Locational Determinants of
Foreign Direct Investment:
A Case of Thailand
Dr. Viyada Valyasevi
UniSA, 14 Apr. 2009
The Research


Factors (most / least) encourage direct
investment of foreigners into Thailand.
Foreign Direct Investment (FDI)
–
–
–
Direct investment (not portfolio investment,
not lending)
in a firm in another country (not home
country)
with more than 10% shareholding
The Importance of FDI



Significantly contribute to development
and economic growth of host countries.
Promote transfer of technology,
innovation, and wealth from developed
countries (home) to developing ones
(host).
Allow host countries to invest in
activities beyond their domestic saving
capabilities.
FDI vs. Thailand



Thailand faces with intense competition from
China, India, and Vietnam (so need to revise
investment incentives for FDI).
Limited number of research have done based
on Thai characteristics, and all were aged.
Understanding what determines investment
location choices:
–
Provide tools for FDI agency (BOI) to formulate
their strategies to attract desirable FDI.
Research Question


What are the factors most / least encourage FDI
into Thailand?
Are there different requirements between each
type of FDI?
 Moderators applied
-
Industry type: Manufacturing vs. Service
Market orientation: Domestic oriented vs. Export oriented
Sourcing orientation: Local sourcing vs. Import oriented
Inter-group dependency: Non-group vs. Group dependency
Size of investment: SME vs. Large corporate
Research Model





Locational
Determinants
Moderators
Industry type
Market orientation
Sourcing orientation
Inter-group dependency
Size of investment
Foreign
Decision to
Invest in
Thailand
Methodology: Design

Seven Likert scale self-administered
questionnaire survey (in English, Chinese,
and Japanese languages)
– Expert interviews & pilot test done to
confirm reliability and validity of the
questionnaire
– Comprised 63 items

Mailed to 1,188 FDIs,
–
–
Randomly sampling from the official list of
Board of Investment of Thailand
Posted return envelope included
Methodology: Data Analysis

Response rate: 8.7% (103 / 1,188)
 Low, but acceptable
- Kanuk & Berenson (1975): Questionnaires mailed w/o specific
naming usually earn low response rate.
- Brennan (1990) & Comegys (2000): Status of the researcher
has an effect on the response rate; i.e. student researchers
normally get a lower response rates than corporate or
professional researchers.



