Skip to main content
SpringerLink
Log in

Determinants of ownership-based entry mode choice of MNEs: Evidence from Mongolia

  • Published:
Management International Review Aims and scope Submit manuscript

Abstract

Abstract and Key Results

  1. ▪

    This paper provides a comprehensive analysis of foreign investors’ ownership strategies in the land-locked transition economy of Mongolia. Drawing broadly on the transaction cost theory and institutional model, a number of investing firm and host country characteristics were identified. Drawing on a sample of 1,033 affiliates of foreign investors with varying levels of foreign ownership, the paper examines the choice between a wholly owned subsidiary (WOS) and a joint venture (JV).

  2. ▪

    Strong support has been found for the impact of nationality and normative distance on the ownership mode choice of foreign investors. The results show that the main determinants of foreign equity ownership found in previous research also influence the ownership structure offoreign affiliates in Mongolia. The extent of FDI concentration, natural resource intensity of target industry and location of the affiliate have the expected impact on the foreign investor’s choice between a JV and a WOS. However, no support has been found for the impact of capital size of affiliate on the level of equity ownership of foreign affiliates.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Agarwal, S., Socio-Cultural Distance and the Choice of Joint Ventures: A Contingency Perspective, Journal of International Marketing, 2,2, 1994, pp. 63–80.

    Google Scholar 

  • Agarwal, S./ Ramaswami, S.N., Choice of Foreign Market Entry Mode: Impact of Ownership, Location and Internalization Factors, Journal of International Business Studies, 23,1, 1992, pp. 1–28.

    Article  Google Scholar 

  • Amemiya, T., Qualitative Response Models: A Survey, Journal of Economic Literature, 19,4, 1981, pp. 1483–1536.

    Google Scholar 

  • Anderson, E./ Gatignon, H., Modes of Foreign Entry: A Transaction Cost Analysis and Propositions, Journal of International Business Studies, 17,3, 1986, pp. 1–26.

    Article  Google Scholar 

  • Arnold, G., Mongolia Profile, Walden Publishing 2004.

  • Beamish, P. W., The Characteristics of Joint Ventures in the People’s Republic of China, Journal of International Marketing, 1,2, 1993, pp. 29–48.

    Google Scholar 

  • Beamish, P. W./ Wang, H. Y., Investing in China via Joint Ventures, Management International Review, 29,1, 1989, pp. 57–64.

    Google Scholar 

  • Beamish, P. W./ Kachra, A., Number of Partners and JV Performance, Journal of World Business, 39,2, 2004, pp. 107–120.

    Article  Google Scholar 

  • Bell, J. H. J., Single or Joint Venturing? A Comprehensive Approach to Foreign Entry Mode Choice, Avebury: Aldershot 1996.

    Google Scholar 

  • Brouthers, K., The Influence of International Risk on Entry Mode Strategy in the Computer Software Industry, Management International Review, 35,1, 1995, pp. 7–28.

    Google Scholar 

  • Brouthers, K./ Brouthers, L. E., Acquisition or Greenfield Start-up? Institutional, Cultural and Transaction Cost Influences, Strategic Management Journal, 21,1, 2000, pp. 89–97.

    Article  Google Scholar 

  • Brouthers, K., Institutional, Cultural and Transaction Cost Influences on Entry Mode Choice and Performance, Journal of International Business Studies, 33,2, 2002, pp. 203–221.

    Article  Google Scholar 

  • Buckley, P. J./ Geyikdagi, N. V., Explaining Foreign Direct Investment in Turkey’s Tourism Industry, Transnational Corporations, 5,3, 1996, pp. 99–110.

    Google Scholar 

  • Casson, M./ Zheng, J., Western Joint Ventures in China, Journal of International Development, 3,3, 1991, pp. 293–323.

    Article  Google Scholar 

  • Chadee, D./ Qui, F., Foreign Ownership of Equity Ventures in China: A Pooled Cross-Section-Time Series Analysis, Journal of Business Research, 52,2, 2001, pp. 123–133.

    Article  Google Scholar 

  • Chen, J./ Sokal, R. R./ Ruhlen, M., Worldwide Analysis of Genetic and Linguistic Relationships of Human Populations, Human Biology, 76,4, 1995, pp. 595–612.

