PD12 - Research Paper. Rozen-Bakher, Z. Risk Analysis of Entry Modes: Comparison of Greenfield & Brownfield, Mergers & Acquisitions, Joint Ventures, Export, Licensing, and Franchising

Rozen-Bakher, Z. Risk Analysis of Entry Modes: Comparison of Greenfield & Brownfield, Mergers & Acquisitions, Joint Ventures, Export, Licensing, and Franchising. . Research Paper, PD12. https://www.rozen-bakher.com/research-papers/pd12

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Rozen-Bakher, Z

Risk Analysis of Entry Modes: Comparison of Greenfield & Brownfield, Mergers & Acquisitions, Joint Ventures, Export, Licensing, and Franchising  

Abstract

Entry mode decision choice could significantly impact the risk of FDI and international trade if an MNE chooses an entry mode that does not fully take into account the location factors of the host country alongside the resources of the MNE. Despite this important topic, the existing literature has limited studies that deal with the entry modes in general, and with the risk of entry mode choice, in particular. Besides, previous studies lack a comparison between all entry modes of international trade versus all entry modes of FDI. Hence, the study analyses all types of entry modes namely, Greenfield & Brownfield, Mergers & Acquisitions, Joint Ventures, Export, Licensing, and Franchising. This novel analysis is based on a synthesis of Strategy discipline (Firm-level) and Public Policy discipline (Country Level) to lower the risks for FDI and international trade. The study suggests that exists a trade-off between the time to market and preserving the strategic assets of MNEs like in the cases of Mergers & Acquisitions and Joint Ventures. Besides, short time to market is associated with lower survival of the operation, while a long time to market like Greenfields may involve a high risk for FDI if the economic and political stability may undermine during the establishment period or if may occur dramatic changes in the location factors of the host country. The study highlights the need for future empirical studies that will compare all types of entry modes.

Keywords: Entry modes, Multinational Enterprises (MNEs), International Trade, Foreign Direct Investment (FDI), Risks, Export, Licensing, Franchising, Greenfields & Brownfields, Mergers & Acquisitions, Joint Ventures

 1.      Introduction

Entry mode decision choice could significantly impact the risk of FDI and international trade if an MNE chooses an entry mode that does not fully take into account the location factors of the host country alongside the resources of the MNE. Despite this important topic, the existing literature has limited studies on entry modes in general (Hennart & Slangen, 2015), and on the risks of entry mode choice, in particular. Importantly, previous studies on entry modes lack a comparison between all entry modes of international trade versus all entry modes of FDI (Agarwal & Ramaswami, 1992; Baena, 2013; Boateng et al., 2017; Brouthers & Hennart, 2007; Bruneel & De Cock, 2016; Duniach-Smith, 2004; Hennart & Slangen, 2015; Hill et al., 1990; Makino & Beamish, 1998; Meschi et al., 2016; Raff et al., 2009; Shen & Puig, 2018; Schellenberg et al., 2018; Schwens et al., 2018; Wu, 1997; Zhao et al., 2017). Considering that, this study analyses the risks of entry modes of FDI versus international trade. This novel analysis is based on a synthesis of Strategy discipline (Firm level) along with the Public Policy discipline (Country Level), with the aim of lowering the risks for FDI and international trade. Hence, the study compares all types of entry modes namely, Greenfield & Brownfield, Mergers & Acquisitions, Joint Ventures, Export, Licensing, and Franchising.

2.      Entry Modes of International Trade: Export, Licensing, and Franchising

MNE activities through international trade (Feenstra, 2015) can be divided into two main categories: export of goods either indirectly or directly and the international distribution of intellectual assets through international licensing and international franchising (Ahmed et al., 2002; Brouthers & Hennart, 2007; Daniels & Radebauge, 2002). The main difference between these two types of entry modes lies in the distinction between the export of tangible assets and intangible assets. In a tangible asset, the export deals with goods, such as natural materials (e.g. Oil and zinc) and raw materials for production (e.g. Iron and steel) alongside finished products (e.g. Computers and cars). However, in intangible assets, the export deals with intellectual assets, such as using of technology patents (e.g. Online app.), distribution of reputation and work methods (e.g. McDonald's) and distribution of service (e.g. A licensed car garage). In other words, marketing of tangible goods and products can be carried out in host markets through direct or indirect export, while the marketing of intellectual assets, such as reputation, work methods, and trademarks can be carried out in host markets through licensing (Dratler Jr, 2018) or franchising (Sherman, 2011). Hence, granting licensing or franchising to local entities in host markets allow MNEs to market the reputation that is gained in their home market.

