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Joint Ventures versus Fully Owned Subsidiaries: Multinational Strategies in Liberalizing Economies
Author(s) -
Mukherjee Arijit,
Sengupta Sarbajit
Publication year - 2001
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/1467-9396.00271
Subject(s) - subsidiary , multinational corporation , profitability index , competition (biology) , liberalization , joint venture , business , investment (military) , foreign direct investment , industrial organization , international trade , market economy , economics , international economics , commerce , finance , ecology , macroeconomics , politics , political science , law , biology
As ceilings on foreign shareholdings are withdrawn during liberalization, multinationals enter through fully owned subsidiaries that compete with their own joint ventures, unless local partners permit them to raise their stakes. In a framework of quantity competition, this paper demonstrates that an entry threat is more credible when joint venture investment is reversible, the units are independently managed and the local stake is high. Further, profitability of horizontal merger between the units encourages a share reallocation, while its absence favours a new subsidiary. Under irreversible investment, the threat is less credible and both share reallocations or new subsidiaries are less likely.