Table of Contents

Handbook of Research on International Strategic Management

Handbook of Research on International Strategic Management

Elgar original reference

Edited by Alain Verbeke and Hemant Merchant

The Handbook provides an impressive state-of-the-art overview of the international strategic management field as an area of scholarly inquiry. The great strength of the work is the thoughtfulness of the messages conveyed by the expert team of authors.

Chapter 18: Real options theory and international investment strategy: past, present and future

Jing Li, Yong Li and Alan M. Rugman

Subjects: business and management, international business, strategic management


Uncertainty has been a persistent feature in international business, and multinational enterprises (MNEs) are required to deal with uncertainty (e.g. market, political, technological) in various strategic decisions concerning foreign market entry mode, scale and timing (Buckley and Casson, 1998). The conventional wisdom in international business (IB) is to view uncertainty as an unfavorable condition that complicates the decision-making process and exposes firms to downside risks and losses; as a result, much effort has been put into designing strategies to minimize potential negative outcomes in an uncertain environment (Buckley and Casson, 1976; Rugman, 1981). In contrast with the conventional wisdom, real options theory offers a fresh perspective to tackle uncertainty in international investment: uncertainty in the host market does not necessarily pose a threat to MNEs’ profitability; it may also present valuable opportunities for MNEs to exploit (Dixit and Pindyck, 1994; Trigeorgis, 1996). From this perspective, MNEs should design strategies such that they have the flexibility to benefit from upside potentials while containing downside losses in future (Buckley and Casson, 1998; Chi and Seth, 2009). The unique contribution of real options theory is that it provides a general theoretical foundation on which IB scholars can conceptualize how MNEs make investment decisions in an uncertain environment as well as adjust their investment strategies in response to new information in the environment (Belderbos and Zou, 2007, 2009; Li and Li, 2010; Tong et al., 2008).

You are not authenticated to view the full text of this chapter or article.

Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.

Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.

Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.

Further information