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Analyzing Modes of Foreign Entry: Greenfield Investment versus Acquisition

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  • Thomas Müller

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 affected by the competition intensity in the market in a nonmonotonic way. When markets are very much or very little competitive, greenfield investment is the optimal entry mode, while for intermediate values it is acquisition.

Suggested Citation

  • Thomas Müller, 2007. "Analyzing Modes of Foreign Entry: Greenfield Investment versus Acquisition," Review of International Economics, Wiley Blackwell, vol. 15(1), pages 93-111, February.
    • Handle: RePEc:bla:reviec:v:15:y:2007:i:1:p:93-111
    DOI: 10.1111/j.1467-9396.2006.00634.x
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    References listed on IDEAS

    as
    1. Volker Nocke & Stephen Yeaple, 2008. "An Assignment Theory of Foreign Direct Investment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 75(2), pages 529-557.
    2. Klaus E. Meyer, 1998. "Direct Investment in Economies in Transition," Books, Edward Elgar Publishing, number 1413.
    3. Norbäck, Pehr-Johan & Persson, Lars, 2002. "Cross-Border Acquisitions and Greenfield Entry," Working Paper Series 570, Research Institute of Industrial Economics.
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