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Entry mode choice and target firm selection: private and collective incentive analysis

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  • Kai Zhao

    (TEPP - Travail, Emploi et Politiques Publiques - UPEM - Université Paris-Est Marne-la-Vallée - CNRS - Centre National de la Recherche Scientifique, GAINS - Groupe d'Analyse des Itinéraires et des Niveaux Salariaux - UM - Le Mans Université)

Abstract

The 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.

Suggested Citation

  • Kai Zhao, 2011. "Entry mode choice and target firm selection: private and collective incentive analysis," Working Papers halshs-00856139, HAL.
  • Handle: RePEc:hal:wpaper:halshs-00856139
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00856139
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    References listed on IDEAS

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    1. Raff, Horst & Ryan, Michael & Stähler, Frank, 2009. "The choice of market entry mode: Greenfield investment, M&A and joint venture," International Review of Economics & Finance, Elsevier, vol. 18(1), pages 3-10, January.
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    7. Ignat Stepanok, 2015. "Cross-border Mergers and Greenfield Foreign Direct Investment," Review of International Economics, Wiley Blackwell, vol. 23(1), pages 111-136, February.
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    11. Facundo Albornoz, Gregory Corcos and Toby Kendall, 2005. "Subsidy Competition and the Mode of FDI: Acquisition vs Greenfield," Discussion Papers 05-15, Department of Economics, University of Birmingham.
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    Cited by:

    1. Tarun Kabiraj & Uday Bhanu Sinha, 2015. "Foreign Entry, Acquisition Target and Host Country Welfare," Manchester School, University of Manchester, vol. 83(6), pages 725-748, December.

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