    Google Scholar 

  • Chen, H./ Hu, M. Y., An Analysis of Determinants of Entry Mode and Its Impact on Performance, International Business Review, 11,2, 2002, pp. 193–210.

    Article  Google Scholar 

  • Cleeve, E., The Motives for Joint Ventures: A Transaction Costs Analysis of Japanese MNEs in the UK, Scottish Journal of Political Economy, 44,1, 1997, pp. 31–43.

    Article  Google Scholar 

  • Contractor, F.J., Ownership Patterns for U.S. Joint Ventures Abroad and the Liberalization of Foreign Government Regulations in the 1980s: Evidence from the Benchmark Surveys, Journal of International Business Studies, 21,1, 1990, pp. 55–73.

    Article  Google Scholar 

  • Contractor, F. J., Ownership Partners of US Joint Ventures abroad and the Liberalization of Foreign Government Regulations in the 1980s: Evidence from the Benchmark Surveys, Journal of International Business Studies, 21,1, 1990, pp. 55–73.

    Article  Google Scholar 

  • Das, T. K./ Teng, B. S., A Resource Based Theory of Strategic Alliances, Journal of Management, 26,1, 2000, pp. 31–61.

    Article  Google Scholar 

  • Davidson, W. H./ McFetridge, D. G., Key Characteristics in the Choice of International Technology Transfer Mode, Journal of International Business Studies, 16,2, 1985, pp. 5–21.

    Article  Google Scholar 

  • Davis, P. S./ Desai, A. B./ Francis, J. D., Mode of International Entry: An Isomorphism Perspective, Journal of International Business Studies, 31,2, 2000, pp. 239–258.

    Article  Google Scholar 

  • Delios, A./ Henisz, W. J., Japanese Firms’ Investment Strategies in Emerging Economies, Academy of Management Journal, 43,3, 2000, pp. 305–323.

    Article  Google Scholar 

  • Delios, A./ Beamish, P. W., Ownership Strategy of Japanese Firms: Transactional, Institutional and Experience Influences, Strategic Management Journal, 20,10, 1999, pp. 711–727.

    Article  Google Scholar 

  • Demirbag, M./ Tatoglu, E./ Oyungerel, A., Patterns of Foreign Direct Investment in Mongolia 1990–2003: A Research Note, Eurasian Geography and Economics, 46,4, 2005, pp. 306–318.

    Google Scholar 

  • Dhanaraj, C./ Beamish, P. W., Effect of Equity Ownership on the Survival of International Joint Ventures, Strategic Management Journal, 25,3, 2004, pp. 295–305.

    Article  Google Scholar 

  • Dunning, J., The Eclectic Paradigm of International Production: A Restatement and Some Possible Extensions, Journal of International Business Studies, 19,1, 1988a, pp. 1–31.

    Article  Google Scholar 

  • Dunning, J., Explaining International Production, Boston: Unwin Hyman 1988b.

    Google Scholar 

  • Dunning, J., Multinational Enterprises and the Global Economy, New York: Addison-Wesley 1993.

    Google Scholar 

  • Erramilli, M. K., The Experience Factor in Foreign Market Entry Behavior of Service Firms, Journal of International Business Studies, 22,3, 1991, pp. 479–501.

    Article  Google Scholar 

  • Erramilli, M. K./ Rao, C. P., Service Firms’ International Entry Mode Choice: A Modified Transaction-Cost Analysis Approach, Journal of Marketing, 57,3, 1993, pp. 19–38.

    Article  Google Scholar 

  • Erramilli, M. K./ D’souza, D. E., Uncertainty and Foreign Direct Investment: The Role of Moderators, International Marketing Review, 12,3, 1995, pp. 47–60.

    Article  Google Scholar 

  • Erramilli, M. K., Nationality and Subsidiary Ownership Patterns in Multinational Corporations, Journal of International Business Studies, 27,2, 1996, pp. 225–248.

    Article  Google Scholar 

  • FIFTA (ed.), FDI in Mongolia Review 2002, 2003, Report to the Government of Mongolia, Ulaanbaatar 2004.

