i
Location Specific Determinants of Foreign Direct
Investment: An exploratory study of Japanese
Investment in Ireland
Rona...
ii
I hereby certify that this material, which I now submit for assessment on the
programme of study leading to the award o...
iii
Acknowledgements
I would like to thank Kathryn Cormican for her guidance as my supervisor, Dr
Majella Giblin for her h...
iv
Table of Contents
Acknowledgements........................................................................................
v
3.1 Introduction........................................................................................ 22
3.2 Research...
vi
Table of Tables
Table 3-1: Semi-Structured Interview Themes ....................................................28
Tabl...
vii
Abstract
Ireland has long been a prime location for foreign direct investment (FDI) by
Multinational Corporations (MNC...
1
1 Chapter One: Introduction
This introductory chapter provides a brief overview of the problem definition,
the case stud...
2
the complex mix of socio-cultural, political, economic and business factors that
influence FDI decisions. While these th...
3
1.2 The Research Question
1.2.1 Introduction
This research aims to provide an exploratory review of the investment clima...
4
1.3 Significance of the Research
Since the establishment of the IDA in 1970, there has been an ever-increasing
focus on ...
5
The MNCs that are attracted to invest in Ireland are primarily US firms as
evidenced by Ireland’s FDI inflows and stock ...
6
Thus, much of the literature on FDI in Ireland has focused on the reasons for
these US firms investing in Ireland during...
7
1.4 Outline of the Thesis
The first chapter of this paper, this chapter, provides a brief overview of the
thesis beginni...
8
2 Salient Features of Foreign Direct Investment
2.1 Introduction
This chapter aims to provide a review of the recent con...
9
least onerous government restrictions will be most attractive to Japanese
investors.
2.2.2 Low corporate tax rates
The c...
10
2.2.3 Low-risk Political Environment
As with any MNC decision, risk plays an important part in the decision to
invest i...
11
2.2.4 High-Quality Government Institutions
The qualities of government institutions play an important role in attractin...
12
Yu, 2010; Artige & Nicolini, 2005) and certain types of FDI (Lim, 2001).
Furthermore, Wheeler and Mody (1992) found tha...
13
In their research on FDI in central Europe, Barry & Bradley (1997) posit that
FDI was enabled through a stable macroeco...
14
have shown that corruption increases the level of risk and costs and impacts
FDI flow (Mauro, 1997; Wei, 2000; Rios-Mor...
15
Singh and Jun (1995) also find that export orientation is the strongest
determinant of host country attractiveness for ...
16
2.3.6 Labour Force Costs and Productivity
Although the market size may affect FDI inflows, the quality of the human
cap...
17
al. (2001) found that the access to high skilled labour is a significant
determinant of a nation’s location advantage a...
18
strongly influenced by the fact that other key market players are already
located in Ireland (Lim, 2001). In addition, ...
19
2.4 Literature on the Importance of Business Enablement
2.4.1 Access to Progressive Investment Promotion Incentives
Ini...
20
2.4.2 Access to Local Amenities and High Quality of Life
Other business facilitation efforts that influence the locatio...
21
2.5 A Conceptual Framework for FDI Determinants
Based on the literature review of policy, economic and business facilit...
22
3 Research Methodology
3.1 Introduction
This chapter explains the research methodology employed for this study and
the ...
23
3.2.2 Research Methods
In this study, a mix of qualitative and quantitative methods is used to answer
the research ques...
24
3.2.2.1 Mixed Methods Research
The framework in Figure 3-1 shows how the study employed both quantitative
and qualitati...
25
3.3 The Research Project
3.3.1 Selecting the Research Topic
The author identified two reasons to study the determinants...
26
generalized by combining the existing theoretical knowledge with new
empirical insights (Yin, 1994).
Research suggests ...
27
(Yin, 2003). This study used documentation and interviews with senior staff
within the company with direct experience o...
28
(viii) The ease of doing business,
(ix) Quality of labour
(x) Previous knowledge of the investment
location
Perceptions...
29
which were included in the sample frame. To obtain further insight into foreign
investment by Japanese firms in Ireland...
30
Qualitative Artige & Nicolini
(2006)
Identify the most positive and statistically
significant determinant of FDI
Quanti...
31
agglomeration of efficient suppliers, competitors, support institutions and
services”
(Puga & Venables, 1999; Liang, 20...
32
Yang (2005) describes the Kano model with five categories of quality
attributes: attractive, one-dimensional, must-be, ...
33
 Country attributes are better understood: The country features that
have the greatest influence on foreign investor a...
34
Kano Response
Choices
Description
I like it This is the most positive answer. It means that the
factor is very attracti...
35
8 KG Aircraft Leasing Co Ltd Self-administered Financial Services
9 Neriki Europe Ltd Self-administered Industrial Prod...
36
can be increased by meeting an FDI requirement, or whether fulfilling the FDI
requirement merely prevents the customer ...
37
3.5 Conclusion
In summary, this study proposes to identify the location-specific determinants
of FDI in Ireland for Jap...
38
4 Findings and Discussion
4.1 Introduction
This section presents the findings from the two-phased process outlined in
c...
39
4.2.2 Demographic Data
Respondents were asked to supply demographic data as outlined below. A
summary of the demographi...
40
4.2.3 Analysis using the Kano Model
Before presenting the Kano Questionnaire results, the question topics as shown
in A...
41
4.2.4 Survey results
This survey consisted of 23 topics, with each topic having two sub-questions
(functional and dysfu...
42
4.2.5 Prioritised Survey results
Berger et al. (1993) proposed that simply viewing the satisfaction and
dissatisfaction...
43
The results are difficult to decipher so the relevant section of the graph has
been extracted in Figure 4-5 below. The ...
44
1. The Quality People Triangle: The Japanese firms attach significant
importance to the FDI factors of Productivity, Sk...
45
4.2.6 Top 5 FDI Determinants
The questionnaire asked respondents to nominate the top five most important
determinants f...
46
Figure 4-7: Top 5 FDI Determinants from Survey
4.2.7 Discussion on Questionnaire Findings
The results of the survey as ...
47
Figure 4-8: Role of Policy Determinants (Group 2)
Previous research has failed to reach consensus on the impact of poli...
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland
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Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland

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A thesis researching Location Specific Determinants of Foreign Direct Investment of Japanese firms investing in Ireland. This thesis uses the Kano Model for the first time as a lens to examine FDI. Submitted to the National University of Ireland, Galway as part of my Masters in Technology Managment.

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  1. 1. i Location Specific Determinants of Foreign Direct Investment: An exploratory study of Japanese Investment in Ireland Ronan Patrick Coy, B. Eng. A Research Dissertation submitted in partial fulfilment for the Degree of Masters of Science in Technology Management of the National University of Ireland, Galway College of Business, Public Policy and Law School of Business & Economics Head of Department: Dr. Emer Mulligan Research Supervisor: Kathryn Cormican Submission: August 2012
  2. 2. ii I hereby certify that this material, which I now submit for assessment on the programme of study leading to the award of Master of Science in Technology Management, is entirely my own work and has not been taken from the work of others save and to the extent that such work has been cited and acknowledged within the text of my work. Student ID Number 10101315 Name of Candidate Ronan Coy Signature of Candidate Date
  3. 3. iii Acknowledgements I would like to thank Kathryn Cormican for her guidance as my supervisor, Dr Majella Giblin for her help and direction and to the respective lecturers on the MSc in Technology Management, for their support. My gratitude goes to all those who willingly participated in and devoted some of their valuable time to this research. Finally, I would like to thank my family for their support, understanding and baby-sitting duties. I particularly want to thank my wife Susan and my son James for their patience as I completed my studies.
