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Analysing foreign market entry – The choice between greenfield investment and acquisitions

Analysing foreign market entry – The choice between greenfield investment and acquisitions This paper formalises the choice a firm has to face when entering a foreign market via FDI as between setting up an entirely new plant (greenfield investment) or acquiring an existing indigenous firm. We assume the existence of an asymmetric duopoly in the host country, and these duopolists face the entry of a technologically advanced foreign firm in the market. The analysis shows how different constellations of entry costs and the post-entry competition affect the foreign firm's entry mode choice. Simulation results show that the foreign entrant will in most cases be best off by acquiring an existing indigenous high-technology firm, thus, forming a duopoly with an indigenous low-technology firm. We also discuss briefly the strategic dimension to the model, where the foreign firm has the possibility of crowding out the indigenous incumbents through lowering the price. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Economic Studies Emerald Publishing

Analysing foreign market entry – The choice between greenfield investment and acquisitions

Holger Görg
Journal of Economic Studies , Volume 27 (3): 17 – Jun 1, 2000
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Publisher
Emerald Publishing
Copyright
Copyright © 2000 MCB UP Ltd. All rights reserved.
ISSN
0144-3585
DOI
10.1108/EUM0000000005350
Publisher site
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Abstract

This paper formalises the choice a firm has to face when entering a foreign market via FDI as between setting up an entirely new plant (greenfield investment) or acquiring an existing indigenous firm. We assume the existence of an asymmetric duopoly in the host country, and these duopolists face the entry of a technologically advanced foreign firm in the market. The analysis shows how different constellations of entry costs and the post-entry competition affect the foreign firm's entry mode choice. Simulation results show that the foreign entrant will in most cases be best off by acquiring an existing indigenous high-technology firm, thus, forming a duopoly with an indigenous low-technology firm. We also discuss briefly the strategic dimension to the model, where the foreign firm has the possibility of crowding out the indigenous incumbents through lowering the price.

Journal

Journal of Economic Studies – Emerald Publishing

Published: Jun 1, 2000

Keywords: Market entry; Acquisitions; Foreign investments

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