Foreign investment in the Caribbean : multinational enterprise motivation, investment behaviour and corporate strategy

Abstract

Foreign Direct Investment (FDI) is playing an increasingly important role in the economies of many less industrialised countries. The Caribbean, specifically Jamaica, Barbados and Trinidad-Tobago are excellent examples of this phenomenon. The increased dependence of these countries on FDI calls to question the attractiveness of their business environment to the foreign investor. This study aims to provide answers to this research question. To this end, it examines the factors that influence the motivations, locational choices and market entry mode of multinational enterprises making investment in these three countries. This study also seeks to ascertain the extent to which these factors are influenced by the timing of the investment decision, the type of FDI (market-seeking, resource-seeking and export-seeking) and the country of origin of the investor. It is also concerned with the factors that influence the initial investment decision as well as the decision to continue operations in the countries. Fourteen hypotheses were advanced from the International Business literature. A triangulation approach to research methodology was employed in the study. The hypotheses were initially tested by means of a mailed questionnaire survey which was administered to 299 executives of multinational enterprises that operate in the three Caribbean countries. The hypotheses were further tested using the qualitative method of a case study approach. Twelve core cases of multinational enterprises operating in the export sectors of the three Caribbean countries were analysed. This study demonstrated the non-applicability of several of the FDI theories to the realities of small, developing economies. These theories were developed largely to explain the behaviour of firms originating in industrialised countries and making investments in these countries. Hence, several did not seem to fully explain the FDI process undertaken in the Caribbean. One notable exception was that of the "Double Diamond" model. The study showed that the "Double Diamond" model is a powerful framework for analysing the business environments of the three Caribbean countries studied. This study also illustrated the importance of government implementing strategies to ensure that the business environment is supportive of the foreign investor. Further, the study suggests that investments need to be made in human resource development, and institutional and infrastructural improvements. It also revealed that the investment incentive package needs to be revised and a nexus created between the government and the foreign investor. Finally, the study suggests that support needs to be given for the development of the locally owned firm