Skip to main content
SpringerLink
Log in

Travel time and the liability of distance in foreign direct investment: Location choice and entry mode

  • Research Note
  • Published:
Journal of International Business Studies Aims and scope Submit manuscript

Abstract

Measures of geographic distance are often used to proxy for the impact of spatial separation on firm decisions and performance. We develop a construct, dyad travel time, to measure the friction of interacting and costs of uncertainty from ex post behavioral monitoring across non-collocated sites. We measure the actual time required to travel between 1171 parent–subsidiary dyads, and show that dyad travel time (but not geographic distance) has significant predictive power in firm governance and location decisions. While prior literature has independently modeled these, we specify a simultaneous model offering stronger support for the interrelation of these decisions.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Andersen, O. 1997. Internationalization and market entry mode: A review of theories and conceptual frameworks. Management International Review, 37 (Special Issue): 27–42.

    Google Scholar 

  • Anderson, J. E., & van Wincoop, E. 2004. Trade costs. Journal of Economic Literature, 42 (3): 691–751.

    Article  Google Scholar 

  • Brouthers, L. E., Yan, G., & McNicol, J. P. 2008. Corruption and market attractiveness influences on different types of FDI. Strategic Management Journal, 29 (6): 673–680.

    Article  Google Scholar 

  • BTS. 2011. US BTS airline on-time performance data. Washington DC: US Bureau of Transportation Statistics.

  • Buckley, P. J. 2004. Cartography and international business. International Business Review, 13 (2): 239–255.

    Article  Google Scholar 

  • Cantwell, J. 2009. Location and the multinational enterprise. Journal of International Business Studies, 40 (1): 35–41.

    Article  Google Scholar 

  • Coeurderoy, R., & Murray, G. 2008. Regulatory environments and the location decision: Evidence from the early foreign market entries of new-technology-based firms. Journal of International Business Studies, 39 (4): 670–687.

    Article  Google Scholar 

  • Coughlin, C. C., Terza, J. V., & Arromdee, V. 1991. State characteristics and the location of foreign direct investment within the United States. Review of Economics and Statistics, 73 (4): 675–683.

    Article  Google Scholar 

  • Davidson, W. H. 1980. The location of foreign direct investment activity: Country characteristics and experience effects. Journal of International Business Studies, 11 (2): 9–22.

    Article  Google Scholar 

  • Davidson, W. H., & McFetridge, D. G. 1985. Key characteristics in the choice of international technology transfer mode. Journal of International Business Studies, 16 (2): 5–21.

    Article  Google Scholar 

  • Delios, A., & Beamish, P. W. 2001. Survival and profitability: The roles of experience and intangible assets in foreign subsidiary performance. Academy of Management Journal, 44 (5): 1028–1038.

    Article  Google Scholar 

  • Delios, A., & Henisz, W. J. 2000. Japanese firms’ investment strategies in emerging economies. Academy of Management Journal, 43 (3): 305–323.

    Article  Google Scholar 

  • Dunning, J. H. 1980. Towards an eclectic theory of international production: Some empirical tests. Journal of International Business Studies, 1 (11): 9–31.

    Article  Google Scholar 

  • Dunning, J. H. 1998. Location and the multinational enterprise: A neglected factor? Journal of International Business Studies, 29 (1): 45–66.

    Article  Google Scholar 

  • Geyskens, I., Steenkamp, J.-B. E., & Kumar, N. 2006. Make, buy, or ally: A transaction cost theory meta-analysis. Academy of Management Journal, 49 (3): 519–543.

    Article  Google Scholar 

  • Ghemawat, P. 2001. Distance still matters: The hard reality of global expansion. Harvard Business Review, 79 (8): 137–148.

    Google Scholar 

  • Goerzen, A., & Beamish, P. W. 2003. Geographic scope and multinational enterprise performance. Strategic Management Journal, 24 (13): 1289–1306.

    Article  Google Scholar 

  • Gulati, R. 1995. Does familiarity breed trust? The implications of repeated ties for contractual choice in alliances. Academy of Management Journal, 38 (1): 85–112.

    Article  Google Scholar 

  • Hansen, M., & Lovas, B. 2004. How do multinational companies leverage technological competencies? Moving from single to interdependent explanations. Strategic Management Journal, 25 (8–9): 801–822.

    Article  Google Scholar 

  • Head, K., Ries, J., & Swenson, D. 1995. Agglomeration benefits and location choice: Evidence from Japanese manufacturing investments in the United States. Journal of International Economics, 38 (3–4): 223–247.

    Article  Google Scholar 

  • Hennart, J. F. 2001. Theories of the multinational enterprise. In A. Rugman & T. Brewer (Eds), Oxford handbook of international business: 127–150. Oxford: Oxford University Press.

    Chapter  Google Scholar 

  • Hitt, M. A., Hoskisson, R., & Kim, W. C. 1997. International diversification: Effects on innovation and firm performance in product-diversified firms. Academy of Management Journal, 40 (4): 767–798.

