GSM Lecture 2

Management > Global Strategic Management > Comparative advantage > Hymer > Vernon > Product cycle > Buckley and Casson > Internalisation > Eclectic paradigm > Ownership advantages

EP - Ownership advantages

OAs derive from the use of assets, including size, monopoly power, resource capability or technology. The ability to co-ordinate these activities involve transactions, meaning that the ability to conduct transactions efficiently is important, which can cause the internalisation of markets

If technology is not internalised and is externalised, appropriability and public good nature of technology is required (for some more information, see Understanding the Global Firm, engineering consulting services, lecture 7).

This all needs to be done because of market failures, which occur in two types:

Structural failure - natural costs, such as transportation costs, or man-made, such as tariffs.
Transactional failure - uncertainty, including the exchange rate, cost of negotiating and reliability

Information about products, markets and services is costly to acquire.

Thus there are internalisation advantages. Market imperfections also determine where FDI is located, which points to location advantages (LAs). It is important to realise that an asset specific to a location differs from an firm-specific advantage, due to its immobility and that it is not specific to a firm.

Motives for FDI

OA, LA and I

Problems?