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What does the OLI Paradigm propose to explain

What does the OLI Paradigm propose to explain? Define each component and provide an example of each

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The OLI Paradigm is a theory of economics which states that transactions are made within an institution if the transaction costs on the free market are higher than the internal costs. The paradigm proposes to explain how a firm maximizes its investment in a foreign market. Under this the advantages must benefit the heads of an organization, the business must profit from the location and there must also be internal benefits to the business. The three components are:

Ownership advantages: These include things like trademarks, production technique and returns to scale. Ownership advantages can be transferred within the multinational organization at low cost. This can either lead to higher revenues and/or lower costs that can reduce the operational costs generated from a foreign location.

If a foreign organization is to be successful in another country it must have some sort of an advantage that vanquishes the costs of operating in a foreign market. The firm must be able to ...

Solution Summary

What OLI paradigm proposes to explain is determined.