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This paper seeks to provide a rationale for changing trends in the flow and determinants of foreign direct investment (FDI) as a result of macro-economic and firm strategy considerations. We identify several factors that impact on such trends, and develop propositions that could explain the phenomenon generically. The study then provides preliminary empirical support for the propositions presented, and outlines the path for further research needed to investigate more causal links. The statistical analysis of investments by US multinational enterprises (MNEs) reveals significant changes in the regional distribution of FDI, and a change in some of its traditional determinants. Results show that US MNEs are now making increasing investments into Asia to exploit low wage levels and to secure entry into new markets. Journal of International Business Studies (2003), 34, 315–326. doi:10.1057/palgrave.jibs.8400034

In this studywe empiricallyinvestigatethe determinants of foreign direct investment of service multinationals based in the "triad" regions:Japan,WesternEuropeand North America. Foreign investment decisions of 168 of the largest service firms in nine service industriesover the period 1976-1986are analyzed and hypothesesthat are developedbased on findingsof manufacturing FDI and studies of single service industries are tested using a logistic regression model. The applicability of the MNE-FDI theories to service MNEs is tested empirically over a broad range of MNE home countriesand service industries.Differences in the international behavior of service MNEs based in different countries are uncovered and analyzed. The significant expansion of foreign direct investment (FDI) in service industries during the last decade has received growing attention among researchers, corporate managers and policy makers. The growth of FDI in services has been particularlymarked in developed market economies. Like their manufacturing counterparts, most large service MNEs engage in a wide range of equity and non-equity foreign involvements. Dunning [1989] reviews the conceptual and theoretical issues in applying the eclectic theory of international production to explain the international behavior of service MNEs. Boddewyn, Halbrichand Perry [1986] suggest that, although theories of FDI and the multinational enterprise (MNE) can be applied to service *JiataoLi is AssistantProfessorof StrategyandInternational Managementat the Universityof Hawaiiat Manoa. **Stephen Guisinger is Professor of hiternational Management StudiesattheUniversity of Texas at Dallas.

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Theorists using the eclectic paradigm have drastically restricted their analytic scope to the firm and its subsidiaries, rarely exploring more finely grained firm structures, such as business processes. By contrast, organisational theorists examining multinational firm behaviour have employed a richly differentiated array of firm structural forms though without developing a precise delineation of the international business environment. Eclectic researchers are adept at handling environmental, but not structural, complexity, while the reverse seems true for organisational theorists. This study extends the eclectic paradigm by incorporating higher levels of environmental and structural complexity through two methods: (1) a deconstruction of the multinational firm into business processes; and (2) a more complete definition of the international business environment, called geovalent elements. The paper argues that an enhanced eclectic paradigm called OLMA (for Ownership, Location, Mode of entry, and Adjustment) provides the complete set of concepts needed for studying the modern multinational firm.Multinational Firms, International Business, Theory, Eclectic Paradigm, Adaptation, Environment,