MNE host-country alliance network position and post-entry establishment mode choice

Abstract

Prior international business research recognizes that networks can affect internationalization decisions, yet our understanding of how networks in the host country do so, especially with respect to establishment mode choices between greenfield and acquisition, remains nascent. Host-country networks become particularly salient after initial entry as the multinational enterprise (MNE) more directly engages with local actors and develops embeddedness in the host country. We draw from network theory to argue that establishment modes of post-entry foreign direct investments into a host country are shaped by the MNE’s position within local alliance networks. We posit that local network centrality increases the likelihood of choosing greenfield because it provides access to broad knowledge flows and higher social status that reduce the MNE’s need to pursue acquisitions of local firms. Conversely, local network brokerage increases opportunities for knowledge recombination, making greenfield a less likely choice vis-a-vis acquisition. Using data on automotive MNEs entering the U.S. over 22 years, we find support for our predictions. Demonstrating that distinct aspects of the MNE’s local network alliance position can operate in different ways to effectuate establishment mode choices, this study advances a more nuanced understanding of how networks shape internationalization into a host country.