Dunnings Eclectic Theory Ownership advantage competitive advantage Required to

Dunnings eclectic theory ownership advantage

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Dunning’s Eclectic Theory Ownership advantage: (competitive advantage) Required to overcome the disadvantage of competing in a foreign market against local firms Locational advantage: factors that make a host country an attractive location for carrying out a particular activity locally (e.g. manufacturing, design…) as opposed to supplying the host country from the home country. availability of cheap labour / highly skilled labour, cheap raw materials, large market size, low political risk Internalisation advantage: when it is more efficient to transfer the ownership advantage through internal units than through independent firms. >>>> For FDI, all three advantages need to be present ORGANISATIONAL STRUCTURE Location of decision-making responsibilities within the structure (vertical differentiation) Centralisation versus decentralisation Formal division of the organisation into subunits e.g. product or area divisions (horizontal differentiation) Establishment of integrating mechanisms including cross-functional teams and or pan-regional committees The purpose of structure to establish lines of authority and chain of command to establish division of labor to enable control, coordination and integration to establish accountability and delegate responsibility to facilitate communication to establish rules and regulations GLOBAL STRATEGY Product structure to allow for scale economies and knowledge sharing among units worldwide for a given product line
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LISA YANG IBUS20002 Business in the Global Economy Each product division is responsible for producing and marketing a specific group of products worldwide. Firm develops expertise with specific products on a global basis, ensuring scale economies and knowledge sharing among units worldwide for a given product line. However, can result in duplicating the firm’s support functions in each product division. Potential for excessive focus on products and too little on developing the firm’s markets. MULTIDOMESTIC STRATEGY Geographic division structure Management and control decentralized to individual geographic regions Managers are responsible for operations within their region Often used by firms that market relatively standardized products across entire regions or groups of countries Results in greater responsiveness to customer needs and wants in each market, providing a good balance between global integration and local adaptation However, managers’ orientation is more regional than global, which affects development and management of products global economies of scale may suffer TRANSNATIONAL STRATEGY Global matrix structure Blends the geographic area and product structures Simultaneously leverages the benefits of global strategy and responsiveness to local needs. Emphasizes interorganizational learning and knowledge sharing among the firm’s units worldwide. However, the dual reporting chain of command means employees may receive contradictory instructions from multiple managers, which can lead to conflicts. Managing many subsidiaries or products, or operations in many foreign markets, is complex.
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