The influence of international experience on entry mode choice: Difference between family and non-family firms

Abstract

Summary International experience plays a crucial role in the choice of foreign entry mode, but its influence may vary across firms. This study investigates the difference of such an influence between family and non-family firms. The TCE perspective sees the foreign entry mode choice of a joint venture (JV) or a wholly owned subsidiary (WOS) as a trade-off between administrative costs of managing an organization and costs of safeguarding against partner’s potential opportunism. From the TCE perspective, we hypothesize that inexperienced firms would rather relinquish control of foreign subsidiaries in exchange for local partners’ help and thus will tend to choose a JV vs. a WOS. Family firms, however, have unique concerns regarding the preservation of socioemotional wealth and tend toward nepotism. Thus they often suffer from relatively scant management capabilities, relying more on partners’ help to manage foreign subsidiaries jointly. We then hypothesize that inexperienced family firms, compared with inexperienced non-family firms, are more likely to choose JVs rather than WOSs. As firms accumulate international experience, they rely less and less on partners’ help. We further hypothesize that ceding control to partners eventually will no longer be worthwhile, making the WOSs choice more favorable. Family firms, due to their socioemotional wealth concerns, have a higher desire to control their affiliates and tend to maintain higher ownership levels than do non-family firms. We thus hypothesize that experienced family firms are more likely to choose WOSs, compared with experienced non-family firms. We used a sample of publicly listed computer and electronic companies in Taiwan entering the China market to test our hypotheses. The empirical results support our hypotheses. The heterogeneity in the influence of international experience has profound implications for both family business research and international business studies.