Entry mode irreversibility, host market uncertainty, and foreign subsidiary exits

Asia Pacific Journal of Management

Volumn 31, Issue 2, 2014, Pages 455-471

  Song, Sangcheol ^a  

^a SAINT JOSEPH S UNIVERSITY   (United States)

Author keywords

Entry modes; Foreign subsidiaries; Irreversibility; Multinational companies; Subsidiary exit; Uncertainty

Indexed keywords

EID: 84901319568     PISSN: 02174561     EISSN: 15729958     Source Type: Journal    
DOI: 10.1007/s10490-013-9354-8     Document Type: Article

References (117)

1. Abel, A. B., & Eberly, J. C. 1994. A unified model of investment under uncertainty. American Economic Review, 84(December): 1369-1384.
2. Abel, A. B., & Eberly, J. C. 1996. Optimal investment with costly reversibility. Review of Economic Studies, 63(4): 581-593.
3. Aldrich, H. E., & Auster, E. R. 1986. Even dwarfs started small: Liability of age and size and their strategic implications. In B. M. Straw & L. L. Cummings (Eds.). Research in organizational behavior, 8: 165-198. Greenwich, CT: JAI Press.
4. Alexander, N., Quinn, B., & Cairns, P. 2005. International retail divestment activity. International Journal of Retail & Distribution Management, 33(1): 5-22.
5. Anand, J., & Delios, A. 1997. Location specificity and the transferability of downstream assets to foreign subsidiaries. Journal of International Business Studies, 28(3): 579-603.
6. Anderson, O. 1997. Internationalization and market entry mode: A review of theories and conceptual frameworks. Management International Review, 37: 27-42.
7. Ashan, M., & Mustin, M. 2011. Flexibility, learning, and control: Entry mode choices under uncertainty. Diversity, conflict, and leadership. In M. A. Rahim (Ed.). Current topics in management, vol. 15. New Brunswick, NJ: Transactions Publisher.
8. Axarloglou, K. 2007. Multinational corporations and inertia in foreign direct investment flows. International Trade Journal, 21(4): 359-383.
9. Baldursson, F. M. 1998. Irreversible investment under uncertainty in oligopoly. Journal of Economic Dynamics and Control, 22(4): 627-644.
10. Baldwin, R., & Krugman, P. 1989. Persistent trade effects of large exchange rate shocks. Quarterly Journal of Economics, 104(4): 635-654.
11. Barkema, H. G., Bell, J. H. J., & Pennings, J. M. 1996. Foreign entry, cultural barriers, and learning. Strategic Management Journal, 17(2): 151-166.
12. Bauer, M. 2006. What have we acquired and what should we acquire in divestiture research? A review and research agenda. Journal of Management, 32(6): 751-785.
13. Belderbos, R., & Zou, J. 2009. Hysteresis and foreign affiliate divestments: A portfolio perspective. Journal of International Business Studies, 40: 600-620.
14. Benito, R. G. 1997. Why are foreign subsidiaries divested? A conceptual framework. In I. Bjorkman & M. Forsgren (Eds.). The nature of the international firms. Copenhagen: Copenhagen Business Press, 309-334.
15. Benito, G. R. G. 2003. Divestment seen through the lens of international business strategy. Keynote lecture given at the International Conference on Divestment, Lisbon, Portugal.
16. Benito, G. R. G. 2005. Divestment and international business strategy. Journal of Economic Geography, 5(2): 235-251.
17. Benito, G. R. G., & Welch, L. 1997. De-internationalization. Management International Review, 37(2): 7-25.
18. Bo, H., & Lensin, R. 2005. Is the investment-uncertainty relationship nonlinear? An empirical analysis for the Netherlands. Economica, 72(V): 307-331.
19. Boddewyn, J. J. 1979. Foreign divestment: Magnitude and factors. Journal of International Business Studies, 10(1): 21-27.
20. Bowman, E. H., & Hurry, D. 1993. Strategy through the option lens: An integrated view of resource investments and the incremental choice process. Academy of Management Review, 18(4): 760-782.
21. Bragger, J., Bragger, D., Hantula, D., Kirnan, J., & Kutcher, E. 2003. When success breed failure: History, hysteresis, and delayed divestiture decisions. Journal of Applied Psychology, 88(1): 6-14.
