Linking ownership advantages, location advantages and firm strategies: an extension to OLI model of foreign direct investment

Dunning's ownership-location-internalization (OLI) paradigm is one of the earliest and most influential models that explain the phenomenon of foreign direct investment (FDI), However, partly due to its heavy focus on ownership advantages to the neglect of location advantage and partly because of the ignorance of the heterogeneous strategic motivations of FDI, the paradigm failed to explain many examples of upstream FDI entering the US and EU (initially from Japan and later from Asian newly industrialising economies) without substantial ownership advantages compared to the incumbent firms, This chapter aims to explain these seeming anomalies by developing a conceptual framework that extends the OLI model to link ownership advantages, location advantages and firm strategies together, In such a framework, ownership advantages are seen as a pre-condition as well as a product of FDL By incorporating firm strategies as the fourth condition of FDI, our framework proposes that it is the ex ante firm strategies that lead to the ex post different configuration of ownership and location advantages, The framework helps us to understand that it is the match between the heterogeneous strategic motives of firms and the location-specific advantages that explains many upstream Asian FDI entering the US and EU.