1 Introduction
Centuries ago it was out of question for companies to operate worldwide. The costs to act global had been too high as well as the existent lack of knowledge about other countries, cultures, languages, foreign demands etc. But a few decades ago, companies started to run for globalisation which is seen as a process of internationalisation. Globalisation can be defined as a global network of economic processes. Today companies face less risk when engaging in international activities than ever before. Nowadays markets are easy accessible and the society faces a similar development concerning living standards all over the world. Companies notice the existing possibilities when passing national borders. Today internationalisation is an option for big companies as well as for SME´s. Internationalisation can be defined more exactly as the name “international” predicts as an international network between companies of different nations which means in most cases industrialised nations. Today almost all products and services are internationalised and available on the world market. It is indispensable that enterprises conduct business in host countries to remain competitive. Most companies are aware of internationalisation processes. Multinational companies are enterprises which operate in two or more countries. Bundeszentrale für politische Bildung (1) states that in 1980, approximately 17.000 MNE´s existed. Further Bundeszentrale für politische Bildung (1) explains that already in the year 2000, 63.000 MNE´s existed and in 2004 existed even 70.000 MNE´s. According to Bundeszentrale für politische Bildung (1) belong MNE companies to the countries where their headquarter is based in. Further Bundeszentrale für politische Bildung (1) estimates that approximately 9.000 MNE´s belong to Germany and approximately 2.500 international firms belong to the United States. As it can be observed, the trend in businesses is to become a multinational company. To become a company which engages in international activities is a long time process consisting of various steps. Therefore firms having international intentions began to question under which circumstances they should internationalise its activities and which market entry form they should choose.
Methodology
Various theories exist which cover that topic for example:... This paper focuses on two approaches which explain firms intention to establish activities outside their national borders...
Table of Contents
1 Introduction
2 Definitions
2.1 Multinational enterprise
2.2 Export
2.3 Foreign direct investment
2.4 International contracts
3 The eclectic paradigm of international production
3.1 OLI advantages
3.1.1 Ownership advantages
3.1.2 Location advantages
3.1.3 Internationalisation advantages
3.2 Market Entry Strategies
3.3 Endowment/Market Failure Paradigm
3.4 Criticism
4 Uppsala-model of Internationalisation
4.1 Patterns of Internationalisation
4.1.1 Establishment Chain
4.1.2 Psychic Distance Chain
4.2 Model of Internationalisation
4.2.1 State Aspects
4.2.2 Change Aspects
4.3 Criticism
5 Critical Comparison
5.1 Comparison Eclectic Paradigm & Uppsala-model
5.1.1 Dynamic vs. static
5.1.2 Negligence of demand
5.1.3 Validation
5.1.4 At home and abroad
5.1.5 Mode & point of time
5.1.6 Individuals decide
5.1.7 Disregard industries and companies particularities
5.2 Eclectic Paradigm in favour of Uppsala-model
5.2.1 A simple vs. a complex approach
5.2.2 Uncertainty avoidance vs. rationality
5.3 Uppsala-model in favour of Eclectic Paradigm
5.3.1 Fast vs. slow Internationalisation process
5.3.2 Explanation of market entry strategies vs. gradual process
6 Conclusion
7 Outlook
7.1 Eclectic Paradigm
7.2 Uppsala-Model of Internationalisation
Research Objective and Core Themes
The primary objective of this seminar paper is to conduct a critical comparative analysis of two prominent internationalisation theories: John H. Dunning's Eclectic Paradigm and the Uppsala School's internationalisation model. The research aims to evaluate their respective theoretical foundations, similarities, and differences in explaining firm behaviour regarding international expansion.
