Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland

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Location Specific Determinants of Foreign Direct
Investment: An exploratory study of Japanese
Investment in Ireland
Ronan Patrick Coy, B. Eng.
A Research Dissertation submitted in partial fulfilment for the Degree of
Masters of Science in Technology Management
of the
National University of Ireland, Galway
College of Business, Public Policy and Law
School of Business & Economics
Head of Department: Dr. Emer Mulligan
Research Supervisor: Kathryn Cormican
Submission: August 2012

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I hereby certify that this material, which I now submit for assessment on the
programme of study leading to the award of Master of Science in Technology
Management, is entirely my own work and has not been taken from the work
of others save and to the extent that such work has been cited and
acknowledged within the text of my work.
Student ID Number 10101315
Name of Candidate Ronan Coy
Signature of Candidate
Date

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Acknowledgements
I would like to thank Kathryn Cormican for her guidance as my supervisor, Dr
Majella Giblin for her help and direction and to the respective lecturers on the
MSc in Technology Management, for their support.
My gratitude goes to all those who willingly participated in and devoted some
of their valuable time to this research.
Finally, I would like to thank my family for their support, understanding and
baby-sitting duties. I particularly want to thank my wife Susan and my son
James for their patience as I completed my studies.

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Table of Contents
Acknowledgements............................................................................................iii
Table of Tables ..................................................................................................vi
Table of Figures.................................................................................................vi
Abstract.............................................................................................................vii
1 Chapter One: Introduction.......................................................................... 1
1.1 Background to the Research ................................................................ 1
1.2 The Research Question ........................................................................ 3
1.2.1 Introduction................................................................................... 3
1.2.2 Research Questions....................................................................... 3
1.3 Significance of the Research................................................................ 4
1.4 Outline of the Thesis............................................................................ 7
2 Salient Features of Foreign Direct Investment ........................................... 8
2.1 Introduction.......................................................................................... 8
2.2 Literature on the Importance of Government Policy ........................... 8
2.2.1 Proactive Role of Government ..................................................... 8
2.2.2 Low corporate tax rates ................................................................ 9
2.2.3 Low-risk Political Environment ................................................. 10
2.2.4 High-Quality Government Institutions....................................... 11
2.2.5 Industrial Policies for Knowledge Clusters................................ 11
2.2.6 International Trade Agreements on FDI..................................... 11
2.3 Literature on the Importance of Economic Activity .......................... 12
2.3.1 Strong Macroeconomic Conditions............................................ 12
2.3.2 Access to Local Capital within a Stable Banking System.......... 13
2.3.3 Low Levels of Corruption and Risk ........................................... 13
2.3.4 Access to a Strong Export Market.............................................. 14
2.3.5 Growing Domestic and Regional Markets ................................. 15
2.3.6 Labour Force Costs and Productivity ......................................... 16
2.3.7 Access to High-skilled Labour ................................................... 16
2.3.8 Clusters and Agglomeration Effects........................................... 17
2.3.9 Low-cost operating environment & High Quality Infrastructure18
2.4 Literature on the Importance of Business Enablement ...................... 19
2.4.1 Access to Progressive Investment Promotion Incentives ........... 19
2.4.2 Access to Local Amenities and High Quality of Life................. 20
2.4.3 Previous Investment or Knowledge of Ireland ........................... 20
2.5 A Conceptual Framework for FDI Determinants .............................. 21
2.6 Conclusion ......................................................................................... 21
3 Research Methodology............................................................................. 22

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3.1 Introduction........................................................................................ 22
3.2 Research Design................................................................................. 22
3.2.1 Research Questions..................................................................... 22
3.2.2 Research Methods....................................................................... 23
3.3 The Research Project ......................................................................... 25
3.3.1 Selecting the Research Topic...................................................... 25
3.3.2 The Qualitative Research Phase ................................................. 25
3.3.3 The Quantitative Research Phase ............................................... 28
3.4 Limitations of Methods Used............................................................. 36
3.5 Conclusion ......................................................................................... 37
4 Findings and Discussion........................................................................... 38
4.1 Introduction........................................................................................ 38
4.2 Findings from Questionnaire ............................................................. 38
4.2.1 The Survey Sample..................................................................... 38
4.2.2 Demographic Data...................................................................... 39
4.2.3 Analysis using the Kano Model.................................................. 40
4.2.4 Survey results.............................................................................. 41
4.2.5 Prioritised Survey results............................................................ 42
4.2.6 Top 5 FDI Determinants............................................................. 45
4.2.7 Discussion on Questionnaire Findings ....................................... 46
4.3 Findings from Interviews................................................................... 51
4.3.1 Perceptions of Policy Determinants............................................ 51
4.3.2 Perceptions of Economic Determinants...................................... 56
4.3.3 Perceptions of Business Enablement Determinants ................... 61
4.3.4 Encouraging Further Japanese Investment ................................. 65
5 Conclusions .............................................................................................. 67
5.1 Introduction........................................................................................ 67
5.2 Secondary Research Questions.......................................................... 68
5.2.1 Secondary Research Question One............................................. 68
5.2.2 Secondary Research Question Two............................................ 71
5.3 Primary Research Question................................................................ 72
5.4 Limitations and Further Studies......................................................... 73
6 References................................................................................................. 74
7 Appendices ............................................................................................... 87
7.1 Appendix I Online Questionnaire ...................................................... 87
7.2 Appendix II: Interview Format .......................................................... 93

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Table of Tables
Table 3-1: Semi-Structured Interview Themes ....................................................28
Table 3-3: Kano Response Choices (Kano, et al., 1984; ter Maat, 2011).....34
Table 3-4: Table of All Japanese Firms in Ireland included in survey .........35
Table 3-5: Table of other respondents included in Survey..............................35
Table 3-6: Kano Evaluation Table (Source (ter Maat, 2011; MacDonald, et
al., 2006; Berger, et al., 1993)......................................................................................35
Table 4-2: Short Names for Topics addressed in Survey Questionnaire....40
Table 4-3: Kano Questionnaire Results (Group 2) ..............................................41
Table 4-4: Average Dysfunctional, Functional and “self-stated-importance”
scores ....................................................................................................................................42
Table 4-5: Details of Interviews..................................................................................51
Table of Figures
Figure 1-1: Sources of FDI in Ireland 2009. Source: (Department of
Enterprise, Trade & Innovation, 2010, p. 15)...........................................................2
Figure 1-2: FDI in Ireland by Employment Numbers (IDA Ireland, 2012)...5
Figure 2-1: Conceptual Framework of FDI determinants ................................21
Figure 3-1: Mixed Method Research Design Framework .................................23
Figure 3-2: Details of Interviews................................................................................28
Figure 3-3: Focus of FDI research by various authors.......................................30
Figure 3-4: The Kano Model (Source adapted from (Yang, 2005)) ..............31
Figure 3-5: Description of Kano Categories (Adapted from (Berger, et al.,
1993, pp. 3-5))...................................................................................................................32
Figure 4-1: Survey Sample and Response Rate ....................................................38
Figure 4-2: Summary of Demographic Data ..........................................................39
Figure 4-3: Kano Category Selection Calculation. Source (Berger, et al.,
1993, p. 13).........................................................................................................................41
Figure 4-4: Kano Functional Dysfunctional Graph. Source (Berger, et al.,
1993).....................................................................................................................................42
Figure 4-5: Constellations of Importance ...............................................................43
Figure 4-6: Results from Top 5 Ranking in Survey .............................................45
Figure 4-7: Top 5 FDI Determinants from Survey...............................................46
Figure 4-8: Role of Policy Determinants (Group 2) ............................................47
Figure 4-9: Economic Determinants of FDI............................................................48
Figure 4-10: Business Facilitation Determinants of FDI - Results ................49
Figure 4-11: Alignment of Policies with needs of Japanese MNCs................55
Figure 5-1: Top-Five FDI Factors ...............................................................................69
Figure 5-2: Constellation Factors for FDI................................................................70
Figure 5-3: Unique FDI Factors from Fujitsu Case Study..................................71

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Abstract
Ireland has long been a prime location for foreign direct investment (FDI) by
Multinational Corporations (MNCs) particularly from the US. The academic
literature on FDI in Ireland is thus dominated by foreign investment from the
US. With the redefinition of global economics and the increasing importance of
Asian economies, there is a need to broaden Ireland’s attractiveness to other
global investors.
This paper conducts an exploratory investigation into the location-specific FDI
factors that attract Japanese MNCs to Ireland. In the process, the study sought
to understand the salient factors for investment by Japanese firms in terms of
policy, economic and business facilitation determinants. The study also sought
to discover how Ireland could increase its attractiveness to Japanese MNCs.
Data was collected using mixed methods. A case study was conducted of an
FDI investment in R&D collaboration by a Japanese MNC. This was
complemented by an online questionnaire of existing Japanese MNCs in
Ireland, which was designed and analysed using the Kano Model.
The study indicates that many of the location-specific features that attract US
MNCs to Ireland such as the low corporation tax and highly skilled workforce
are equally attractive to Japanese MNCs. However, the risk-averse nature of
the Japanese investor and the limited cultural links between Ireland and Japan
means that new approaches must be taken to attract Japanese FDI. The results,
interpreted through the Kano Model, highlight that interconnected clusters of
FDI factors are viewed as important by Japanese investors when investing in
Ireland.