22. Brouthers, K. D. 2002. Institutional, cultural and transaction cost influences on entry mode choice and performance. Journal of International Business Studies, 33(2): 203-221.
23. Brouthers, K. D., & Brouthers, L. E. 2003. Why service and manufacturing entry mode choices differ: The influence of transaction cost factors, risk and trust Journal of Management Studies, 40(5): 1179-1204.
24. Brouthers, K. D., Brouthers, L. E., & Werner, S. 2008. Real options, international entry mode choice and performance. Journal of Management Studies, 45(5): 936-960.
25. Brouthers, K. D., & Hennart, J.-F. 2007. Boundaries of the firm: Insights from international entry mode research. Journal of Management, 33(3): 395-425.
26. Bulan, L. T. 2005. Real options, irreversible investment, and firm uncertainty: New evidence from US firms. Review of Financial Economics, 14(3-4): 255-279.
27. Bulan, L., Mayer, C., & Somerville, C. T. 2009. Irreversible investment, real options, and competition: Evidence from real estate development. Journal of Urban Economics, 65(3): 237-251.
28. Burt, S., Dawson, J., & Sparks, L. 2003. Failure in international retailing: Research propositions. International Review of Retail, Distribution and Consumer Research, 13(4): 355-373.
29. Cairns, P., Doherty, A. M., Alexander, N., & Quinn, B. 2008. Understanding the international retail divestment process. Journal of Strategic Marketing, 16(2): 111-128.
30. Campa, J. M. 2004. Exchange rates and trade: How important is hysteresis in trade?. European Economic Review, 48(3): 527-548.
31. Chang, S. J., & Rhee, J. H. 2011. Rapid FDI expansion and firm performance. Journal of International Business Studies, 42: 979-994.
32. Chen, H., & Hu, M. Y. 2002. An analysis of determinants of entry mode and its impact on performance. International Business Review, 11(2): 193-210.
33. Chen, M.-Y. 2002. Survival duration of plants: Evidence from the US petroleum refining industry. International Journal of Industrial Organization, 20(4): 517-555.
34. Chirinko, R. S., & Schaller, H. 2009. The irreversibility premium. Journal of Monetary Economics, 56(3): 390-408.
35. Christophe, S. E. 1997. Hysteresis and the value of the US multinational corporation. Journal of Business, 70(3): 435-462.
36. Chung, C. C., & Beamish, P. W. 2005. Investment mode strategy and expatriate strategy during times of economic crisis. Journal of International Management, 11: 331-355.
37. Chung, C. H., Lee, S.-H., Beamish, P. W., & Isobe, T. 2010. Subsidiary expansion/contraction during times of economic crisis. Journal of International Business Studies, 41(3): 500-525.
38. Chung, H.-J., Lo, H., & Chen, C.-C. 2011. Found scale and survival: Double-edged effects of corporate sponsorship. Service Industries Journal, 31(6): 997-1009.
39. Clark, E., & Gadad, D. 2010. Investor valuation of the abandonment option: Empirical evidence from UK divestitures 1985-1991. Multinational Finance Journal, 14(3/4): 291-317.
40. Comino, S., Mariel, P., & Sandonis, J. 2007. Joint ventures versus contractual agreements: An empirical investigation. Spanish Economic Review, 9(3): 159-175.
41. Cox, D. R., & Oakes, D. 1984. Analysis of survival data, monographs on statistics and applied probability. London: Chapman and Hall.
42. Cuypers, I. R. P., & Martin, X. 2010. What makes and what does not make a real option? A study of international joint ventures. Journal of International Business Studies, 41: 47-69.
43. Das, T. K., & Teng, B.-S. 2000. Instabilities of strategic alliances: An internal tensions perspective. Organizational Science, 11(1): 77-101.
44. Davidson, W. H., & McFetrige, D. G. 1984. Recent direction in international strategy: Production rationalization of portfolio adjustment?. Columbia Journal of World Business, 19: 95-101.
45. Delios, A., & Beamish, P. W. 2001. Survival and profitability: The role of experience and intangible assets in foreign subsidiary performance. Academy of Management Journal, 44(5): 1028-1038.
46. Delios, A., & Beamish, P. W. 2004. Joint venture performance revisited: Japanese foreign subsidiaries worldwide. Management International Review, 44(1): 69-91.
