Global Entry: Reconceptualizing Multinational Investments as Two-Sided Matches between Governments and Firms

Abstract

Strategy research largely conceptualizes international investment location decisions as unilateral decisions made by multinational firms, without acknowledging that in most industries and countries, governments play a critical role in approving foreign investments. We develop a theoretical framework that conceptualizes a multinational investment as a two-sided match between a multinational firm interested in a particular location and a local government interested in the investment of that firm. Our two-sided framework (a) accounts for the strategic goals of both multinational firms and local governments that can incentivize or block multinational firms from entering their markets and (b) incorporates the dynamics of competition between firms for the best investment locations and competition between governments for the best firms. Empirically, we use statistical simulations to assess the relative explanatory power of matching and binary choice models, and we show that in the global electricity generation industry, matching models outperform binary choice models.