The Choice of Foreign-Market Investment Modes: An Empirical Analysis Using Transaction-Cost and Organizational Learning Frameworks

Abstract

In this study, we explain the foreign firm's investment mode choice between international joint-venture (IJV) and wholly owned subsidiary (WOS) by analyzing its intrinsic characteristics related to its assets contributed and experiences on host country and the uncertainty of the local environment. Based on the logit regressions of 6603 investment mode decisions made by 5802 foreign investors in Vietnam during 1988 -2008, our findings were consistent with transaction-cost and organizational learning frameworks. We find positive associations between highly specific assets and the stock of experience of foreign firms with their choice of WOS; so negative ones with their choice of IJV as investment mode. Also, the IJV would be selected in a highly uncertain context; but in a favorable one, the WOS is preferred by the foreign firm.