Home country institutional impact on the choice of direct vs indirect exports: an emerging markets perspective

Purpose This study uses the notions of institutional harshness and uncertainty avoidance in the home country to explain the choice between direct and indirect exporting strategies by emerging market firms. Design/methodology/approach This study is based on a dataset of 23,256 observations on firms from 32 countries spread over 11 years (2006-2016). Since only some firms undertake exports, the Heckman procedure is used to control for sample self-selection. In the first stage, we predict which firms will choose to export, and, in the second stage, we examine the factors driving the choice made by firms involved in exports between direct and indirect exports strategies. Findings The analyses reveal that firms are more likely to choose direct exports when institutional harshness is high and when they are from countries with low uncertainty avoidance. We also find that the strength of the relationship between institutional harshness and the choice of direct exports is moderated at high levels of uncertainty avoidance. Research limitations/implications While this study's empirical models account for many firm-level factors as well as home country differences discussed in the literature, we acknowledge there could be other temporal, firm or country idiosyncratic factors not included in our analysis driving the key choices examined in the paper. Originality/value This study makes three contributions to exporting literature. First, it highlights the drivers of the choice between direct and indirect exports. This choice is an important facet of exporting strategy and has received scant attention in prior IB research. Second, it demonstrates how the choice between direct and indirect exports is impacted by the degree of the home country's institutional harshness and uncertainty avoidance. Third, it offers insights on how the interaction of formal and informal home market institutional factors influences export strategy.

Automated summary

This study examines the choice between direct and indirect export strategies by emerging market firms, finding that institutional harshness and uncertainty avoidance influence this choice. The findings suggest that countries with high institutional harshness and low uncertainty avoidance are more likely to choose direct exports.