Int. J. of the Economics of Business, Vol. 8, No. 2, 2001, pp. 173 ± 190
The Eclectic (OLI) Paradigm of International Production: Past, Present and Future JOHN H. DUNNING
ABSTRACT This article describes the origins, and traces the subsequent evolution of the eclectic paradigm from the mid-1950s to the present day. It does so in the light of the changing characteristics of MNE activity and of the global economic scenario. The article concludes by asserting that the eclectic paradigm still remains a powerful and robust framework for examining contextual specific theories of foreign direct investment and international production. Key words: Eclectic paradigm; FDI; MNEs; Strategy; International production; Alliances. JEL classifications: F21, F23, M21.
1. Its Origins Although the eclectic paradigm (or the eclectic theory as it was initially called) of international production was first put forward by the present author at a Nobel Symposium in Stockholm in 1976, its origins can be traced back to the mid-1950s. At that time, I was writing my PhD thesis, later to be published as a book (Dunning, 1958), on US direct investment in British manufacturing industry. Earlier research by Rostas (1948), Frankel (1955) and some Anglo ± American study teams1 had shown that the labour productivity in US manufacturing industry was, on average, 2 to 5 times higher than that in UK industry. The question this fact posed in my mind was: was this difference in productivity a reflection of the superior indigenous (and immobile) resources of the US (cf. the UK) economy; or was it due to the more proficient way in which the managers of US firms (cf. UK firms) harnessed and organised these resources? ± a capability which, I argued, at least to some extent, might be transferable across national boundaries. This article draws on various past contributions of the author, but most particularly on those of Dunning (2000a and b). Professor J.H. Dunning, Holly Dell, Satwell Close, Rotherfield Greys, Henley-on-Thames, Oxon RG9 4QT; fax: + 44 (0)1491 628 902 International Journal of the Economics of Business ISSN 1357-1516 print/ISSN 1466-1829 online 2001 Taylor & Francis Ltd http://www.tandf.co.uk/journals DOI: 10.1080/13571510110051441
J. H. Dunning
The hypothesis of my thesis then was, if the superior productivity was entirely managerially related, US manufacturing affiliates in the UK should perform at least as well as their parent companies, and fare considerably better than their indigenous competitors. This I identified as the ownership-specific effect, as the productivity differences were presumed to rest on the spatially transferable intangible assets of the parent companies. If, however, the US affiliates in the UK recorded no better performances than their UK competitors, and hence, much poorer than that of their parent companies, I hypothesised that this would be due to the non-transferable (i.e. immobile) characteristics of the US economy. This I called the location specific component of any productivity differential. As might be expected, I discovered that US affiliates were not as productive as their parent companies, but were more productive than their local competitors. This then suggested that, in the 1950s, at least, Anglo ± American productivity differences were partly explainable by location (L) and partly by ownership (O) specific characteristics. However, my study omitted to ask a follow-up question, namely, to what extent was the origin of the O advantages of US firms themselves home country specific? Neither did it attempt to distinguish between those O advantages that arose as a consequence of US direct investment in the UK, and those that the US firms possessed prior to engaging in foreign production. I took up the theme of ownership and location advantages again in two papers written in the early 1970s. The first (Dunning, 1972), concerned the likely impact of Britain’s membership of the European Common Market...
References: Aliber, R.Z., ª A Theory of Foreign Direct Investment,º in C.P. Kindleberger, ed., The International Corporation. Cambridge, Mass.: MIT Press, 1970, pp. 17± 34. Aliber, R.Z., ª The Multinational Enterprise in a Multiple Currency World,º in J.H. Dunning, ed., The Multinational Enterprise. London: Allen & Unwin, 1971, pp. 49± 56. Almeida, P., ª Knowledge Sourcing by Foreign Multinationals: Patent Citation Analysis in the US SemiConductor Industry,º Strategic Management Journal, Winter special issue, 1996, 17, pp. 155± 65. Bellak, C., The Investment Development Path of Austria. Vienna, Vienna University of Economics, 2000 (mimeo). Buckley, P.J. and Casson, M.C., The Future of the Multinational Enterprise. London: Macmillan, 1976. Buckley, P.J. and Casson, M.C., ª Models of the Multinational Enterprise,º Journal of International Business Studies, 1988, 29(1), pp. 21± 44. Buckley, P.J. and Castro, F.B., ª The Investment Development Path: The Case of Portugal,º Transnational Corporations, 1998, 7(1), pp. 1± 15. Chen, T.J., Network Resources for Internationalisation, The Case of Taiwanº s Electronic Firms. Taipei National Taiwan University, 2000 (mimeo). Dalton, D.H. and Serapio, M.G., Globalizing Industrial Research and Development. Washington, DC: US Department of Commerce, Office of Technology Policy, Asia Pacific Technology and Programs, October 1995. Dunning, J.H., American Investment in British Manufacturing Industry. London: Allen & Unwin, 1958. Dunning, J.H., The Location of International Firms in an Enlarged EEC. An Exploratory Paper. Manchester: Manchester Statistical Society, 1972. Dunning, J.H., ª The Determinants of International Production,º Oxford Economic Papers, 1973, 25, pp. 289± 336. Dunning J.H. ª Explaining the International Direct Investment Position of Countries: Towards a Dynamic or Developmental Approach,º Weltwirtschaftliches Archiv, 1981, 119, pp. 30± 64 Dunning, J.H., Explaining International Production. London: Unwin Hyman, 1988. Dunning, J.H., Multinational Enterprises and the Global Economy. Wokingham, England and Reading, Mass.: Addison Wesley, 1993a. Dunning, J.H., The Globalization of Business. London and New York: Routledge, 1993b. Dunning, J.H., ª Whatº s Wrong ± and Right ± With Trade Theory,º International Trade Journal, 1995a, 9(2), pp. 153± 202. Dunning, J.H., ª Reappraising The Eclectic Paradigm in the Age of Alliance Capitalism,º Journal of International Business Studies, 1995b, 26(3), pp. 461± 93.
