The Malaysian government has provided various incentives to encourage FDI but most of our competitors have also provided similar incentives package (Lim, 2002). So, government had formulated various policies from the mid 2009 including the New Economic Model, 10th Malaysia Plan, Government Transformation Plan and Economic Transformation Plan to attract foreign investment.

What are the factors affect foreign investor decisions to invest in our country? One of the key factors affects the FDI to invest in Malaysia because of the good environment (Har, Teo & Yee 2008). The good environment will encourage foreign investor to invest in our country because with the good conditions make investors face fewer problem and they can run their business conveniently and make more profits. The social and political situation of Malaysia was encouraging factors for the realisation of FDI because Malaysia is among the friendliest and hospitable places in the world to work and live in.

Previous researchers indicate that political stability is a pre-requisite to attract FDI, but it is not a strong drive for FDI inflow (UNCTAD, 1998). While political instability reduces the inflow of FDI and also changes the nature of FDI from an investment in the country’s future into a drain on a country’s future (Henley, 2004). Political instability could be a serious deterrent for FDI as it creates uncertainties and increases risks and costs (OBwona, 2003). According to Ajami and Ricks (1981) and Nigh (1985) a country with political stability has a positive influence on FDI. Political stability is important for creating a climate of confidence for investors. This is also supported by (Henley, 2004) because, the foreign investors need to confident with the government for will not to take over their investments, that their agreement will be honoured, that conflicts will not destroy their investments, and make business too expensive (Henley, 2004). Thus, political stability is essential for FDI inflow which has large effect whether the foreign investors will invest in Malaysia or not and it will encourages investments in long-term business. So, Government plays an important role in maintaining political stability, because the investor have to adjust their strategies in accordance with the new policies if a new government come in with highly different policies. The long term political stability then will make foreign investor confident with their businesses will succeed and remain profitable.