Market Entry in the Presence of Firm Endogenous Factors : A Real Options Perspective

This paper builds on a 2014 study of Chintakananda and McIntyre. They identified two options: growth and deferral options. A third and fourth options known as reject (no) and switch (change) options are presented as additional options to the afore-mentioned two in order to demonstrate and argue that when firms opt for either a deferral or reject option in their market entry decision, there is always a cost implication they are saddled with, especially after some costs had been incurred before a deferral was opted for, or, opting for a reject option mid-way after a growth option had gone into effect. Analysis was done using a novel tool referred to as real options-yield dimension grid and, an NPV algebraic equation (Pindyck, 2008).In general, this study identifies four dimensions of real options: growth (yes), switch (change), deferral (wait) and reject (no) from which firms make market entry decision choice. Whereas, previous studies had emphasized growth and deferral options whilst excluding reject and switch options from the scope of their coverage, this study therefore complements such studies by way of an extension. These quadruplet options had been modelled in this study to demonstrate how they strategically interact with firm-endogenous factors to alter a negative NPV. The study culminated in seven propositions that embody the “how-to” of real options decisions for market entry in the presence of firm-endogenous factors