    Google Scholar 

  • Franko, L. G., Use of Minority and 50-50 Joint Ventures by United States Multinationals During the 1970s: The Interaction of Host Country Policies and Corporate Strategies, Journal of International Business Studies, 20,1, 1989, pp. 19–40.

    Article  Google Scholar 

  • Garten, J. E., The Big Ten: The Big Emerging Markets and How They Will Change Our Lives, New York: Basic Books 1997.

    Google Scholar 

  • Gatignon, H./ Anderson, E., The Multinational Corporation’s Degree of Control over Foreign Subsidiaries: An Empirical Test of a Transaction Cost Explanation, Journal of Law, Economics, and Organization, 4,2, 1988, pp. 305–336.

    Google Scholar 

  • Ghoshal, S./ Moran, P., Bad for Practice: A Critique of the Transaction Cost Theory, Academy of Management Review, 21,1, 1996, pp. 13–47.

    Article  Google Scholar 

  • Gomes-Casseres, B., Ownership Structures of Foreign Subsidiaries: Theory and Evidence, Journal of Economic Behaviour and Organization, 11,1, 1989, pp. 1–25.

    Article  Google Scholar 

  • Gomes-Casseres, B., Firm Ownership Preferences and Host Government Restrictions: An Integrated Approach, Journal of International Business Studies, 21,1, 1990, pp. 1–22.

    Article  Google Scholar 

  • Hagedoorn, J./ Sadowski, P., The Transition from Strategic Technology Alliances to Mergers and Acquisition: An Exploratory Study, Journal of Management Studies, 36,1, 1999, pp. 87–107.

    Article  Google Scholar 

  • Hair, J. F./ Anderson, R. E./ Tatham, R. L./ Black, W. C., Multivariate Data Analysis, 4th edition, Englewood Cliffs, New Jersey: Prentice Hall 1995.

    Google Scholar 

  • Harrigan, K. R., Managing for Joint Venture Success, Lexington, Massachusetts: Lexington Books 1986.

    Google Scholar 

  • Hennart, J.-F., The Transaction Costs Theory of Joint Ventures: An Empirical Study of Japanese Subsidiaries in the United States, Management Science, 37,4, 1991, pp. 483–497.

    Article  Google Scholar 

  • Hennart, J.-F./ Larimo, J., The Impact of Culture on the Strategy of Multinational Enterprises: Does National Origin Affect Ownership Decisions, Journal of International Business Studies, 29,3, 1998, pp. 515–538.

    Article  Google Scholar 

  • Hill, C. W. L./ Hwang, P./ Kim, W. C., An Eclectic Theory of the Choice of International Entry Mode, Strategic Management Journal, 11,2, 1990, pp. 117–128.

    Article  Google Scholar 

  • Hladik, K. J., International Joint Ventures: An Economic Analysis of U.S. Foreign Business Partnerships, Lexington, Massachusetts: Lexington Books 1985.

    Google Scholar 

  • Hofstede, G., Culture’s Consequences, Beverly Hills: Sage Publications 1980.

    Google Scholar 

  • Hu, M. Y./ Chen, H. Y., Foreign Ownership in Chinese Joint Ventures: A Transaction Costs Analysis, Journal of Business Research, 26,2, 1993, pp. 149–160.

    Article  Google Scholar 

  • Kim, W. C./ Hwang, P., Global Strategy and Multinationals’ Entry Mode Choice, Journal of International Business Studies, 23,1, 1992, pp. 29–54.

    Article  Google Scholar 

  • Kogut, B./ Singh, H., The Effect of National Culture on the Choice of Entry Mode, Journal of International Business Studies, 19,3, 1988, pp. 411–432.

    Article  Google Scholar 

  • Kostova, T., Transnational Transfer of Strategic Organizational Practices: A Contextual Perspective, Academy of Management Review, 24,2, 1999, pp. 308–324.

    Article  Google Scholar 

  • Kostova, T./ Zaheer, S., Organizational Legitimacy under Conditions of Complexity: The Case of the Multinational Enterprise, Academy of Management Review, 24,1, 1999, pp. 64–81.

