Question

Explain the OLI paradigm.  Explain what 'O', 'L', and 'I' mean.

Answer 1

The OLI paradigm, helps countries to analyse weather is is advantageous to expand business through FDI or use the other alternative strategies that has the potential to generate higher profits.

O STANDS FOR OWNERSHIP

L STANDS FOR LOCATION

AND I STANDS FOR INTERNALISATION,

OWNERSHIP : explains that when a firm owns certain specific assets that is not accessible to the competitors it has the possibility to earn superior profits as they can sell products under their brand name so they can earn high profits and keep costs low.

LOCATION: firm can use the location where they would get access to a particular resource which is not available elsewhere and set up a unit to produce goods using these resources by themselves. . Profits will be higher if goods are produced where Labour and resources would be cheaply available giving it to a foreign company to produce.

INTERNALISATION: maintain control over our assets by exploiting their core competencies instead of giving the control over to an MNC, as they would not maintain the same quality that would be maintained if the good was locally produced and they could also learn the technology behind making the product and slowly raise competitive products.