Theory Analysis : Oli Paradigm And Vernon 's Product Life Cycle Theory

He argued that three conditions all need to be present for a firm to have a strong motive to undertake direct investment. He named these three components as the “OLI” framework which means ownership advantages, location advantages and internalisation advantages.

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

what
 is
 the
 appropriate
 organizational
 structure
 to
 support
 the
 configuration
 of
 the
 MNC
 (PORTER,
 1986).
 Furthermore,
 a
 company
 has
 to
 determine,
 in
 respect
 to
 its
 industry,
 the
 optimal
 trade
 off
 between
 global
 integration
 &
 local
 responsiveness.
 The
 standardization
 vs.
 localization
 trade
 off
matrix
has
lead
to
4
international
approaches:
International
Exporter,
Global,
Transnational
 and
 Multi‐domestic
 (PRAHALAD
 &
 DOZ,
 1987
 /
 BARTLETT
 &
 GHOSHAL,
 1989).
 Two
 frameworks
can
be
useful
for
companies
in
this
case:
The
OLI
framework
identifies
the
firm’s
 motivation
 for
 becoming
 a
 MNC.
 Furthermore,
 the
 AAA
 framework
 helps
 companies
 decide
 how
to
expand
their
business
abroad.
 Where
–
Should
companies
start
operations
in
large
markets
or
the
familiar
ones?
On
which
 terms
 should
 companies
 based
 judgments
 about
 investing
 in
 foreign
 markets?
 ‐
 The
 CAGE
 framework
 helps
 companies
 in
 evaluating
 the
 proper
 opportunities
 in
 foreign
 markets,
 compared
with
the
respective
costs
and
risks
that
might
occur.
 The
focus
of
this
paper
is
to
understand
and
analyse
the
key
drivers
behind
why
eBay1
has
 experienced
failure
in
China
and
success
in
the
UK.
Our
analysis
will
be
supported
by
a
SWOT
 analysis
and
a
5
Porter’s
forces
analysis,
as
well
as
by
the
frameworks
mentioned
above.

26. Which entry mode gives a multinational the tightest control over foreign operations?: Setting up a wholly owned subsidiary

In the 1950s, the product life cycle theory was introduced to explain the expected life cycle of a product from design to obsolescence, a period of time divided into four stages: introduction, growth, maturity, and decline. As the world moves away from usage of oil to renewable and clean energy, it leads some to believe that oil is on its final stage of decline. However, it is important to remember that oil is more than a product, it is a natural resource making it a special case. Critics of the product life cycle theory bring up valid points. First, there is no set amount of time that a product must stay in a certain stage. Oil could remain at maturity for a significant period of time. This also means that the declining stage could be as long as the resource exists. Second, there is no real proof that all products must die. There have instances that products have gone from maturity back to a period of rapid growth thanks to some improvement. OPEC must bank on the critics being right in order to maintain its power as a cartel. TechInsider of November 5, 2015 predicts fossils fuels will be obsolete by the earliest 2050. Unfortunately, with the amount of global conflict this prediction will probably not be accurate. In terms of strategic action, OPEC needs to act swiftly and quickly as if they do not adapt they will become obsolete. Strategies they can implement are internal conflict resolution, research & development, organizational restructuring, and external negotiation.

The OLI theory refers to ownership, location, and internationalization (Dunning, 2000). It is a basic theory proposed by John Dunning in an attempt to explain the incentives behind the MNEs going overseas (Dunning, 1993), organizational forms of MNEs, the MNE’s location choices, and the decision choice that lay between FDI and its alternatives like international licensing, trade and outsourcing (Javorick, 2004). The Ownership advantage is how a firm’s tangible and intangible assets are used in overcoming extra costs of doing business in the global market and explain why a home-grown country firm as opposed to a foreign firm manufactures in a foreign country. Location advantage offers explanation to why a home-based MNE may choose to manufacture in a foreign country instead of home country (Helpman et al., 2004). Lastly, internationalization advantage is attributed to why a home-based MNE may choose FDI instead of licensing to gain production in a foreign country (Athreye and Chen, 2009).

The company’s history illustrates the fact that BMW made progress in its corporate strategy on an incremental basis. After the foundation in 1916, BMW Group acquired its first factory outside of its national boundaries in South Africa in 1972. The following years were characterized by gradually taking charge of sales and distribution activities in crucial foreign markets through subsidiaries. Moreover, factories were set up in the United States as well as China which evolved to an amount of 30 plants in 14 countries (BMW, 2015a). This courses of action fit into a global strategy that is determined by exploiting global efficiency. Thus, BMW set value on cost savings through economies of scale and scope, enabled by foreign factories and integrated sales and distribution operations. In this context, Berry (2009) argues that this global strategy is in accordance with the “internalization theory logic of a firm that has proprietary assets that are exploited in a standardized and integrated way across multiple country locations” and exemplifies BMW group as it “fits with this

Dunning (2008) put theoretical framework for, FDI determinants. the framework posits that firms invest abroad to look for three types of advantages: Ownership (O - The ownership-specific advantages “of property

FDI is understood as capital investments in real assets (production) in other countries, which participates in the management of the investor.

When a multinational invests in a host country, the scale of the investment (given the size of the firms) is likely to be significant. Indeed governments will often offer incentives to firms in the form of grants, subsidies and tax breaks to attract investment into their countries. This foreign direct investment (FDI) will have advantages and disadvantages for the host country.

FDI is the international flow of firm-specific capital, such as “proprietary production technologies, managerial and organizational practices, and trademarked brands,” with the goal of capturing higher returns from their assets in international markets, while maintaining control over their firm-specific assets, (Pandya 477). FDI can now account for more than all other forms of capital flows combined. The regulatory framework for FDI in a country is mostly comprised of laws, regulations, and policy guidelines and varies widely between countries. Developing countries tend to be the heaviest users of FDI restrictions as “ownership restrictions [can be] integral to [their] economic development strategies,” (Pandya 478). The two most prominent strategies, import substitution industrialization and export-oriented industrialization, share the goal of building domestic industrial

This paper analyzes why and how companies set their international business strategies with the host nations and the benefits that they have reaped through the years with their decision. The discussion handles foreign manufacturing strategies with direct investment and without direct investment, its advantages and disadvantages and how companies have profited by their decisions in each of the cases. At the end of the discussion it would be clear that how such business decisions play a vital role in the growth of the companies both in home and host countries

The end of the 1980s experienced a visible change experienced in the literature concerning MNE functions and nature of business (Segal-Horn and Faulkner, 2010). Before 1980s, the main research in MNE field was about analyzing relation between affiliates and headquarters of the firm, and also decisions concerning making investment in foreign country, which was also experienced in Dunning’s work. After that, the focus was shifted to operations concerning coordination in management of a network of affiliates of an MNE and analysis of the competitive advantages received by these affiliates from the respective economies. Therefore, the last 20 years have experienced a very beneficial theoretical work in the field of international business and

In today’s increasingly globally integrated business world, foreign direct investment (FDI) “provides a means for creating direct, established and long-lasting links between economies,” according to the 2008 Organization for Economic Co-Operation and Development Benchmark Definition of Foreign Direct Investment (OECD, 2008, p. 14). Foreign direct investment (FDI) is defined as “an investment made to acquire lasting interest in enterprises operating outside of the economy of the investor,” by the United Nations Conference on Trade and Development (UNCTAD).9

As indicated by the stage approach, the firms initiate their business by offering the items in their home markets and after that they accordingly take a gander at new neighboring nations. The two fundamental models can be distinguished inside of the stage approach: the Product Life Cycle Theory by Raymond Vernon (1966; 1971; 1979)