Increasing Agricultural Productivity:
Encouraging Foreign Direct Investments in the COMCEC Region
22
More recently, efficiency-seeking FDI has largely taken place among experienced and large
MNEs. In order for efficiency FDI to take place, markets must be well developed and open for
FDI. This is why efficiency seeking flourishes in regionally integrated markets. There are two
kinds of efficiency seeking FDI:
 The first is designed to take advantage of differences in the availability and cost of
traditional factor endowments in different countries and locations, explaining the intra-
firm division of labour.
 The second type of efficiency seeking FDI takes place in countries with similar location
conditions and income levels. Traditional factor endowments play a less important role
“while ‘created’ competencies and capabilities, the availability and quality of supporting
industries, the characteristics of the local competition, the nature of consumer demand
and the macro- and micro- policies of governments play a more important role” 30.
The fourth motive, asset-seeking FDI, relates to FDI aimed at acquiring assets of foreign firms
to promote the long-term strategic objectives of the acquiring firm, sustaining and advancing the
firm’s international competitiveness. It is driven by the need of firms to acquire specific
technological capabilities, management or marketing expertise. More recently this form of FDI is
typified by the search for talent and highly skilled workforces as a reason for FDI by MNEs. This
type of strategic asset FDI makes use of local competence levels that are very often created by
local or national governments.
These four motivations have been used by many scholars to explain FDI, and are often primarily
related to the interaction between the host country environment and the MNE.31 The traditional
view in such research is that MNEs are attracted by raw materials and cheap labour in specific
countries or regions. “An emerging argument is that country advantages may also be understood
as generating trajectories which pull foreign direct investment (FDI)” 32 In most research,
characteristics of the host countries provide the most important explanatory variable driving
the internationalization process. FDI of all types is motivated specifically by considerations
directly related to the employment of skilled or unskilled labour. Among these are efficiency
seeking investments, where labour costs and a skilled educated workforce play a major role.
For market-seeking FDI, on the other hand, the availability and cost of labour or skilled human
resources is not the main consideration in the choice of location, although it is likely to be one of
several secondary factors that determine the investment location decision." 33 Besides, the
buying power of the population – and thus the size of the market - is often related to the number
of people working in relatively high-wage sectors.
In the early 1990s many large MNEs pursued multiple objectives when conducting FDI
projects.34 It is not always easy to separate the four motives for FDI. In particular statistical data
on efficiency and strategic asset related FDI are missing.35 However, it is likely that these forms
30 Dunning, 1993
31 UNCTAD, 1998.
32 Anand and Kogut, 1997: 485
33 UNCTAD, 1999: 259.
34 Dunning, 1993: 56.
35 ibid