Ownership, Location & Internationalization (OLI) Framework

For example, if Shoes International requires a certain natural resource (for example fuel) and this resource is readily available in Asia at a cheaper price, then this becomes an excellent justification for location advantage. Shoes International can also consider the cost of production. It may be cheaper to manufacture and sell products within the same location (such as Asia) than in a separate location (such as North America) where logistics and costs of transportation may need to be considered.

Internationalization Advantage

While setting up shop in Asia, Shoes International may be quite reluctant to have a local company managing its assets such as its manufacturing plants. The internationalization advantage arises through this argument, that the value of assets, such as manufacturing plants, may be reduced if control is given to a local company. Shoes International would therefore prefer to maintain control of their assets in Asia.

Companies in the pharmaceutical industry, for example, are often very reluctant to provide licenses to foreign companies to develop their medicines on their behalf, as this may force them to reveal their patents and innovations to third parties who may eventually steal their ideas or reduce the quality of the product, thereby reducing the reputation of the company. These all describe the internationalization advantage as a justification for carrying out foreign direct investments.

The following diagram better illustrates how the OLI framework would work. It's depicted as a flow chart indicating the steps that an organization would take if it intends to have foreign direct investments.

Lesson Summary

This lesson provides an overview and description of the ownership, location, and internationalization (OLI) framework, also known as Dunning's eclectic paradigm. This framework is used to justify why a company should make foreign direct investments instead of remaining in its home turf. Therefore, the lesson argues that the OLI framework is useful in enabling a company to effectively justify why it should set up shop in another country.

The framework is made up of three main components: the ownership advantage, which argues that a company may have a competitive edge over similar companies in the foreign country; the location advantage, which argues that the company may be able to access resources efficiently within the foreign country; and finally, internationalization advantage, which argues that it would make better sense to manage all assets in the foreign country in order to maintain trade secrets and uphold quality of the products developed.