Foreign investment decisions of western Canadian firms

An earlier study of the foreign investment decision process of U.S. firms by Aharoni had suggested the dominance of behavioural characteristics over criteria based on economic theories in determining such decisions. His research did not however, provide strong analytical proofs and part of the intellectual derivation for this study was the search for such proof. This was combined with the effort to bring into the field of knowledge some information about an under-reported sub-sample of foreign investors, namely firms from Western Canada. The main structure of the research model consisted of six identified stages in the foreign investment decision process. In turn, six sets of variables were developed which corresponded to each of these stages: awareness through initiating forces, investigation, commitments, negotiations, uncertainty, and the final decision. To test the research model five hypotheses were developed. The first hypothesis corresponding to stage one contended that endogenous initiating forces are more important in creating awareness of foreign direct investment opportunities than exogenous initiating forces. The second hypothesis relating to stage two claimed that those who conduct a sequential investigation will judge the subjectively estimated cost of that investigation to be significantly higher than those who do not conduct a sequential investigation. The third hypothesis concerning stage three stated that the extent of investigation and the degree of commitments are positively related. The fourth hypothesis relating to negotiations in stage four and uncertainty in stage five said that there exists a positive relationship between the extent of negotiations and the amount of uncertainty. The fifth hypothesis corresponding to stage six claimed that in those cases where the decision has been made to invest abroad, there will be strong initiating forces, more investigation, greater degree of commitments, greater extent of negotiations, and smaller amount of uncertainty than in those cases where the decision has been made not to invest abroad. The hypotheses were tested against data collected on 89 decisions. The data supported all the hypotheses excepting the first part of the last hypothesis which said that the initiating forces will be stronger in the case of positive decisions. This was explained in terms of the presence of intervening variables such as investigation, commitments, negotiations, and uncertainty. The research has implications for home and host country and the theory of the firm. Profit is shown as an important consideration in the investment decisions. Resource-based firms are led by the location of resources and they have a desire to internalize the source of supply and demand. Some of the areas for further research are: a comparison of foreign and domestic investment decisions and a study of buying and financing practices of Canadian firms that invest abroad.Business, Sauder School ofMarketing, Division ofGraduat