International joint ventures versus greenfield investments: A comprehensive approach

Abstract

An important stage in the process of strategy formation is the choice of entry mode. Multinational enterprises can choose among many entry modes when entering a new product or geographical market. This choice has major consequences for other stages in the process of strategy formation, and should therefore be considered very carefully. The object of analysis of this paper is the entry mode choice of multinational enterprises between an international joint venture and a greenfield investment. Six theories are reviewed and compared; they all explain greenfield investments, and four of them also explain international joint ventures. Three theoretical concepts appear to be relevant in the choice between a greenfield investment and an international joint venture (IJV): the strategic behavior approach, transaction cost theory, and internalization theory. These theories must be combined to prevent one-sided outcomes (i.e., eclectic approach). A comprehensive set of firm-specific variables and country-specific variables is provided, based on both this eclectic theoretical framework and a number important empirical studies. For each variable one or two (opposite) hypotheses are formulated.