  4. 4. iv Table of Contents Acknowledgements............................................................................................iii Table of Tables ..................................................................................................vi Table of Figures.................................................................................................vi Abstract.............................................................................................................vii 1 Chapter One: Introduction.......................................................................... 1 1.1 Background to the Research ................................................................ 1 1.2 The Research Question ........................................................................ 3 1.2.1 Introduction................................................................................... 3 1.2.2 Research Questions....................................................................... 3 1.3 Significance of the Research................................................................ 4 1.4 Outline of the Thesis............................................................................ 7 2 Salient Features of Foreign Direct Investment ........................................... 8 2.1 Introduction.......................................................................................... 8 2.2 Literature on the Importance of Government Policy ........................... 8 2.2.1 Proactive Role of Government ..................................................... 8 2.2.2 Low corporate tax rates ................................................................ 9 2.2.3 Low-risk Political Environment ................................................. 10 2.2.4 High-Quality Government Institutions....................................... 11 2.2.5 Industrial Policies for Knowledge Clusters................................ 11 2.2.6 International Trade Agreements on FDI..................................... 11 2.3 Literature on the Importance of Economic Activity .......................... 12 2.3.1 Strong Macroeconomic Conditions............................................ 12 2.3.2 Access to Local Capital within a Stable Banking System.......... 13 2.3.3 Low Levels of Corruption and Risk ........................................... 13 2.3.4 Access to a Strong Export Market.............................................. 14 2.3.5 Growing Domestic and Regional Markets ................................. 15 2.3.6 Labour Force Costs and Productivity ......................................... 16 2.3.7 Access to High-skilled Labour ................................................... 16 2.3.8 Clusters and Agglomeration Effects........................................... 17 2.3.9 Low-cost operating environment & High Quality Infrastructure18 2.4 Literature on the Importance of Business Enablement ...................... 19 2.4.1 Access to Progressive Investment Promotion Incentives ........... 19 2.4.2 Access to Local Amenities and High Quality of Life................. 20 2.4.3 Previous Investment or Knowledge of Ireland ........................... 20 2.5 A Conceptual Framework for FDI Determinants .............................. 21 2.6 Conclusion ......................................................................................... 21 3 Research Methodology............................................................................. 22
  5. 5. v 3.1 Introduction........................................................................................ 22 3.2 Research Design................................................................................. 22 3.2.1 Research Questions..................................................................... 22 3.2.2 Research Methods....................................................................... 23 3.3 The Research Project ......................................................................... 25 3.3.1 Selecting the Research Topic...................................................... 25 3.3.2 The Qualitative Research Phase ................................................. 25 3.3.3 The Quantitative Research Phase ............................................... 28 3.4 Limitations of Methods Used............................................................. 36 3.5 Conclusion ......................................................................................... 37 4 Findings and Discussion........................................................................... 38 4.1 Introduction........................................................................................ 38 4.2 Findings from Questionnaire ............................................................. 38 4.2.1 The Survey Sample..................................................................... 38 4.2.2 Demographic Data...................................................................... 39 4.2.3 Analysis using the Kano Model.................................................. 40 4.2.4 Survey results.............................................................................. 41 4.2.5 Prioritised Survey results............................................................ 42 4.2.6 Top 5 FDI Determinants............................................................. 45 4.2.7 Discussion on Questionnaire Findings ....................................... 46 4.3 Findings from Interviews................................................................... 51 4.3.1 Perceptions of Policy Determinants............................................ 51 4.3.2 Perceptions of Economic Determinants...................................... 56 4.3.3 Perceptions of Business Enablement Determinants ................... 61 4.3.4 Encouraging Further Japanese Investment ................................. 65 5 Conclusions .............................................................................................. 67 5.1 Introduction........................................................................................ 67 5.2 Secondary Research Questions.......................................................... 68 5.2.1 Secondary Research Question One............................................. 68 5.2.2 Secondary Research Question Two............................................ 71 5.3 Primary Research Question................................................................ 72 5.4 Limitations and Further Studies......................................................... 73 6 References................................................................................................. 74 7 Appendices ............................................................................................... 87 7.1 Appendix I Online Questionnaire ...................................................... 87 7.2 Appendix II: Interview Format .......................................................... 93
  6. 6. vi Table of Tables Table 3-1: Semi-Structured Interview Themes ....................................................28 Table 3-3: Kano Response Choices (Kano, et al., 1984; ter Maat, 2011).....34 Table 3-4: Table of All Japanese Firms in Ireland included in survey .........35 Table 3-5: Table of other respondents included in Survey..............................35 Table 3-6: Kano Evaluation Table (Source (ter Maat, 2011; MacDonald, et al., 2006; Berger, et al., 1993)......................................................................................35 Table 4-2: Short Names for Topics addressed in Survey Questionnaire....40 Table 4-3: Kano Questionnaire Results (Group 2) ..............................................41 Table 4-4: Average Dysfunctional, Functional and “self-stated-importance” scores ....................................................................................................................................42 Table 4-5: Details of Interviews..................................................................................51 Table of Figures Figure 1-1: Sources of FDI in Ireland 2009. Source: (Department of Enterprise, Trade & Innovation, 2010, p. 15)...........................................................2 Figure 1-2: FDI in Ireland by Employment Numbers (IDA Ireland, 2012)...5 Figure 2-1: Conceptual Framework of FDI determinants ................................21 Figure 3-1: Mixed Method Research Design Framework .................................23 Figure 3-2: Details of Interviews................................................................................28 Figure 3-3: Focus of FDI research by various authors.......................................30 Figure 3-4: The Kano Model (Source adapted from (Yang, 2005)) ..............31 Figure 3-5: Description of Kano Categories (Adapted from (Berger, et al., 1993, pp. 3-5))...................................................................................................................32 Figure 4-1: Survey Sample and Response Rate ....................................................38 Figure 4-2: Summary of Demographic Data ..........................................................39 Figure 4-3: Kano Category Selection Calculation. Source (Berger, et al., 1993, p. 13).........................................................................................................................41 Figure 4-4: Kano Functional Dysfunctional Graph. Source (Berger, et al., 1993).....................................................................................................................................42 Figure 4-5: Constellations of Importance ...............................................................43 Figure 4-6: Results from Top 5 Ranking in Survey .............................................45 Figure 4-7: Top 5 FDI Determinants from Survey...............................................46 Figure 4-8: Role of Policy Determinants (Group 2) ............................................47 Figure 4-9: Economic Determinants of FDI............................................................48 Figure 4-10: Business Facilitation Determinants of FDI - Results ................49 Figure 4-11: Alignment of Policies with needs of Japanese MNCs................55 Figure 5-1: Top-Five FDI Factors ...............................................................................69 Figure 5-2: Constellation Factors for FDI................................................................70 Figure 5-3: Unique FDI Factors from Fujitsu Case Study..................................71
  7. 7. vii Abstract Ireland has long been a prime location for foreign direct investment (FDI) by Multinational Corporations (MNCs) particularly from the US. The academic literature on FDI in Ireland is thus dominated by foreign investment from the US. With the redefinition of global economics and the increasing importance of Asian economies, there is a need to broaden Ireland’s attractiveness to other global investors. This paper conducts an exploratory investigation into the location-specific FDI factors that attract Japanese MNCs to Ireland. In the process, the study sought to understand the salient factors for investment by Japanese firms in terms of policy, economic and business facilitation determinants. The study also sought to discover how Ireland could increase its attractiveness to Japanese MNCs. Data was collected using mixed methods. A case study was conducted of an FDI investment in R&D collaboration by a Japanese MNC. This was complemented by an online questionnaire of existing Japanese MNCs in Ireland, which was designed and analysed using the Kano Model. The study indicates that many of the location-specific features that attract US MNCs to Ireland such as the low corporation tax and highly skilled workforce are equally attractive to Japanese MNCs. However, the risk-averse nature of the Japanese investor and the limited cultural links between Ireland and Japan means that new approaches must be taken to attract Japanese FDI. The results, interpreted through the Kano Model, highlight that interconnected clusters of FDI factors are viewed as important by Japanese investors when investing in Ireland.
  8. 8. 1 1 Chapter One: Introduction This introductory chapter provides a brief overview of the problem definition, the case study under investigation, the research objectives and the gaps in the current literature. A short account of the remaining chapters in this paper is also provided. 1.1 Background to the Research Foreign Direct Investment (FDI) is essentially an international investment where the investor gains significant influence in the management of an entity outside the investor’s home country (Solomon, 2011; UNCTAD, 2006; OECD, 1996). In addition, the OECD guidelines state that FDI requires the foreign investor to own 10 per cent or more of the ordinary shares or voting power to fulfil the definition. By contrast, some countries treat the 10 per cent cut-off in a flexible manner and may declare other investment relationships as FDI (OECD, 1996). However, for the purposes of this paper foreign direct investment will be in line with the OECD definition as it allows for international comparability and potential generalizability of the research. Using this OECD definition of FDI, empirical evidence shows that FDI has become an important force in the internationalisation of investment activities in both the global and Irish economies alike. For instance, the inflows of FDI globally were $1,114 billion in 2009 (UNCTAD, 2010) while inflows into Ireland were $13.1 billion in 2011 (OECD, 2012). Furthermore, Ireland’s growth during the ‘Celtic Tiger’ was attributed partly to foreign direct investment (Barry, 1999; O'Connor, 2001; Ruane & Gorg, 2000) and the ability for Ireland to emerge from the current economic crisis will depend heavily on continued FDI by foreign multinationals (IDA Ireland, 2010). Given the economic importance of FDI for the Irish economy and its recovery in the future, it is critical that the determinants for FDI are understood. In the classic FDI literature, there have been many studies on the motivations underlying FDI engagement (Hymer, 1976; Grosse & Behrman, 1992; Kindleberger, 1969; Caves, 1971; Williamson, 1975), and the entry modes of the FDI strategy (Dunning, 1980; Grosse & Behrman, 1992), which highlight
  9. 9. 2 the complex mix of socio-cultural, political, economic and business factors that influence FDI decisions. While these theories provide context for FDI they do little to explain why MNCs decide to invest in Ireland, a small open economy on the western fringes of Europe. Understanding these investment decisions is even more relevant given Ireland’s recent economic recession. Building on the early theories of FDI, many academics have focused on unearthing the reasons for MNCs investing in Ireland through FDI. However to date, much of academic literature and empirical evidence on the determinants of FDI in Ireland has focused on large US firms (Gunnigle & McGuire, 2001; Baibekova & Hoang, 2010; IDA Ireland, 2011). This may be explained by the prevalence of US firms in Ireland and the significance of their foreign investments. With the majority of Irish FDI being sourced in the US and Europe (See Figure 1-1) the investment from other areas (including Japan) is not significant (Department of Enterprise, Trade & Innovation, 2010). Figure 1-1: Sources of FDI in Ireland 2009. Source: (Department of Enterprise, Trade & Innovation, 2010, p. 15) While US firms have rightly received attention from academics studying the determinants and impact of FDI in Ireland, there are potential benefits from having a more diversified investment profile including a lower exposure to economic and currency fluctuations in MNCs home countries. One region that has received little attention in terms of FDI has been Japan. Although the Japanese may have quite a different culture to the Irish, their focus on high- technology activity couples well with Ireland’s recent focus on building the “Smart Economy” and developing the “Innovation Island” (Government of Ireland, 2008).
  10. 10. 3 1.2 The Research Question 1.2.1 Introduction This research aims to provide an exploratory review of the investment climate for FDI by an established Japanese IT Services MNC in Ireland. The research in particular aims to provide a case study analysis of the context for choosing Ireland as a location for investment, by Japanese MNCs. This case study is further backed by a survey on Japanese MNCs in Ireland and their perception of FDI factors in Ireland. 1.2.2 Research Questions The aim of this paper is to address one primary research question: PQ 1. What are the location-specific factors that influenced the decision by Japanese MNCs to invest in Ireland? In addressing this primary research question, this paper seeks to answer the following two related questions: SQ 1. What are the perceptions of managers in Japanese MNCs as to the key factors in investing in Ireland: the role of policy determinants, economic determinants and business facilitation determinants? SQ 2. Given the perceived locational determinants for FDI in Ireland, what can Ireland do to encourage greater investment from Japan? These research questions will be examined using a case study of foreign direct investment by Fujitsu, a Japanese MNC in the Information and Communications Technology (ICT) sector in Ireland. The study will focus on the location-specific FDI determinants that led to Fujitsu selecting Ireland as the location for investment. A survey of Japanese MNCs in Ireland will also be used to provide comparability of results and generalizability for the study. These investment determinants of Japanese MNCs in Ireland are under- developed in the literature. However, this study will draw somewhat on the work of Rios-Morales & Brennan (2007) which studied the pattern of FDI flows from Japan into Europe and Ireland. Rios-Morales & Brennan’s (2007) study represents the most complete quantitative analysis of Ireland’s FDI features and the Japanese drivers for outward FDI.
  11. 11. 4 1.3 Significance of the Research Since the establishment of the IDA in 1970, there has been an ever-increasing focus on and awareness of FDI in Ireland and its importance for jobs and growth in the economy (IDA Ireland, 2010). Given the recessionary economic climate, it is clear that FDI has become more important than ever for Ireland’s future. Much of the research on Ireland’s FDI success has taken place in during the ‘Celtic Tiger’ boom years in Ireland when the Irish experience of growth became a fascinating research topic (Barry & Bradley, 1997; Barry, 1999; Gunnigle & McGuire, 2001; O'Connor, 2001; O'Malley & O'Gorman, 2001; Rios-Morales & Brennan, 2007). Much of this research reviews the changes and growth of the Irish economy attributed to FDI over the past few decades when Ireland emerged from the recession of the 1970’s and 1980’s and then saw strong growth in the 1990’s and the ‘Celtic Tiger’ in the first seven years of the 2000’s. However, to the author’s knowledge, little research has occurred on FDI cases in the past five years. Although the economic boom is finished, FDI inflows into Ireland remain strong and Ireland is still ranked as a top location for FDI investment. For instance, Ireland is the number one investment destination country by average value of investment projects (IBM, 2011), second for productivity and efficiency and fourth for business legislation for FDI investors in the world (IMD, 2012). Although Ireland is clearly a leader in global FDI inflows, competition is increasing and as the economic climate continues to decline, the Irish competitive landscape is worsening. The IMD World Competitiveness Report for 2012 shows that poor public finances, growing unemployment and lack of infrastructure has weakened Ireland’s competitiveness. On the other hand, Ireland is still an attractive location for FDI as IDA Ireland and the Department of Jobs, Enterprise and Innovation report increasing numbers of investments won and new companies investing in Ireland for the first time over the past three years (IDA Ireland, 2010; Department of Jobs, Enterprise and Innovation, 2012). Clearly then Ireland is an attractive location for certain investors and understanding these investment patterns is crucial for future growth.
