Institutional distance and entry mode choice by Brazilian firms

Abstract

Purpose– The purpose of this paper is to examine the influence of institutional distance, firm and industry characteristics on the establishment mode strategy of Brazilian multinationals – the choice between an acquisition and a greenfield investment.Design/methodology/approach– The authors build upon the recently developed of Institutional Theory an analytical framework, decomposing the institutional distance between formal institutions (economic, financial, political, administrative, demographic, geographic and knowledge distance) and informal institution (cultural distance), and we used control variables related to firm and industry levels.Findings– The results suggest a possible association between entry by acquisition and factors related to the firm-level and formal institution (financial, political and demographic distance). Findings also suggest a strong relationship between greenfield investments and informal institution (cultural distance) and industry-level factors.Praticallimitations– The authors believe that the managers of Brazilian companies should use the variables adopted in this study as criteria to identify the factors that influence entry strategy abroad.Socialimplications– Another possible contribution concerns the scope of the government because results demonstrated the weight that formal institutions place on the entry process into foreign countries.Originality/value– This study contributes to the ongoing academic discussion regarding entry modes in different ways. First, this study contributes, given the novelty of its proposal: no quantitative studies were found to have analyzed establishment mode choice in Brazil. Another contribution is the finding related to the association between entry mode and institutional distance between countries.