Motivations behind SME greenfield investment in emerging markets
Document Type
Article
Publication Date
5-1-2023
Abstract
PurposeThis paper identifies the motivations for small- and medium-sized enterprises (SMEs) when they undertake greenfield foreign direct investment (FDI) into an emerging market. It elucidates the factors that influence SMEs to choose a fully equity-based investment despite the significant risks and commitments involved with greenfield FDI.Design/methodology/approachThis exploratory study uses case study research based on interviews conducted with managers and founders of 16 German SMEs that have established greenfield operations in Malaysia.FindingsBuilding upon the transaction cost theory, five major motivations are identified that drive greenfield choice among the SMEs. The results imply that SME motivation for greenfield is derived from a combination of strategic asset-seeking determinants and culturally driven reactions to external and behavioral uncertainty. The results also ascertain that these motivations have less to do with the size and revenue of the firm, but hinge on the SMEs' inner antecedents such as asset specificity, international experience, proprietary knowledge and ownership mode.Originality/valueThe findings clarify the literature on equity-based entry mode for SMEs in emerging economies, enabling a closer understanding of the organizational and dynamic experiences and an overview of the auxiliary competencies these companies have to compete in the global market. The conceptual insights and empirical evidence derived from this study contribute to the intellectual discourse and managerial implications in the field of internationalization strategies of SMEs, particularly from developed countries into emerging markets via greenfield FDI.
Keywords
Transaction cost approach, Wholly-owned subsidiary, Foreign direct investment, Greenfield, Market entry mode, Small and medium-sized enterprises
Divisions
ScienceandTechnologyStudies,aei
Funders
None
Publication Title
Management Decision
Volume
61
Issue
6
Publisher
Emerald Publishing
Publisher Location
HOWARD HOUSE, WAGON LANE, BINGLEY BD16 1WA, W YORKSHIRE, ENGLAND