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 ...