2.1 International Distribution of Goods: Export

Export of goods and products (Andraz & Rodrigues, 2010; Branch, 2006; El-Gohary et al., 2013; Leonidou & Katsikeas, 1996) can be performed through two main entry modes: indirect export and direct export (Ahmed et al., 2002; Brouthers & Hennart, 2007; Hessels & Terjesen, 2010; Reid, 1981). Notably, MNEs usually export their goods and products through local exporters in the home country. However, there are cases that MNEs operate as exporters in order to export their goods or products (Cao, 2015). Moreover, there are situations when the MNEs export their goods or products through 'intermediary importers'/'intermediary exporters' from a third country (Ekholm et al., 2007), especially in cases when there is no export infrastructure between the home country and the target host country or there are no diplomatic relations between the home country and the target host country. For example, many export deals of weapons to war-torn countries in Africa are done by using intermediary brokers (Abrams, 2000).

2.1.1 Indirect Export

Many MNEs began their international activities through indirect export in host countries. In indirect export, MNEs establish a network of local distributors that will be responsible for the distributing of MNEs' products to customers in host countries (Branch, 2006; Hessels & Terjesen, 2010). In other words, in indirect export, MNEs export goods and products from the home country to importers in host countries. Hence, in indirect export, MNEs are required to establish a distribution layout that will provide marketing and logistical servicing to local distributors in host countries (Czinkota et al., 2002).

Numerous previous studies discussed the strategy and competitive advantages of indirect export. From the perspective of MNEs, there are several advantages to conduct indirect export (Bonaccorsi, 1992; Burgel & Murray, 2000; Haluk Köksal & Özgül, 2010; Hitt et al., 2001b; Murray et al., 2011; Navarro et al., 2010; Shrader, 2001). Firstly, indirect export allows small local companies (Shrader, 2001) with limited resources and capital to enter foreign markets through local importers and distributors that operate in the target host country. This particularly applies to new companies that starting their business activity (Burgel & Murray, 2000). Secondly, indirect export helps MNEs to reduce the risks in case of lack of familiarity with the target host country. Under that situation, an MNE can start operating in a particular host country through local importers and distributors in order to study the market potential, market needs, and the political and legal arena of the host country. Following that, when an MNE learned the characterises of the host market, then it is less risky for the MNE to start conducting FDI in that host country. Hence, an entry with two steps, indirect export and after that FDI, reduces the risk of entry into an unfamiliar host market. Thirdly, indirect export is also appropriate for cases in which exist political and economic instability in the target host country, which is less suitable for FDI due to the high risks. In FDI, MNEs may need to deal with 'capital flight' in a situation of dramatic destabilisation in a host country. However, in indirect export, MNEs minimise the risks in case of dramatic undermining of the stability in the host country. That's based on the rationale that MNEs can stop in a simple way the export of their products to a problematic host country when occurs a decline in demand without causing significant damage to their assets like in the case of pulling out FDI from a problematic host country.

However, there are several significant disadvantages for the entry mode of indirect export (Agarwal & Ramaswami, 1992; Branch, 2006; Brouthers & Hennart, 2007; Hitt et al., 2001b). Firstly, indirect export includes high distribution costs, especially when exist a significant geographical distance between the home country and the target host country, which raises transportation costs. Consequently, MNEs’ profits are decreased, which hinders the competitive advantages of the firm. Hence, unsurprisingly, regional trade agreements are based on the effectiveness of geographical proximity. Secondly, in indirect export, MNEs have limited control over their activity in host countries because local distributors are responsible for the service and marketing in the host market. Consequently, if a local distributor fails to provide reliable sales and good service, then the company's reputation may be damaged. That particularly applies in the current era of social networks and online forums where customers can share information about their experiences in relation to the company's products and services worldwide. Thirdly, indirect export limits the ability of MNEs to be in direct contact with the customers of their distributors in host countries. That hinders MNEs' ability to receive feedback from customers in host markets regarding their products. As a result, indirect export limits the ability of MNEs to improve the quality of their products, as well as to market new products or additional products to the customers of their distributors in the host country. Fourthly, indirect export is especially problematic in competitive markets because of the high distribution costs that limit the companies' ability to lower prices compared to competitors that operate in the same host market through FDI.

