Contents

Drawing on current examples from the activities of multinational enterprises, critically assess the
extent to which the following theories provide an effective explanation of international trade and
investment: ............................................................................................................................................ 2

 Vernon’s Product Life Cycle Theory ............................................................................................ 2

 Krugman’s First Mover Advantage Theory; and .......................................................................... 2

 Dunning’s Ownership-Location-Internalisation (OLI) eclectic theory ......................................... 2

References .......................................................................................................................................... 10
Drawing on current examples from the activities of multinational enterprises, critically
assess the extent to which the following theories provide an effective explanation of
international trade and investment:

 Vernon’s Product Life Cycle Theory

 Krugman’s First Mover Advantage Theory; and

 Dunning’s Ownership-Location-Internalisation (OLI) eclectic theory

Every company ought to analyze its ability in a global surroundings, whether or not it enters into
international business, because it helps to spot new trends within the world. Even though the corporate
operates domestically. However, is influenced by different organizations operational globally. In
attempting to mitigate many necessary models of a firm's competitive advantage within the context of
international business environments like international product life cycles, choice paradigms, and first
mover theories projected by Paul Krugman. It explores these models and theories so as to higher
perceive these models and theories.

International Product Life Cycle

The construct of international product life cycle is a crucial construct within the international business
surroundings. It includes the social, political, economic, legal, technical and different alignment
models of various sovereign countries printed in 1966. It additionally conceptualizes the international
product life cycle model to push Existing trade theory (Belasis and Sedita, 2009)

New Products: once a corporation introduces new and innovative product from developed countries
to develop technological breakthroughs, the explanation why its international product lifecycle is 1st
introduced domestically is that the upper living standards of high income and developed countries
customers get a lot of several revenue firms need to develop new product and sell within the country
.1st to reduce risk and uncertainty (Doh, 2005) for instance, Sony are going to be the primary to launch
a brand new sophisticated mobile phone in its home country as a result of it'll absolutely perceive.
Market and legal and political conditions in specific countries what is more, individuals in developed
countries appreciate innovation and might pay a lot of at the tip of its life cycle. Sony also import and
manufacture in different countries. It can begin to export mobile phones to different industrial
countries to extend financial gain. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mature Products: the corporate can receive further world advantages upon receiving export orders.
The political state of affairs in mercantilism countries Sony to travel FDI (Foreign Direct Investment)
which is able to facilitate got wind of production plants in different advanced countries as their
financial gain levels (Meckl and Schramm, 2005). The corporate can expand more in different
countries attributable to the availability of low cost labor, leading to low product price. Therefore, the
competition within the domestic market can flip world underneath this circumstance. Sony can get a
lot of overseas producing facilities high profits. Once the merchandise is productive in different
countries, the corporate can begin to receive orders from low-income developed countries

Standardization Products: Once the country of invention facing technological changes and competitors
coming into, the merchandise coming into the stage of standardization product domestically. Sony can
adopt a technique of standardizing production processes so as to attain low operational prices rather
than introducing new functions into product. Capital rather than resource to manage the method as an
international company. The corporate can maximize the overseas production to low-wage countries as
new competitors enter the market and imitate innovators ideas and product. The initial provider now
not competitive in production, therefore at the tip of this stage, product sales began to slowly decline
.At the tip of this part, the initial provider ceased to be competitive as a result of new competitors
entered the market and imitated innovators ideas and product (Chen 2008).

International product life cycle impact on producers and shoppers of Innovators and different
Developed and Underdeveloped Countries. International promoting theory explains the dynamic
relationship between production and consumption among IPLCs in 3 Stages Norwegian salmon may
be used as an example understanding its impact 1st. Scandinavian nation started production in its own
country and in another European advanced countries once salmon consumption with success entered
these markets. It targeted different advanced markets in Japan, Canada, etc. As these markets dilated,
it lost in these markets business and with success penetrate into low-income. Asian countries this
instance explains the variations in production and consumption at these stages and points out the
benefits of low labor rates and production prices in world operations (Intarakumnerd et al., 2011).