47. DeNicolis-Bragger, J. L., Bragger, D., Hantula, D. A., & Kirnan, J. 1998. Hysteresis and uncertainty: The effect of uncertainty on delays to exit decisions. Organizational Behavior & Human Decision Processes, 74, 229-253.
48. Dhanaraj, C., & Beamish, P. W. 2004a. Effect of equity ownership on the survival of international joint ventures. Strategic Management Journal, 25: 295-305.
49. Dhanaraj, C., & Beamish, P. W. 2004b. Effect of equity ownership on the survival of international joint ventures. Strategic Management Journal, 25(3): 295-305.
50. Dixit, A. K. 1989. Entry and exit decisions under uncertainty. Journal of Political Economy, 97: 620-638.
51. Dixit, A. K. 1992. Investment and hysteresis. Journal of Economic Perspectives, 6(1): 107-132.
52. Dixit, A., & Pindyck, R. 1994. Investment under uncertainty. Princeton: Princeton University Press.
53. Driscoll, A., Paliwoda, S. J., & Ryans, J. K. 1995. Foreign market entry metods: A mode choice framework. In S. J. Paliwoda & J. K. Ryans (Eds.). International marketing reader. London; New York: Routledge.
54. Elango, B., & Sambharya, R. B. 2004. The influence of industry structure on the entry mode choice of overseas entrants in manufacturing industries. Journal of International Management, 10(1): 107-124.
55. Erramilli, M. K., & D'Souza, D. E. 1995. Uncertainty and foreign direct investment: The role of moderators. International Marketing Review, 12(3): 47-60.
56. Fantazzini, D., & Figini, S. 2009. Random survival forests models for SME credit risk measurement. Methodology and Computing in Applied Probability, 11(1): 29-45.
57. Fisch, J. H., & Zschoche, M. 2012. The effect of operational flexibility on decisions to withdraw from foreign production locations. International Business Review, 21(5): 806-815.
58. Folta, T. B. 1998. Governance and uncertainty: The tradeoff between administrative control and commitment. Strategic Management Journal, 19: 1007-1028.
59. Ford, J. D. 1980. The occurrence of structural hysteresis in declining organizations. Academy of Management Review, 5(4): 589-598.
60. Goodson, M. C. 1995. Irreversible investment, uncertainty and hysteresis: A New Zealand investigation. New Zealand Economic Papers, 29(2): 119-141.
61. Grab, J., & Priebe, J. 2009. Low malnutrition but high mortality: Explaining the paradox of the lake Victoria region. European Society of Population Economics, Jan: 1-47.
62. Gresov, C., Haveman, H. A., & Oliva, T. A. 1993. Organizational design, inertia and the dynamics of competitive response. Organization Science, 4(2): 181-208.
63. Hennart, J. F., Kim, D. J., & Zeng, M. 1998. The impact of joint venture status on the longevity of Japanese stakes in U. S. manufacturing affiliates. Organization Science, 9(3): 382-395.
64. Hennart, J. F., Roehl, T., & Zeng, M. 2002. Do exits proxy a liability of foreignness? The case of Japanese exits from the US. Journal of International Management, 8(3): 241-264.
65. Hinrichs, J., Mubhoff, O., & Odening, M. 2008. Economic hysteresis in hog production. Applied Economics, 40(3): 333-340.
66. Jackson, P., Mellahi, K., & Sparks, L. 2005. Shutting up shop: Understanding the international exit process in retailing. Service Industries Journal, 25(3): 355-371.
67. Jones, B. S., & Branton, R. P. 2005. Beyond logit and probit: Cox duration models of single, repeating, and competing events for state policy adoption. State Politics & Policy Quarterly, 5(4): 420-443.
68. Kogut B. 1991. Joint ventures and the option to expand and acquire. Management Science, 37(1): 19-33.
69. Kogut, B., & Chang, S. J. 1996. Platform investments and volatile exchange rates: Direct investment in the US Japanese electronic companies. Review of Economics and Statistics, 78(2): 221-231.
70. Kogut, B., & Kulatilaka, N. 1994. Operating flexibility, global manufacturing, and the option value of a multinational network. Management Science, 40: 123-139.
71. Kogut, B., & Kulatilaka, N. 2001. Capabilities as hysteresis. Organization Science, 12(6): 744-758.
