Regulatory environments and the location decision: evidence from the early foreign market entries of new-technology-based firms

Abstract

New technology based firms (NTBFs) embarking on a strategy of rapid internationalization choose foreign market entries which minimizes transaction costs and the related risks of failure. Means to reduce the young firms’ vulnerability to the appropriation of intellectual capital are particularly important influences on early foreign market choices. We explore specifically the effect of national ‘regulatory environments’ on the decision to internationalize and on the location choices made by British and German NTBFs. We provide evidence that entrepreneurial young firms choose to enter country markets offering better regulatory protection for their intellectual property. This decision is moderated by a home regulatory regime bias. In contrast, we observe that the foreign regulatory regime much less affects the speed of internationalization which is more influenced by industry and firm characteristics.