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1 Chapter One: Introduction
This introductory chapter provides a brief overview of the problem definition,
the case study under investigation, the research objectives and the gaps in the
current literature. A short account of the remaining chapters in this paper is
also provided.
1.1 Background to the Research
Foreign Direct Investment (FDI) is essentially an international investment
where the investor gains significant influence in the management of an entity
outside the investor’s home country (Solomon, 2011; UNCTAD, 2006; OECD,
1996). In addition, the OECD guidelines state that FDI requires the foreign
investor to own 10 per cent or more of the ordinary shares or voting power to
fulfil the definition. By contrast, some countries treat the 10 per cent cut-off in
a flexible manner and may declare other investment relationships as FDI
(OECD, 1996). However, for the purposes of this paper foreign direct
investment will be in line with the OECD definition as it allows for
international comparability and potential generalizability of the research.
Using this OECD definition of FDI, empirical evidence shows that FDI has
become an important force in the internationalisation of investment activities in
both the global and Irish economies alike. For instance, the inflows of FDI
globally were $1,114 billion in 2009 (UNCTAD, 2010) while inflows into
Ireland were $13.1 billion in 2011 (OECD, 2012). Furthermore, Ireland’s
growth during the ‘Celtic Tiger’ was attributed partly to foreign direct
investment (Barry, 1999; O'Connor, 2001; Ruane & Gorg, 2000) and the
ability for Ireland to emerge from the current economic crisis will depend
heavily on continued FDI by foreign multinationals (IDA Ireland, 2010).
Given the economic importance of FDI for the Irish economy and its recovery
in the future, it is critical that the determinants for FDI are understood. In the
classic FDI literature, there have been many studies on the motivations
underlying FDI engagement (Hymer, 1976; Grosse & Behrman, 1992;
Kindleberger, 1969; Caves, 1971; Williamson, 1975), and the entry modes of
the FDI strategy (Dunning, 1980; Grosse & Behrman, 1992), which highlight

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the complex mix of socio-cultural, political, economic and business factors that
influence FDI decisions. While these theories provide context for FDI they do
little to explain why MNCs decide to invest in Ireland, a small open economy
on the western fringes of Europe. Understanding these investment decisions is
even more relevant given Ireland’s recent economic recession.
Building on the early theories of FDI, many academics have focused on
unearthing the reasons for MNCs investing in Ireland through FDI. However to
date, much of academic literature and empirical evidence on the determinants
of FDI in Ireland has focused on large US firms (Gunnigle & McGuire, 2001;
Baibekova & Hoang, 2010; IDA Ireland, 2011). This may be explained by the
prevalence of US firms in Ireland and the significance of their foreign
investments. With the majority of Irish FDI being sourced in the US and
Europe (See Figure 1-1) the investment from other areas (including Japan) is
not significant (Department of Enterprise, Trade & Innovation, 2010).
Figure 1-1: Sources of FDI in Ireland 2009. Source: (Department of Enterprise, Trade &
Innovation, 2010, p. 15)
While US firms have rightly received attention from academics studying the
determinants and impact of FDI in Ireland, there are potential benefits from
having a more diversified investment profile including a lower exposure to
economic and currency fluctuations in MNCs home countries. One region that
has received little attention in terms of FDI has been Japan. Although the
Japanese may have quite a different culture to the Irish, their focus on high-
technology activity couples well with Ireland’s recent focus on building the
“Smart Economy” and developing the “Innovation Island” (Government of
Ireland, 2008).

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1.2 The Research Question
1.2.1 Introduction
This research aims to provide an exploratory review of the investment climate
for FDI by an established Japanese IT Services MNC in Ireland. The research
in particular aims to provide a case study analysis of the context for choosing
Ireland as a location for investment, by Japanese MNCs. This case study is
further backed by a survey on Japanese MNCs in Ireland and their perception
of FDI factors in Ireland.
1.2.2 Research Questions
The aim of this paper is to address one primary research question:
PQ 1. What are the location-specific factors that influenced the decision
by Japanese MNCs to invest in Ireland?
In addressing this primary research question, this paper seeks to answer the
following two related questions:
SQ 1. What are the perceptions of managers in Japanese MNCs as to the
key factors in investing in Ireland: the role of policy determinants,
economic determinants and business facilitation determinants?
SQ 2. Given the perceived locational determinants for FDI in Ireland,
what can Ireland do to encourage greater investment from Japan?
These research questions will be examined using a case study of foreign direct
investment by Fujitsu, a Japanese MNC in the Information and
Communications Technology (ICT) sector in Ireland. The study will focus on
the location-specific FDI determinants that led to Fujitsu selecting Ireland as
the location for investment. A survey of Japanese MNCs in Ireland will also be
used to provide comparability of results and generalizability for the study.
These investment determinants of Japanese MNCs in Ireland are under-
developed in the literature. However, this study will draw somewhat on the
work of Rios-Morales & Brennan (2007) which studied the pattern of FDI
flows from Japan into Europe and Ireland. Rios-Morales & Brennan’s (2007)
study represents the most complete quantitative analysis of Ireland’s FDI
features and the Japanese drivers for outward FDI.

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1.3 Significance of the Research
Since the establishment of the IDA in 1970, there has been an ever-increasing
focus on and awareness of FDI in Ireland and its importance for jobs and
growth in the economy (IDA Ireland, 2010). Given the recessionary economic
climate, it is clear that FDI has become more important than ever for Ireland’s
future.
Much of the research on Ireland’s FDI success has taken place in during the
‘Celtic Tiger’ boom years in Ireland when the Irish experience of growth
became a fascinating research topic (Barry & Bradley, 1997; Barry, 1999;
Gunnigle & McGuire, 2001; O'Connor, 2001; O'Malley & O'Gorman, 2001;
Rios-Morales & Brennan, 2007). Much of this research reviews the changes
and growth of the Irish economy attributed to FDI over the past few decades
when Ireland emerged from the recession of the 1970’s and 1980’s and then
saw strong growth in the 1990’s and the ‘Celtic Tiger’ in the first seven years
of the 2000’s. However, to the author’s knowledge, little research has occurred
on FDI cases in the past five years. Although the economic boom is finished,
FDI inflows into Ireland remain strong and Ireland is still ranked as a top
location for FDI investment. For instance, Ireland is the number one
investment destination country by average value of investment projects (IBM,
2011), second for productivity and efficiency and fourth for business
legislation for FDI investors in the world (IMD, 2012).
Although Ireland is clearly a leader in global FDI inflows, competition is
increasing and as the economic climate continues to decline, the Irish
competitive landscape is worsening. The IMD World Competitiveness Report
for 2012 shows that poor public finances, growing unemployment and lack of
infrastructure has weakened Ireland’s competitiveness. On the other hand,
Ireland is still an attractive location for FDI as IDA Ireland and the Department
of Jobs, Enterprise and Innovation report increasing numbers of investments
won and new companies investing in Ireland for the first time over the past
three years (IDA Ireland, 2010; Department of Jobs, Enterprise and Innovation,
2012). Clearly then Ireland is an attractive location for certain investors and
understanding these investment patterns is crucial for future growth.

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The MNCs that are attracted to invest in Ireland are primarily US firms as
evidenced by Ireland’s FDI inflows and stock of FDI (IDA Ireland, 2012; CSO
, 2011). In addition, the most significant FDI investments in Ireland in 2011
were all by US household names such Twitter, Intel, IBM, Coca-Cola, Pfizer,
PayPal and others (Department of Jobs, Enterprise and Innovation, 2012).
Moreover when examining the level of employment by Foreign firms in
Ireland, it can be seen that 75% of jobs in foreign firms are within US MNCs
with only 2% in Japanese MNCs (See Figure 1-2).
Figure 1-2: FDI in Ireland by Employment Numbers (IDA Ireland, 2012)
In its report, “Sharing Our Future: Ireland 2025”, Forfás point out that as FDI
has become more competitive and there is a need to seek out:
“ new and emerging markets and work with emerging global multi-national
corporations (MNCs) to explore their future needs and the potential role for
Ireland as a partner in their innovation processes and in serving global markets”
(Forfás, 2009)
This need to broaden FDI sources outside of US MNCs is also recognised by
the Irish Government as it finds that having an overreliance on certain markets
“increases our vulnerability to external shocks and currency fluctuations”
(Department of Enterprise, Trade & Innovation, 2010, p. 7). Although Ireland’s
trade strategy highlights the need to market the country as a base for FDI from
Asia, there is little focus on the needs of MNCs from these markets.
Canada
1% Sweden
1%
Netherlands
2%
Japan
2%
Switzerland
2%
France
3%
United Kingdom
4%
Germany
7%
United States
74%

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Thus, much of the literature on FDI in Ireland has focused on the reasons for
these US firms investing in Ireland during the period of Ireland’s success story.
However, during this same period, Japanese FDI into Europe experienced
strong growth (Cieslik & Ryan, 2004; Rios-Morales & Brennan, 2007). The
main driver for this investment was the enlargement of the EU, with much
Japanese FDI focusing on market-seeking strategies in new EU accession states
(Park, 2003). Japan had traditionally invested its FDI into the US but by 2000
Japanese FDI into Europe was double that of the US and five times that of the
Asian regions.
In Ireland, most FDI is focused on knowledge intensive sectors such as
information and communication technologies, bio-medical, pharmaceutical and
international financial services. This knowledge intensive sector is built around
American MNCs who consider Ireland to be the most profitable location for
FDI due to the low corporate tax rate and the highly trained workforce
(Durkan, et al., 1999). Park (2003, p. 1739) points out that most FDI from
Japan into developed countries has been knowledge intensive investment yet
Ireland has only attracted a small percentage of this investment despite the
apparent FDI alignment. Japanese FDI has been invested most heavily in the
UK, France and Germany with smaller European countries such as Netherlands
and Belgium also receiving more FDI than Ireland (Rios-Morales & Brennan,
2007).
While Ireland has been generally successful in attracting inward investment, it
has a much poorer record with Japanese FDI (Rios-Morales & Brennan, 2007).
Ireland, in employment terms, is the most FDI-intensive economy in the EU
(Barry & O'Mahony, 2006) and needs to build diversified sources of FDI to
protect against home country issues affecting MNC investments in Ireland.
This research seeks to uncover the reasons for Japanese MNCs investing in the
knowledge-intensive sector in Ireland and draw some potential conclusions in
terms of future investment from Japanese MNCs. Finally, the lessons from this
Japanese investment experience may hold valuable insights in terms of Ireland
attracting investment from other major Asian economies in future.

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1.4 Outline of the Thesis
The first chapter of this paper, this chapter, provides a brief overview of the
thesis beginning with an outline of the background to FDI by MNCs in Ireland,
the research questions being investigated and discusses the significance of the
study, highlighting the lack of literature on Japanese FDI in Ireland.
Chapter 2 reviews the current literature of FDI in Ireland, specifically focusing
on salient location-specific determinants of FDI, particularly on Research and
Development (R&D) projects. In identifying the locational factors for FDI by
Japanese firms, this paper examines the literature on FDI by Japanese MNCs.
The extant literature on the determinants of FDI in Ireland is also explored with
a view to understanding the socio-cultural, political, economic and business
aspects of those FDI factors.
The next chapter describes the methodology employed in the research and the
findings of the research are subsequently discussed. Finally, the determinants
of FDI investment by Japanese MNCs in Ireland are identified based on the
case study evidence and conclusions are drawn.

