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The eclectic paradigm as an envelope for economic and busine

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Ratisil Pumaneratkul

on 5 May 2014

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Transcript of The eclectic paradigm as an envelope for economic and busine

The eclectic paradigm as an envelope for economic and business theories of MNE activity
John H. Dunning
Florian Nagiller
Ratisil Pumaneratkul

1. Introduction


Ownership advantages
(trademark, production technique, entrepreneurial skills)
the competitive advantages of the investing firms, the
they are likely to be able to
in, or
, their foreign production.


Location advantages
(existence of raw materials, low wages, special taxes or tariffs)
the immobile, the
firms will choose to
their O specific advantages by engaging in FDI
Internalization advantages (advantages by own production rather than producing through a partnership arrangement)
the net benefits of internalizing cross-border intermediate product markets, the
likely a firm will prefer to
foreign production
itself rather than license the right to do so.
FDI= O + L + I
Combining our knowledge of the individual parameters of the OLI paradigm. Thus, it may be hypothesized that some sectors, e.g. oil, are likely to generate more fdi than others
It is possible to predict that the significance of outward fdi will be greater for some countries, e.g. Switzerland and the Netherlands, than for others, e.g. Russia and India
2. The ownership paradigm
Some would argue that in traditional neoclassical theory, in which the firm is a ‘black box’, no fdi is possible
The relative significance of O specific advantages has changed over the past two decades, as markets have become more liberalized.
At the turn of the millenium, the emphasis is more on their capabilities to access and organize knowledge intensive assets from throughout the world
We set out some of the models and hypotheses which have been sought to explain the origin, nature and extent of O specific advantages. We divide these into
Those which view such advantages as the income generating resources and capabilities possessed by a firm,
at a given moment of time
, i.e.
static O advantages
Those which treat such advantages as the ability of a firm, to sustain and increase its income
generating assets over time
, i.e.
dynamic O advantages
3.The locational sub-paradigm
How the emergence and growth of the cross-border activities of firms might be explained, and how locational advantages constitute to “competitive advantage”?
Explanations of previous theories and their limitations
The question remains: what determines where to locate a particular fdi
Recent more dynamic approaches
Locational advantage = to “offer a distinctive and non-imitatible set of location bound created assets”
The role of the institutional framework
Where to locate?
where immobile assets constitute to “competitive advantage”
4. The internalization paradigm
The question remains: why firms choose to engage in fdi rather than buy or sell intermediate products in some other way?
The Orthodox internalization theory’s explanation
3 criticisms – of a static theory:
focuses only on functions of a firm that are related to transaction and short run profit maximisation as predominant motive
focuses only optimizing a firm’s existing assets and neglects potential of creating future assets
internationalization of business does not ensue equity ownership
OLI integrates ‘production based’ and ‘innovation based’ along with the ‘transaction based’ theory to offer a more sophisticated explanation (context specific)
Complementary, rather than substitutable
Paradigm shift may be required when new phenomena arise which cannot be addressed within the existing paradigm
Three criteria for a successful paradigm:
The whole is more than the sum of its parts
Ability to offer some generic hypotheses and predictions
Must address relevant problems and provide satisfying conceptual structure for resolving them
Embracing asset augmenting and alliance related cross-border ventures in analysis as the core strength of eclectic paradigm analytical framework
Full transcript