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Global Capitalism, FDI and Competitiveness

The Selected Essays of John H. Dunning, Volume II

John H. Dunning

Global Capitalism, FDI and Competitiveness comprises 15 of John Dunning’s most widely acknowledged writings on the changing characteristics of the global economy over the past three decades. In particular, it examines how these events have shaped, and been shaped by, the growing internationalization of all forms of business activity.
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Chapter 6: Location and the Multinational Enterprise: A Neglected Factor?

The Selected Essays of John H. Dunning, Volume II

John H. Dunning


* INTRODUCTION In 1986, the economist Wilfred J. Ethier, in seeking to explain the existence of multinational enterprises (MNEs), concluded that ‘internalization appears to be emerging as the Caesar of the OLI triumvirate’ (Ethier, 1986, p. 803). I did not agree with this statement then; nor do I do so now. The OLI triad of variables (ownership, location and internalization, discussed below) determining foreign direct investment (FDI) and MNE activity 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. In so far as the third leg completes this balancing it may be regarded as the most important, but there is no reason to suppose one leg performs this task better than another. In the case of the eclectic paradigm, I would accept that the I component is the critical leg, if, given the O advantages of firms and the L advantages of countries, one is trying to explain why firms internalize the cross-border market for these advantages, rather than sell them or their rights to independent firms. But, I would aver it is no less correct to argue that, given its O-specific advantages, the critical choice of a multi-activity firm is whether it should internalize its intermediate product markets within its home country or in a foreign country; and that the outcome of this choice is primarily determined by the costs and benefits of adding value to these products in the two locations....

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