Managerial Implications

Channel managers are driven to establish legitimacy while pursuing efficiency in a host market. However, legitimacy and efficiency should not be contradictory objectives in firms’ management processes. In light of our findings, efficiency may follow legitimacy through greater access to local resources (Fernández-Alles and Valle-Cabrera 2006; Oliver 1996). As we noted previously, good relationships with stakeholders, through either legal or social embedded- ness, can translate into new competitive advantages that lead to firm efficiency. Therefore, channel managers should maintain an integrated management of legitimacy and efficiency in a foreign market.

Specifically, managers should pay close attention to the dual functions of the two governance strategies, particularly their legitimacy-building function. Given the legitimacy pressure and market ambiguity, channel managers may proactively solicit a customized contract to legitimize the transaction with the host partner to gain social acceptance.

A highly customized contract provides a template for doing business in the market and leads to a low likelihood of vio- lation (Luo 2005). Moreover, channel managers should use the contracting process to understand, learn, and make A highly customized contract provides a template for doing business in the market and leads to a low likelihood of vio- lation (Luo 2005). Moreover, channel managers should use the contracting process to understand, learn, and make

sample, the manufacturers we surveyed tended to have customization does not exert significant direct influence on

good business relationships with their distributors. Because channel performance, perhaps because of the high cost of

of this, the export managers, as our pretest revealed, were concessions in a contract. Channel managers should be

able to answer questions related to various, often deep lev- aware of the limits of drafting a customized contract for

els of institutional environments. However, these incum- achieving channel performance. As our results show, only

bents’ perceptions of institutional environments and resul- when it is combined with relational governance can con-

tant consequences may differ from those of new entrants or tract customization enhance channel performance in a for-

less important partners. Thus, research might further eign market (Mooi and Ghosh 2010).

explore the influence of institutional distances on channel Alternatively, relational governance helps firms miti-

governance strategies from the perspective of different gate legitimacy pressures and market ambiguity through

types of channel members in various stages of the relation- information sharing, flexibility, and solidarity. Managers

ship cycle.

should build relational bonds with the local partners to Three limitations related to measures are also worth become insiders to gain both legitimacy and accurate mar-

mentioning. First, we attempted to use a variety of methods ket information, which lead to enhanced firm performance.

to capture the essential domain of institutions, but new and In a Chinese context, guanxi plays an important role in

different approaches would be desirable to fully uncover transforming outsiders into insiders (Su and Littlefield

cultural-cognitive institutional models (Scott 1995). Further- 2001). Thus, firms should empower their boundary span-

more, although we believe that the instrument developed in ners to develop friendship with local distributors to gain

this study reflects the essential differences in terms of the trust and inside market information.

three institutional dimensions, future studies might devote efforts to uncovering the full picture of channel-specific insti-

Further Research

tutional profiles through, for example, unconventional meth- This study has several limitations that deserve further

ods such as semiotics and narrative analysis (see Scott 1995). research. We collected data only from the manufacturer side

Second, we measured market ambiguity as institutionally of a channel dyad. Future studies might gather data from

induced. A more general measurement without specifying both manufacturers and distributors. This bilateral approach

such institutional inducement might generate more robust would provide more information about the dynamic nature

effects of the institutional distances on market ambiguity. 2 of international channel management. In addition, the gen-

Third, we measured legitimacy pressure as a unidimen- eralization of our findings should be viewed with caution

sional construct for two reasons: (1) The focus groups indi- because the manufacturers in our sample are primarily

cated that channel managers understood the concept as a engaged in indirect exporting from an emerging market. To

whole rather than in parts, and (2) although there is much verify the current model in a more complicated institutional

theorizing on the topic of legitimacy, empirical measures of environment, studies should sample manufacturers that pur-

the construct are rare in marketing channels. However, sue direct exporting or manufacturers that face dual institu-

decomposing legitimacy into several aspects related to tional pressures (i.e., business market and consumer mar-

institutional constraints might reveal more insights into its ket) in foreign countries.

influence on the choice of governance strategies. As previously mentioned, we tested the model using the

organizational-level measure of institutional distances. Fur- 2 We conducted an additional test by replacing the current mar- ther research might collect data from various countries with

ket ambiguity measure with the new measure, as described in note

a large sample to aggregate data at the national level. In 1, in the model. The empirical results showed similar patterns doing so, both the direct and cross-level effects of institu-

except for slightly different coefficients. Specifically, the sizes of tional distances on the relationships in the model could be

the coefficients of the three distances on market ambiguity are examined thoroughly.

slightly smaller for regulatory (.22, p < .05), normative (.29, p < .01), and cultural-cognitive (.42, p < .01) distance than those in the

Another concern with generalization of our findings current model. In addition, the effects of market ambiguity on con- pertains to the relationship stage of the trading partners.

tract customization (.49, p < .01) and relational governance (.32, p < Although we controlled for the length of business relation-

.01) are relatively larger than those in the current model.

Managerial Implications