Evaluating foreign direct investments: new challenges for strategic planners

Abstract

Business and hence strategic planning is becoming increasingly international. Within that internationalisation, foreign direct investment (FDI) has become increasingly important, especially in E/SE Asia. A logical step then is to seek appropriate methods for modelling and evaluating those FDIs. Excluding the core financial appraisal the literature is sparse. This paper describes an empirical examination of these issues based on a sample from the UK's top 250 listed companies. The results of responses to a questionnaire are described with elaboration gleaned from eight detailed, follow up interviews. The picture to emerge is one of systematic treatment of the basic financial calculations but fairly rudimentary modelling of non-financial aspects. The treatment of risk was most typically through amendment of cash flows for core business risks and adjustment of the hurdle rate for ‘wilder’ risks. There is discussion of some of the subtler points of ‘wild’ risk's treatment and some outline suggestions for models to tackle other non-financial aspects of overall project evaluation. It is also suggested that the thinking developed may be applicable to a wider class of investment proposals.

Keywords:

• strategic planning
• evaluation
• foreign direct investment
• internationalisation
• risk