Eclectic Paradigm

What is the Eclectic Paradigm?

Eclectic Paradigm is also referred to as the OLI (Ownership, Location, Internalization) model or framework. It serves to be a three-tiered framework for evaluation that companies tend to follow while determining whether or not it is beneficial to pursue FDI (Foreign Direct Investment).

Eclectic Paradigm meaning is known to take the assumption that institutions are going to avoid transactions in the open Market if the overall cost of completion of the same actions (In-House or internally) tends to be at a lower price. The given paradigm is based on the theory of internalization. It was first proposed by John H. Dunning –a famous scholar in the year 1979.

An Insight into Eclectic Paradigm

The Eclectic Paradigm is known to take up the holistic approach to examine entire interactions and relationships of several aspects of the business organization. The paradigm helps in providing a proper strategy for the expansion of operations with the help of FDI. The ultimate objective here is the determination of whether or not a particular approach delivers greater value in comparison to the other existing national or international options for the generation of products & services.

As businesses out there are known to seek some of the most productive cost-effective options while maintaining the overall quality at the same time, they can consider making use of an Eclectic Paradigm for the evaluation of a scenario exhibiting some potential.

Key Factors of Eclectic Paradigm

To ensure that the FDI is beneficial, some of the advantages that have to be evident are:

Location Advantage

It is a type of necessary good. Organizations are required to assess whether or not there happens to be some comparative advantage for performing particular functions within the given nation. Location advantage tends to be fixed in nature and is known to apply to the overall cost and availability of resources while functioning at a single location in comparison to others.

Ownership Advantages

These tend to include multiple ownership rights and proprietary information about the company. These are known to feature patent or trademark rights, branding, copyright, management of skills that are internally available, and so more. These advantages are mostly regarded to serve as intangible.

Internalization Advantage

These help in providing a signal when it is considered a better situation for the organizations to generate a product in-house in contrast to developing the same with some third-party. In case the business makes the decision of outsourcing the production process, it is required to negotiate partnerships with local producers of the product. However, as businesses opt for the outsourcing mechanism, it is known to make financial sense only if the given contracting agency is able to meet the specific needs & requirements of the company along with its quality standards at some affordable cost.

The Eclectic Paradigm concept finds its applications in multiple business scenarios.