The Eclectic (OLI) Paradigm of International Production
Dunning, J.H., ª The Geographical Sources of Competitiveness of Firms: The Results of a New Survey,º Transnational Corporations, December 1996, 5(3), pp. 1± 29. Dunning, J.H., Alliance Capitalism and Global Business. London and New York: Routledge, 1997. Dunning, J.H., ª The Eclectic Paradigm of International Production; A Personal Perspective,º in C.N. Pitelis and R. Sugden, eds, The Nature of the Transnational Firm. London and New York: Routledge, 2000a, pp. 119± 39. Dunning, J.H., ª The Eclectic Paradigm as an Envelope for Economic and Business Theories of MNE Activity,º International Business Review, 2000b, 9(1), pp. 163± 90. Dunning, J.H., ª Relational Assets, Networks and International Business Activity,º University of Reading Discussion Papers in International Investment and Management, no. 288, June 2001. Dunning, J.H. and Dilyard, J., ª Towards a General Paradigm of Foreign Direct and Foreign Portfolio Investment,º Transnational Corporations, 1999, 8(1), pp. 1± 52. Dunning, J.H. and Narula, R., ª The R&D Activities of Foreign Firms in the US,º International Studies in Management and Organisation, 1995, 25, pp. 39± 73. Dunning, J.H. and Narula, R., eds, Foreign Direct Investment and Governments. London and New York: Routledge, 1996. Dunning, J.H., Kim, C. and Lin, J.D., ª Incorporating Trade Into the Investment Development Path: A Case Study of Korea and Taiwan,º Oxford Development Studies, 2001 forthcoming. Enright, M., ª Globalization, Regionalization and the Knowledge Based Economy in Hong Kong,º in J.H. Dunning, ed., Regions, Globalization and the Knowledge Based Economy. Oxford: Oxford University Press, 2000, pp. 131± 69. Foss, N.J., ª Research in Strategy, Economics and Michael Porter,º Journal of Management Studies, 1996, 33(1), pp. 1± 24. Frankel, M., ª Anglo-American Productivity Differences ± Their Magnitude and Some Causes,º American Economic Review, May 1955, 45, pp. 94± 112. Gray, H.P., Global Economic Involvement. Copenhagen: Copenhagen Business Press, 1999. Haley, C.V., Lan, L. and Toh, M.H., ª Singapore Incorporated: Reinterpreting Singapore’s Business Environment Through a Corporate Metaphor,º Management Decision, 1996, 34(9), pp. 17± 28. Helpman, E., ª A Simple Theory of Trade with Multinational Corporations,º Journal of Political Economy, 1984, 92, pp. 451± 71. Helpman, E., ª Multinational Corporations and Trade Structure,º Review of Economic Studies, 1985, 52, pp. 443± 58. Hirschman, A., Exit, Voice and Loyalty: International Differences in Work-Related Values. Cambridge, Mass.: Harvard University Press, 1970. Hutton, G., We Too Can Prosper. London, Allen & Unwin, 1953. Hymer, S., The International Operations of National Firms: A Study of Direct Investment. Cambridge, Mass.: MIT Press, 1960. Hymer, S., The International Operations of National Firms: A Study of Direct Investment. Cambridge, Mass.: MIT Press, 1976. Knickerbocker, F.T., Oligopolistic Reaction and the Multinational Enterprise. Cambridge, Mass.: Harvard University Press, 1973. Kogut, B., ª Platform Investments and Volatile Exchange Rates: Direct Investment in the US by Japanese Electronic Companies,º Review of Economics and Statistics, May 1996, 78(2), pp. 221± 31. Kojima, K., Direct Foreign Investment: A Japanese Model of Multinational Business Operations. London: Croom Helm, 1978 Kojima, K., ª Macro Economic Versus International Business Approaches to Foreign Direct Investment,º Hotosubashi Journal of Economics, 1982, 23, pp. 1± 19. Kuemmerle, W., ª Building Effective Capabilities Abroad,º Harvard Business Review, March/April 1997, pp. 61± 70. Kuemmerle, W., ª The Drivers of Foreign Direct Investment into Research and Development: An Empirical Investigation,º Journal of International Business Studies, 1999, 30(1), pp. 1± 24. Makino, S., Towards a theory of asset seeking foreign direct investment. Hong Kong: The Chinese University, 1998 (mimeo). Markusen, J.R., ª The Boundaries of Multinational Enterprises and the Theory of International Trade,º Journal of Economic Perspectives, 1995, 9(2), pp. 169± 89. Markusen, J.R., ª Multinational Firms, Location and Trade,º The World Economy, 1998, 21, pp. 733± 56. Markusen, J.R., ª International Trade Theory and International Business,º in A.R. Rugman and T. Brewer, eds, The Oxford Handbook of International Business. Oxford: Oxford University Press, 2001 forthcoming.
