locational determinants of foreign direct investment: a case of thailand dr. viyada valyasevi unisa,...

Locational Determinants Locational Determinants of Foreign Direct of Foreign Direct

Investment:Investment:A Case of ThailandA Case of Thailand

Dr. Viyada Dr. Viyada ValyaseviValyasevi

UniSA, 14 Apr. UniSA, 14 Apr. 20092009

The ResearchThe Research

Factors (most / least) encourage Factors (most / least) encourage direct investment of foreigners into direct investment of foreigners into Thailand.Thailand.

Foreign Direct Investment (FDI)Foreign Direct Investment (FDI)– Direct investment (not portfolio Direct investment (not portfolio

investment, not lending)investment, not lending)– in a firm in another country (not home in a firm in another country (not home

country)country)– with more than 10% shareholdingwith more than 10% shareholding

The Importance of FDIThe Importance of FDI

Significantly contribute to Significantly contribute to development and economic growth of development and economic growth of host countries.host countries.

Promote transfer of technology, Promote transfer of technology, innovation, and wealth from innovation, and wealth from developed countries (home) to developed countries (home) to developing ones (host).developing ones (host).

Allow host countries to invest in Allow host countries to invest in activities beyond their domestic activities beyond their domestic saving capabilities.saving capabilities.

FDI vs. ThailandFDI vs. Thailand

Thailand faces with intense competition Thailand faces with intense competition from China, India, and Vietnam (so need from China, India, and Vietnam (so need to revise investment incentives for FDI).to revise investment incentives for FDI).

Limited number of research have done Limited number of research have done based on Thai characteristics, and all were based on Thai characteristics, and all were aged.aged.

Understanding what determines Understanding what determines investment location choices:investment location choices:

– Provide tools for FDI agency (BOI) to formulate Provide tools for FDI agency (BOI) to formulate their strategies to attract desirable FDI.their strategies to attract desirable FDI.

Research QuestionResearch Question

What are the factors most / least What are the factors most / least encourage FDI into Thailand?encourage FDI into Thailand?

Are there different requirements between Are there different requirements between each type of FDI? each type of FDI? Moderators appliedModerators applied

- - Industry typeIndustry type: Manufacturing vs. Service: Manufacturing vs. Service

- - Market orientationMarket orientation: Domestic oriented vs. Export : Domestic oriented vs. Export orientedoriented

- - Sourcing orientationSourcing orientation: Local sourcing vs. Import oriented: Local sourcing vs. Import oriented

- - Inter-group dependencyInter-group dependency: Non-group vs. Group : Non-group vs. Group dependencydependency

- - Size of investmentSize of investment: SME vs. Large corporate: SME vs. Large corporate

Research ModelResearch Model

Foreign Decision to

Invest in Thailand

Foreign Decision to

Invest in Thailand

Moderators Industry type Market orientation Sourcing orientation Inter-group

dependency Size of investment

Moderators Industry type Market orientation Sourcing orientation Inter-group

dependency Size of investment

Locational Determinants

Locational Determinants

Methodology: DesignMethodology: Design Seven Likert scale self-administered Seven Likert scale self-administered

questionnaire survey questionnaire survey (in English, (in English, Chinese, and Japanese languages)Chinese, and Japanese languages)– Expert interviews & pilot test done to Expert interviews & pilot test done to

confirm reliability and validity of the confirm reliability and validity of the questionnairequestionnaire

– Comprised 63 itemsComprised 63 items

Mailed to 1,188 FDIs, Mailed to 1,188 FDIs, – Randomly sampling from the official Randomly sampling from the official

list of Board of Investment of Thailandlist of Board of Investment of Thailand– Posted return envelope includedPosted return envelope included

Methodology: Data AnalysisMethodology: Data Analysis Response rate: 8.7% Response rate: 8.7% (103 / 1,188)(103 / 1,188)

Low, but Low, but acceptableacceptable- Kanuk & Berenson (1975): Questionnaires mailed w/o - Kanuk & Berenson (1975): Questionnaires mailed w/o specific naming usually earn low response rate.specific naming usually earn low response rate.- Brennan (1990) & Comegys (2000): Status of the - Brennan (1990) & Comegys (2000): Status of the researcher has an effect on the response rate; i.e. researcher has an effect on the response rate; i.e. student researchers normally get a lower response student researchers normally get a lower response rates than corporate or professional researchers.rates than corporate or professional researchers.

Non-response bias test doneNon-response bias test done (comparing (comparing demographic characteristics, Armstrong & Overton, demographic characteristics, Armstrong & Overton, 1997)1997)

Factor analysis, resulting in 13 Factor analysis, resulting in 13 determinant factors determinant factors (grouped from 63 items)(grouped from 63 items)

MANOVA (Multivariate Analysis of MANOVA (Multivariate Analysis of Variance) to test hypothesisVariance) to test hypothesis

Methodology: Data AnalysisMethodology: Data AnalysisThe 13 determinant factors:The 13 determinant factors:

1.1. Tax concession Tax concession (on imports, corporate tax, income expatriation)(on imports, corporate tax, income expatriation)

2.2. Economic condition Economic condition (GDP, economic growth of Thailand)(GDP, economic growth of Thailand)

3.3. Government policy Government policy (political stability, FX policy, intellectual property (political stability, FX policy, intellectual property law)law)

4.4. Market condition Market condition (trend, size & competition in Thailand & neighboring (trend, size & competition in Thailand & neighboring countries)countries)

5.5. Barriers & red tape Barriers & red tape (govt. bureaucracy, restriction on land (govt. bureaucracy, restriction on land ownership)ownership)

6.6. Transparency & legal practices Transparency & legal practices (accounting & audit standard, (accounting & audit standard, corporate governance)corporate governance)