This theory helps firms that need to grow their business globally to supply insight into the construct
of an international product life cycle, so they'll higher arrange and manage the merchandise in any
respect stages. It additionally explores the impact of the international competitive arena. However, the
most weakness of this theory is that it assumes that a rustic produces an integrated enterprise. However,
currently matters has modified, and therefore the business is working in additional than one country,
creating the structure extremely complicated

New Product Life cycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Inadvertently firms establish markets and develop product per desires firms in developed countries.
Particularly those with higher incomes, have a transparent concept underdeveloped and
underdeveloped per capita incomes can still use existing but, later studies in 1970 showed that a
country's financial gain levels vary over time. Therefore, the definition of value varies per economic
conditions. For instance, the amount of financial gain in Europe when the recent economic worsening
has born considerably, the longer term might worsen (Belasis and Sedita, 2009)

IPLC theory is wide adopted by entrepreneurs in additional than one country as a result of theorists
will justify the utilization of terms like high-income and high-income countries. They additionally
reveal the logic of victimization these terms (Keller et al., 2011). What is more, the idea proposes that
capital the notion of work for labor, later tried by the belief of more labor intensity and therefore the
standardization of unit prices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

It has additionally been supported by empirical proof that its broader satisfactoriness and pertinence
meets universal desires, though the model fails to demonstrate the sequence of international product
life cycles (Doh, 2005). Raymond Vernon his analysis hypothesized the strengths and weaknesses of
his projected international product life-cycle model, that he aforesaid was supported the country's
financial gain levels. However, within the present time revenue isn't the sole criterion for overall and
world commerce has been known (Chen, 2008). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Krugman’s Theory First Mover advantage

In 1980, Paul Krugman recommend the new trade theory, that projected the key issue to look at the
international dynamics of trade, that is, economies of scale and web economy. He targeted on rising
economy through economies of scale come back, produce amiss competitive things by completely
differentiating merchandise and competitors. Krugman's trade model emphasizes the competitive
advantage of 1st mover advantage Krugman believes that corporations that contend in a global
atmosphere will trade through different countries (Checked, 2006). The most assumption of the model
is that 2 identical economies (home) H and (foreign) F are often technically and objectively associated
with one another Favorable; shopper preferences square measure named as similar and identical
altogether countries during this theory, Paul Krugman argues that some countries, owing to economies
of scale, 1st mover advantage and business expertise, have some learning effects case focuses on
production. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Airbus and Boeing, the 2 dominant industrial part corporations, operate professionally to realize
competitive advantage by making imperfect competition. Boeing Spent $ Five Billion To Provide
Boeing 777. If we have a tendency to assume that the firm's charge is fifty million USD, with a variable
price of eighty million USD, it'll build five hundred craft for ninety million U.S. greenbacks however,
and it edges from economies of scale (D'aveni, 2010). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

First mover advantage are often called technology leader .The corporate captures new markets for the
primary time and introduces new technical options. There square measure several sources of FMA
first-mover advantage within the marketplace like government relations, selling productivity, selling
resources and lots of years. The Impact of State and native Governments on rising Markets Notable
Governments will give a restricted range of licenses to limit TNCs capturing / infiltrating rising
markets. However, they'll secure 1st entrants through smart relations with different governments. This
can facilitate them gain a primary mover advantage. The subsequent figure illustrates the advantages
of FMA that helps to attain a property profit of MNCs.

It, presents, the concept of lockup in early adopters. For instance, Samsung 1st introduced mobile
phones from the Eu market owing to leading technology and competitive humanoid (Jain et al., 2011).
Entering time additionally provides the business a primary mover advantage, therefore crucial once to
enter is a very important call created by the business. This model has many blessings and downsides,
that square measure key analytics.

