Macroeconomic Determinants of FDI Decisions in the Automotive Industry: Theoretical Foundations and Empirical Evidence

Abstract

Purpose - Foreign direct investment (FDI) has seen a tremendous increase over the last years. Decision-making concerning FDI puts great pressure on managers due to their complexity and long-term effects on the companies. Macroeconomic factors increase in their importance when companies go international. This external environment is complex and directly influences the business entity's activities and often decides about the future progress of them. The purpose is to bring more clarity into the specific macroeconomic factors and their impacts on the manager's decision-making process. Also, intervening factors are going to be analyzed if they may attract or distract FDI behavior. Method - Set-up of a new model approach by separating macroeconomic factors within certain characteristics as well as including potential intervening factors such as Incentive Schemes and Risk/Uncertainty as negative and/or positive stimulating factors for FDI decisions. Findings - The conditioned data show that some macroeconomic factors have a strong influence on FDI decisions and often are not considered by the decision-makers as much as they should have been. Incentive schemes for FDI seem to have a strong positive impact on investment decision-makers. Risk/Uncertainty factors have negative impacts. Limitations - The research was conducted on the German and Austrian automotive industry-specific characteristics. The period of FDI ventures was limited to 10 years. Implications - The study underlies the perception of FDI decision-makers in the specific business and environmental conditions of the automotive industry and its supplier organization. The precise definition of the view is important to consider and implies and represents the results of this work. A vice-versa contemplation on the receiving party of FDIs may result in different findings. Originality - Separation of different macroeconomic levels concerning FDI motives to setup a new SEM-model approach. Including intervening factors to get a holistic view of the macroeconomic environment with potential impact on decision-making.