Dunning's Eclectic Paradigm

Page 1 of 2

Dunning's Eclectic Paradigm

By | May 2012
Page 1 of 2
Dunning Eclectic Paradigm
Offers a unifying framework for determining the extent and pattern of foreign owned activities, it posits that multinational activities are driven by three sets of advantages such as ownership, location and internalization. This had later been termed as (OLI) model. It is the configuration of these sets of advantages that either encourages or discourages a firm from undertaking foreign activities and becoming an MNE. Ownership advantages are advantages that arise from the accumulation of intangible assets, technological capacities/innovations. Are related to firm specific advantages, this includes firm size, knowledge, marketing ability and industry type. It addresses the why question, why does a firm need to go aboard? This suggests that an MNE has one or more ‘firm specific advantages’ which allows a firm to overcome the costs and other impediments of operating in a foreign country. Location advantages (country specific advantages) are advantages that arise from using resource endowments or assets that are tied to a particular foreign location and that a firm finds valuable to combine with its own unique assets (such as the firm’s technological, marketing or management capabilities). It focuses on the where question, where to locate? The motive to move offshore is to use the firm’s competitive advantage in conjunction with factor advantages in a foreign country. Dunning suggest that in order to exploit such foreign resource a firm must undertake FDI. Such as oil and other minerals which are by their character specific to certain locations. Example, oil is located in order to combine their technological and managerial capabilities with this location specific resource. Internalization advantages are factors associated with a firm deciding to keep the production of a good or service within the firm rather than outsourcing it to other firms. It refers to the how question, how to go aboard? If there is no potential market or if the...