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Global Business Environment-OLC & PLC
Global Business Environment-OLC & PLC
Question 1: Which theory do you think offers a better explanation of manufacturing FDI
from developing countries: Dunning’s OLI paradigm or Product Life Cycle theory?
Introduction: -
FDI is a central part of an open and effective international economic society and a main catalyst
to expansion. Though the benefit of FDI do not accumulate automatically and evenly across
countries, sectors and the local communities. Implementing national policies and international
investment architecture for pulling in more FDI to the developing countries and reaping its
benefits both the host and FDIs seemed to have benefited, while the countries where the FDIs
came from suffered which to loss of jobs to the developing countries. Liberalization of trade and
reduction of trade barriers has opened new grounds to trade while manufactures could assemble
their plants elsewhere. The following report will explain the PLC and OLI theories and will
comprise a comparative analysis of both the theories which offers a better explanation of
Foreign Direct Investment (FDI) is an important part of an open and viable part of an efficient
economic system and a major facilitator to advancement. National strategies with the help of
important international investment design is important for drawing in FDI to a large number of
developing nations and for receiving the full rewards of FDI for improvement in a particular
country.
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The fundamental difficulty is for the investing nation, which need to set up a broad, transparent
effective investing policy, which could make it easy for the investors to invest and make it easy
for the establishing company to build an effective institute and recruit manpower in order to
implement them efficiently. The over-all advantages of FDI for developing nations economies
are well recognized. Given the investing nation strategies and an essential level of advancement,
studies demonstrates the FDI generates innovation overflow, helps human capital planning,
augments to international trade settlement, makes a more fixated business condition and
enhances the improvement of the enterprise. The above helps in the development towards greater
economic development, which is the strongest device in order to improve poverty related issues
in developing nations. Furthermore, the scope of the FDI moves beyond the economic benefit,
FDI may help to enhance natural and social conditions in the country which is planning to invest
, for example, exchanging "cleaner" technologies and leading to more socially responsible
corporate policies.
Developing nations, rising economies and nations going to economic changes have come
development in incomes and business. Most of the developing countries have changed their FDI
rules and regulations inclined towards increasing the investment opportunities. They have
intended to look into the issue in order to relax domestic polices in order to increase the
advantages of Foreign Investments in domestic economy. The FDI tries for Improve the problem
related in the domestic economy, by concentrating on the broad impact of FDI on full scale
financial development and other welfare-upgrading forms, and on the channels through which
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The “OLI” or also known as “eclectic” an approach to the study of FDI (Foreign Direct
Investment) developed by John Dunning. “OLI” stands for ownership, location and
internalization, three potential sources of advantages which will determine a firm if or not to
become multinational. The theory is based on assumptions that the organization will avoid doing
transactions in open market. Since most businesses aim to find or opt the most cost-effective
option while maintaining the quality, the eclectic paradigm may then be assessed for different
scenarios.
As mentioned earlier the three factors which determine a firm’s decision making; ownership,
location and internalization. Ownership advantages states why some companies relocate to
developing countries and how beneficial it is for such multinational companies to gain advantage
over proprietary information and ownership rights. This includes copy rights, trademarks and
patents like Glaxosmith and Apple possess the reputation which enables them to charge the
premium price. The location advantages are focusing on where the multinational enterprises
decide to locate. This could be based on the availability of skills and natural resources. For
example, Saudi oil is cheaper to extract than Alaskan oil. The last stage which is internalization
also determines if it is beneficial for a company to produce or contact it to a third party. On the
other hand, for instance pharmaceutical companies would be reluctant to license third party to
produce their goods where intellectual property rights are not strong. The OLI theory basically
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explains the scenarios and situations that every company faces while deciding to invest in foreign
The product life cycle stage or international product life cycle; is developed by the economist
Raymond Vernon in 1966. According to Raymond each product has a certain life cycle which
begins with a development phase and ends with a decline phase. Vernon’s product life cycle can
define both trade and FDI by adding a time factor. Primarily when a firm innovates a product, it
produces it with the national boundaries while enjoying its advantage in the export market. Later
on, when the product enters the growth phase the firm might intend to invest in foreign market
Therefore, Raymond Vernon believes that there are four stages of production life cycle;
introduction, growth, maturity and decline. The life span and how fast the product moves
through the life span depends on the market demand and what marketing tools are used. The
introduction stage is when the product is successfully established in national and international
market. At this stage investment are made to promote and create consumer awareness to generate
more sales. (Productlifecyclestages,2016). Moving on to growth stage, where the company will
generate more profits while other competitors enter the market with similar products. The
company might shift its production facility to a different country based on its cost of production.
Third stage is maturity, where the competition is fierce and the company would do anything to
remain its market position. The product is comparatively sold at lower price and the company
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would look at its other opportunities such as adaptations or innovation and by products. The
company may consider to license third party to produce the product basis on the cost of
production. Vernon’s theory suggests that in a period of time depending the life cycle of the
product the main exporter may change from exporter to importer (low cost producers becoming
exporters). The last stage is decline; this is where the market is saturated and the product is no
more competitive due to entry of new innovative products or a shift in market trend resulting to
Manufacturing FDI: -
Foreign Direct Investment (FDI) is an important part of an open and feasible part of an efficient
economic system and a major facilitator to advancement. Implementing national strategies with
the help of important international investment design is important for drawing in FDI to a large
number of developing nations and for receiving the full rewards of FDI for improvement in a
particular country.
The fundamental difficulty is for the investing nation, which need to set up a broad, transparent
effective investing policy, which could make it easy for the investors to invest and make it easy
for the establishing company to build an effective institute and recruit manpower in order to
implement them efficiently. The over-all advantages of FDI for developing nations economies
are well recognized. Given the investing nation strategies and an essential level of advancement,
studies demonstrates the FDI generates innovation overflow, helps human capital planning,
augments to international trade settlement, makes a more fixated business condition and
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Parth Das Uob no: 13028287
enhances the improvement of the enterprise. The above helps in the development towards greater
economic development, which is the strongest device in order to improve poverty related issues
in developing nations. Furthermore, the scope of the FDI moves beyond the economic benefit,
FDI may help to enhance natural and social conditions in the country which is planning to invest,
for example, exchanging "cleaner" technologies and leading to more socially responsible
corporate policies.
Developing nations, rising economies and nations going to economic changes have come
development in incomes and business. Most of the developing countries have changed their FDI
rules and regulations inclined towards increasing the investment opportunities. They have
intended to look into the issue in order to relax domestic polices in order to increase the
advantages of Foreign Investments in domestic economy. The FDI tries for Improve the problem
related in the domestic economy, by concentrating on the broad impact of FDI on full scale
financial development and other welfare-upgrading forms, and on the channels through which
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Conclusion:-
To conclude, the FDI has an important role in developing countries and different ways it can
help the host and well as the country that the money is been invested in. moreover the two main
theories Product Life Cycle and the OLI approach of the FDI theory. However, after both the
theories have been discussed we can conclude that Product Life Cycle theory is better that the
OLI theory as the major reason as to most of the host countries invest in Foreign Direct
Investment is majorly because of the rate at which the product maturates in the market and how
saturated the market is, as it helps the investor earns and continues to earn more profit in the long
run.
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References:-
2016].
2. Mulder, P. (2012). Product Life Cycle Stages theory by Raymond Vernon | ToolsHero.
https://www.toolshero.com/marketing/product-life-cycle-stages/ [Accessed
13 Dec. 2017].
November 2016].
http://smallbusiness.chron.com/examples-product-life-cycle-phases-
5. Users (2016).World Economy FDI: The OLI Framework. [Online].Available at: http:
2016].
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