Eclectic Paradigm

Eclectic Paradigm

A theory that provides a three-tiered framework for a company to follow when determining if it is beneficial to pursue direct foreign investment.

Notes:

In order for a direct investment in a foreign country to be beneficial, the following advantages must be present:

1. Product or company specific advantages, such as a comparative advantage.

2. Location specific advantages - where the company derives greater benefit through a foreign establishment.

3. Market internalization - meaning it is better for the company to exploit a foreign opportunity itself, rather than through an agreement with a foreign firm.

See also: Absolute Advantage, Comparative Advantage, Foreign Direct Investment (FDI), New Paradigm

---

Eclectic paradigm

A theory that posits three types of advantages benefiting a multinational corporation: ownership-specific, location-specific, and market internalization advantages.