Krugman's new theory of trade raises the conception of FMA as innovators return up with new
concepts that provide corporations above-average returns. Competitors solely see once early adopters
purchase merchandise. Market reaction, pioneer corporations get higher profits. However, additionally
short profits as competitors quickly valuate market opportunities and therefore provide sturdy
competition (Tuppura et al., 2008).

Companies will gain client loyalty through Harley-Davidson in giant motorcycles. However, there
also are variety of unfavorable factors that undermine the pertinence of the speculation that within the
case of unsure demand, the danger within the international market is higher.
The theory of 1st mover helps international corporations 1st discover the new markets and
consequences of beginning an enterprise. However, most theories fail as a result of the second pioneer
corrects the primary mover's mistake and learns to work higher, though such a method might lose the
initial however, it will facilitate structure for the first losses by rising understanding of the market
reaction.

Theories show that every country will gain competitive blessings and advanced technologies by
maximizing its production activities and facilitate businesses, turn out merchandise and services at
low prices (Rieck, 2005). In reality, every economy and country incorporates a completely different
within the economic state of affairs. It’s not possible for each country to devote itself to the varied
processes owing to the shortage of funds and resource. Krugman gained the advantage of the recent
trade theory by adding competitive blessings to his model. He additionally believed that constant the
corporate can facilitate one another.

Through FMA theory, corporations longing for higher opportunities will discover new markets and
gain a lot of market share. Organizations gather data regarding new markets and target rising markets.
However, most of the time they are doing not realize such market potential. Finally, they predict losses
If in apply such unassertive markets can exist, then each company can attempt to do business there
(Jain et al., 2011).

Krugman's analysis underscores the advantages of gaining a competitive advantage. However, if truth
be told is pricey 1st and foremost to win over purchasers regarding their prices, win over them and
teach them the way to use the merchandise within the context of recent development .Commentators
additionally, suppose version two is often higher than version one (Priem, 2007). Therefore, quick
followers get pleasure from the advantages of free integrated learning that happens once pioneers face
issues, the theory additionally explains different edges like. Dominant resources to grasp this, we are
able to get into the McDonald's example of a brand new market 1st by selecting the simplest location,
therefore its operation 1st of all provides higher management of the resource however additionally at
Product platforms, brands and evaluation methods. The benefits of FMA also are imitated by this
theory several barriers to international business entry, particularly for tiny corporations, square
measure arduous to catch (Checkel 2006). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.................................................................................
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OLI Eclectic Paradigm

A common theoretical framework designed to explain the decision to serve foreign markets through
foreign direct investment is the OLI eclectic paradigm developed by John H. Dunning in 1977. It is
bringing international economics to an individual (business) perspective, Lacking at that time. In fact,
international trade was explained in Huckster-Ohlin's framework that factor endowments and
efficiency gains are drivers of internationalization. More precisely, the OLI representatives: (O)
knowledge superiority, (L) specific Advantages, and (I) Internalization Advantages These are the three
conditions that enterprises need to satisfy FDI.

In the OLI Paradigm, firm, specific assets form the basis for an enterprise's international decision,
making. In fact, getting active in a foreign market leads to some difficulties due to a lack of knowledge
of foreign consumers, foreign business practices and / or host economy. Labor market conditions and
regulations, etc. (Marrewijk, 2007, pp.328). These barriers turn into additional costs for MNEs and
therefore require these companies to have some comparative advantage over them, often referred to
as business specific of assets, including advanced knowledge such as patents, brand names and / or
technical or commercial practices, etc. (ibid.). Knowledgebase assets are theoretically considered
decisions on foreign direct investment as they are more valuable than capital assets easily transferred
to foreign affiliates. In fact, the transfer of knowledge can be done at a lower cost, which in no way
can hamper the parent's productivity as opposed to the transfer of capital, specific assets (Markusen,
1995). Overall, the more important, the advantages multinationals have should keep them in foreign
markets decision has some market power, so that by the interests of FDI to serve the market.

