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Sequential International Joint-Ventures and the Option to Choose

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  • Elmar Lukas

    (Universität Paderborn)

Abstract

The purpose of this study is to formalize the optimal choice of market entry strategy for an individual multinational enterprise (MNE) from a dynamic perspective. It is argued that incorporating a suitable treatment of irreversibility, uncertainty and flexibility related to a MNEs investment decision gives further insights to the expansion, dissolvement, and optimal timing of international joint ventures (IJVs). The evolutionary process of the value of the foreign direct investment can be interpreted as a compound complex chooser option. The results suggest that uncertainty, size of equity share and future investment/divestment opportunities play an important role when it comes to transit from export to the first phase of the foreign direct investment commitment. The paper underscores the importance of modeling the dynamics of market entry and helps to refine the application of real options in the alliance context by providing a closed-form solution in continuous time to value

Suggested Citation

  • Elmar Lukas, 2005. "Sequential International Joint-Ventures and the Option to Choose," International Finance 0504007, University Library of Munich, Germany, revised 15 Nov 2005.
    • Handle: RePEc:wpa:wuwpif:0504007
    Note: Type of Document - pdf; pages: 36
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    References listed on IDEAS

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    More about this item

    Keywords

    Foreign direct investment; multinational enterprise; sequential investments; entry mode; international joint venture; real options;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • P31 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions

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