1. ¹University of Groningen, Groningen, The Netherlands
2. ²University of Antwerpen, Antwerpen, Belgium
3. ³University of Durham, Durham, UK
4. ⁴Utrecht University, Utrecht, The Netherlands

Correspondence: D Dikova, Department of International Economics and Business, Faculty of Economics, University of Groningen, PO Box 800, Groningen 9700 AV, The Netherlands. Tel: +31 50 363 3778; Fax: +31 50 363 7337; E-mail: d.dikova@rug.nl

Received 16 November 2004; Revised 17 October 2006; Accepted 20 February 2007; Published online 5 July 2007.

Abstract

In this study, we bridge two streams of foreign direct investment literature, specifically studies on establishment mode choice (i.e., the choice between an acquisition and a greenfield establishment) and studies on entry mode choice (i.e., the choice between a wholly owned outlet and a subsidiary with shared ownership). We arrive at a conceptual synthesis for an examination of the effects of the same predictors on the dual entry-establishment mode choice made in the context of a single foreign investment. We demonstrate that a parent firm's technological intensity, international strategy and experience determine both establishment and entry mode choices. Moreover, we apply Williamson's new institutional economics to investigate the influence of institution building on multinational enterprises' dual investment choice. In the context of transition economies, we test empirically the possible moderating effect of a host country's institutional environment. We conclude that the degree of the host country's institutional advancement moderates the effect of both technological intensity and international strategy on the establishment and entry mode choice.