Acquisition or greenfield start-up? Institutional, cultural and transaction cost influences

In this paper, we develop and test a model of diversification mode choice (how firms decide between acquisitions and greenfield start-up ventures) which includes institutional, cultural, and transaction cost variables. Using a sample of Japanese firms entering western Europe, our results show the model correctly predicts over eighty-seven percent of the mode choices. Thus, we provide strong initial evidence to support using institutional, cultural and transaction cost variables to predict firms’ choices between acquisitions and greenfield start-ups in international expansion. Our findings also suggest that organizations which have developed strong intangible capabilities may be able to more readily leverage these capabilities through greenfield start-ups. Copyright © 2000 John Wiley & Sons, Ltd.

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