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
- Introduction
- Definitions
- Multinational enterprise
- Export
- Foreign direct investment
- International contracts
- The eclectic paradigm of international production
- OLI advantages
- Ownership advantages
- Location advantages
- Internationalisation advantages
- Market Entry Strategies
- Endowment/Market Failure Paradigm
- Criticism
- OLI advantages
- Uppsala-model of Internationalisation
- Patterns of Internationalisation
- Establishment Chain
- Psychic Distance Chain
- Model of Internationalisation
- State Aspects
- Change Aspects
- Criticism
- Patterns of Internationalisation
- Critical Comparison
- Comparison Eclectic Paradigm & Uppsala-model
- Dynamic vs. static
- Negligence of demand
- Validation
- At home and abroad
- Mode & point of time
- Individuals decide
- Disregard industries and companies particularities
- Eclectic Paradigm in favour of Uppsala-model
- A simple vs. a complex approach
- Uncertainty avoidance vs. rationality
- Uppsala-model in favour of Eclectic Paradigm
- Fast vs. slow Internationalisation process
- Explanation of market entry strategies vs. gradual process
- Comparison Eclectic Paradigm & Uppsala-model
- Conclusion
- Outlook
- Eclectic Paradigm
- Uppsala-Model of Internationalisation
Objectives and Key Themes
This seminar paper aims to critically compare and contrast two prominent internationalization theories: Dunning's Eclectic Paradigm and the Uppsala model. It seeks to analyze their strengths and weaknesses, highlighting their differing approaches to explaining firm internationalization.
- The theoretical underpinnings of the Eclectic Paradigm and the Uppsala model.
- A comparative analysis of the assumptions, mechanisms, and predictions of both theories.
- The strengths and limitations of each model in explaining firm internationalization.
- The implications of the chosen theoretical framework for understanding firm behavior in international markets.
- The applicability of each model to different types of firms and industries.
Chapter Summaries
Introduction: This introductory chapter sets the stage by highlighting the historical context of internationalization, emphasizing the significant shift from limited global engagement to the widespread adoption of globalization and its associated opportunities. It establishes the increased accessibility of markets and the convergence of living standards as key drivers for businesses to venture internationally. The chapter defines internationalization as a process involving inter-firm collaboration across national borders, mostly within industrialized nations, and points out the growing trend of multinational enterprises (MNEs) and their increasing numbers over time, using data on global MNE presence. The chapter ends by suggesting that understanding the processes and strategies behind internationalization is crucial for businesses planning to engage globally, highlighting the importance of strategic choices involved in international business ventures.
Definitions: This chapter provides essential definitions of key concepts relevant to the study of internationalization. It clearly defines multinational enterprises (MNEs), export activities, foreign direct investment (FDI), and international contracts. These definitions serve as building blocks for the subsequent analysis and comparison of the two theoretical frameworks. Each definition provides a clear understanding of the different modes of international business engagement.
The eclectic paradigm of international production: This chapter delves into Dunning's Eclectic Paradigm, outlining its core components: ownership advantages, location advantages, and internalization advantages (OLI). It details how these advantages interact to influence a firm's decision to engage in foreign production. The chapter explores various market entry strategies within the framework of the paradigm and examines the concept of endowment/market failures as drivers of internationalization. A critical assessment of the Eclectic Paradigm's limitations and criticisms concludes the chapter, providing a balanced perspective on its applicability and scope.
Uppsala-model of Internationalisation: This chapter thoroughly explains the Uppsala model of internationalization, a model that emphasizes gradual internationalization based on experiential learning and increasing knowledge of foreign markets. The chapter breaks down the key components: the establishment chain (gradual expansion into new markets) and the psychic distance chain (the perceived differences between home and host countries). It discusses the state and change aspects of the model which highlight the firm's evolving knowledge and commitment over time. Like the previous chapter, the Uppsala model’s inherent limitations and criticisms are then examined in detail, providing a complete evaluation of its strengths and weaknesses.
Critical Comparison: This chapter presents a detailed comparison between the Eclectic Paradigm and the Uppsala model. It contrasts their dynamic vs. static aspects, their handling of market demand, their approaches to validation, and their differing perspectives on domestic and international operations. The chapter analyzes how each model addresses the choice of market entry mode and timing, and also considers individual firm decision-making processes. Lastly, it delves into the significant differences concerning the level of detail considered (simple vs. complex approaches) and contrasting views regarding risk aversion and rational decision making.
Keywords
Internationalization, Eclectic Paradigm, Uppsala model, multinational enterprises (MNEs), foreign direct investment (FDI), market entry strategies, ownership advantages, location advantages, internalization advantages, psychic distance, experiential learning, comparative advantage, firm-specific advantages.
Frequently Asked Questions: A Critical Comparison of the Eclectic Paradigm and the Uppsala Model of Internationalization
What is the main topic of this document?
This document provides a comprehensive overview and critical comparison of two prominent theories of internationalization: Dunning's Eclectic Paradigm and the Uppsala model. It analyzes their strengths, weaknesses, assumptions, and predictions, ultimately aiming to provide a clearer understanding of how firms internationalize.
What theories are compared in this document?
The document focuses on a detailed comparison of Dunning's Eclectic Paradigm and the Uppsala model of internationalization. These are two major theoretical frameworks used to explain why and how firms expand their operations into international markets.
What are the key components of the Eclectic Paradigm?
The Eclectic Paradigm, also known as the OLI framework, rests on three pillars: Ownership advantages (firm-specific assets), Location advantages (country-specific factors), and Internalization advantages (benefits from internalizing transactions). The interaction of these advantages determines a firm's decision to engage in foreign production.
What are the key components of the Uppsala Model?
The Uppsala model emphasizes a gradual and incremental process of internationalization based on experiential learning. Key components include the establishment chain (gradual market expansion) and the psychic distance chain (perceived differences between home and host countries). The model highlights the role of increasing knowledge and commitment over time.
How does the document compare the Eclectic Paradigm and the Uppsala Model?
The document offers a critical comparison across several dimensions, including: dynamic versus static aspects; how each model handles market demand; their validation approaches; their perspectives on domestic versus international operations; how they address market entry mode and timing; and their consideration of individual firm decision-making processes. It also contrasts their levels of detail (simple vs. complex) and approaches to risk aversion and rational decision-making.
What are the strengths and weaknesses of each model?
The document highlights both the strengths and limitations of each model. For example, criticisms of the Eclectic Paradigm include its static nature and potential neglect of market demand. Criticisms of the Uppsala model include its assumption of gradualism and its potential lack of applicability to firms with rapid internationalization strategies.
What are the key definitions provided in the document?
The document provides clear definitions of crucial terms like multinational enterprises (MNEs), export activities, foreign direct investment (FDI), and international contracts. These definitions are essential for understanding the context of the theoretical frameworks.
What is the overall conclusion of the document?
The document concludes by summarizing the key findings of the comparative analysis, highlighting the unique contributions and limitations of both the Eclectic Paradigm and the Uppsala model in explaining firm internationalization. It does not necessarily favor one model over the other but aims to provide a nuanced understanding of their respective strengths and weaknesses.
What are the chapter summaries included in the document?
The document provides concise summaries for each chapter, outlining the content and key takeaways of the introduction, definitions, the eclectic paradigm, the Uppsala model, the critical comparison, and the conclusion.
What keywords are associated with this document?
Key terms include: internationalization, Eclectic Paradigm, Uppsala model, multinational enterprises (MNEs), foreign direct investment (FDI), market entry strategies, ownership advantages, location advantages, internalization advantages, psychic distance, experiential learning, comparative advantage, and firm-specific advantages.
- 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
