Do Multinationals Really Prefer to Enter Culturally-Distant Countries Through Greenfields Rather than Through Acquisitions? The Role of Parent Experience and Subsidiary Autonomy
AbstractPrior research has argued that multinational enterprises (MNEs) prefer to enter culturally-distant countries through greenfields rather than through acquisitions, since acquisitions in such countries are costlier to manage. This argument contains two hidden assumptions: (1) the additional costs of acquisitions in culturally-distant countries are the same for all MNEs, and (2) such acquisitions have no benefits overtheir greenfield counterparts. In this paper we relax these two assumptions by arguing that an MNE’s preference for greenfields in culturally-distant countries depends on its international and host-country experience, and on the level of autonomy it plans to grant the focal subsidiary. Analyzing 171 whollyowned greenfield investments and full acquisitions made by Dutch MNEs in 35 countries, we find that these MNEs prefer to enter culturally-distant countries through greenfields, but that this preference is lower when they have little international experience, or plan to grant the focal subsidiary considerable autonomy in marketing.
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Bibliographic InfoPaper provided by Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam in its series ERIM Report Series Research in Management with number ERS-2007-060-ORG.
Date of creation: 11 Sep 2007
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Greenfield; acquisition; cultural distance; host-country experience; international experience; subsidiary autonomy;
Find related papers by JEL classification:
- D92 - Microeconomics - - Intertemporal Choice - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- M - Business Administration and Business Economics; Marketing; Accounting
- R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
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