Table Of ContentTARGETING
THE FOREIGN DIRECT INVESTOR
TARGETING THE FOREIGN DIRECT INVESTOR
Strategic Motivation, Investment Sue, and
Developing Country Investment-Attraction
Packages
Edward J. Coyne, Sr., C.D.(Hon.)(Jamaica)
B. Se., M.I.B.A., Ph. D.
Sehool of Business & Entrepreneurship
Nova Southeastern University
"
~.
Springer Science+Business Media, LLC
ISBN 978-1-4613-5971-5 ISBN 978-1-4615-2299-7 (eBook)
DOI 10.1007/978-1-4615-2299-7
Library of Congress Cataloging-in-Publication Data
A C.I.P. Catalogue record for this book is available from the Library of
Congress.
Copyright © 1995 by Springer Science+Business Media New York
OriginaHy published by Kluwer Academic Publishers in 1995
Softcover reprint ofthe hardcover lst edition 1995
AH rights reserved. No part of this publication may be reproduced, stored in
a retrieval system or transmitted in any form or by any means, mechanical,
photo-copying, recording, or otherwise, without the prior written permission of
the publisher, Springer Science+Business Media, LLC.
Printed an acid-free pap er.
DEDICATION
To the people of Jamaica.
TABLE OF CONTENTS
TARGETING THE FOREIGN DIRECT INVESTOR
Strategic Motivation Investment Size and Developing Country
l
Investment-Attraction Packages
LIST OF FIGURES ix
LIST OF TABLES x
ABBREVIATIONS Xl
FORWORD: Peter J. Buckley, Professor of International Business
Director, Centre for International Business
University of Leeds xiii
PREFACE xv
Chapter I: INTRODUCTION 1
The Need For This Study 2
FDI Attraction Research Stages -Evolution of Focus 4
Chapter II: WHAT'S WHAT:
Definitions & Theories: FDI, MNCs, International Trade 15
Foreign Direct Investment (FDI) 15
Multinational Corporations (MNCs) 17
Some Key Theories AffectingFDI & MNC's 18
Summary 31
Chapter III. WHO SEES WHAT ?:
Protagonists and Their Perceptions ofF DI 37
Debate: FDIIMNC Value 39
Alternatitives to FDI 43
Summary 45
Chapter IV: WHO WANTS WHAT ?:
MNC Strategic Motivation / FDI Attraction 49
MNC Motivation for Initiating FDI 49
Host Country FDI Attraction Policies 52
Differing Effects of Host Country Incentives 55
Summary 60
Chapter V: WHERE TO TEST ?: Barbados, Jamaica, Trinidad-Tobago 65
Introduction to Host Countries 67
FDI and the Host Countries 71
Summary 74
viii Contents
Chapter VI: WHAT'S THE ROUTE ?: Study Methodology 79
Nature of the Information Sought 79
Summary of Survey Response 89
Analytical Methods Employed 92
Chapter VII: WHAT TO EXPECT: The Hypotheses 99
The Research Hypotheses 99
Key Assumptions Underlying the Study 105
Null Hypotheses 109
Chapter VIII: WHAT WORKS FOR WHOM ?:
Study Findings and Interpretations 113
Findings 113
Quantum / Asset Specificity Surrogate 113
FDI Motivation & MNC Preferences 119
Quantum & FDI Motivation 129
Summary of Findings and lAP Preferences 143
Chapter IX: WHO SAID WHAT ?:
Comparison ofF indings with Other Researchers 147
Summary 151
Chapter X: WHAT IT ALL MEANS: Interpretations ofF indings 155
Interpretations of Micro-Group Preferences 155
Host Country Market-seeking MNCs 156
Cost Reduction-seeking MNCs 162
Raw Material-seeking MNCs 164
Chapter XI: AND THEREFORE: Conclusions 169
General Conclusions 171
Proposed Model for FDI Future Research 173
Generalizability Potential 175
Additional Research Suggested 177
Chapter XII: POLICY RECOMMENDATIONS 181
WrapUp 185
APPENDIX A Foreign Direct Investment in Barbados, Jamaica, and
Trinidad & Tobago: Postal Interview Replica 189
BffiLIOGRAPHY 193
INDEX 201
LIST OF FIGURES
1.1 Foreign Direct Investment Research Stages 8
2.1 Paths to Internationalization of Firm 29
5.1 Caribbean Sea (map) 66
6.1 Investment Attraction Package -Classifications and Elements 84
11.1 FDI Attraction -Developing Countries, Proposed Research Model 174
LIST OF TABLES
5.1 Summary of Selected Indicators: Barbados, Jamaica,
Trinidad and Tobago 72
6.1 Postal Interview Respondee Profile 88
6.2 Postal Interview Summary -Total 90
6.3 Postal Interview Summary -Barbados 90
6.4 Postal Interview Summary -Jamaica 91
6.5 Postal Interview Summary -Trinidad and Tobago 91
8.1 Investment Quantum & Asset Rigidity -Total Survey 115
8.2 Investment Quantum & Asset Rigidity -Host Country Market 115
8.3 Investment Quantum & Asset Rigidity - Cost Reduction 115
8.4 Investment Quantum & Asset Rigidity - Spearman Rank
Correlation Test Results 116
8.5 Directional Correlation -Capital Risk Elements of Transaction
Costs Theory -Empirical Evidence 117
8.6 Segmentation By FDI Motivation: Host Country Market -Raw
