Technological Asymmetry Among Foreign Investors and Mode of Entry
How does the preferred entry mode of foreign investors depend on their technological capability relative to that of their rivals? The authors develop a simple model of entry mode choice and evaluate its main testable implication using data on fore...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, D.C.
2013
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2004/01/3207944/technological-asymmetry-among-foreign-investors-mode-entry http://hdl.handle.net/10986/14789 |
| Summary: | How does the preferred entry mode of
foreign investors depend on their technological capability
relative to that of their rivals? The authors develop a
simple model of entry mode choice and evaluate its main
testable implication using data on foreign investors in
Eastern European countries and the successor states of the
former Soviet Union. The model considers competition between
two asymmetric foreign investors and captures the following
tradeoffs: while a joint venture helps a foreign investor
secure a better position in the product market compared with
its rival, it also requires that profits be shared with the
local partner. The model predicts that the efficient foreign
investor is less likely to choose a joint venture and more
likely to enter directly relative to the inefficient
investor. The authors' empirical analysis supports this
prediction: foreign investors with more sophisticated
technologies and marketing skills (relative to other firms
in their industry) tend to prefer direct entry to joint
ventures. This empirical finding is robust to controlling
for host country-specific effects and other commonly cited
determinants of entry mode. |
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