Wholly owned subsidiary versus technology licensing in the worldwide chemical industry

This paper empirically analyzes the determinants of the choice between wholly owned subsidiary and technology licensing as a strategy for expansion abroad. We use a new and comprehensive database on worldwide plant level investments in the chemical industry during the 1981-1991 period. We find that both cultural distance and the presence of other potential licensors favor the use of licensing abroad, whereas, prior experience favors the choice of wholly owned subsidiary. An implication of this study is that competition in the market for technology can foster the international through the use of arm's length agreements.