations (either independent operations like license agreements or more involved operations like wholly owned subsidiaries). Firms lacking international control-related experience tend to prefer non-equity modes of entry, as a means of controlling the behavior-related uncertainties of foreign expansion. high school behav ioral uncertainties may discourage SMEs from organizing foreign operations in a hierarchical form Hypothesis 2 SMEs