Dunning (1977)

Management > Global Firm > Lectures > Independent Research > Dunning > Market imperfections > OLI - OA > OLI - OA + LA > OLI - I > OLI - I (market failure) > Tenets > OLI

OLI

If a country has an abundance of O, then they are likely to internalise and to produce overseas. Internalisation is beneficial to a company to deal with the changes in O and L advantages, as it allows quicker responses and flexibility.

Educated (developed) countries are likely to manufacture in less developed countries, while employing educated managers in their own countries. These countries can thus create ownership advantages with less people, meaning that they are eligible for higher wages.

Dunning splits OAs into two types:

1. Asset advantages (Oa) refer to the ownership of these value-creating assets
2. Transaction cost minimising advantages (Ot) are those which reduce the cost of transactions, such as internal trust.

Firms must be able to see, understand, and be willing and capable of acting upon an advantage.

If firms have an abundance of O and can best exploit them overseas, through making more profit and achieving economies of scale, then they can be a successful global player.

Without the internalisation incentive and economies of scale from governance, FDI would result in the licensing or sale of O. The paradigm predicts that it is internalising which gains are accrued.