The OLI Eclectic Model

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A well referenced internationalisation theory for explaining MNCs’ outward foreign direct investment is Dunning’s Eclectic model (Dunning, 1980). The eclectic model is often referred to as the OLI paradigm borne out of the insufficiencies of the ealier FDI theories especially that of Hymer’s competitve advantage and industrial organisation theory (Dunning and Rugman, 1985). Dunning (1988) asserts that MNCs engage in foreign production to capitalize on three sets of advantages in an attempt to gain competitive advantage in a foreign market; namely, Ownership (O), Location (L) and Internalisation (I). The OLI eclectic paradigm synthensises features from different economic theories to form a comprehensive theoretical framework for the analysis …show more content…
Athreye and Kapur (2009) explain that EMNCs may lack the ownership advantage specified in OLI paradigm because of their turbulent home market environment. Other criticisms of OLI are the fact that it is mostly used in analyzing the determinant of international production. The OLI eclectic model also failed to explain the early expansion process of a firm, especially at the pre-internationalisation stage. The model main focus was on specific advantages for internationalisation while negelecting other factors leading to internationalisation itself. Despite these limitations, scholars are however advised to take an interdisciplinary approach to the OLI paradigm in the study of international business (IB). This is to capture the rich characteristics of the paradigm to the improve OLI eclectic paradigm so that the exogenous and endogenous characteristics of firms can be distinguished (Dunning …show more content…
Insight from the literature shows that the born global firms’ behaviour contradicts the Uppsala model’s gradual process notion because such firms are able to accelerate their internationalisation by leap frogging several stages of the incremental process. The Born Global firms are different from the traditional MNCs which are a domestic focus for many years before internationalising but the born global firms are early adopters of internationalisation. The Born Global firms from inception have a global business view and have developed the capabilities to compete successfully in the international market (Knight & Cavusgil, 2004). Born Global firms are mostly found in knowledge-based and knowledge-intensive firms with global technology start-up meant to target the global market. Born Global firms in most cases have developed international competencies, knowledge, capability and strategies beyond their domestic market to respond to a globalised demand of different industries and become a global firm (Oviatt & McDougall, 1995; 1996;1997; McDougall, Shane, & Oviatt, 1994). However, both traditional and born global firms would experience similar features of a learning process through their pre-internationalisation phase (Tan et al., 2007). Firm’s readiness to internationalise is mostly linked to the pre internationalisation phase as a

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