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The Choice and Timing of Foreign Market Entry under Uncertainty

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Author Info
Pennings, Enrico
Sleuwaegen, Leo

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Abstract

This paper sheds new light on why timing and entry mode should be considered simultaneously. We derive the profit levels at which it is optimal to switch from exporting to setting up a wholly owned subsidiary, creating a joint venture, or licensing production to a local firm. The preferred entry mode depends on uncertainty about future profits, tax differentials between the home and the foreign country, the cost advantages of local firms, institutional requirements, and the degree of cooperation between partners in a joint venture.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2470.

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Date of creation: Jun 2000
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Handle: RePEc:cpr:ceprdp:2470

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Related research
Keywords: irreversible investment; Joint Ventures; Nash bargaining; Tax Policy; Uncertainty;

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Find related papers by JEL classification:
D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Investment, or Financing
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Investment Policy
L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Rodrik, Dani, 1991. "Policy uncertainty and private investment in developing countries," Journal of Development Economics, Elsevier, vol. 36(2), pages 229-242, October. [Downloadable!] (restricted)
    Other versions:
  2. Julia Darby & Andrew Hughes Hallett & Jonathan Ireland & Laura Piscitelli, . "The Impact of Exchange Rate Uncertainty on the Level of Investment," ICMM Discussion Papers 49, Department of Economics University of Strathclyde.
    Other versions:
  3. Dixit, Avinash K, 1989. "Entry and Exit Decisions under Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 620-38, June. [Downloadable!] (restricted)
    Other versions:
  4. Leahy, John V & Whited, Toni M, 1996. "The Effect of Uncertainty on Investment: Some Stylized Facts," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(1), pages 64-83, February. [Downloadable!] (restricted)
    Other versions:
  5. Buckley, Peter J & Casson, Mark, 1981. "The Optimal Timing of a Foreign Direct Investment," Economic Journal, Royal Economic Society, vol. 91(361), pages 75-87, March. [Downloadable!] (restricted)
  6. Linda Longfellow Blodgett, 1991. "Partner Contributions as Predictors of Equity Share in International Joint Ventures," Journal of International Business Studies, Palgrave Macmillan Journals, vol. 22(1), pages 63-78, March. [Downloadable!] (restricted)
  7. Nathan Fagre & Louis T Wells, 1982. "Bargaining Power of Multinationals and Host Governments," Journal of International Business Studies, Palgrave Macmillan Journals, vol. 13(2), pages 9-24, June. [Downloadable!] (restricted)
  8. Ignatius Horstmann & James R. Markusen, 1987. "Licensing versus Direct Investment: A Model of Internalization by the Multinational Enterprise," Canadian Journal of Economics, Canadian Economics Association, vol. 20(3), pages 464-81, August. [Downloadable!] (restricted)
  9. Aymo Brunetti & Beatrice Weder, 1998. "Investment and institutional uncertainty: A comparative study of different uncertainty measures," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 134(3), pages 513-533, September. [Downloadable!] (restricted)
  10. McDonald, Robert & Siegel, Daniel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 707-27, November. [Downloadable!] (restricted)
  11. Svejnar, Jan & Smith, Stephen C, 1984. "The Economics of Joint Ventures in Less Developed Countries," The Quarterly Journal of Economics, MIT Press, vol. 99(1), pages 149-67, February. [Downloadable!] (restricted)
  12. Nakamura, M. & Xie, J., 1998. "Nonverifiability, noncontractibility and ownership determination models in foreign direct investment, with an application to foreign operations in Japan," International Journal of Industrial Organization, Elsevier, vol. 16(5), pages 571-599, September. [Downloadable!] (restricted)
  13. C Patrick Woodcook & Paul W Beamish & Shige Makino, 1994. "Ownership-Based Entry mode Strategies and International Performance," Journal of International Business Studies, Palgrave Macmillan Journals, vol. 25(2), pages 253-273, June. [Downloadable!] (restricted)
  14. Tailan Chi & Donald J McGuire, 1996. "Collaborative Ventures and Value of Learning: Integrating the Transaction Cost and Strategic Option Perspectives on the Choice of Market Entry Modes," Journal of International Business Studies, Palgrave Macmillan Journals, vol. 27(2), pages 285-307, June. [Downloadable!] (restricted)
  15. Luigi Guiso & Giuseppe Parigi, 1999. "Investment And Demand Uncertainty," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 185-227, February. [Downloadable!] (restricted)
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  16. Campa, Joe Manuel, 1993. "Entry by Foreign Firms in the United States under Exchange Rate Uncertainty," The Review of Economics and Statistics, MIT Press, vol. 75(4), pages 614-22, November. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Bürgel, Oliver & Fier, Andreas & Licht, Georg & Murray, Gordon, 2001. "Timing of international market entry of UK and German high-tech start-ups," ZEW Discussion Papers 01-51, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  2. Coucke, K. & Sleuwaegen, L., 2006. "Exit in globalising industries: the role of international (out)sourcing," Vlerick Leuven Gent Management School Working Paper Series 2006-14, Vlerick Leuven Gent Management School. [Downloadable!]
  3. Elmar Lukas, 2005. "Sequential International Joint-Ventures and the Option to Choose," International Finance 0504007, EconWPA, revised 15 Nov 2005. [Downloadable!]
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