Input modes

Growth choice

Choice of abandonment

WOS

It does not require any capacity expansion costs. MNE can realize WOS’ full ability to seize market opportunities.

This option provides zero profit.

JV

Expanding into a WOS requires acquiring the local partner’s equity limiting losses.

$\left(I_{WOS}-I_{JV}\right)+A$

$I_{WOS}-I_{JV}$ = the local partner’s accounting value.

A = premium or discount paid for local partner equity. The amount you should be willing to pay to your partner is restricted to A ≤ I_JV

The irreversibility problem may be less severe within a JV because the MNE can exercise the abandonment option by ceding its assets to the local partner in: $\left(I_{JV}-S\right)$

*S positive implies a discount on the sale of equity capital of a company to its partner.

Assumption: S ≤ I_JV (the MNE makes no profit by dissolving the JV).

EXP/LIC

Expanding to a WOS requires additional investments $\left(I_{WOS}-I_{e/l}\right)$

This option provides zero profit.