The Choice and Timing of Foreign Market Entry Under Uncertainty
Centre for Economic Policy Research, 2000 - Comercio internacional - Modelos econométricos - 30 pages
This paper sheds new light on why timing and entry mode should be considered simultaneously. We derive the profit levels at which it is optimal to switch from exporting to setting up a wholly owned subsidiary, creating a joint venture, or licensing production to a local firm. The preferred entry mode depends on uncertainty about future profits, tax differentials between the home and the foreign country, the cost advantages of local firms, institutional requirements, and the degree of cooperation between partners in a joint venture.
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bargaining power CEPR Discussion Paper China cooperative JV cost of exporting cost of investment create a joint create the JV critical value denote differential taxation East Germany entry mode equation euro European Central Bank exceeds excess profits firm Foreign Direct Investment foreign market geometric Brownian motion host country immediate investment imperfect information Insert figure International Business Studies investment under uncertainty Journal of International Kogut Labour Economics licensing lower market entry markup maximization problem MECB minimum share requirements MNE's Monitoring the European Nash equilibria Nash equilibrium Non-Cooperative Joint Ventures non-cooperative JV optimal equity share optimal share optimal to create option to acquire Ownership partner perfect competition Policy Proposition result setting Strategic subscriptions sunk cost switch from exporting tax differential trigger value uncertainty is high uncertainty is relatively undertaking FDI Universitat Pompeu Fabra value of waiting wholly owned subsidiary www.cepr.org zero share