Beyond transaction cost determinants: an integrated framework for export intermediary selection in emerging economies

The realities of economic life have forced most export-capable firms to "go global" because they will either "export or die" (Czinkota, Ronkainen, Moffett, & Moynihan, 2001). Exporting is the very first step of internationalization for many firms (Johanson & Vahlne, 1977; Cavusgil & Nevin, 1981) and most small businesses (Osborne, 1996). It continues to be an important mode of internationalization for firms (Charles & Beamish, 2003) and management research on export development has become "one of the most pioneering, established and mature streams of the export literature" (Leonidou & Katsikeas, 1996). It is a challenging task and exporting into emerging economies, which are low-income, rapid-growth countries using economic liberalization as their primary engine of growth (Hoskisson, Eden, Lau, & Wright, 2000), is perhaps more laborious and bothersome than exporting into developed economies. Emerging economies not only provide tremendous business opportunities that export-capable firms can preempt but create challenges derived from the fragmented markets, unfamiliar organizational forms, inconsistent regulations, and "institutional voids" (Boisot & Child, 1996; Peng & Heath, 1996; Khanna & Palepu, 1997). As a result, many firms resort to overseas-based local import intermediaries to export their products in emerging markets more often than in other markets. While there is a wealth of literature on export marketing strategy for firms that export their own products (Aaby & Slater, 1989; Cavusgil & Zou, 1994; Leonidou & Katsikeas, 1996) or on the strategic choice between export internalization and intermediation (Anderson & Coughlan, 1987; Root, 1994; Anderson, 1997; Solberg & Nes, 2002), little is known about the export intermediary selection. Moreover, although Peng and colleagues (Peng & Ilinitch, 1998; Peng, Hill, & Wang, 2000; Peng & York, 2001) have constructed a research model, which contributes to a better understanding of the involvement of export intermediaries in foreign trade, we still lack in-depth research on the overseas-based local import intermediary selection which may be more important to manufacturing firms. When emerging economies are concerned, the export intermediary selection is surprisingly understudied, and this issue becomes more urgent for researchers and practitioners in international marketing area. In response, the purpose of this chapter is to develop a framework to study the export intermediary selection in emerging economies. Overall, this research departs from existing work in three significant ways. First, the study analyzes the selection of export intermediaries with a focus on overseas-based intermediaries when manufacturing firms try their hands in exporting into foreign countries. Prior work only focuses on the channel design and the relationship between exporter and intermediaries (Rosson & Ford, 1982; Bello & Lohtia, 1995; Karunaratna & Johnson, 1997), or on home-based export intermediaries but overlooks those located in target markets (Peng & Ilinitch, 1998; Peng et al., 2000; Peng & York, 2001). Thus, this study can be taken as an extension to their research models and may contribute to the body of export literature by depicting the whole picture of the exporting channel selection. Second, this research models the export activities from an integrated perspective by investigating the intermediary selection. Prior work focuses on the economic relationship of exporter-intermediary and thus the intermediary is a passive "task-taker" or an agent to help reduce exporter's export-related transaction costs and agency costs (Peng & York, 2001). From an integrated point of view, however, export intermediary is an active partner in exporter's networks by using its unique and complementary resources to offer value-adding services to both exporter and customers. Specifically, institutional and network perspectives, which are more behaviorally oriented approaches (Barringer & Harrison, 2000), will be integrated in this research to supplement prior research which is more "cost-based" (Leonidou & Kaleka, 1998) or more on an economic rationale (Barringer & Harrison, 2000). Third, this study chooses emerging economies as the research field. According to Arnold and Quelch (1998), an emerging economy can be defined as a country that satisfies two criteria: a rapid pace of economic development, and government policies favoring economic liberalization and the adoption of a free-market system. Of the 64 emerging economies identified by Hoskisson et al. (2000), 51 are rapidly growing developing countries across Asia, Latin America, Africa, and the Middle East, which are also listed by the International Finance Corporation, and 13 are transition economies in the former Soviet Union, which used to be centrally planned countries and are classified by the European Bank for Reconstruction and Development. Since late 1980s and early 1990s, emerging economies are assuming an increasingly prominent position in the world economy and have become the fastest growing export markets (Luo, 1998; Dunning, 2000). These economies generate an institutional system that is only partially reformed, and therefore inconsistent and unstable (Meyer, 2001). On the other hand, the system provides an ideal and unique setting for identifying the "criteria" of intermediary selection in export trading. In contrast, most of prior literature ignores emerging economies and focuses mainly on developed countries such as UK (Balabanis, 2000), US (Peng & York, 2001), and France (Trabold, 2002). Consequently, my research highlights the importance of the institutional characteristics of emerging economies and the unique capabilities of overseas-based import intermediaries located in these economies. This chapter is organized in the following manner. In the next section, I start with a review and criticism of transaction cost approach (TCA) applied in management, export entry mode, and intermediary selection. Beyond that, I analyze the strengths and weaknesses of other theoretical approaches such as resource-based view (RBV), institutional theory and network perspective. I then move on to the recent development on the synthesis of different theories and further offer suggestions for blending the theoretical paradigms together. Specifically, by integrating these perspectives, I construct an integrated framework, derive a research model, and develop propositions for export selection in emerging economies. Discussions and conclusion follow.