The Moderating Impact of Informal Institutional Distance and Formal Institutional Risk on SME Entry Mode Choice

Abstract

abstract Considerable research has explored international mode choices. However, results regarding the direct influence of the host country institutional context on entry mode choice remain rather inconclusive with positive, negative, and mixed empirical findings. This study examines informal institutional distance and formal institutional risk as moderators on the relationship between frequently examined decision‐making criteria and the entry mode decision of small and medium‐sized enterprises (SMEs). We demonstrate that the influence of international experience, proprietary know‐how, and strategic importance on SME mode choice is contingent on the institutional context of the host country. Hypotheses are tested on a sample of 227 German SMEs. Our empirical results support our theoretical predictions, which forge a link between institutional and SME entry mode literature.