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2 Salient Features of Foreign Direct Investment
2.1 Introduction
This chapter aims to provide a review of the recent contributions to literature
on foreign direct investment and the locational determinants of such
investment. In attempting to comprehend the complex factors that affect the
attractiveness of particular geographic locations it is essential that a brief
assessment of the current literature is undertaken.
With the growth in FDI over recent years, there has been a growing body of
research on the topic as economists, academics and policymakers alike have
sought to determine the national factors that influence economic growth
(OECD, 2009; OECD, 2011; Porter, 2003). Although there is some consensus
among scholars on the role of FDI in fostering economic growth (Lim, 2001;
Blomstrom, 1986; Blomstrom, et al., 2000; Bîrsan, et al., 2008), there has
however been limited consensus on FDI determinants (Singh & Jun, 1995, p. 4;
Eicher, et al., 2011; Lim, 2001, p. 14; Artige & Nicolini, 2006, p. 5). Thus,
such complexity and contrasts are evident in the literature review.
2.2 Literature on the Importance of Government Policy
2.2.1 Proactive Role of Government
For countries to gain competitive advantage, evidence suggests that
governments must play an active role in creating an environment that enhances
that competitiveness (Lall, 2002). While governments worldwide have adopted
more market-orientated policies, becoming more attractive locations for FDI,
to grow their domestic economies (Blomstrom & Kokko, 2003), only a small
number have been successful in attracting FDI (Addison & Hesmati, 2003).
Rios-Morales & O'Donovan (2006) argue that governments require a holistic
approach to reduce barriers to foreign investors and provide incentives
alongside more long-term development goals. For Japanese firms in particular,
Mody et al. (1998) find that government restrictions on foreign ownership are
strongly resented by Japanese investors. Thus, it appears that holistic
government policies are required to attract FDI and those countries with the

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least onerous government restrictions will be most attractive to Japanese
investors.
2.2.2 Low corporate tax rates
The creation of government policies that deliver business-friendly fiscal and
financial incentives has been shown to improve the competitive advantage of
countries (Blomstrom, 2001). For Ireland, fiscal incentives such as low
corporate tax and subsidies were central to attracting investment by MNCs
since the 1950’s (Barry & Bradley, 1997). To this day, the corporate tax rate is
seen as crucial to Ireland’s attractiveness for FDI but empirical findings are
mixed. Sawkut et al. (2007) study of FDI determinants found host country
taxation policies to be a significant determinant of FDI inflows and low tax
countries attract greater proportions of FDI (UNCTAD, 2011; Eicher, et al.,
2011, p. 18). In contrast, Wheeler and Mody’s (1992) study found that the
corporate tax rate does not appear to play much of a role in attracting
investors. Although empirical evidence is inconclusive, countries adopting FDI
policies focus primarily on lowering of corporate tax rates (UNCTAD, 2011),
thus it is generally expected to have a positive effect on FDI inflows.
However, Blonigen (2005) points out that taxation effects on FDI are complex
and highlights how Corporate Tax Rates and Tax Treaties influence FDI flows
while Razin and Sadka (2007) emphasise the impact of double taxation
treatment in the host and parent country. Eicher et al (2011, p. 11) find that
increases in source country tax rates encourage MNCs to invest abroad but the
volume of investment increases when the host country taxes are lowered.
Although the number of bilateral tax treaties has increased (Egger, et al., 2006),
the empirical evidence showing their positive effect on FDI is ambiguous
(Eicher, et al., 2011). For Japanese firms, special home country tax breaks
means that much of the profits from foreign affiliates is repatriated (UNCTAD,
2011) and may reduce the attractiveness of host country tax policies. The use
of fiscal and financial incentives are not necessarily significant determinants of
FDI but in certain cases government policy to staunchly hold corporate tax low
may be viewed positively by investors (Reuber, et al., 1973) as is the case with
Irelands stance on harmonised EU taxation policies.

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2.2.3 Low-risk Political Environment
As with any MNC decision, risk plays an important part in the decision to
invest in a country. While many studies find that political risk is a deterrent to
FDI (Singh & Jun, 1995; Blonigen, 2005; Mauro, 1997; Cieslik & Ryan,
2004), Wheeler and Mody (1992) found that although geo-political risk was
significant, domestic socio-political risk is assigned little importance. Measures
of risk for FDI include financial risk, political stability, inequality, corruption,
red tape, quality of the legal system and cultural compatibility (Wheeler &
Mody, 1992). The contrast in results may reflect the difficulty in measuring
perceived risk and the differing proxy indicators used to determine risk levels
(Lim, 2001, p. 16).
Schneider and Frey (1985) found that political and social unrest in the host
country had a negative effect of foreign investment inflows. They report that
political instability and occurrences of disorder deters risk-averse foreign
investors. Singh & Jun (1995, p. 20) highlight that political instability is a
complex phenomenon and the empirical evidence regarding the impact of
political risk on investment is not clear due to the difficulty in gathering
reliable quantitative estimates of political risk. However, for host countries
with a high level of FDI (such as Ireland) the significance of political risk is
found to be greater.
Furthermore, Nigh (1985, p. 11) found that for developed countries, the
political events between the host and home countries were a significant
determinants of FDI, whereas the political events within the host country itself
had no impact on FDI. Furthermore, Wheeler and Mody (1992) found political
risk to be statistically insignificant for investment, while Groh and Wich (2009)
found that the political environment has less impact on FDI for more developed
countries. Research by Kobrin (1979) found that institutional features such as
political stability and government intervention in the economy are important
determinants of foreign investment. According to Kinoshito and Campos
(2002) political stability is described as a “necessary condition” for a host
country to attract foreign investment. Thus, political instability detracts from
the local investment climate and creates an unfavourable business environment
for investment (Schneider & Frey, 1985).

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2.2.4 High-Quality Government Institutions
The qualities of government institutions play an important role in attracting
FDI. For instance, poor legal protection of intellectual property decreases the
possibility of firms making profits from their assets. In addition, poor quality
institutions that develop standards for well-functioning markets and standards
of treatment of foreign affiliates may increase the cost of business and reduce
FDI investment (Blonigen, 2005; UNCTAD, 2011). Kinoshita and Kampos
(2002), find that poor quality of the institutional bureaucracy in the host
country is a deterrent to FDI. Furthermore, poor institutions may lead to poor
infrastructure development, which reduces potential profits and FDI into the
market (Blonigen, 2005). Thus for many MNCs, improving institutional
governance and bureaucratic quality is seen as a favourable sign for investment
(Kinoshita & Campos, 2002).
2.2.5 Industrial Policies for Knowledge Clusters
The quality of government policy on industrial development and the quality of
industrial promotion institutions are critical to the development of competitive
clusters (UNCTAD, 2010). Evidence shows that countries with competitive
advantages have aggressive promotional frameworks and industrial promotion
agencies influence FDI investment, particularly “effective in a country with a
good investment climate and a relative high level of development” (Morisset,
2003, p. 18). The work of the industrial promotion agencies to create areas of
regional specialisation is crucial as these regions are positively associated with
FDI (Dimitropoulou, et al., 2007). Kinoshita and Mody (1997) argue that the
actions of competitors attracted through high quality industrial policies may
lead to ‘apparent herd behaviour’. This herd behaviour is rational as it
economises on the gathering of scarce information resources (Kinoshita &
Mody, 1997).
2.2.6 International Trade Agreements on FDI
The openness of the host country is a positive factor for foreign investment and
openness to trade will drive an efficient environment, which is attractive to
foreign firms (UNCTAD, 2010; Kinoshita & Campos, 2002; Piteli, 2010;
Sawkut, et al., 2007). By contrast, other researchers have found that openness
to trade is only a significant determinant of FDI for certain sectors (Walsh &

12
Yu, 2010; Artige & Nicolini, 2005) and certain types of FDI (Lim, 2001).
Furthermore, Wheeler and Mody (1992) found that in the case of US firms the
degree of openness of the economy had a negative impact on foreign
investment while research in China showed more open policies son FDI had
little impact on attractiveness (Li & Clarke-Hill, 2004).
Studies on Japanese investment in Europe are fewer but trade barriers are
highlighted as a factor in investment (Dunning, 1991; Encarnation & Mason,
1994; Mody, et al., 1998). However, Mody et al. found that the strongest
disincentive to foreign investment by Japanese companies is the inability to
repatriate earnings due to restrictive FDI policies. Moran (1998) suggests that a
liberal investment climate tends to attract more dynamic FDI from innovative
technological firms who are seeking to establish export-oriented operations.
Conversely, a restrictive investment climate attracts MNCs that are less
efficient and have older technology aimed at producing for the host market
(Moran, 1998). As Ireland has a small domestic market, a more open and
liberal investment climate would seem most attractive to Japanese investors.
2.3 Literature on the Importance of Economic Activity
2.3.1 Strong Macroeconomic Conditions
Several studies have found that macroeconomic conditions including exchange
rates, inflation and growth positively influence the decisions of foreign
investors (Medvedev, 2006; Walsh & Yu, 2010; UNCTAD, 2010; Kinoshita &
Campos, 2002; Piteli, 2010; OECD, 2003). Several studies find that political
and economic stability are vital factors for foreign investors (Cieslik & Ryan,
2004; UNCTAD, 2011) and host-country ﬁnancial risk ratings are important
factors for investment (Razin, et al., 2008). Eicher et al. (2011, p. 18) find that
higher taxes and financial risk increase FDI outflows from the host country,
while lower taxes and financial risk have a positive effect on investment
inflows. In a review of recent literature, Lim (2001) found that political risk
and economic instability hinder FDI to the host country. Thus, a perception of
higher perceived economic and financial risk is likely to reduce FDI
investment.

