Do Multinationals Really Prefer to Enter Culturally-Distant Countries Through Greenfields Rather than Through Acquisitions? The Role of Parent Experience and Subsidiary Autonomy

Arjen Slangen

ERIM Report Series Research in Management from Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam

Abstract: Prior research has argued that multinational enterprises (MNEs) prefer to enter culturally-distant countries through greenfields rather than through acquisitions, since acquisitions in such countries are costlier to manage. This argument contains two hidden assumptions: (1) the additional costs of acquisitions in culturally-distant countries are the same for all MNEs, and (2) such acquisitions have no benefits overtheir greenfield counterparts. In this paper we relax these two assumptions by arguing that an MNE’s preference for greenfields in culturally-distant countries depends on its international and host-country experience, and on the level of autonomy it plans to grant the focal subsidiary. Analyzing 171 whollyowned greenfield investments and full acquisitions made by Dutch MNEs in 35 countries, we find that these MNEs prefer to enter culturally-distant countries through greenfields, but that this preference is lower when they have little international experience, or plan to grant the focal subsidiary considerable autonomy in marketing.

Keywords: Greenfield; acquisition; cultural distance; host-country experience; international experience; subsidiary autonomy (search for similar items in EconPapers)
JEL-codes: D92 F23 M R30 (search for similar items in EconPapers)
Date: 2007-09-11
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