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

1577 Words Dec 8th, 2015 7 Pages
This essay will critically evaluate and contrast the two theories; Dunning’s OLI paradigm and Vernon’s Product Life Cycle theory in an attempt to identify which theory may offer a stronger understanding for manufacturing FDI from developed country firms to developing countries. (Wang, 2015)
FDI allows the home country to invest into the host country to produce, advertise, and distribute products, in order to upsurge their market share and provides a long-term investment and enhancement. (Moosa, 2002)
Dunning’s OLI paradigm (1976) is used to support firms to locate its production in countries that are financially beneficial for them. According to Dunning, “the paradigm offers a holistic framework to take in consideration all of the important factors that influence the decision of a MNE.” (Stefanović, 2008, p.241) FDI is determined through the composition of the three powerful advantages; ownership, location and internationalisation as shown in figure 1. The thesis is to assess, ‘why go multinational?’, ‘how to choose the best location?’ and ‘what actions have to be taken to enter a foreign market?’

Figure 1: Table showing OLI Framework (Shore, 2013)
Dunning’s OLI paradigm possess ownership specific advantages. This focuses on the ownership of the firm’s assets for instance technology, management skills, R&D activities and their brand. Firms can identify, the usage of raw materials and “ownership of complementary assets” (Moreira, 2009) such as access to the…
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