How supply competency affects FDI decisions: Some insights

Foreign investment decisions by multinational enterprises are usually arrived by considering not just the firm-specific factors, but location-specific factors are also of paramount importance. Using three supply factors specific to a country – supply environment, supply infrastructure, absorptive capacity, we construct a rating system representing the potential of a nation to attract foreign direct investment (FDI). We use the combinatorics- and Boolean-based logical analysis of data (LAD) method to capture the individual and combined impact of the supply factors on the FDI inflow. The LAD classification system is shown to be robust, cross-validating very well, thereby allowing its use for prediction purposes, and permitting the derivation of a rating system that can have various granularity levels. By linking FDI potential with supply capability related factors, the findings of this research contribute to future FDI decisions by firms as well as provide assistance and direction to strategic planners of countries that seek to enhance their attractiveness as FDI destinations. As technology matures, production processes start to lack differentiation and firms look to establish facilities globally to become more competitive. This study enhances decision-making process pinpointing areas for focused consideration.