Study On The Choice Of Foreign Bank Entry Mode

Since the 1980s, one of the most remarkable characteristic of the financial industry has beenthe accelerating process of financial globalization; and the fact that foreign banks enter the emerg-ing market has become its important content. There are two different entry modes for foreignbanks entering the emerging market: foreign de novo or Greenfield investment and foreign acqui-sition, different of which will have the different impact on the host country.The choice of foreign market entry mode is an important foundation for the multinationalcorporation's internationalization operation strategy. It also decides that the enterprise's overseaoperation will successful or not. As a special multinational corporation, the foreign bank alsoattaches great importance to the choice of market entry mode. However, few studies have beencarried out in this field.This paper systematically studies the primary factors which affect the choice of entry modeand the impact of choosing different entry mode through establishing a theoretical model, byusing both game theory and comparative research from the angle of the qualitative analysis. Ourmodel predicts that due to the lack of information, foreign banks enter through Greenfieldinvestment is attractive only if its screening skill is high enough. We also find that acquisitionwill tend to edge out de novo investment as an optimal form of entry if there are no otherinfluence factors. The foreign bank entry will also drop the average profit rate of the domesticbank. However, it will exert positive influence on the profit of the domestic firm. The effects oninterest rate not only depend on the foreign bank's advantages of cost and screening skill, butalso on the growth of gross capital formation. Foreign banks acquire different type of thedomestic bank will cause different effect. And the result of the paper will also give importantinspiration to the policy maker.