DUNNINGS OLI PARADIGM

Group B2
Sumeet Shahi Sudhanshu Sharma Vivek Kurup Rohini Gangapuram Niraj Nakhale

WHY MNES GO FOR FDI ?

Cheap Labor/Wages

Special Investment Privilege (Tax Exemptions)

Incentive to gain tariff-free access

Geographical Expansion

Asset accumulation and restructuring

FRAMEWORKS ASSESSING IMPACT OF MNES ON

DIFFERENT COUNTRIES

OLI /Eclectic Paradigm

Supplementary Paradigms

Environmental/Systems/Policy(ESP) Paradigm Porters Diamond of Competitive Advantages Asset Accumulation and Restructuring Paradigm Stages of Growth paradigm

OLI /ECLECTIC PARADIGM

Framework for analyzing the decision to engage in FDI FDI=O+L+I

Ownership Advantage Location Advantage Internalization Advantage

Successful FDI

OWNERSHIP ADVANTAGES

Firm specific advantage transferred within regions (e.g., technology, brand name, benefits of economies of scale). Results in higher revenues and/or lower costs It offsets the costs of operating at a distance in an abroad location. E.g. Wal-Mart using supply chain Innovation innovation in stores out of USA.
Monopolistic Economies of Scale

Ownership Advantage s

The location advantages of different countries are key in determining which will become host countries for the Multinational enterprises. E.g. Vodafone tapped tax exemption in Mauritius.
Economic advantages quantities and qualities of the factors of production, transport and telecommunications costs, scope and size of the market.

LOCATION ADVANTAGE

Political Advantages common and specific government policies that influence inward FDI flows, intra-firm trade and international production. Social, cultural advantages general attitude towards foreigners and the overall position towards free enterprise, psychic distance between the home and host country, language an cultural diversities

INTERNALIZATION

Why doesnt a firm just sign a contract with a subcontractor (external agent) in a foreign country? Internalization advantages : Advantages by own production rather than producing through a partnership arrangement such as licensing or a joint venture. E.g. Infosys (Didnt had JV with US firm instead open offices all over the world.

HOW TO

SERVICE A MARKET

Ownership Location Advantages Advantages Export Yes No Yes Yes

Internalization Advantages No No Yes

Licensing Yes FDI Yes

Oo

Lo

DYNAMIC INTERPLAY BETWEEN MNE AND ECONOMIES Original Conditions

Io

Strategic Response MNE Activity Factor Condition Firm Strategy Demand

MNC Response MNC Activity Impacts: Porters Diamond of Host Country Impacts: Environment Systems & Policies +ve, -ve, Neutral New OLI

Support
ESP Impact Asset Restructure

On

Ln

In

O = Ownership L = Location

I = Internalization

TYPES

OF

FDI - OLI THEORY

oResource seeking FDI Seek and secure natural resources for the investing company oMarket seeking FDI Indentify and exploit new markets for the firms finished products oEfficiency seeking FDIs - Restructure existing investments to achieve efficient allocation of international economic activity of the firms oStrategic asset/capabilities seeking FDI - Strategic operations through the purchase of existing firms to sustain global competitive position

EMERGING MARKET MULTINATIONALS AND THEIR GLOBAL STRATEGIES

INFOSYS GLOBAL DELIVERY MODEL

o Infosys follows GDM model - producing where it is most cost effective and selling where it is most profitable oUnderstands local language and culture oDeliver services at optimal cost onshore + offshore model oFollow the sun approach 24*7 support oGlobal locations are risk proof from natural calamities oInfosys enjoys ownership advantages

oUS had the initial location advantage which is now slowly shifting towards emerging economies
oInternalization Infosys has offices in over 30 countries