JH.Dumning/Intermational Business Review 9000)163-190 to industry or ified earl and related to the kinds of competitive advantages(as ident s seek attain or su nges owledge about M have to a see ing (MS ）an fdi th of he king (RS O advantages of the investing firms they still help to explain a major part of first-time fdi,particularly in developing countries (Dunning,1999). However,one of the key characteristics of the last two decades has been the increasing significance of fdi based on the possession of,or need to acquire,dynamic O advantages.Thus,rationalized or efficiency seeking (ES)fdi is only viable if:(a) the investing firm is already producing in at least one foreign country and(b)both intermediate and final product,trade is relatively unimpeded by natural or artificial cross-border barriers.Strategic asset seeking(SAS)fdi is dependent on intellectual capital being located in more than one country.and that it is economically preferable for firms to acquire or create these assets outside,rather than within,their home coun To successfully explain dynamic and alliance related O specific advantages,each of the ories of fdi identified in Tables 1 and 2 requires s ation.Thu s the hased the eds e the ntent and sign cance ting resources and capab of the rupgrade these advantages. to ha amness and influence the quality d price of complementary assets,and to effciently coordinate these with their own innovating com- petencies and 3.their ability to locate their value added activities in countries and regions which offer the optimum portfolio of immobile assets,both for creating or acquiring new O specific advantages,and for exploiting their existing advantages.Inter alia such immobile assets may reflect the bargaining and negotiating skills of MNEs in their dealings with foreign governments(Rugman Verbeke,1998). While accepting much of the content of resource based theory,the evolutionary theory of the firm pays more attention to the process or path by which the specifi O advantages of firms evolve and are accumulated over time.In contrast (or in addition)to internalization theory,it tends to regard the firm as an innovator of created assets rather than anexus of treaties'It i is,by its nature,a dy mic theory which.like the accepts the div sity of co ncies betwe unlike the latter.it focus on the fin 's lo and nd its plid ng termoth f eg stablishe 1997.Fos.Kmudsen. e.ones (Nelson nter.19 elson.I M ntgomery,1995)】 wn to as the unit of analysis,cor mporary organiz tiona such as Prahalad and Doz (1987).Doz et al.(1997).Bartlett and Ghoshal (1989,1993)are paying increasing attention to the harnessing,leveraging,processing and deployment of knowledge based assets as a core competence.While the subjec J.H. Dunning / International Business Review 9 (2000) 163–190 173 to industry or country; and related to the kinds of competitive advantages (as ident￾ified earlier) which firms seek to attain or sustain. While, over the past two decades, changes in the world economic scenario and knowledge about MNE activity have led to a relative decline in market seeking (MS) and resource-seeking (RS) fdi — both of which tend to be based on the static O advantages of the investing firms —, they still help to explain a major part of first-time fdi, particularly in developing countries (Dunning, 1999). However, one of the key characteristics of the last two decades has been the increasing significance of fdi based on the possession of, or need to acquire, dynamic O advantages. Thus, rationalized or efficiency seeking (ES) fdi is only viable if: (a) the investing firm is already producing in at least one foreign country and (b) both intermediate and final product, trade is relatively unimpeded by natural or artificial cross-border barriers. Strategic asset seeking (SAS) fdi is dependent on intellectual capital being located in more than one country, and that it is economically preferable for firms to acquire or create these assets outside, rather than within, their home coun￾tries. To successfully explain dynamic and alliance related O specific advantages, each of the particular theories of fdi identified in Tables 1 and 2 requires some modifi- cation. Thus, the resource based theory needs to reexamine the content and signifi- cance of existing resources and capabilities of the firm in terms of 1. their ability to sustain and/or upgrade these advantages, 2. their ability to harness and influence the quality and price of complementary assets, and to efficiently coordinate these with their own innovating com￾petencies and 3. their ability to locate their value added activities in countries and regions which offer the optimum portfolio of immobile assets, both for creating or acquiring new O specific advantages, and for exploiting their existing advantages. Inter alia, such immobile assets may reflect the bargaining and negotiating skills of MNEs in their dealings with foreign governments (Rugman & Verbeke, 1998). While accepting much of the content of resource based theory, the evolutionary theory of the firm pays more attention to the process or path by which the specific O advantages of firms evolve and are accumulated over time. In contrast (or in addition) to internalization theory, it tends to regard the firm as an innovator of created assets, rather than a ‘nexus of treaties’. It is, by its nature, a dynamic theory, which, like the resource based theory, accepts the diversity of competencies between firms; however, unlike the latter, it focuses on the firm’s long term strategy towards asset accumulation and learning capabilities, and its implications both for established routines and the development of new ones. (Nelson & Winter, 1982; Nelson, 1991; Teece et al., 1997; Foss, Knudsen, & Montgomery, 1995). Zeroing down to management as the unit of analysis, contemporary organizational scholars, such as Prahalad and Doz (1987), Doz et al. (1997), Bartlett and Ghoshal (1989, 1993) are paying increasing attention to the harnessing, leveraging, processing and deployment of knowledge based assets as a core competence. While the subject