13
In their research on FDI in central Europe, Barry & Bradley (1997) posit that
FDI was enabled through a stable macroeconomic, fiscal and monetary climate.
In the Irish context, the development of modern industrial and macroeconomic
policies is viewed as vital in Ireland’s FDI success (Rios-Morales & Brennan,
2007) while Barry (2007) presents macroeconomic stability and membership of
the EU as a significant determinant of investment inflow. However, Walsh and
Yu (2010) find that macroeconomic conditions impact FDI in services more
than manufacturing and inflation has little impact in terms of attracting
additional FDI. Thus, the stability of the macro-economy is likely to be a
significant factor for FDI in Ireland.
2.3.2 Access to Local Capital within a Stable Banking System
The United Nations Congress on Trade and Development (UNCTAD) find that
stability in the macroeconomic environment helps the longer-term growth of
FDI and such stability leads to a predictable business climate where bank
lending is more likely (UNCTAD, 2010). Ozturk (2007) carried out an
extensive review of FDI literature and found evidence that financial market
regulations and a stable banking system are significant determinants for FDI
(Piteli, 2010). The recent banking restructuring and bailouts in Europe and
Ireland may have implications for FDI flows in the years ahead (UNCTAD,
2011, p. 185). The World Investment Prospects Survey 2008-2010 (UNCTAD,
2008) reported that of 226 companies surveyed, fifty per cent of respondents
expressed concern about the risk of a major global economic downturn and
financial instability. Furthermore, this report highlights that access to local
capital markets was a factor for investment and this factor favoured more
developed countries such as Australia, the EU-15 and the United States
(UNCTAD, 2008). Thus, the health of the banking system within a stable
economic platform in Ireland is seen as important for foreign investment.
2.3.3 Low Levels of Corruption and Risk
While banking and financial risk are important, many MNCs find that the level
of corruption influences the decision to invest in a host country. A survey of
191 MNCs by the World Bank found that 36% of companies sited the level of
corruption as very influential in the investment decision, with this figure rising
to 38% for investment in Western Europe (World Bank, 2002). Some studies

14
have shown that corruption increases the level of risk and costs and impacts
FDI flow (Mauro, 1997; Wei, 2000; Rios-Morales & Brennan, 2007).
However, some countries continue to attract FDI despite corruption (Kolstad &
Villanger, 2004) and in a US study, Wheeler and Mody (1992) found that the
level of corruption was not a deterrent to investment. Walsh and Yu (2010)
point out that these differences on the influence of corruption may be down to
using different metrics and different types of data.
In a review of Foreign Direct Investment incentive policies, the OECD
reported that grants and other incentives might encourage corruption and
bribery (OECD, 2003). Furthermore, Kobrin (1979) found that institutional
features such as the degree of “red tape” and corruption are important factors
that influenced the decision of foreign investors. In a study of FDI in transition
economies, Kinoshita and Campos (2002) find that the better the perception of
the judicial system and the less corrupt the local bureaucracy the more FDI is
attracted to the country. Thus, high quality institutions with low levels of
corruption may be a significant factor for investment.
2.3.4 Access to a Strong Export Market
Due to the small size of the domestic market, foreign subsidiaries of MNCs
locate in Ireland so they can produce primarily for export (Barry & Bradley,
1997). O’Gorman et al. (1997) also highlight that the size of the Irish market
and the influence of the state agencies was important in attracting export-
orientated investment. Ireland’s membership of the EU has allowed it to
become an export platform for MNC subsidiaries and its language and cultural
links has allowed Ireland to become a favourable location for US FDI
(Cassidy, et al., 2009).
However, does such an argument apply for Japanese FDI in Ireland? Cieslik
and Ryan’s (2004) study of Japanese investment in Europe suggests that the
host country’s ability to act as an export platform is an important factor in
attracting inward investment and previous linkages with the host economy by
Japanese investors is more important than domestic economy performance.
This represents a ‘shift’ in the location choice of Japanese investors (Cieslik &
Ryan, 2004) and may provide opportunities for Ireland. An earlier study by

15
Singh and Jun (1995) also find that export orientation is the strongest
determinant of host country attractiveness for FDI, especially for countries
with high levels of FDI. Thus, an open outward facing economy in Ireland is
likely to be attractive to Japanese investors.
2.3.5 Growing Domestic and Regional Markets
Several studies have identified the domestic market size (Sawkut, et al., 2007;
Wheeler & Mody, 1992; UNCTAD, 2008; Lim, 2001) and more importantly
access to a larger regional market (Lim, 2001; UNCTAD, 2010; Cheng &
Kwan, 2000) as location-specific determinants of FDI. Some evidence suggests
that although the determinants for both Japanese and US MNCs are different,
the market size is a shared determinant (Fountas & Aristotelous, 1995).
Reviews of the literature have shown that the growth of the domestic economy
(Groh & Wich, 2009; Wheeler & Mody, 1992; Singh & Jun, 1995) and the host
country’s market size (Torrisi, et al., 2008) increases inward FDI. Mody et al.
(1998) found that Japanese investors in Asia considered the size of the host
country’s domestic market to be an important factor in investment. Similarly,
empirical research by Cieslik and Ryan (2004) suggests that Japanese FDI in
Europe locates in countries with a combination of growing domestic markets
and the ability to serve the regional market (Rios-Morales & Brennan, 2007).
For Ireland, the size of the domestic market is of little significance to foreign
investors who primarily locate here to export (Barry & Bradley, 1997;
O'Connor, 2001). Although the Irish domestic market is not sufficient to attract
FDI compared to other countries with larger domestic markets (Cassidy, et al.,
2009), the right FDI policies and active investment promotion can help
compensate (World Bank, 1997). Although Ireland’s entry to the EU saw an
increase in FDI (Barrios, et al., 2005), a recent study of FDI in Ireland found
51% citing the size of the domestic market as a disadvantage for Ireland
(Matheson Ormsby Prentice, 2012). Research by UNCTAD (2005) however,
points out that pure R&D provides a new source of FDI not reliant on the
domestic market or export-orientation. Thus Ireland can benefit from R&D
based FDI.

16
2.3.6 Labour Force Costs and Productivity
Although the market size may affect FDI inflows, the quality of the human
capital base is also an important asset in attracting high technology MNCs. The
OECD (2003) found that the presence of accessible human capital is an
important factor when investors select an investment location. Several studies
have found that FDI increases with low-cost labour in the host country (Barrell
& Pain, 1996; Cheng & Kwan, 2000; Kinoshita & Mody, 1997; UNCTAD,
2008) and a highly productive workforce (UNCTAD, 2011; Cheng & Kwan,
2000). By contrast, Artige & Nicolini (2006) found that labour productivity
was not consistent as a factor in FDI and its influence depended on the location
and sector. Moreover, Groh & Wich (2009) argued that low-cost labour is not a
primary motivator for investment and the combination of wage cost and
productivity is more important.
Ireland’s workforce is young and well-educated (IDA Ireland, 2011) and one of
the most productive per person employed per hour worldwide (IDA Ireland,
2010). Sawkut et al (2007) highlight that a more educated workforce is
generally more productive as it implements new technology more quickly and
the level of tertiary education plays a key role in attracting high value-add
MNCs (Miyamoto, 2003). Earlier empirical surveys of US MNCs in Ireland,
by Gunnigle and McGuire (2001), found that labour quality and productivity
was perceived favourably by executives. However, a study of US MNCs
investing in Ireland and Bahrain showed that the availability of a skilled
workforce was significantly more important in FDI decisions than low-cost
labour (Gilmore, et al., 2003). However, Ireland has traditionally had higher
productivity in the high-tech sectors than the European average and high
quality human capital in these sectors (Hewitt-Dundas, et al., 2010), and this
may influence the fact that labour cost is not seen as a critical factor in MNC
investment in Ireland (Gunnigle & McGuire, 2001).
2.3.7 Access to High-skilled Labour
Other studies have shown that increased levels of human capital are a good
indicator of high-skilled labour and make the host country more attractive for
FDI. Schneider & Frey (1985), Borensztein, et al. (1998) and Noorbakhsh, et

17
al. (2001) found that the access to high skilled labour is a significant
determinant of a nation’s location advantage and is important in attracting FDI.
The importance of skilled labour can be observed in Irish foreign-dominated
sectors, which employ higher proportions of skilled labour than industry on
average (Barry & Bradley, 1997)
The need for skilled labour favours the more developed economies with a
broader knowledge, research and innovation base. Research by Dimitropoulou,
et al (2007) in the UK highlights the importance of the knowledge and research
base for attracting FDI. The research and innovation performance of Ireland
and the EU however stills lags behind the US and Japan (Lohan, 2007). As
measured by gross domestic expenditure on R&D, the US (2.79%) and Japan
(3.45%) have invested significantly more than the EU average (2%) and
Ireland (1.79%) (Eurostat, 2012). The Irish Development Agency (IDA) see
the establishment of world-class research and innovation base through MNCs
and research institutes as crucial in attracting FDI to Ireland:
“Ireland is gaining increasing recognition as a location in which to innovate
and is empowering some of the leading global corporations to carry out
research, development and innovation across a wide platform of activities,
thereby enabling their future potential to create and commercialise new
processes, products and services”
(IDA Ireland, 2012)
2.3.8 Clusters and Agglomeration Effects
The exploitation of such research and innovation is linked to government
policies on industrial development and regional zones of FDI. The literature is
extensive on the positive impact of agglomeration economies and clusters on
FDI decisions (Head, et al., 1995; Wheeler & Mody, 1992; Kinoshita &
Campos, 2002; Walsh & Yu, 2010; UNCTAD, 2011). Wheeler and Mody
(1992) found clustering to be highly significant determinant of FDI in a study
of US manufacturing MNCs. An important finding for Ireland by Kinoshita &
Campos (2002) is that agglomeration effects reduce the importance of market
size as a location determinant. This finding confirms research by Barry and
Bradley (1997) that newly arrived MNCs in Ireland in the high-tech sectors are

18
strongly influenced by the fact that other key market players are already
located in Ireland (Lim, 2001). In addition, Rios-Morales & Brennan (2007)
find that Japanese FDI into Europe has been strongly influenced by
agglomeration effects and it is a key determinant for location decisions by
Japanese investors. Moreover, Head et al. (1995) argue that increases in
agglomeration increase the probability for future investment selection;
however, agglomeration effects alone may not encourage further FDI by
Japanese investors if other location factors are not seen as attractive.
2.3.9 Low-cost operating environment & High Quality Infrastructure
The quality of infrastructure including ports, roads, power grids and
telecommunications infrastructure are a significant factor in FDI decisions for
MNCs (Li & Clarke-Hill, 2004; UNCTAD, 2011). This demand for quality
infrastructure favours investment in more developed regions such as the EU
and the US (UNCTAD, 2008). In addition, Cheng and Kwan (2000) and Walsh
and Yu (2010) found that good infrastructure had a positive effect on location
attractiveness and leads to higher FDI inflows while Liang (2004) argues that
differences in transport and communications infrastructure affect the location
decisions of MNCs at both country and intra-country levels. However, Mody
et al (1998) argue that high quality infrastructure is not a necessary condition
for initial investment but infrastructure improvements are required to
encourage further FDI inflows. Thus, good infrastructure is a performance-
related determinant for FDI and an expected feature in developed economies
such as Ireland.
Such good quality of infrastructure helps to lower business operating costs for
MNCs. Minimising the cost of doing business including the availability of low-
cost transport, communications, energy and other operating factors are seen as
important determinants for foreign investment (UNCTAD, 1998; UNCTAD,
2011). Transport and communications costs to/from and within the host
economy are seen as significant factors by UNCTAD (1998) but evidence from
Lim (2001) finds that transport costs effect on FDI depends on the type of FDI
undertaken. In any case, it is expected that lower operating costs will be
viewed favourably by Japanese MNCs.

