Institutions, Transaction Costs, and Entry Mode Choice in Eastern Europe
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Entry
Mode
Transaction
Choice
in
and
Costs,
Eastern
Europe Klaus E. Meyer*
COPENHAGEN BUSINESS SCHOOL The process of change from a centrally planned system to a market economy generates an institutional framework that is only partially reformed, and therefore inconsistent and unstable. This leads to high transaction costs for economic agents. Multinational enterprises entering transition countries have to adapt their strategies to the local institutions and reduce exposure to
highly imperfect markets. This paper analyzes how the costs of organizing business in transitionenvironments influence entry mode choice. The empirical results show that host country institutions in transition economies, have an impact on the choice of entrymodes. Moreover,different mechanisms determinethe internalizationof managerialand technological knowledge.
INTRODUCTION
strain or facilitatebusiness. For countries in developmentor transition,the evolutionof institutionsappropriateto a marketeconomyis a criticalhurdle(e.g.
That multinational enterprises entering a new market must adapt their strategies to the host country environment has been a hallmark finding in the international business literature. In recent years, increasing attention has been paid to the adaptation of these strategies to the demands of the institutions in the host economies (Oxley, 1999; Peng, 2000). Institutions are important for the functioning of any economy, as they con-
Clague, 1997). One way to understand business strategies in emerging markets is to analyze the role and effects of institutions in reducing transaction costs (Hoskisson et al., 2000). This requires an investigation of different institutional contexts across countries and their effects on entry strat-
*KlausE. Meyer is ResearchProfessorof InternationalBusiness with focus on EasternEurope at the Department for International Economics and Management, Copenhagen Business School, Denmark.His research focuses on direct foreign investment, mergers and acquisitions, and enterprise restructuring in emerging markets, especially Central and Eastern Europe. I would like to thankthe anonymous referees, and especially Bruce Kogut who guest-managed the review process, fortheir very helpful comments and advice on this paper. Moreover,I thank MarkCasson, Saul Estrin, and Keith Brouthersfor comments at earlier stages of this research. The authorhas been affiliatedwith the CISMECentre,London Business School, and gratefully acknowledges the funding of the questionnairesurvey fromwhich the dataused for this paper are taken. Earlier versions of this study have been presented at the British Academy of Management (London) and the EuropeanInternationalBusiness Academy (Stuttgart). JOURNAL OF INTERNATIONALBUSINESS STUDIES, 32, 2 (SECONDQUARTER2001):
357-367
357
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ENTRYIN EASTERNEUROPE
egies. In this paper, I focus on transition economies, where the
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