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 results 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 insignificant.
DRC Working Papers, Foreign Direct Investment in Emerging Markets, Centre for New and Emerging Markets, London Business School, No. 13, London, UK, 33 pp.