    Article  Google Scholar 

  • Howell, J. M., Neufeld, D. J., & Avolio, B. J. 2005. Examining the relationship of leadership and physical distance with business unit performance. The Leadership Quarterly, 16 (2): 273–285.

    Article  Google Scholar 

  • Hymer, S. H. 1960. The international operations of national firms: A study of direct foreign investment, PhD dissertation, MIT, Cambridge, MA.

  • Johanson, J., & Vahlne, J.-E. 1977. The internationalization process of the firm: A model of knowledge development and increasing foreign market commitments. Journal of International Business Studies, 8 (1): 23–32.

    Article  Google Scholar 

  • Johanson, J., & Vahlne, J.-E. 2009. The Uppsala internationalization process model revisited: From liability of foreignness to liability of outsidership. Journal of International Business Studies, 40 (9): 1411–1431.

    Article  Google Scholar 

  • Kang, J.-K., & Kim, J.-M. 2010. Do foreign investors exhibit a corporate governance disadvantage? An information asymmetry perspective. Journal of International Business Studies, 41 (8): 1415–1438.

    Article  Google Scholar 

  • Keshk, O. M. 2003. CDSIMEQ: A program to implement two-stage probit least squares. Stata Journal, 3 (2): 157–167.

    Google Scholar 

  • Mitchell, W., Shaver, M., & Yeung, B. 1994. Foreign entrant survival and foreign market share: Canadian companies’ experience in United States medical sector markets. Strategic Management Journal, 15 (7): 555–567.

    Article  Google Scholar 

  • Nachum, L., & Zaheer, S. 2005. The persistence of distance? The impact of technology on MNE motivations for foreign investment. Strategic Management Journal, 26 (8): 747–767.

    Article  Google Scholar 

  • Poppo, L., & Zenger, T. 1995. Opportunism, routines, and boundary choices: A comparative test of transaction cost and resource-based explanations for make-or-buy decisions. Academy of Management Journal, 38 (1): 42–46.

    Google Scholar 

  • Poppo, L., & Zenger, T. 2002. Do formal contracts and relational governance function as substitutes or complements? Strategic Management Journal, 23 (8): 707–725.

    Article  Google Scholar 

  • Rangan, S., & Sengul, M. 2009. Information technology and transnational integration: Theory and evidence on the evolution of the modern multinational enterprise. Journal of International Business Studies, 40 (9): 1496–1514.

    Article  Google Scholar 

  • Rosenkopf, L., & Almeida, P. 2003. Overcoming local search through alliances and mobility. Management Science, 49 (6): 751–766.

    Article  Google Scholar 

  • Sinnott, R. W. 1984. Virtues of the Haversine. Sky and Telescope, 68 (2): 158–170.

    Google Scholar 

  • Strange, R., Filatotehev, I., Yung-chih, L., & Piesse, J. 2009. Insider control and the FDI location decision: Evidence from firms investing in an emerging market. Management International Review, 49 (4): 433–454.

    Article  Google Scholar 

  • Sundaram, A. K., & Black, J. S. 1992. The environment and internal organization of multinational enterprises. Academy of Management Review, 17 (4): 729–757.

    Google Scholar 

  • USCB. 2007. Census 2000 survey. Washington DC: US Census Bureau, American Factfinder Database.

  • Venkatraman, N., & Grant, J. 1986. Construct measurement in organizational strategy research: A critique and proposal. Academy of Management Journal, 11 (1): 71–87.

    Google Scholar 

  • Williamson, O. E. 1979. Transaction-cost economics: The governance of contractual relations. Journal of Economic Issues, 22 (2): 233–261.

    Google Scholar 

  • Williamson, O. E. 1991. Comparative economic organization: The analysis of discrete structural alternatives. Administrative Science Quarterly, 36 (2): 269–296.

    Article  Google Scholar 

  • Woodward, D. P., & Rolfe, R. J. 1993. The location of export-oriented foreign direct investment in the Caribbean basin. Journal of International Business Studies, 24 (1): 121–144.

    Article  Google Scholar 

  • Zaheer, S. 1995. Overcoming the liability of foreignness. Academy of Management Journal, 38 (2): 341–363.

    Article  Google Scholar 

  • Zhao, H., Luo, Y., & Suh, T. 2004. Transaction cost determinants and ownership-based entry mode choice: A meta-analytical review. Journal of International Business Studies, 35 (6): 524–544.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. School of Business, Pacific Lutheran University, Tacoma, Washington, USA

    Kevin K Boeh

  2. Richard Ivey School of Business, Western University, London, Ontario, Canada

    Paul W Beamish

Authors
  1. Kevin K Boeh
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Paul W Beamish
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Kevin K Boeh.

Additional information

Accepted by Paul Almeida, Area Editor, 13 February 2012. This paper has been with the authors for two revisions.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Boeh, K., Beamish, P. Travel time and the liability of distance in foreign direct investment: Location choice and entry mode. J Int Bus Stud 43, 525–535 (2012). https://doi.org/10.1057/jibs.2012.10

Download citation

  • Received:

  • Revised:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1057/jibs.2012.10

Keywords

Search

Navigation