The choice and timing of foreign market entry under uncertainty.

Abstract

This papers considers the minimally required payoffs to different means of foreign direct investments (FDI), where the investment is irreversible and payoffs are uncertain. It is found that the critival profit level at which it is optimal to create a joint venture (JV) increases with (i) the share of the TNC in the JV, (ii) the uncertainty about the payoffs, and (iii) the difference in taxation between the TNC's government and the host country's government. Moreover, cooperative JVs will be formed sooner than non-cooperative JVs. Under non-cooperation, the optimal share of the MNE increases with uncertainty, and decreases with taxation. Under cooperation, the partners intend to minimize the share. The results obtained partially explain recent empirical findings on Chines JVs.Market entry; Investments; Investment; Optimal; Country; Cooperation;