Optimal Market Entry Modes for Multinationals: Export Trade, Greenfield Investment, M&A or Joint Venture

The purpose of this paper is to formalize the choice of market entry modes for an individual multinational enterprise among export trade, Greenfield investment, M&A and a joint venture. We assume that for M&A and a joint venture to yield synergies the participating firms had to make additional investments. We have found that there exists a strong interdependence among the different modes of FDI. Specially, even if Greenfield investment is a viable option, the multinational may prefer a joint venture to M&A, and M&A to Greenfield investment, provided that M&A and joint venture both involve sufficiently low fixed costs. The reason is that the profitability of Greenfield investment both reduces the acquisition price in the case of M&A, and gives local firms an incentive to agree to a joint venture.