Foreign direct investment mode choice: entry and establishment modes in transition economies

Abstract

In this study, we bridge two streams of foreign direct investment literature, specifically studies on establishment mode choice (i.e., the choice between an acquisition and a greenfield establishment) and studies on entry mode choice (i.e., the choice between a wholly owned outlet and a subsidiary with shared ownership). We arrive at a conceptual synthesis for an examination of the effects of the same predictors on the dual entry-establishment mode choice made in the context of a single foreign investment. We demonstrate that a parent firm's technological intensity, international strategy and experience determine both establishment and entry mode choices. Moreover, we apply Williamson's new institutional economics to investigate the influence of institution building on multinational enterprises' dual investment choice. In the context of transition economies, we test empirically the possible moderating effect of a host country's institutional environment. We conclude that the degree of the host country's institutional advancement moderates the effect of both technological intensity and international strategy on the establishment and entry mode choice.