2.1.2 Direct Export

In a direct export, MNEs export goods and products directly to host countries (Hessels & Terjesen, 2010) through direct channels of the company, rather than through importers or distributors who represent the MNEs in host markets.

There are three main ways that MNEs can conduct direct export in host markets (Addison & Heshmati, 2004; Brynjolfsson et al., 2006; Chrysostome & Rosson, 2009; Daniels & Radebauge, 2002; Hessels & Terjesen, 2010; Hill, 2014; Gholami et al., 2006; Landry et al., 2005; Rozen-Bakher, 2017; Singh & Kundu, 2002; Terzi, 2011). First, MNEs can export directly from MNEs' headquarter to customers in host markets in traditional ways that characterised the operation of MNEs before the online-sale era, such as via emails, faxes, letters and phone calls. Nonetheless, many MNEs still operate globally today, fully or partially, via these traditional ways, especially MNEs from developing countries. The advantages of direct export via traditional ways lie in the lower operating costs due to the savings of distribution and operational costs. Nonetheless, it Involves inefficient bureaucratic processes. Second, direct export can be also carried out by sending MNEs' representatives from the home country to customers in host countries. In other words, in this way, the marketing and sales are carried out through sale meetings that are conducted by representatives of the headquarter with the customers in host countries, or by MNEs participating in conferences and exhibitions that take place in host countries. Thereby, on the one hand, it allows MNEs to conduct direct relationships with their customers in host markets. On the other hand, it may lead to higher costs in case of significant geographical distance between the MNE's headquarter and the target host country. Third, direct export through digital commerce is considered as the most efficient and profitable way to export directly goods and products to customers in host markets, such as the online sale by successful firms, such as Amazon and eBay (Brynjolfsson et al., 2006; Nachum & Zaheer, 2005; Zhu & Liu, 2018). The Internet along with the ICT allow MNEs to carry out direct business activities in global markets (Gholami et al., 2006; Rozen-Bakher, 2017) through e-business (Landry et al., 2005) and e-commerce (Landry et al., 2005; Terzi, 2011). The transition to online transactions has increased the activity of internet MNEs in host markets because of their ability to market directly to customers worldwide without the need to establish a distribution network in host markets (Rozen-Bakher, 2017). E-commerce even allows MNEs with small and medium internet sale volume (Chrysostome & Rosson, 2009) and with limited capital and resources to export directly to customers in host markets at low costs and with minimal risks (Rozen-Bakher, 2017).

2.2 International Distribution of Intellectual Assets: Licensing and Franchising

2.2.1 Licensing

In international licensing, MNEs grant rights for using their intellectual property in a certain geographical area in host countries for a certain period of time in return for royalties that MNEs are supposed to receive from the licensees in host countries (Daniels & Radebauge, 2002; Dratler Jr, 2018) In international licensing, MNEs have limited control over their operations in host countries (Teng et al., 2001), especially regarding the quality of the service of the licensees, but at the same time, licensing allows MNEs to establish international activity without the necessity to establish a global supervising in order to control the licensees' operations in host countries.

The literature mainly discusses how licensing affect firm performance, as well as its implications for host countries (Curwen & Whalley, 2015; Duchêne et al., 2015; Mukherjee & Mukherjee, 2008; Saggi, 1996; Tauman & Zhao, 2018). From the perspective of MNEs, international licensing allows entry into host markets without the need to invest capital in host countries like in FDI, as well as without the need to establish global supervising in host countries like in franchising. Still, licensing gives MNEs the potential of gaining profits over many years. Hence, this entry mode may be suitable for small MNEs (Erramilli & Rao, 1993) or MNEs with limited capital and human resources. Nevertheless, many big MNEs use this entry mode, especially in the service sector. International licensing is also suitable for situations when existing restrictions on FDI in host countries (Baumol & Robyn, 2006), or in situations when existing high risks (Arora & Fosfuri, 2000) in conducting FDI in host countries due to political and economic instability, which allows minimising the MNEs' risks when they entry host markets through licensing (Hill et al., 1990; Hitt et al., 2001b; Grosse, 1985) over FDI. International licensing may also be suitable for cases when a national cultural distance exists between the home country and the host country (Arora & Fosfuri, 2000).

