Comparative Analysis of the Foreign Investment Evaluation Practices by U.S.-Based Manufacturing Multinational Companies
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INTRODUCTION
*MarieWicks Kelly is an Associate with McKinsey & Company, Inc., New York.She serves as a consultant to U.S. and overseas multinational corporations in the areas of international strategy, organization, and financial management and is the author of a book on international finance. Mrs. Kelly received her Ph.D. from the Pennsylvania State University, where she also taught courses in internationalbusiness. **George C. Philippatos is the C. H. Butcher, Sr. Professor of Banking and Finance in the College of Business Administration,Universityof Tennessee. He has consulted for governmental agencies and private industry in the U.S., Europe, and Latin America, and has written extensively on domestic and internationalfinance and investments. The paper has benefited significantly from constructive comments made by the Editorand three Journal referees. Earlierversions of the research, presented at various Workshops and the TIMS/ORSA1981 Conference, also benefited from the criticism of colleagues. Journal of International Business Studies, Winter 1982
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months of 1980. The results of the survey indicated that, whereas the foreign direct investment decisions by U.S. manufacturing MNCs follow a pattern of increased sophistication and temporal consistency in decision making, there are significant differences between some practices and generally accepted financial principles. The study is presented in five parts. The first section briefly reviews the recent literature on the FDI and on the capital budgeting/financing decisions by MNCs. The second section presents the research methodology. The thirdsection discusses the responses and juxtaposes the results with accepted financial principles, as discussed in the standard textual and research literatures. The fourth section continues with the analysis of the demographic and behavioral variables. Last, Appendix A contains the survey questionnaire and the summary responses which, because of the structure of the instrument, could not easily be tabulated in the standard format of composite tables and graphs. RECENT Ina recent issue of the Journal, Calvet [4]synthesizes the various hypotheses of LITERATURE foreign direct investment along the "marketimperfections paradigm"and reviews recent developments in the theory of the multinational firm-both as an analytical unit and as a phenomenon of international differentiation of activities and transnational intrafirm integration.1 Briefly, the market imperfections paradigm allows for four broad hypotheses of foreign direct investment as follows: (1) the "market disequilibrium hypothesis," where such instances can be found in the currency, products, labor, and technology markets; (2) the "government imposed distortions hypothesis," where such institutional factors as taxes, tariffs, and nontariff barriers to trade provide the motivational framework;(3) the "market structu
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