According to which of the following theories of International Business, the pattern of FDI is determined by combination of Core Competency, locational advantage and entry mode ?
Eclectic Theory
The Eclectic Theory — option 4. The word combination in the question is the clue: the theory is called eclectic precisely because it draws three separate explanations together.
Dunning’s OLI paradigm. John Dunning argued that a firm will undertake foreign direct investment only when all three advantages are present at once :
| Advantage | Question it answers | Content | In the question |
|---|---|---|---|
| O — Ownership | Why can this firm compete abroad ? | Firm-specific assets — technology, brand, patents, managerial skill | Core competency |
| L — Location | Where should it produce ? | Cheap labour or materials, market size, tariffs, infrastructure, policy | Locational advantage |
| I — Internalisation | How should it enter ? | Whether to keep the activity inside the firm or license it to an outsider | Entry mode |
Why all three are needed. Each one alone leads somewhere else :
| Advantages present | What the firm does instead |
|---|---|
| O only | Licensing — sell the right to use the asset abroad |
| O and I | Export — produce at home and ship |
| O, L and I together | Foreign direct investment |
The competing theories. Vernon’s International Product Life Cycle explains how production migrates from the innovating country to other developed countries and finally to developing countries as a product matures. Hymer’s market imperfection theory holds that FDI occurs because markets are imperfect and the firm exploits an advantage it could not sell. Internalisation theory, from Buckley and Casson, explains why a firm keeps an activity in-house rather than transacting through the market. Dunning’s achievement was to see that these are not rivals but partial accounts, and to combine them — which is exactly what “eclectic” means.
Hence, the answer is the Eclectic Theory.
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Important Questions from International Business
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- Which are the four cultural predispositions of MNCs?
- Which among the following pertain to international staffing policy?
A. Geocentric
B. Expatriates
C. Repatriates
D. Employee leasing
E. Career portability
Choose the correct answer from the options given below: - Fill in the blank
"The member countries of WTO have moved to product patent regime under the __________ to meet their obligations under the seven areas covered by the __________ agreement". - Match the List-I and List-ll regarding International business theories with developers:
List I List II (i) Absolute Cost Advantage theory (a) Raymond Xernon (ii) Comparative Cost Advantage theory (b) Adam Smith (iii) Factor Endowment theory (c) David Recardo (iv) Product Life cycle theory (d) Eli Heckscher
