Analyzing Modes of Foreign Entry: Greenfield Investment Versus Acquisition
Munich Discussion Papers No. 01-01
32 Pages Posted: 2 Apr 2001
Date Written: December 2000
This paper studies the entry decision of a multinational enterprise into a foreign market. Two alternative entry modes for a foreign direct investment are considered: Greenfield investment versus acquisition. In contrast to existing approaches, the acquisition price and the profits under both entry modes are endogenously determined. Interestingly we find that the optimal entry mode decision is affected by the competition intensity in the market in a non-monotonic way. When markets are very much or very little competitive, greenfield investment is the optimal entry mode, while for intermediate values it is acquisition.
Keywords: Foreign direct investment, multinational enterprise, entry mode, greenfield investment, acquisition, transition economies
JEL Classification: D43, F23, L13, P31, F21
Suggested Citation: Suggested Citation
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By Jiatao Li