  12. 12. 5 The MNCs that are attracted to invest in Ireland are primarily US firms as evidenced by Ireland’s FDI inflows and stock of FDI (IDA Ireland, 2012; CSO , 2011). In addition, the most significant FDI investments in Ireland in 2011 were all by US household names such Twitter, Intel, IBM, Coca-Cola, Pfizer, PayPal and others (Department of Jobs, Enterprise and Innovation, 2012). Moreover when examining the level of employment by Foreign firms in Ireland, it can be seen that 75% of jobs in foreign firms are within US MNCs with only 2% in Japanese MNCs (See Figure 1-2). Figure 1-2: FDI in Ireland by Employment Numbers (IDA Ireland, 2012) In its report, “Sharing Our Future: Ireland 2025”, Forfás point out that as FDI has become more competitive and there is a need to seek out: “ new and emerging markets and work with emerging global multi-national corporations (MNCs) to explore their future needs and the potential role for Ireland as a partner in their innovation processes and in serving global markets” (Forfás, 2009) This need to broaden FDI sources outside of US MNCs is also recognised by the Irish Government as it finds that having an overreliance on certain markets “increases our vulnerability to external shocks and currency fluctuations” (Department of Enterprise, Trade & Innovation, 2010, p. 7). Although Ireland’s trade strategy highlights the need to market the country as a base for FDI from Asia, there is little focus on the needs of MNCs from these markets. Canada 1% Sweden 1% Netherlands 2% Japan 2% Switzerland 2% France 3% United Kingdom 4% Germany 7% United States 74%
  13. 13. 6 Thus, much of the literature on FDI in Ireland has focused on the reasons for these US firms investing in Ireland during the period of Ireland’s success story. However, during this same period, Japanese FDI into Europe experienced strong growth (Cieslik & Ryan, 2004; Rios-Morales & Brennan, 2007). The main driver for this investment was the enlargement of the EU, with much Japanese FDI focusing on market-seeking strategies in new EU accession states (Park, 2003). Japan had traditionally invested its FDI into the US but by 2000 Japanese FDI into Europe was double that of the US and five times that of the Asian regions. In Ireland, most FDI is focused on knowledge intensive sectors such as information and communication technologies, bio-medical, pharmaceutical and international financial services. This knowledge intensive sector is built around American MNCs who consider Ireland to be the most profitable location for FDI due to the low corporate tax rate and the highly trained workforce (Durkan, et al., 1999). Park (2003, p. 1739) points out that most FDI from Japan into developed countries has been knowledge intensive investment yet Ireland has only attracted a small percentage of this investment despite the apparent FDI alignment. Japanese FDI has been invested most heavily in the UK, France and Germany with smaller European countries such as Netherlands and Belgium also receiving more FDI than Ireland (Rios-Morales & Brennan, 2007). While Ireland has been generally successful in attracting inward investment, it has a much poorer record with Japanese FDI (Rios-Morales & Brennan, 2007). Ireland, in employment terms, is the most FDI-intensive economy in the EU (Barry & O'Mahony, 2006) and needs to build diversified sources of FDI to protect against home country issues affecting MNC investments in Ireland. This research seeks to uncover the reasons for Japanese MNCs investing in the knowledge-intensive sector in Ireland and draw some potential conclusions in terms of future investment from Japanese MNCs. Finally, the lessons from this Japanese investment experience may hold valuable insights in terms of Ireland attracting investment from other major Asian economies in future.
  14. 14. 7 1.4 Outline of the Thesis The first chapter of this paper, this chapter, provides a brief overview of the thesis beginning with an outline of the background to FDI by MNCs in Ireland, the research questions being investigated and discusses the significance of the study, highlighting the lack of literature on Japanese FDI in Ireland. Chapter 2 reviews the current literature of FDI in Ireland, specifically focusing on salient location-specific determinants of FDI, particularly on Research and Development (R&D) projects. In identifying the locational factors for FDI by Japanese firms, this paper examines the literature on FDI by Japanese MNCs. The extant literature on the determinants of FDI in Ireland is also explored with a view to understanding the socio-cultural, political, economic and business aspects of those FDI factors. The next chapter describes the methodology employed in the research and the findings of the research are subsequently discussed. Finally, the determinants of FDI investment by Japanese MNCs in Ireland are identified based on the case study evidence and conclusions are drawn.
  15. 15. 8 2 Salient Features of Foreign Direct Investment 2.1 Introduction This chapter aims to provide a review of the recent contributions to literature on foreign direct investment and the locational determinants of such investment. In attempting to comprehend the complex factors that affect the attractiveness of particular geographic locations it is essential that a brief assessment of the current literature is undertaken. With the growth in FDI over recent years, there has been a growing body of research on the topic as economists, academics and policymakers alike have sought to determine the national factors that influence economic growth (OECD, 2009; OECD, 2011; Porter, 2003). Although there is some consensus among scholars on the role of FDI in fostering economic growth (Lim, 2001; Blomstrom, 1986; Blomstrom, et al., 2000; Bîrsan, et al., 2008), there has however been limited consensus on FDI determinants (Singh & Jun, 1995, p. 4; Eicher, et al., 2011; Lim, 2001, p. 14; Artige & Nicolini, 2006, p. 5). Thus, such complexity and contrasts are evident in the literature review. 2.2 Literature on the Importance of Government Policy 2.2.1 Proactive Role of Government For countries to gain competitive advantage, evidence suggests that governments must play an active role in creating an environment that enhances that competitiveness (Lall, 2002). While governments worldwide have adopted more market-orientated policies, becoming more attractive locations for FDI, to grow their domestic economies (Blomstrom & Kokko, 2003), only a small number have been successful in attracting FDI (Addison & Hesmati, 2003). Rios-Morales & O'Donovan (2006) argue that governments require a holistic approach to reduce barriers to foreign investors and provide incentives alongside more long-term development goals. For Japanese firms in particular, Mody et al. (1998) find that government restrictions on foreign ownership are strongly resented by Japanese investors. Thus, it appears that holistic government policies are required to attract FDI and those countries with the
  16. 16. 9 least onerous government restrictions will be most attractive to Japanese investors. 2.2.2 Low corporate tax rates The creation of government policies that deliver business-friendly fiscal and financial incentives has been shown to improve the competitive advantage of countries (Blomstrom, 2001). For Ireland, fiscal incentives such as low corporate tax and subsidies were central to attracting investment by MNCs since the 1950’s (Barry & Bradley, 1997). To this day, the corporate tax rate is seen as crucial to Ireland’s attractiveness for FDI but empirical findings are mixed. Sawkut et al. (2007) study of FDI determinants found host country taxation policies to be a significant determinant of FDI inflows and low tax countries attract greater proportions of FDI (UNCTAD, 2011; Eicher, et al., 2011, p. 18). In contrast, Wheeler and Mody’s (1992) study found that the corporate tax rate does not appear to play much of a role in attracting investors. Although empirical evidence is inconclusive, countries adopting FDI policies focus primarily on lowering of corporate tax rates (UNCTAD, 2011), thus it is generally expected to have a positive effect on FDI inflows. However, Blonigen (2005) points out that taxation effects on FDI are complex and highlights how Corporate Tax Rates and Tax Treaties influence FDI flows while Razin and Sadka (2007) emphasise the impact of double taxation treatment in the host and parent country. Eicher et al (2011, p. 11) find that increases in source country tax rates encourage MNCs to invest abroad but the volume of investment increases when the host country taxes are lowered. Although the number of bilateral tax treaties has increased (Egger, et al., 2006), the empirical evidence showing their positive effect on FDI is ambiguous (Eicher, et al., 2011). For Japanese firms, special home country tax breaks means that much of the profits from foreign affiliates is repatriated (UNCTAD, 2011) and may reduce the attractiveness of host country tax policies. The use of fiscal and financial incentives are not necessarily significant determinants of FDI but in certain cases government policy to staunchly hold corporate tax low may be viewed positively by investors (Reuber, et al., 1973) as is the case with Irelands stance on harmonised EU taxation policies.
  17. 17. 10 2.2.3 Low-risk Political Environment As with any MNC decision, risk plays an important part in the decision to invest in a country. While many studies find that political risk is a deterrent to FDI (Singh & Jun, 1995; Blonigen, 2005; Mauro, 1997; Cieslik & Ryan, 2004), Wheeler and Mody (1992) found that although geo-political risk was significant, domestic socio-political risk is assigned little importance. Measures of risk for FDI include financial risk, political stability, inequality, corruption, red tape, quality of the legal system and cultural compatibility (Wheeler & Mody, 1992). The contrast in results may reflect the difficulty in measuring perceived risk and the differing proxy indicators used to determine risk levels (Lim, 2001, p. 16). Schneider and Frey (1985) found that political and social unrest in the host country had a negative effect of foreign investment inflows. They report that political instability and occurrences of disorder deters risk-averse foreign investors. Singh & Jun (1995, p. 20) highlight that political instability is a complex phenomenon and the empirical evidence regarding the impact of political risk on investment is not clear due to the difficulty in gathering reliable quantitative estimates of political risk. However, for host countries with a high level of FDI (such as Ireland) the significance of political risk is found to be greater. Furthermore, Nigh (1985, p. 11) found that for developed countries, the political events between the host and home countries were a significant determinants of FDI, whereas the political events within the host country itself had no impact on FDI. Furthermore, Wheeler and Mody (1992) found political risk to be statistically insignificant for investment, while Groh and Wich (2009) found that the political environment has less impact on FDI for more developed countries. Research by Kobrin (1979) found that institutional features such as political stability and government intervention in the economy are important determinants of foreign investment. According to Kinoshito and Campos (2002) political stability is described as a “necessary condition” for a host country to attract foreign investment. Thus, political instability detracts from the local investment climate and creates an unfavourable business environment for investment (Schneider & Frey, 1985).
