دامنه انتخاب و زمان بندی سرمایه گذاری مستقیم خارجی تحت شرایط نامطمئن

This paper sheds new light on why timing and entry mode should be considered simultaneously in the international investment literature. 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.

The past two decades have witnessed an enormous growth in foreign direct investment (FDI) and a significant rise in the number of multinational enterprises (MNEs). The latest UN World Investment Report reports that the gross product of all MNEs including parent firms comprises roughly a quarter of the world's gross domestic product. There is substantial evidence that most FDI is horizontal (Markusen and Maskus, 1999), meaning that firms set up a plant in another country that replicate roughly the same activities as in existing plants.1 The mode of horizontal expansion seems to vary around the globe. Whereas West-European firms often undertake a greenfield investment in other countries in Western Europe on their own, they often (sometimes necessarily) rely on a local partner when expanding to China. Applying a dynamic optimization model, this paper addresses the question of how and when to expand horizontally. The literature on investment under uncertainty claims that there is a value of waiting in addition to the net present value (NPV) in investments that are irreversible and subject to an uncertain payoff (McDonald and Siegel, 1986 and Dixit and Pindyck, 1994). Empirical evidence of this stream of literature supports this option view of investment (e.g. Leahy and Whited, 1996 and Guiso and Parigi, 1999). It is acknowledged that FDI typically involve sunk costs and that their payoff is affected by exchange rate uncertainty (Campa, 1993 and Darby et al., 1999) and policy uncertainty (Rodrik, 1991). In an empirical paper analyzing different measures of uncertainty, Brunetti and Weber (1998) found that both institutional uncertainty and volatility in exchange rates have a negative impact on investment. The way a firm internalizes its advantage over other firms has been subject to numerous studies. The most influential paper within this respect is Buckley and Casson (1981) who use a cost-benefit analysis for the choice between exporting and FDI. Under the assumption that exporting has a low fixed cost and a high variable cost while the opposite holds for undertaking FDI, they find that exporting is optimal when the foreign market is relatively small whereas FDI is optimal when the market is relatively large. At the time they wrote their paper option theory was in its childhood stages and the effect on investment timing of uncertainty surrounding future payoffs was typically ignored.2 A small body of literature has paid attention to the creation of joint ventures between a MNE and a local firm when there is a differential taxation between the home country of the MNE and the country in which the MNE intends to set up a joint venture. Svesjnar and Smith (1984) showed that the MNE wants to minimize its share in the joint venture in order to avoid tax payments by the joint venture when taxes are lower in the host country than in the MNE's home country. The introduction of uncertainty in foreign market entry decisions was first established by Dixit, 1989 and Kogut, 1991. Dixit shows that uncertainty affects the timing of market entry. Kogut analyzes a joint venture as an option to acquire or expand. In recent contributions on operational flexibility within FDI, Rivoli and Salorio, 1996 and Chi and McGuire, 1996 discuss the strategic perspectives on the timing of investment and the choice of market entry, respectively, but up to now there is no theoretical model that successfully unifies market timing and the mode of entry under uncertainty. This paper aims to integrate the previous studies and to provide decision rules of when to switch from exporting to creating a joint venture (JV) or setting up a wholly owned subsidiary (WOS) under differential taxation. We analyze the profit levels at which it is optimal to give up the value of waiting to invest in exchange for reaping the benefits of FDI. Recent contributions in the field of strategic management have stressed the importance of a simultaneous analysis of entry mode and performance. Luo (1996) suggests that the profitability of a WOS in China is significantly higher than the profitability of a Chinese JV. On the contrary, Pan and Chi (1999) find that joint ventures are more profitable than wholly owned subsidiaries. We show that the payoff at which it is optimal to create a joint venture critically depends on the degree to which both firms are willing to cooperate, the market structure in the host country and the uncertainty surrounding future profits. Also, minimum share requirements by local authorities which play an important role in the creation of joint ventures in China (see, e.g. Svesjnar and Smith, 1984) may have a large impact on the decision when and how to undertake investments abroad. A related paper by Lambrecht (2000) examines the option to merge two existing firms into a newly established firm. While we derive the optimal ownership shares of the MNE and the local partner in the case of JVs, he derives the optimal ownership shares of the merging firms in the new firm. Whereas in the case of mergers the post-merger ownership shares are proportional to their market value prior to the merger (provided that both firms produce with the same technology), the Nash bargaining solution in the case of mergers is a zero equity share by the MNE when the tax differential between the MNE's home and host country is positive (cf. Svesjnar and Smith, 1984). The distinction between cooperative and non-cooperative JVs made in this paper is crucial for the decision between a WOS and a JV. When there are only local partners with whom the MNE share little common interests, we find that the MNE will favor a WOS. However, when firms fully agree to maximize aggregate profits rather than pursuing their own benefit, a JV is preferred to a WOS when the local partner has a cost advantage over the MNE and/or the local tax rate is lower than the corporate tax rate levied in the MNE's country of origin. We show that in cooperative joint ventures the outcome of the Nash bargaining game is exclusive licensing of the technology by the MNE to the local firm when local taxes are lower than taxes in the MNE's country of origin. Given that local tax rates in developing countries are usually lower than tax rates in advanced countries (Svesjnar and Smith, 1984) the preference for licensing agreements with partners that are sufficiently cooperative is in line with several empirical studies on the preferred entry mode by MNEs. These empirical studies (Davidson and McFetridge, 1985 and Shane, 1994) use geographic and cultural proximity between the MNE and the local partner as explanatory variables for the decision between licensing and setting up a JV. They find that geographic and cultural proximity to the US increases the attractiveness of licensing. Therefore, under the hypothesis that the degree of cooperation and cultural distance are negatively related, firms prefer a high control entry mode in countries where the degree of cooperation is low. There is also some anecdotal evidence for the hypothesis. Analyzing JVs in China Vanhonacker (1997) observes that there is a tendency in China to set up a WOS instead of a JV because most JVs do not function well. He argues that often ‘companies share the same bed but have different dreams’. For example, it is widely acknowledged that most Chinese companies seek profits on a much shorter horizon than foreign investors do. The paper is organized as follows. Section 2 discusses the background and basic assumptions. In Section 3 we derive the critical value at which it is optimal for a MNE to invest in a WOS. The next section analyzes non-cooperative JVs in two extreme settings: (i) the local partner acts as monopolist; and (ii) there is perfect competition among local partners. Section 5 examines the investment rules for JVs under cooperation in a Nash-bargaining framework. Finally, Section 6 provides some concluding remarks.

