The OLI paradigm suggests FDI is optimal under what conditions?

The OLI paradigm suggests FDI is optimal under what conditions?

• A. Ownership, local market, and promotional advantages
• B. Ownership, locational, and internalisation advantages
• C. Operational, locational, and strategic advantages
• D. Organisational, local partnership, and international trade advantages

Answer: (B)

The OLI paradigm, which stands for Ownership, Location, and Internalization, provides a comprehensive framework for understanding why companies engage in foreign direct investment (FDI). Ownership advantages refer to the unique assets and capabilities that a firm possesses, such as proprietary technology, brand reputation, or management expertise. These assets allow a firm to compete effectively in foreign markets. When a company has strong ownership advantages, it is more likely to pursue FDI to leverage these strengths on a global scale. Location advantages encompass the benefits of specific geographic areas, such as resource availability, market size, or favorable regulations. A firm may choose to invest in a particular location if it can gain access to these advantageous factors, which can lead to cost reductions or enhanced market opportunities. Internalization advantages occur when a firm decides to retain control over its operations rather than outsourcing or licensing. This decision is often influenced by the desire to protect proprietary knowledge, reduce transaction costs, or achieve efficiency in managing operations across borders. Together, these three components of the OLI paradigm elucidate why FDI might be the most effective strategy for companies looking to expand internationally. In contrast, the other answer choices do not align with the established framework of the OLI paradigm. For example, some alternatives mention

The OLI paradigm, which stands for Ownership, Location, and Internalization, provides a comprehensive framework for understanding why companies engage in foreign direct investment (FDI).

Ownership advantages refer to the unique assets and capabilities that a firm possesses, such as proprietary technology, brand reputation, or management expertise. These assets allow a firm to compete effectively in foreign markets. When a company has strong ownership advantages, it is more likely to pursue FDI to leverage these strengths on a global scale.

Location advantages encompass the benefits of specific geographic areas, such as resource availability, market size, or favorable regulations. A firm may choose to invest in a particular location if it can gain access to these advantageous factors, which can lead to cost reductions or enhanced market opportunities.

Internalization advantages occur when a firm decides to retain control over its operations rather than outsourcing or licensing. This decision is often influenced by the desire to protect proprietary knowledge, reduce transaction costs, or achieve efficiency in managing operations across borders.

Together, these three components of the OLI paradigm elucidate why FDI might be the most effective strategy for companies looking to expand internationally. In contrast, the other answer choices do not align with the established framework of the OLI paradigm. For example, some alternatives mention