2.3.1 Components of Dunning’ OLI
Essentially, the eclectic paradigm is considered as a relatively simple and comprehensive theory. It states that the foreign production undertaken by MNEs is realized by the combination of three variables: ownership, location and internalization advantages.
First, the ownership advantage includes some proprietary rights or intangible asset, advantageous common governance and other institutional assets (Dunning and Lundan, 2008). Ownership advantage includes aspects like design, brand name, government incentives and support, management capability and advanced technology. Those ownership advantages are competitive advantages for firms who are seeking investments, because those advantages can enhance engagement of those firms in their foreign productions.
Second, the location-specific advantage from other countries is an attracting factor for MNEs to undertake value-add activities at that place. Location advantages include reasonable transportation cost, tariffs, low trade barriers, attractive market size and cheap labour as well as resource. Among them, the market size in host country allows MNEs to enter and have strong development scale at that country. The natural and created resources are both location-specific advantages. For example, the existence of raw materials, cheap labour, plentiful energy, and even…show more content… For example, the relationship among the three components in OLI is doubted. It was said the three factors are independent. However, there is no relationship between each two of them (Buckley and Casson, 1998). Although, the OLI theory is changing with time goes by, it can’t reflect the changing international production activities, especially from firm’s strategies models (Buckley and Casson, 1998). Furthermore, the OLI theory can only be applied to micro analysis but its macro analysis ability is doubted (Kojima,