Question

Dunning has argued that location-specific advantages are important in explaining the nature and direction of FDI. According to Dunning, firms undertake FDI to exploit resource endowments or assets that are location specific.

Please give an example of that including a company name, their product or service, country or location they are investing in, the advantage they are seeking.

Answer 1

-1- FDI-(Foreign Direct Investment)

- 1- FDI theory states that the location decisions of Multinational Enterprises (MNEs) are determined by the relative location advantages of particular countries for certain activities.

-2-We focus one one specific type of location- localised clusters and the agglomeration externalities that may emerge as a result of the geographic proximity of firms engaged in similar activities.

- 3-Given the importance of FDI for the economic growth of both home and host countries, the aim of this paper is to assess the importance granted to location advantages during the development of FDI theory.

-4- We find that a direction of the FDI theory expansion is due to the incorporation of new variables on location. Although the location advantages are barely mentioned in international activity of the firms.

-2- Dunning Eclectic Theory-

-1- The Eclectic Paradigm, also known as the OLI Model or OLI Framework (OLI stands for Ownership, Location , and Internalization),is a theory in economics. It is a further development of the Internalization theory and published by Dunning in 1979.

- 2-The United States has been an attractive target for FDI partly because of its: stable and dynamic economy.

-3- Mergers and acquisitions differ from Greenfield investments in that: the percentage of mergers and acquisitions is lower than Greenfield investments in developing nations.

-4- location advantages are the ones that a particular country provide that might create incentives for a firm to move into that country.

-5- So, the difference with the ownership advantages that we covered before, is that ownership advantages are the ones created within the firm.

-6- FDI- Foreign Direct Investment are investment made by one company into another located in another country. FDIs are actively utilized in open markets rather than closed markets for investors. Apple's investment in China is an example of an FDI

-7- There are many ways in which FDI benefits the recipient nation-

- Increased Employment and Economic Growth.

- Human Resource Development

- Development of Backward Areas.

- Provisional of Finance and Technology.

- Increase in Exports

- Exchange Rate Stability

- Stimulation of Economic Development

- Improved Capital Flow.

-3- EXAMPLE-

-1- Determining the extent to which firm - attributes affect the value of certain location advantages, and identifying those attributes that are most influential, has important MNE's , policy makers and further theory development.

-2- Policy makers who seek to affect the location patterns of foreign firms within the areas under their jurisdiction would also benefit greatly by explicitly acknowledging tje heterogeneity among firms in terms of the attraction of particular locations.

-4- EXAMPLE-

-1- The ability of an individual, company, or economy to conduct an activity better than another for reasons related to location.

-2-Location- Specific advantages are important in making decisions such as the products one should make or sell,; if a company is unable to make a product as well as another because resources are unavailable or difficult to acquire in a certain location, the company might be well advised to make a different product.

-5-EXAMPLE-

-1- A lumber company in Oregon has a location- specific advantage to a lumber company in Arizona because there are simply more trees in Oregon.

-2- This makes it unlikely that the company in Arizona will be able to fill orders as well as quickly as the company in Oregon. For this reason, the Arizona company's management might consider investing in mining instead of lumberjacking.