However, the main disadvantage of licensing lies in its relatively low gain compared to FDI (Saggi, 1996). That's based on the argument that MNEs are required to share the profits with their licensees (Hitt et al., 2001b) in host countries, as well as due to MNEs' limitation to control the operations of licensees in host countries (Teng et al., 2001). Moreover, licencing may also hinder MNE's competitive advantages because of the risk that licensees may become competitors in host countries after acquiring the MNE's knowledge (Czinkota et al., 2002). Besides, failure in licensees' operation may damage MNE's reputation, which may negatively affect MNEs' ability to distribute future licencing.

2.2.2 Franchising

International franchising is an additional way to distribute intellectual assets in host countries (Sherman, 2011). In international franchising, MNEs grant the franchisees the right to manage an independent branch under the name of the MNE in return for a fixed period fee along with profit share. More importantly, the franchisees commit to running the business under MNEs' strict standards and rules to allow MNEs' customers worldwide to get the same quality of products and services in any host country where MNEs operate. In other words, in international franchising, customers worldwide are supposed to get the same products and services without any differences, such as the products of McDonald's that are supposed to be the same in terms of taste and quality in any franchising affiliation of McDonald's worldwide.

The literature includes many studies that examine the franchising in light of the widespread use of this entry mode among many MNEs (Baena, 2013; Combs et al., 2011; Duniach-Smith, 2004; Gorovaia & Windsperger, 2018; Madanoglu & Castrogiovanni, 2018), particularly in the service sector (Khan, 2014; Lafontaine & Shaw, 1998). From the MNEs perspective, franchising gives the company full and strict control over the operation of the franchisees in host countries, which contributes to maintaining the MNE's reputation worldwide. In other words, in franchising, shouldn't be a difference between a branch that operates by MNEs in the home country and a branch that operate by franchisees in host countries. Given that, franchisees are supposed to operate according to uniform and rigid standards in any of the host markets.

However, in franchising, MNEs need to establish a global managing framework that will closely monitor the operation of the franchisees worldwide to achieve uniformity in products and services. Hence, in franchising, a customer shouldn't see a difference between a product provided at a franchising branch or at a fully own branch of the MNE. Considering that, in franchising, MNEs are required to allocate resources, capital and workforce in order to establish a global managing framework that supervises the operation of the franchisees from different markets and cultures, such as the franchising in fast food chains (Dunning & Lundan, 2008). Notably, in franchising, a high degree of standardisation is implemented. Still, adjustments can be made to the needs of host markets.

To summarize, both entry modes, licensing and franchising, allow distributing intellectual property in host markets (Sherman, 2011). Still, there are significant differences between them. The franchising is suitable for MNEs with resources and the ability to manage franchisees worldwide in order to provide the same products or services in any host country, such as the fast-food chain, McDonald's (Gerhardt et al., 2012). In contrast, licensing is more suitable for the distribution of intellectual assets in which the uniformity of products and services are less visible to customers. For example, the quality of repairing a car at a licensed car garage is less visible immediately to customers compared to a product of a fast-food chain like McDonald's in which any change in the look or taste will be visible immediately to the customers. Nevertheless, a failure of a licensee or a franchise may lead in both cases to termination of the activity by MNEs. Still, a failure of franchisees may be noticed more quickly compared to the failure of licensees.

