Information Search for Foreign Direct Investment Using Two-Stage Country Selection Procedures: A New Procedure

Abstract

This paper reports the development and testing of a normative model for determining how firms should select the countries to be used in the information search for foreign direct investment. After a subset of countries is selected in the first stage of the decision process, a final selection process chooses the country with the best score within the subset: A "percentile method of subset selection" for singling out clusters of countries for information search and for identifying the best of the subset is presented that performs better than maximum country rankings ("top means") and maximum uncertainty ("top variance") techniques of subset selection. As an illustration, the percentile selection method is applied empirically.The research reported in this paper focuses on the development and testing of a normative model on how firms should specify the countries for which to carry out the information search for foreign direct investment (F.D.I.) The term "foreign direct investment" is used herein as the investment in a manufacturing facility in a host country to produce a given * Chaim Ehrman, receivedhis Ph.D. in Marketing from the Wharton School, University of Pennsylvania, 1984. He is an AssistantProfessorat LoyolaUniversity, and this paper was written while he was an AssistantProfessorat the University of Illinois at Chicago. His currentresearchinterestsareInternational Marketing, Consumer Behavior, and subsetSelectionProceduresfor Business Applications. ** Morris Hamburg is Professorof Statistics and Operations Researchat the Wharton School. His publications include research monographs,books, and numerousarticles in professionaljournals. He has been the directorof researchstudiesandhas servedas a consultant to corporations and as an expert witnessto law firmsandto government agencies. This articlestemmedfrom work begun by ChaimEhrmanin a doctoraldissertation supervisedby Morris Hamburg. t The authors acknowledge The Center for InternationalBusinessStudies at TheWhartonSchool of the University of Pennsylvania for financial support. The first author acknowledges ProfessorAbba Krieger,University of Pennsylvania andDr. Harold R. Shirefor guidance,encouragement, andfor constructivecomments.

Internet-based information and foreign direct investment (FDI) location decision making: An information cost perspective

“…Since the decision of choosing an investment site is characterized by asymmetric information, the choice is driven by the information available on relevant key factors (Ehrman and Hamburg, 1986). So, because ICT facilitates information access about a host country"s business environment, one will expect it to reduce both information cost and transaction cost (Nooteboom, 1992).…”

Using an Intelligent Database in the Classroom

“…Other frameworks have been proposed that particularly relate to information requirements for country assessment in selecting export markets (Bodur and Cavusgil, 1984;Cavusgil, 1984aCavusgil, , 1984bCavusgil, , 1985Daser, 1984;Kahler, 1983;Trip, 1985;Walters, 1983;Wood and Goolsby, 1987). Furthermore, Ehrman and Hamburg (1986) have studied information requirements for country selection in foreign direct investment. The need for initial screening and the related information are also discussed in some of the studies mentioned above (Cavusgil, 1984b(Cavusgil, , 1985Daser, 1984;Douglas and Craig, 1988;Ehrman and Hamburg, 1986;Kahler, 1983).…”

“…Furthermore, Ehrman and Hamburg (1986) have studied information requirements for country selection in foreign direct investment. The need for initial screening and the related information are also discussed in some of the studies mentioned above (Cavusgil, 1984b(Cavusgil, , 1985Daser, 1984;Douglas and Craig, 1988;Ehrman and Hamburg, 1986;Kahler, 1983). All of these frameworks include various constructs or information categories which are briefly described below (see Evirgen, 1990, for a detailed description of each of these frameworks).…”

“…In the literature, the importance of obtaining information on the demographic, political, e&nomic, cultural and legal environments has been emphasized by various authors (Bodw and Cavusgil, 1984;Cavusgil, 1984b;Cavusgil, 1985;Daser, 1984;Douglas and Craig, 1988;Ehrman and Hamburg, 1986;Hutcheson, 1984;Jobber, 1982;Kahler, 1983;Keegan, 1984;Staudt et al, 1976;Walters;Wood and Goolsby, 1987). Trip (1985), on the other hand, mentions environmental information in a broad sense and does not describe which types of information should be included.…”

“…(Davidson, 1983;Douglas and Craig, 1988;Ehrman and Hamburg, 1986;Jobber, 1982;Tripp, 1985). Moreover, Cavusgil (1985) has found that the information requirements of f i s tend to follow a three step sequential process.…”