ECLECTIC PARADIGM Meaning and
Definition
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Eclectic paradigm is a concept in international business theory that aims to explain and understand the strategies and motives behind firms' decisions to engage in foreign direct investment (FDI). Developed by John H. Dunning, it is also known as the OLI framework, which encompasses the three major factors influencing FDI: ownership advantages, location advantages, and internalization advantages.
The ownership advantages refer to the unique strengths and assets that a firm possesses, such as technological innovation, brand recognition, or managerial expertise. These advantages give the firm a competitive edge over domestic companies and make it attractive to engage in FDI.
The location advantages relate to the benefits that arise from operating in a particular foreign country or region. These advantages can include access to strategic resources, market size, favorable regulatory environment, or proximity to suppliers and customers. Firms seek these advantages to enhance their competitiveness and market presence.
Internalization advantages refer to the ability of a firm to maintain control over its operations by integrating foreign activities within its own organization. Internalization can lead to cost savings, increased efficiency, protection of intellectual property, and better coordination and control of operations across national borders.
The eclectic paradigm suggests that firms engage in FDI when they have a combination of ownership, location, and internalization advantages, as these factors work together to maximize the firm's profitability and competitiveness in the global market. It provides a comprehensive framework for understanding the complex decision-making process involved in foreign direct investment.
Etymology of ECLECTIC PARADIGM
The word "eclectic" originates from the Greek word "eklektos", which means "selecting or gathering from various sources". The term "paradigm" comes from the Greek word "paradeigma", which means "pattern" or "model".
In the context of the "eclectic paradigm", the term was coined by British economist John H. Dunning in the late 1970s. Dunning developed the eclectic paradigm to explain how multinational enterprises (MNEs) make decisions regarding foreign direct investment (FDI). The eclectic paradigm proposes that MNEs select and combine elements from different theories and factors to make decisions about FDI, creating a framework that encompasses a range of relevant considerations.