    Article  Google Scholar 

  • Lecraw, D. J., Performance of Transnational Corporations in Less Developed Countries, Journal of International Business Studies, 14,1, 1983, pp. 15–33.

    Article  Google Scholar 

  • Lecraw, D. J., Bargaining Power, Ownership and the Data Profitability of Transnational Corporations, Journal of International Business Studies, 15,1, 1984, pp. 27–43.

    Article  Google Scholar 

  • Li, S., Location and Performance of Foreign Firms in China, Management International Review, 44,2, 2004, pp. 151–169.

    Google Scholar 

  • Lu, J. W., Intra- and Inter-Organizational Imitative Behavior: Institutional Influences on Japanese Firms’ Entry Mode Choice, Journal of International Business Studies, 33,1, 2002, pp. 19–37.

    Article  Google Scholar 

  • Luo, Y., Industry Attractiveness, Firm Competence, and International Investment Performance in Transitional Economy, Bulletin of Economic Research, 50,1, 1998, pp. 73–82.

    Article  Google Scholar 

  • Luo, Y., Determinants of Entry in an Emerging Economy: A Multilevel Approach, Journal of Management Studies, 38,3, 2001, 443–472.

    Article  Google Scholar 

  • Madhok, A., Cost, Value and Foreign Market Entry Mode: The Transaction and the Firm, Strategic Management Journal, 18,1, 1997, pp. 39–61.

    Article  Google Scholar 

  • Madhok, A., The Nature of Multinational Firm Boundaries: Transaction Costs, Firm Capabilities and Foreign Market Entry Mode, International Business Review, 7,3, 1998, pp. 259–290.

    Article  Google Scholar 

  • Makino, S./ Beamish, P. W., Performance and Survival of Joint Ventures with Non-Conventional Joint Ventures, Journal of International Business Studies, 29,4, 1998, pp. 797–818.

    Article  Google Scholar 

  • Mayrhofer, U., The Influence of National Origin and Uncertainty on the Choice between Cooperation and Merger-Acquisition: An Analysis of French and German Firms, International Business Review, 13,1, 2004, pp. 83–99.

    Article  Google Scholar 

  • Meyer, K., Institutions, Transaction Costs and Entry Mode Choice in Eastern Europe, Journal of International Business Studies, 32,2, 2001, pp. 357–367.

    Article  Google Scholar 

  • Mutinelli, M./ Piscitello, L., The Entry Mode Choice of MNEs: An Evolutionary Approach, Research Policy, 27,5, 1998, pp. 491–506.

    Article  Google Scholar 

  • North, D. C., Institutions, Institutional Change and Economic Performance, Cambridge: Cambridge University Press 1990.

    Google Scholar 

  • Norusis, M. J., SPSS Advanced Statistics 6.1., Chicago, Illinois: SPSS Inc. 1994.

    Google Scholar 

  • Padmanabhan, P./ Cho, K. R., Ownership Strategy for a Foreign Affiliate: An Empirical Investigation of Japanese Firms, Management International Review, 36,1, 1996, pp. 45–65.

    Google Scholar 

  • Pan, Y., Influences on Foreign Equity Ownership Level in Joint Ventures in China, Journal of International Business Studies, 27,1, 1996, pp. 1–26.

    Article  Google Scholar 

  • Pan, Y., The Formation of Japanese and US Equity Joint Ventures in China, Strategic Management Journal, 18,3, 1997, pp. 247–254.

    Article  Google Scholar 

  • Pan, Y./ Tse, D., The Hierarchical Model of Market Entry Methods, Journal of International Business Studies, 31,4, 2000, pp. 535–554.

    Article  Google Scholar 

  • Park, S. H./ Ungson, G. R., The Effect of National Culture, Organizational Complementarity and Economic Motivation on Joint Venture Dissolution, Academy of Management Journal, 40,2, 1997, pp. 279–307.

    Article  Google Scholar 

  • Parkhe, A., Partner Nationality and the Structure-Performance Relationship in Strategic Alliances, Organization Science, 4,2, 1993, pp. 301–324.

