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Analyzing Modes of Foreign Entry

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  • Müller, Thomas

Abstract

This paper studies the entry decision of a multinational enterprise into a foreign market. Two alternative entry modes for a foreign direct investment are considered: Greenfield investment versus acquisition. In contrast to existing approaches, the acquisition price and the profits under both entry modes are endogenously determined. Interestingly, we find that the optimal entry mode decision is a ected by the competition intensity in the market in a non-monotonic way. When markets are very much or very little competitive, greenfield investment is the optimal entry mode, while for intermediate values it is acquisition.

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Bibliographic Info

Paper provided by University of Munich, Department of Economics in its series Discussion Papers in Economics with number 13.

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Date of creation: Jan 2001
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Handle: RePEc:lmu:muenec:13

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Keywords: Foreign direct investment ; multinational enterprise ; greenfield investment ; acquisition ; transition economies;

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  1. Horn, Henrik & Persson, Lars, 2001. "The equilibrium ownership of an international oligopoly," Journal of International Economics, Elsevier, Elsevier, vol. 53(2), pages 307-333, April.
  2. Peter J Buckley & Mark C Casson, 1998. "Analyzing Foreign Market Entry Strategies: Extending the Internalization Approach," Journal of International Business Studies, Palgrave Macmillan, vol. 29(3), pages 539-561, September.
  3. Horn, Henrik & Persson, Lars, 1996. "Endogenous Mergers in Concentrated Markets," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1544, C.E.P.R. Discussion Papers.
  4. Erin Anderson & Hubert Gatignon, 1986. "Modes of Foreign Entry: A Transaction Cost Analysis and Propositions," Journal of International Business Studies, Palgrave Macmillan, vol. 17(3), pages 1-26, September.
  5. Hennart, J.-F. & Park, Y.R., 1993. "Greenfield vs. Acquisition : the strategy of Japanes investors in the United states," Open Access publications from Tilburg University urn:nbn:nl:ui:12-174430, Tilburg University.
  6. Andersson, Thomas & Svensson, Roger, 1994. " Entry Modes for Direct Investment Determined by the Composition of Firm-Specific Skills," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 96(4), pages 551-60.
  7. Bruce Kogut & Harbir Singh, 1988. "The Effect of National Culture on the Choice of Entry Mode," Journal of International Business Studies, Palgrave Macmillan, vol. 19(3), pages 411-432, September.
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