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

Holger Görg (School of Public Policy, Economics and Law, University of Ulster at Jordanstown, Newtownabbey, Northern Ireland)

Journal of Economic Studies

ISSN: 0144-3585

Publication date: 1 June 2000

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.

Keywords

Citation

Görg, H. (2000), "Analysing foreign market entry – The choice between greenfield investment and acquisitions", Journal of Economic Studies, Vol. 27 No. 3, pp. 165-181. https://doi.org/10.1108/EUM0000000005350

Publisher

:

MCB UP Ltd

Copyright © 2000, MCB UP Limited

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