The Strategy Preference of Multinational Entrepreneurs in Choosing Investment Locations
Foreign direct investment (FDI) plays a significant role in the economic growth of developing countries, such as Indonesia. In 2019, FDI was primarily responsible for the 7% economic growth in the country, which decreased to 5% in 2020. Therefore, the Government of Indonesia needs to ensure the country is capable of attracting FDI to boost its economy. One of the major considerations of FDI is choosing an investment location. Therefore, this study aims to examine and analyze the selection of investment locations based on the preferences of multinational entrepreneurs as FDI firms. This is an explanatory research carried out in the Jababeka Industrial Estate Area, West Java Province, Indonesia, with a sample size of 80 electronic and automotive industries. Data were obtained directly from the FDI companies and by determining the ease of doing business by the World Bank as an indicator for the investment climate. The obtained data were analyzed with the structural formative model and processed using the statistical method of the structural equation model with Smart PLS 3.28 software. The result showed that 1) the physical, social, and economic advantages reflected by the availability of labor, transportation, market potential, and industrial estates tend to significantly affect the possibility of choosing Indonesia as an investment location; and 2) the investment climate, which is reflected by starting a business, paying taxes, getting credit, enforcing contracts, trading across borders, resolving insolvency, and protecting minority investors, has a significant effect on the selection of Indonesia as an investment location. In conclusion, the ability of FDI to choose Indonesia as an investment location is significantly influenced by the country’s physical, socioeconomic, and investment climate conditions. Therefore, the government needs to improve its physical socioeconomic conditions to attract FDI into the country.
Keywords: foreign direct investment, investment location, investment climate, structural formative model.
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