  18. 18. 11 2.2.4 High-Quality Government Institutions The qualities of government institutions play an important role in attracting FDI. For instance, poor legal protection of intellectual property decreases the possibility of firms making profits from their assets. In addition, poor quality institutions that develop standards for well-functioning markets and standards of treatment of foreign affiliates may increase the cost of business and reduce FDI investment (Blonigen, 2005; UNCTAD, 2011). Kinoshita and Kampos (2002), find that poor quality of the institutional bureaucracy in the host country is a deterrent to FDI. Furthermore, poor institutions may lead to poor infrastructure development, which reduces potential profits and FDI into the market (Blonigen, 2005). Thus for many MNCs, improving institutional governance and bureaucratic quality is seen as a favourable sign for investment (Kinoshita & Campos, 2002). 2.2.5 Industrial Policies for Knowledge Clusters The quality of government policy on industrial development and the quality of industrial promotion institutions are critical to the development of competitive clusters (UNCTAD, 2010). Evidence shows that countries with competitive advantages have aggressive promotional frameworks and industrial promotion agencies influence FDI investment, particularly “effective in a country with a good investment climate and a relative high level of development” (Morisset, 2003, p. 18). The work of the industrial promotion agencies to create areas of regional specialisation is crucial as these regions are positively associated with FDI (Dimitropoulou, et al., 2007). Kinoshita and Mody (1997) argue that the actions of competitors attracted through high quality industrial policies may lead to ‘apparent herd behaviour’. This herd behaviour is rational as it economises on the gathering of scarce information resources (Kinoshita & Mody, 1997). 2.2.6 International Trade Agreements on FDI The openness of the host country is a positive factor for foreign investment and openness to trade will drive an efficient environment, which is attractive to foreign firms (UNCTAD, 2010; Kinoshita & Campos, 2002; Piteli, 2010; Sawkut, et al., 2007). By contrast, other researchers have found that openness to trade is only a significant determinant of FDI for certain sectors (Walsh &
  19. 19. 12 Yu, 2010; Artige & Nicolini, 2005) and certain types of FDI (Lim, 2001). Furthermore, Wheeler and Mody (1992) found that in the case of US firms the degree of openness of the economy had a negative impact on foreign investment while research in China showed more open policies son FDI had little impact on attractiveness (Li & Clarke-Hill, 2004). Studies on Japanese investment in Europe are fewer but trade barriers are highlighted as a factor in investment (Dunning, 1991; Encarnation & Mason, 1994; Mody, et al., 1998). However, Mody et al. found that the strongest disincentive to foreign investment by Japanese companies is the inability to repatriate earnings due to restrictive FDI policies. Moran (1998) suggests that a liberal investment climate tends to attract more dynamic FDI from innovative technological firms who are seeking to establish export-oriented operations. Conversely, a restrictive investment climate attracts MNCs that are less efficient and have older technology aimed at producing for the host market (Moran, 1998). As Ireland has a small domestic market, a more open and liberal investment climate would seem most attractive to Japanese investors. 2.3 Literature on the Importance of Economic Activity 2.3.1 Strong Macroeconomic Conditions Several studies have found that macroeconomic conditions including exchange rates, inflation and growth positively influence the decisions of foreign investors (Medvedev, 2006; Walsh & Yu, 2010; UNCTAD, 2010; Kinoshita & Campos, 2002; Piteli, 2010; OECD, 2003). Several studies find that political and economic stability are vital factors for foreign investors (Cieslik & Ryan, 2004; UNCTAD, 2011) and host-country financial risk ratings are important factors for investment (Razin, et al., 2008). Eicher et al. (2011, p. 18) find that higher taxes and financial risk increase FDI outflows from the host country, while lower taxes and financial risk have a positive effect on investment inflows. In a review of recent literature, Lim (2001) found that political risk and economic instability hinder FDI to the host country. Thus, a perception of higher perceived economic and financial risk is likely to reduce FDI investment.
  20. 20. 13 In their research on FDI in central Europe, Barry & Bradley (1997) posit that FDI was enabled through a stable macroeconomic, fiscal and monetary climate. In the Irish context, the development of modern industrial and macroeconomic policies is viewed as vital in Ireland’s FDI success (Rios-Morales & Brennan, 2007) while Barry (2007) presents macroeconomic stability and membership of the EU as a significant determinant of investment inflow. However, Walsh and Yu (2010) find that macroeconomic conditions impact FDI in services more than manufacturing and inflation has little impact in terms of attracting additional FDI. Thus, the stability of the macro-economy is likely to be a significant factor for FDI in Ireland. 2.3.2 Access to Local Capital within a Stable Banking System The United Nations Congress on Trade and Development (UNCTAD) find that stability in the macroeconomic environment helps the longer-term growth of FDI and such stability leads to a predictable business climate where bank lending is more likely (UNCTAD, 2010). Ozturk (2007) carried out an extensive review of FDI literature and found evidence that financial market regulations and a stable banking system are significant determinants for FDI (Piteli, 2010). The recent banking restructuring and bailouts in Europe and Ireland may have implications for FDI flows in the years ahead (UNCTAD, 2011, p. 185). The World Investment Prospects Survey 2008-2010 (UNCTAD, 2008) reported that of 226 companies surveyed, fifty per cent of respondents expressed concern about the risk of a major global economic downturn and financial instability. Furthermore, this report highlights that access to local capital markets was a factor for investment and this factor favoured more developed countries such as Australia, the EU-15 and the United States (UNCTAD, 2008). Thus, the health of the banking system within a stable economic platform in Ireland is seen as important for foreign investment. 2.3.3 Low Levels of Corruption and Risk While banking and financial risk are important, many MNCs find that the level of corruption influences the decision to invest in a host country. A survey of 191 MNCs by the World Bank found that 36% of companies sited the level of corruption as very influential in the investment decision, with this figure rising to 38% for investment in Western Europe (World Bank, 2002). Some studies
  21. 21. 14 have shown that corruption increases the level of risk and costs and impacts FDI flow (Mauro, 1997; Wei, 2000; Rios-Morales & Brennan, 2007). However, some countries continue to attract FDI despite corruption (Kolstad & Villanger, 2004) and in a US study, Wheeler and Mody (1992) found that the level of corruption was not a deterrent to investment. Walsh and Yu (2010) point out that these differences on the influence of corruption may be down to using different metrics and different types of data. In a review of Foreign Direct Investment incentive policies, the OECD reported that grants and other incentives might encourage corruption and bribery (OECD, 2003). Furthermore, Kobrin (1979) found that institutional features such as the degree of “red tape” and corruption are important factors that influenced the decision of foreign investors. In a study of FDI in transition economies, Kinoshita and Campos (2002) find that the better the perception of the judicial system and the less corrupt the local bureaucracy the more FDI is attracted to the country. Thus, high quality institutions with low levels of corruption may be a significant factor for investment. 2.3.4 Access to a Strong Export Market Due to the small size of the domestic market, foreign subsidiaries of MNCs locate in Ireland so they can produce primarily for export (Barry & Bradley, 1997). O’Gorman et al. (1997) also highlight that the size of the Irish market and the influence of the state agencies was important in attracting export- orientated investment. Ireland’s membership of the EU has allowed it to become an export platform for MNC subsidiaries and its language and cultural links has allowed Ireland to become a favourable location for US FDI (Cassidy, et al., 2009). However, does such an argument apply for Japanese FDI in Ireland? Cieslik and Ryan’s (2004) study of Japanese investment in Europe suggests that the host country’s ability to act as an export platform is an important factor in attracting inward investment and previous linkages with the host economy by Japanese investors is more important than domestic economy performance. This represents a ‘shift’ in the location choice of Japanese investors (Cieslik & Ryan, 2004) and may provide opportunities for Ireland. An earlier study by
  22. 22. 15 Singh and Jun (1995) also find that export orientation is the strongest determinant of host country attractiveness for FDI, especially for countries with high levels of FDI. Thus, an open outward facing economy in Ireland is likely to be attractive to Japanese investors. 2.3.5 Growing Domestic and Regional Markets Several studies have identified the domestic market size (Sawkut, et al., 2007; Wheeler & Mody, 1992; UNCTAD, 2008; Lim, 2001) and more importantly access to a larger regional market (Lim, 2001; UNCTAD, 2010; Cheng & Kwan, 2000) as location-specific determinants of FDI. Some evidence suggests that although the determinants for both Japanese and US MNCs are different, the market size is a shared determinant (Fountas & Aristotelous, 1995). Reviews of the literature have shown that the growth of the domestic economy (Groh & Wich, 2009; Wheeler & Mody, 1992; Singh & Jun, 1995) and the host country’s market size (Torrisi, et al., 2008) increases inward FDI. Mody et al. (1998) found that Japanese investors in Asia considered the size of the host country’s domestic market to be an important factor in investment. Similarly, empirical research by Cieslik and Ryan (2004) suggests that Japanese FDI in Europe locates in countries with a combination of growing domestic markets and the ability to serve the regional market (Rios-Morales & Brennan, 2007). For Ireland, the size of the domestic market is of little significance to foreign investors who primarily locate here to export (Barry & Bradley, 1997; O'Connor, 2001). Although the Irish domestic market is not sufficient to attract FDI compared to other countries with larger domestic markets (Cassidy, et al., 2009), the right FDI policies and active investment promotion can help compensate (World Bank, 1997). Although Ireland’s entry to the EU saw an increase in FDI (Barrios, et al., 2005), a recent study of FDI in Ireland found 51% citing the size of the domestic market as a disadvantage for Ireland (Matheson Ormsby Prentice, 2012). Research by UNCTAD (2005) however, points out that pure R&D provides a new source of FDI not reliant on the domestic market or export-orientation. Thus Ireland can benefit from R&D based FDI.
