Impact of Political Risk on Foreign Direct Investment Decisions: Methodology

Chapter 3: Methodology

3.1: Introduction

The previous chapter provided a critical review of the literature relevant to this study. The chapter established what has been researched and published around the subject and thereby shedding light on and validating issues to be investigated in this dissertation.

This chapter describes the methodological procedures employed to answer the research question. A rationale is offered for the chosen research philosophy, approach, strategy, purpose and time-horizon. In addition, consideration of ethical issues and limitations of the research methodology are provided. Overall, the chapter facilitates replication of the research methods employed, supporting the study’s reliability (Fink, 2003).

3.2: Research Aims and Objectives

This chapter seeks to explain and justify the selection of the research methods in order to address the research questions identified in chapter one of this dissertation which are;

1. What are the key FDI drivers that attract MNCs into a country?
2. What are key political risks that MNC’s consider before investing in a country/region?
3. How important is political risk in explaining FDI decisions?
4. How do MNCs manage political risk?

3.2: Methodical Considerations

Hussey & Hussay (1997) define methodology as the overall approach of the research process starting from the theoretical underpinning to the collection and analysis of the data (Gill & Johnson 1997).  Jayaratna (1998) estimates that there are over 1000 named methodologies in use around the world. Like theories, methodologies cannot be true or false, only more or less useful. The methodology in any research is supposed to specify how the research will be conducted and controlled.

The conceptual model, shown in Figure 1, demonstrates how the research question has evolved from the research literature. In order to answer the research question, a clear rational for the most appropriate methodology was sought. By considering the conceptual model, and each layer of Saunders et al.’s (2009) research ‘onion’ model, a clear framework for the most suitable research method and strategies, required to address the research question mentioned above, were found.

Saunders et al.’s (2009) research ‘onion’ model initially encouraged the researcher to determine an appropriate research philosophy. The research philosophy promotes consideration on how knowledge should be developed in order to answer the research question. Having decided on a suitable research philosophy, other methodological elements were subsequently considered.

Ellis and Levy (2009) cite that the research onion is a tool helpful for academic students to conduct the research process in a proper format by following each stages of techniques helpful in deriving results of the research process. The research onion is categorised in six divisions namely philosophies, approaches, strategies, choices, time horizons, techniques and procedures. Each layer of Saunders et al.’s (2009) research ‘onion’ are discussed in order to explain why each element was selected, and how this assisted in answering the research question.

Figure 1: Saunders et al. (2009) ‘Research Onion’

3.2.1: The External Layer

This external part of the layer is related to the philosophical view of the study. It involves three kinds of philosophy which include; ontology, epistemology and axiology. An Ontological approach was selected as the researcher focuses on identifying the real facts and figures in a detailed manner. The changes in world and actual scenario need to be shed in light under the ontology philosophy.

Hjorland (2005) suggests that there are three Ontological positions;

1. Constructivism
2. Objectivism
3. Pragmatism

3.2.2: Research Philosophy

The outer layer of Saunders et al.’s (2007) research ‘onion’ refers to the research philosophy. A pragmatic approach was selected which is not committed to any one system of philosophy or reality, allowing the researcher the freedom to select procedures that best meet their needs. This approach looks at the ‘what’ and ‘how’ to research based on its intended consequences.

3.2.3: Research Approach

According to Saunders (2009), the second layer of research onion model is related to the research approach. The research approach includes the deductive and the inductive research approach (see figure 2). A deductive approach, was used for this study. In this is approach the researcher aims at finding the answer to a particular question or statement that is already available. The entire research moves into one direction so that answer to those statements or question could be found out. The statement could be in the form already accepted reality or fact (Jonas, 2007).

Figure 2: Research Approach

3.2.4: Research Strategy

The third layer is related to the selection of appropriate research style that could be helpful in identifying the data collection and data analysing sources, and most importantly how the researcher is going to use gathered data within the report (Sanders et al., 2009). There are different 7 styles available to the researcher, and these include; experiment, survey, case study, action research, grounded theory, ethnography and archival research.

An archival research strategy method was used to investigate the research question and aims/objectives. In this research design, the researcher collects the data from archives or existing data sets.

3.2.5: Research Choice

The fourth layer of the ‘research onion’ model is related to the nature of the study and is closely associated with the type of research (Saunders et al., 2009). It is to acknowledge that the nature of study could be categorised into three major elements. These elements are qualitative, quantitative or a combination of both. In these types of studies, the level of research is different, and approach also differs as per the nature of report (Barrett et al., 2011).

