“The Role of Host Country Networks in Foreign Investment Location Decisions” by Professor Aya S. Chacar
STRATEGY AND IB SEMINAR
Professor Aya S. Chacar
Department of Management & International Business
College of Business
Florida International University
Extant theory emphasizes the role of host country factors and home-host countries’ ‘distance’ on the choice of foreign investment location. This study argues that host country networks constitute a third set of drivers of foreign investment location choice. Host country networks in general, and more specifically host country investment networks (HCIN) are fundamental to multinational enterprises’ locational choices. We develop our theory based on the following arguments. First, HCIN signal the potential benefits of investing in the host country and channel knowledge and information about potential partners, investment opportunities in that country and its product and factors markets. Second, HCINs convey information and knowledge about third countries within the HCIN facilitating the evaluation of future investments into these third countries. Finally, host country networks increase the attractiveness of the host country as a ‘regional’ base. We hence argue that the relative propensity to invest into a host country (RPI) is positively associated with HCIN. This hypothesis is tested using nearly half a million firm global investment data aggregated to measure the impact of HCIN on RPI between more than 24,000 country dyads. The results support the importance of HCN to foreign investment location choices.