Dunning eclectic paradigm
Dunning’s Eclectic Paradigm (CAVUSGIL, 2010)
Dunning’s Eclectic Paradigm Professor John Dunning proposed the eclectic paradigm as a framework for determining the extent and pattern of the value-chain operations that companies own abroad. Dunning draws from various theoretical perspectives, including the comparative advantage and the factor proportions, monopolistic advantage, and internalization advantage theories. Let’s use a real firm to illustrate the eclectic paradigm. The Aluminum Corporation of America (Alcoa) has over 130,000 employees in roughly 43 countries. The company’s integrated operations include bauxite mining and aluminum refining. Its products include primary aluminum (which it refines from bauxite), automotive components, and sheet aluminum for beverage cans and Reynolds Wrap®.
The eclectic paradigm specifies three conditions that determine whether or not a company will internationalize via FDI: ownership-specific advantages, location-specific advantages, and internalization advantages.
To successfully enter and conduct business in a foreign market, the MNE must possess ownership-specific advantages (unique to the firm) relative to other firms already doing business in the market. These consist of the knowledge, skills, capabilities, processes, relationships, or physical assets held by the firm that allow it to compete effectively in the global marketplace. They amount to the firm’s competitive advantages. To ensure international success, the advantages must be substantial enough to offset the costs that the firm incurs in establishing and operating foreign operations. They also must be specific to the MNE that possesses them and not readily transferable to other firms. Examples of ownership-specific advantages include proprietary technology, managerial skills, trademarks or brand names, economies of scale, and access to substantial financial resources. The more valuable the firm’s ownership-specific advantages, the more likely it is to
Dunning’s Eclectic Paradigm Professor John Dunning proposed the eclectic paradigm as a framework for determining the extent and pattern of the value-chain operations that companies own abroad. Dunning draws from various theoretical perspectives, including the comparative advantage and the factor proportions, monopolistic advantage, and internalization advantage theories. Let’s use a real firm to illustrate the eclectic paradigm. The Aluminum Corporation of America (Alcoa) has over 130,000 employees in roughly 43 countries. The company’s integrated operations include bauxite mining and aluminum refining. Its products include primary aluminum (which it refines from bauxite), automotive components, and sheet aluminum for beverage cans and Reynolds Wrap®.
The eclectic paradigm specifies three conditions that determine whether or not a company will internationalize via FDI: ownership-specific advantages, location-specific advantages, and internalization advantages.
To successfully enter and conduct business in a foreign market, the MNE must possess ownership-specific advantages (unique to the firm) relative to other firms already doing business in the market. These consist of the knowledge, skills, capabilities, processes, relationships, or physical assets held by the firm that allow it to compete effectively in the global marketplace. They amount to the firm’s competitive advantages. To ensure international success, the advantages must be substantial enough to offset the costs that the firm incurs in establishing and operating foreign operations. They also must be specific to the MNE that possesses them and not readily transferable to other firms. Examples of ownership-specific advantages include proprietary technology, managerial skills, trademarks or brand names, economies of scale, and access to substantial financial resources. The more valuable the firm’s ownership-specific advantages, the more likely it is to