Strategic Investments by U.S. Firms in Transition Economies

Abstract:     
Studies in international business (IB) have considered both theoretical and empirical analyses of investment strategies by multinational firms in transition economies. However, there is scant research on the impact of firm-specific factors on the likelihood, timing, and mode of entry decisions in these economies. We provide evidence on three aspects of the strategic decisions by U.S. firms to invest in transition economies. First, we find that firms entering the region have greater advertising intensity and sales growth relative to industry peers that did not enter the region, suggesting that market-seeking considerations motivate expansion. Second, we find that earlier entry is undertaken by firms with fewer industry competitors and higher sales growth, suggesting that the desire to secure market share ahead of competitors motivate entry timing. Finally, we investigate the choice of entry mode into the region and find that firms from concentrated industries are more likely to enter the region with high equity commitment, consistent with market-seeking motives. We also find that firms incorporate the degree of progress with market-oriented reforms in making decisions concerning entry timing and mode.

Keywords: Foreign Direct Investment, Transition Economies

JEL Classifications: F21, G14

Working Paper Series