OLI Framework Research Articles

Strategies of Multinational Corporations in Emerging Markets in Indonesia

Purpose: The aim of the study was to examine the strategies of multinational corporations in emerging markets in Indonesia
 Methodology: The study adopted a desktop methodology. Desk research refers to secondary data or that which can be collected without fieldwork. Desk research is basically involved in collecting data from existing resources hence it is often considered a low cost technique as compared to field research, as the main cost is involved in executive’s time, telephone charges and directories. Thus, the study relied on already published studies, reports and statistics. This secondary data was easily accessed through the online journals and library
 Findings: Multinational corporations (MNCs) in Indonesia's emerging markets exhibit a preference for collaborative entry strategies, emphasizing joint ventures and strategic alliances. These approaches enable MNCs to harness local expertise and navigate the complexities of the Indonesian market effectively. Government policies play a pivotal role in shaping MNC strategies, with favorable policies attracting greater foreign investment and expansion. Industry-specific competitive strategies, including price competition, technology differentiation, and product innovation, are tailored to meet local market demands. Additionally, MNCs actively engage with the
 Unique Contribution to Theory, Practice and Policy: Eclectic paradigm (OLI Framework), Resource-based view (RBV) & Institutional theory may be used to anchor future studies on the examining the strategies of multinational corporations in emerging markets in Indonesia. Encourages MNCs to build meaningful partnerships, leveraging local expertise and networks, which can be crucial for navigating complex regulatory environments and market dynamics. Engaging in policy advocacy represents a proactive approach by MNCs to shape the regulatory landscape in their favor while contributing to the host country's economic development.

Can Investment Incentives Cause Unemployment? An Empirical Analysis of The Relationship Between FDI and Employment Based on The OLI Framework

Particularly in depressed regions, politicians often use unemployment as the main argument for investment incentives provided to MNCs. This paper applies Dunning’s OLI Framework to the relationship between FDI and employment, assuming that political negotiation between MNCs and the host government might have a zero or negative effect on employment. Since the last letter of OLI, internalisation, suggests that MNCs optimise all production factors available to them and “subsidies” provided to MNCs by governments decrease the relative price of capital, MNCs may use more labour-saving techniques. Two hypotheses are tested using the dynamic panel model (DPD) and Granger causality tests for 193 countries from 1985–2019, where the first is supported with no strong relationship between the variables. Implications for Central European audience: The paper results suggest the importance of a critical debate on the efficiency of investment incentives. This paper is among the first trying to disentangle the rather complex issue of FDI and employment on a theoretical and econometric level.

The Internationalization of Small & Medium Enterprises (SMEs) in Automation Industry of Penang, Malaysia

With the rise of globalization, internationalization of companies has become a new business order, as globally, boundaries are no longer a barrier to firms as they can develop competence to enter international market and gain competitive advantage at global marketplace. The significance of this proposal is by integrating in a single framework the relationship between a pull factor (networking) and push factors (management attitude and entrepreneurial orientation) on the internationalization of SMEs in automation industry as well as testing the moderation effect of marketing characteristics (market attractiveness) on these constructs. This study proposes a research framework that examined the association between networking, management attitude, entrepreneurial orientation and internationalization of SMEs in the automation industry of Penang, Malaysia, with marketing characteristics (market attractiveness) as moderator. Underpinned by the Eclectic Model (OLI Framework) and Network Theory, the proposal examines the function of networking to obtain resources and access market opportunities; the positive management attitude and entrepreneurial orientation of firms as strategic intangible resources, and the marketing characteristics to function as moderator between the predicting and criterion variables. Theoretically, the study investigates empirically the association amongst the three independent variables (networking, management attitude and entrepreneurial orientation) and the dependent variable (internationalization of SMEs). In addition, this study has incorporated a moderating variable (marketing characteristics) into the research model. This proposal was unique in the sense that it is pivoted in SMEs automation industry in Penang, Malaysia. Thus, this proposal will enrich literature on the moderating effect of marketing characteristics (market attractiveness) and the relationship amongst the variables in SMEs automation industrial setting and context. Keywords: internationalization, automation, Small & Medium Enterprise, Penang, Malaysia. DOI: 10.7176/EJBM/13-18-03 Publication date: September 30 th 2021

An Empirical Study on FDI Entry Mode Choice in Myanmar: Evidence from Korean Multinational Companies

