Multinational investment and the value of growth options: Alignment of incremental strategy to environmental uncertainty

One of the motivations for multinational firms’ investment in foreign affiliates in uncertain environments is the future growth opportunities the investment may bring. We argue that whether firms derive growth option value from their multinational investment is determined by the interaction between market uncertainty and firms’ incremental investment strategy. We show evidence that multinational investment creates growth option value for firms operating affiliates in host countries with high market uncertainty. In such uncertain environments, however, incremental investment strategies – limiting the equity stake or the size of investment in affiliates, across all countries or within each country – prove critical to the value of growth options. Creating growth option value therefore requires an alignment of firms’ incremental investment strategy to the uncertain country environments they confront.