19
2.4 Literature on the Importance of Business Enablement
2.4.1 Access to Progressive Investment Promotion Incentives
Initial efforts to attract foreign investors rely on investment promotion agencies
building an image for the country and develop investment facilitation services
(Li & Clarke-Hill, 2004). As mentioned previously, Morisset (2003, p. 18)
argues that promotion agencies with aggressive FDI campaigns positively
influence FDI decisions, particularly where the country has a good overall
investment climate. Similarly, the World Bank (1997) finds that promotion
only succeeds when the country is attractive to investors. The efficiency of
such promotion institutions is reflective of government effectiveness, which is
a significant locational factor for investors (UNCTAD, 2008). Thus, the
success of Ireland’s ability to attract FDI reflects on the efficiency of the IDA.
The investment promotion agencies also help to provide access to information,
facilitate clear communication and reduce legal and bureaucratic issues
(UNCTAD, 2011). Groh and Wich (2009) find that the costs and complexity of
bureaucracy influence FDI decisions and is an important determinant for FDI
inflows. In their analysis of FDI in developing countries, Singh & Jun (1995)
and Lim (2001) argue that excessive bureaucracy constrains economic growth
through FDI. In contrast, Wheeler and Mody (1992) find that “red-tape” and
bureaucracy risk has a very limited effect on FDI decisions by MNCs.
The maturity of the legal system also affects the host country’s appeal. Lim
(2001) finds that less red tape including regulatory, judicial, labour relations
and contract issues create a friendlier business environment that attracts
investors. Ramcharran’s (2000) study of Central and Eastern European
countries finds that regulatory and country risk affects FDI flows and a
restrictive legal environment is a significant disincentive for FDI. Several other
studies have found that the quality, stability and transparency of the legal
system are crucial for encouraging FDI inflows (Baniak, et al., 2005; Naudé &
Krugell, 2007). Thus, systems of governance that promote the rule of law may
be major factors in Ireland’s ability to attract FDI.

20
2.4.2 Access to Local Amenities and High Quality of Life
Other business facilitation efforts that influence the location-specific
determinants of FDI are the provision of appropriate social amenities and after-
investment services. The quality of life and social amenities are significant for
investment (UNCTAD, 2010; UNCTAD, 2011; Li & Clarke-Hill, 2004). As
competition for FDI investment from targeted MNCs intensifies, the use of
these business facilitation practices help enhance location-specific advantages
(UNCTAD, 1998). Globerman & Shapiro (2004) find that countries that invest
in improving quality of life attract more FDI while Hornberger et al. (2011)
find that quality of life and language skills were one of the top ten determinants
for foreign firms investing in developing and transition economies. In
examining why US MNCs invest in Ireland, Gunnigle and McGuire (2001, p.
53) highlight that many MNCs want to locate in Dublin for quality of life
reasons. Thus, quality of life is an increasingly important incentive for
attracting FDI to Ireland.
2.4.3 Previous Investment or Knowledge of Ireland
The decision to invest in a particular country is influenced significantly by the
public and private information available to the foreign MNC. Investors’
location decisions are influenced by public information including analytical
country reports by international organisations (Kinoshita & Mody, 1997).
Furthermore, private information such as direct experience in the host country
and previous experience is viewed as information that is more credible and a
significant factor in FDI decisions (Kinoshita & Mody, 1997). In reviewing the
attractors of Japanese MNCs in Asia, Mody et al. (1998) point out that
although favourable FDI policies may be attractive, previous presence in the
country is likely to increase Japanese FDI. This observation is further
confirmed by Cieslik and Ryan (2004) as they explain Japanese investment
into Europe. Thus, flows of credible information from existing Japanese
subsidiaries may be crucial for further Japanese investment in Ireland.

21
2.5 A Conceptual Framework for FDI Determinants
Based on the literature review of policy, economic and business facilitation
determinants the following conceptual framework is proposed (See Figure 2-1).
This framework highlights the importance of government policy as a
foundation for FDI (Lall, 2002) and its implications (dotted line) for business
facilitation and economic determinants.
Figure 2-1: Conceptual Framework of FDI determinants
2.6 Conclusion
This chapter has highlighted the important determinants of FDI as elucidated
by the academic and empirical literature. The locational determinants of FDI
are clearly driven by policy, economic and business facilitation drivers but the
actual determinants depend greatly on the context and motives of the MNC.
Dunning (1995) highlights that the factors of FDI are complex and there is no
single explanation for all FDI determinants. Thus, the attractiveness of location
is part tangible, part intangible and is strongly influenced by government
within a complex web of interrelated factors.

22
3 Research Methodology
3.1 Introduction
This chapter explains the research methodology employed for this study and
the rationale for such study. It develops the theme from the primary and
secondary research questions through to the reasoning for the selected research
approach. Finally, it concludes on the limitations of the research methodology.
3.2 Research Design
The research design outlines the framework used to deliver the most valid
answers to the research questions posed (McMillan & Schumacher, 1993). As
Yin (1994, p. 19) states, “every type of empirical research has an implicit, if
not explicit, research design”. Moreover, Maxwell argues that as a design
always exists, it should be made explicit to highlights its “strengths, limitations
and consequences” (2005, p. 3). The research design for this study provides the
structure for investigation (Kerlinger, 1986, p. 279; Saunders, et al., 2009, p.
137) and sets out the selection of research methods and the use of the Kano
model (Kano, et al., 1984). The research questions are also discussed in terms
of the research project (Robson, 2002) and the procedures for information
collection, from which source and under what conditions data were collected
(Green & Tull, 1970, p. 73), are clearly outlined.
3.2.1 Research Questions
The aim of this paper is to address one primary research question:
PQ 1. What are the location-specific factors that influence the decision by
Japanese MNCs to invest in Ireland?
In addressing this primary research question, this paper seeks to answer the
following two related secondary questions:
SQ 1. What are the perceptions of managers in Japanese MNCs as to the
key factors in investing in Ireland: the role of policy determinants,
economic determinants and business facilitation determinants?
SQ 2. Given the perceived locational determinants for FDI in Ireland,
what can Ireland do to encourage greater investment from Japan?

23
3.2.2 Research Methods
In this study, a mix of qualitative and quantitative methods is used to answer
the research questions. The study consisted of two research phases, the
Qualitative and Quantitative research phases, supported by various research
methods to answer the research questions, as shown in Figure 3-1 below.
Figure 3-1: Mixed Method Research Design Framework
The Qualitative Research Phase was designed to gain insight into the
perceptions of managers as to the location-specific factors influencing Japanese
firms investing in Ireland and to understand their perceptions of Ireland as an
investment location. This phase is built around a case study of Fujitsu, a
Japanese MNC, and its recent investment in the Irish ICT sector. In this
Qualitative phase, semi-structured interviews and a questionnaire were used to
gather data. This phase was intended to address the secondary research
questions and contribute to the primary research question.
On the other hand, the Quantitative Research Phase was designed to understand
the salient location determinants for FDI in Ireland by Japanese MNCs. This
Quantitative phase also aimed to categorise and rank those determinants to
understand the contribution of country-specific factors to location attraction.
This phase used the Kano questionnaire to collect data and address the primary
research question.

24
3.2.2.1 Mixed Methods Research
The framework in Figure 3-1 shows how the study employed both quantitative
and qualitative research to answer the primary and secondary research
questions in this research. In an effort to understand the choice of mixed-
method research, perhaps it is appropriate to restate the primary research
question (PQ1): What are the factors that influence the decision by Japanese
MNCs to invest in Ireland? Punch (2005, p. 19) argues that questions seeking
to determine the ‘factors which affect’ and the ‘determinants of’ imply a
quantitative approach. Thus, the framework shows how questionnaires are used
within a survey strategy to provide quantitative answers in the research.
To explore these factors for foreign investment further, the first secondary
research question (SQ1) asks “What are the perceptions of managers in
Japanese MNCs as to the key factors in investing in Ireland: the role of policy
determinants, economic determinants and business facilitation determinants?”
This question seeks to explore perceptions and ‘describe the experiences’ of
managers which lends itself to a qualitative approach (Punch, 2005, p. 19). The
final question (SQ2) states, “Given the perceived locational determinants for
FDI in Ireland, what can Ireland do to encourage greater investment from
Japan?” Again, this question is exploratory, seeks to understand perceptions,
and thus is more suited to qualitative research methods. Thus, the framework
shows how semi-structured interviews and secondary data within a case study
research strategy provide such qualitative insight. The qualitative approach also
uses the questionnaire to provide measurable and comparable data with the
survey data in the research.
The authors decision to use mixed-methods as outlined in the framework is
expected to provide greater opportunities to answer the research questions
(Johnson & Onwuegbuzie, 2004) and allow better evaluation of the
trustworthiness of the research findings by reducing the impact of ‘method
effect’ (Tashakkori & Teddlie, 2003; Saunders, et al., 2009). Thus, such an
approach is warranted and it will provide consistent results that can be
developed further in the future.

