Int. j. econ. manag. soc. sci., Vol(3), No (10), October, 2014. pp.

632-635

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International Journal of Economy, Management and Social Sciences

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ISSN:
2306-7276

Copyright 2014. All rights reserved for TI Journals.

Weighting and prioritizing the effective factors on attraction of Afghan

investors in chamber of commerce points of view using Multi-Criteria
Decision Making
Arghavan Zamani
M.A. Graduate of Business Management, Islamic Azad University, Aliabad Katool Branch.

Vahideh Sotoudeh Moll Shahi

M.A. Student of Economic Science, Ferdowsi University of Mashhad, Iran.

Vajihe Mogharabi
M.A. Student of Information Technology Management, Shahid beheshti University, Tehran, Iran.

Amir Kariznoee *
Ph.D. Student of Industrial Management, University of Mazandaran, Iran
*Corresponding author: amir.kariznoee@yahoo.com

Keywords

Abstract

Investor attraction
Prioritizing
Business room
Weighting
Hierarchical analysis

The aim of this study is to identify factors affecting the attraction of foreign investors, especially Afghan
investors. As Afghanistan has some common aspects with Iran, it has a strategic situation in the region. thus,
after identifying factors affecting the attraction of investors that is studied in previous researches, the most
important factors have been selected with the use of experts opinion and have been analyzed using group
hierarchical analysis. The results show that the most important factors are profitability, culture, cost,
regulation and policies. Cultural factors are the most important affecting factor for Afghan businessmen.

1.

Introduction

The process of capital accumulation is one of the basic prerequisites for economic growth. Theoretically, injecting cash into the economy stems
from the idea that economists consider funds is such as engine of growth and economic development. Financing and capital formation is possible
through both internal financial resources (savings and government sources) and external resources (foreign debt, and attracting foreign capital)
[1]. There are various definitions of Foreign Directive Investment, but the most common definition is the definition of the United Nations
Conference on Trade and Development (UNCTAD). Based on this definition, FDI is investment involving a long-term relationship and reflects
the continuing benefit of the person or legal control of the company resident in a country outside of the home of investor. In this type of
investment, the investor buys the stock of producing unit for limitless time. Also, the investor is allowed to sale goods and services.
Foreign investors select the regions and countries that would be attractive to them. Besides the existence of favorable conditions for economic,
political, legal situations, financial incentives is an important factor in attracting foreign investment, which is one of the ways to mobilize more
foreign investors to the investment and capital exporters from developing countries[2].These incentives can reduce the investment risk by
making attractive investment environment for foreign investors such as rebates and tax breaks and discount, reduction of customs duties and
restrictions on foreign exchange and discount control over the assets, and to facilitate administrative processes [3].We can claim that investing
depends on some various factors such as economic, political, social and cultural factors. Expected return and investment risk are the most
important factors in attracting foreign investment respectively. Tax policy (tax exemptions and deductions), government regulations such as
financial services subsidies, preferences and priorities, including the granting of an exclusive patent, trade barriers low and reasonable tariffs,
infrastructure, energy and fuel cost, political stability, economic and social; Quality regulations such as legal, economic and other are the factors
affecting a culture receptive to attract foreign investment[4]. Focusing on these factors are time and cost using. Since the aim of this research is
to prioritizing and weighting the effecting factors on attraction Afghan investors, we have used multi-criteria decision making methods.
1.1 Multi-criteria decision making
Multi-criteria decision making is one of the managerial strategies in facing with some criteria. Decision making is one of the most important
duties of management and reaching organizational goals depends on the quality of it. As one of the experts in Herbert Simon decision making
process said, decision making is the main factor of management. Decision making process is showed in figure1.
One of the techniques of Multi Criteria Decision making is the use of quantitative data. Using the techniques of Multi Criteria Decision help
Manager to consider different criteria for rational decision making, when some criteria are in conflict with each other. In fact, the reason of using
multi-criteria decision making in this study is that there are many criteria in this area to attract foreign investors. We can use this method to
weighting and ranking these benchmarks. In this study, Group analytic hierarchical process (GAHP) is used in order to make decisions and
rating criteria.

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Weighting and prioritizing the effective factors on attraction of Afghan investors in chamber of commerce points of view using Multi-Criteria Decision...
International Journal of Economy, Management and Social Sciences Vol(3), No (10), October, 2014.

Figure 1. The process of decision making

2.

