Economic analysis of foreign market entry strategies in the US/EU agricultural trade context
Calegario, Cristina lelis leal
MetadataShow full item record
Foreign direct investment has often been cost-effective in reaching foreign markets. Technical trade barriers imposed by the European Union (EU) restrict the exports of genetically modified organism (GMO) products, while production at home incurs, besides transport costs and tariffs, the costs of segregating products into GMO and GMO-free, labeling the products, and shipping them separately from conventionally produced crops. It may be economically advantageous for a firm to invest capital in overseas production rather than ship the product from a domestic source. Our approach integrates international business, management science, and industrial organization concepts to determine factors that influence a U.S. food processing firm’s choice to enter into the EU and to examine the effect of mode of entry on the linkages between firms’ strategic factors and performance. The entry choice of each company into the EU market – acquisition or joint venture – uses longitudinal (panel) data, company observations measured at the same and at different years of entry. We applied Logistic regression and Generalized Estimating Equations to test 16 hypotheses with respect to mode of entry. The GEE model presented highly significant p-values than the Logistic model for the estimators and most all the coefficients were consistent with our theory. American agricultural and food business companies operating in EU choose their mode of entry based on host country factors. The firm-specific variables are also very influent in the model. The larger the size of the US food companies, the more likely that entry in EU countries will be through joint ventures. Firms engaged in the early or middle stages of making a processed food product show a trend towards joint venture, and those engaged in the later stages tend toward acquisition. Research and development-intensive firms seem trend towards joint venture. However advertising intensive firms prefer to enter through acquisition. In the third model we show that the use of interaction terms in the regression model changed considerably the direction of interpretation of many firm-specific factors influencing performance.