Myanmar, one of the poorest countries in Asia, had not actively promoted foreign investment until the recent decade due to political issues. While it is meaningful and necessary to study FDI in terms of the promotion of FDI and economic growth in Myanmar, research on FDI in Myanmar is limited to date. This study aims to analyze how foreign multinational companies make FDI entry mode choices between the wholly-owned subsidiary and joint venture in Myanmar. Drawing upon the OLI framework and industrial organization theory, we investigate the firm’s decision of entry mode choice based on its internal and external factors, i.e., firm size, resource, international experience, host country experience, set-up costs, and industry competition. Using survey data collected from 91 Korean multinational companies that made foreign investments in Myanmar during the period from 1988 to 2014, this study shows that Korean multinational companies tend to adopt a wholly-owned subsidiary mode to enter Myanmar’s local market when the firm is larger in size and has more intangible resources and international experiences. However, Korean multinationals are more likely to adopt a joint venture mode when the set-up costs and industry competition are higher in Myanmar. No empirical support is found for the relationship between the firm's experiences in the host country and FDI entry mode choice. The findings provide valuable implications for MNEs that consider entering into Myanmar.

Wpływ geopolityki na bezpośrednie inwestycje zagraniczne w Nigerii

Geopolityka jest dziedziną nauki, która bada rozmaite aspekty wewnętrzne oraz zewnętrzne kraju. Tymi aspektami są ekonomia, polityka, relacje społeczne, bogactwa naturalne, podział religijny, katastrofy naturalne etc. Nigeria ma bogate złoża surowców naturalnych oraz rozwija się gospodarczo, co klasyfikuje ją jako kraj przyjazny bezpośrednim inwestycjom zagranicznym (BIZ). Jednak zagrożenia geopolityczne, takie jak terroryzm oraz brak edukacji wśród osób młodych, całkowicie destabilizują państwo. Celem badawczym artykułu jest wyjaśnienie istoty wpływu geopolityki na BIZ w Nigerii oraz rozwój kraju. Za pośrednictwem ram OLI oraz CAGE zostaną przedstawione zagrożenia geopolityczne mające wpływ na wewnętrzny chaos Nigerii oraz przełożenie na BIZ.

Geopolitical disruptions and the manufacturing location decision in multinational company supply chains: a Delphi study on Brexit

PurposeThis study investigates the impact of geopolitical disruptions on the manufacturing supply chain (SC) location decision of managers in UK multinational firms. The context of study is the UK manufacturing sector and its response to the UK's decision to leave the European Union (EU), or Brexit.Design/methodology/approachThe study adopts an abductive, theory elaboration approach and expands on Dunning's eclectic paradigm of international production. A Delphi study over four iterative rounds is conducted to gather and assess insights into manufacturing SC location issues related to Brexit. The panel consisted of 30 experts and managers from a range of key industries, consultancies, governmental organisations, and academia. The Delphi findings are triangulated using a focus group with 38 participants.FindingsThe findings indicate that the majority of companies planned or have relocated production facilities from the UK to the EU, and distribution centres (DCs) from the EU to the UK. This was because of market-seeking advantages (being close to major centres of demand, ease of access to local and international markets) and efficiency-seeking advantages (costs related to expected delays at ports, tariff and non-tariff barriers). Ownership and internalisation advantages, also suggested by the eclectic paradigm, did not play a role in the location decision.Originality/valueThe study elaborates on the OLI framework by showing that policy-related uncertainty is a primary influencing factor in the manufacturing location decision, outweighing the importance of uncertainty as an influencer of governance mode choices. The authors find that during geopolitical disruptions managers make location decisions in tight time-frames with incomplete and imperfect information, in situations of high perceived uncertainty. The study elaborates on the eclectic paradigm by explaining how managerial cognition and bounded rationality influence the manufacturing location decision-making process.

Explaining emerging-market firms’ acquisitions of developed-market firms: A resource based perspective

BackgroundThe recent rise of emerging-market companies’ (EMCs) acquisitions of developed-market companies (DMCs) has triggered a debate on the appropriateness of the traditional internationalization paradigm (i.e., OLI framework or internalization theory) in explaining these contemporary developments. Scope and approachWe seek to help reconcile the views, by suggesting that assumptions of the existing paradigm must be adapted for the new phenomenon as the latter exhibits features inconsistent with the former's premises. We do so by offering a resource-based perspective that provides a more balanced focus on the role of both firm-specific and location-specific resources in the value creation of EMCs' acquisitions of DMCs.Key Findings and Conclusions: Applying our conditional approach, we develop and test our propositions on the distinct antecedents, processes, and outcomes of such acquisitions as a point of departure for future work.

