Motive

Explanation

Market Seeking

Seeking new markets involves focusing on several aspects, such as market size, purchasing power, and growth potential. Market size is significantly important for shaping investment decisions, as in larger markets investors can employ economics of scale to reduce the costs of entry. High purchasing power allows investors to differentiate products/services, thereby leading to localizing the production. Growth potential attracts foreign capital because foreign investment is, by nature, a long-term business endeavor, and thus markets with growth potential would attract foreign capital.

Resource Seeking

This motive is relatively minor compared to other motives for foreign investment. Investors encouraged by this motive direct their investments to countries where scarce resources can be secured in abundance and at low costs. However, the importance of resource seeking as a motive for foreign investment has decreased significantly in recent years.

Efficiency Seeking

Investors driven by this motive search for investment climates in which cost advantages can be attained. Investors are often attracted to investment in markets in which labor with comparatively low wages can be found easily. This is especially the case with MNCs searching for opportunities for achieving efficiency in the production of labor-intensive products. This motive has also emerged in service sectors, as work tasks are off shored to countries in which wage levels are lower.

The intentions of foreign investors are also influenced by cost capital, represented by interest rates. Interest rate is inversely correlated with the cost of capital, as it leads to higher costs of borrowing. Therefore, higher interest rate is a discouraging factor for potential foreign investors.

The availability of a large pool of skilled workers is also an important factor that attracts foreign investors. The availability of local talents allows for improved adaptation with the local market. As a result, the investing company would be more capable of expanding not only in the country targeted by investment but also in the region in which the country is located.

The availability of reliable infrastructures attracts foreign investors. A strong infrastructure facilitates the movement of production inputs and outputs.

Another efficiency-related factor that influences the inflow of foreign investment is the openness of the host country to international trade. This is attributable to the fact that openness to international trade is associated with less restriction on the movement of imported production inputs and exported outputs.

Strategic Asset Seeking

Several strategic reasons may compel a company to invest in a foreign country. A foreign company may invest in a foreign country as a starting point for expansion into the wider region. There are other companies that invest in other countries mainly to follow that same behavioral pattern of other competitors in the same host countries.