Which Resources Matter How and Where? A Meta‐Analysis on Firms’ Foreign Establishment Mode Choice

• Published date: 01 May 2017
• Author: Desislava Dikova,Hendrik Klier,Florian B. Zapkau,Christian Schwens
• DOI: http://doi.org/10.1111/joms.12220
• Date: 01 May 2017

Which Resources Matter How and Where?

A Meta-Analysis on Firms’ Foreign Establishment

Mode Choice

Hendrik Klier, Christian Schwens, Florian B. Zapkau and

Desislava Dikova

University of D€usseldorf; University of D€usseldorf; University of D€usseldorf; Vienna University of

Economics & Business

ABSTRACT Firm resources play an important role in explaining the foreign establishment

mode choice. However, a theoretical framework that simultaneously a) differentiates between

heterogeneous types of resources, b) provides a rationale that consistently explains how firms

adapt their establishment mode choice to their resource base, and c) reflects on contextual

factors that intervene in the consistency of the direct relationships is largely missing. The

present paper draws on the resource-based view (RBV) to develop such a framework. More

specifically, we study the effect of knowledge-based and experience-based resources on a firm’s

establishment mode choice and the moderating impact of cultural distance on these

relationships. We validate our theoretical framework by a meta-analysis (integrating 31 studies

with 13,559 establishment mode choices) and find that knowledge-based resources enhance a

firm’s propensity for greenfield investments, while experience-based resources more likely lead

to acquisitions. Further, cultural distance increases knowledge-intensive firms’ preference for

greenfield investments.

Keywords: cultural distance, establishment mode choice, meta-analysis, resources, resource-

based view

INTRODUCTION

Establishment mode choice is one form of a firm’s foreign market entry mode choice

[1]

refer-

ring to the acquisition of an existing firm or the setup of a new firm from scratch by

means of a greenfield investment (Hennart, 2009; Hennart and Slangen, 2015). The

choice between a greenfield investment or the acquisition of an existing firm can unfold

in a foreign entry with partial or full ownership. However, the establishment mode

Address for reprints: Christian Schwens, Faculty of Business Administration and Economics, University of

D€usseldorf, Universit€atsstr. 1, 40225 D€usseldorf, Germany (christian.schwens@hhu.de).

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Journal of Management Studies 54:3 May 2017

doi: 10.1111/joms.12220

choice and the ownership decision differ (Cho and Padmanabhan, 1995). The owner-

ship decision primarily depends on the parent firm’s aspired amount of control over the

foreign subsidiary’s assets, whereas the establishment mode choice primarily depends on

the types of resources employed in the parent firm and the foreign subsidiary (Dikova

and van Witteloostuijn, 2007).

Firm resources belong to the most frequently researched antecedents of the establish-

ment mode choice (Dikova and Brouthers, 2015). However, extant literature has several

shortcomings. First, although firms typically possess different types of resources (Miller

and Shamsie, 1996), the majority of prior studies tends to focus on single resource types

and their impact on a firm’s establishment mode choice (e.g., Mudambi and Mudambi,

2002). Second, prior studies present diverse theoretical arguments that point to opposite

directions regarding resources’ impact on firm’s establishment mode choice culminating

in inconclusive empirical findings (Dikova and Brouthers, 2015). For example, some

studies theoretically establish that firms with abundant knowledge-related resources

such as marketing resources prefer greenfield investments (e.g., Tsai and Cheng, 2004),

while others develop rationale that such firms more likely opt for acquisitions (e.g.,

Hennart and Park, 1993). Further, past studies argue that firms with experience-related

resources derived from extensive international presence have a preference for greenfield

investments (e.g., Brouthers and Brouthers, 2000) and for acquisitions (e.g., Mudambi

and Mudambi, 2002). Third, despite the apparent diversity of theoretical arguments

and empirical findings, only few studies (e.g., Slangen and Hennart, 2008b) develop a

rationale for more complex interactive relationships allowing for a better understanding

of the boundary conditions under which resources affect a firm’s establishment mode

choice. Taken together, a theoretical framework that simultaneously a) differentiates

between heterogeneous types of resources, b) provides a rationale that consistently

explains how firms adapt their establishment mode choice to their resource base, and c)

reflects on contextual factors that intervene in the consistency of the direct relationships

is largely missing.

