DRC Working Papers Foreign Direct Investment in Emerging Markets CENTRE FOR NEW AND EMERGING MARKETS LONDON BUSINESS SCHOOL

Abstract: Using unique firm-level data from South Africa and Egypt, this paper addresses three different lacunae in the literature. First, the paper has brought into focus a comparison between two emerging markets that have very different political and economic legacies, institutions and business environment. The results are consistent with the prior that the determinants of the choice of entry mode would be different for these two countries. Second, it has distinguished between the manufacturing and services sectors during the empirical exercise, and the results have borne out the hypothesis that the determinants of the choice of the mode of entry are different for these two broadly defined sectors. Third, starting with specifications based on the existing literature, the paper has demonstrated that the largely stylised specification usually used in the context of developed market economies, by and large, yields meaningful result in the context of entry into emerging markets, more so if the emerging market (e.g., South Africa) has well functioning markets and market institutions to some extent. An important upshot of the empirical analysis is that in the context of emerging markets regulations and factors that determine the transactions cost of doing business are the key determinants of the choice of the mode of entry; the role played by the technology embedded in the MNCs’ products in determining the choice of entry mode is largely insignificantDRC Working Papers Foreign Direct Investment in Emerging Markets CENTRE FOR NEW AND EMERGING MARKETS LONDON BUSINESS SCHOOL No. 13 Determinants of MNC's Mode of Entry into an Emerging Market: Some Evidence from Egypt and South Africa* By Sumon Kumar Bhaumik, London Business School Stephen Gelb, EDGE Institute in Johannesburg February 2003 CNEM is a Development Research Centre supported by the UK Department for International Development *The authors are grateful to the Economic Research Forum, Cairo for firm-level data from Egypt and background information about the Egyptian economy, Saul Estrin, Klaus Meyer, Simon Commander, Jeffrey Nugent and seminar participants at the 2003 annual meeting of the Social Science Association (Washington, DC) for valuable comments, and to Caitlin Frost, Maria Bytchkova and Gherardo Girardi for research assistance. They remain responsible for all remaining errors. The research was made possible by a grant from the Department for International Development of the British government

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