Investment motives, ownership advantages and institutional distance: An examination of Russian cross-border acquisitions

We apply the OLI framework, first, to examine the motives of Russian cross-border (CB) M&A activity in the period 2007–2013 and, second, to analyze the ownership preferences of Russian multinationals abroad. We test our first set of models using panel data of 322 country/year observations and the second set of models using cross-sectional firm-level data of 318 M&A deals. Our analysis shows that traditional investment motives provide a limited explanation of what attracts or deters Russian acquirers abroad. We extend our base-model to include institutional distance and find that it plays a critical role on Russian CB M&A activity. As a second step, we employ state ownership as a specific type of institutional ownership advantage and discover that partial state ownership discourages Russian firms from pursuing full-ownership in CB M&As. Moreover, Russian multinationals benefit from internalization advantages (full M&A ownership) in tandem with location advantages derived from natural resource endowments.

Multinational contracting and the eclectic paradigm of internationalization

Purpose The purpose of this paper is to present a novel version of Dunning’s eclectic paradigm of internationalisation (OLI framework) to explain both inbound and outbound Foreign Direct Investment (FDI) in multinational contracting. Design/methodology/approach The OLI factors and hypothesis are significantly developed to address a weakness in the OLI framework in its application to settings, such as multinational contracting, with extreme heterogeneity arising from extreme location specificity. Findings These developments advance Dunning’s seminal contribution and bring this to life in construction research that has barely applied the framework and, when doing so, has focused only on outbound FDI by multinational contractors (MCs). Research limitations/implications The power of the OLI framework is increased on explaining and predicting FDI in contexts that exhibit extreme heterogeneity associated with extreme location specificity. Furthermore, the operationalisation of key theories representing the framework’s OLI factors is made far more precise. Practical implications Engineering, construction and architectural managers, can now more reliably apply the OLI framework both in MCs’ outbound FDI decisions and in governments’ decisions to attract new MCs – or inbound FDI. Originality/value A significant advance is made in the OLI framework in settings with extreme location specificity, along with the operationalisation of key theories associated with the OLI factors, including the first steps to operationalise Coase’s Nobel prize-winning transaction cost thesis.

Exploring the determinants of location choice decisions of offshored R&D projects

This article extends the understanding of R&D offshoring with a particular micro-level focus on the determinants of location choice decisions for R&D activities at the project level. Using multinomial logistic regression, supplemented with PLS modelling, the article adopts an innovative R&D project-level approach to examine the key determinants of the location choice decisions made by 126 UK-based MNEs. The findings demonstrate that project characteristics—such as speed, quality, interactivity, innovativeness, and routineness—have a greater impact on location choice decisions than traditional considerations such as cost and wage, which have been extensively examined. We further find that the classification of R&D projects is not one of the key determinants of R&D project location-related decisions. Theoretically, the article uses an approach proposed by Demirbag and Glaister (2010), combined with Dunning's OLI framework, to highlight the scope for utilizing integrated theoretical frameworks to investigate location choice decisions for R&D offshoring within IB studies. We draw implications for research and practice.

THE FIRST INTERNATIONAL MERGER WAVE: DOES ACQUIRING FIRM WEALTH EFFECT PERSIST?

ABSTRACT The immediate acquiring firm announcement wealth effect throughout the first international takeover wave have been unprecedented and encouraging. However, little attention has been paid to their shareholder values in the long run. It is not unreasonable to suspect that the prospect in the long haul might not be as promising in light of the evidence presented in most long-term post-merger domestic M&A research as well as the claim of global diversification discount in a number of the international M&A studies. The results shown in the present research have been consistent with the cross-border diversification discount in the long run regardless of the measuring models implemented. The somewhat more surprising aspect is the sheer volumes of the discounts due to an apparent mismatch between the investors' initial over optimism and the acquirers' seeming inability of substantiating their perceived global diversification benefits. Furthermore, the conventional International Business OLI paradigm appears to explain the immediate acquiring firm wealth effect reasonably well, albeit providing less than full explanation on the diversification discount in the short and relatively long haul. In general, the global diversification discount starts to show up within three months of the initial cross-border M&A announcements, or six months if measured by a modified methodology. That is, the unprecedented acquiring firm value gain during the first international merger wave does not last long. To escape from such long-term global diversification discount and avoid the winners' curse, it would not be ill-advised for the acquirers to efficiently implement their post-announcement cross-border acquisition strategies in order to keep investors' adverse sentiment in check, and the OLI framework seems to provide a blueprint in principle for their success. Keywords Globalization; Mergers and Acquisitions; M&A; Announcement Wealth Effect; Global Diversification; Cross-Border Diversification; Diversification Discount; International Merger Wave

Determinants and motives of outward foreign direct investment by China's provincial firms

Based on Dunning’s OLI framework and the investment development path theory, this paper investigated the determinants of outward FDI by China’s provincial firms. The results show that provincial economic development, innovation and technology, and export to GDP ratio are statistically significant determinants, while FDI inflows, import to GDP ratio and provincial market size are not statistically significant determinants. The results suggest that the main motives for China’s provincial firms to invest abroad are mainly market-seeking and efficiency-seeking.

