CandleFocus Glossary Editor
The Eclectic Paradigm, also known as the Ownership, Location, Internalization (OLI) model or framework, is an economic concept developed by John Dunning in the late 1970s and early 1980s. The concept applies to the activities of companies that operate globally. The eclectic paradigm not only captures the various components of a business, but allows for a holistic look at the relationship and interaction between the components.
The main components of the Eclectic Paradigm are: Ownership Advantages, Location Advantages, and Internalization Advantages. These elements are what companies weigh when making a decision about where to locate their business operations, who to employ, and how to best manage their resources.
Ownership Advantages refer to the firm’s ability to gain an advantage from ownership. This could include the utilization of specialized knowledge, technology, and market power. Ownership advantages can be gained by acquiring resources from outside sources, such as buying software or patents.
Location Advantages are the advantages with production and marketing in a particular country or region. This includes factors such as infrastructure and access to resources, access to markets, labor productivity, and supplier or consumer needs. Location advantages can include access to resources, labor costs, local tax incentives, and climate.
Internalization Advantages refer to an organization’s ability to internalize activities in order to maximize the advantageous elements of Ownership and Location Advantages. This includes the implementation of management systems and organizational structures that take advantage of the ownership and location factors. Internalization Advantages can be gained by investing in physical assets, adopting managerial methods, and improving control mechanisms to better manage operations.
The Eclectic Paradigm is often associated with the concept of multinational firms – firms that operate in multiple countries, regions, and markets. By utilizing the Ownership, Location, and Internalization Advantages, these firms are able to better maximize their profits and ensure their presence in a variety of global markets.
Therefore, the Eclectic Paradigm provides organizations with an opportunity to explore the advantages of different approaches to their business operations and make the best possible strategic decision. It offers an integration of all components of a business – from ownership to location to internalization – to create more value for the organization.
The main components of the Eclectic Paradigm are: Ownership Advantages, Location Advantages, and Internalization Advantages. These elements are what companies weigh when making a decision about where to locate their business operations, who to employ, and how to best manage their resources.
Ownership Advantages refer to the firm’s ability to gain an advantage from ownership. This could include the utilization of specialized knowledge, technology, and market power. Ownership advantages can be gained by acquiring resources from outside sources, such as buying software or patents.
Location Advantages are the advantages with production and marketing in a particular country or region. This includes factors such as infrastructure and access to resources, access to markets, labor productivity, and supplier or consumer needs. Location advantages can include access to resources, labor costs, local tax incentives, and climate.
Internalization Advantages refer to an organization’s ability to internalize activities in order to maximize the advantageous elements of Ownership and Location Advantages. This includes the implementation of management systems and organizational structures that take advantage of the ownership and location factors. Internalization Advantages can be gained by investing in physical assets, adopting managerial methods, and improving control mechanisms to better manage operations.
The Eclectic Paradigm is often associated with the concept of multinational firms – firms that operate in multiple countries, regions, and markets. By utilizing the Ownership, Location, and Internalization Advantages, these firms are able to better maximize their profits and ensure their presence in a variety of global markets.
Therefore, the Eclectic Paradigm provides organizations with an opportunity to explore the advantages of different approaches to their business operations and make the best possible strategic decision. It offers an integration of all components of a business – from ownership to location to internalization – to create more value for the organization.