The use of real option reasoning in international market entry decisions

Inhaltsverzeichnis (Table of Contents)

• Introduction
• Firm-level effects of international expansion
  • Motives and constraints of internationalization
  • Views on the relationship between international expansion and firm performance
  • Common findings: The S-curve hypothesis
• Real option theory and its contribution to the field of strategic management
  • Financial option theory
    • Synthetic option profit streams
  • Real option theory & real option reasoning
    • Basic principle and benefits
    • Conditions for applicability
    • Relevance of failure & learning in real option reasoning
    • Relevance of timing & flexibility in real option reasoning
    • Relevance of capabilities in real option reasoning
• Application of real option reasoning on international market entry decisions
  • Differing attributes of market entry types from a ROR perspective
  • Attribute characteristics in acquisitions
  • Attribute characteristics in greenfield investment
  • Attribute characteristics in joint ventures
  • Attribute characteristics in franchising
  • Attribute characteristics in exporting/ licensing
  • Discussion
• Conclusion

Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)

This paper examines the application of real option reasoning in international market entry decisions. It explores the interaction between internationalization theory and real option theory to develop a comprehensive understanding of the complex forces involved in global expansion. The main objective is to provide a framework for incorporating uncertainty into strategic considerations, highlighting the benefits of flexibility, learning, and capability development in international ventures. The paper focuses on:

• The benefits and constraints of international expansion, analyzing the interplay of exploitation and exploration benefits with liabilities of newness, foreignness, and complexity.
• The concept of real option reasoning and its evolution from financial option theory, emphasizing the value of flexibility, capabilities, and managing uncertainty.
• The application of real option reasoning in international market entry decisions, examining the different characteristics of acquisition, greenfield investment, joint ventures, franchising, licensing, and exporting in relation to market uncertainty and learning distance.
• The importance of organizational learning and capability development in international ventures, emphasizing the role of failure, timing, and the strategic allocation of resources.

Zusammenfassung der Kapitel (Chapter Summaries)

Chapter 2 explores the firm-level effects of international expansion, identifying the motives and constraints driving firms to operate globally. It examines various theoretical perspectives on the relationship between international expansion and firm performance, highlighting the S-curve hypothesis as a reconciliation of seemingly conflicting theories. The chapter emphasizes the importance of organizational learning and the development of capabilities in overcoming the challenges of multinationality.

Chapter 3 introduces the concept of real option reasoning and its roots in financial option theory. It analyzes different conceptual definitions of real options and their application in strategic decision-making. The chapter delves into the conditions for applying real option reasoning, emphasizing the importance of uncertainty, irreversibility, future choice, flexibility, capabilities, and the role of failure and learning in navigating uncertain environments.

Chapter 4 applies real option reasoning to international market entry decisions, comparing five key strategies: acquisitions, greenfield investment, joint ventures, franchising, and exporting/licensing. It identifies five key attributes—option price, exercise costs, information acquisition, sequentiality, and organizational learning—to analyze the suitability of each strategy in specific market combinations characterized by varying degrees of learning distance and exogenous uncertainty.

Schlüsselwörter (Keywords)

The paper focuses on the key themes of internationalization, real options, strategic decision-making, market entry, uncertainty, flexibility, capabilities, organizational learning, and the role of failure in international business. It highlights concepts such as exploitation and exploration benefits, liabilities of newness and foreignness, costs of complexity, endogenous and exogenous uncertainty, and the value of sequential investments.