DP2470 The Choice and Timing of Foreign Market Entry under Uncertainty

Author(s): Enrico Pennings, Leo Sleuwaegen
Publication Date: June 2000
Keyword(s): irreversible investment, Joint Ventures, Nash bargaining, Tax Policy, Uncertainty
JEL(s): D92, F21, G31, L20
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=2470

This paper sheds new light on why timing and entry mode should be considered simultaneously. We derive the profit levels at which it is optimal to switch from exporting to setting up a wholly owned subsidiary, creating a joint venture, or licensing production to a local firm. The preferred entry mode depends on uncertainty about future profits, tax differentials between the home and the foreign country, the cost advantages of local firms, institutional requirements, and the degree of cooperation between partners in a joint venture.