Disadvantages Of The Oli Framework

2. Why do companies tend to thrive in global markets when their country of origin enjoys a comparative advantage

(firms) have overall – some have invested in foreign countries through FDI - felt that

-acquiring resources: foreign sources may give companies lower costs, new or better products, additional operating knowledge

Co-investment and joint venture manufacturing arrangements can help lower capital costs and leverage existing local capability, however, this approach also needs to consider the risk of IP loss and lower management control. In contrast, leveraging LE existing Indonesia & China manufacturing capability via an import model would lower upfront

We found innovation, cost reduction and market conditions as key elements supporting a successful internal strategy and strategic alliance and diversification to be among the most widely applied strategies for a foreign market penetration and development, while fusions and licenses were the least preferred.

Thus, among all these theories, our thesis, we will mainly focus on location-specific advantages as according to the research conducted by Nayak and Rahul (2014,p.10), location advantages of different countries play a significant role in determining which country will be the recipient of FDI, Since the aim of the study is to analyze the impacts of the host country characteristics on FDI inflows, particularly that of Singapore and Hong Kong, we assume that firms already possess ownership and have internalized these advantages, making locational advantages very much country specific and are likely to vary according to changes in internal and external factors which will eventually influence a firm’s market potential and market risk. Thus, this renders the choice of locational advantage factors critical in influencing a country’s ability to attract

A competitive advantage can only be established when the country promotes investments and people are ready to invest in the country moreover, there are many factors that determine a country to be worth investing for example public policies, available infrastructure, allied industries, market, raw materials and most importantly cheap and skilled human resource.

Stopford, John M.; Susan Strange; John S. Henley (1991) state that the eclectic paradigm contrasts a country's resource endowment and geographical position (providing locational advantages) with firms resources (ownership advantages), the four outcomes shown in the figure 2 below. If the firms possess competitive advantages and higher in the transport costs than foreign locations , the firms therefore make a FDI abroad in order to save the transportation costs. But if the country has locational advantages, strong local firms are more

S. Hymer formulated monopolistic advantages (ownership) theory in 1960 (published in 1976). The theory is considered as one of the most prominent microeconomic theories of FDI. It supports that a company makes a decision on foreign investment based on its desire to capitalise on certain advantages that are owned by the firm and not shared by local (competing) firms that are operating in the host country. These competitive advantages include operational finance, technical knowledge, management and/or marketing advantages in the foreign country that could influence a firm’s decision to relocate aboard (Dunning and Lundan, 2008).

Companies tend to be most competitive when they can benefit from comparative advantage in their country of origin. According to the Heckscher-Ohlin model which incorporates realistic production characteristics into Ricardo’s (1817) theory of comparative advantage, “capital abundant countries will export capital intensive goods.” (Suranovic, 2006)

This essay will first explore the OLI model and its components towards the establishment of the FDI . We will then continue with defining multinational corporate strategies, followed by comparing the OLI model with Head’s one.

Companies expand into foreign markets to achieve lower production cost and increase competitiveness, gain access to new customers, access the and labor resources, mitigate the risk spreading across larger markets and capitalize the core competencies. Companies gaining competitive advantage are based on many of the complex factors such as location, risks of adverse shifts in currency exchange rates, local business climate, local government policies, cultural differences, demographic, and market conditions that influence the strategy options for the global market.

Ownership Advantages (Firm Specific Advantages) Dunning (1991, pp 123) defined ownership advantages as "any kind of income generating assets which make it possible for firms to engage in foreign production". He also pointed out that ownership advantages are concerned with the extent to which the firm has tangible and intangible assets unavailable to other firms (Dunning, 1980; Dunning, 1988). Ikechi Ekeledo, K Sivakumar (2004, pp 72) defined ownership advantages as the competitive or monopolistic advantages of the firm that helps the foreign firm to overcome the disadvantages of competing with local firms. Salih Kusluvan (1998, pp 175) stated that the ownership advantages are the unique internal factors that create the firms’

Foreign Direct Investment (FDI) is one of the biggest tools for international economic integrations. Firms view overseas expansion as a necessary step to achieve a more effective access in the markets where they presently have low representation as stated by Tyu T. and Zhang M. M. (2007). In order to take advantage of the aggregate economies offered by the blooming innovative environment in that particular region, firms of course will invest heavily in an advantaged location to compete with other countries. According to Changwatchai P. (2010), FDI has become more important for the economic growth and development of many countries. FDI can deliver capital, a means to pursue global strategic objectives, and a means to access technology and skills to the host country. Attracting FDI is an important issue of concern to many developing nations.

The advantages of exporting is to avoid the costs of establishing local manufacturing operations but in our case we want to have our own stores in the country because it will make it easier for us to transport our products from our stores to the customers, the second advantage of exporting is that it helps the firm achieve experience effects and location economies and the last advantage is that it has control over manufacturing quality.