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Eclectic Paradigm In International Theory

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Eclectic paradigm is a theory that provides a three-thiered framework for a company to follow when determining if it is beneficial to pursue direct foreign investment , the eclectic paradigm is assumed that institutions will avoid transactions in the open market when internal transactions carry lower costs in order for a direct investment in a foreign country to be successful.
The Eclectic paradigm is also known as the OLI model .The OLI stands for ownership, Location and internationalization , 3 potential sources of advantages that may be the cause of a firm’s decision to become a multinational. The focus of the Eclectic paradigm from its birth till now has been the O (why) ,L (where) and I (how).
John.H.Dunning
According to Dunning (1979,p.274)the eclectic paradigm resulted from his dissatisfaction with existing theory of international production, the Hymer-Kindheberger approach , the PLC theory and the international theory. Hence The eclectic paradigm is widely regarded as an overarching of explanation of international production (Dunning,2000).The definition of the O-L-I Framework by dunning are as follows : Dunning defined ownership advantages as “any kind of income generating assests which make it possible for firms to engage in foreign production” (1991:123).Regarding the locational advantages Dunning pointed out that firms are involved in foreign production whenever they perceive it is in their best interests to combine spatially transferable intermediate products

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