Transaction Cost Analysis and the Methodology of Foreign-Market Entry-Mode Studies

The author continues the discussion of foreign-market entry-mode research begun by O'Farrell, Moffat, and Wood. These authors reviewed and compared the contributions of economic geographers and marketers to our understanding of the channel choices of business service firms. Their central argument was that extant research methods, especially those employed by marketers, suffer significant limitations which impede the advancement of knowledge about channel decision-making. They also implied that the dominant theoretical paradigm, transaction cost analysis (TCA), provides a poor explanation of observed behaviour. They made a significant contribution by bringing together the economic geography and marketing literature on this topic. However, they did not fully review the contributions of the TCA approach to entry-mode studies in marketing, and this may have biased their conclusions about the value of this theory. An alternative account of this literature is provided, along with a response to each of O'Farrell et al's criticisms.