Cultural Factors in Multinational Enterprise Location. The Case of Foreign Direct Investment in Thailand

Diploma Thesis , 1998 , 93 Pages , Grade: 1.7

Business economics - Investment and Finance

Despite crises and uncertainty in international capital markets, foreign direct investment (FDI) by multinational enterprises (MNE) is booming. The buzzword is globalization. The business world is expected to be moving closer together through more or less recent developments in communication technologies and transportation facilities. The political ideal of democracy along with a liberalization of national economies seems to have finally gained the recognition it deserves as the system that in the end allows for the best utilization of wealth creating endowments. Besides differences in economic development, cultural differences remain as a single important means of distinguishing between people from several nations (Huntington 1996; Axford 1995). The critical issue is that this situation is being recognized and mankind restrains from emphasizing distinctions, and instead focuses on working out compatibility between cultures.

This paper is separated into three interactive parts. Part I deals with the theoretical background behind this study, and after these introductory notes, gives an overview of the theory of international production in order to show which factors influence MNEs and their activities. Part II of the paper is devoted to the interaction between the two cultures of Thailand as a host country and the USA as the investor's home country. First, both value systems and environmental factors are analyzed and compared. Then some findings from interviews with U.S.-American7 investors on cultural factors that influenced their location selection will be summarized in order to provide some anecdotal evidence on how trust was generated in their decision to invest in Thailand. In Part III, the findings from the two previous parts will be synthesized into the theory of international production. Based on the assumption developed in the preceding parts that location decisions are made in pursuit of a fit between the investor's and the host country's cultures, the findings on the influences of inter-cultural trust and leadership on transaction costs will be integrated into the respective components of the Eclectic Paradigm of International Production. Finally, the findings are summarized and some conclusions are drawn.

Inhaltsverzeichnis

• Part I: Introduction and Theoretical Background
• 1. Introduction
• 1.1 Introduction and Objective of the Paper
• 1.2 Outline
• 2. Theory of International Production
• 2.1 Definitions
• 2.1.1 Foreign Direct Investment
• 2.1.2 Multinational Enterprise
• 2.2 Theories of Multinational Enterprise Activity
• 2.3 International Location Decisions and Transaction Costs
• 2.4 The Eclectic Paradigm of International Production
• 3. Culture
• 3.1 Culture in Economic Theory
• 3.2 Cultural Environment of International Business
• 3.2.1 Religion
• 3.2.2 Language
• 3.3 Hofstede's Value System
• 3.3.1 Unequal Distribution of Power
• 3.3.2 Avoiding Uncertainty
• 3.3.3 The Individual and the Group
• 3.3.4 Male and Female Values
• 3.3.5 Confucian Dynamism: Time Orientation
• 3.4 Casson's Economics of Business Culture
• 3.4.1 Trust
• 3.4.2 Leadership
• 3.4.3 Implications for Multinational Enterprises
• 3.5 Environment, Values, and Trust
• 3.6 Shaping Inter-Cultural Trust
• 3.6.1 Contrasting Value Systems
• 3.6.2 Environmental Factors
• Part II: Observations in the Real World
• 4. USA meets Thailand - Issues in Building Trust
• 4.1 Similarities and Distinctions in the Value Systems
• 4.1.1 Individualism and Collectivism
• 4.1.2 Masculinity and Femininity
• 4.1.3 Uncertainty Avoidance
• 4.1.4 Power Distance
• 4.1.5 Long Term and Short Term Orientation
• 4.2 Similarities and Distinctions in the Environment
• 4.2.1 Protestantism and Theravada Buddhism
• 4.2.2 Language
• 5. Culture as Location Factor - Anecdotal Evidence
• 5.1 Research Procedure
• 5.2 Results
• 5.2.1 Initial Consideration
• 5.2.2 Comparing Locations
• 5.2.3 Doing Business in Thailand
• 5.2.4 Sexual Cultures - A Side Note on a Controversial Topic
• 5.3 Conclusions – In Pursuit of the Cultural Fit
• Part III: Synthesis
• 6. Discussion - Trust and Multinational Enterprise Location
• 6.1 Ownership Assets
• 6.2 Internalization Incentives
• 6.3 Location Advantages
• 7. Conclusion
• Appendix: Guideline for Interviews
• Literature
• Notes

Zielsetzung und Themenschwerpunkte

This thesis aims to analyze the role of cultural factors in the location decisions of multinational enterprises (MNEs). It focuses on the case of foreign direct investment (FDI) in Thailand, examining the cultural differences between the United States and Thailand and their impact on trust-building and business relationships. The thesis explores the theoretical frameworks of international production and cultural dimensions, including Hofstede's value system and Casson's economics of business culture.

• The impact of cultural differences on trust-building and business relationships between MNEs and local partners in Thailand.
• The role of cultural factors in the location decisions of MNEs, particularly in the context of FDI in Thailand.
• The application of theoretical frameworks, such as Hofstede's value system and Casson's economics of business culture, to understand the cultural dynamics of international business.
• The importance of cultural fit and its implications for the success of MNEs in Thailand.
• The challenges and opportunities associated with navigating cultural differences in international business.

Zusammenfassung der Kapitel

The first part of the thesis provides a theoretical foundation for understanding international production and cultural factors. Chapter 1 introduces the objective and outline of the paper, while Chapter 2 delves into the theory of international production, defining FDI and MNEs and exploring various theories of MNE activity. Chapter 3 examines the role of culture in economic theory and international business, focusing on Hofstede's value system and Casson's economics of business culture.

The second part of the thesis presents observations from the real world, focusing on the cultural differences between the United States and Thailand. Chapter 4 analyzes similarities and distinctions in the value systems of both countries, including individualism, masculinity, uncertainty avoidance, power distance, and long-term orientation. It also examines the influence of religion and language on cultural differences. Chapter 5 explores the role of culture as a location factor, drawing on anecdotal evidence from the author's research experience in Thailand.

The third part of the thesis synthesizes the theoretical and empirical findings. Chapter 6 discusses the relationship between trust and multinational enterprise location, examining the role of ownership assets, internalization incentives, and location advantages. Chapter 7 concludes the thesis, summarizing the key findings and highlighting the importance of cultural understanding for successful international business operations.

Schlüsselwörter

The keywords and focus themes of the text include cultural factors, multinational enterprise, foreign direct investment, Thailand, trust, business culture, Hofstede's value system, Casson's economics of business culture, location decisions, and international business.

• College: University of Paderborn
• Grade: 1.7
• Author: Klaus Schmidt (Author)
• Publication Year: 1998
• Pages: 93
• Catalog Number: V185228
• ISBN (eBook): 9783656983064
• ISBN (Book): 9783867461337
• Language: English
• Tags: cultural, factors, multinational, enterprise, location, case, foreign, direct, investment, thailand