Entry mode choice and target firm selection: private and collective incentive analysis
AbstractThe purpose of this paper is to formalize the choices of market entry strategy (Export Vs Greenﬁeld investment Vs Cross border M&A) and the target selection (Acquisition of high-productivity ﬁrm or low-productivity one) for a foreign ﬁrm, and to delineate the relationship between foreign ﬁrm's incentive and host government's intention from an Industrial Organization (IO) perspective. It is found that cross border M&A is always the most proﬁtable entry mode under both green- ﬁeld investment and export credible threats. If greenﬁeld FDI is viable, entering ﬁrm prefers acquiring the low-productivity ﬁrm, when the integration ability is strong and the technological gap is sufﬁciently small; otherwise it prefers highproductivity one. Moreover, there is always the ambiguity between the foreign ﬁrm's preference and the government's judgment. If export entry option is viable, the variation of trade cost will alter the choice of target ﬁrm by the inﬂuence of acquisition price. The higher the trade cost, the more likely foreign ﬁrm purchases low-technology ﬁrm. In addition, the unanimity of private and collective incentive appears under certain circumstances.
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Date of creation: May 2011
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Integration ability; Cross border M&A; Export; Foreign direct investment; Technological gap; Greenﬁeld investment;
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