Export, FDI and Cross-Border Strategic Alliances by

This paper develops a model that incorporates firms ’ decisions on cross-border strategic alliances and international market entry modes (i.e., export or FDI). Market size, product dif-ferentiation, distribution costs and alliance synergies are important factors that affect the firms’ incentives to form strategic alliances and their choice between exports and FDI. In particular, we find that a larger market size, lower distribution costs and greater alliance synergies raise the relative attractiveness of FDI over export. Cross-border strategic alliances promote FDI. The alliance incentives are higher when the alliance formation induces the firms to switch from export to FDI. In equilibrium, alliances are formed if the products are sufficiently differentiated, but there is no alliance if the products are close to homogenous goods