The quantitative method is related to the use of numbers, and special consideration is given to the implementation of statistical tools. On the contrary, qualitative research covers opinion, thought process and emotions. ‘Mixed-method’ research was chosen for this study as it incorporated the use of both quantitative and qualitative data collection techniques. According to Saunders et al. (2007), an advantage of using mixed-methods over mono-methods, is that triangulation can take place.

3.2.6: Time Horizon

The fifth layer has an association with the particular period that has been taken to complete the research. It includes two kinds of time horizon; one is cross-sectional, and another one is longitudinal. Cross-sectional is used for the shorter period, and longitudinal is used for the longer period (Saunders, 2007). Given the time constraints for this dissertation, a cross-sectional research design was chosen to provide a ‘snap shot’ of the impact of political risk on FDI.

3.2.7: Data Collection Data Analysis

For any research in order to reach its objective, the identification of an appropriate means of data collection is obligatory (Sarantakos, 1994). The final layer of Sunders ‘research onion’ model (2009) deals with the data collection and data analysis tools. Here, the researcher takes the decisions regarding the selection of most appropriate collection and analysis tools. This research employed documentary research as a tool for collecting data in the form of surveys and interviews.

3.2.8: Summary

After considering the most suitable research method and strategies using Saunder et al.’s (2009) research ‘onion’ model.  The researcher decided to use documentary research as a data collection and analysis method for this investigation. The following section introduces the research method and offers a justification for its use in this dissertation.

3.3: Documentary Research

The issue of political risk as it pertains to FDI by MNCs was investigated in this dissertation using the documentary research method. Documentary research method refers to the analysis of documents that contains information about the phenomenon we wish to study (Bailey 1994). Payne and Payne (2004) describe the documentary method as the techniques used to categorise, investigate, interpret and identify the limitations of, most commonly written documents whether in the private or public domain.

Documentary methods differ from primary research data where the researcher is responsible for the entire research process from the design of the project, to collecting, analysing and discussing the research data (Stewart, 1984). Judd, Smith and Kidder (1991) distinguish three common characteristics of documentary methods such as:

1. They rely entirely on the analyses of data collected for purposes other than those of studies in social relations;
2. Documentary studies often call for ingenuity in translating existing records into quantifiable indices of some general concepts;
3. Documentary studies are particularly susceptible to alternative interpretations for the natural events and their effects

3.3.1: Documentary Data Sources

Documentary research involves the use of texts and documents as source materials: government publications, newspapers, certificates, census publications, film and video, personal photographs, and innumerable other written, visual and pictorial sources in paper, electronic, or other `hard copy’ form (Payne and Payne, 2004). Within this study, various documentary sources were employed, these include surveys, industry reports and interviews conducted by the following consultancy firms and financial institutions summarised below.

Table 1: Documentary Sources Used In this Study

3.3.1: Validity and Criticisms of Documentary Method

Limitation are the boundaries that restrict the research scope and may cause difficulty in completing the research (Cooper and Schindler, 2002).  A limitation documentary analysis is limited by the availability of material, missing or incomplete data, inaccuracies in material and inherent biases. Bailey (1982) cites ‘many documents provide an incomplete account to the researcher who has had no prior experience with or knowledge of the events’. Conversely, the collection and analysis of data can be time-consuming while at the same time unable to warrant validity and reliability (Saunders at al., 2012).

The documentary research method is sometimes marginalised or when used, it only acts as a supplement to the other general research methods. Despite these criticism, this method is just as good as and sometimes even more cost effective than the social surveys, in-depth interview or participant observation. The main advantage of conducting documentary research for this dissertation was the ability to gain access to information that would otherwise be difficult to obtain in any other way (Bailey, 1982). A further strength of using documentary source is the fact the research can obtain reliable data without being present in the field, which is is particularly useful given the time constraints for this dissertation.

3.3.2: Ethical Considerations

The data analysed in this dissertation were documentary sources freely available on the internet, books and other public domains, as such permission for further use and analysis within this dissertation is implied. It can therefore be concluded that there are no ethical implications to this research.

3.4: Summary

The selected research methods and analytical techniques employed were to address the research questions formulated in chapter one and gain their in-depth understanding. Overall, the chapter has addressed in detail the research strategy approaches employed in this study and pointed out the potential limitation and ethical issues. The next chapter presents research findings and analysis.