Entry mode, technology transfer and management delegation of FDI

This paper employs a four-stage game to analyze the effect of an MNE’s adoption of management delegation on firms’ behaviors, including the decisions of entry mode, technology transfer and output, in a host market competition. It finds that the adoption of management delegation leads the MNE to a higher level of optimal technology transfer. It also leads the direct-entry MNE to optimally transfer more technology than an acquisition one. This result is reversed in the no-delegation case. The management delegation decreases the likelihood of direct-entry mode being optimally chosen if the transfer cost of technology is sufficiently high, while it increases this likelihood if otherwise. When the entry fee of direct-entry mode is sufficiently high, the acquisition mode becomes the equilibrium but it may induce a lower level of technology transfer than the off-equilibrium mode. As far as the domestic welfare is concerned, when the entry fee is sufficiently low (high), the acquisition (direct-entry) mode generally achieves higher domestic welfare but is not the equilibrium mode of the MNE. There exists some intermediate range of entry fees such that both the host and the MNE identically prefer direct entry mode. Such identical preferences becomes more likely with the adoption of a higher delegation incentive.