Literature review

Theoretically, the process of capital accumulation is one of the basic prerequisites for economic growth. Theoretically, injecting cash into the
economy stems from the idea that economists consider funds is such as engine of growth and economic development. The fundamental
questions that always exists in an economy is that why some industries and businesses are willing to foreign investment, and accept the risks.
While some prefer a risk-averse industry. Investment attraction by a firm or manufacturing industry is a result of factors such as profitability,
industry or firm size, the degree of industrial concentration and export, research and development costs and exchange rates [5]. In relation to
profit factor, Hufbaure (1970) show that multinationals firms of America are more profitable than European and Japanese companies and invest
more than their competitors [6]. Reuber (1973) and Bliss (1975) conclude that the relative profitability and rates of return have significant
positive effects on foreign direct investment [7]. Also in relation to the size of the firm, Horst (1971) and Trevinoand Daniels in their study
concluded that firm size has a positive effect on the development of international investment [8].
If the security of investment and legal context of developing countries and their economies will be provided, the international investors
participate more willingly in these markets. FDI can not only be a source of capital formation, but also it can produce the transfer of technology,
skills, innovative features and organizational and administrative arrangements between the parties and as a means to achieve an international
marketing network [9].
Satya (2000) argues that transnational corporations have positive effects on resource allocation. Foreign investment can create capital and
leading it to active and productive units and increase the production and control inflation. Exported power of the host country is another
important factor in attracting foreign investors [10]. Development of an export in an industry or general economic would provide the condition
for foreign production. The process of internationalization suggests that multinational companies are generally continued to produce in the host
country. Thus, the export facilities in a sector provide the areas for development of manufacturing operations by foreign investors, in order to
export their product. Bradley (1991), and Barniv and Ajami (1984) in their study concluded that the development of export markets and
strengthening export industries lead to the establishment of international investment [11, 12, 13].
In fact, foreign investment in more areas has more effective impact on economic growth in comparison with portfolio investment. Foreign direct
investment can provide economic growth in less- developed country through the transfer of appropriate technology and training manpower,
increase productivity and increase domestic investment [14]. Obviously, foreign investment has different effects on employment and human
resources development, thus, Proposals of foreign investors are rigorously checked by the government. In fact, if unemployment in a developing
country is mainly due to the structural factors and no source of funding is available, then foreign investment will lead to employment increase
[15]. Based on the definition in the UNACTAD in 2002, foreign direct investment means an investment that involves a long-term relationship
and reflecting a lasting interest and control economic unit in a country located abroad [16].
UNCTAD (1998) classified the Factors affecting foreign investment in the host country into three groups:
1-policies for foreign investors, including economic stability, political and social conditions, laws for entry and production, standards of
treatment of foreign branches, policies, functions and structure of markets, international investment agreements for FDI, privatization policies,
trade policies (tariffs and non-tariff) and tax Policy.
2-Economic factors, which are divided into three types considering the motivation of multinational companies:
A) In Search of Market: Market size and per capita income, market growth, access to regional and global markets, particularly the country's
consumer preferences, and market structure [17].
B) Find the resources and assets: (raw materials, cheap labor, skilled and unskilled labor, technology, innovation and created assets (eg brand),
physical infrastructure (roads, ports, etc.)
C) Find the efficiency (costs listed assets and resources, transport and communication costs, expenses and other intermediate goods)
3- Facilitation of business: including investment promotion (creation the good image, productive activities, investment and facilitate investment
services), investment incentives, bureaucracy costs (related to corruption and administrative efficiency), community facilities (schools, two tab
and quality of life), and the service after the investment.
Chan lay (1997) examined the effective factors of FDI in 31 countries during 1994-1987, based on modified attraction model. The results
showed that market size, internal GDP growth, effective salaries, and the distance with global economic center, save foreign investment and
economic openness have significant impacts on FDI [9].
Bang (2009) in order to achieve information about the impact of investment agreements and governmental policies on FDI, found a function like
Chanlai, using the information of 10 countries [1]. The results show that market size, labor cost, high school students rate, foreign debt and
power consumption have more impact on FDI. Some of the most important factors on attraction of foreign investors that are used in previous
studies have been shown in table 1.

Arghavan Zamani , Vahideh Sotoudeh Moll Shahi, Vajihe Mogharabi, Amir Kariznoee

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International Journal of Economy, Management and Social Sciences Vol(3), No (10), October, 2014.

