A Knowledge: Learning-Based Perspective on Foreign Direct Investment and the Multinational Enterprise

Abstract

We apply insights from Edith Penrose’s work to extant theories of Foreign Direct Investment (FDI) and the multinational enterprise (MNE) as developed by John Dunning’s Ownership, Location, Internalization (OLI) Paradigm, to propose a novel knowledge-learning-based theory of FDI and the MNE. We suggest that the knowledge/learning-based approach has important implications with regard to the nature of, and the interactions between, O, L and I, and that it helps endogenize and integrate the three elements of Dunning’s triad in the context of a dynamic, strategic and entrepreneurial perspective of the MNE. The learning-based perspective adds a cognitive dimension to the MNE and OLI. It supports a forward looking, synchronic decision making view, that may lead to apparently sub-optimal decisions, taken in view of anticipated changes, alongside strategic behaviour, aiming to effect such change, once decisions have been reached. It also helps explain new strategies of MNEs, which are harder to appreciate within the conventional paradigm.