Eclectic Paradigm / OLI Paradigm
Updated 2026-08-01
INTRODUCTION
English translation pending.
CORE DEFINITION
Formulated by John Dunning. The OLI paradigm holds that foreign direct investment occurs only when three conditions are jointly satisfied: ownership advantages, meaning firm-specific assets such as technology or brand; location advantages, meaning country-specific endowments such as market access or cheap inputs; and internalization advantages, meaning it is better to keep the activity inside the firm than to license or outsource it. The three are jointly necessary.
SCAFFOLDING EFFECT
Reduce cognitive load
- Test the decision: check whether your firm holds all three advantages before choosing direct investment - Compare modes: choose exporting or licensing when the internalization advantage is absent - Apply personally: ask whether your skills, market, and independence each justify the move you are considering
Anchor fast decisions
Ownership advantages explain why a firm can compete abroad despite unfamiliarity; location advantages explain why production should happen in a particular country; internalization advantages explain why the firm should own the operation rather than contract it out. Each answers a different question, and if any answer is missing, a lower-commitment mode such as exporting or licensing dominates direct investment.
MINIMUM ACTION
In progress 0/1Practice this model in one real situation:
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Source support: Explicit
- en.wikipedia.orghttps://en.wikipedia.org/wiki/Eclectic_paradigmverified
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