Table 1. The most important factors on attraction of foreign investors in previous research
Number
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

3.

Effective factors on FDI

Reference

Profitability
Market size
Export power
Research and development
Exchange rate
Economic safety
GDP
Saving/GDP
Economic safety
Globalization index
Trade openness index
Import rate
Work force availability in host country
Law of host country
Tax policies
Economic development rate and human capital of host country
Distance from host country
Water, power and gas costs
Investment return rate
Inflation

Himer and roson(1970),Reuber(1973),Belis(1975)

Sumetz(1983),Horest(1971)
Ajami and Baniv(1984),Bradley(1991)
Leen(1987),Rey(1990) Trevinoand Daniels (1996)
Barel and Pin(1998)
Trevino. L. and Daniels. (1996)
Tomas(1999),Neili(1382)
Khan and Malik(1992)
Albadvi(2008),Kelas smit(2002), Jan James(2001)
Heritage institute
Naaji Meidani(1382)
Pierest(1996)
Narvala(1997)
Gerden and florent(2002)
Negoy(2001)
Surid(2003)
Chanlay(1997)
Banga (2009)
Asiedu(2002)
Shah Abadi and Mahmoodi(1385)

Analytic Hierarchy Process

Analytical Hierarchy Process, which is built by Thomas Saati, is one of the most comprehensive systems for multiple criteria decision making.
Because in this method, we are able to formulate the problems in hierarchical form and also consider the possibility different quantitative and
qualitative criteria in the problem and the different options and carry out sensitivity analysis on the criteria and sub criteria (Ghodsi pour, 1384).
In order to evaluate many criteria and solving multivariable problems, AHP method is widely used. This model allows decision makers to use
this testable model and solve the problem [15].
AHP is based on paired comparison that facilitates judgments and calculations and indicates the degree of compatibility and incompatibility of
the decision. All comparisons in the AHP are done with oral judgments. After determining the criteria importance, Consistency ratio (CR) of
system should not be more than 0.1. CR is calculated by dividing consistency index (CI) on consistency index mean (RI).the value of RI have
been represented by Vergas and Saati in 1999 [1].

4.

Methodology

According to previous researches that have been done in terms of attracting foreign investors, 20 were identified essential criteria. Among these
important criteria, 11 criteria were classified into 4 groups, with the opinion of experts, which are shown in Figure 1. A paired comparisons
questionnaire which were adjusted based on the Analytical Hierarchy Process were distributed in the Chamber of Mashhad and Afghan traders.
It is worth noting that hierarchical analysis methods do not require a large number of decision makers and this is one of the advantages of this
method.

Figure 2. The decision making tree

After data collection, data analysis and paired comparisons conducted by hierarchical analysis and with Excel software, final weights are
obtained for each of the criteria and sub-criteria that are shown in Table 2.

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Weighting and prioritizing the effective factors on attraction of Afghan investors in chamber of commerce points of view using Multi-Criteria Decision...
International Journal of Economy, Management and Social Sciences Vol(3), No (10), October, 2014.

Table 2.Weight of criteria and sub-criteria affecting the choice of factory site
Main criteria

5.

Weight

Rank

Profitability

0/37

Culture

0/23

Cost

0/21

Laws and policies

0/19

Sub-criteria
Market size
Investment return rate
Economic development degree
Trade ethnic
Common language
Common religion
Business location cost
Workforce cost
Water, power and gas costs
Tax policies
Foreign policies

Weight
0/32
0/53
0/15
0/28
0/46
0/26
0/42
0/35
0/23
0/67
0/33

Final weight
0.12
0.20
0.05
0.06
0.11
0.06
0.09
0.07
0.05
0.13
0.06

Conclusion

The purpose of this study is to categorize and weight the factors influencing the attraction of Afghan investors with the use of GAHP. The
weights of the criteria and sub- criteria are shown in Table 2. As the table shows, the most important factors for afghan investors are profitability
with 36%, culture with 23%, cost with 21% and laws and policies with 19% respectively. These findings are in accordance with previous
researches specially Himer and roson (1970) and Triono danilz (1996) [5].
Note that, culture is a significant criterion for foreign investors. Although Devich et al 2011 pointed the importance of culture in attraction of
investors, these criteria had not been compared with other criteria that it has been done in this study [4]. It is suggested that future research do a
comprehensive review of other traders in neighboring countries in order to provide the necessary infrastructure to attract foreign investors.

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