Journal of International Business Studies 2025
Real option portfolios and the theory of the multinational enterprise: understanding modes of international involvement in the digital economy
Abstract
The recent growth of the digital economy and technological advances has created new patterns of FDI and international involvement. We contribute to the debate on nontraditional (NT) entry modes in a changing digital world—virtual presence, digital platforms, and innovation outposts. We provide fresh insights into real option theory (ROT) and MNE theory, explaining new forms of international involvement within a dynamic ROT portfolio perspective. We discuss uncertainty and correlation among market conditions, knowledge redundancy, how NT modes entail MNE growth and switching options, and how they contribute to the MNE option portfolio. We discuss information options and other real options embedded in NT modes, and the factors influencing their values. Our article has practical relevance as many MNEs do not incorporate real options into their decision-making processes. We encourage managers to understand that (1) uncertainty influences options beneficially, (2) NT modes create real options, and (3) these NT options create flexibility. Our ROT ‘portfolio’ perspective shows how uncertainty, market correlation, and knowledge diversity influence a real option’s contribution to MNE option portfolios, though they are context-specific. Finally, we compare how ROT insights complement those from existing MNE theories.
- DOI
- 10.1057/s41267-025-00806-x
- Sources
- openalex