- Theoretical examination of the Eclectic Paradigm (OLI model)
- Comprehensive analysis of the Uppsala School's learning-based approach
- Critical comparison of dynamic versus gradual internationalisation processes
- Evaluation of market entry strategies and the role of knowledge
- Identification of theoretical limitations and prospects for further research
Excerpt from the Book
3.1.1 Ownership advantages
Dunning (1993, p.82) describes the ownership advantages as “the `why` of MNE activities”. The question for companies is: Why to go abroad? Kutschker, Schmid (2006) state that Dunning refers to approaches of the monopolistic advantage by the ownership advantages. According to Kutschker, Schmid (2006), John H. Dunning sees three classes of O advantages. Kutschker, Schmid (2006) say in the first place, there are O advantages which follow from a companies long subsistence compared to market participants. These advantages are access to markets, organizational and marketing systems, R&D activities, innovatory capacity, brand loyality and economies of scale etc. according to Dunning (1993). Kutschker, Schmid (2006) state in second place, there are advantages which are connected by a companies internationality, especially a better access to resources. For example capital, information or raw materials. In third place, it is referred to O advantages which exist independent from a companies long existence and internationality such as technology, patents or management skills. When a company has specific ownership advantages, the firm can overcome costs when engaging abroad. Additional having ownership advantages is seen as a precondition for companies engaging in a foreign country.
Summary of Chapters
1 Introduction: Provides an overview of the global business environment and the rising importance of multinational enterprises, setting the context for the necessity of internationalisation theories.
2 Definitions: Defines fundamental concepts such as Multinational Enterprises, export, foreign direct investment, and international contracts to establish a common terminology for the paper.
3 The eclectic paradigm of international production: Details Dunning's OLI framework, explaining how ownership, location, and internationalisation advantages drive the choice of foreign market entry.
4 Uppsala-model of Internationalisation: Examines the Swedish learning-based theory, focusing on the establishment chain and psychic distance as determinants of gradual international growth.
5 Critical Comparison: Juxtaposes the Eclectic Paradigm and the Uppsala-model, critically evaluating their strengths, weaknesses, and divergent perspectives on firm behaviour.
6 Conclusion: Summarizes the key findings and highlights that no single theoretical approach is sufficient, as modern firms often combine strategies.
7 Outlook: Discusses potential areas for future theoretical extension, such as incorporating dynamic components and better explaining "Born Globals."
Keywords
Internationalisation, Eclectic Paradigm, OLI framework, Uppsala-model, Market Entry Strategies, Foreign Direct Investment, Multinational Enterprise, Psychic Distance, Establishment Chain, Knowledge Development, Market Commitment, Globalisation, International Business Theory, Business Strategy, Comparative Analysis
Frequently Asked Questions
What is the core focus of this paper?
This paper focuses on a critical comparison of two major internationalisation theories: the Eclectic Paradigm of international production by John H. Dunning and the Uppsala School model of internationalisation.
What are the central themes discussed in this work?
The work centers on understanding how firms decide to establish activities abroad, evaluating the roles of OLI advantages (Ownership, Location, Internationalisation) and learning-based processes like the establishment chain and psychic distance.
What is the primary objective of this seminar paper?
The primary goal is to examine the similarities and differences between the two theories and to assess their explanatory power regarding how and why firms choose specific international expansion strategies.
Which scientific methods were applied in this research?
The author utilized a literature-based review, synthesizing information from professional books, academic journals, and relevant internet sources to construct a structured critical juxtaposition of the selected theories.
What does the main body of the work cover?
The main body systematically defines key terms, explains the theoretical foundations of both the Eclectic Paradigm and the Uppsala-model, and provides a multi-dimensional critical comparison of their applicability to modern international business.
Which keywords characterize this analysis?
Key terms include Internationalisation, Eclectic Paradigm, OLI framework, Uppsala-model, Market Entry Strategies, FDI, Multinational Enterprise, and Psychic Distance.
How does the Eclectic Paradigm differ from the Uppsala-model regarding the speed of internationalisation?
The Eclectic Paradigm is generally viewed as an approach that facilitates a faster internationalisation process through the possession of specific advantages, whereas the Uppsala-model suggests a slower, more gradual process based on incremental learning.
What is the author's stance on the "Psychic Distance" concept?
The author acknowledges the criticism that psychic distance is becoming less relevant due to globalization and advances in infrastructure, yet notes its continued utility in understanding initial market selection in the Uppsala-model.
- Quote paper
- Master of Arts Daniela Margardt (Author), 2007, A critical comparison of Internationalisation theories: Eclectic Paradigm of Dunning vs. Uppsala School, Munich, GRIN Verlag, https://www.grin.com/document/127374
