This study brings a fresh approach—a learning perspective—to the literature examining whether firms expand internationally through start-ups or acquisitions. Hypotheses concern how this strategic c...

International expansion through start-up or through acquisition : An organizational learning perspective

Firms choose strategies based on their attributes and industry conditions; therefore, strategy choice is endogenous and self-selected. Empirical models that do not account for this and regress performance measures on strategy choice variables are potentially misspecified and their conclusions incorrect. I highlight how self-selection on hard-to-measure or unobservable characteristics can bias strategy performance estimates and recommend an econometric technique that has been developed to account for this effect. Although this concern applies to a wide range of strategy questions, to demonstrate its effect I empirically examine if entry mode choice (acquisition versus greenfield) influences foreign direct investment survival. In specifications that do not account for self-selection, I find that greenfield entries have survival advantages compared to acquisitions. This confirms previous findings. However, the significance of this effect disappears once I account for self-selection of entry mode in the empirical estimates. The results confirm that estimates from models that do not account for self-selection of strategy choice can lead to incorrect or misleading conclusions.

Accounting for Endogeneity When Assessing Strategy Performance: Does Entry Mode Choice Affect Fdi Survival

Empirical studies of FDI have become much more ambitious in scope over the last 30 years. In the 1960s, the main focus of the Hymer-Kindleberger theory (Hymer, 1976; Kindleberger, 1969) and the product cycle theory (Vernon 1966) was exporting versus FDI. In the 1970s the internalisation approach identified licensing, franchising and subcontracting as other strategic options. The resurgence of mergers and acquisitions in the 1980s — often as a ‘quick fix’ route to globalisation — highlighted the choice between greenfield ventures and acquisitions. At the same time, the growing participation of US firms in IJVs drew attention to the role of cooperative arrangements.

https://link.springer.com/content/pdf/10.1057%2Fpalgrave.jibs.8490006.pdf

Analyzing Foreign Market Entry Strategies: Extending the Internalization Approach

Multinational firms can enter a foreign market by taking over existing local firms acquisitions or by setting up new ventures greenfield investments. Surprisingly, there has been limited empirical work on this topic. This paper examines the determinants of this choice by looking at Japanese entries into the United States. By focusing on firms of one country entering a single market, we are able to separate the impact of a firm's strategy from that of the characteristics of the target industry or country.

This paper tests simultaneously a number of competing hypotheses. The results suggest that acquisitions are used by Japanese investors with weak competitive advantages, while investors with strong advantages find that greenfield investments are a more efficient way to transfer these advantages to the U.S. Acquisitions are also chosen to enter industries with either very high or very low growth rates, when entry is at a scale that is large relative to the parent, and when entry is into a different industry. The Japanese investor's previous experience of the U.S. market, its financial situation, and its status as a follower in an oligopolistic industry have no statistically significant impact on the entry mode. Neither do U.S. stock market conditions.

https://www.jstor.org/stable/pdfplus/2632812.pdf

Greenfield vs. Acquisition: The Strategy of Japanese Investors in the United States

Relatively few studies have examined the importance of an entry's sequential position to the choice of foreign entry mode. We use a dynamic model to analyze sequential entries into the United States from 1975 to 1992. Our findings show that several independent variables which explain a firm's initial mode of entry do not explain the modes of subsequent entries. These findings underscore the importance of experience in foreign investment, as companies learn from early entries and adapt the modes of subsequent ones. Copyright © 2001 John Wiley & Sons, Ltd.

The choice of entry mode in sequential foreign direct investment

This study examines the factors influencing the multinational enterprises' choice between the takeover of already existing firms and investments in new ventures as a means of entering a foreign market. The results suggest that the degree of industrial diversification of the parent company and the host country's per capita income seems to have a positive inflUience on the propensity for takeovers. This propensity appears to be negatively related to the rate of growth of industrial production in the industry entered. Further, we found that the more recent the entry into a foreign market, the greater the probability for choosing acquisition.

Mario C. Zejan

Papers

New ventures or acquisitions. the choice of swedish multinational enterprises