Materials - Cost Reduction 120
8.7 MNC Rankings of Host Country Investment Attraction Packages
Segmented by Motivation For FDI 123
8.8 Segmentation ofMNCs Preferences By FDI Motivation &
Large vs. Small Quantum 130
8.9 Segmentation ofMNCs Preferences By Large QuantumlFDI
Motivation & Small QuantumIFDI Motivation -:
Large -Host Country Market & Cost Reduction:
Small -Host Country Market & Cost Reduction. 131
8.10 MNC Rankings of Host Country Investment Attraction Packages
Segmented By Motivation of Investment,
By Quantum of Investment 133
8.11 MNC Rankings of Host Country Investment Attraction Packages
Comparison of Large Investments By Motivtion
Comparison of Small Investments By Motivation 137
8.12 Summary of Research Hypotheses Findings 144
10.1 Important Initial-Investment Preferences ofMNCs 157
10.2 Lesser Important Initial-Investment Concerns ofMNCs 158
ABBREVIATIONS
CARICOM Caribbean Economic Community
CBI Caribbean Basin Initiative
CR cost reduction
F financial restrictions
FDI foreign direct investment
FTZ free trade zone
GDP gross domestic product
GSP Generalized System of Preferences
H Hypothesis
HCM host country market
H-O Heckscher-Ohlin Theory (Factor Endowment)
I investment & ownership
lAP investment attraction package
IMP International Monetary Fund
IPLC International Product Life Cycle Theory
LDC Lesser Developed Country
LG large investment ($1,000,000 or more)
MNC multinational corporation
MNE multinational enterprise (synonymous with MNC)
NAFTA North American Free Trade Agreement
Oa Asset advantage
OECD Organization for Economic Cooperation and
Development
OPEC Organization of Petroleum Exporting Countries
Ot transaction advantage
RM raw materials (natural resources)
SM small investment (less than $1,000,000)
T taxes & incentives
TNC transnational corporation (synonymous with MNC)
u.K. United Kindgdom
UN United Nations
UNCTAD United Nations Conference on Trade and
Development
UNCTC United Nations Centre for Transnational
Corporations
u.s. United States of America
USDOC U.S. Department of Commerce
WWII World War II
FOREWORD
Foreign direct investment in less developed countries remains a concern for
those interested in improving the lot of the economically disadvantaged. Report
after report (notably those from the Division on Transnationals at UNCT AD)
bemoans the paucity of stocks of direct investment in the world's poorest regions
and the levels of current flows of investment hold little immediate hope that this
will change. Attention is frequently drawn to spectacular (and sometimes short
lived) booms in flows to one particular country or region; currently China and
India attract the spotlight. Overall though, less developed countries find themselves
competing to attract a relatively small share of world direct investment.
Clearly, it is necessary to pay attention to the decision processes of the
investing companies and in particular to their motivations to invest. Broadly, three
motives stand out: raw material seeking investment, market seeking investment
and efficiency seeking investment. Countries well endowed with raw materials (oil,
copper and the bauxite deposits which have attracted much inward investment to
Jamaica) attract multinationals in the extraction industries. These ventures are
often subject to extensive regulation and are often the focus of political tensions.
Market seeking investment, of course, tends to be targeted at large, rapidly
growing markets and those with at least a segment of high income earners (India is
a prime example). Efficiency seeking investment is to a large degree seeking cheap
labour and may, initially at least, have very low spill over benefits. It is also highly
"footloose" in that it can often be shifted to an alternate location if the conditions
in its original host country choice deteriorate.
The following study by Ed Coyne tackles these issues by dividing foreign
direct investment by motive, by investment timing and by size. The three motives
outlined above, the amount of investment and the initial investment versus
expansion dichotomy provide a basis by which policy makers can begin to target
potential investors and re-investors. This attempt to improve policy targeting is
welcome and Coyne has produced a simple, yet powerful framework for the design
of policy. This enables progress to be made in identifying and creating an optimal
Investment Attraction Package for each less developed country's needs.
