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Technological leadership and foreign investors'choice of entry mode

  • Smarzynska, Beata K.

Developing country governments tend to favor joint ventures over other forms of foreign direct investment, believing that local participation facilitates the transfer of technology, and marketing skills. The author assesses joint ventures'potential for such transfers by comparing the characteristics of foreign investors engaged in joint ventures with those of foreign investors engaged in wholly owned projects in transition economies in the early 1990s. Unlike the existing literature, the author focuses on intra-industry differences rather than inter-industry differences in research and development, and advertising intensity. Empirical analysis shows that foreign investors who are technological, or marketing leaders in their industries, are more likely to invest in wholly owned projects than to share ownership. This is true in high- and medium-technology sectors, but not in industries with low research and development spending. The author concludes that it is inappropriate to treat industries as homogeneous in investigating modes of investment. She also suggests that in sectors with high research and development spending, joint ventures may present less potential for transfer of technology, and marketing techniques than wholly owned subsidiaries.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2314.

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Date of creation: 30 Apr 2000
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Handle: RePEc:wbk:wbrwps:2314
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  1. Elizabeth Asiedu & Hadi Salehi Esfahani, 2001. "Ownership Structure In Foreign Direct Investment Projects," The Review of Economics and Statistics, MIT Press, vol. 83(4), pages 647-662, November.
  2. Djankov, Simeon & Hoekman, Bernard, 1998. "Avenues of Technology Transfer: Foreign Investment and Productivity Change in the Czech Republic," CEPR Discussion Papers 1883, C.E.P.R. Discussion Papers.
  3. Ethier, W.J. & Markusen, J.R., 1993. "Multinational Firms, Technology Diffusion and Trade," ISER Discussion Paper 0303, Institute of Social and Economic Research, Osaka University.
  4. Keith D Brouthers & Gary J Bamossy, 1997. "The Role of Key Stakeholders in the International Joint Venture Negotiations: Case Studies from Eastern Europe," Journal of International Business Studies, Palgrave Macmillan, vol. 28(2), pages 285-308, June.
  5. Cohen, Wesley M & Klepper, Steven, 1992. "The Anatomy of Industry R&D Intensity Distributions," American Economic Review, American Economic Association, vol. 82(4), pages 773-99, September.
  6. Javorcik, Beata, 1999. "Composition of Foreign Direct Investment and Protection of Intellectual Property Rights in Transition Economies," CEPR Discussion Papers 2228, C.E.P.R. Discussion Papers.
  7. Magnus Blomstrom & Mario Zejan, 1989. "Why Do Multinational Firms Seek Out Joint Ventures?," NBER Working Papers 2987, National Bureau of Economic Research, Inc.
  8. Gomes-Casseres, Benjamin, 1989. "Ownership structures of foreign subsidiaries : Theory and evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 11(1), pages 1-25, January.
  9. Klaus E Meyer, 1995. "Direct Foreign Investment in Eastern Europe the Role of Labor Costs," Comparative Economic Studies, Palgrave Macmillan, vol. 37(4), pages 69-88, December.
  10. Benjamin Gomes-Casseres, 1990. "Firm Ownership Preferences and Host Government Restrictions: An Integrated Approach," Journal of International Business Studies, Palgrave Macmillan, vol. 21(1), pages 1-22, March.
  11. Djankov, Simeon & Hoekman, Bernard, 1997. "Competition Law in Post-Central Planning Bulgaria," CEPR Discussion Papers 1723, C.E.P.R. Discussion Papers.
  12. Boyes, William J. & Hoffman, Dennis L. & Low, Stuart A., 1989. "An econometric analysis of the bank credit scoring problem," Journal of Econometrics, Elsevier, vol. 40(1), pages 3-14, January.
  13. Ignatius Horstmann & James R. Markusen, 1987. "Licensing versus Direct Investment: A Model of Internalization by the Multinational Enterprise," Canadian Journal of Economics, Canadian Economics Association, vol. 20(3), pages 464-81, August.
  14. Warhurst, Alyson, 1991. "Technology transfer and the development of China's offshore oil industry," World Development, Elsevier, vol. 19(8), pages 1055-1073, August.
  15. Miller, R-R & Glen, J-D & Jaspersen, F-Z & Karmokolias, Y, 1996. "International Joint Ventures in Developing Countries. Happy Marriages?," Papers 29, World Bank - International Finance Corporation.
  16. 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.
  17. Kogut, Bruce, 1989. "The Stability of Joint Ventures: Reciprocity and Competitive Rivalry," Journal of Industrial Economics, Wiley Blackwell, vol. 38(2), pages 183-98, December.
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