Analysis of IBM's FDI Location Decisions Through the OLI Framework

This essay examines the role of the OLI (Ownership, Location, and Internalization) framework in IBM's foreign direct investment (FDI) decisions. It begins by defining international business and introducing IBM, then delves into how the OLI framework assists IBM in making informed FDI location choices. The essay evaluates the components of the OLI model, including ownership advantages, location advantages, and internalization advantages, within the context of IBM's global operations. It highlights how IBM leverages these advantages for effective international expansion, skilled labor, and cost-effective business practices. The conclusion emphasizes the significance of the OLI framework in IBM's international business strategy and its contribution to the company's overall growth and value. Desklib provides a platform to access this and many other solved assignments for students.

International Business

Table of Contents
INTRODUCTION TO OLE AND IBM..........................................................................................3
MAIN BODY...................................................................................................................................3
‘The OLI framework helps IBM to make better Foreign Direct Investment (FDI) locations
decisions.’....................................................................................................................................3
OLI and IBM Discussion............................................................................................................3
Evaluation...................................................................................................................................4
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION TO OLE AND IBM
International business defined as the trade of commodities, services, capital, technology and
the knowledge among various national boundaries and the global transnational scale. This
basically includes the transactions of products and services between two or more nations(Bala,
2021). Microsoft is the chosen business organisation for this essay. The aim of the essay is to
analyse the OLI framework which helps IBM to have better Foreign Direct Investment(FDI)
locations decisions.
MAIN BODY
‘The OLI framework helps IBM to make better Foreign Direct Investment (FDI) locations
decisions.’
Microsoft is the American technology company which is founded by Bill Gates in 1975. The
core business of Microsoft is to sell computing devices, software, cloud systems and services,
and many other products to consumers & businesses. They are basically operating its business in
five segments such as windows and windows live division, online service division, server and
tool, Microsoft business division & entertainment & devices division. Microsoft is the
technology company which develops and supports a range of software products which was
discussed above(Jha, Dhanaraj and Krishnan, 2018). The vision of the Microsoft is to “to help
people and businesses around the world realize their full potential”. The concept presented in this
vision statement is on how the company is establishing the positive changes to its potential
customers.
OLI and IBM Discussion
Eclectic Paradigm is also called as the ownership, location, OLI model, is a three tiered
evaluation framework that is used by the companies when they are attempting to determine the
benefits to pursue foreign direct investment. It is assumed by the paradigm that institutions will
avoid transactions in open market and when the cost of the completing the same actions or it
carries a lower price. This respective model is based on the internationalization theory & was
introduced in 1979 by Scholar John H. Dunning(Martek, 2022).

Evaluation
There are various elements of this model out of which ownership advantages is one of
them that include proprietary information and certain ownership rights of an organization. This
basically includes the proprietary information & certain ownership rights of an organization.
These basically consist of copyright, patent rights, branding and management of current skills.
Ownership advantages are basically typically analyzed to be intangible. This further give the
competitive benefits that includes the reputation for reliability. Another element is location
advantage; it is the another necessary good. Organizations must compare whether there is a
comparative advantage in order to perform the specific functions with the specific country. These
are fixed in nature, such aspects may apply to the availability and the costs of resources, when
functioning on specific location in comparison to another. Location advantages is defined as a
natural or created resources, but either way they are basically immobile, requiring a better
partnership with the international investors in such location and can be utilized to the full benefit.
Finally, international advantages, signal when it is better for the company to produce a specific
product in-house or contracting with a third-party. This can be more cost effective for the
business. When the Microsoft outsource the production, this may require negotiating the
outsourcing route which can only make the financial sense. Foreign company can also offer the
high degree of local market knowledge or high skilled employees who can offer better product.
In context to Microsoft, OLI models helps them for the effective expansion of the
business in the international market and also ensure whether the company is having the
advantage of every element or not in respect the foreign direct investment. Microsoft is having
the ownership advantage as there are leading shareholders across the world and they are having
the higher business skills by which they are getting good return on scale. Moreover, the company
is having the location advantage as they are operating in 190 countries out of which they are
having the better consideration to the market so that they can ensure the good revenue with the
help of foreign direct investment (Jaworek, Karaszewski and Szałucka, 2021). They are getting
skilled employees and innovative in the foreign market which is favorable to them. Lastly,
Microsoft is having the international advantages as there are many shareholders as this is cost
effective which helps them to expand its business in the international market with the help of
foreign direct investment.

Advantages of OLI is that foreign direct investment is all around the world and this initiate
own capital divisions funding. There are great competitive advantages as there are limited
amount of direct competitors such as Apple or Google. Sometimes buys firms in order to keep
gem out of their rivals. This is helps in getting the big amount of cheap labor such as in India and
China. They can get the tax advantages such as in Ireland. They also have the skilled labor with
high degree of tacit knowledge in US and Europe. Microsoft is having the big amount of licenses
and patents. They are having exploitation of their competencies which are well managed and
organized. The structure of Microsoft is divisional product-type organizational structure n
engineering and functional business groups. While Microsoft become more hierarchical as the
organization has grown which is managing hybrid approach between the senior management and
the various functional business groups.
It is evaluated from the above discussion that OLI framework helps the Microsoft to
comply with the foreign direct investment as there are various advantages of ownership
advantages which helps the company to effectively continue with the available services so that
they can rightly ensure the overall growth of the business in the target market(Budde-Sung and
Peacock, 2018). Microsoft is further operating with the location advantages as they are getting
proper raw material in term of its innovative employees and they launch the n technology in
order to meet the market demand. Lastly, they are gaining the international advantage in which
they are operating its business in many locations which helps them to expand its business in the
large market. Microsoft is getting the advantages from all of the element as they are conducting
the business which is helpful for the overall growth and better execution with the foreign direct
investment.
CONCLUSION
It is concluded from the above essay that international business plays significant role in the
expansion of any business organisation. With the effective analysis of Eclectic Paradigm, OLI
framework help them to operate the business in the international market. It is to inform that
ownership, location and international advantages helps the company to expands its business in
the international market and effectively compliances with the foreign direct investment in order
to increase the overall growth and value of the company.

REFERENCES
Books and Journals
Bala, R., 2021. The Impact of an Executive High Performance Work System on Business Model
Innovation (Doctoral dissertation, The University of Texas Rio Grande Valley).
Budde-Sung, A. and Peacock, T.A., 2018. Can’t take the heat? Climate and foreign subsidiary
locations. critical perspectives on international business.
Jaworek, M., Karaszewski, W. and Szałucka, M., 2021. Ownership-Based Entry Mode Strategies
and Limiting Factors of Foreign Direct Investment Undertaken by Polish
Enterprises. Journal of East European Management Studies, 26(3), pp.440-468.
Jha, S.K., Dhanaraj, C. and Krishnan, R.T., 2018. From arbitrage to global innovation: Evolution
of multinational R&D in emerging markets. Management International Review, 58(4),
pp.633-661.
Martek, I., 2022. International Construction Management: How the Global Industry Reshapes
the World. Routledge.