Research On The Choice Of Foreign Direct Investment Entry Modes: A Real Option Approach

With the progress of economy globalization, foreign direct investment (FDI) becomes the fundamental channel that integrates multinational enterprises worldwide. Multinational enterprise FDI spreads all around the globe including developed countries, developing countries, as well as third-world countries. The discrepancy of a country's economic environment determines the various FDI entry modes. The M&A has become the most important channel to entry the USA marker, but in our country Greenfield investment is still playing an important role.The purpose of this study is to formalize the choice of market entry strategy for an individual multinational enterprise from a dynamic perspective under the background. This study creates a model that combines theory and real-life example to analyze the factors that impact FDI entry mode. It is argued that incorporating a suitable treatment of irreversibility, uncertainty and flexibility related to a MNEs investment decision gives further insights to the choice of cross-border acquisitions to Greenfield investment as the preferred entry mode. In most cases, the initial entry strategy serves as a platform allowing the firm to make subsequent investments to exploit host-country advantages and capabilities. We allow for this by taking a two-step expansion strategy explicitly into account. The evolutionary process of the value of the foreign direct investment includes two stochastic elements as well as the timing that triggers the transition from export to foreign direct investment. The results suggest that uncertainty and future investment opportunities play an important role when it comes to transit from export to the first phase of the foreign direct investment commitment as well as have an impact on the choice of entry strategy.We can achieve conclusions from examination: the culture adaptability and the technology adaptability influence the additional costs. In addition, greater uncertainty corresponds with a decrease in the thresholds of the first stages v₁^* and v₂^*. The length of the construction period is responsible for the influences affecting the growth option and thus the mode of entry. Locations characterized by a higher (?) enhance the temporal speed of switching from exports to FDI.