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The Choice and Timing of Foreign Market Entry under Uncertainty

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  • Pennings, Enrico
  • Sleuwaegen, Leo

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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Bibliographic Info

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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References

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  1. 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.
  2. Linda Longfellow Blodgett, 1991. "Partner Contributions as Predictors of Equity Share in International Joint Ventures," Journal of International Business Studies, Palgrave Macmillan, vol. 22(1), pages 63-78, March.
  3. 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.
  4. 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, vol. 27(2), pages 285-307, June.
  5. Nathan Fagre & Louis T Wells, 1982. "Bargaining Power of Multinationals and Host Governments," Journal of International Business Studies, Palgrave Macmillan, vol. 13(2), pages 9-24, June.
  6. Guiso, Luigi & Parigi, Giuseppe, 1996. "Investment and Demand Uncertainty," CEPR Discussion Papers 1497, C.E.P.R. Discussion Papers.
  7. Rodrik, Dani, 1991. "Policy uncertainty and private investment in developing countries," Journal of Development Economics, Elsevier, vol. 36(2), pages 229-242, October.
  8. Darby, Julia & Hughes Hallett, Andrew & Ireland, Jonathan & Piscitelli, Laura, 1998. "The Impact of Exchange Rate Uncertainty on the Level of Investment," CEPR Discussion Papers 1896, C.E.P.R. Discussion Papers.
  9. C Patrick Woodcook & Paul W Beamish & Shige Makino, 1994. "Ownership-Based Entry mode Strategies and International Performance," Journal of International Business Studies, Palgrave Macmillan, vol. 25(2), pages 253-273, June.
  10. 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.
  11. 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.
  12. 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.
  13. Dixit, A., 1988. "Entry And Exit Decisions Under Uncertainty," Papers 91, Princeton, Department of Economics - Financial Research Center.
  14. Bruce Kogut, 1991. "Joint Ventures and the Option to Expand and Acquire," Management Science, INFORMS, vol. 37(1), pages 19-33, January.
  15. John V. Leahy & Toni M. Whited, 1995. "The Effect of Uncertainty on Investment: Some Stylized Facts," NBER Working Papers 4986, National Bureau of Economic Research, Inc.
  16. 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.
  17. 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.
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Citations

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Cited by:
  1. Bart Hertveldt & Chantal Kegels & Bernhard Klaus Michel & Bart Van den Cruyce & Joost Verlinden & Frédéric Verschueren, 2005. "Working Paper 16-05 - Déterminants de la localisation internationale, avec application aux secteurs Agoria
    [Working Paper 16-05 - Determinanten van internationale lokalisatie, met toepassing op de
    ," Working Papers 0516, Federal Planning Bureau, Belgium.
  2. Gilroy, Bernard Michael & Lukas, Elmar, 2006. "The choice between greenfield investment and cross-border acquisition: A real option approach," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(3), pages 447-465, July.
  3. 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.
  4. Elmar Lukas, 2005. "Sequential International Joint-Ventures and the Option to Choose," International Finance 0504007, EconWPA, revised 15 Nov 2005.

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