  23. 23. 16 2.3.6 Labour Force Costs and Productivity Although the market size may affect FDI inflows, the quality of the human capital base is also an important asset in attracting high technology MNCs. The OECD (2003) found that the presence of accessible human capital is an important factor when investors select an investment location. Several studies have found that FDI increases with low-cost labour in the host country (Barrell & Pain, 1996; Cheng & Kwan, 2000; Kinoshita & Mody, 1997; UNCTAD, 2008) and a highly productive workforce (UNCTAD, 2011; Cheng & Kwan, 2000). By contrast, Artige & Nicolini (2006) found that labour productivity was not consistent as a factor in FDI and its influence depended on the location and sector. Moreover, Groh & Wich (2009) argued that low-cost labour is not a primary motivator for investment and the combination of wage cost and productivity is more important. Ireland’s workforce is young and well-educated (IDA Ireland, 2011) and one of the most productive per person employed per hour worldwide (IDA Ireland, 2010). Sawkut et al (2007) highlight that a more educated workforce is generally more productive as it implements new technology more quickly and the level of tertiary education plays a key role in attracting high value-add MNCs (Miyamoto, 2003). Earlier empirical surveys of US MNCs in Ireland, by Gunnigle and McGuire (2001), found that labour quality and productivity was perceived favourably by executives. However, a study of US MNCs investing in Ireland and Bahrain showed that the availability of a skilled workforce was significantly more important in FDI decisions than low-cost labour (Gilmore, et al., 2003). However, Ireland has traditionally had higher productivity in the high-tech sectors than the European average and high quality human capital in these sectors (Hewitt-Dundas, et al., 2010), and this may influence the fact that labour cost is not seen as a critical factor in MNC investment in Ireland (Gunnigle & McGuire, 2001). 2.3.7 Access to High-skilled Labour Other studies have shown that increased levels of human capital are a good indicator of high-skilled labour and make the host country more attractive for FDI. Schneider & Frey (1985), Borensztein, et al. (1998) and Noorbakhsh, et
  24. 24. 17 al. (2001) found that the access to high skilled labour is a significant determinant of a nation’s location advantage and is important in attracting FDI. The importance of skilled labour can be observed in Irish foreign-dominated sectors, which employ higher proportions of skilled labour than industry on average (Barry & Bradley, 1997) The need for skilled labour favours the more developed economies with a broader knowledge, research and innovation base. Research by Dimitropoulou, et al (2007) in the UK highlights the importance of the knowledge and research base for attracting FDI. The research and innovation performance of Ireland and the EU however stills lags behind the US and Japan (Lohan, 2007). As measured by gross domestic expenditure on R&D, the US (2.79%) and Japan (3.45%) have invested significantly more than the EU average (2%) and Ireland (1.79%) (Eurostat, 2012). The Irish Development Agency (IDA) see the establishment of world-class research and innovation base through MNCs and research institutes as crucial in attracting FDI to Ireland: “Ireland is gaining increasing recognition as a location in which to innovate and is empowering some of the leading global corporations to carry out research, development and innovation across a wide platform of activities, thereby enabling their future potential to create and commercialise new processes, products and services” (IDA Ireland, 2012) 2.3.8 Clusters and Agglomeration Effects The exploitation of such research and innovation is linked to government policies on industrial development and regional zones of FDI. The literature is extensive on the positive impact of agglomeration economies and clusters on FDI decisions (Head, et al., 1995; Wheeler & Mody, 1992; Kinoshita & Campos, 2002; Walsh & Yu, 2010; UNCTAD, 2011). Wheeler and Mody (1992) found clustering to be highly significant determinant of FDI in a study of US manufacturing MNCs. An important finding for Ireland by Kinoshita & Campos (2002) is that agglomeration effects reduce the importance of market size as a location determinant. This finding confirms research by Barry and Bradley (1997) that newly arrived MNCs in Ireland in the high-tech sectors are
  25. 25. 18 strongly influenced by the fact that other key market players are already located in Ireland (Lim, 2001). In addition, Rios-Morales & Brennan (2007) find that Japanese FDI into Europe has been strongly influenced by agglomeration effects and it is a key determinant for location decisions by Japanese investors. Moreover, Head et al. (1995) argue that increases in agglomeration increase the probability for future investment selection; however, agglomeration effects alone may not encourage further FDI by Japanese investors if other location factors are not seen as attractive. 2.3.9 Low-cost operating environment & High Quality Infrastructure The quality of infrastructure including ports, roads, power grids and telecommunications infrastructure are a significant factor in FDI decisions for MNCs (Li & Clarke-Hill, 2004; UNCTAD, 2011). This demand for quality infrastructure favours investment in more developed regions such as the EU and the US (UNCTAD, 2008). In addition, Cheng and Kwan (2000) and Walsh and Yu (2010) found that good infrastructure had a positive effect on location attractiveness and leads to higher FDI inflows while Liang (2004) argues that differences in transport and communications infrastructure affect the location decisions of MNCs at both country and intra-country levels. However, Mody et al (1998) argue that high quality infrastructure is not a necessary condition for initial investment but infrastructure improvements are required to encourage further FDI inflows. Thus, good infrastructure is a performance- related determinant for FDI and an expected feature in developed economies such as Ireland. Such good quality of infrastructure helps to lower business operating costs for MNCs. Minimising the cost of doing business including the availability of low- cost transport, communications, energy and other operating factors are seen as important determinants for foreign investment (UNCTAD, 1998; UNCTAD, 2011). Transport and communications costs to/from and within the host economy are seen as significant factors by UNCTAD (1998) but evidence from Lim (2001) finds that transport costs effect on FDI depends on the type of FDI undertaken. In any case, it is expected that lower operating costs will be viewed favourably by Japanese MNCs.
  26. 26. 19 2.4 Literature on the Importance of Business Enablement 2.4.1 Access to Progressive Investment Promotion Incentives Initial efforts to attract foreign investors rely on investment promotion agencies building an image for the country and develop investment facilitation services (Li & Clarke-Hill, 2004). As mentioned previously, Morisset (2003, p. 18) argues that promotion agencies with aggressive FDI campaigns positively influence FDI decisions, particularly where the country has a good overall investment climate. Similarly, the World Bank (1997) finds that promotion only succeeds when the country is attractive to investors. The efficiency of such promotion institutions is reflective of government effectiveness, which is a significant locational factor for investors (UNCTAD, 2008). Thus, the success of Ireland’s ability to attract FDI reflects on the efficiency of the IDA. The investment promotion agencies also help to provide access to information, facilitate clear communication and reduce legal and bureaucratic issues (UNCTAD, 2011). Groh and Wich (2009) find that the costs and complexity of bureaucracy influence FDI decisions and is an important determinant for FDI inflows. In their analysis of FDI in developing countries, Singh & Jun (1995) and Lim (2001) argue that excessive bureaucracy constrains economic growth through FDI. In contrast, Wheeler and Mody (1992) find that “red-tape” and bureaucracy risk has a very limited effect on FDI decisions by MNCs. The maturity of the legal system also affects the host country’s appeal. Lim (2001) finds that less red tape including regulatory, judicial, labour relations and contract issues create a friendlier business environment that attracts investors. Ramcharran’s (2000) study of Central and Eastern European countries finds that regulatory and country risk affects FDI flows and a restrictive legal environment is a significant disincentive for FDI. Several other studies have found that the quality, stability and transparency of the legal system are crucial for encouraging FDI inflows (Baniak, et al., 2005; Naudé & Krugell, 2007). Thus, systems of governance that promote the rule of law may be major factors in Ireland’s ability to attract FDI.
  27. 27. 20 2.4.2 Access to Local Amenities and High Quality of Life Other business facilitation efforts that influence the location-specific determinants of FDI are the provision of appropriate social amenities and after- investment services. The quality of life and social amenities are significant for investment (UNCTAD, 2010; UNCTAD, 2011; Li & Clarke-Hill, 2004). As competition for FDI investment from targeted MNCs intensifies, the use of these business facilitation practices help enhance location-specific advantages (UNCTAD, 1998). Globerman & Shapiro (2004) find that countries that invest in improving quality of life attract more FDI while Hornberger et al. (2011) find that quality of life and language skills were one of the top ten determinants for foreign firms investing in developing and transition economies. In examining why US MNCs invest in Ireland, Gunnigle and McGuire (2001, p. 53) highlight that many MNCs want to locate in Dublin for quality of life reasons. Thus, quality of life is an increasingly important incentive for attracting FDI to Ireland. 2.4.3 Previous Investment or Knowledge of Ireland The decision to invest in a particular country is influenced significantly by the public and private information available to the foreign MNC. Investors’ location decisions are influenced by public information including analytical country reports by international organisations (Kinoshita & Mody, 1997). Furthermore, private information such as direct experience in the host country and previous experience is viewed as information that is more credible and a significant factor in FDI decisions (Kinoshita & Mody, 1997). In reviewing the attractors of Japanese MNCs in Asia, Mody et al. (1998) point out that although favourable FDI policies may be attractive, previous presence in the country is likely to increase Japanese FDI. This observation is further confirmed by Cieslik and Ryan (2004) as they explain Japanese investment into Europe. Thus, flows of credible information from existing Japanese subsidiaries may be crucial for further Japanese investment in Ireland.
  28. 28. 21 2.5 A Conceptual Framework for FDI Determinants Based on the literature review of policy, economic and business facilitation determinants the following conceptual framework is proposed (See Figure 2-1). This framework highlights the importance of government policy as a foundation for FDI (Lall, 2002) and its implications (dotted line) for business facilitation and economic determinants. Figure 2-1: Conceptual Framework of FDI determinants 2.6 Conclusion This chapter has highlighted the important determinants of FDI as elucidated by the academic and empirical literature. The locational determinants of FDI are clearly driven by policy, economic and business facilitation drivers but the actual determinants depend greatly on the context and motives of the MNC. Dunning (1995) highlights that the factors of FDI are complex and there is no single explanation for all FDI determinants. Thus, the attractiveness of location is part tangible, part intangible and is strongly influenced by government within a complex web of interrelated factors.
  29. 29. 22 3 Research Methodology 3.1 Introduction This chapter explains the research methodology employed for this study and the rationale for such study. It develops the theme from the primary and secondary research questions through to the reasoning for the selected research approach. Finally, it concludes on the limitations of the research methodology. 3.2 Research Design The research design outlines the framework used to deliver the most valid answers to the research questions posed (McMillan & Schumacher, 1993). As Yin (1994, p. 19) states, “every type of empirical research has an implicit, if not explicit, research design”. Moreover, Maxwell argues that as a design always exists, it should be made explicit to highlights its “strengths, limitations and consequences” (2005, p. 3). The research design for this study provides the structure for investigation (Kerlinger, 1986, p. 279; Saunders, et al., 2009, p. 137) and sets out the selection of research methods and the use of the Kano model (Kano, et al., 1984). The research questions are also discussed in terms of the research project (Robson, 2002) and the procedures for information collection, from which source and under what conditions data were collected (Green & Tull, 1970, p. 73), are clearly outlined. 3.2.1 Research Questions The aim of this paper is to address one primary research question: PQ 1. What are the location-specific factors that influence the decision by Japanese MNCs to invest in Ireland? In addressing this primary research question, this paper seeks to answer the following two related secondary questions: SQ 1. What are the perceptions of managers in Japanese MNCs as to the key factors in investing in Ireland: the role of policy determinants, economic determinants and business facilitation determinants? SQ 2. Given the perceived locational determinants for FDI in Ireland, what can Ireland do to encourage greater investment from Japan?
