Unionised labour market and strategic production decision of a multinational

I show that a foreign firm may sell the same product through both foreign direct investment (FDI) and export, and this decision depends on the size of the product market. It happens irrespective of whether the labour market in the domestic country or in the foreign country is unionised. Unlike the existing works focusing on risk diversification in presence of demand or cost uncertainty, I explain the co-existence of FDI and export in a world with certainty. The endogenous determination of the wage rate plays an important role for my results. My analysis shows the effects of the fixed cost of FDI and competition in the product market on the production strategy of the foreign firm.