3.    Entry Modes of FDI: Greenfield & Brownfield, Mergers & Acquisitions, and Joint Ventures

3.1 Establishment of New Sites: Greenfield versus Brownfield

The traditional entry modes of FDI are through the establishment of a new wholly-owned subsidiary in host countries. MNEs can implement it by building a new site from the ground (Greenfield) (Ashraf et al., 2016; Harms & Méon, 2018; Jonsson & Foss, 2011; Kim, 2009; Liu & Zou, 2008; Wang, 2009) accordingly to the precise MNEs' requirements or through purchasing of an existing facility (Brownfield) (Cheng, 2006; Meyer & Estrin, 2001) that may be fit to the MNEs' requirements.

From the viewpoint of MNE, there are several main reasons for the establishment of MNE's new wholly-owned subsidiary in host countries (Hennart & Park, 1993; Hill et al., 1990; Huallachain & Reid, 1997): Firstly, an establishment of a new wholly-owned subsidiary in a host country may help to achieve a full fit to the requirements of the MNE. In some cases, MNEs have the interests that the sites in host countries will be planned and be built accordingly to the exact needs and requirements of the firm. That includes gaining full control over the operation in the host country in terms of the equipment, technology, human resource management, organisational culture, organisational structure and more. For example, IKEA usually uses greenfield as an entry mode due to its desire to establish the same look of a branch in any host country where IKEA operates to achieve global uniformity in the operation of IKEA's branches worldwide (Jonsson & Foss, 2011). Secondly, the establishment of a new site in a host country may more secure the firm's Intellectual assets compared to entry modes of M&As or JVs. From the standpoint of MNEs, in M&As or JVs exist more risks for leakage of knowledge to competitors, especially in cases of closure of the partnership with the local entities. Thus, MNEs prefer to establish a wholly-owned subsidiary in host countries to achieve maximum control over their intellectual assets, especially in R&D FDI. Third, in a long-term investment, it's more worthwhile to establish a wholly-owned site over M&As. That is based on the argument that in greenfield or brownfield MNE doesn't need to share its profits with the local entity, such as the case of FDI in the natural resources sector. Fourthly, the lack of local companies in a host country that may fit for M&As, may also lead to the establishment of a new site in a host country. There are cases which MNEs prefer M&As over greenfield or brownfield due to the ability to enter the host market in a short time, so a lack of suitable local companies may lead MNEs to the establishment of new sites. Nevertheless, in these cases, MNEs will tend to purchase an existing facility (Brownfield) in a host country in order to shorten the entry time into the host market. It can be argued that a purchase of an existing facility (Brownfield) serves as a compromise between the establishment of a new site (Greenfield) and M&As in terms of time to market (Cheng, 2006).

In spite of the above, entry modes of greenfield or brownfield may involve three major obstacles (Czinkota et al., 2002; Huallachain & Reid, 1997; Hitt et al., 2001b; Hill et al., 1990): Firstly, usually, greenfield requires a greater investment compared to M&As. Secondly, one of the most prominent limitations of greenfields is the long time needed to plan and build a new site in host countries. Consequently, it may increase the MNE's risk until the new site will be operational, especially in cases of host countries that suffer from political instability. Thirdly, the lack of local partners in Greenfield or Brownfield may hinder the MNEs' ability to deal with the national culture distance between the home country and the host country alongside the unfamiliarity of the host market. That's may increase the entry risk, especially in cases in which the MNE has no previous experience in a certain host market.

3.2 Mergers & Acquisitions (M&As)

The second entry mode of FDI is through M&As (Ashraf et al., 2016; Boateng et al., 2017; Cheng, 2006; Harms & Méon, 2018; Kim, 2009; Liu & Woywode, 2013; Liu & Zou, 2008; Raff et al., 2009; Rossi & Volpin, 2004; Shimizu et al., 2004; Wang et al., 2009). The research literature includes many studies that explore the pros and cons of M&As as an entry mode (Ashraf et al., 2016; Cheng, 2006; Harms & Méon, 2018; Hennart & Park, 1993; Hill et al., 1990; Kim, 2009; Liu & Zou, 2008; Raff et al., 2009; Wang et al., 2009). Based on these studies, M&As have several main advantages, such as fast entry to the host market (time to market) (Hennart & Park, 1993; Huallachain & Reid, 1997; Rozen-Bakher, 2017), in case of lack of experience in the host market, saving of time and costs of R&D (buy instead of R&D), and dealing with national culture distance (Morosini, 1998).