    Google Scholar 

  • Ramamurti, R., The Obsolescing Bargaining Model? MNC-Host Developing Country Relations Revisited, Journal of International Business Studies, 32,1, 2001, pp. 23–39.

    Article  Google Scholar 

  • Sanders, A. J. K., Mongolia: Politics, Economics and Society, Boulder: Lynne Rienner 1987.

    Google Scholar 

  • Scott, W. R., Institutions and Organizations, Thousand Oaks: Sage Publishing 1995.

    Google Scholar 

  • Shan, W., Environmental Risks and Joint Venture Sharing Arrangements, Journal of International Business Studies, 22,4, 1991, pp. 555–577.

    Article  Google Scholar 

  • Siddharthan, N. S./ Lakhera, M. L., Foreign Direct Investment and Location Advantages: Japanese Perceptions of India Compared to China and ASEAN, Journal of International and Area Studies, 12,1, 2005, pp. 99–111.

    Google Scholar 

  • Sohn, J. H. D., Social Knowledge as a Control System: A Proposition and Evidence from the Japanese FDI Behavior, Journal of International Business Studies, 25,2, 1994, pp. 295–324.

    Article  Google Scholar 

  • Tatoglu, E./ Glaister, K. W., Determinants of Foreign Direct Investment in Turkey, Thunderbird International Business Review, 40,3, 1998, pp. 279–314.

    Article  Google Scholar 

  • Tatoglu, E./ Glaister, K.W./ Erdal, F., Determinants of Foreign Ownership in Manufacturing, Eastern European Economics, 41,2, 2003, pp. 5–41.

    Google Scholar 

  • Tse, D. K./ Pan, Y./ Au, K. Y., How MNCs Choose Entry Modes and Form Alliances: The China Experience, Journal of International Business Studies, 28,4, 1997, pp. 779–805.

    Article  Google Scholar 

  • Xu, D./ Shenkar, O., Institutional Distance and the Multinational Enterprise, Academy of Management Review, 27,4, 2002, pp. 608–618.

    Article  Google Scholar 

  • Xu, D./ Pan, Y./ Beamish, P. W., The Effect of Regulative and Normative Distances on MNE Ownership and Expatriate Strategies, Management International Review, 44,3, 2004, pp. 285–307.

    Google Scholar 

  • Vachani, S., Enhancing the Obsolescing Bargain Theory: A Longitudinal Study of Foreign Ownership of U.S and European Multinationals, Journal of International Business Studies, 26,1, 1995, pp. 159–180.

    Article  Google Scholar 

  • West, J./ Graham, J. L., A Linguistic-based Measure of Cultural Distance and its Relationship to Managerial Values, Management International Review, 44,3, 2004, pp. 239–260.

    Google Scholar 

  • Zhao, H./ Zhu, G., Determinants of Ownership Preference of International Joint Ventures: New Evidence from Chinese Manufacturing Industries, International Business Review, 7,6, 1998, pp. 569–589.

    Article  Google Scholar 

  • Zhao, H./ Luo, Y./ Suh, T., Transaction Cost Determinants and Ownership-based Entry Mode Choice: A Meta-Analytical Review, Journal of International Business Studies, 35,6, 2004, pp. 524–544.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. School of Business Administration, Pennsylvania State University at Harrisburg, Middletown, Pennsylvania, USA

    Erdener Kaynak

  2. Management School, University of Sheffield, Sheffield, UK

    Mehmet Demirbag

  3. Faculty of Business Administration, Bahcesehir University, Istanbul, Turkey

    Ekrem Tatoglu

Authors
  1. Erdener Kaynak
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Mehmet Demirbag
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Ekrem Tatoglu
    View author publications

    You can also search for this author in PubMed Google Scholar

Rights and permissions

Reprints and permissions

About this article

Cite this article

Kaynak, E., Demirbag, M. & Tatoglu, E. Determinants of ownership-based entry mode choice of MNEs: Evidence from Mongolia. MANAGE. INT. REV. 47, 505–530 (2007). https://doi.org/10.1007/s11575-007-0028-y

Download citation

  • Received:

  • Revised:

  • Accepted:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11575-007-0028-y

Key Words

Search

Navigation