The Determinants of U.S. Direct Investment in Thailand: A Survey on Managerial Perspectives

This research study explored the motives and determinants of FDI and MNEs activity in Thailand. Thailand was chosen in this study since Thailand has earned a remarkable reputation for the past strong economic success. Thailand is also a good representative of newly developing countries in Southeast Asia region. This study therefore looks at the role of Ownership advantage, Location advantage, and International advantage as a set out in Eclectic Paradigm. This study tested empirically some of the determinants and strategic motivations of FDI based on managerial perceptions using a primary data. Based on the extent of literature, several hypotheses are developed regarding the components of the Eclectic paradigm and the motivational type of FDI. This study used a 7 point a Likert scale survey instruments were mailed to top executives of US. firms in Thailand. A total of 100 companies' responses were obtained and worth analysis. Data analysis in this study uses simple and multiple regressions to analyze data and test hypotheses. The statistical package for social science (SPSS) version 9.01 was used in this analysis. Finally, the research findings provide useful insights into the investing behavior of US. firms in Thailand. The research results show firm size, market potential, investment risk, market seeking, and resource seeking as factors affecting US. firm investment in Thailand. INTRODUCTION During the 1970s and early 1980s the share of foreign direct investment (FDI) in developing countries from all sources decreased from 20 percent to about 10 percent (World Bank, 1993). The subsequent increase in FDI flows in the 1990s remained insufficient to explain the drastic decline of other types of private capital transfer to the developing countries (OECD, 1993). Recently, overall FDI flows have been increasingly concentrated in the industrialized world although many developing countries' economies have adopted more favorable attitudes and policies towards FDI since the beginning of the 1980s. In addition, economic reforms in Eastern European countries may render it even more difficult for developing countries to attract further FDI in the future. The question of how to revitalize FDI flows to developing countries is all the more relevant today, as expectations are focused increasingly on FDI to alleviate foreign debt problems and to satisfy the need of these countries for financial, technical, and entrepreneurial resources. Many developing countries, however, may not only be constrained in terms of FDI inflows but also in terms of private lending. Attempts to alter the external financing structures of some of these countries toward increasing the role of transfers involving risk and profit sharing may suffer. In order to overcome constraints in the supply of FDI, the determinants of FDI flows have to be identified in the first place. The intent of the present study is therefore to identify determinants of FDI flows in Thailand. PROBLEM BACKGROUND Foreign direct investment (FDI) has always played an important role in the economic development of Thailand. In the early 1980s, Thailand's economy was weakened by the two oil shocks of the 1970s, which caused deterioration in its balance of payments and resulted in increased external indebtedness and domestic inflation (Lim and Fong, 1990). However, the situation turned around sharply in 1987 when Thailand's Sixth National Economic and Social Development Plan, covering the five years period from 1987-1991, began to take effect. One of the key strategies for the economic recovery in Thailand was the promotion of foreign private investment in their country and manufactured exports. For the first time, the Thai government promoted foreign investment activities. Since then, Thailand has had one of the world's fastest growing economies, averaging more than 10 percent from 1987 to 1991 (USDC, 1994). In 1993, Thailand's gross domestic product stood at $124 billion with an annual growth rate of 7. …