Caves (1971, 1974) and Kindleberger (1984) further extended the industrial organization
theory of FDI. Their theories emphasize the behavior of firms that deviate from perfect competition
as the determinants of FDI. According to their perspective, multinational companies (MNCs) face
disadvantages imposed by both geographic and cultural distance in comparison to domestic firms.
In order for a firm to undertake FDI in a foreign country, it must possess some special ownership
advantage over potential domestic competitors.