  30. 30. 23 3.2.2 Research Methods In this study, a mix of qualitative and quantitative methods is used to answer the research questions. The study consisted of two research phases, the Qualitative and Quantitative research phases, supported by various research methods to answer the research questions, as shown in Figure 3-1 below. Figure 3-1: Mixed Method Research Design Framework The Qualitative Research Phase was designed to gain insight into the perceptions of managers as to the location-specific factors influencing Japanese firms investing in Ireland and to understand their perceptions of Ireland as an investment location. This phase is built around a case study of Fujitsu, a Japanese MNC, and its recent investment in the Irish ICT sector. In this Qualitative phase, semi-structured interviews and a questionnaire were used to gather data. This phase was intended to address the secondary research questions and contribute to the primary research question. On the other hand, the Quantitative Research Phase was designed to understand the salient location determinants for FDI in Ireland by Japanese MNCs. This Quantitative phase also aimed to categorise and rank those determinants to understand the contribution of country-specific factors to location attraction. This phase used the Kano questionnaire to collect data and address the primary research question.
  31. 31. 24 3.2.2.1 Mixed Methods Research The framework in Figure 3-1 shows how the study employed both quantitative and qualitative research to answer the primary and secondary research questions in this research. In an effort to understand the choice of mixed- method research, perhaps it is appropriate to restate the primary research question (PQ1): What are the factors that influence the decision by Japanese MNCs to invest in Ireland? Punch (2005, p. 19) argues that questions seeking to determine the ‘factors which affect’ and the ‘determinants of’ imply a quantitative approach. Thus, the framework shows how questionnaires are used within a survey strategy to provide quantitative answers in the research. To explore these factors for foreign investment further, the first secondary research question (SQ1) asks “What are the perceptions of managers in Japanese MNCs as to the key factors in investing in Ireland: the role of policy determinants, economic determinants and business facilitation determinants?” This question seeks to explore perceptions and ‘describe the experiences’ of managers which lends itself to a qualitative approach (Punch, 2005, p. 19). The final question (SQ2) states, “Given the perceived locational determinants for FDI in Ireland, what can Ireland do to encourage greater investment from Japan?” Again, this question is exploratory, seeks to understand perceptions, and thus is more suited to qualitative research methods. Thus, the framework shows how semi-structured interviews and secondary data within a case study research strategy provide such qualitative insight. The qualitative approach also uses the questionnaire to provide measurable and comparable data with the survey data in the research. The authors decision to use mixed-methods as outlined in the framework is expected to provide greater opportunities to answer the research questions (Johnson & Onwuegbuzie, 2004) and allow better evaluation of the trustworthiness of the research findings by reducing the impact of ‘method effect’ (Tashakkori & Teddlie, 2003; Saunders, et al., 2009). Thus, such an approach is warranted and it will provide consistent results that can be developed further in the future.
  32. 32. 25 3.3 The Research Project 3.3.1 Selecting the Research Topic The author identified two reasons to study the determinants of foreign investments by Japanese MNCs in Ireland. Firstly, Japan stands as the fourth- largest economy in the world after first place US, second-place China and third-place India (CIA, 2012). However, in Ireland, the level of FDI by the US dwarfs FDI from Japan with minimal FDI from India (CSO , 2011). For instance, Japan holds 2% of the FDI base in Ireland compared to 74% by the US, when measured by number of employees (CSO , 2011). Moreover, when measured by number of multinational firms, Japan has 23 firms (2%) in Ireland compared to 515 (53%) form the US (CSO , 2011). Thus, the author recognised that attracting greater FDI from Japan represents an opportunity for greater expansion of the Irish FDI base and the potential for future economic success. Secondly, the literature on FDI in Ireland is focused on US MNCs (Gunnigle & McGuire, 2001; Baibekova & Hoang, 2010; IDA Ireland, 2011) and considering the number of companies and level of employment this makes sense. By contrast, research on FDI by Japanese companies in Ireland is limited (Rios-Morales & Brennan, 2007) and there has been no research to date to identify the location-specific determinants that may be unique to Japanese investors in Ireland, to the knowledge of the author. 3.3.2 The Qualitative Research Phase The Qualitative Research Phase is focused on a case study to explore the salient location-specific factors that influence FDI by Japanese MNCs. Case study research is “principally about [the] interpretation, subjectivity and meaning” (Ryan, et al., 2004) of a particular contemporary phenomenon within its real world context, using multiple sources of evidence (Robson, 2002; Yin, 2003). Due to the exploratory nature of the research, a case study was judged appropriate for this phase. This is a revelatory case where the researcher has access to experiences that were previously inaccessible (Tellis, 1997; Yin, 1994). Tellis (1997) points out that single case study research requires careful investigation to avoid misrepresentation and enable the researcher to maximise access to the evidence. Thus, using a case study, theories may be expanded and
  33. 33. 26 generalized by combining the existing theoretical knowledge with new empirical insights (Yin, 1994). Research suggests that it is possible to generalise from just one case study (Gummeson, 2003; Stuart, et al., 2002; Tellis, 1997) and if causal relationships can be identified, they may be true for some structurally similar cases (Hillebrand, et al., 2001). Conversely, it has been argued that individual cases, by their nature, are often difficult to generalise (Vissak, 2010) and cannot be controlled statistically (Yin, 1994). Saunders et al. (2009, p. 158) note that the purpose of a single case study is not to produce a theory that is generalizable to all population but to try to explain what is going on in a particular research setting. 3.3.2.1 Choosing the Company By choosing a single representative Japanese firm in the Qualitative Phase, the researcher was able to gather a greater amount of information on the company than would be possible in a larger study. The research of a single case study also benefits from the gathering of unstructured and detailed data that can be analysed for greater insights (Diluna, 2003) This paper examines the foreign direct investment by Fujitsu Ltd Japan (hereinafter Fujitsu) into a joint research collaboration with the Digital Enterprise Research Institute (DERI) in Galway, Ireland to explore the research question. Although this project also involved the Irish Industrial Development Authority (IDA) and Science Foundation Ireland (SFI), this case study only focuses on Fujitsu and the locational factors that influenced its decision to invest in Ireland. The investment by Fujitsu Ltd worked closely with its subsidiary Fujitsu Ireland Ltd (hereinafter Fujitsu Ireland). For completeness of the study, interviews were conducted with key players in the project from Fujitsu and Fujitsu Ireland. 3.3.2.2 Instrument Development Yin (2003) identified six types if information that can be used to create a case study. These types of information are documentation, archival records, interviews, direct observation, participant observation, and physical artefacts
  34. 34. 27 (Yin, 2003). This study used documentation and interviews with senior staff within the company with direct experience of the FDI engagement. Participant observation was also recorded using a questionnaire. 3.3.2.3 Data Collection The primary and secondary data for the Qualitative Phase was gathered in June and July 2012. The secondary sources relate to literature on FDI determinants, FDI by Japanese companies and Ireland’s economic growth factors. This secondary data was used to access the perceived importance of FDI determinants by various authors and identify those factors that related particularly to FDI by Japanese MNCs. The main sources of secondary data were found online in Journals, eBooks, library databases, online statistics sources and online reports from Irish, European and Japanese institutions. Great care was taken to refer to the most recent literature to ensure that data reflected the current situation for FDI in Ireland. Primary data was gathered using semi-structured interviews and questionnaires. 3.3.2.4 Interviews A semi-structured interview schedule was used which is divided into three themes with 11 questions as show in Table 3-1. The first theme explored the key factors for investment and examined (i) the motives and (ii) the influencing factors for investment. The second theme delved into perceptions of (iii) the investment landscape, (iv) Japanese sentiment toward Ireland, (v) the role of the Irish Government in FDI, (vi) most attractive policies for Japanese investors, (vii) influence of economic factors, (viii) the ease of doing business, (ix) the quality of labour and (x) previous knowledge of the investment location. The last theme focused on the future and explored (xi) what Ireland could do to attract further FDI investment. Interview Theme Ideas Explored Perceptions of Investment Factors (i) Motives for Investment (ii) Influencing factors for Investment Perceptions of Ireland (iii) The investment landscape (iv) Japanese sentiment toward Ireland, (v) The role of the Irish Government in FDI (vi) Most attractive policies for Japanese investors (vii) Influence of economic factors
  35. 35. 28 (viii) The ease of doing business, (ix) Quality of labour (x) Previous knowledge of the investment location Perceptions of Future (xi) What Ireland could do to attract further FDI investment Table 3-1: Semi-Structured Interview Themes The five interviews were all carried out with senior management employees within Fujitsu over a 6-week period. The questions followed the themes as per Table 3-1 and structured based on the research carried out in the literature review. These interviews provided the opportunity to gather detailed qualitative data on Fujitsu’s perceptions of FDI in Ireland and get a sense of how Ireland was performing in FDI attractiveness for Japanese MNCs. The interview schedule is laid out below in Figure 3-2. Interview No Interview Method Job Title Involvement in FDI Project 1 In-Person CEO Sponsor on Project 2 In-Person Head of Innovation Lead on Project 3 In-Person Head of Marketing Promotion of Project 4 In-Person Head of Legal Legal on Project 5 On Phone Head of Strategy Strategic Lead Figure 3-2: Details of Interviews 3.3.3 The Quantitative Research Phase While the qualitative research phase provided answers to the secondary research questions, a quantitative survey approach was judged necessary to answer the primary research question. Quantitative research creates or uses numerical data, such as questionnaires, statistics and graphs (Saunders, et al., 2009, p. 151). Questionnaires provide objective data and can examine cause and effect relationships using a deductive process of knowledge attainment (Charoenruk, 2010). The questionnaire design follows the Kano model outlined below to provide new insight on FDI factors. 3.3.3.1 Choosing the Survey Sample For the Qualitative research phase, a judgement sample was used. The author believes that this judgement sample of respondents meet the requirements of the study (Hair, et al., 2008). There are 23 Japanese MNCs in Ireland, all of
  36. 36. 29 which were included in the sample frame. To obtain further insight into foreign investment by Japanese firms in Ireland, representatives of the IDA and Japanese business forum in Ireland were also selected. By choosing a sample frame of all Japanese MNCs in Ireland and representative bodies involved with Japanese investment, it is believed that findings can be generalised at least within the Irish context. 3.3.3.2 Instrument Development Creating a survey questionnaire allows a large amount of data to be collected and analysed economically (Saunders, et al., 2009, p. 144). Questionnaires are some of the most widely used data collection techniques within the survey strategy (Saunders, et al., 2009, p. 361) and using standardised questions it allows an efficient way to gather data from a large number of respondents. A questionnaire was selected to gather opinion and attribute variables as described by Dillman (2007). In gathering opinion variables, the author determined that the use of the Kano model for designing the survey questionnaire would provide new insight and allow new comparisons to previous research described in the literature review. The development of the Kano Questionnaire is described in the following sections. 3.3.3.3 Kano Questionnaire 3.3.3.3.1 Introduction This section discusses the Kano Method as a new lens to view the location- specific determinants of FDI in Ireland. 3.3.3.3.2 A Gap in FDI Determinant Analysis Most previous studies on FDI determinants have focused on identifying the significance of various determinants within a particular context as seen in Figure 3-3. Thus, for decades various authors have attempted to identify the most important FDI determinants with little effort to understand the relative interdependence and strata of determinants for FDI investment. Type of FDI Research Author Focus of Research Quantitative Primary Singh & Jun (1995) Lim (2001) Find FDI factors most strongly linked with investment attraction of the host country. Quantitative Secondary Chakrabarti (2001) Blonigen (2005) Confirm external validity of important FDI determinants
