Dunnings Eclectic Paradigm
Summarise Dunnings Eclectic Paradigm. How useful is it as a theory of why companies choose to become multinationals? What are its main strengths and weaknesses?
- A theory explaining why firms choose to expand internationally.
Not so much a theoretical model giving a “perfect” example, more a theory attempting to explain the way it actually is now.
A firm will expand overseas when:
Ownershsip specific advantages are not possessed by competing firms of other nationalities..
- Knowledge, organisation, and human skills
- Purchasing EOS
- Financial EOS
- Brand name such as Coca Cola
Advantages are specific to the firm so either they licence their advantage or utilise it themselves.
Internalise the use of ownership specific advantages. Firm exploits the advantages itself rather than leasing to other firms.
Why internalise rather than licence to domestic firms?
- Uncertainty of price
- Uncertainty of quality of imports
- Imperfect markets
Gives advantage to control transactions itself
Large firms internalise R&D to protect against predators and ensure good return
Location specific factors:
- Resources Human Capital, Raw Materials
- Pay less tax
- Political environment to conduct sensitive research
- Political Stability
- Markets
Advantages
Simplicity:
applicable to most firms
can explain the nature of most firms
Interrelatedness of three variables and how they can be applied separately or together.
Eg. German car industry in comparison to UK, Germany only has the O, therefore they don’t produce in UK (no L and I)
Eg. UBS in London: OLI met to come to UK.
Disadvantages
- Too many variables, all interrelated so cant be sure which is in O, L or I.
- Over – Optimistic, “can utilise all 3 and become an MNC” doesn’t take into account internal conflicts.
- Focuses on initial stage and not how to sustain the conditions in the long
- A theory explaining why firms choose to expand internationally.
Not so much a theoretical model giving a “perfect” example, more a theory attempting to explain the way it actually is now.
A firm will expand overseas when:
Ownershsip specific advantages are not possessed by competing firms of other nationalities..
- Knowledge, organisation, and human skills
- Purchasing EOS
- Financial EOS
- Brand name such as Coca Cola
Advantages are specific to the firm so either they licence their advantage or utilise it themselves.
Internalise the use of ownership specific advantages. Firm exploits the advantages itself rather than leasing to other firms.
Why internalise rather than licence to domestic firms?
- Uncertainty of price
- Uncertainty of quality of imports
- Imperfect markets
Gives advantage to control transactions itself
Large firms internalise R&D to protect against predators and ensure good return
Location specific factors:
- Resources Human Capital, Raw Materials
- Pay less tax
- Political environment to conduct sensitive research
- Political Stability
- Markets
Advantages
Simplicity:
applicable to most firms
can explain the nature of most firms
Interrelatedness of three variables and how they can be applied separately or together.
Eg. German car industry in comparison to UK, Germany only has the O, therefore they don’t produce in UK (no L and I)
Eg. UBS in London: OLI met to come to UK.
Disadvantages
- Too many variables, all interrelated so cant be sure which is in O, L or I.
- Over – Optimistic, “can utilise all 3 and become an MNC” doesn’t take into account internal conflicts.
- Focuses on initial stage and not how to sustain the conditions in the long