The resource-based view (RBV) (Barney, 1991; Wernerfelt, 1984) can assist in devel-

oping such a framework. According to the RBV, firms have to manage their valuable,

rare, non-imitable, and non-substitutable resources to achieve sustainable competitive

advantages (Sirmon et al., 2007). In turn, firms’ strategic choices depend on firm-specific

resources (Newbert, 2007). That is, firms adapt their strategic decisions to their resource

base either by exploiting existing advantages or by seeking to develop new advantages.

In an attempt to enrich the predominant firm-level (internal) focus of the RBV, several

studies point at the context-dependency of its theoretical postulates (e.g., Brush and

Artz, 1999; Miller and Shamsie, 1996; Priem and Butler, 2001). A major argument

put forward in this literature is that an unfamiliar environmental context causes an

‘information deficit [that] affects the way firms must manage resources’ (Sirmon et al.,

2007, p. 275).

Drawing on the RBV, the present paper examines the impact of knowledge-based

(i.e., technological resources, marketing resources) and experience-based (i.e., general

international experience, host country experience, establishment mode experience)

resources on a firm’s establishment mode choice. Further, we consider the boundary

conditions of these relationships and argue that the way resources influence the

305Which Resources Matter How and Where?

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establishment mode choice varies with the degree of the firm’s unfamiliarity with the for-

eign context, which induces information deficits for the investor (Bj€orkman et al., 2007;

Drogendijk and Slangen, 2006). Thus, we study how the relationships between different

types of resources and a firm’s establishment mode choice vary with cultural distance

(i.e., the extent to which shared norms and values differ between countries (Drogendijk

and Slangen, 2006)). Cultural distance is a key construct in international business

research (Hutzschenreuter et al., 2015) and specifically in the establishment mode choice

literature (Dikova and Brouthers, 2015). We establish that cultural distance is a major

source of information deficits (Gong, 2003; Roth and O’Donnell, 1996) affecting how

resources influence a firm’s establishment mode choice (Drogendijk and Slangen, 2006;

Harzing, 2003).

Methodologically, we conduct a meta-analysis. This method allows the identifica-

tion of overall directions and effect sizes based on existing empirical evidence by

using weighted average techniques (Hedges and Olkin, 1985; Hunter and Schmidt,

2004). Meta-analysis also facilitates the contextualization of relationships by consider-

ing moderator variables (Dalton et al., 1999; Hunter and Schmidt, 1990). While

some meta-analyses on different entry mode choices exist (e.g., Morschett et al.,

2010; Tihanyi et al., 2005; Zhao et al., 2004), the present study is, to our knowledge,

the first specifically focusing on the establishment mode choice. To this end, we inte-

grate empirical evidence from 31 independent studies including 13,559 establishment

mode choices.

We offer three contributions to extant research. First, we envisage our work to inform

the ongoing discussion on the role of the RBV as a theoretical framework (e.g., Barney

et al., 2011; Kraaijenbrink et al., 2010). Prior studies emphasize the need to demon-

strate the usefulness of the RBV in further strategy areas (e.g., Das and Teng, 2000). We

respond to such calls by presenting a meta-analytical assessment whether RBV’s ‘predic-

tions correspond to reality observed for populations of firms’ (Godfrey and Hill, 1995,

p. 530) in the specific domain of establishment mode choice research. More specifically,

we contribute to theory by developing an RBV-based framework encompassing hetero-

geneous types of resources and explaining how firms exploit existing and seek new

resources through their establishment mode choice. Thus, we argue that firms adapt

establishment mode strategies to their resource base not only to exploit existing advan-

tages, but also to develop new advantages (Ekeledo and Sivakumar, 2004; Sharma and

Erramilli, 2004). In this regard, we provide a more differentiated and theoretically con-

sistent explanation of how resources affect a firm’s choice between greenfield investment

and acquisition.

Second, by studying an important boundary condition of the relationship between

different types of resources and a firm’s establishment mode choice, we contribute to

reducing inconclusive findings in the establishment mode choice literature. By theoreti-

cally establishing and empirically validating the moderating influence of cultural dis-

tance, we move the current discussion forward by not only asking which types of

resources impact a firm’s establishment mode choice, but also under what levels of cul-

tural distance the influence becomes stronger or weaker. In this regard, we also contrib-

ute to the broader literature addressing the context-specificity of the RBV (e.g., Sirmon

et al., 2007).

306 H. Klier et al.

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