72. Kogut, B., & Singh, H. 1988. The effect of national culture on the choice of entry mode. Journal of International Business Studies, 19: 411-432.
73. Kumar, M. V. S. 2005. The value from acquiring and divesting a joint venture: A hysteresis approach. Strategic Management Journal, 26(4): 321-331.
74. Larimo, J. 1998. Determinants of divestments in foreign production operations made by Finnish firms in OECD countries. Discussion paper at University of Vassa, Finland.
75. Li, J. 1995. Foreign entry and survival: Effects of strategic choices on performance in international market. Strategic Management Journal, 16: 333-351.
76. Li, J. 2007. Real options theory and international strategy: A critical review. Advances in Strategic Management, 24: 67-101.
77. Li, J., & Rugman, A. M. 2007. Real options and the theory of foreign direct investment. International Business Review, 16(6): 687-712.
78. Li, Y., Barclay, E. J., Madhavan, R., & Mahoney, J. T. 2007. Real options: Taking stock and looking ahead. Advances in Strategic Management, 24: 31-66.
79. Lomi, A., Larsen, E. R., & Freeman, J. H. 2005. Things change: Dynamic resource constraints ad systems-dependent selection in the evolution of organizational populations. Management Science, 51: 882-903.
80. Lomi, A., Larsen, E. R., & Wezel, F. C. 2010. Getting there: Exploring the role of expectations are preproduction delays in processes of organizational founding. Organization Science, 21(1): 132-149.
81. Lu, J. W., & Beamish, P. W. 2004. International diversification and firm performance: The S-curve hypothesis. Academy of Management Journal, 47(4): 598-609.
82. Maitland, E., & Sammartino, A. 2009. Subsidiaries in motion: Assessing the impact of sunk versus flexible assets. In J. L. C. Cheng, E. Maitland & S. Nicholas (Eds.). Managing, subsidiary dynamics: Headquarters role, capability development, and China strategy (Advances in International Management, 22: 55-83). Emerald Group Publishing Limited.
83. Mata, J., & Portugal, P. 2000. Closure and divestiture by foreign entrants: The impact of entry and post-entry strategies. Strategic Management Journal, 21: 549-562.
84. McDermott, M. C. 2010. Divestment the neglected area of international business?. International Studies of Management and Organization, 40(4): 37-53.
85. Meschi, P.-X. 2009. Government corruption and foreign stakes in international joint ventures in emerging economies. Asia Pacific Journal of Management, 26(2): 241-261.
86. Miller, K. D., & Folta, T. B. 2002. Option value and entry timing. Strategic Management Journal. 23(7): 655-665.
87. Miller, S. R., & Eden, L. 2006. Local density and foreign subsidiary performance. Academy of Management Journal, 49(2): 341-355.
88. Nadolska, A., & Barkema, H. G. 2007. Learning to internationalise: The pace and success of foreign acquisitions. Journal of International Business Studies, 38(7): 1170-1186.
89. Nargundkar, S. V., & Karakaya, F. 1996. Barriers to exit. Journal of Managerial Issues, 8(2): 239-258.
90. Nishimura, K. G., & Ozaki, H. 2007. Irreversible investment and Knightin uncertainty. Journal of Economic Theory, 136(1): 668-694.
91. O'Brien, J. P., & Folta, T. B. 2009. Sunk costs, uncertainty and market exit: A hysteresis perspective. Industrial and Corporate Change, 18: 807-833.
92. O'Brien, J. P., Folta, T. B., & Johnson, D. R. 2003. Real options perspective on entrepreneurial entry in the face of uncertainty. Managerial and Decision Economics, 24(8): 515-533.
93. Ogasavara, M. H., & Hoshino, Y. 2008. The effects of entry strategy and inter-firm trust on the survival of Japanease manufacturing subsidiaries in Brazil. Asian Business & Management, 7: 353-380.
94. Padmanabhan, P, & Cho, K. R. 1999. Decision specific experience in foreign ownership and establishment strategies: Evidence from Japanese firms. Journal of International Business Studies, 30: 25-43.
95. Parkhe, A. 1991. Inter-firm diversity, organizational learning, and longevity in global strategic alliances. Journal of international Business Studies, 22(4): 579-601.