7.7. Environment condition Environment condition (living condition of expatriates, attitude (living condition of expatriates, attitude towards foreigners)towards foreigners)

8.8. Supply of raw materialSupply of raw material9.9. Skilled labor Skilled labor (availability & cost)(availability & cost)

10.10. Unskilled labor Unskilled labor (availability & cost)(availability & cost)

11.11. Domestic infrastructure Domestic infrastructure (cost of land & construction, cost & quality (cost of land & construction, cost & quality of energy, utilities, transportation, communication)of energy, utilities, transportation, communication)

12.12. R&D R&D (support from home country & Thailand)(support from home country & Thailand)

13.13. Financial accessibility Financial accessibility (access to local source of fund, cost of fund)(access to local source of fund, cost of fund)

Findings: Findings: OverallOverall

Top Top mostmost encouraging encouraging factorsfactors

– Tax concessionTax concession– Economic conditionEconomic condition– Government policyGovernment policy

Top Top leastleast encouraging encouraging factorsfactors

– Barriers & red tapeBarriers & red tape– Transparency & Transparency &

legal practicelegal practice– Skilled laborSkilled labor

Findings: Findings: IndustryIndustry

IndustryIndustry ManufacturingManufacturing ServiceService

Most Most Encouraging Encouraging FactorFactor

1.1. Tax concessionTax concession

2.2. Economic Economic conditioncondition

3.3. Environment Environment conditioncondition



3.3. Government policyGovernment policy

Least Least Encouraging Encouraging FactorFactor

1.1. Barriers & red Barriers & red tapetape

2.2. Transparency & Transparency & legal practicelegal practice

3.3. Skilled laborSkilled labor


2.2. Unskilled laborUnskilled labor****

3.3. Supply of raw Supply of raw materialmaterial

* Significantly different at p < .10** Significantly different at p < .05

Findings: Findings: Market OrientationMarket Orientation

MarketMarket Domestic OrientedDomestic Oriented Export OrientedExport Oriented














3.3. Skilled laborSkilled labor* Significantly different at p < .10** Significantly different at p < .05

Findings: Findings: Sourcing OrientationSourcing Orientation

SourcingSourcing Local SourcingLocal Sourcing Import OrientedImport Oriented



2.2. Economic Economic conditioncondition****

3.3. Government Government policypolicy**


2.2. Market conditionMarket condition



1.1. Barriers & red tapeBarriers & red tape

2.2. Unskilled laborUnskilled labor




3.3. Supply of raw Supply of raw materialmaterial***** Significantly different at p < .10

** Significantly different at p < .05

Findings: Findings: Inter-group Inter-group DependencyDependency

Inter-groupInter-group Non-groupNon-group Group dependedGroup depended



2.2. Economic Economic conditioncondition****









1.1. Supply of raw Supply of raw materialmaterial****


3.3. Skilled laborSkilled labor**


Findings: Findings: Firm SizeFirm Size

SizeSize SMESME Large CorporateLarge Corporate



2.2. Economic conditionEconomic condition

3.3. Environment Environment conditioncondition****



3.3. Government Government policypolicy****



2.2. Transparency & Transparency & legal practicelegal practice****

3.3. Financial Financial accessibilityaccessibility****





Conclusions & ImplicationsConclusions & Implications

Each type of FDI has different investment Each type of FDI has different investment determinants.determinants.

Thai government should tailor their incentives Thai government should tailor their incentives provided to attract only desirable FDI.provided to attract only desirable FDI.

Though financial incentives (tax concession) is the Though financial incentives (tax concession) is the most encouraging factor for every type of FDI, most encouraging factor for every type of FDI, enhancing non-financial incentives (economic & enhancing non-financial incentives (economic & market conditions, barriers & red tape, and legal market conditions, barriers & red tape, and legal transparency) could easily attract FDI, without transparency) could easily attract FDI, without additional cost to the country.additional cost to the country.

More attention should be paid on top least More attention should be paid on top least encouraging factors (barriers & red tape, legal encouraging factors (barriers & red tape, legal transparency, skilled labor).transparency, skilled labor).

Limitation & Future ResearchLimitation & Future Research

LimitationLimitation:: Low response rateLow response rate Changing environments (financial/economic crisis, Changing environments (financial/economic crisis,

political stability, Free Trade Agreements, climate political stability, Free Trade Agreements, climate changes, sustainability issues)changes, sustainability issues)

Future ResearchFuture Research:: Replicate this research (to confirm Generalization)Replicate this research (to confirm Generalization) Add more factors, e.g. sustainability requirementsAdd more factors, e.g. sustainability requirements Ask for support from government agency, to Ask for support from government agency, to

enhance response rateenhance response rate

Q & AQ & A

Thank youThank you

Findings: Findings: NationalityNationality

NationalityNationality AsianAsian WesternerWesterner

Most Most EncouraginEncouraging Factorg Factor



3.3. Business Business environment environment conditioncondition**



3.3. Supply of raw Supply of raw materialmaterial****

Least Least EncouraginEncouraging Factorg Factor


2.2. Skilled laborSkilled labor****



2.2. Transparency & Transparency & legal practicelegal practice**



Findings: Findings: Major ShareholderMajor Shareholder

ShareholderShareholder ForeignForeign ThaiThai




3.3. Government Government policypolicy****



3.3. Business Business environment environment conditioncondition**






2.2. Unskilled laborUnskilled labor**



Findings: Findings: Years of Years of EstablishmentEstablishment

YearsYears Newly Start-upNewly Start-up Long EstablishedLong Established










2.2. Skilled laborSkilled labor**




3.3. Domestic Domestic infrastructureinfrastructure


locational determinants of foreign direct investment: a case of thailand dr. viyada valyasevi unisa,...

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thailand thailand

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