The Impact of The Regulatory Environment on Entry Mode Choice: Empirical Evidence from The Pharmaceutical Industry

One of the contemporary strategic management challenges of pharmaceutical firm internationalization is the firm’s inability to simultaneously launch new products across multiple markets due to differences in the procedures and requirements of regulatory agencies. Often, the requirements for new drug applications are explicitly stated by the regulatory agencies in each market. However, there are also unstated factors that could influence the entry mode choices of pharmaceutical firms as they expand abroad. Pharmaceutical firms that operate in complex regulatory environments develop tacit knowledge from navigating regulations within their home market, potentially making themselves attractive to foreign firms wanting to enter the market quickly. This dissertation analyzes the influence of the procedural characteristics of the pharmaceutical firm regulatory agencies in host market on foreign direct investment entry mode choice. A logistic regression analysis is used to assess whether markets with more arduous regulatory requirements lend themselves to a merger and acquisition strategy over a greenfield venture strategy. The findings showed that the procedural characteristics of pharmaceutical regulatory agencies in host countries were not statistically significant but showed a high predictive value for greenfield ventures. However, the firm’s level of host country experience and the difference in the corruption perception index scores of home and host countries both added significantly to the entry mode prediction. The results provide insight into pharmaceutical firms as they engage in foreign direct investment activities.