Non-response bias test done (comparing
demographic characteristics, Armstrong & Overton, 1997)
Factor analysis, resulting in 13 determinant
factors (grouped from 63 items)
MANOVA (Multivariate Analysis of Variance)
to test hypothesis
Methodology: Data Analysis
The 13 determinant factors:
1.
2.
3.
4.
5.
6.
Tax concession (on imports, corporate tax, income expatriation)
Economic condition (GDP, economic growth of Thailand)
Government policy (political stability, FX policy, intellectual property law)
Market condition (trend, size & competition in Thailand & neighboring countries)
Barriers & red tape (govt. bureaucracy, restriction on land ownership)
Transparency & legal practices (accounting & audit standard, corporate
governance)
7. Environment condition
foreigners)
8.
9.
10.
11.
(living condition of expatriates, attitude towards
Supply of raw material
Skilled labor (availability & cost)
Unskilled labor (availability & cost)
Domestic infrastructure (cost of land & construction, cost & quality of energy,
utilities, transportation, communication)
12. R&D (support from home country & Thailand)
13. Financial accessibility (access to local source of fund, cost of fund)
Findings: Overall
Top most
encouraging factors
Top least
encouraging factors
–
Tax concession
–
–
Economic condition
–
–
Government policy
–
Barriers & red tape
Transparency & legal
practice
Skilled labor
Findings: Industry
Industry
Manufacturing
Service
Most
Encouraging
Factor
1. Tax concession
2. Economic condition
3. Environment
condition
1. Economic condition
2. Tax concession
3. Government policy
Least
Encouraging
Factor
1. Barriers & red tape
2. Transparency & legal
practice
3. Skilled labor
1. Barriers & red tape
2. Unskilled labor**
3. Supply of raw
material
* Significantly different at p < .10
** Significantly different at p < .05
Findings: Market Orientation
Market
Domestic Oriented
Export Oriented
Most
Encouraging
Factor
1. Tax concession
2. Economic condition
3. Government policy
1. Tax concession
2. Economic condition
3. Environment
condition
Least
Encouraging
Factor
1. Barriers & red tape
2. Transparency & legal
practice
3. Supply of raw
material
1. Barriers & red tape
2. Transparency & legal
practice
3. Skilled labor
* Significantly different at p < .10
** Significantly different at p < .05
Findings: Sourcing Orientation
Sourcing
Local Sourcing
Import Oriented
Most
Encouraging
Factor
1. Tax concession
1. Tax concession
2. Economic condition** 2. Market condition
3. Government policy*
3. Environment
condition
Least
Encouraging
Factor
1. Barriers & red tape
2. Unskilled labor
3. Transparency & legal
practice
* Significantly different at p < .10
** Significantly different at p < .05
1. Barriers & red tape
2. Transparency & legal
practice
3. Supply of raw
material**
Findings: Inter-group Dependency
Inter-group
Non-group
Group depended
Most
Encouraging
Factor
1. Tax concession
1. Tax concession
2. Economic condition** 2. Market condition
3. Government policy
3. Unskilled labor
Least
Encouraging
Factor
1. Barriers & red tape
2. Transparency & legal
practice
3. Unskilled labor
* Significantly different at p < .10
** Significantly different at p < .05
1. Supply of raw
material**
2. Barriers & red tape
3. Skilled labor*
Findings: Firm Size
Size
SME
Large Corporate
Most
Encouraging
Factor
1. Tax concession
2. Economic condition
3. Environment
condition**
1. Tax concession
2. Economic condition
3. Government policy**
Least
Encouraging
Factor
1. Barriers & red tape
2. Transparency & legal
practice**
3. Financial
accessibility**
1. Barriers & red tape
2. Skilled labor
3. Unskilled labor
* Significantly different at p < .10
** Significantly different at p < .05
Conclusions & Implications




Each type of FDI has different investment determinants.
Thai government should tailor their incentives provided to
attract only desirable FDI.
Though financial incentives (tax concession) is the most
encouraging factor for every type of FDI, enhancing nonfinancial incentives (economic & market conditions,
barriers & red tape, and legal transparency) could easily
attract FDI, without additional cost to the country.
More attention should be paid on top least encouraging
factors (barriers & red tape, legal transparency, skilled
labor).
Limitation & Future Research
Limitation:


Low response rate
Changing environments (financial/economic crisis,
political stability, Free Trade Agreements, climate
changes, sustainability issues)
Future Research:

Replicate this research (to confirm Generalization)

Add more factors, e.g. sustainability requirements

Ask for support from government agency, to
enhance response rate
Q&A
Thank you
Findings: Nationality
Nationality
Asian
Westerner
Most
Encouraging
Factor
1. Tax concession
1. Tax concession
2. Economic condition
2. Economic condition
3. Business environment 3. Supply of raw
condition*
material**
Least
Encouraging
Factor
1. Barriers & red tape
2. Skilled labor**
3. Supply of raw
material
* Significantly different at p < .10
** Significantly different at p < .05
1. Barriers & red tape
2. Transparency & legal
practice*
3. Market condition
Findings: Major Shareholder
Shareholder
Foreign
Thai
Most
Encouraging
Factor
1. Tax concession
2. Economic condition
3. Government policy**
1. Economic condition
2. Tax concession
3. Business environment
condition*
Least
Encouraging
Factor
1. Barriers & red tape
2. Transparency & legal
practice
3. Skilled labor
1. Barriers & red tape
2. Unskilled labor*
3. Transparency & legal
practice
* Significantly different at p < .10
** Significantly different at p < .05
Findings: Years of Establishment
Years
Newly Start-up
Long Established
Most
Encouraging
Factor
1. Economic condition
2. Tax concession
3. Government policy
1. Tax concession
2. Economic condition
3. Government policy
Least
Encouraging
Factor
1. Barriers & red tape
2. Skilled labor*
3. Transparency & legal
practice
1. Barriers & red tape
2. Transparency & legal
practice
3. Domestic
infrastructure
* Significantly different at p < .10
** Significantly different at p < .05