However, the research literature also indicates the main disadvantages of M&As, such as the complexity of due diligence due to physical distance and national culture distance (Bruner, 2004; Lajoux & Elson, 2000; Perry & Herd, 2004; Puranam et al., 2006; Rozen-Bakher, 2018c; Zaheer, 1995), integration problems (Berning, 2017; Gunkel et al., 2015; Krishnan & Park, 2002; Lehto & Böckerman, 2008; Morosini et al., 1998; Panibratov, 2017; Rottig et al., 2017; Rozen-Bakher, 2018a, 2018c; Liu & Woywode, 2013; Weber et al., 2011; Weber et al., 2012a; Weber et al., 2012b; Yildiz, 2014), and administrative and organisational problems in the post-M&A period due to physical distance and standardisation (Faulkner et al., 2002; Gunkel et al., 2015; Kedia & Reddy, 2016; Kroon et al., 2015; Malhotra et al., 2016; Piekkari et al., 2005; Rao-Nicholson & Khan, 2017; Stanwick & Stanwick, 2001).

3.2.1 Forms of M&As: Acquisition, Merger, Consolidation, Spin-off, and Takeover   

There are several forms to carry out M&As in terms of the ownership structure and the way that the companies unite (Cartwright & Schoenberg, 2006; Gaughan, 2011; Hitt et al., 2001a), yet the M&A literature and its database usually do not distinguish between them. Hence, in the literature, the term 'M&As' refers to all the forms of M&As discussed below unless if the study focused only on a specific form of M&As, such as the studies that deal with hostile takeovers.

·      Acquisition. In an acquisition, a single company or a private entity acquires a second company when its control can be partial, dominant or full. Acquisitions usually take place between companies of different sizes, especially in the case that a large company buys a small company.

·      Merger. In a merger, two or more companies merge, but only one of the companies continues to exist at the legal level after the merger. In other words, in a merger, one company stops existing because it integrates into the second company that is continuing to exist after the merger. Hence, the leading company with the best reputation in the market among the merging firms is usually chosen to continue to exist after the merger, while the other merging firms are stopping to exist. In light of that, after the merger, all the merging companies hold the name of the leading company before the merger. Notably, mergers usually take place between two companies of the same size, often through an exchange of shares or through contractual arrangements.

·      Consolidation. In a consolidation, a new company is created from a merger of two or more companies. However, all the merging companies before the merger stop to exist after the consolidation at the legal level. In other words, in consolidation, a new company is established under a new name that includes all the merging companies, while the old companies are closed. Consolidation may be implemented in cases when the reputation of all the merging companies was problematic before the merger. Thus, giving a new name to the consolidation company is supposed to rebuild the reputation of the merging companies. Consolidation is usually carried out between two companies of the same size.

·      Spin-off. In a spin-off, the company sells only some of its activities to another company (Dahlstrand, 1997; Bialek-Jaworska & Gabryelczyk, 2016). A spin-off is usually carried out in cases of a loser activity in order that its losses will not drag down the whole company into losses. Thus, in such cases, the company eliminates the problematic activity through a spin-off. In contrast, a spin-off also occurs in cases of a profitable activity in order to realize the gain by selling a profitable activity to another company at a very high price. A spin-off may also take place following M&As to get rid of activities of the target that are not in the core business of the buyer, which is often occurring following conglomerate M&As.

·      Hostile Takeover. In a hostile takeover, one company takes control of another company without its consent and the existing management of the target company is replaced by the acquirer's management (Hirshleifer & Titman, 1990; Rowoldt & Starke, 2016). In a hostile takeover, the target company usually struggles against the takeover's attempt (Kacperczyk, 2009). There are several motives for a hostile takeover, such as obtaining liquid capital, dismantling the target company, replacing failed management, and creating business empires. However, international hostile takeovers may occur also in a situation that the target in the host market has no interest in selling the firm, while the buyer lacks suitable opportunities for M&As in the host country. That situation may push the buyer to a hostile takeover. In light of that, many host countries have laws and regulations against a hostile takeover (Cain et al., 2017), especially in sectors that are considered strategic to the national economy. Hostile takeovers are more common among American MNEs than among European MNEs.