J. H. Dunning
Markusen, J.R. and Venables, A.J., ª Multinational Firms and the New Trade Theory,º Journal of International Economics, 1988, 46, pp. 183± 303. McGee, J. and Thomas, H., ª Strategic Groups: Theory, Research and Taxonomy,º Strategic Management Journal, 1986, 7, pp. 141± 60. McManus, J.C., ª The Theory of the Multinational Firm,º in G. Paquet, ed., The Multinational Firm and the Nation State. Toronto: Collier-Macmillan, 1972. Narula, R., Multinational Investment and Economic Structure. London and New York: Routledge, 1996. Ozawa, T., ª Japan’s Strategic Investment Policy Towards Developing Countries: From the Ad Hoc to a New Comprehensive Approach,º Fort Collins University of Colorado, 1989 (mimeo). Ozawa, T., ª Foreign Direct Investment and Economic Development,º Transnational Corporations, 1992, 1(1), pp. 27± 54. Ozawa, T., ª Japan: The Macro-IDP, Meso-IDPs and the Technology Development Path (TDP),º in J.H. Dunning and R. Narula, eds, Foreign Direct Investment and Governments, London and New York: Routledge, 1996, pp. 142± 73. Rostas, L., Comparative Productivity in British and American Industry. Cambridge: Cambridge University Press, 1948. Rugman, A.M., ª Internalization Theory and Corporate International Finance,º California Management Review: 1980, 13, pp. 73± 9. Rugman, A.M., The Scientific Papers of Alan Rugman, Vol.1. London: Edward Elgar, 1997. Stonehill, A. and Oxelheim, L., On the Treatment of Finance Specific Factors Within the OLI Paradigm. Hawaii: University of Hawaii, 2001 (mimeo). Swedenborg, B., The Multinational Operations of Swedish Firms: An Analysis of Determinants and Effects. Stockholm: Almquist & Wiksell, 1979. Tolentino, P.E., Technological Innovation and Third World Multinationals. London: Routledge, 1993. UNCTAD, World Investment Report, Cross Border Mergers and Acquisitions and Development. New York and Geneva: UN, 2000. Van Hoesel, R., New Multinational Enterprises from Korea and Taiwan. London and New York: Routledge, 1999. Vernon, R., ª International Investment and International Trade in the Product Cycle,º Quarterly Journal of Economics, 1966, 80, pp. 90± 207. Vernon, R., ª The Location of Economic Activity,º in J.H. Dunning, ed., Economic Analysis and the Multinational Enterprise. London: Allen & Unwin, 1974, pp. 89± 114. Wesson, T.J., ª An alternative motivation for foreign direct investment,º PhD dissertation, Harvard University, Cambridge, Mass., 1993. Wesson, T.J., ª A Model of Asset Seeking Foreign Direct Investment,º Proceedings International Business Division, The Administrative Sciences Association of Canada, 1997, 18(8), pp. 110± 120. Wesson, T.J., Foreign Direct Investment and Competitive Advantage. Cheltenham: Edward Elgar, 2001. Zander, I. and Zander, U., ª Sweden: A Latecomer to Industrialization,º in J.H. Dunning and R. Narula, eds, Foreign Direct Investment and Governments. London and New York: Routledge, 1996.
Copyright of International Journal of the Economics of Business is the property of Routledge and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder 's express written permission. However, users may print, download, or email articles for individual use.
Please join StudyMode to read the full document