The influence of industry structure on the entry mode choice of overseas entrants in manufacturing industries

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Abstract

This study examines the impact of industry structure on the foreign direct investment (FDI) entry mode decisions by multinational enterprises (MNEs) in manufacturing industries. We explore the notion that firms would seek to balance the risks due to industry structural barriers and liabilities of foreignness while seeking entry in international markets. A multinomial logistic regression model is used to test 336 entry decisions from 18 countries entering the United States over the period 1989-1994. Empirical evidence shows that underlying industries' structural characteristics influence a firm's preference for entry mode alternatives such as greenfield investments, acquisitions, and joint ventures. In concentrated and high-growth industries, foreign firms prefer entry by setting up greenfield operations rather than pursuing acquisitions or joint ventures. However, in industries characterized by high gross profits or higher plant scale, the preference is for joint ventures or acquisitions as an entry mode over greenfield operations.

Original languageEnglish (US)
Pages (from-to)107-124
Number of pages18
JournalJournal of International Management
Volume10
Issue number1 SPEC ISS.
DOIs
StatePublished - 2004

All Science Journal Classification (ASJC) codes

  • Business and International Management
  • Finance
  • Strategy and Management

Keywords

  • Entry modes
  • Industry structure
  • Joint ventures

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