¹Lehrstuhl fuer Technologie- und Innovationsmanagement, Zeppelin University, Friedrichshafen, Germany

Correspondence: J H Fisch, Lehrstuhl fuer Technologie- und Innovationsmanagement, Zeppelin University, Am Seemooser Horn 20, D-88045 Friedrichshafen, Germany. Tel: +49 (0)7541 6009 1261; Fax: +49 (0)7541 6009 1199; E-mail: jfisch@zeppelin-university.de

Received 25 December 2005; Revised 24 July 2007; Accepted 31 July 2007; Published online 6 March 2008.

Abstract

Research on foreign direct investment has focused considerable attention on the moment of market entry, but less on the dynamics of investment in the post-entry phase. This paper centres the influence of uncertainty on investment, and develops a growth options model to explain the sequence of investment in new foreign subsidiaries. In a learning process that starts at entry, investors perceive receding levels of uncertainty and shift their reason for investment from option values towards net present values. The findings of a panel study of 634 German subsidiaries support the propositions and reveal the potential of the real options approach to improve the understanding of internationalisation processes.