25
3.3 The Research Project
3.3.1 Selecting the Research Topic
The author identified two reasons to study the determinants of foreign
investments by Japanese MNCs in Ireland. Firstly, Japan stands as the fourth-
largest economy in the world after first place US, second-place China and
third-place India (CIA, 2012). However, in Ireland, the level of FDI by the US
dwarfs FDI from Japan with minimal FDI from India (CSO , 2011). For
instance, Japan holds 2% of the FDI base in Ireland compared to 74% by the
US, when measured by number of employees (CSO , 2011). Moreover, when
measured by number of multinational firms, Japan has 23 firms (2%) in Ireland
compared to 515 (53%) form the US (CSO , 2011). Thus, the author recognised
that attracting greater FDI from Japan represents an opportunity for greater
expansion of the Irish FDI base and the potential for future economic success.
Secondly, the literature on FDI in Ireland is focused on US MNCs (Gunnigle &
McGuire, 2001; Baibekova & Hoang, 2010; IDA Ireland, 2011) and
considering the number of companies and level of employment this makes
sense. By contrast, research on FDI by Japanese companies in Ireland is limited
(Rios-Morales & Brennan, 2007) and there has been no research to date to
identify the location-specific determinants that may be unique to Japanese
investors in Ireland, to the knowledge of the author.
3.3.2 The Qualitative Research Phase
The Qualitative Research Phase is focused on a case study to explore the
salient location-specific factors that influence FDI by Japanese MNCs. Case
study research is “principally about [the] interpretation, subjectivity and
meaning” (Ryan, et al., 2004) of a particular contemporary phenomenon within
its real world context, using multiple sources of evidence (Robson, 2002; Yin,
2003). Due to the exploratory nature of the research, a case study was judged
appropriate for this phase. This is a revelatory case where the researcher has
access to experiences that were previously inaccessible (Tellis, 1997; Yin,
1994). Tellis (1997) points out that single case study research requires careful
investigation to avoid misrepresentation and enable the researcher to maximise
access to the evidence. Thus, using a case study, theories may be expanded and

26
generalized by combining the existing theoretical knowledge with new
empirical insights (Yin, 1994).
Research suggests that it is possible to generalise from just one case study
(Gummeson, 2003; Stuart, et al., 2002; Tellis, 1997) and if causal relationships
can be identified, they may be true for some structurally similar cases
(Hillebrand, et al., 2001). Conversely, it has been argued that individual cases,
by their nature, are often difficult to generalise (Vissak, 2010) and cannot be
controlled statistically (Yin, 1994). Saunders et al. (2009, p. 158) note that the
purpose of a single case study is not to produce a theory that is generalizable to
all population but to try to explain what is going on in a particular research
setting.
3.3.2.1 Choosing the Company
By choosing a single representative Japanese firm in the Qualitative Phase, the
researcher was able to gather a greater amount of information on the company
than would be possible in a larger study. The research of a single case study
also benefits from the gathering of unstructured and detailed data that can be
analysed for greater insights (Diluna, 2003)
This paper examines the foreign direct investment by Fujitsu Ltd Japan
(hereinafter Fujitsu) into a joint research collaboration with the Digital
Enterprise Research Institute (DERI) in Galway, Ireland to explore the research
question. Although this project also involved the Irish Industrial Development
Authority (IDA) and Science Foundation Ireland (SFI), this case study only
focuses on Fujitsu and the locational factors that influenced its decision to
invest in Ireland. The investment by Fujitsu Ltd worked closely with its
subsidiary Fujitsu Ireland Ltd (hereinafter Fujitsu Ireland). For completeness of
the study, interviews were conducted with key players in the project from
Fujitsu and Fujitsu Ireland.
3.3.2.2 Instrument Development
Yin (2003) identified six types if information that can be used to create a case
study. These types of information are documentation, archival records,
interviews, direct observation, participant observation, and physical artefacts

27
(Yin, 2003). This study used documentation and interviews with senior staff
within the company with direct experience of the FDI engagement. Participant
observation was also recorded using a questionnaire.
3.3.2.3 Data Collection
The primary and secondary data for the Qualitative Phase was gathered in June
and July 2012. The secondary sources relate to literature on FDI determinants,
FDI by Japanese companies and Ireland’s economic growth factors. This
secondary data was used to access the perceived importance of FDI
determinants by various authors and identify those factors that related
particularly to FDI by Japanese MNCs. The main sources of secondary data
were found online in Journals, eBooks, library databases, online statistics
sources and online reports from Irish, European and Japanese institutions.
Great care was taken to refer to the most recent literature to ensure that data
reflected the current situation for FDI in Ireland. Primary data was gathered
using semi-structured interviews and questionnaires.
3.3.2.4 Interviews
A semi-structured interview schedule was used which is divided into three
themes with 11 questions as show in Table 3-1. The first theme explored the
key factors for investment and examined (i) the motives and (ii) the influencing
factors for investment. The second theme delved into perceptions of (iii) the
investment landscape, (iv) Japanese sentiment toward Ireland, (v) the role of
the Irish Government in FDI, (vi) most attractive policies for Japanese
investors, (vii) influence of economic factors, (viii) the ease of doing business,
(ix) the quality of labour and (x) previous knowledge of the investment
location. The last theme focused on the future and explored (xi) what Ireland
could do to attract further FDI investment.
Interview Theme Ideas Explored
Perceptions of
Investment Factors
(i) Motives for Investment
(ii) Influencing factors for Investment
Perceptions of
Ireland
(iii) The investment landscape
(iv) Japanese sentiment toward Ireland,
(v) The role of the Irish Government in FDI
(vi) Most attractive policies for Japanese
investors
(vii) Influence of economic factors

28
(viii) The ease of doing business,
(ix) Quality of labour
(x) Previous knowledge of the investment
location
Perceptions of
Future
(xi) What Ireland could do to attract further FDI
investment
Table 3-1: Semi-Structured Interview Themes
The five interviews were all carried out with senior management employees
within Fujitsu over a 6-week period. The questions followed the themes as per
Table 3-1 and structured based on the research carried out in the literature
review. These interviews provided the opportunity to gather detailed qualitative
data on Fujitsu’s perceptions of FDI in Ireland and get a sense of how Ireland
was performing in FDI attractiveness for Japanese MNCs. The interview
schedule is laid out below in Figure 3-2.
Interview
No
Interview
Method
Job Title Involvement in FDI
Project
1 In-Person CEO Sponsor on Project
2 In-Person Head of Innovation Lead on Project
3 In-Person Head of Marketing Promotion of Project
4 In-Person Head of Legal Legal on Project
5 On Phone Head of Strategy Strategic Lead
Figure 3-2: Details of Interviews
3.3.3 The Quantitative Research Phase
While the qualitative research phase provided answers to the secondary
research questions, a quantitative survey approach was judged necessary to
answer the primary research question. Quantitative research creates or uses
numerical data, such as questionnaires, statistics and graphs (Saunders, et al.,
2009, p. 151). Questionnaires provide objective data and can examine cause
and effect relationships using a deductive process of knowledge attainment
(Charoenruk, 2010). The questionnaire design follows the Kano model outlined
below to provide new insight on FDI factors.
3.3.3.1 Choosing the Survey Sample
For the Qualitative research phase, a judgement sample was used. The author
believes that this judgement sample of respondents meet the requirements of
the study (Hair, et al., 2008). There are 23 Japanese MNCs in Ireland, all of

29
which were included in the sample frame. To obtain further insight into foreign
investment by Japanese firms in Ireland, representatives of the IDA and
Japanese business forum in Ireland were also selected. By choosing a sample
frame of all Japanese MNCs in Ireland and representative bodies involved with
Japanese investment, it is believed that findings can be generalised at least
within the Irish context.
3.3.3.2 Instrument Development
Creating a survey questionnaire allows a large amount of data to be collected
and analysed economically (Saunders, et al., 2009, p. 144). Questionnaires are
some of the most widely used data collection techniques within the survey
strategy (Saunders, et al., 2009, p. 361) and using standardised questions it
allows an efficient way to gather data from a large number of respondents. A
questionnaire was selected to gather opinion and attribute variables as
described by Dillman (2007). In gathering opinion variables, the author
determined that the use of the Kano model for designing the survey
questionnaire would provide new insight and allow new comparisons to
previous research described in the literature review. The development of the
Kano Questionnaire is described in the following sections.
3.3.3.3 Kano Questionnaire
3.3.3.3.1 Introduction
This section discusses the Kano Method as a new lens to view the location-
specific determinants of FDI in Ireland.
3.3.3.3.2 A Gap in FDI Determinant Analysis
Most previous studies on FDI determinants have focused on identifying the
significance of various determinants within a particular context as seen in
Figure 3-3. Thus, for decades various authors have attempted to identify the
most important FDI determinants with little effort to understand the relative
interdependence and strata of determinants for FDI investment.
Type of FDI
Research
Author Focus of Research
Quantitative
Primary
Singh & Jun (1995)
Lim (2001)
Find FDI factors most strongly linked with
investment attraction of the host country.
Quantitative
Secondary
Chakrabarti (2001)
Blonigen (2005)
Confirm external validity of important FDI
determinants

30
Qualitative Artige & Nicolini
(2006)
Identify the most positive and statistically
significant determinant of FDI
Quantitative
Secondary
Piteli, 2010;
UNCTAD, 1998
Provide lists of significant FDI
Determinants
Quantitative
Secondary
Jones (1980) Understand national comparative and
absolute advantages
Figure 3-3: Focus of FDI research by various authors
These strata or layers of FDI determinants are evident in much of the foreign
investment literature. Firstly, a recurrent theme within the literature was the
concept of FDI determinants that were necessary for investment to occur but by
themselves are not sufficient.
“Our results reveal the need for policy to be decentralized to the regional
level. Since many of the essential determinants of economic performance
appear to reside in regions, national policies will be necessary but not
sufficient.”
(Porter, 2003, p. 571)
A second layer of locational attraction is evident in suggestions that FDI
investment increases in direct correlation to improvements in specific FDI
factors. For instance, currency increases and increases in human capital
investment are linked to increases in FDI.
“The probability that a country will be the recipient of high-tech FDI
increases with its investments in human capital and with higher GDP per
capita”
(Globerman & Shapiro, 2004, p. 24)
These advantages may be viewed as performance factors as the performance of
the determinant is linked directly to FDI inflows. Thus, knowing the difference
between the necessary and performance strata of determinants is vital for a
country to focus attention on areas that improve its FDI attractiveness.
Interestingly, location-specific factors of foreign investment can be viewed
through a third lens. This lens is comparable to Jones’ (1980) absolute
advantages as these factors truly distinguish one region from another.
“the most attractive location advantages for export-oriented MNCs are now
world-class infrastructure, skilled and productive labour, and an