In the absence of restrictions on the shares, the results show that a transfer payment from the local firm to the MNE while all equity is allocated to the local firm is optimal when there is a tax advantage in the host country. In other words, licensing of technology by the MNE appears the first best solution under differential taxation. An interesting feature of the cooperate model is that exclusive licensing as optimal solution encourages investment whereas licensing by the MNE as a take-it-or-leave-it offer to the local firm would severely delay investment. In the latter case namely the local firm's sunk cost consists of cJ and the licensing fee. Hence, in order to boast FDI in countries that are culturally distant and where a low degree of cooperation can be expected, the analysis in this paper suggests that full ownership (WOS) should be allowed or that investment promotion agencies, mediating between local partners and foreign investors, should be set up. We showed that there is a worst case scenario when there is no cooperation between both firms and the MNE has a full ownership in the JV. In this scenario the JV will only be set up when the profits exceed the quadratic relative markup that is optimal for a vertically integrated firm. Each firm wants to have a markup over the sunk cost of investment. This also holds true in a cooperative JV and a WOS, so the required expected after tax profit is related to the sunk cost that is required for market entry. Since the relation between expected minimum profit and the markup is positive, the findings suggest that a WOS would make higher profit than a JV when the cost of setting up a JV is higher than the cost of setting up a WOS. Kogut (1991) found that a joint venture is often followed by a sale of the local partner's share to the MNE. In our analysis, we neglected the sequential option to acquire the local company that accompanies the equity JV. Under a licensing agreement, the MNE foregoes the option to acquire. Acknowledging the option to expand, the MNE may want to wait until the project value reaches the trigger value of an equity JV, and ignore licensing. Hence, when the sequential option to acquire the local company is included, the optimal policy will not be to have a zero share, but to have a small positive share. This sheds other light on the conjecture of Svesjnar and Smith (1984) that a JV will refrain from a zero share because a low equity share would alert the host government to the problem of tax avoidance.