The Decision-Making Theory of Foreign Direct Investment Based on Real Options

According to the real options theory, the opportunities in the decision-making of FDI would be regarded as the real options belonging to the multinational enterprise(MNEs). Facing the market and technology uncertainty, there are options to defer investment and growth options contained in the opportunity of FDI. When the value of options to defer investment increases, MNEs have motivation to delay the investment; and the value of growth options increases, MNEs have motivation to implement the initial investment. This paper develops a two-stage model of FDI based on real options theory, discusses the effects of real options value to the FDI decision-making. When making investment decisions, both kinds of real options should be consolidated balanced, and thus the timing of FDI be measured.