This dissertation investigated theoretically and empirically whether or not a mixed foreign market entry strategy using a combination of foreign direct investment and exporting has a positive effect on the profit maximization of firms.
Earlier studies on a firm's foreign market entry mode have discussed the decision between foreign direct investment and exporting. However, in the real world, many multinational enterprises continue to export domestically produced goods to foreign countries where they are operating local production facilities through foreign direct investment.
This study develops a model to explain why a firm chooses a mixed foreign market entry strategy, combining foreign direct investment and exporting, rather than choosing one single foreign market entry strategy. The model depicts that a firm using a mixed entry strategy can provide goods to a foreign country with less cost than by choosing only one type of entry mode when there are simultaneously scale economies effect and transaction costs. The model also explains why each firm has a different strategy combination ratio between foreign direct investment and exporting.
This research employs the data of automobile firms investing in the US and/or the UK market from 1995 to 2004 to perform an empirical analysis. This dissertation assesses empirically whether transaction costs and economies of scale have significant impact on the allocation between foreign direct investment and exporting after controlling for three control variables: (1) the market structure in the host country, (2) domestic competition of the investing firm's home country and (3) the production cost difference between a host country and the investing firm's home country.
According to the empirical results, transaction costs and economies of scale have statistically significant influence on the allocation of foreign direct investment and exporting as expected in the theoretical model developed in this dissertation. In addition, we found that a time lag exists before a firm adjusts its foreign production ratio to respond to a change in transaction costs. Empirical results also showed that firms whose home countries have fiercely competitive markets are more likely to expand their local production plants in foreign countries.
|Commitee:||Park, Yoon Shik, Rehman, Scheherazade S., Riddle, Liesl A., Zhang, Zhiwei|
|School:||The George Washington University|
|School Location:||United States -- District of Columbia|
|Source:||DAI-A 69/01, Dissertation Abstracts International|
|Subjects:||Management, Business costs|
|Keywords:||Automobile industry, Economies of scale, Entry mode, Export, FDI, Foreign direct investment, Multinational enterprises, Scale economies, Transaction costs|
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