Asset specificity and foreign market entry mode choice of small and medium-sized enterprises: The moderating influence of knowledge safeguards and institutional safeguards

According to transaction cost economics (TCE) reasoning, firms choose equity (as opposed to non-equity) foreign market entry modes to safeguard specific assets. The present paper contextualizes the well-researched relationship between asset specificity and foreign market entry mode choice by introducing knowledge safeguards (international experience, host-country networks, and imitation) and institutional safeguards (property rights protection and cultural proximity) as alternative mechanisms for securing a firm's specific assets. Testing our hypotheses on a sample of 206 small and medium-sized enterprises, we find that knowledge safeguards and institutional safeguards weaken the effect of asset specificity on the choice of equity foreign market entry modes. Contextualizing the relationship between asset specificity and foreign market entry mode choice helps to enhance our understanding of the scope conditions of TCE-based entry mode studies and beyond.