Eclectic paradigm Dunning
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The eclectic paradigm proposes that there are three main advantages that influence a firm's international production: 1) Ownership-specific advantages such as trademarks, production techniques, or entrepreneurial skills. 2) Location-specific advantages like raw materials, low wages, or taxes in a particular country. 3) Internalization advantages where firms choose to internally produce rather than through partnerships to exploit firm-specific advantages. The paradigm also notes that the significance of these ownership, location, and internalization (OLI) advantages varies across industries, countries, and firms. It provides a framework to analyze what drives international production rather than making predictions.
Eclectic paradigm Dunning
- 1. Eclectic Paradigm by : JOHN H. DUNNING 35142471 : Yoichi Miyata OLI-Framework or Model
- 2. The Key Propositions of the Eclectic Paradigm: (1 - O) The (net) competitive advantages which firms of one nationality possess over those of another nationality in supplying any particular market or set of markets. These advantages may arise either from the firm’s privileged ownership of, or access to, a set of income- generating assets,or from their ability to co-ordinate these assets with other assets across national boundaries in a way that benefits them relative to their competitors, or potential competitors. (2 - I) The extent to which firms perceive it to be in their best interests to internalise the markets for the generation and/or the use of these assets; and by so doing add value to them. (3 - L) The extent to which firms choose to locate these value-adding activities outside their national boundaries.
- 3. Ownership-specific-advantages Location-specific-advantages Internalization-advantages trademark,production technique,entrepreneurial skills,returns to scale existence of raw materials,low wages,special taxes or tariffs advantages by own production rather than producing through a partnership arrangement:licensing or JV Details of advantages:
- 4. OLI-Framework or Model : the structure of organization Ownership advantages Location advantages Internalization advantages
- 5. Internalization Theory : Internalization theory focuses on imperfections in intermediate product markets. Two main kinds of intermediate product are distinguished: knowledge flows linking research and development (R&D) to production, and flows of components and raw materials from an u p s t r e a m p r o d u c t i o n f a c i l i t y t o a d o w n s t r e a m o n e . Internalization occurs only when firms perceive the benefits to exceed the costs. When internalization leads to foreign investment the firm may incur political and commercial risks due to unfamiliarity with the foreign environment. These are known as ‘costs of doing business abroad’,arising from the ‘liability of foreignness’.When such costs are high a firm may license or outsource production to an independent firm ; or it may p r o d u c e a t h o m e a n d e x p o r t t o t h e c o u n t r y i n s t e a d .
- 6. Transaction Cost : TYPES OF COST SEARCH AND INFORMATION BARGAINING AND DECISION POLICING AND ENFORCEMENT ★Search and information costs : are costs such as those incurred in determining that the required good is available on the market, which has the lowest price, etc. ★Bargaining costs are the costs : required to come to an acceptable agreement with the other party to the transaction, drawing up an appropriate contract and so on. In game theory this is analyzed for instance in the game of chicken. On asset markets and in market microstructure, the transaction cost is some function of the distance between the bid and ask. ★Policing and enforcement costs : are the costs of making sure the other party sticks to the terms of the contract, and taking appropriate action (often through the legal system) if this turns out not to be the case.
- 7. Internalization Theory : Firm A Firm A` ex.subsidiary others ①Internal transaction ②External transaction ex:transaction,outsourching MNEs 1 , Why FDI occurs? ①＞② 2 , Market imperfection 3 , Exploit Firm-specific advantage through ① intangible assets = skills,knowledge,tech etc 4 , Transaction Cost go down
- 8. Three basic forms of international activities : Export FDI International Activities Licensing Having knowledge about the target market abroad, for example staff with language skills, information about import permissions, appropriate products, contacts and so on less cost-intensive If there are internalization advantages, the company can invest more capital abroad. This can be achieved by export in form of an export subsidiary. The FDI is the most capital intensive activity that a company can choose. According to Dunning, it is considered that locational advantages are necessary for FDI. This can be realized by factories which are either bought or completely constructed abroad. most-capital intensive moderate international activiy
- 9. 2 types of FDI : Resource Seeking Investments Market Seeking Investments FDI ★establish access to basic material like raw materials or other input factors ★enter an existing market or establish a new market
- 10. Strong Export Outward FDI Weak Inward FDI Imports Strong Weak Ownership advantages Location advantages Trade and FDI patterns for industries and countries
- 11. OLI-Framework or Model : the structure of organization Ownership advantages Location advantages Internalization advantages
- 12. Licensing Yes No No Export Yes No Yes FDI Yes Yes Yes Form of market entry Ownership Location Internalization OLI-Framework Categories of advantages
- 13. OLI configuration : ①OLIt0 = t0 時点におけるOLI組成 ②OLIt1 = t1 時点におけるOLI組成 ③St-n = 企業において未だ機能する戦略 ④ΔSt0 → t1 = 戦略の変更に対するOLI組成のt0からt1への変化 ①OLIt2 = t2 時点におけるOLI組成 ②OLIt1 = t1 時点におけるOLI組成 ③St-nΔSt1 = St-nとSt1間の戦略創出差分 ④OLIt2 = t1 時点からt2 時点へのOLI組成の変化 ①OLIt0時点におけるSt-nとΔSt0時点における戦略創出差分は、 ②t0ΔENti = ti時点における戦略及びあらゆる外在的変数のt0時点との差分 ③t1ΔEXt0= t1時点における全ての外在的な変数EXのt0時点における差分 ④戦略変更に生じた反応は、全てΔEN、ΔEXに包含される変数となる
- 14. ★ The eclectic paradigm further avers that the significance of each of these advantages and the configuration between them is likely to be context specific, and in particular, is likely to vary across industries (or types of value-added activities), regions or countries (the geographical dimension) and among firms. ★ The eclectic paradigm is best regarded as a framework for analysing the determinants of international production rather than as a predictive theory of the MNE. Framework for analysing the determinants of international production :
- 15. I'd like to finish by thanking you for listening.