Host environmental uncertainty and equity-based entry mode dilemma: The role of market linking capability

Over the last two decades or so, researchers have sought to understand foreign ownership choice of firms entering an overseas market. Interestingly, however, extant studies based on transaction cost analysis and an experience perspective have yielded inconsistent arguments as to whether wholly owned subsidiary or joint venture is more appropriate for expanding into an uncertain environment. This paper suggests that, by taking into account a firm's market linking capability, an ability to sense and manage international markets, the prior discrepancy in entry mode preference could be resolved. Hypotheses were tested using data collected from manufacturers in Taiwan, one of the fast growing emerging economies. The authors find that a multinational that has strong market linking capability is more likely to use wholly owned subsidiary to enter a foreign market that is characterized by higher levels of market turbulence and regulatory unpredictability. More results along with their implications are discussed.