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Foreign-Market Entry Strategies in the European Union

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Foreign-Market Entry Strategies in the European Union
Kyle Stiegert, Archie Amir Ardalan, and Thomas Marsh
This study utilized intra-firm, socio-cultural, geographical-proximity, and political-stability variables to explain bimodal foreign direct investment (FDI) patterns by agri-food and beverage multinational companies into and within the European Union. A logit framework incorporated a unique-count database of firm-level investment patterns from 1987–1998. The results showed the 1992 structural changes under the Maastricht Treaty increased the probability of wholly owned FDI modes such as greenfields and buyouts. The model also found that past modal strategies of firms, language barriers, and exchange-rate volatility all correctly explained modal investment patterns. The results provide important contributions toward understanding modal investment strategies including the role of macroeconomic changes within a custom union.

A popular way for a firm to secure a business presence in a foreign nation is through foreign direct investment (FDI) in production, marketing, and/or distribution facilities. Formally defined, FDI is an investment in which a multinational enterprise (MNE) acquires a substantial controlling interest in a foreign firm or in some other manner establishes fixed assets on foreign soil. Prior to 1970, multinational operations were often characterized as an exclusively American institution (Erdilek 1985). However, during the 1970s the U.S. shifted from being the largest “home” country to being the largest “host” country. Indeed, post-1960s FDI activities had quickly become far less centralized, with an active exchange of capital assets moving within the “Triad” group (United States, European Union, Japan). Table 1 contains the share of FDI monetary inflows to various regions around the world. The average share of inflow into the EU was...

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