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Determining investment size and local embeddedness under host market uncertainty and growth rates
Institution:1. National Research Base of Intelligent Manufacturing Service, Chongqing Technology & Business University, Chongqing 400067, China;2. Haub School of Business, Saint Joseph’s University, Philadelphia, PA 19131, USA;1. Department of Business Administration, National Taiwan University of Science & Technology, 43, Keelung Rd., Sec.4, Taipei City 106335, Taiwan;2. Department of Management and Global Business, Rutgers Business School, Rutgers University, 1 Washington Park, Newark, NJ 07102, United States;3. College of Management, Yuan Ze University, 135, Yuan-Tung Rd, Tao-Yuan City, 320, Taiwan;1. Monash Business School, Monash University, 26 Sir John Monash Drive, Caulfield East, VIC 3145 Melbourne, Australia;2. School of Applied Economics, Renmin University, China;3. DAN Department of Management & Organizational Studies, Western University, Canada;1. School of Business and Economics, Loughborough University, LE11 3TT, United Kingdom;2. University of Strathclyde, G1 1XQ, United Kingdom;3. Kwame Nkrumah University of Science & Technology, University Post O?ce, Kumasi, Ghana; Gordon Institute of Business Science, University of Pretoria, 26 Melville Rd, Illovo, Johannesburg, 2196, South Africa;1. International Business, Strategy and Entrepreneurship Department, Auckland University of Technology, 55 Wellesley Street East, Auckland CBD, Auckland, 1010, New Zealand;2. Indian Institute of Management Udaipur, Balicha Campus, Udaipur, Rajasthan 313001, India;3. Keio University, Graduate School of Business Administration Keio University 4-1-1 Hiyoshi, Kohoku-ku, Yokohama, 223-8526, Japan;1. CARME, School of Technology and Management, Polytechnic of Leiria, CSG/ADVANCE, Campus 2, Morro do Lena, Alto do Vieiro, 2411 - 901 Leiria, Portugal;2. CSG/ADVANCE, ISEG - Lisbon School of Economics & Management, Universidade de Lisboa, Rua Miguel Lupi, no. 20, 1249-078 Lisbon, Portugal
Abstract:This study employs a growth options perspective to examine how multinational corporations (MNCs) design their investment attributes under the influence of host market uncertainty and growth rates. It specifically examines MNCs’ decisions on investment size and local embeddedness under host market conditions. Using data on Korean overseas manufacturing subsidiaries, we find that MNCs choose either more-local-embedded small investments or less-locally-embedded large investments under high demand uncertainty and GDP growth rates. We also find that this choice is moderated by host market political risk and competition. Our findings imply that MNCs consider both uncertainty-driven flexibility and growth rate-induced commitment when selecting international investment modes. This consideration allows MNCs to gain flexibility as well as an enhanced ability to expand in the future. This study contributes to the literature on real options and entry modes in the international business area by showing how host market conditions and investment decisions are related.
Keywords:Growth options  Multinational corporations  Foreign direct investment  Exogenous uncertainty  Growth rates  Host market commitment
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