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

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

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).

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

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

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)

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.

FDI grew quickly in the 1990’s. The U.S is the top destination of FDI and China and Brazil are in top five. The reasons for the increased activity were the opening of markets due to trade liberalisation and deregulation, pressure of competition brought about globalisation and technological changes, the importance of size as a factor in creating economies of scale and the desire to strengthen market position.

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

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

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 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

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

FDI is an investment made by a company or entity based in one country, into a company or entity based in another country. Foreign direct investment is one of the most effective tools in the fight against poverty and unemployment. It is measured as the inward stock percentage of GDP.