The paradigm offers a unique pattern for unifying foreign-owned activities. The model suggests that three types of activities drive multinational activities. These include internalization, location, and ownership. This model is also termed as OLI model. O refers to ownership advantages in this model, L refers to location advantages, and I refers to internalization of advantages (Dunning, 2015).
The essence of this business assignment essay is that it explains how ownership advantages didn’t support a firm to overcome challenges in the host market (O→L) in case of Amazon’s exit from China.
The cause of Amazon’s Exit from China
Amazon is not having robust relationship with its host country China and the primary reason behind this fact is that the market share of the company fell from 15% to 6% in in the last decade (Li, 2019). The major reason that the country has its own online shopping website like Alibaba and jd.com. These are the local online shopping websites in the country and they accumulate more than 75% market share in the country (Zeng, 2016). In the same manner, another online shopping website eBay decided to move out of China and the major reason behind this fact was that the company was not making significant profit in China (Dunning, 2015).
Therefore, Amazon has decided to follow a similar model and it has decided to move out of China. However, the ownership advantages are not supporting the company in its exit from China.
Various ownership advantages are creating issues or challenges for Amazon in China. Assets of the company are the most significant ownership advantages in this regard. The company has various assets in the company such as its logistic services, cloud platforms, employees of the company, and its market shares. Amazon has highly skilled IT staff in China managing its online services. These assets have a direct impact on its success in China as they are helping the company to improve its market position using advanced technologies and the company has to take care of its stakeholders in this regard for preventing its assets. In the same manner, the ownership advantages of the company are not supporting it to overcome its challenges or issues in China (Zeng, 2016). The most significant ownership advantage for a company is to its competitive power that comes from combining various business units in different nations. For instance, Toyota and other companies are using this strategy for using their ownership advantages in the best manner for overcoming significant challenges or issues. The strategy is helping them improve their number of customers. However, Amazon is unable to do that in China and it is the major reason that the company is facing issue of reduced sales and profit in the market and it is unable to become successful in China.
Organizational culture of a company is a significant ownership advantage and it can help a company in becoming successful (Zeng, 2016). However, the organizational culture of Amazon in China is not supporting the company to tackle its significant issues or challenges as the company lacks innovation and it is unable to manage its workplace diversity in the best manner. The primary reason behind this context is that working in China is different from working in USA and other nations around the globe as language, culture, and market conditions of China are different from the USA. The major barrier in this regard is Chinese language (Li, 2019). The company has people from different parts of the world and it is unable to handle its workplace diversity in the best manner in order to take advantage from skills and abilities of its staff members. Moreover, the company is unable to use skills and experience of its staff for dealing with managerial issues or challenges in China. The strategy that the company used in this regard was to offer its services in local as well as in the international language.
Amazon’s Exit from China will be a huge loss for both Amazon and China. Therefore, it is right to say that the ownership advantages of Amazon in China are not helping the company in deal with its issues or challenges in the host nation. Leadership is another ownership advantage and the company is unable to have robust management or leadership for tackling its issues or challenges in the best manner. For instance, leadership can help a company deal with its managerial issues and in the same manner, it can help Amazon by providing a direction for it to work in the country.
It is important for Amazon to understand its external-internal interplay because both internal and external factors are adding to challenges of the company and making it difficult for becoming successful in the host country. Therefore, the company has to deal with its challenges or issues in this regard by conducting a SWOT analysis for targeting its internal issues and using PESTEL analysis for resolving its external challenges. Amazon’s exit from China may happen soon if these issues are not dealt with in the right manner. The interplay of external and internal factors or environments of the company can make it successful in surviving its current challenges if its management is sincere with the company.
Dunning, J., 2015. The eclectic paradigm of international production: a restatement and some possible extensions.. The Eclectic Paradigm (pp. 50-84). Palgrave Macmillan, London..
Li, S. E.-S. M. &. H. J. F., 2019. Towards an understanding of the nature of dynamic capabilities in high-velocity markets of China.. Journal of Business Research, 97, pp. 212-226..
Zeng, J. a. G. K., 2016. Competitive dynamics between multinational enterprises and local internet platform companies in the virtual market in China.. British Journal of Management, 27(3), pp. 479-496.