Economic Geography Glossary



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Organization of Economic Cooperation and Development (Paris)


Side payments or other commitments made by countries or corporations to secure export orders. In the aerospace industry, companies often have to subcontract parts production and/or to transfer technology in order to receive a purchase order. However, offsets can take many other forms, including barter trade. Lit.: Michael Veseth. Selling Globalization: The Myth of the Global Economy. 1998 (pp.57-9) [HG3881 V396]

The OLI Paradigm

("Eclectic Theory of FDI") [John Dunning, professor emeritus at the University of Reading (UK) and Rutgers University (US)] represents a mix of three different FDI theories = O + L + I, each with a different focus or question:

  1. O = Ownership Advantages (Firm Specific Advantages) address the WHY question [why go abroad?] which suggests that the MNE has one or more "firm specific advantages" (e.g. core competency) which allows it to overcome the costs of operating in a foreign country.

  2. L = Location Advantages (Country Specific Advantages) focus on the WHERE question [locate where?]. The motive to move offshore is to use the firm's competitive advantage/ core competency in conjunction with factor advantages in a foreign country. Through these factors (e.g. labor, land), the MNE makes profits (earns rents) on its firm specific advantages.

  3. I = Internalization Advantages refer to the HOW or organizational question [how go abroad?]. The MNE has various choices of entry mode, ranging from the market (arm's length transactions) to the hierarchy (wholly owned subsidiary). If there is no market or the market functions poorly, transaction costs can be kept in check through internalization.


Organization of Petroleum Exporting Countries

Open space land

land within or outside an urban area to be set aside, maintained or cleared for recreation or beautification.

Opportunism (Williamson):

Refers to the suggestion (widely associated with transaction cost analysis) that a decision-maker may unconditionally seek his/her self-interests, and that such behavior cannot necessarily be predicted. This proposition extends the simple self-interest seeking assumption to include "self-interest seeking with guile" thereby making allowance for strategic behavior. (Williamson, 1975, p.26; 1986, p.12 5); [examples: strategic manipulation of information or misrepresentation of intentions; false or empty, i.e. self-disbelieved, threats or promises, Goffman, 1969] has profound implications for choosing between alternative contractual relationships. Opportunistic behavior contrasts with stewardship behavior which involves a trust relation in which the word of a party can be taken as his bond. (1975, p.26) [Transaction Cost Resources]

Opportunity cost

The cost of an activity in terms of foregone or sacrificed next best alternative uses of the assets involved. Can also be formulated as "amount of product B we must give up to produce a unit of product A." (Stutz, p.38)



Conceptualization in inter-organizational theory. A "focal organization" interacts with other organizations in its environment, i.e. with its organization set. The relations between focal organization and organization set are conceived as being mediated by (1) the role sets of boundary personnel, (2) flow of information; (3) flow of products and services; (4) flow of personnel.

(Cyert & March, Behavioral Theory of the Firm, 1963)


International sourcing, the allocation of particular (usually labor- intensive) operations in a transnational corporation's internally integrated vertical production system to its own overseas affiliates; (Dicken, Global Shift, p.188) as different from international subcontracting which implies a relationship between independent firms.

The contracting and buying of parts and services from outside vendors rather than producing them or "doing them" in-house. Outsourcing has increased in the auto- and other industries in part due to the possibility of saving labor cost and avoiding union contracts. However, restrictions on outsourcing are now occasionally written into union contracts.

Advantages and Disadvantages of Outsourcing
Advantages: Disadvantages:
  • Lower Costs (based e.g. on lower wages, less benefits, newer technologies in outside companies).
  • Management Focus: ability to delegate (externalize) managerial attention and leave worries to vendors.
  • Saving Capital: Ability to invest own capital in more core-oriented facilities.
  • Loss of Quality Control or additional Costs for such Control
  • Loss of Control over Continued Development for Outsourced Components (may lead to competitive disadvantages in the future)
  • Increased Contention with Work Force (fearing loss of jobs)
based on: New York Times, April 11, 1996, p.C4

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