New Study Proposes Dynamic Capabilities Framework to Replace OLI Paradigm in Disruptive Era

The global business landscape has never been more volatile. Artificial intelligence reshapes industries overnight, digital platforms erode traditional competitive advantages, and geopolitical shocks upend supply chains with little warning. For multinational corporations (MNCs) accustomed to predictable expansion strategies, the environment now feels unrecognizable. A 2025 study published in the Journal of Open Management Sciences (JOMS) argues that the classical theory underpinning global business—the OLI Eclectic Paradigm—has reached its limit. The research offers a multidisciplinary framework rooted in dynamic capabilities, designed specifically for the age of disruptive innovation.

[IMAGE: Graphic showing a timeline of business paradigms from industrial to digital age, highlighting the gap between traditional models and current VUCA realities]

The OLI Paradigm Under Scrutiny: Why It Falls Short

For decades, the OLI paradigm—short for Ownership, Location, and Internalization advantages—served as the dominant explanation for why firms expand internationally. Ownership advantages (patents, brand equity, proprietary technology) gave firms an edge; location factors (natural resources, labor costs, market access) determined where to invest; and internalization benefits explained why firms preferred wholly owned subsidiaries over licensing or joint ventures. The theory, developed by John Dunning in the late 1970s, worked well in a world of stable trade flows and incremental innovation.

Yet the JOMS study, which employed a qualitative exploratory methodology examining multiple MNC case studies, systematically critiques OLI’s assumptions. “The paradigm treats competitive advantage as static,” the authors write. “It cannot explain how firms reconfigure resources when a disruptive technology suddenly renders their ownership advantages irrelevant.” Consider the rise of platform-based business models: OLI struggles to account for ecosystem competition where value is created through network effects rather than internalized assets. Similarly, the speed of AI-driven innovation means location advantages—once tied to physical infrastructure—now shift rapidly as digital talent clusters emerge and disperse.

The study highlights three fundamental limitations:

• Static assumptions: OLI assumes advantages persist over time; in reality, disruptive innovation erodes them quickly.
• Neglect of ecosystem dynamics: The paradigm focuses on the firm as a standalone entity, ignoring how digital platforms and cross-border partnerships reshape competition.
• Inability to address VUCA conditions: Volatility, uncertainty, complexity, and ambiguity demand adaptability, not strategic rigidity.

[IMAGE: Diagram comparing OLI components (ownership, location, internalization) vs modern challenges like AI, global interconnectedness, and VUCA conditions]

The Core of the New Framework: Dynamic Capabilities in VUCA Environments

The JOMS study proposes a framework built on the concept of dynamic capabilities, first articulated by Teece, Pisano, and Shuen (1997) but significantly extended here. Three core processes define the new model: sensing, seizing, and transforming.

• Sensing refers to a firm’s ability to detect market signals, technological shifts, and emerging customer needs before competitors. In the age of disruptive innovation, sensing requires real-time data analytics, AI-powered trend detection, and decentralized intelligence gathering.
• Seizing involves mobilizing resources to capture opportunities—whether through rapid product development, strategic acquisitions, or forming agile alliances. Seizing demands decision-making speed and tolerance for calculated risk.
• Transforming is the continuous reconfiguration of organizational structures, processes, and culture to align with new realities. This includes shedding obsolete assets, retraining workforces, and redesigning incentive systems.

The study’s methodology—a qualitative exploratory analysis of MNCs across technology, manufacturing, and services sectors—found that firms embedding these three capabilities into their global strategies consistently outperformed peers in volatile markets. One key finding: “adaptability, innovation, and agility are not optional add-ons; they are the new foundational requirements for sustained global success.”

[IMAGE: Visual metaphor of a ship navigating stormy seas with adaptive sails and radar, symbolizing dynamic capabilities]

Case Study Insights: What Multinationals Are Doing Right

The research offers concrete examples of how leading MNCs operationalize dynamic capabilities. A European industrial conglomerate, for instance, deployed AI-powered sensing tools across its global supply chain, reducing response time to component shortages from weeks to hours. Instead of relying on centralized command-and-control, it created regional “innovation pods” empowered to adapt production schedules and sourcing strategies independently. This decentralized agility allowed the firm to maintain production during multiple geopolitical disruptions while competitors stalled.

A North American technology firm exemplified the transforming capability. Facing disruptive competition from a Chinese platform company, it overhauled its entire business model—moving from hardware sales to subscription-based services—within 18 months. This required not only technological reengineering but also cultural change: shifting employees from a “build and sell” mindset to a “listen and iterate” approach. Leadership played a critical role, the study notes, in creating psychological safety that encouraged experimentation.

The research also emphasizes the role of cross-functional innovation teams. One MNC in the study created a “global rapid-response unit” composed of engineers, marketers, and supply chain experts from different regions. This team bypassed traditional silos and could launch localized products in new markets within 90 days—a speed impossible under the old OLI-based structure where location advantages were treated as fixed.

“Firms that embed adaptability, innovation, and agility into their strategies not only survive VUCA environments—they thrive,” the study concludes. The evidence is direct: organizations with high scores on a dynamic capabilities index (developed by the researchers) showed 40% higher revenue resilience during market downturns.

[IMAGE: Infographic showing a multinational corporation’s global network with highlighted nodes of innovation and adaptability, connected by data flows]

Implications for Business Leaders: Building a Resilient Global Strategy

For executives seeking to apply this framework, the JOMS study outlines several actionable recommendations. First, invest in learning infrastructure. Traditional market research cycles are too slow; leaders must deploy AI-driven dashboards that provide real-time visibility into customer sentiment, competitor moves, and regulatory changes across all operating markets. This sensing capability becomes the firm’s early-warning system.

Second, redesign decision-making for speed. The study advises moving away from annual strategic planning toward continuous, agile cycles. Decentralize authority to local or regional units that understand specific market contexts, but maintain coordination through shared digital platforms. This balances global efficiency with local responsiveness—a concept OLI’s location advantage never fully captured.

Third, create a culture of transformation. Dynamic capabilities require organizations to change continuously, which many resist. Leaders should reward experimentation, tolerate failure when it generates learning, and recalibrate performance metrics to include agility indicators (e.g., time to market, ability to pivot). The study warns that “the biggest obstacle to transforming is not technology—it is organizational inertia.”

Fourth, build strategic agility into partnerships. In an era of disruptive innovation, no single firm can own all the capabilities it needs. The framework encourages MNCs to develop flexible ecosystems: alliances that can be formed quickly and dissolved without excessive cost. This stands in sharp contrast to the OLI paradigm’s preference for full internalization.

Finally, rethink location strategy. Location advantages still matter, but the study argues they must be assessed dynamically. A low-cost manufacturing hub may lose its appeal if automation reduces labor intensity; a region with weak formal institutions might become attractive if it offers deep AI talent. Firms should treat location as a portfolio that is constantly rebalanced.

Conclusion: A New Blueprint for Global Business

The JOMS study does not dismiss the OLI paradigm entirely—ownership, location, and internalization remain relevant concepts. But in an age defined by disruptive innovation and VUCA conditions, they are no longer sufficient. The dynamic capabilities framework provides a more complete lens: one that centers on sensing, seizing, and transforming as ongoing processes rather than static advantages.

As the research makes clear, the winners in tomorrow’s global economy will not be the firms with the largest factories or the most patents. They will be the ones that can learn faster, adapt more fluidly, and transform themselves before the market forces them to. For leaders navigating this turbulent era, the message is straightforward: build dynamic capabilities, or risk being disrupted.