BUS350 - Ch.7

51 theeclecticparadigm

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Unformatted text preview: t 1. Strategic Behavior F.T. Knickerbocker explored the relationship between FDI and rivalry in oligopolistic industries (industries composed of a limited number of large firms) • Knickerbocker suggested that FDI flows are a reflection of strategic rivalry between firms in the global marketplace • This theory can be extended to embrace the concept of multipoint competition (when two or more enterprises encounter each other in different regional markets, national markets, or industries) 18 of 51 The Pattern of Foreign Direct Investment 2. The Product Life Cycle Raymond Vernon argues that firms undertake FDI at particular stages in the life cycle of a product they have pioneered • Firms invest in other advanced countries when local demand in those countries grows large enough to support local production • Firms then shift production to low‐cost developing countries when product standardization and market saturation give rise to price competition and cost pressures 19 of 51 The Eclectic Paradigm John Dunning’s eclectic paradigm argues that in addition to the various factors discussed earlier, two additional factors must be considered when explaining both the rationale for and the direction of foreign direct investment • location‐specific advantages (that arise from using resource endowments or assets that are tied to a particular location and that a firm finds valuable to combine with its own unique assets) • externalities (knowledge spillovers that occur when companies in the same industry locate in the same area) 20 of 51 Political Ideology and Foreign Direct Investment Ideology toward FDI has ranged from a radical stance that is hostile to all FDI to the non‐interventionist principle of free market economies • Between these two extremes is an approach that might be called pragmatic nationalism 21 of 51 The Radical View The radical view argues that the MNE is an instrument of imperialist domination and a tool for exploiting host countries to the exclusive benefit of their capitalist‐ imperialist home countries • The radical view has been in retreat because of • the collapse of communism in Eastern Europe • the poor economic performance of those countries that had embraced the policy • the strong economic performance of developing countries that had embraced capitalism 22 of 51 The Free Market View The free market view argues that international production should be distributed among countries according to the theory of comparative advantage • So, the MNE increases the overall efficiency of the world economy • The free market view has been embraced by advanced and developing...
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This document was uploaded on 03/05/2014.

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