Information Search for Foreign Direct Investment Using Two-Stage Country Selection Procedures: A New Procedure
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Chaim Ehrman,receivedhis Ph.D. in Marketingfrom the WhartonSchool, 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 currentresearchinterestsareInternationalMarketing,ConsumerBehavior, and subsetSelectionProceduresfor BusinessApplications. ** MorrisHamburgis Professorof Statistics and OperationsResearchat the Wharton School. His publications include researchmonographs,books, and numerousarticles in professionaljournals. He has been the directorof researchstudiesandhas servedas a consultant to corporationsand as an expert witnessto law firmsandto government agencies.This articlestemmedfrom work begun by ChaimEhrmanin a doctoraldissertationsupervisedby MorrisHamburg. t The authors acknowledge The Center for InternationalBusinessStudies at The WhartonSchool of the University of Pennsylvaniafor financial support. The first author acknowledgesProfessorAbba Krieger,Universityof PennsylvaniaandDr. Harold R. Shirefor guidance,encouragement,andfor constructivecomments. DateReceived:April 1985; Revised:Augustand September1985;Accepted:October1985.
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JOURNALOF INTERNATIONALBUSINESSSTUDIES, SUMMER1986
commodity with the intention of selling the finished commodity to the markets of the host country as well as other markets. We exclude foreign investment for extractive purposes, such as mining and oil drilling, from our definition of F.D.I. The term "foreign investment" ordinarily includes investment for extractive purposes, such as mining and oil drilling. The focus of our researchis to propose new screening methodologies for country selection in foreign investment endeavors. When an investment is geared toward extraction of raw materials, the screening problem may be trivial. A country can be considered a viable candidate for extraction investment if two prerequisites are met. First, the country must have deposits in sufficient quantities to make extraction economically feasible. Second, the government of the host country must be willing to allow foreign companies to extract these resources at a profit. Because the number of countries that meet these two prerequisites is not large, a two-stage screening process may be unnecessary. Therefore, we restrict our focus to foreign direct investment for manufacturing and production, and not to extractive activities. Many countries are.suitable candidates for production and manufacturing, and for these activities country selection is a significant problem. The field of foreign direct investment is becoming increasinglyimportant for both American firms and foreign firms. Many forces that encourage F.D.I. have been documented in the literature. Economic factors include comparative advantages, such as access to factors of production (land, labor, and capital) at lower cost or with greater e
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