Entry Mode Choice of the Japanese MNEs in Europe: Impact of Firm and Industrial Factors

In order to compete successfully in a foreign market, a firm must possess ownership advantages that can take the form of managerial and technological know-how, human skills, marketing capabilities, etc. This paper studies the impact of these advantages on foreign investor's preference for a wholly owned subsidiary versus a joint venture. The empirical results are based on a sample of 324 Japanese manufacturing companies established in Europe over the period 1994-1998. The main hypothesis is that large firms with greater experience and industrial advantages are more likely to choose a full ownership structure for its foreign affiliates. The study finds that international experience, and resource-based industries of the investing companies have a positive influence on the choice of shared ownership structure for the foreign subsidiaries. Furthermore, firm size and intangible assets measured by the R&D and advertising intensities are shown to have a non-significant relationship with entry mode