Upstream and Downstream Resources as Determinants of International Acquisitions*

We analyze capability-seeking aspects of foreign direct investment by examining the relationship between upstream (technological) and downstream (marketing) capabilities and the choice between acquisition and greenfield modes of international entry. In analyzing 2,175 entries by British, German and Japanese investors into the United States, we find that for downstream capabilities, which tend not to be geographically fungible, the absolute level of capabilities in the entered industry explains the mode choice. However, for upstream capabilities, which tend to be geographically fungible, the acquisition motive stems from a relative capability differential between host and home country firms. These results have implications for the concept of fungibility in the resource-based view of the firm as well as for the literature on sourcing of resident assets by foreign firms, which has thus far ignored issues of entry mode and downstream assets.