Edited by Alain Verbeke and Hemant Merchant
Chapter 3: The new eclectic paradigm and international business strategy
Combining the influence of ownership-specific (O) advantages, location-specific (L) advantages and internalization (I) advantages, the eclectic or OLI paradigm has become the pre-eminent framework used to explain the form and pattern of the cross-border activities of multinational enterprises (MNEs). This chapter will examine what the paradigm has to offer for scholars of strategic management, focusing particularly on the role of ownership advantages in allowing one firm to outcompete another, and in shaping the structure of markets in the global economy. The chapter is organized as follows. We begin by briefly describing the evolution of the OLI paradigm from an eclectic theory to a paradigm, outlining how the increasing complexity of the cross-border activities of firms has changed the constituent parts of the paradigm. We then present the most recent version of the paradigm, and examine the influence of new theoretical perspectives as well as new empirical realities on our understanding of the cross-border activities of MNEs. We then demonstrate how the paradigm allows one to move between the micro-and macro-levels of analysis by exploring the interaction of the accumulation and evolution of firm capabilities, and the way in which these interact with locationally immobile (dis)advantages. We conclude by highlighting new areas of research, particularly in connection with emerging markets, where a deeper exploration of the interaction and co-evolution between firms, institutions and markets is likely to yield important insights for management and policy.
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