Apple Supplier Foxconn Employs 14-Year-Olds

The eclecticist mental image is a theory in economics and is also known as the OLI-Model or OLI-Framework. 12 It is a further development of the theory of internalization and print by John H. Dunning in 1980. 3 The theory of internalization itself is based on the transaction cost theory. 3 This theory says that transactions be make inwardly an institution if the transaction costs on the free market ar higher(prenominal) than the internal costs. This process is called internalization. 3 For Dunning, not just the structure of boldness is important. 3 He added 3 to a greater extent factors to the theory3 Ownership advantages1 (trademark, overlapion technique, entrepreneurial skills, returns to scale)2 Ownership specific advantages refer to the competitive advantages of the enterprises seeking to enmesh in Foreign direct investment (FDI). The greater the competitive advantages of the investing firms, the more they are likely to engage in their foreign production. 4 Location adv antages 5(existence of lancinating somatics, low wages, special taxes or tariffs)2 Locational attractions refer to the alternative countries or regions, for task the value adding activities of MNEs.The more the immobile, natural or created resources, which firms need to use collectively with their own competitive advantages, favor a presence in a foreign location, the more firms will choose to augment or performance their O specific advantages by engaging in FDI. 4 Internalization advantages (advantages by own production rather than producing through a partnership faceing such as licensing or a joint venture)2 Firms may constitute the creation and exploitation of their core competencies.The greater the net benefits of internalizing cross-border intermediate product markets, the more likely a firm will prefer to engage in foreign production itself rather than license the right to do so. 4 Source Dunning (1981)6Categories of advantages Ownership advantagesInternalization advan tagesLocation advantages Form of market entry Licensing1 YesNoNo Export YesYesNo FDI YesYesYes editTheory The conception behind the Eclectic Paradigm is to merge several isolated theories of world(prenominal) economics in one approach. 1 Three basic forms of international activities of companies throne be distinguished Export, FDI and Licensing. 1 The so-called OLI-factors are three categories of advantages, namely the willpower advantages, locational advantages and internalization advantages. 1 A precondition for international activities of a ships company are the availability of net ownership advantages. These advantages substructure both be material and immaterial. The term net ownership advantages is used to express the advantages that a company has in foreign and unknown markets. 1 According to Dunning two different types of FDI stop be distinguished. While resource seeking investments are made in order to establish access to basic material like earthy materials or othe r input factors, market seeking investments are made to enter an existing market or establish a unused market. 1 A closer distinction is made by Dunning with the terms power seeking investments, strategic seeking investments and support investments. 1 Trade and FDI patterns for industries and countries. 7Location advantages StrongWeak Ownership advantagesStrongExportsOutward FDI WeakInward FDIImportsThe eclectic paradigm also contrasts a countrys resource endowment and geographical position (providing locational advantages) with firms resources (ownership advantages). 7 In the model, countries rear be shown to face one of the four outcomes shown in the render above. 7 In the top, right hand box in the figure above firms possess competitive advantages, but the home domicile has higher factor and transport costs than foreign locations. 7 The firms therefore make a FDI abroad in order to capture the rents from their advantages. 7 But if the country has locational advantages, backbr eaking local firms are more likely to emphasize merchandiseing. 7 The possibilities when the nation has only weak firms, as in most developing countries, leads to the opposite outcomes. 7 These conditions are similar to those suggested by Porters diamond model of national competitiveness. 7 editApplication in class period In dependence of the categories of advantage there can be elect the form of the international application. If a company has ownership advantages like having friendship about the target market abroad, for example staff with language skills, teaching about import permissions, appropriate products, contacts and so on, it can do a licensing.The licensing is less cost-intensive than the other forms of internalization. If there are internalization advantages, the company can invest more capital abroad. This can be achieved by export in form of an export subsidiary. The FDI is the most capital intensive activity that a company can choose. According to Dunning, it is considered that locational advantages are necessary for FDI. This can be realized by factories which are either bought or tout ensemble constructed abroad. FDI is the most capital intensive form of internalization activity.