A new theoretical framework to assess multinational corporations’ motivation for foreign direct investment: a case study on Vietnamese service industries

Abstract

Purpose: This paper develops a new theoretical framework, based on eclectic paradigm and institution theory, to evaluate Multinational Corporations’ (MNCs’) incentives for Foreign Direct Investment (FDI). The new framework is applied as a case study in the service sector across Vietnam. Design/methodology/approach: This study applies the Structural Equation Modelling (SEM) approach to investigate the motivational factors of MNCs by using primary data on MNCs working in service industries in Vietnam. This paper introduces five motivational factors, and conducts a Confirmatory Factor Analysis (CFA) to study the construct validity of the research measures and to cluster the variables into common factors that can be used to present relationships among sets of interrelated variables. Findings The SEM results reveal that the key determinants of MNCs’ incentives to invest in service industries are market-seeking government policies and culture, all of which have significantly contributed to FDI. Originality/value: This study offers new knowledge and insights into the factors that motivate FDI by MNCs in general and in service industries in Vietnam. The findings are plausible and in line with the recent economic reforms launched in Vietnam, along with the increased FDI inflows into the country in the last twenty-five years.