SMEs Entry into China Essay Example | Topics and Well Written Essays - 500 words

SMEs Entry into China - Essay Example This proposal is designed to test the hypothesis that an SME intending to internationalize towards China is expected to acquire certain definite advantages, namely ownership, location, and internationalization.  Dunning’s paradigm holds the chief proposition that any international firm is required to own certain kind of advantage over local firms prior to its engagement in international production (Dunning, 1988). These advantages are namely ownership, locational and internationalization (Dunning, 1988). Accordingly, the theory has been referred to as the OLI-paradigm: Ownership advantages, Location-specific Variables and Internationalization-incentive advantages (Grillet, 2003b).  Ownership Advantages – â€Å"The ownership advantages are unique to a foreign firm over its local competitors† (Chowdury, 2006). It arises out of its superior technology, management systems, privilege access to finance or raw materials, greater market power, etc. The theory of the ownership advantages reveals that those firms which possess competitive advantages over foreign firms in their domestic markets to sell certain goods or services can move towards internationalization (Grillet, 2003b).  Locational Advantages – According to the model, a firm can proceed in foreign production on perceiving its ability to merge mobile intermediate goods from the home country with immobile factor endowments, or other intermediate goods in another country (Grillet, 2003b). Factors supporting one or another country are the location-specific variables, for example, the host country being conducive to local products such as local demand, cheap or well-trained labor, natural resources etc (Grillet, 2003b).  Internationalization Advantages – The transfer of a firm’s ownership advantages across borders within its organizational structures is referred to as internationalization (Grillet, 2003b).