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Real Options, International Entry Mode Choice and Performance

Authors


Keith D. Brouthers, King's College London, University of London, 150 Stamford Street, London SE1 9NH, UK (Keith.brouthers@kcl.ac.uk).

Abstract

abstract  Recent scholarship suggests that combining insights from real option theory with transaction cost economics may improve decision-making models. In response to this suggestion we develop and test a model of international entry mode choice that draws from both perspectives. Examining samples of Dutch and Greek firms entering Central and Eastern European markets, we found that adding real option variables to a transaction cost model significantly improved its explanatory power. Additionally, firms that used the combined real option/transaction cost predicted choices had significantly higher levels of subsidiary performance satisfaction than firms that did not. Our results suggest that effective managerial decision-making may involve more than mere transaction cost minimization considerations; real option value creation insights also appear to influence the success of decision outcomes.

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