Entry Modes for Direct Investment Determined by the Composition of Firm-Specific Skills

Abstract

Our findings suggest that the nature and composition of skills exert a major influence on the entry mode for direct investment. Relatively more organizational skill favors takeover, while relatively more technological skill favors greenfield operations. The time variable exerted a positive impact on takeover, but the model explains the variation in entry modes just as well without time included. The quality of our data and particularly the inclusion of R&D intensity, lend support to our conclusion and may explain the difference as compared to previous studies in the field. Finally, it has been verified that earlier establishments in the host country raises the likelihood of takeover, which may be due to a desire to reduce the competitive pressure.

Keywords: Entry mode, takeover, greenfield, firm-specific skills, technology, organisational

JEL Classification: F23, O33