Assessing the Essence of Teh Eclectic Paradigm Essay Example for Free

Assessing the Essence of Teh Eclectic paradigm EssayAspects frequently highlighted include globular media and telecommunications, global brands, worldwide yield and integrated financial markets. At the forefront of these phenomena argon Multi National Enterprises (MNEs), benefiting from the commencement of markets across the globe, and from advances in computing and internet technology, which make it workable to link far-flung activities in global networks.Considering these elements, globalization can further be delineate as the process of increasing and deepening interactions between individuals and organizations across the globe, facilitated by advancing communications technology and the opening of markets to trade and investment. Theories of International labor have attempted to explain the convergence towards a globalised world, while addressing the antithetic types of world-wide expansions. These theories have foc employ on MNEs and Foreign Direct Investment (FDIs). FDI can be defined as investment by an organization in a business in a nonher country, with a view to establishing fruit in the host country. While Raymon Vernon is cognise for his theory of Product life cycle, Stephen Hymer put emphasis on the location and ownership advantages of countries, which helped in attracting FDI from MNEs. John Dunning incorporated Internalisation to the analysis of Hymer, which became known as the Eclectic Paradigm (or OLI Paradigm), one of the most comprehensive theoretical explanations with specific focus on FDI.Still the Eclectic Paradigm is being challenged in the modern globalised world, as it fails to take into account the implications of alive modes of entry of MNEs, as well as the advantages of Alliance Capitalism. It is being discussed further in this report. Theories of International production have greatly facilitated the understanding of the globalization phenomenon. Different theorists at different time intervals attempted to unloose the expansion of MNEs across the globe.Hymer (1970) was the first one to propose that MNEs are institutions of international production rather than international capital movement. Still he ignored the natural imperfections attributed to transaction costs in an imperfect market. In like a shots world, with the proliferation on Internet use, imperfections like bureaucratic hurdles and control of distribution systems (Bain, 1956) are absent. Even the imperfections like price determinism and information transfer are shrinking.Thus it can be argued that Hymers major contribution relating to the importance of structural market imperfection in determining FDI activity does not hold good for corporations, which are expanding globally through e-channels (for instance). Vernon (1966) came up with the International Product Life rhythm method (IPLC) theory, which explained the locational dimension of FDI. According to him, production first starts in the home country fro local anaesthetic market s, and exporting is used to attain extraneous markets.As the product matures and production is standardized, production moves to less developed countries to reduce outwear costs. The basic assumption of the IPLC is that knowledge is not equally and universally distributed (Vernon, 1966). This assumption, however, is not applicable in todays world, as Vernon (1979) himself admits that there is a more perfect distribution of knowledge across the globe. He argues that firms who are global scanners follow a different trend than that of the IPL approach, because such firms have the ability to in effect scan global markets for the best factor endowments.Though, a lot has been discussed and said on the theories of International production, further none of the approaches (Hymer, Vernon, Barney) simultaneously explains the importance of resources heterogeneity, entrepreneurial competence, network governance and the rise of alliance capitalism. Thus, an overarching analytical fashion model is needed, that can synthesize these disparate views and account for the importance of location- based advantages and ownership advantages. Such a framework was developed by Dunning (1973 1988 1993) known as The Eclectic Paradigm.It is a framework that explains the growth of MNEs by manner of speaking together disparate theories. According to Dunning, the Eclectic Paradigm is less of an alternative theory of International production and more of a framework that synthesizes the essential and common characteristics of each main theoretical explanation on the growth of MNEs. For more than two decades the Eclectic Paradigm (EP) remains a widely used oecumenic framework for studying the growth of MNCs and Dunning has also continuously revised and extended the EP to explain changing facets of MNCs.Dunning (1988) has re-stated that the EP is chesty and general enough to incorporate future developments like renewed the focus on entrepreneurship and the emergence of global networks (Dun ning, 1995). The Eclectic Paradigm explains that the Foreign Direct Investment (FDI) and growth of multinational corporations (MNCs) is linked to the extent and reputation of ownership-specific advantages of the firm, the extent and nature of location bound endowments, and the extent to which markets for these advantages are best internalized by the from itself.In short, it is the var. of these Ownership (O), Location (L) and Internalization (I) advantages that determines a firms international production and growth. In a somewhat updated version, Dunning (1988) describes the three essential factors for international expansion * Ownership Advantages are unique competitive or monopolistic advantages, typically developed in the home market, that permit the firm to compete successfully in overseas markets.These factors are of two types Asset Advantages arise from proprietary ownership of unique assets protected by structural market distortions, and Transactional advantages provide a u nique capacity to capture value from the transaction benefits of owning a network of assets located in different countries. * Location factors, tied to the local foreign market, which make production in the host country preferable. These are immobile factors, such as cheaper labour, high shipping costs, local image or trade barriers, that can be combined with transferable intermediate ownership assets to feed superior products. Internalisation factors, typically related to the industry, score transactional market failure in transferring ownership advantages to foreign markets. This also explains the naming of the EP as the OLI configuration as well. The eclectic model, then, pulled together the key elements of neo-classical theory location, industrial organisation theory monopolistic advantage and internalization theory transactional efficiency. It used this eclectic mix to produce an internally consistent, compelling and testable model of the multinational firm and its strateg ic processes.