Geography Reference
In-Depth Information
Internalization advantages
: finally, even the combination of O and L
advantages is not sufficient to explain why the firm does not exploit
them by simply using arm-length markets (i.e. through licencing,
franchising or establishing alliances with other firms in the host
location). Internalization advantages are market-replacement activ-
ities that, through the direct control over their assets, confer their
own hierarchical advantages to the MNE firm. This category high-
lights the crucial role of market imperfections in the exploitation of
O and L advantages (Dunning 2001).
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The simultaneous combination of the O, L and I advantages has to be
seen as the necessary and sufficient condition for an MNE's existence and
its dynamics over time. In order to be in the position to exploit the benefits
associated with these O, L and I advantages the multinational firm must
have the financial, managerial and organizational corporate resources that
allow it to maintain and adapt its international multi-located operations
to changes over time. Thus, dynamic ownership advantages are required
in order to modify locational and organizational strategies, given a change
in the other types of advantages (Dunning 1995, 1998, 2000). In the words
of John Dunning (1998 and 2009b, p. 5): 'The OLI triad of variables . . .
may be likened to a three-legged stool: each leg is supportive of the other,
and the stool is only functional if the three legs are evenly balanced.' The
interdependence among the O, the L and the I, as we will see, is a critical
argument for the analysis of the geography of MNEs. Borrowing again
from Dunning (1998 and 2009b, p. 5): 'the geography of international
business activity is not independent of its entry mode; nor, indeed, of the
competitive advantages of the investing firms.'
Thus, beyond the claims of a lack of a holistic approach to MNEs, the
OLI eclectic paradigm offers a general and simple framework for inter-
preting MNE activity by combining both micro- and macroeconomic
perspectives, by allowing multiple levels and units of analysis, and by
accommodating different theoretical strands under a unifying umbrella.
One of the most remarkable properties of the OLI paradigm lies precisely
in the balance between micro- and macro-foundations. The approach
neither proposes itself as an analytical tool for examining the firm behav-
iour per se, nor does it point to particular foreign production modes.
Indeed, it considers both those activities carried out in foreign locations by
a country's own firms, and also foreign-owned operations carried out in
the domestic economy. However, in this framework each particular activ-
ity performed across international boundaries is seen, at least potentially,
as a consequence of specific advantages of the micro-units, which are the
multinational firms themselves.