  37. 37. 30 Qualitative Artige & Nicolini (2006) Identify the most positive and statistically significant determinant of FDI Quantitative Secondary Piteli, 2010; UNCTAD, 1998 Provide lists of significant FDI Determinants Quantitative Secondary Jones (1980) Understand national comparative and absolute advantages Figure 3-3: Focus of FDI research by various authors These strata or layers of FDI determinants are evident in much of the foreign investment literature. Firstly, a recurrent theme within the literature was the concept of FDI determinants that were necessary for investment to occur but by themselves are not sufficient. “Our results reveal the need for policy to be decentralized to the regional level. Since many of the essential determinants of economic performance appear to reside in regions, national policies will be necessary but not sufficient.” (Porter, 2003, p. 571) A second layer of locational attraction is evident in suggestions that FDI investment increases in direct correlation to improvements in specific FDI factors. For instance, currency increases and increases in human capital investment are linked to increases in FDI. “The probability that a country will be the recipient of high-tech FDI increases with its investments in human capital and with higher GDP per capita” (Globerman & Shapiro, 2004, p. 24) These advantages may be viewed as performance factors as the performance of the determinant is linked directly to FDI inflows. Thus, knowing the difference between the necessary and performance strata of determinants is vital for a country to focus attention on areas that improve its FDI attractiveness. Interestingly, location-specific factors of foreign investment can be viewed through a third lens. This lens is comparable to Jones’ (1980) absolute advantages as these factors truly distinguish one region from another. “the most attractive location advantages for export-oriented MNCs are now world-class infrastructure, skilled and productive labour, and an
  38. 38. 31 agglomeration of efficient suppliers, competitors, support institutions and services” (Puga & Venables, 1999; Liang, 2004, p. 84) These absolute advantages for FDI investment are differentiated from the necessary and performance factors, as they are the regional factors that attract and delight investors the most. Thus, three distinct layers can be discerned - necessary, performance and attractive features - that work together to attract investment to a specific location. 3.3.3.3.3 Applying the Kano Model So, how can these new lenses of location-specific determinants of FDI be best understood? The Kano model helps to develop product and service attributes that are “both functionally and emotionally satisfying to customers” (MacDonald, et al., 2006). Kano’s model presents five quality attributes based on the relationship between perceived sufficiency of quality on the horizontal axis and customer satisfaction with that attribute (Lai & Wu, 2011) as shown in Figure 3-4. Figure 3-4: The Kano Model (Source adapted from (Yang, 2005))
  39. 39. 32 Yang (2005) describes the Kano model with five categories of quality attributes: attractive, one-dimensional, must-be, indifferent and reverse quality attributes as shown in Figure 3-5. Kano Category (Alternative Names) Description (Adapted) Attractive (Delighter, Value-Add) The Attractive (A) curve means that a feature of the country provides extra satisfaction when present but the country is still satisfactory when the feature is absent. One-Dimensional (Performance, Proportional) The One-Dimensional (O) line means that the more functional the feature within the country the more satisfied the investor and vice versa. Must-Be (Basic, Expected) The Must-be (M) curve indicates aspects where the investor is more dissatisfied when the country attribute is less functional, but where the investor’s satisfaction never rises above neutral no matter how functional the attribute becomes. Extra effort spent improving such features would make little impact on satisfaction for the investor. Indifferent The Indifferent (I) circle means that a feature of a country does not provide either satisfaction or dissatisfaction to the investor. Reverse The Reverse (R) line means that a feature being present in a country causes dissatisfaction. Such features should be eliminated. Questionable The Questionable (Q) category means that scores signify that the question was phrased incorrectly, or that the person misunderstood the question Figure 3-5: Description of Kano Categories (Adapted from (Berger, et al., 1993, pp. 3-5)) Kano’s model of attractive quality proposes that quality attributes are dynamic and change from attractive to one-dimensional to finally being must-be over time (Kano, 2001). Using a specific Kano questionnaire and evaluation tables, the perceptions of respondents are grouped into the Kano categories. The classification of a feature is determined by: Kano category = maximum (A, O, M) if (A+O+M) > (I+Q+R) or maximum (I, Q, R) if (A+O+M) ≤ (I+Q+R), (Lai & Wu, 2011). Classifying country attributes into the Kano categories provides many advantages. These advantages have been adapted from Sauerwein, et al. (1996):  Prioritise attribute development: Investing in attractive and one- dimensional aspects of country attributes provides greater value for money than developing must-be attributes, which are already at a satisfactory level.
  40. 40. 33  Country attributes are better understood: The country features that have the greatest influence on foreign investor attraction can be identified. Classification of attributes allows greater targeting of resources to attract FDI.  Focused Industrial Development Activities: Kano’s model helps establish the importance of individual country features in satisfying foreign investors. Thus, it creates the optimal prerequisite for industrial development activities.  Trade-off Decisions: the Kano method provides valuable insight for trade-off situations in industrial development. Where two country features cannot be developed simultaneously, due to technical or financial reasons, differentiation can occur based on the feature with greatest influence on investor attraction.  Country Differentiation: Uncovering the attractive attributes of the country create a range of possibilities for differentiation. A country that only satisfies must-be and one-dimensional requirements may be perceived as average in international markets. Thus, the use of the Kano model to guide the development of the survey questionnaire and the resulting quantities analysis will provide new categorisation of FDI determinants and deliver new insights for developing FDI features to attract Japanese investment in Ireland. 3.3.3.3.4 Constructing the Kano Questionnaire In the Kano questionnaire, each question consists of two parts: functional and dysfunctional (Kano, et al., 1984). Functional questions are questions that ask how the respondent feels if an investment feature is present. Dysfunctional questions asks how the respondent feels if the investment feature was not available. Both types of questions were formulated for each FDI feature that was identified in the literature. When conducting the survey, respondents had the choice of five multiple-choice answers as shown in Table 3-2: Kano Response Choices
  41. 41. 34 Kano Response Choices Description I like it This is the most positive answer. It means that the factor is very attractive for investment purposes. I expect it This is a slightly positive answer. It means that the factor must be present to undertake investment. I do not care This is neither positive nor negative. It means that this factor has neutral impact on investment. I can live with it This is a slightly negative answer. It means that the factor can be tolerated for investment purposes. I dislike it: This is the most negative answer. It means that the factor is very unattractive for investment purposes. Table 3-2: Kano Response Choices (Kano, et al., 1984; ter Maat, 2011) 3.3.3.3.5 Data Collection using the Kano Questionnaire The questionnaire created for this research was constructed using SurveyMonkey™ and consisted of five pages (see Appendix I Online Questionnaire). The first page introduced the survey, and details on the secure handling of data in line with Data Protection legislation. It then asked for some basic demographic details about the respondent and their organisation like nationality, company sector and job title. The second page consisted of six questions on the Policy Factors for Investment in Ireland. The third page looked for responses on eleven questions relating to economic factors for investment. The fourth page consisted of six questions on business facilitation factors for investment in Ireland. The final page surveyed the respondents’ perceptions of the importance of investment factors and provided a freeform box for comments on Japanese MNC investment in Ireland. The survey was sent to all 23 Japanese MNCs located in Ireland (see Table 3-3) and two relevant organisations with insight on Japanese investment in Ireland (see Table 3-4). No Company Name Questionnaire type Industry Sector 1 Alps Electric (Ireland) Limited Self-administered Hardware Information and Communications Technology (ICT) 2 Astellas Ireland Co., Ltd. Self-administered Pharmaceuticals 3 Carten Controls Limited Self-administered Hardware Information and Communications Technology (ICT) 4 Daiwa Europe Fund Managers Ireland Ltd Self-administered Financial Services 5 Fujitsu Ireland Ltd Self-administered Information and Communications Technology (ICT) 6 Goodman Medical Self-administered Medical Technologies 7 Hitachi Koki Europe Ltd Self-administered Hardware Information and Communications Technology (ICT)
  42. 42. 35 8 KG Aircraft Leasing Co Ltd Self-administered Financial Services 9 Neriki Europe Ltd Self-administered Industrial Products and Services 10 Ohshima Ireland Limited Self-administered Hardware - Information and Communications Technology (ICT) 11 Orix Ireland Ltd Self-administered Financial Services 12 Rexxam Electronics Irl. Ltd Self-administered Hardware Information and Communications Technology (ICT) 13 SHIMADZU CORPORATION Self-administered Advanced Science 14 Sojitz Aircraft Corporation Self-administered Financial Services 15 Sumitomo Mitsui Finance Dublin Limited Self-administered Financial Services 16 Swiftcall Long Distance Self-administered Business Services 17 Takeda Ireland Ltd. Self-administered Pharmaceuticals 18 THK Manufacturing of Ireland Ltd. Self-administered Industrial Products and Services 19 Trend Micro (EMEA) Ltd Self-administered Software - Information and Communications Technology (ICT) 20 Uchiya Ireland Ltd Self-administered Industrial Products and Services 21 Yakult Ireland Self-administered Food & Drink / Healthcare 22 Mitsubishi Motors Self-administered Motor Vehicles 23 Sony Self-administered Electronics Table 3-3: Table of All Japanese Firms in Ireland included in survey No Company Name Questionnaire type Industry Sector 1 IDA Ireland Self-administered Semi-state Body 2 Telegael Ltd Self-administered Information/Media Group Table 3-4: Table of other respondents included in Survey 3.3.3.3.6 Evaluate the Results using the Kano Model In order to interpret the results of the survey, a matrix (see Table 3-5) is used to analyse each response. Table 3-5: Kano Evaluation Table (Source (ter Maat, 2011; MacDonald, et al., 2006; Berger, et al., 1993) As each response is plotted on the table, a response outcome is recorded. 3.3.3.3.7 Categorise and Prioritise FDI Features Based on the response data, the investor FDI attribute can be placed into the relevant Kano category. The customer satisfaction coefficient can also be determined: The customer satisfaction coefficient states whether satisfaction
  43. 43. 36 can be increased by meeting an FDI requirement, or whether fulfilling the FDI requirement merely prevents the customer from being dissatisfied (Berger, et al., 1993). The customer satisfaction coefficient is measured using the following formulae. Extent of satisfaction: (A+O) / (A+O+M+I) Extent of dissatisfaction: (O+M) / (A+O+M+I) * (-1) In addition, the FDI determinants can be prioritised using the rule provided by Berger et al. (1993): Must-be > One-dimensional > Attractive > Indifferent. However, in some cases, it can be unclear as to which feature to prioritise and in these cases, the “self-stated-importance” scores provided by respondents will be used to determine the priority. 3.4 Limitations of Methods Used Although the research methods chosen for this study were carefully prepared and developed, there are several limitations. First, the research was conducted over a three-month period, at intermittent stages. Research over a longer period may have allowed greater insights from the interview process. Second, the author is currently employed by Fujitsu and while not directly involved in the foreign investment, has familiarity with the people involved. This familiarity may lead to bias and subjectivity but at all stages the author maintained objectivity and followed best practice on using open-ended questions in interviews. Third, the population for the survey group is small with only 23 firms in the sample. This limitation is not controllable however, as there are only 23 Japanese firms in Ireland. While the study may not be generalizable, the survey may be generalizable within the Irish context. Finally, while the use of the Kano model provides a new lens for FDI determinants, there is the difficulty of adapting the model appropriately for this study. It may be argued that such application is not appropriate but the author believes its applicability has been sufficiently demonstrated.
