eclectic paradigm dunning

15
Eclectic Paradigm by : JOHN H. DUNNING 35142471 : Yoichi Miyata OLI-Framework or Model

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Page 1: Eclectic paradigm Dunning

Eclectic Paradigm

by : JOHN H. DUNNING

35142471 : Yoichi Miyata

OLI-Framework or Model

Page 2: Eclectic paradigm Dunning

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.

Page 3: Eclectic paradigm Dunning

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:

Page 4: Eclectic paradigm Dunning

OLI-Framework or Model :

the structure of organization

Ownership advantages

Location advantages

Internalization advantages

Page 5: Eclectic paradigm Dunning

Internalization Theory :Internalization theory focuses on imperfections in intermediate product markets. Two main

kinds of intermediate product are distinguished: knowledge flows linking research anddevelopment (R&D) to production, and flows of components and raw materials from anu 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. Wheninternalization leads to foreign investment the firm may incur political and commercial risksdue to unfamiliarity with the foreign environment. These are known as ‘costs of doingbusiness abroad’,arising from the ‘liability of foreignness’.When such costs are high a firmmay license or outsource production to an independent firm ; or it mayp 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 .

Page 6: Eclectic paradigm Dunning

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.

Page 7: Eclectic paradigm Dunning

Internalization Theory :

Firm A

Firm A`ex.subsidiary

others

①Internal transaction

②External transaction

ex:transaction,outsourching

MNEs

1 , Why FDI occurs? ①>②2 , Market imperfection3 , Exploit Firm-specific advantage through ①

intangible assets = skills,knowledge,tech etc4 , Transaction Cost go down

Page 8: Eclectic paradigm Dunning

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

Page 9: Eclectic paradigm Dunning

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

Page 10: Eclectic paradigm Dunning

Strong Export Outward FDI

Weak Inward FDI Imports

Strong Weak

Ownership

advantages

Location advantagesTrade and FDI

patterns for industries

and countries

Page 11: Eclectic paradigm Dunning

OLI-Framework or Model :

the structure of organization

Ownership advantages

Location advantages

Internalization advantages

Page 12: Eclectic paradigm Dunning

Licensing Yes No No

Export Yes No Yes

FDI Yes Yes Yes

Form of

market entry

Ownership Location Internalization

OLI-FrameworkCategories of advantages

Page 13: Eclectic paradigm Dunning

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

Page 14: Eclectic paradigm Dunning

★ 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 :

Page 15: Eclectic paradigm Dunning

I'd like to finish by thanking you for listening.