·      Reverse M&A. In a reverse M&A, a private company buys a target public company in order to get fast access to stock markets (Hooke, 2014; Yumei, 2004) through buying the shares of the target company on a stock exchange. In other words, in a normal proceeding of initial public offering (IPO), a private company becomes a public company following a complex process of IPO that includes bureaucracy, costs and risks. However, reverse M&A allows a private company to become a public company without the need to go through the complex process of IPO (Hooke, 2014). Notably, a reverse M&A allows fast access not only to the host market but also to the domestic stock exchange in the host country.

3.2.2 Types of M&As: Horizontal, Vertical, and Conglomerate

There are three types of M&As - horizontal, vertical, and conglomerate - which reflects the similarity or dissimilarity between the acquirer and the target in terms of the sector activity and the operation field (Herger & McCorriston, 2016; Rozen-Bakher, 2018b; Tremblay & Tremblay, 2012).

·      Horizontal. Horizontal M&As are carried out between companies that operate and compete in the same lines of products or services to reduce competition and increase the market share (Capron,1999; Farrell & Shapiro,1990; Huck et al., 2004; Ramaswamy, 1997; Rhoades, 1993; Rozen-Bakher, 2018b). Horizontal M&As may lead to a decrease in the number of competitors in the market (Homberg et al., 2009), and thereby they are usually monitored by the regulatory authorities in the host country due to the concern that it may lead to a creation of monopolies alongside harming the competition.

·      Vertical. Vertical M&As are carried out between companies that operate in various fields (e.g. Distribution, production and service) of the same products or services in order to get control over the product line with the aim of improving the MNE's competitive advantage in the market (Bhuyan, 2002; Fresard et al., 2013; Gal-Or, 1999; Kedia et al., 2011; Nocke & White, 2007; Rozen-Bakher, 2018b).

·      Conglomerate. Conglomerate M&As are carried out between companies that operate in different lines of products or services that are neither substitutes nor complementary (Rozen-Bakher, 2018b; Tremblay & Tremblay, 2012). The main motives of conglomerate M&As are product diversification, market expansion, and entering new geographical areas (King et al., 2004; Matsusaka, 1993; Servaes, 1996). Conglomerate M&As are very common in M&As because of the MNEs' ability to expand their activities to new geographical areas in host countries.

3.3 Joint Ventures (JVs)

3.3.1 Characteristics of JVs

JV is an additional entry mode of FDI (Bontempi, & Prodi, 2009; Contractor, 1990; Dong et al., 2019; Hennart & Reddy, 1997; Isobe et al., 2000; Jung, 2004; Leahy & Naghavi, 2010; Li, 2008; Meschi et al., 2016; Raff et al., 2009; Reuer & Klijn, 2019; Wu, 1997; Yan & Luo, 2016).

In a JV, at the legal level, a new company is being established in a host country, which represents joint ownership of two or more companies (Czinkota et al., 2002) when at least one of them is a foreign company (Dunning & Lundan, 2008). In a JV, the management operates under the joint supervision of the mother companies who are involved in the JV (Reuer & Klijn, 2019), still, each of the mother companies remains independent, financially and legally. Consequently, a JV often creates administrative problems and conflicts between the mother companies who are involved in the JV (Dong et al., 2019; Reuer & Klijn, 2019; Westman & Thorgren, 2016), especially when the JV includes competing companies or companies with conflicting interests.

3.3.2 Combinations of JVs

There are three main combinations of JVs (Dunning & Lundan, 2008): Firstly, a JV that includes at least two companies from the same home country who establish together a JV in a certain host country. This JV is usually carried out by two competitors from the same home country in order to reduce the competition between them in the target host country or to create a powerful business against MNEs from other home countries that operate in the same host country. Secondly, a JV that includes at least two companies from different home countries who establish together a JV in a certain host country. This JV is usually carried out by two competitors from different home countries in order to combine forces against other rivals in the target host country. Thirdly, a JV that includes at least one local company from the target host country and at least one foreign company from another country who establish together a JV in the target host country. This JV is usually motivated by restrictions on entry into the target host country, such as restrictions on M&As, or due to a lack of opportunities for M&As in the target host country.

