Does institutional distance still matter in re-entry decisions? Unveiling an inverted U-shaped relationship

What the paper says

Purpose Although institutional distance and entry decisions have long been key topics in international business (IB) studies, little attention has been paid to how institutional distance influences re-entry decisions involved in re-entering international markets. To address this research gap, this study aims to investigate the non-linear relationship between institutional distance and re-entry decision, as well as the moderating effect of potential slack on this relationship. Design/methodology/approach This study examines Japanese multinational enterprises that re-entered Southeast Asian markets after exiting between 2010 and 2020. It also tests whether the relationship between institutional distance and the re-entry decision follows an inverted U-shaped relationship, using a logit regression on manually collected, unbalanced re-entry data. Findings The empirical findings reveal that institutional distance has an inverted U-shaped relationship with re-entry decisions. Although prospective re-entrants may draw on prior experience in markets with high institutional distance, the results show that this experience can ultimately cause hesitation in re-entry decisions, as the institutional challenges are deemed unacceptable. However, the results also indicate that having potential slack resources may flatten this relationship, with higher potential slack facilitating re-entry. Originality/value This study offers academic originality by examining the non-linear relationship between institutional distance and re-entry using a refined data set, distinguishing it from previous research. Additionally, by integrating the Uppsala Model, the distance perspective and the slack resource perspective, this study contributes to both re-entry and IB research by demonstrating, through testing the moderating effect, the dynamics of re-entry that have not been extensively explored.