Cultural Factors in Multinational Enterprise Location. The Case of Foreign Direct
Investment in Thailand
Clarke Ricks School of Business,
Liberty University
BUSI 690: Policy and Strategy in Global Competition
Dr. Hicks
June 30, 2022
Cultural Factors in Multinational Enterprise Location. The Case of Foreign Direct
Investment in Thailand
Foreign Direct Investment (FDI)8 has to be distinguished from ex- porting and licensing as
one of the three archetypal methods of servicing foreign markets. According to Rugman (1985),
as an alter- native to producing abroad by engaging in FDI, a firm has the choice to either
produce at home and service foreign markets by exporting or to license production to a firm in
the respective country.
In order to be called foreign direct investment, an economic transac- tion must fulfill three
prerequisites. First, the investing party has to come from a country other than the one where
the investment takes place. Secondly, the investing entity has to achieve ownership of as- sets
in the host country. It has to be able to execute control of deci- sion making over these assets
as well as bear the risk of ownership and utilization thereof. The third prerequisite is that
capital has to flow from the investor's country of origin to the country of destination. Pro- vision
number two implies that pure portfolio investments are not considered as FDI (e.g. Robock &
Simmonds 1989, Dunning 1993a, and Hymer 1976). For a comparison of direct and indirect (or
portfo- lio) investment see Table 2.1. FDI may take the forms (choices of entry mode) of joint
ventures, wholly owned greenfield investments, or acquisitions (e.g. Kogut & Singh 1988).
Investments in joint ventures are considered FDI if the foreign investor "can exert a significant
amount of control or influence over decision making in a foreign company" (Dunning 1993a, p.
5).
MULTINATIONAL ENTERPRISE
The term Multinational Enterprise (MNE)9 implies that the respective company is actively
involved in economic transactions in more than one nation. According to Rugman (1985, p. 7),
the MNE producesabroad as well as at home. Production thereby includes not only the
manufacturing of physical goods but also foreign investment in serv- ices such as finance,
insurance, construction, transportation, com- munication, and retail trade.
The question is how large the international operations must be and in how many countries
a corporation must be involved in order to be classified as an MNE. Rugman (1979), for
example, proposes the use of a ratio of foreign to total operations. However, he does not state
at which ratio a company reaches the status of an MNE.
John H. Dunning defines a MNE as "an enterprise that engages in foreign direct investment
and owns or controls value-adding activities in more than one country" (Dunning 1993a, p. 3;
for a similar defini- tion see also Caves 1996, p. 1). This prerequisite is sufficient, because fixing
a point when a company turns "multi"-national is arbi- trary, especially due to the fact that
companies' involvement most often may exceed pure ownership. In addition to the forms of
FDI described above, this involvement may take the form of subcontrac- tual agreements where
firms may build into these agreements the right to execute financial or operational control over
the subcontrac- tors. This may especially be the case when a supplier of components or
specialty products is dependent on a sole customer (Dunning 1993a, p. 5-6).
This definition leads to the assumption that the Eclectic Paradigm of International
Production (ch. 2.4) can be applied in the research of small and medium sized companies just as
well as in that of large corporations. For a company to be called an MNE it may be suffi- cient,
for example, that its American owner operates an office in Thailand while still having affiliates in
the USA who may be subcon- tractors supplying supportive knowledge, data, and technology in
the service industry, or being the single customer in the import-export business. Stressing this
point has practical as well as theoretical rea- sons, which will become important in chapter five.
