GLOBAL ALLOCATION OF PRODUCTION SEEN IN A DYNAMIC PERSPECTIVE

Teit Lüthje
University of Southern Denmark

ABSTRACT

The study provides an understanding of how the advantages of locating production in a
global context change over time. Initially, the author of this study clarifies the conditions that must
be fulfilled before a company locates production in other countries by elaborating on Dunning’s
eclectic paradigm, the so-called OLI-model. In continuation of this, we clarify and discuss
different strategies for locating production in a global context, and that the choice of globalization
strategy may affect the choice of location.
The key message of the study is how the advantages of locating production in a global
context changes with the countries’ economic development and how the main motive of locating
production becomes proximity to the market and/or drawing on knowledge.
These arguments can be more important than wage differences and therefore a location
may be chosen even though wages are higher than in other countries. Furthermore, we clarify
how cost savings seen in a dynamic perspective affect the choice of relocating production from
one country to another country. Finally, the economic development in China and Africa is used as
illustrative cases.

Keywords: Global allocation of production; economic development; proximity to the market; drawing on
knowledge; cost savings