  44. 44. 37 3.5 Conclusion In summary, this study proposes to identify the location-specific determinants of FDI in Ireland for Japanese MNCs. The objective of the research is to understand the various perceptions of Japanese MNCs and compare those perceptions to the extant literature. To do this a dual-phase approach was developed to gather a combination of qualitative and quantitative data in an effort to reduce the impact of ‘method effect’ (Tashakkori & Teddlie, 2003; Saunders, et al., 2009). The qualitative phase involved a case study, which gathers real-world information on Fujitsu’s foreign investment in Ireland, providing rich data on the case. The quantitative phase used an online questionnaire based on the Kano model.
  45. 45. 38 4 Findings and Discussion 4.1 Introduction This section presents the findings from the two-phased process outlined in chapter three. As this study used mixed-methods to gather the data using both semi-structured interviews and questionnaires, the results will be developed by first highlighting the results from the survey and then compare these findings to those from the case study interviews. This approach will provide greater understanding of the findings and enable patterns to be established. These comparisons between methods will also help answer the primary and secondary research questions. The findings are also discussed in each section to highlight any insights from the data. 4.2 Findings from Questionnaire The topics in the questionnaire were based on the themes from the literature and designed around the conceptual framework in Chapter 2. Each topic was developed into associated Kano questions and importance ranking questions (as per Appendix I Online Questionnaire). 4.2.1 The Survey Sample The overall response to the survey was 52%, with 11 of the 23 Japanese MNCs in Ireland (See Figure 4-1) providing a response and both of the independent bodies also completing the questionnaire. Figure 4-1: Survey Sample and Response Rate 23 11 2 2 Survey Distribution Survey Response Survey Sample & Response Rate Japanese MNCs Japanese Interest Bodies
  46. 46. 39 4.2.2 Demographic Data Respondents were asked to supply demographic data as outlined below. A summary of the demographic data is provided in Figure 4-2 and it shows that Group 2 consisted of companies in multiple industry sectors. The respondents were of varying nationalities, with significant time in senior positions within their respective companies. Thus, the respondents fit well to answer the primary and secondary research questions regarding perceptions of managers in Japanese MNCs. Figure 4-2: Summary of Demographic Data 0% 50% 100% Irish Japanese Austrian Respondent Nationality 23% 31% 23% 7% 8% 8% Sector Distribution from Respondents ICT Financial Manufacturing Automotive Government Media 92% 8% Member of Management Yes No 0% 10% 20% 30% 40% 50% 5 to 10 Years 10 to 15 Years 15 to 20 Years 20 to 25 Years 25 to 30 Years Time in Company
  47. 47. 40 4.2.3 Analysis using the Kano Model Before presenting the Kano Questionnaire results, the question topics as shown in Appendix I Online Questionnaire were given a short name for easier communication and display of the results (See Table 4-1). These short names will be used throughout the survey findings. Table 4-1: Short Names for Topics addressed in Survey Questionnaire
  48. 48. 41 4.2.4 Survey results This survey consisted of 23 topics, with each topic having two sub-questions (functional and dysfunctional). The survey output from Survey Monkey™ (see Appendix I Online Questionnaire) required further analysis using Excel™ in order to present these findings based on the Kano Model. To the knowledge of the author, no online survey method is available for direct Kano presentation and analysis. This section will present the survey results post-analysis. An overview of the FDI feature categories and the consolidated survey responses is gained from the Kano Questionnaire results in Table 4-2 below. Table 4-2: Kano Questionnaire Results (Group 2) The Kano category has been calculated using the Berger et al. (1993) formula as outlined in Figure 4-3. Figure 4-3: Kano Category Selection Calculation. Source (Berger, et al., 1993, p. 13)
  49. 49. 42 4.2.5 Prioritised Survey results Berger et al. (1993) proposed that simply viewing the satisfaction and dissatisfaction levels on the Kano model did not allow for enough differentiation between factors. The proposed model by Berger et al. (1993) is shown in Figure 4-4. Figure 4-4: Kano Functional Dysfunctional Graph. Source (Berger, et al., 1993) Using the Berger et al scoring mechanism, the results from the surveys were averaged to produce the following table (Table 4-3). Table 4-3: Average Dysfunctional, Functional and “self-stated-importance” scores
  50. 50. 43 The results are difficult to decipher so the relevant section of the graph has been extracted in Figure 4-5 below. The figure shows a plot of the X-Y position in terms of functional and dysfunctional scores with the size of the individual bubble representing its importance score. To define and understand the most important FDI factors for Japanese firms investing in Ireland, the author proposes the use of “Constellations of FDI Importance”. This is based on the visual similarity between the bubble chart and astronomical phenomena and this helps to understand the relationship between FDI determinants for Japanese MNCs investing in Ireland. The author proposes four constellations of FDI importance from the survey results as shown in Figure 4-5. Figure 4-5: Constellations of Importance Again, the size of each point on the map represents the average importance score and this extra dimension provides a valuable addition to the results discussed in the previous sections. Taking the most significant determinants and linking them to related high-importance factors provides the following “constellations”.
  51. 51. 44 1. The Quality People Triangle: The Japanese firms attach significant importance to the FDI factors of Productivity, Skills and Educated Workforce. Increases in all these factors are seen as highly satisfying and conversely reduction in these factors results in dissatisfaction. The results suggest that every effort must be made to develop the Irish workforce, as increases in these features will increase attractiveness for Japanese investors. 2. The Risk Spire: Foreign investment from Japan is risk averse and the perception of the Legal System and Corruption are of high importance. While improvements in these FDI factors will not result in as much satisfaction as the Quality People Triangle, any decline in these factors will lead to a greater overall dissatisfaction with Ireland as an investment location. 3. The Government Web: The role of Government is linked to a number of factors that respondents highlighted as relatively important. Quality Infrastructure, openness to trade, access to regional markets and bureaucracy are linked to government policy and impact on doing business. Further linkages to operating costs and taxation reflect the importance of profitability for Japanese MNCs. Although each determinant has a lower importance than the previous constellations, on aggregate the importance of the government role is an important determinant of FDI attraction. 4. The Industrial Development Circle: The development of high quality industrial policies leading to many specialised knowledge clusters is ranked with high importance. Improvements in this factor will lead to moderate satisfaction while deterioration will lead to moderate dissatisfaction. This circle seems incongruous but this may highlight that Industrial Development is a more attractive feature and highly valued by Japanese MNCs.
  52. 52. 45 4.2.6 Top 5 FDI Determinants The questionnaire asked respondents to nominate the top five most important determinants from the 23 determinants listed. The opportunity to add additional determinants was provided but no respondent added any. The percentage of importance scores for each FDI determinant was calculated for each rank from 1 to 5. The results are shown in Figure 4-6 below where each respondent had 5 votes and thus the total response is 500%. Figure 4-6: Results from Top 5 Ranking in Survey Using the aggregate totals, the top five FDI determinants from the survey are shown in Figure 4-7 below. Ireland’s low corporate tax rate is still seen as the most important element by Japanese MNCs for investment in Ireland followed closely by the skilled workforce. The government’s role in maintaining stability and access to large regional markets is also of paramount importance. Interestingly, the domestic Irish market received no importance scores from any respondent and this may reflect the export nature of Japanese MNCs in Ireland.
  53. 53. 46 Figure 4-7: Top 5 FDI Determinants from Survey 4.2.7 Discussion on Questionnaire Findings The results of the survey as shown in Table 4-2 provide initial feedback on the perceptions of managers within Japanese MNCs on the key factors that influence them investing in Ireland. 4.2.7.1 Discussion on Policy Determinants Perceptions The role of policy determinants in attracting investment is clear from the results. Figure 4-8 shows that Japanese MNCs regard the proactive role of Government in attracting FDI as a basic expectation, along with high-quality institutional standards. This finding is in line with expectations as Rios- Morales & O'Donovan (2006) argue that governments require a holistic approach to reduce barriers to foreign investors and provide incentives alongside more long-term development goals. A study by Mody et al. (1998) found that for Japanese firms in particular, that government restrictions on foreign ownership are strongly resented by Japanese investors and enforced export rules are a major disincentive. The respondents to this survey appear to agree and regard openness to trade as a necessary determinant for foreign investment. 0% 10% 20% 30% 40% 50% 60% 70% Top 5 FDI Determinants by Aggregate Importance
  54. 54. 47 Figure 4-8: Role of Policy Determinants (Group 2) Previous research has failed to reach consensus on the impact of political instability and risk on foreign investment. Studies by Singh & Jun (1995), Blonigen (2005), Mauro (1997) and Cieslik & Ryan (2004) found that political risk is a deterrent to FDI. In this study, Political Stability is perceived as a one- dimensional feature of FDI by the respondents meaning there is a direct correlation between level of political stability and the MNCs positive perception of the country. Thus, this study agrees with the work of the aforementioned authors. It contrasts however with the findings of Wheeler and Mody (1992) who found that although geo-political risk was significant, domestic socio-political risk is assigned little importance. The contrast in results may reflect the difficulty in measuring perceived risk and the differing proxy indicators used to determine risk levels (Lim, 2001, p. 16). The final aspect of political determinants of FDI is the industrial standards. This refers to the promotion of high quality industrial policies, which drive specialised knowledge clusters in Ireland. This study shows that industrial development is seen as an attractive feature of FDI. This means that it may not be an initial consideration for foreign investors from Japanese MNCs but any improvements in industrial development will be seen as a delightful aspect of the country. This finding agrees with a study by Dimitropoulou, et al. (2007) and UNCTAD (2010) which argued that the quality of government policy on industrial development aimed at creating areas of regional specialisation is crucial, as these regions are positively associated with FDI. However, this study fails to determine the reason why industrial development is seen as an attractive feature of FDI and thus it is not possible to confirm the “herd behaviour” of following competitors is a contributory factor (Kinoshita & Mody, 1997)

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