96. Park, Y. R., & Park, S. W. 2000. Determinants of FDI survival: The case of Korean manufacturing firms. Paper presented at the Academy of International Business Annual Meeting, Phoenix, Arizona, November.
97. Pindyck, R. S. 1991. Irreversibility, uncertainty, and investment. Journal of Economic Literature, 29: 1110-1148.
98. Price, T. J., & Wetzstein, M. E. 1999. Irreversible investment decisions in perennial crops with yield and price uncertainty. Journal of Agricultural and Resource Economics, 24(1): 173-185.
99. Rasheed, J. H. S. 2005. Foreign entry mode and performance: The moderating effects of environment. Journal of Small Business Management, 43(1): 41-54.
100. Richards, T. J., Nganje, W. E., & Acharya, R. N. 2009. Public goods, hysteresis, and underinvestment in food safety. Journal of Agricultural and Resource Economics, 34(3): 464-482.
101. Richards, T. J., & Green, G. P. 2003. Economic hysteresis in variety selection. Journal of Agricultural and Applied Economics, 35(1): 1-14.
102. Ruigrok, W., & Wagner, H. 2003. Internationalization and performance: An organizational learning perspective. Management International Review, 43(1): 63-83.
103. Sarkar, S. 2000. On the investment-uncertainty relationship in a real options model. Journal of Economic Dynamics and Control. 24(2): 219-225.
104. Serapio, M. G., & Cascio, W. F. 1996. End-games in international alliances. Academy of Management Executive, 10(1): 62-73.
105. Slangen, A. H. L., & Hennart, J.-F. 2004. Entry mode choice and integration: How do they affect subsidiary performance?. Paper presented at the international colloquium Analyzing Strategic Change in Organizations: Innovative Methods for Management organized by the Center for Research in Change, Innovation, and Strategy (CRECIS), Brussels, Belgium.
106. Thomas, D., Eden, L., Hitt, M., & Miller, S. 2007. Experience of emerging market firms: The role of cognitive bias in developed market entry and survival. Management International Review, 47(6): 1-23.
107. Tihanyi, L., Griffith, D. A., & Russel, C. J. 2005. The effect of cultural distance on entry mode choice, international diversification, and MNE performance: A meta-analysis. Journal of International Business Studies, 36: 270-283.
108. Tong, T. W., & Reuer, J. J. 2007. Switching options and coordination costs in multinational firms. Journal of International Business Studies. 38(2): 215-230.
109. Tong, T. W., Reuer, J. J., & Peng, M. W. 2008. International joint ventures and the value of growth options. Academy of Management Journal, 51(5): 1014-1029.
110. Villalonga, B., & McGahan, A. M. 2005. The choice among acquisitions, alliances, and divestitures. Strategic Management Journal, 26(13): 1183-1208.
111. Vita, G. D., Tekaya, A., & Wang, C. L. 2010. Asset specificity's impact on outsourcing relationship performance: A disaggregated analysis by buyer-supplier asset specificity dimensions. Journal of Business Research, 63(7): 657-666.
112. Weninger, Q., & Just, R. E. 2002. Firm dynamics with tradable output permits. American Journal of Agricultural Economics, 84(3): 572-584.
113. Woodcock, C. P., Beamish, P. W., & Makino, S. 1994. Ownership-based entry mode strategies and international performance. Journal of International Business Studies, 25(2): 253-273.
114. Wu, D., & Zhao, F. 2007. Entry modes for international markets: Case study of Huawei, a Chinese technology enterprise. International Review of Business Research Papers, 3(1): 183-196.
115. Yan, A., & Zeng, M. 1999. International joint venture instability: A critique of previous research, a reconceptualization, and directions for future research. Journal of International Business Studies, 30: 397-414.
116. Zaheer, S., & Mosakowski, E. 1997. The dynamics of the liability of foreignness: A global study of survival in financial services. Strategic Management Journal, 18(6): 439-464.
117. Zineldin, M. 2007. International business relationship and entry modes: A case of Swedish automotive industry Scania and Volvo in Mexico. Cross Cultural Management: An International Journal, 14(4): 365-386.