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.
Table of Contents
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
Research Objectives and Key Topics
The primary research objective of this paper is to investigate how cultural factors influence the location decisions of multinational enterprises (MNEs). The thesis explores the nexus between national culture, organizational leadership, and the generation of interpersonal trust as a mechanism to reduce transaction costs, specifically focusing on the case of U.S. foreign direct investment (FDI) in Thailand.
- The influence of national cultural value systems (based on Hofstede's framework) on economic behavior.
- The application of Casson's economic theory of business culture to MNE management and trust-building.
- The identification of "cultural fit" as a critical location factor for FDI.
- An anecdotal evidence-based analysis of U.S.-American management experiences in the Thai cultural environment.
Extract from the Book
4.1.1 Individualism and Collectivism
The USA are in the leading position in the world concerning the cultural dimension of individualism. This, for example, is manifested in the role Americans attribute to the government which is supposed to intervene as little as possible in the individual shaping of the citizen's personal destiny. Self-reliance is the first thing a child learns and independence is to be achieved as early as possible (Kearny et. al. 1984, p. 20-21). In combination with low power distance this leads U.S.-Americans to expect everyone to stand up and compete "for the best piece of cake" for themselves (Wasser 1996, p. 43).
Thailand according to Hofstede's study is a collectivist country. Considering the Western bias of his study this outcome can be attributed to the existence of a combination of what Komin (1991) calls the "grateful relationship orientation" and "interdependence orientation" in Thailand. This combination leads to a behavior that must appear collectivist to the Westerner. The grateful relationship orientation is illustrated in the reciprocity of kindness – called Bunkhun in Thailand. It means that anything good someone has done for someone else, including favors, the giving of gifts, granting of credits, delivering of goods, payment of bribes, and so on, is expected to be returned.
Ideally this involves a long term relationship of giving and taking between people on a continuous basis and in a variety of ways without considering any quantitatively measurable material terms. This may help to build highly effective interdependent relationships which lead to the positive outcome of economic transactions as well as successful completion of jobs and projects, if applied properly. In contrast, besides the possibility of one party taking unfair advantage of this value, gratitude may be created in order to establish dependency of subordinates by power centered superiors. Overuse of power will very likely lead to a situation where "there is no deep psychological bond, the 'ego' is kept intact and independent, and the duration of the relationship has no meaning" (Komin 1991, p. 142).
Summary of Chapters
1. Introduction: This chapter introduces the significance of FDI in a globalizing economy and outlines the research objective, which is to analyze the role of culture and trust in MNE location decisions.
2. Theory of International Production: This section defines core concepts like FDI and MNEs while summarizing the Eclectic Paradigm as the foundational theoretical framework for the study.
3. Culture: This chapter establishes the theoretical basis for culture, integrating Hofstede’s value systems and Casson’s economics of business culture to explain how trust influences transaction costs.
4. USA meets Thailand – Issues in Building Trust: This section provides a comparative analysis of the cultural dimensions and environmental factors between the U.S. and Thailand.
5. Culture as Location Factor – Anecdotal Evidence: This chapter presents qualitative findings from interviews with U.S.-American managers in Thailand, focusing on practical experiences and cultural interactions.
6. Discussion – Trust and Multinational Enterprise Location: This section synthesizes the theoretical models with the qualitative observations, exploring how ownership assets, internalization incentives, and location advantages relate to culture.
7. Conclusion: The final chapter summarizes the research, asserting that cultural sensitivity and trust-building are critical, non-neglectable factors in successful MNE strategic planning.
Keywords
Foreign Direct Investment, Multinational Enterprise, International Management, Cultural Factors, Thailand, USA, Eclectic Paradigm, Inter-cultural Trust, Transaction Costs, Hofstede, Business Culture, Leadership, Localization, Globalization, Economic Performance
Frequently Asked Questions
What is the primary focus of this thesis?
The thesis examines how cultural differences and the requirement for interpersonal trust affect the location decisions of multinational enterprises, using U.S. investment in Thailand as a case study.
What is the central research question?
The research asks how an investor's perception of host country culture influences MNE location strategies and how trust can be managed to minimize transaction costs in foreign markets.
Which theoretical framework is applied in this study?
The study primarily utilizes John H. Dunning's "Eclectic Paradigm of International Production" (the OLI framework) and supplements it with Geert Hofstede's cultural dimensions and Mark Casson's theory of business culture.
What methodology does the author use?
The author uses a qualitative approach, conducting in-depth interviews with U.S.-American managers in Bangkok to gather anecdotal evidence regarding their investment motivations and daily management challenges.
What are the main cultural pillars discussed in the context of Thailand?
Key cultural concepts discussed include the "ego orientation," "Bunkhun" (reciprocity of kindness), "Kreng jai" (consideration), and the prevalence of Theravada Buddhism.
How does the author define the relationship between trust and transaction costs?
The author follows Casson's theory, assuming that a higher level of trust within a society or organization leads to lower transaction costs, as there is less need for expensive monitoring and formal enforcement mechanisms.
Why did the author specifically choose to compare the USA and Thailand?
The choice is based on the significant cultural distance between the two nations, providing a clear contrast between an individualist-masculine culture (USA) and a collectivist-feminine culture with unique social structures (Thailand).
What role does the "leader" play in the author's model?
The leader is seen as the central agent who builds trust by influencing the moral consciousness of followers through manipulation (personal efforts/influence) or monitoring (enforcing rules/rewards).
How does "face-saving" impact business operations in Thailand according to the study?
Fear of losing face leads to the avoidance of direct criticism, often resulting in indirect communication and "silent boycotts," which can cause unpredictable delays or failure in business processes if not managed correctly.
What is the conclusion regarding the attractiveness of Thailand for foreign investors?
The study concludes that Thailand is an attractive location for experienced and well-educated investors who can adopt the required "soft" leadership approach to bridge cultural gaps, despite challenges with infrastructure and formal contract reliance.
- Quote paper
- Klaus Schmidt (Author), 1998, Cultural Factors in Multinational Enterprise Location. The Case of Foreign Direct Investment in Thailand, Munich, GRIN Verlag, https://www.grin.com/document/185228
