Information Search for Foreign Direct Investment Using Two-stage Country Selection Procedures: a New Procedure?

This paper reports the development and testing of a normative model for determining how firms should select the countries to be used in the information search for foreign direct investment. After a subset of countries is selected in the first stage of the decision process, a final selection process chooses the country with the best score within the subset: A "percentile method of subset selection" for singling out clusters of countries for information search and for identifying the best of the subset is presented that performs better than maximum country rankings ("top means") and maximum uncertainty ("top variance") techniques of subset selection. As an illustration, the percentile selection method is applied empirically. The research reported in this paper focuses on the development and testing of a normative model on how firms should specify the countries for which to carry out the information search for foreign direct investment (F.D.I.) The term "foreign direct investment" is used herein as the investment in a manufacturing facility in a host country to produce a given * Chaim Ehrman, received his Ph.D. in Marketing from the Wharton School, University of Pennsylvania, 1984. He is an Assistant Professor at Loyola University, and this paper was written while he was an Assistant Professor at the University of Illinois at Chicago. His current research interests are International Marketing, Consumer Behavior, and subset Selection Procedures for Business Applications. ** Morris Hamburg is Professor of Statistics and Operations Research at the Wharton School. His publications include research monographs, books, and numerous articles in professional journals. He has been the director of research studies and has served as a consultant to corporations and as an expert witness to law firms and to government agencies. This article stemmed from work begun by Chaim Ehrman in a doctoral dissertation supervised by Morris Hamburg. t The authors acknowledge The Center for International Business Studies at The Wharton School of the University of Pennsylvania for financial support. The first author acknowledges Professor Abba Krieger, University of Pennsylvania and Dr. Harold R. Shire for guidance, encouragement, and for constructive comments. Date Received: April 1985; Revised: August and September 1985; Accepted: October 1985.