31
agglomeration of efficient suppliers, competitors, support institutions and
services”
(Puga & Venables, 1999; Liang, 2004, p. 84)
These absolute advantages for FDI investment are differentiated from the
necessary and performance factors, as they are the regional factors that attract
and delight investors the most. Thus, three distinct layers can be discerned -
necessary, performance and attractive features - that work together to attract
investment to a specific location.
3.3.3.3.3 Applying the Kano Model
So, how can these new lenses of location-specific determinants of FDI be best
understood? The Kano model helps to develop product and service attributes
that are “both functionally and emotionally satisfying to customers”
(MacDonald, et al., 2006). Kano’s model presents five quality attributes based
on the relationship between perceived sufficiency of quality on the horizontal
axis and customer satisfaction with that attribute (Lai & Wu, 2011) as shown in
Figure 3-4.
Figure 3-4: The Kano Model (Source adapted from (Yang, 2005))

32
Yang (2005) describes the Kano model with five categories of quality
attributes: attractive, one-dimensional, must-be, indifferent and reverse quality
attributes as shown in Figure 3-5.
Kano Category
(Alternative Names)
Description (Adapted)
Attractive
(Delighter, Value-Add)
The Attractive (A) curve means that a feature of the
country provides extra satisfaction when present but the
country is still satisfactory when the feature is absent.
One-Dimensional
(Performance,
Proportional)
The One-Dimensional (O) line means that the more
functional the feature within the country the more
satisfied the investor and vice versa.
Must-Be
(Basic, Expected)
The Must-be (M) curve indicates aspects where the
investor is more dissatisfied when the country attribute
is less functional, but where the investor’s satisfaction
never rises above neutral no matter how functional the
attribute becomes. Extra effort spent improving such
features would make little impact on satisfaction for the
investor.
Indifferent The Indifferent (I) circle means that a feature of a
country does not provide either satisfaction or
dissatisfaction to the investor.
Reverse The Reverse (R) line means that a feature being present
in a country causes dissatisfaction. Such features should
be eliminated.
Questionable The Questionable (Q) category means that scores
signify that the question was phrased incorrectly, or
that the person misunderstood the question
Figure 3-5: Description of Kano Categories (Adapted from (Berger, et al., 1993, pp. 3-5))
Kano’s model of attractive quality proposes that quality attributes are dynamic
and change from attractive to one-dimensional to finally being must-be over
time (Kano, 2001). Using a specific Kano questionnaire and evaluation tables,
the perceptions of respondents are grouped into the Kano categories. The
classification of a feature is determined by: Kano category = maximum (A, O,
M) if (A+O+M) > (I+Q+R) or maximum (I, Q, R) if (A+O+M) ≤ (I+Q+R),
(Lai & Wu, 2011). Classifying country attributes into the Kano categories
provides many advantages. These advantages have been adapted from
Sauerwein, et al. (1996):
 Prioritise attribute development: Investing in attractive and one-
dimensional aspects of country attributes provides greater value for
money than developing must-be attributes, which are already at a
satisfactory level.

33
 Country attributes are better understood: The country features that
have the greatest influence on foreign investor attraction can be
identified. Classification of attributes allows greater targeting of
resources to attract FDI.
 Focused Industrial Development Activities: Kano’s model helps
establish the importance of individual country features in satisfying
foreign investors. Thus, it creates the optimal prerequisite for industrial
development activities.
 Trade-off Decisions: the Kano method provides valuable insight for
trade-off situations in industrial development. Where two country
features cannot be developed simultaneously, due to technical or
financial reasons, differentiation can occur based on the feature with
greatest influence on investor attraction.
 Country Differentiation: Uncovering the attractive attributes of the
country create a range of possibilities for differentiation. A country that
only satisfies must-be and one-dimensional requirements may be
perceived as average in international markets.
Thus, the use of the Kano model to guide the development of the survey
questionnaire and the resulting quantities analysis will provide new
categorisation of FDI determinants and deliver new insights for developing
FDI features to attract Japanese investment in Ireland.
3.3.3.3.4 Constructing the Kano Questionnaire
In the Kano questionnaire, each question consists of two parts: functional and
dysfunctional (Kano, et al., 1984). Functional questions are questions that ask
how the respondent feels if an investment feature is present. Dysfunctional
questions asks how the respondent feels if the investment feature was not
available. Both types of questions were formulated for each FDI feature that
was identified in the literature. When conducting the survey, respondents had
the choice of five multiple-choice answers as shown in Table 3-2: Kano
Response Choices

34
Kano Response
Choices
Description
I like it This is the most positive answer. It means that the
factor is very attractive for investment purposes.
I expect it This is a slightly positive answer. It means that the
factor must be present to undertake investment.
I do not care This is neither positive nor negative. It means that this
factor has neutral impact on investment.
I can live with it This is a slightly negative answer. It means that the
factor can be tolerated for investment purposes.
I dislike it:
This is the most negative answer. It means that the
factor is very unattractive for investment purposes.
Table 3-2: Kano Response Choices (Kano, et al., 1984; ter Maat, 2011)
3.3.3.3.5 Data Collection using the Kano Questionnaire
The questionnaire created for this research was constructed using
SurveyMonkey™ and consisted of five pages (see Appendix I Online
Questionnaire). The first page introduced the survey, and details on the secure
handling of data in line with Data Protection legislation. It then asked for some
basic demographic details about the respondent and their organisation like
nationality, company sector and job title. The second page consisted of six
questions on the Policy Factors for Investment in Ireland. The third page
looked for responses on eleven questions relating to economic factors for
investment. The fourth page consisted of six questions on business facilitation
factors for investment in Ireland. The final page surveyed the respondents’
perceptions of the importance of investment factors and provided a freeform
box for comments on Japanese MNC investment in Ireland.
The survey was sent to all 23 Japanese MNCs located in Ireland (see Table
3-3) and two relevant organisations with insight on Japanese investment in
Ireland (see Table 3-4).
No Company Name
Questionnaire
type
Industry Sector
1
Alps Electric (Ireland)
Limited
Self-administered
Hardware Information and
Communications Technology (ICT)
2 Astellas Ireland Co., Ltd. Self-administered Pharmaceuticals
3 Carten Controls Limited Self-administered
4
Daiwa Europe Fund
Managers Ireland Ltd
Self-administered Financial Services
5 Fujitsu Ireland Ltd Self-administered
Information and Communications
Technology (ICT)
6 Goodman Medical Self-administered Medical Technologies
7 Hitachi Koki Europe Ltd Self-administered

35
8 KG Aircraft Leasing Co Ltd Self-administered Financial Services
9 Neriki Europe Ltd Self-administered Industrial Products and Services
10 Ohshima Ireland Limited Self-administered
Hardware - Information and
11 Orix Ireland Ltd Self-administered Financial Services
12 Rexxam Electronics Irl. Ltd Self-administered
13 SHIMADZU CORPORATION Self-administered Advanced Science
14 Sojitz Aircraft Corporation Self-administered Financial Services
15
Sumitomo Mitsui Finance
Dublin Limited
Self-administered Financial Services
16 Swiftcall Long Distance Self-administered Business Services
17 Takeda Ireland Ltd. Self-administered Pharmaceuticals
18
THK Manufacturing of
Ireland Ltd.
Self-administered Industrial Products and Services
19 Trend Micro (EMEA) Ltd Self-administered
Software - Information and
20 Uchiya Ireland Ltd Self-administered Industrial Products and Services
21 Yakult Ireland Self-administered Food & Drink / Healthcare
22 Mitsubishi Motors Self-administered Motor Vehicles
23 Sony Self-administered Electronics
Table 3-3: Table of All Japanese Firms in Ireland included in survey
No Company Name
Questionnaire
type
Industry Sector
1 IDA Ireland Self-administered Semi-state Body
2 Telegael Ltd Self-administered Information/Media Group
Table 3-4: Table of other respondents included in Survey
3.3.3.3.6 Evaluate the Results using the Kano Model
In order to interpret the results of the survey, a matrix (see Table 3-5) is used to
analyse each response.
Table 3-5: Kano Evaluation Table (Source (ter Maat, 2011; MacDonald, et al., 2006; Berger, et
al., 1993)
As each response is plotted on the table, a response outcome is recorded.
3.3.3.3.7 Categorise and Prioritise FDI Features
Based on the response data, the investor FDI attribute can be placed into the
relevant Kano category. The customer satisfaction coefficient can also be
determined: The customer satisfaction coefficient states whether satisfaction

36
can be increased by meeting an FDI requirement, or whether fulfilling the FDI
requirement merely prevents the customer from being dissatisfied (Berger, et
al., 1993). The customer satisfaction coefficient is measured using the
following formulae.
Extent of satisfaction: (A+O) / (A+O+M+I)
Extent of dissatisfaction: (O+M) / (A+O+M+I) * (-1)
In addition, the FDI determinants can be prioritised using the rule provided by
Berger et al. (1993): Must-be > One-dimensional > Attractive > Indifferent.
However, in some cases, it can be unclear as to which feature to prioritise and
in these cases, the “self-stated-importance” scores provided by respondents will
be used to determine the priority.
3.4 Limitations of Methods Used
Although the research methods chosen for this study were carefully prepared
and developed, there are several limitations. First, the research was conducted
over a three-month period, at intermittent stages. Research over a longer period
may have allowed greater insights from the interview process. Second, the
author is currently employed by Fujitsu and while not directly involved in the
foreign investment, has familiarity with the people involved. This familiarity
may lead to bias and subjectivity but at all stages the author maintained
objectivity and followed best practice on using open-ended questions in
interviews.
Third, the population for the survey group is small with only 23 firms in the
sample. This limitation is not controllable however, as there are only 23
Japanese firms in Ireland. While the study may not be generalizable, the survey
may be generalizable within the Irish context. Finally, while the use of the
Kano model provides a new lens for FDI determinants, there is the difficulty of
adapting the model appropriately for this study. It may be argued that such
application is not appropriate but the author believes its applicability has been
sufficiently demonstrated.

