Week 2 - Dunning’s eclectic paradigm PDF

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Lecture notes for the first week in the module of International Business Theory and Strategy, featuring: "Dunning’s eclectic paradigm"...

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Week 2 Dunning’s eclectic paradigm Lecture 2.1 – Overview 

Three conditions determine whether or not a company will enter a given foreign country via FDI: o Ownership-specific advantages – knowledge, skills capabilities, relationships or physical assets a particular firm owns  developed at home. Theories: - Monopolistic advantage theory  based on the premise that MNEs prefer FDI as they will have control over resources and capabilities in the foreign market, and a degree of monopoly power relative to foreign competitors - Resources and capabilities – resource based  VRIO Framework o Location-specific advantages – the specific advantages that exist in the country that the MNE has entered – natural resources, labour, policies - The theory of comparative advantages  Porters Diamond model o Internalisation advantages – having control over a foreign based manufacturing, distribution and other value chain operations. Theories: - Internalisation theory – how the MNE chooses to acquire and retain one or more value chain activities inside itself  greater control over foreign operations - Market imperfections theory

Lecture 2.2 – Ownership-specific advantages and Monopolistic advantage 

Ownership-specific advantages  explained first time by Hymer (1976)  neoclassical theories couldn’t explain how foreign firms were successful in domestic markets - Foreign firms overcome the lack of experience and knowledge of the market with their own superior assets to compensate for this disadvantage - Monopolistic advantages are not available to local firms or they are superior to their existing assets

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Apple and Tesla competitive advantages video: (strong resemblances) o Apple: - Pioneer in the smartphone market - Creation of a unique ecosystem for their users  excellent compatibility with other apple devices - Loyal customer base - Production of differentiated products o Tesla: - Pioneer in the electric car market  strong customer loyalty - Since they started from zero and they have had a fast evolution, it will make it difficult for other players to enter the market - Until others adapt  allows the company to win a strong market share - Unique feature – Autopilot  new feature with a learning machine from all the vehicles they produce  the more miles, the more reliable - Branding and outstanding marketing  making patents public to show that their objective is making human life sustainable + recognisable image of Elon Musk - Controlling entire supply chain - Production of differentiated products

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Dynamic and sustained competitive advantage: o Systemic investigation of creating dynamic competitive advantage o Knowledge creation through research and development o Intellectual property rights must be strong in the country...