Economics behind the internationalization of Biocon India Ltd

Subject area Economics, business management Study level/applicability The case study is relevant for MBA, Master's and under graduate (economics, international and business economics) students. Case overview Biocon is one of the top 20 companies from India in the Forbes list of “Best under a Billion” companies. It has emerged from being an enzyme-producing firm to a biotech powerhouse under the guidance of Ms Kiran M. Shaw. It is an innovative company with a varied scientific skill base and progressive manufacturing facilities for developing and commercializing biopharmaceuticals. This study attempts to explore the international foray of Biocon using the eclectic OLI framework. Entrepreneurship, need for integrated business model, innovation, quality control, etc. constituted the ownership (O) factors, important for Biocon to earn the more than compensating advantage in the overseas market. The locational factors were less important in case of Biocon as the global expansion was driven by a motive of either market seeking or cashing in on the cost advantage of its operations. The dominant mode of entry has been the joint ventures. The overseas patterns exhibited by Biocon can be captured fully by the O-L-I framework. Expected learning outcomes To understand the economic theory of OLI and the ownership, locational and internalisation advantages, link the OLI framework with the international foray of Biocon, Biocon's internationalization journey, major overseas deals signed and the economic rationale behind the deals. Supplementary materials Teaching notes are available for educators only. Please contact your library to gain login details or e-mail support@emeraldinsight.com to request teaching notes.

Location and collocation advantages in international innovation

PurposeThis paper examines the role of location‐specific (L) advantages in the spatial distribution of multinational enterprise (MNE) R&D activity. The meaning of L advantages is revisited. In addition to L advantages that are industry‐specific, the paper emphasises that there is an important category of L advantages, referred to as collocation advantages.Design/methodology/approachUsing the OLI framework, this paper highlights that the innovation activities of MNEs are about interaction of these variables, and the essential process of internalising L advantages to enhance and create firm‐specific advantages.FindingsCollocation advantages derive from spatial proximity to specific unaffiliated firms, which may be suppliers, competitors, or customers. It is also argued that L advantages are not always public goods, because they may not be available to all firms at a similar or marginal cost. These costs are associated with access and internalisation of L advantages, and – especially in the case of R&D – are attendant with the complexities of embeddedness.Originality/valueThe centralisation/decentralisation, spatial separation/collocation debates in R&D location have been mistakenly viewed as a paradox facing firms, instead of as a trade‐off that firms must make.

Revisiting the OLI Paradigm: The Institutions, the State, and China’s OFDI

Existing theories fail to explain the fast-growth of OFDI by Chinese firms even under the institutional disadvantages, and studies on the role of the state in changing the OFDI landscape lack a systematic framework. Our previous work (Ren, Liang, and Zheng, 2011) has built up a theoretical institutional framework which identifies the formal institutional determinants such as policy, bureaucratic administration and government ownership, as well as the informal institutional determinants such as state ideology and national pride through which the state changes Chinese firms’ ownership, location, and internalization (OLI) advantages and promote their OFDI activities. In this paper we supplement that predefined framework by further looking at the impact of direct FDI policy schemes, macroeconomic policy schemes, and the state-controlled financial intermediations. Through modifying the OLI paradigm by incorporating the role of the state, we try to link our theory to the recent occurrences in China’s OFDI activities. This paper, along with our previous paper (Ren et al., 2011), aim to combine three streams of literature on institutional theory, political economy and international business by incorporating the analysis of the role of the state into Dunning’s OLI paradigm, to explain the specific OFDI patterns by Chinese firms in the recent decades. Under our modified OLI framework we also examine the potential concerns surrounding these state-backed OFDI, such as political conflicts and the round-trip money motivation. Our study contributes in bridging the gap between institutional analysis and FDI theories, and enhancing our understanding on the trajectories through which the state influences Chinese firms’ OFDI. It also draws attention to several most recent discussions such as the OFDI of China’s banking sector and the impact of appreciation of Renminbi on Chinese firms’ international investment. In the end we raise the debate on how should we perceive China’s fast-growing OFDI and the social responsibility of Chinese economics and management scholars in interpreting its long-term sustainability.