37
3.5 Conclusion
In summary, this study proposes to identify the location-specific determinants
of FDI in Ireland for Japanese MNCs. The objective of the research is to
understand the various perceptions of Japanese MNCs and compare those
perceptions to the extant literature. To do this a dual-phase approach was
developed to gather a combination of qualitative and quantitative data in an
effort to reduce the impact of ‘method effect’ (Tashakkori & Teddlie, 2003;
Saunders, et al., 2009). The qualitative phase involved a case study, which
gathers real-world information on Fujitsu’s foreign investment in Ireland,
providing rich data on the case. The quantitative phase used an online
questionnaire based on the Kano model.

38
4 Findings and Discussion
4.1 Introduction
This section presents the findings from the two-phased process outlined in
chapter three. As this study used mixed-methods to gather the data using both
semi-structured interviews and questionnaires, the results will be developed by
first highlighting the results from the survey and then compare these findings to
those from the case study interviews. This approach will provide greater
understanding of the findings and enable patterns to be established. These
comparisons between methods will also help answer the primary and secondary
research questions. The findings are also discussed in each section to highlight
any insights from the data.
4.2 Findings from Questionnaire
The topics in the questionnaire were based on the themes from the literature
and designed around the conceptual framework in Chapter 2. Each topic was
developed into associated Kano questions and importance ranking questions
(as per Appendix I Online Questionnaire).
4.2.1 The Survey Sample
The overall response to the survey was 52%, with 11 of the 23 Japanese MNCs
in Ireland (See Figure 4-1) providing a response and both of the independent
bodies also completing the questionnaire.
Figure 4-1: Survey Sample and Response Rate
23
11
2
2
Survey Distribution Survey Response
Survey Sample & Response Rate
Japanese MNCs Japanese Interest Bodies

39
4.2.2 Demographic Data
Respondents were asked to supply demographic data as outlined below. A
summary of the demographic data is provided in Figure 4-2 and it shows that
Group 2 consisted of companies in multiple industry sectors. The respondents
were of varying nationalities, with significant time in senior positions within
their respective companies. Thus, the respondents fit well to answer the
primary and secondary research questions regarding perceptions of managers
in Japanese MNCs.
Figure 4-2: Summary of Demographic Data
0% 50% 100%
Irish
Japanese
Austrian
Respondent Nationality
23%
31%
23%
7%
8%
8%
Sector Distribution from Respondents
ICT Financial Manufacturing
Automotive Government Media
92%
8%
Member of Management
Yes
No
0%
10%
20%
30%
40%
50%
5 to 10
Years
10 to 15
Years
15 to 20
Years
20 to 25
Years
25 to 30
Years
Time in Company

40
4.2.3 Analysis using the Kano Model
Before presenting the Kano Questionnaire results, the question topics as shown
in Appendix I Online Questionnaire were given a short name for easier
communication and display of the results (See Table 4-1). These short names
will be used throughout the survey findings.
Table 4-1: Short Names for Topics addressed in Survey Questionnaire

41
4.2.4 Survey results
This survey consisted of 23 topics, with each topic having two sub-questions
(functional and dysfunctional). The survey output from Survey Monkey™ (see
Appendix I Online Questionnaire) required further analysis using Excel™ in
order to present these findings based on the Kano Model. To the knowledge of
the author, no online survey method is available for direct Kano presentation
and analysis. This section will present the survey results post-analysis.
An overview of the FDI feature categories and the consolidated survey
responses is gained from the Kano Questionnaire results in Table 4-2 below.
Table 4-2: Kano Questionnaire Results (Group 2)
The Kano category has been calculated using the Berger et al. (1993) formula
as outlined in Figure 4-3.
Figure 4-3: Kano Category Selection Calculation. Source (Berger, et al., 1993, p. 13)

42
4.2.5 Prioritised Survey results
Berger et al. (1993) proposed that simply viewing the satisfaction and
dissatisfaction levels on the Kano model did not allow for enough
differentiation between factors. The proposed model by Berger et al. (1993) is
shown in Figure 4-4.
Figure 4-4: Kano Functional Dysfunctional Graph. Source (Berger, et al., 1993)
Using the Berger et al scoring mechanism, the results from the surveys were
averaged to produce the following table (Table 4-3).
Table 4-3: Average Dysfunctional, Functional and “self-stated-importance” scores

43
The results are difficult to decipher so the relevant section of the graph has
been extracted in Figure 4-5 below. The figure shows a plot of the X-Y
position in terms of functional and dysfunctional scores with the size of the
individual bubble representing its importance score.
To define and understand the most important FDI factors for Japanese firms
investing in Ireland, the author proposes the use of “Constellations of FDI
Importance”. This is based on the visual similarity between the bubble chart
and astronomical phenomena and this helps to understand the relationship
between FDI determinants for Japanese MNCs investing in Ireland. The author
proposes four constellations of FDI importance from the survey results as
shown in Figure 4-5.
Figure 4-5: Constellations of Importance
Again, the size of each point on the map represents the average importance
score and this extra dimension provides a valuable addition to the results
discussed in the previous sections. Taking the most significant determinants
and linking them to related high-importance factors provides the following
“constellations”.

44
1. The Quality People Triangle: The Japanese firms attach significant
importance to the FDI factors of Productivity, Skills and Educated
Workforce. Increases in all these factors are seen as highly satisfying
and conversely reduction in these factors results in dissatisfaction. The
results suggest that every effort must be made to develop the Irish
workforce, as increases in these features will increase attractiveness for
Japanese investors.
2. The Risk Spire: Foreign investment from Japan is risk averse and the
perception of the Legal System and Corruption are of high importance.
While improvements in these FDI factors will not result in as much
satisfaction as the Quality People Triangle, any decline in these factors
will lead to a greater overall dissatisfaction with Ireland as an
investment location.
3. The Government Web: The role of Government is linked to a number
of factors that respondents highlighted as relatively important. Quality
Infrastructure, openness to trade, access to regional markets and
bureaucracy are linked to government policy and impact on doing
business. Further linkages to operating costs and taxation reflect the
importance of profitability for Japanese MNCs. Although each
determinant has a lower importance than the previous constellations, on
aggregate the importance of the government role is an important
determinant of FDI attraction.
4. The Industrial Development Circle: The development of high quality
industrial policies leading to many specialised knowledge clusters is
ranked with high importance. Improvements in this factor will lead to
moderate satisfaction while deterioration will lead to moderate
dissatisfaction. This circle seems incongruous but this may highlight
that Industrial Development is a more attractive feature and highly
valued by Japanese MNCs.

45
4.2.6 Top 5 FDI Determinants
The questionnaire asked respondents to nominate the top five most important
determinants from the 23 determinants listed. The opportunity to add additional
determinants was provided but no respondent added any. The percentage of
importance scores for each FDI determinant was calculated for each rank from
1 to 5. The results are shown in Figure 4-6 below where each respondent had 5
votes and thus the total response is 500%.
Figure 4-6: Results from Top 5 Ranking in Survey
Using the aggregate totals, the top five FDI determinants from the survey are
shown in Figure 4-7 below. Ireland’s low corporate tax rate is still seen as the
most important element by Japanese MNCs for investment in Ireland followed
closely by the skilled workforce. The government’s role in maintaining
stability and access to large regional markets is also of paramount importance.
Interestingly, the domestic Irish market received no importance scores from
any respondent and this may reflect the export nature of Japanese MNCs in
Ireland.

46
Figure 4-7: Top 5 FDI Determinants from Survey
4.2.7 Discussion on Questionnaire Findings
The results of the survey as shown in Table 4-2 provide initial feedback on the
perceptions of managers within Japanese MNCs on the key factors that
influence them investing in Ireland.
4.2.7.1 Discussion on Policy Determinants Perceptions
The role of policy determinants in attracting investment is clear from the
results. Figure 4-8 shows that Japanese MNCs regard the proactive role of
Government in attracting FDI as a basic expectation, along with high-quality
institutional standards. This finding is in line with expectations as Rios-
Morales & O'Donovan (2006) argue that governments require a holistic
approach to reduce barriers to foreign investors and provide incentives
alongside more long-term development goals. A study by Mody et al. (1998)
found that for Japanese firms in particular, that government restrictions on
foreign ownership are strongly resented by Japanese investors and enforced
export rules are a major disincentive. The respondents to this survey appear to
agree and regard openness to trade as a necessary determinant for foreign
investment.
0%
10%
20%
30%
40%
50%
60%
70%
Top 5 FDI Determinants by Aggregate Importance

47
Figure 4-8: Role of Policy Determinants (Group 2)
Previous research has failed to reach consensus on the impact of political
instability and risk on foreign investment. Studies by Singh & Jun (1995),
Blonigen (2005), Mauro (1997) and Cieslik & Ryan (2004) found that political
risk is a deterrent to FDI. In this study, Political Stability is perceived as a one-
dimensional feature of FDI by the respondents meaning there is a direct
correlation between level of political stability and the MNCs positive
perception of the country. Thus, this study agrees with the work of the
aforementioned authors. It contrasts however with the findings of Wheeler and
Mody (1992) who found that although geo-political risk was significant,
domestic socio-political risk is assigned little importance. The contrast in
results may reflect the difficulty in measuring perceived risk and the differing
proxy indicators used to determine risk levels (Lim, 2001, p. 16).
The final aspect of political determinants of FDI is the industrial standards.
This refers to the promotion of high quality industrial policies, which drive
specialised knowledge clusters in Ireland. This study shows that industrial
development is seen as an attractive feature of FDI. This means that it may not
be an initial consideration for foreign investors from Japanese MNCs but any
improvements in industrial development will be seen as a delightful aspect of
the country. This finding agrees with a study by Dimitropoulou, et al. (2007)
and UNCTAD (2010) which argued that the quality of government policy on
industrial development aimed at creating areas of regional specialisation is
crucial, as these regions are positively associated with FDI. However, this
study fails to determine the reason why industrial development is seen as an
attractive feature of FDI and thus it is not possible to confirm the “herd
behaviour” of following competitors is a contributory factor (Kinoshita &
Mody, 1997)

Thesis: Location Specific Determinants of Foreign Direct Investment - An exploratory study of Japanese investment in Ireland

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