Acquisitions versus Greenfield investments: International strategy and management of entry modes Anne-Wil Harzing
Two possibilities when expending to foreign markets:
1) Non-equity or equity entry mode
2) When chosen, decide between acquisition and Greenfield This paper investigates how a firms’ strategy will influence the entry mode decision of the firm (MNC) and investigates whether acquisitions and Greenfield subsidiaries are being managed in the same or in a different way. Two types of international strategies for MNC’s
1) Global strategy: dominant strategic requirement: efficiency. As a result these firms integrate and rationalize their production. Subsidiaries act as ‘pipeline’ for headquarters and usually do not respond actively to local market demands. 2) Multidomestic strategy: These firms face a lower level of (global) competition and mostly compete at the domestic level. Subsidiaries are relatively autonomous and are usually really responsive to the local market demands. Location bound versus non-location bound FSAs
Companies that follow a global strategy strive for a high level of integration (a focus on internal isomorphism) and a low level of local responsiveness. Multidomestic companies strive for a high level of local responsiveness (a focus on external isomorphism) and a low level of integration. H1: Relative to companies following a multidomestic strategy, companies following a global strategy will have a higher proportion of Greenfield subsidiaries, while companies following a multidomestic strategy will have a higher proportion of acquisitions relative to companies following a global strategy. Supported H2: headquarters’ control over their Greenfield subsidiaries will be higher than their control over acquisition subsidiaries. Supported H3: Headquarters will assign more expatriates to top positions in their Greenfield subsidiaries than in their acquisition subsidiaries. Supported H4: Headquarters will permit their...
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