Argawal et al. (1992)

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Risk

Ownership advantages and investment risk. Countries which are perceived to be of high risk are advised to export, rather than invest. Firms which have the most valuable assets are in a better position to bargain, so they may invest in such countries. This is because governments can find new sources of capital, but not new sources of technology, meaning firms with such valuable assets have greater bargaining power in countries with high investment risk.

Ownership advantages and contractual risk. Firms that can make differentiated products are likely to choose a sole venture mode in countries with high contractual risk and internalise assets. Firms without this internalising ability may choose a contractual mode, even when the risks are high.

Market potential and Investment risk. Firms want to enter markets with high potential, but at the same time to minimise investment risk. Thus firms are more likely to use joint venture or exporting modes in countries with high market potential, but high investment risk.

Conclusion