3.3.3 The Complexity of JVs

JV as an entry mode of FDI gives MNEs opportunities for entry to host markets that are closed to other entry modes of FDI (e.g. M&A). Nonetheless, JV involves high risks with an expectation for a short survival. Hence, the JV's literature includes many studies that explore the advantages and disadvantages of the entry mode of JV, particularly compared to M&A (Agarwal & Ramaswami, 1992; Barkema et al., 1997; Bell et al., 1997; Buckley & Casson, 1998; Bontempi, & Prodi, 2009; Czinkota et al., 2002; Dunning & Lundan, 2008; Dong et al., 2019; Geringer & Hebert, 1991; Hennart & Reddy, 1997; Inkpen & Beamish, 1997; Jung, 2004; Lane et al., 2001; Leahy & Naghavi, 2010; Lu et al., 2016; Lyles & Salk, 1996; Meschi et al., 2016; Raff et al., 2009; Razzaq et al., 2018; Reuer & Klijn, 2019; Westman & Thorgren, 2016; Wu, 1997; Yan & Luo, 2016). It can be argued that the fundamental difference between JVs and M&As lies in the independent legal entity of the companies involved in the deal. Thereby, at the legal and financial levels, In JVs, each company continues to exist as an independent entity, while in M&As, the combined firms merge into a single entity. Moreover, there are several advantages and reasons for entry host countries with an entry mode of JV, such as entry restrictions in general, and restrictions on M&As, in particular, lack of opportunities for M&As in the host country, joint investment in case of a big venture, reducing competition, a fast closure in case of a failure of JV compared to a long and complicated closure in case of M&A or greenfield. However, JV has a few significant disadvantages, such as a leak of knowledge to competitors who involve in the JV, and problematic managing due to conflicts among the companies who involve in the JV.

4.      Conclusions

Entry mode decision choice could significantly impact the risk of FDI and international trade if an MNE chooses an entry mode that does not fully take into account the location factors of the host country alongside the resources of the MNE. Despite this important topic, the existing literature has not enough studies that deal with the entry modes in general (Hennart & Slangen, 2015), and with the risk of entry mode choice, in particular. Besides, most of the existing studies on entry modes lack comparing between entry modes of international trade versus entry modes of FDI (Agarwal & Ramaswami, 1992; Baena, 2013; Boateng et al., 2017; Brouthers & Hennart, 2007; Bruneel & De Cock, 2016; Duniach-Smith, 2004; Hennart & Slangen, 2015; Hill et al., 1990; Makino & Beamish, 1998; Meschi et al., 2016; Raff et al., 2009; Shen & Puig, 2018; Schellenberg et al., 2018; Schwens et al., 2018; Wu, 1997; Zhao et al., 2017). Hence, this study analyses the risk of entry modes of FDI versus the risk of entry modes of international trade by comparing all types of entry modes namely, Greenfield & Brownfield, Mergers & Acquisitions, Joint Ventures, Export, Licensing, and Franchising, with the aim of revealing the factors that impact the entry mode decision choice in order to lower the risks of FDI and international trade. 

The study suggests that each entry mode may involve risks, yet the entry mode decision choice should take into account the characterises and resources of the MNE to handle the risks of the chosen entry mode alongside the location factors of the host country that may influence the risks of the chosen entry mode. First, the study indicates that exists a trade-off between the time to market and preserving the strategic assets of MNEs like in the cases of M&As and JVs. Besides, short time to market is associated with lower survival of the operation, while a long time to market like Greenfields may involve a high risk for FDI if the economic and political stability may be undermined during the establishment period or if may occur dramatic changes in the location factors of the host country. Second, the study suggests that the political location factors and the legal location factors may have a significant impact on the risks of entry modes. The political stability and political arena shape the restriction policy on international trade and FDI, while the legal system, regulation and laws may have a huge impact on the risk of investment after the entry to the host country (Cain et al., 2017), particularly in cases of legal disputes, such as in the case of JVs that have a high risk for legal conflicts due to the nature of JVs. Finally, the study highlights the need for empirical studies that will compare all types of entry modes both international trade and FDI, because many MNEs use a mix of entry modes to expense their activities in the global markets.    

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