Institutional Environment and Finnish Foreign Direct Investments in Mexico

Abstract

Due to globalization and competitiveness, developed economies are focusing their attention into investments in emerging economies such as Mexico. Mexico is an attractive location for investors due to its free trade agreements and the government´s openness to FDIs. The purpose of this study is to analyze the institutional environment in Mexico (mainly the formal and informal institutions) over Finnish Foreign Direct Investments. The current study uses a sample of three Finnish FDIs in Mexico, Kemira, FINPRO and an anonymous company. The empirical findings suggest that the culture, competition and bureaucracy in the host country play a fundamental role during investments. Spanish language was also found to be an essential asset for establishing investments in Mexico. The strongest impacts over the investments are high competition, bureaucracy, and legal systems. In spite of the weakness of the Mexican legal systems, Finnish firms have managed to adapt, understand the way of doing business. Location and natural resources were also found to be major factors for investing in Mexico. This work contributes to the better understanding of the institutional environment in a developing economy, nonetheless this study does not analyze the same company profiles.