MNCs entering an emerging industry: The choice of governance mode under high uncertainty

Abstract

This paper provides insights into the choice of governance mode among relatively similar multinational companies (MNCs) entering into an emerging industry characterised by high uncertainty related to technology, market and policy framework. The study utilises a multiple case study methodology, including interviews with members of five MNCs and the perspective of their investees. The case companies are global leaders in related industries (such as hydropower and wind energy), and they have all chosen to enter the tidal energy industry with a similar technology. Based on their choice of governance mode, the case companies are divided into two groups: “Flexibility” and “Control”. The study elaborates on how the two groups’ governance mode choices are driven by “real options” (RO) and “transaction cost economics” (TCE) logic when assessing the high uncertainty related to the technology, the emerging industry and the relationships with potential firms to be invested in.

Keywords

• real options theory
• tce
• entry mode
• governance mode
• uncertainty
• tidal energy
• emerging industry