Ownership, Location & Internationalization (OLI) Framework

Lesson Transcript
Instructor: Elizabeth Wamicha

Elizabeth teaches undergraduate courses in Business and Information Technology for the last 7 years. She is currently on course to completing a Doctorate in Information Systems

Businesses that operate in a global environment may use the ownership, location and internationalization (OLI) framework. Learn about the framework's application, and understand the components of the framework, including how it can provide advantages in ownership, location, and internationalization. Updated: 12/29/2021

Overview of the OLI Framework

In this day and age of rapid globalization, it has become so common for companies to set up shop in locations that were previously outside their country of operation. In order to illustrate this better, let us use the example of Shoes International. Shoes International is a company from North America that hopes to set up shop in Asia and is currently deciding on the best approach to use in order to plan and effectively implement their expansion to Asia.

They hope to use a foreign direct investment approach in their expansion strategy. This approach means that Shoes International will not provide licenses to foreign re-sellers but instead, it will acquire its own assets in Asia and set up headquarters there as well. By using the foreign direct investment approach, Shoes International will also have direct control of all assets that it will have in Asia. This includes purchase and control of all buildings, offices, machines, equipment, and the likes that it will need in the new location in Asia.

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Application of the OLI framework

In order to begin this strategy, Shoes International needs to really justify its chosen approach. This is especially so because the cost of running a business in a foreign country is often higher than running one domestically. Shoes International also has to consider costs of cultural differences adjustments in the new location. Shoes International can effectively justify its approach by using the ownership, location, and internationalization (OLI) framework, also known as Dunning's eclectic paradigm. This framework is useful in determining holistically if carrying out a foreign direct investment is viable for the organization or not.

Components of the OLI Framework

As mentioned, this framework can greatly help companies hoping to make foreign direct investments by providing clear justifications for the choice. The OLI framework is made up of the following three main components. They include ownership, location, and internationalization advantage.

Ownership Advantage

The component part of ownership advantage is used to describe any specific investment or asset that Shoes International has that its competitors in Asia do not have, which is a competitive edge. This investment or asset should be able to generate healthy profits for the company. This investment or asset could be a patent or innovation on its shoes. This patent or innovation may not currently be available in Asia. Shoes International needs to be confident that this investment or asset is one that can sustain the economic situation of the company for a good period of time.

In this light, companies such as Apple, Samsung, and GlaxoSmithKline have positive reputations for providing high quality products. They also have innovative products that provide an edge over their competition. This could be an example of some ownership advantage that would enable them manage Foreign Direct Investments effectively.

Location Advantage

However, there is the argument that Shoes International might as well sell its products domestically using its current patents and innovations instead of incurring the additional business costs that come with setting up foreign direct investments. Here is where the location advantage counterargument comes in. How can Shoes International justify that the Asian location will provide greater returns on investment for the company than returns on investment in the domestic market?

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