Multinational buainess Essay Example | Topics and Well Written Essays - 2500 words

Multinational buainess - Essay Example At the present economic environment such theories and models are considered to be very important as the importance of multinational organizations to the global economy has increased significantly. Dunning’s eclectic paradigm theory is one of the most widely discussed theories in the world of international production. This paper attempts to present a clear description of this theory and several of its dimensions. The paper also includes a proper analysis of the criticisms that the Dunning’s model has faced over the years. There are several other theories on the similar subject and Dunning’s theory can be compared with those to analysis the effectiveness of it. This paper includes such a comparative analysis that is likely to help an individual to have a clear conception regarding the entire picture of such theories. Academic Literature John H Dunning is famous in the international business arena for his ‘Eclectic Paradigm’ theory. It is actually the i ntegration of several theories on internationalization. It covers many mainstream theories such as Ohlin and Heckscher’s ‘factor endowment theory’, Coase’s ‘trasaction cost theory’, Hymer’s ‘monopolistic advantage theory’ and ‘internalization theory’ of Casson and Buckley. In 1976, Dunning presented the core concept of eclectic paradigm at Nobel Symposium which is located in Stockholm. The theory explains precisely why a firm should go global. Dunning attempted to provide a clear and complete explanation regarding international production. He has consistently supplemented and improved his theory in accordance to various developments in the global economic environment and also in accordance to several constructive criticisms. Dunning opined that there are three conditions that have significant influence over the firm’s decision regarding transnational production. In other words, a firm will involve in â⠂¬Ëœinternational production’ if these three conditions are met. The three conditions are 1) ‘ownership-specific advantages’, 2) ‘internalization advantages’ and 3) ‘location specific advantages’ (Dicken, 2007). Each of them is properly described below. Ownership-Specific Advantages According to Dunning, an organization must have some ownership specific advantages which are not possessed by the rival organizations of other countries. The basis of this theory of Dunning lies in the ‘Monopolistic Advantage Theory’ that was developed by Hymer. According to Dunning, ownership specific advantages â€Å"must be sufficient to compensate for the costs of setting up and operating a foreign value-adding operation in addition to those faced by indigenous producers or potential producers† (Dunning, 1981). These advantages are like ‘internal assets’ of a firm which is the sole owner of them. Ownership specific advanta ges can be gained from the factors like technology, knowledge, internal brands, human resources etc. (Dicken, 2007). In the words of Dunning, ownership specific advantages â€Å"need not arise from multinationality† (Perry, 1992). These advantages