Determining investment size and local embeddedness under host market uncertainty and growth rates

Sangcheol Song

International Business Review, 2022, vol. 31, issue 2

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 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.ibusrev.2021.101945

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