In addition to the firm specific assets, there should be some geographical advantages associated with
the economy of the host country. So that firms can decide to serve foreign markets through FDI rather
than exports. Such advantages can be, but are not limited to, market size. The different motivations
for firms to decide on FDI in determining the type of location advantage are important in terms of
production costs, different factor endowments and / or favorable trading policies in the host economy
(Markusen, 1998). In fact, as Markusen (1998) suggested firms seeking to improve efficiency (vertical
FDI) will try to establish part of their production chains in a country with lower costs of production or
/ and be rich because the interests of firms engaging in such foreign direct investment are mainly in
the domestic market . The Favorable trade policies between the two countries (low import and export
tariffs) will increase the firm's interest as a potential investment host. On the other hand, firms seeking
access to new markets (horizontal FDI) will generally choose a country with potentially large demand.
In fact, the larger the market, the reproduction in this market .The greater the motivation for the
facility, especially at high export costs, as pointed out by (Markusen & Venables 1998). The decision
to engage in horizontal FDI depends on the cost of additional facilities with multiple facilities and
costs of exporting to foreign markets.

Finally, from an enterprise perspective, the ownership of an enterprise's internalized product should
be favorable. The third condition is the factor that determines the way in which foreign markets enter
and therefore constitutes the key determinant of FDI. In fact, firms that have the advantage of
ownership. There are three main ways to serve foreign markets, which can be sold through spot
transactions (exports) that can serve foreign markets through fair trade (i.e., distribution of goods to
foreign markets through licensing, franchising or subcontracting) (Navarrete & Venables, 2004, p.
299), or its inherent advantages. As mentioned earlier, location advantages may make one of these
entry modes more profitable. In addition, deciding whether to have full control over the product
(internalization) is based on trust, etc. If the business fears that a local company or entity with which
it has a long-term contract duplicates or infringes, it usually chooses internalization advantages.
Considering that for a company engaging in foreign direct investment it is more important because of
its superior knowledge should be easily transferred to foreign points Institutions because their
international profits depend on the shortcomings that their easily transferable knowledge has been
easily disseminated to domestic producers (Markusen, 1998). Thus multinationals may find it difficult
to protect their company specific assets while encouraging independent local it is difficult or expensive
for companies to act for their best interests. (Navarrete & Venables, 2004, p. 35) In this case, foreign
companies will decide to serve foreign markets through foreign direct investment rather than relying
on market transactions or Permits to keep their knowledge from being destroyed by local competitors

In sum, this theory shows that a situation in which a company needs to have a comparative advantage
in the host country market to engage in or at least internationalize its activities is of prime importance
in this case, as it reveals the some features and form the basis for the theoretical basis for the spillover
of FDI. Moreover the OLI paradigm tells us that in the case of the internalization of the ownership
advantage it is necessary to maintain the comparative advantage of the host country, FDI will be
chosen instead of being exported Or fair contract Finally, the theory holds that the characteristics of
the host country influence the decision of the service mode in the foreign market. The different
locational characteristics depend on the strategic motivation of FDI (pursuit of efficiency or market
seeking)
 References

 D'aveni, R. A., 2010. Hypercompetition. Simon and Schuster.

 Edwards, V. and ET. al., 2009. Corporate property management: aligning real estate with business
strategy. John Wiley & Sons.
 Hussey, D. E., 2007. Strategic management: from theory to implementation. Taylor & Francis.
 Intarakumnerd, P. and ET. al., 2011. How to Enhance Innovation Capability with Internal and
External Sources. Economic Research Institute for ASEAN and East Asia.
 Jain, S. C. and ET. al., 2011. Handbook of research in international marketing. Edward Elgar
Publishing.
 Keller, K. L. and ET. al., 2011. Strategic brand management: Building, measuring, and managing
brand equity. Pearson Education India.
 Meckl, R. and Schramm, R., 2005. Empirical evidence for a theory of international new ventures.
Univ., Wirt schaftswiss. Fak.
 Porter, M. E., 2008. Competitive advantage: Creating and sustaining superior performance. Simon
and Schuster.