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Why Firms Provide Goods to Foreign Markets Using a Combination of Entry Modes: Foreign Direct Investment and Export

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Authors
PYO, MIN-CHAN
Issue Date
2010-12
Publisher
College of Business Administration (경영대학)
Citation
Seoul Journal of Business, Vol.16(2): 67~94
Keywords
FDIexporttransaction costseconomies of scale
Abstract
This paper empirically explains why firms provide goods to foreign
markets using a combination of two entry modes, foreign direct investment
(FDI) and export. This research analyzes two factors, transaction costs
and economies of scale, which differently impact the foreign market entry
mode. The balanced panel data set of automobile companies is employed for
empirical analysis. The empirical results show that there is a time lag before
firms switch entry modes from export to FDI. A firm may choose exporting
as an entry mode to satisfy the increased local demand in the short run.
In the long run, a firm may expand its local production capacity through
FDI to satisfy local demand. The findings also show that firms reaching
the minimum efficient scale are more likely to expand foreign production
capacities to meet local demand. However, firms with less than the
minimum efficient scale prefer to expand domestic production of exportable
goods rather than increase foreign production.
ISSN
1226-9816
Language
English
URI
http://hdl.handle.net/10371/75578
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College of Business Administration/Business School (경영대학/대학원)Dept. of Business Administration (경영학과)Seoul Journal of BusinessSeoul Journal of Business Volume 16, Number 1/2 (2010)
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