Investment in new foreign subsidiaries under receding perception of uncertainty

Research on foreign direct investment has focused considerable attention on the moment of market entry, but less on the dynamics of investment in the post-entry phase. This paper centres the influence of uncertainty on investment, and develops a growth options model to explain the sequence of investment in new foreign subsidiaries. In a learning process that starts at entry, investors perceive receding levels of uncertainty and shift their reason for investment from option values towards net present values. The findings of a panel study of 634 German subsidiaries support the propositions and reveal the potential of the real options approach to improve the understanding of internationalisation processes. Journal of International Business Studies (2008) 39, 370–386. doi:10.1057/palgrave.jibs.8400362