Academic journal article Journal of Southeast Asian Economies

Thailand's Outward Foreign Direct Investment: The Case of the Garment Industry

Academic journal article Journal of Southeast Asian Economies

Thailand's Outward Foreign Direct Investment: The Case of the Garment Industry

Article excerpt

I. Introduction

The rise of new multinational corporations (MNCs) from emerging economies is currently an interesting international business research topic. Most studies are done on Chinese and Indian MNCs. However, it is not possible to generalize the emerging MNCs phenomenon. A study of a specific country and sector needs to be undertaken.

Thailand is chosen to be a site of this study due to its rapidly growing economy. However, the country's internationalization is still limited. The Thai economy depends mainly on export, proving the role of achieving international competitiveness to a certain extent. Unfortunately, Thailand does not have much outward foreign direct investment (OFDI) compared to other economies in the same tier, such as Malaysia and Taiwan. It is therefore interesting to investigate the current Thai OFDI situation.

The focus of this study is the garment industry. The reason for choosing this industry is based on Thailand's economic situation as well as industry-related information from the news. The Thai garment industry is supposedly a sector among others that has a high potential of using OFDI in order to sustain and upgrade its competitiveness. With an appreciation of the Thai baht and an increase in labour costs, Thai garment companies are facing pressure in adjusting their business models and possibly exploiting more opportunities in the global arena. On the other hand, there are a lot of favourable factors in host countries that could attract an investment from the Thai garment sector, for example, host government foreign direct investment (FDI) promoting schemes, availability of low-cost labour, and privilege of GSP (Generalized System of Preferences). However, it was surprisingly found that OFDI stock of textile and garment industry from Thailand was only approximately 1 per cent of total Thailand OFDI stock. It thus makes the issue more interesting to investigate why OFDI in the garment industry from Thailand is so minimal despite its high potential in investing overseas.

The major purpose of this study is to understand the Thai garment industry OFDI from the viewpoint of firms with and without OFDI. The differences between firms with and without OFDI are explored. The paper begins with an eclectic paradigm of FDI, resource-based view of the firm, a review on emerging multinational corporations (MNCs), and the OFDI phenomenon in Thailand. Then, research questions are developed. Research methods and discussion of findings are presented next. The paper concludes with suggestions to the industry and public sector, limitations and future research.

II. Literature Review

II.1 Eclectic Paradigm

The most comprehensive FDI theory to date is undoubtedly an Eclectic Paradigm by Dunning (1977). The paradigm, also known as the OLI framework, explains that FDI exists on the juxtaposition of three inter-related factors: Ownership (O) specific or competitive advantages or "O-specific advantages" of existing or potential MNCs; Location (L) specific advantages or "L-specific advantages" of particular (host) countries; and Internalization (I) advantages or "I-advantages" in combining ownership-specific advantages with those that are location-specific.

In essence, the eclectic paradigm predicts that the more valuable "O-specific advantages" a firm possesses (relative to its competitors), the more likely the firm will internalize its production either domestically or abroad. Furthermore, if a firm sees an opportunity or more to gain through using these advantages overseas (by considering location-specific advantages of foreign countries compared to its home country), the firm will then decide to engage in FDI. Therefore, a firm has to possess (or perceive) all three advantages, i.e., "OLI advantages", in order to establish FDI.

II.2 Resource-based View of the Firm

Resource-based view (RBV) of the firm has been developed for a few decades (Wernerfelt 1984). …

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