The role of language in bilateral FDI: a forgotten factor?

The rapid development of modern transportation information and communication technologies has accelerated the pace of globalization. Multinational enterprises (MNEs) have increasingly broadened their use of foreign direct investment (FDI), and as a result they often need to deal with multiple languages and the associated administrative and transactions costs that come with language differences (Luo and Shenkar, 2006; Welch et al., 2001). FDI involves production, organization and management of business activities. The key to the success often lies in effective interactions and communications within MNEs and between MNEs and economic agents in host countries. To this end, language distance (LD) between home and host countries tends to influence FDI location choice.