A conceptualization of e-risk perceptions and implications for small firm active online internationalization

A sound conceptualization of international e-risks has grown in demand, because of the increasing penetration of the Internet, and specifically the enabling-facility of the Internet technology for small firms. Yet, to date, there has been no study explicitly attempting to build an international business risk framework for the online environment, nor to explain online internationalization decisions. The purpose of the present paper is threefold, (1) to combine and complement the existing traditional international risk constructs and the emerging views on e-business risks into a comprehensive and unified international risk framework for the online context; (2) to develop propositions regarding SMEs’ active online internationalization decisions by drawing on Dunning's OLI framework; and (3) to explore the online–offline risk trade-off inherent in online internationalization decisions by integrating the e-risk framework into the eclectic paradigm.

Technology sourcing and outward FDI: A study of IT industry in India

Dunning’s eclectic or the OLI framework suggests that MNCs exist and grow due to possession of ownership (O) advantages consisting of the tangible and intangible assets of the firm (including technology); location (L) advantages consisting of production factors such as transportation, infrastructure, and human and natural resources available in the host country; and internalisation (I) advantages owing to firm’s competitive advantage in producing internally rather than selling or licensing technologies to others. There are several studies that have analysed MNCs of developed country origin from the perspective of both developed (home) and other developed or developing (host) countries. Recently, however, MNCs from developing countries are also making their presence felt in the world. Yet, there are hardly any studies that analyse MNCs of developing country origin. Using data on 130 firms from the high-tech Information Technology (IT) industry of India, we investigate whether ownership advantages (O), as proposed in the eclectic theory, holds true for the presence of MNCs from developing countries. Specifically, we analyse whether firm-specific technological advantages generated through differential technology sourcing at home (India) are important in determining inter-firm differences in the decision to invest abroad. The technological sources considered are in-house R&D efforts, import of designs, drawing and blueprints, and import of capital goods. The study reveals that in-house R&D efforts are indeed important for the firms to invest abroad. Size and export intensity of the firm also influence the decision of the firm to invest abroad. The study recommends a proper innovation and resource management strategy for developing country firms for efficient allocation of resources, technology sourcing, and technology assimilation.

Choice of ownership mode in joint ventures: An event history analysis from the automotive industry

Inter-firm partnerships continue to be a major trend in the B2B context. Firms seek collaborative ventures to enter foreign markets, combine resources, share costs and risks, and build synergies in an increasingly competitive environment. Accordingly, the impacts of firm and host country characteristics on the selection of entry mode have been extensively studied in the literature. Nevertheless, most of these studies regard all entry modes as feasible alternatives for firms, which is rarely the case in practice. Instead, the number of entry modes available to a firm is more likely to be limited by the firm's assets and the context of the host country. As such, these contingencies, coupled with the idiosyncrasies of each entry mode, necessitate more focalized inquiry in the entry mode literature. Drawing from the OLI framework, this study zeroes in on international joint ventures (IJVs) and analyses the impact of ownership and location advantages on firm's decision about the level of control (i.e., internalization level) in an IJV in a given country. Results indicate a positive relationship between the ownership advantages and the level of control. It is also found that firms tend to favor higher control mode where the host country provides better locational advantages.

The Interface Between FDI and the Development of Natural-Resource-Rich Regions

The purpose of this paper is to develop a theoretical framework for analysing the connections between foreign direct investments (FDI) and the development of the natural-resource-rich regions. In order to understand the link between FDI and regional development, we need to consider two perspectives at least: those of the investor companies and the developing region. The theoretical framework is built up from a combination of the eclectic paradigm (OLI framework) from international business and the Canadian Staple Theory (CST) from the discipline of economic geography. As it stands, the framework is encouraging in terms of promoting a better understanding of the context and content of inward and outward FDIs in resource-rich regions. This will be illustrated by means of two cases, the Ukrainian/Swiss investment (Donbass-Duferco) in the Hungarian iron and steel company Dunaferr in 2004 and the much-criticized Sakhalin-2 project of the Sakhalin Energy Investment Company (SEIC) in the oil and gas industry.

Productivity Distributions in International Oligopolies: Spillovers, Technology Transfer, and Heterogeneous FDI

Foreign-owned firms exhibit widely-documented productivity advantages over domestic firms. To interpret this stylized fact, we model the relationships between FDI flows and national productivity distributions across firms in an international oligopoly. Industrial structure is determined endogenously, and both greenfield- and acquisition-FDI are allowed for. The technology gap between firms interacts with localized spillovers to determine greenfield-FDI incentives and with within-firm technology transfer to determine the profitability of acquisition-FDI. Greenfield- and acquisition-FDI also affect the profitability of entry into the industry differently. We contrast our results with the insights of Dunning's well-known OLI framework on the causes of FDI flows.