1. Locational Determinants of Foreign Direct Investment: A Case of Thailand Dr. Viyada Valyasevi UniSA, 14 Apr. 2009

2. The Research Factors (most / least) encourage direct investment of foreigners into Thailand. Factors (most / least) encourage direct investment of foreigners into Thailand. Foreign Direct Investment (FDI) 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

3. The Importance of FDI Significantly contribute to development and economic growth of host countries. 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). 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. Allow host countries to invest in activities beyond their domestic saving capabilities.

4. FDI vs. Thailand Thailand faces with intense competition from China, India, and Vietnam (so need to revise investment incentives for FDI). 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. Limited number of research have done based on Thai characteristics, and all were aged. Understanding what determines investment location choices: Understanding what determines investment location choices: – Provide tools for FDI agency (BOI) to formulate their strategies to attract desirable FDI.

5. Research Question What are the factors most / least encourage FDI into Thailand? What are the factors most / least encourage FDI into Thailand? Are there different requirements between each type of FDI? 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

6. Research Model Foreign Decision to Invest in Thailand Moderators  Industry type  Market orientation  Sourcing orientation  Inter-group dependency  Size of investment Moderators  Industry type  Market orientation  Sourcing orientation  Inter-group dependency  Size of investment Locational Determinants

7. Methodology: Design Seven Likert scale self-administered questionnaire survey (in English, Chinese, and Japanese languages) 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, Mailed to 1,188 FDIs, – Randomly sampling from the official list of Board of Investment of Thailand – Posted return envelope included

8. Methodology: Data Analysis Response rate: 8.7% (103 / 1,188) 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) Non-response bias test done (comparing demographic characteristics, Armstrong & Overton, 1997) Factor analysis, resulting in 13 determinant factors (grouped from 63 items) Factor analysis, resulting in 13 determinant factors (grouped from 63 items) MANOVA (Multivariate Analysis of Variance) to test hypothesis MANOVA (Multivariate Analysis of Variance) to test hypothesis

9. Methodology: Data Analysis The 13 determinant factors: 1.Tax concession (on imports, corporate tax, income expatriation) 2.Economic condition (GDP, economic growth of Thailand) 3.Government policy (political stability, FX policy, intellectual property law) 4.Market condition (trend, size & competition in Thailand & neighboring countries) 5.Barriers & red tape (govt. bureaucracy, restriction on land ownership) 6.Transparency & legal practices (accounting & audit standard, corporate governance) 7.Environment condition (living condition of expatriates, attitude towards foreigners) 8.Supply of raw material 9.Skilled labor (availability & cost) 10.Unskilled labor (availability & cost) 11.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)

10. Findings: Overall Top most encouraging factors – Tax concession – Economic condition – Government policy Top least encouraging factors – Barriers & red tape – Transparency & legal practice – Skilled labor

11. Findings: Industry IndustryManufacturingService 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

12. 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

13. Findings: Sourcing Orientation Sourcing Local Sourcing Import Oriented Most Encouraging Factor 1.Tax concession 2.Economic condition** 3.Government policy* 1.Tax concession 2.Market condition 3.Environment condition Least Encouraging Factor 1.Barriers & red tape 2.Unskilled labor 3.Transparency & legal practice 1.Barriers & red tape 2.Transparency & legal practice 3.Supply of raw material** *Significantly different at p <.10 **Significantly different at p <.05

14. Findings: Inter-group Dependency Inter-groupNon-group Group depended Most Encouraging Factor 1.Tax concession 2.Economic condition** 3.Government policy 1.Tax concession 2.Market condition 3.Unskilled labor Least Encouraging Factor 1.Barriers & red tape 2.Transparency & legal practice 3.Unskilled labor 1.Supply of raw material** 2.Barriers & red tape 3.Skilled labor* *Significantly different at p <.10 **Significantly different at p <.05

15. Findings: Firm Size SizeSME 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

16. Conclusions & Implications Each type of FDI has different investment determinants. Each type of FDI has different investment determinants. Thai government should tailor their incentives provided to attract only desirable FDI. 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 non- financial incentives (economic & market conditions, barriers & red tape, and legal transparency) could easily attract FDI, without additional cost to the country. Though financial incentives (tax concession) is the most encouraging factor for every type of FDI, enhancing non- financial 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). More attention should be paid on top least encouraging factors (barriers & red tape, legal transparency, skilled labor).

17. Limitation & Future Research Limitation: Low response rate Low response rate Changing environments (financial/economic crisis, political stability, Free Trade Agreements, climate changes, sustainability issues) Changing environments (financial/economic crisis, political stability, Free Trade Agreements, climate changes, sustainability issues) Future Research: Replicate this research (to confirm Generalization) Replicate this research (to confirm Generalization) Add more factors, e.g. sustainability requirements Add more factors, e.g. sustainability requirements Ask for support from government agency, to enhance response rate Ask for support from government agency, to enhance response rate

18. Q & A Thank you

19. Findings: Nationality NationalityAsianWesterner Most Encouraging Factor 1.Tax concession 2.Economic condition 3.Business environment condition* 1.Tax concession 2.Economic condition 3.Supply of raw material** Least Encouraging Factor 1.Barriers & red tape 2.Skilled labor** 3.Supply of raw material 1.Barriers & red tape 2.Transparency & legal practice* 3.Market condition *Significantly different at p <.10 **Significantly different at p <.05

20. Findings: Major Shareholder ShareholderForeignThai 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

21. 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