Network and Institutional Effects on SMEs` Entry Strategies

Abstract

Building on the network and institutional environment perspectives, this study examines the foreign market entry strategies of 851 small and medium-sized enterprises (SMEs) based in Taiwan, a newly industrialized economy. From the network perspective, our findings show that SMEs prefer to enter new markets in two distinct ways: (1) through wholly-owned subsidiaries when they are following their customers into a host country, or when the operations in a host country have more internal network linkages; and (2) through joint ventures when they have stronger supplier relationships. From the institutional environment perspective, SMEs set up wholly-owned subsidiaries when they perceive differences in the macro-economic and industrial-policy environment in a host country; however, they will choose to enter into joint ventures if they perceive a significant degree of socio-cultural difference in a host country. As SMEs decide on entry strategies, they must carefully consider not only the different types of network resource, but also the influence of institutional factors in host countries.