The Eclectic Paradigm A Framework for Synthesizing and Comparing Theories of International Business from Different Disciplines or Perspectives Edited by John Cantwell The Eclectic Paradigm This page intentionally left blank The Eclectic Paradigm A Framework for Synthesizing and Comparing Theories of International Business from Different Disciplines or Perspectives Edited by John Cantwell Rutgers University, USA Selection, introduction and editorial matter © John Cantwell 2015 Individual chapters © Academy of International Business 2015 Softcover reprint of the hardcover 1st edition 2015 978-1-137-54469-8 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6–10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2015 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of St Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN 978-1-349-57497-1 ISBN 978-1-137-54471-1 (eBook) DOI 10.1007/978-1-137-54471-1 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data The eclectic paradigm : a framework for synthesizing and comparing theories of international business from different disciplines or perspectives / edited by John Cantwell with Academy of International Business. pages cm Includes index. Summary: “While originally the eclectic paradigm helped bring together and compare mainly economic theories of International Business (IB), today its greater value is as a framework that has the potential to enable us to relate to one another IB theories derived from ideas taken from different disciplines and constructed at different levels of analysis. To help to promote a greater conversation between those interested in the theoretical explanation of IB activities from various different backgrounds or starting points, this book offers a special Collection of JIBS articles which concern the foundations and the application of the eclectic paradigm. Journal of International Business Studies (JIBS) is an official publication of the Academy of International Business and is the top-ranked journal in the field of international business. The goal of JIBS is to publish insightful, innovative and impactful research on international business. JIBS is multidisciplinary in scope and interdisciplinary in content and methodology. For more information, visit www.jibs.net. Academy of International Business (AIB) is the leading association of scholars and specialists in the field of international business. The leading global community of scholars and researchers for the creation and dissemination of knowledge about international business and policy issues, the AIB transcends the boundaries of single academic disciplines and managerial functions to enhance business education and practice. For more information, visit aib.msu.edu”— Provided by publisher. 1. International business enterprises. 2. Strategic alliances (Business) 3. Knowledge management. 4. Technological innovations—Economic aspects. 5. Industrial location. 6. Globalization—Economic aspects. I. Cantwell, John, 1955– HD2755.5.E2435 2015 338.8’801—dc23 2015029071 Typeset by MPS Limited, Chennai, India. Contents List of Figures and Tables vi 1 An Introduction to the Eclectic Paradigm as a Meta-Framework for the Cross-Disciplinary Analysis of International Business 1 John Cantwell 2 Toward an Eclectic Theory of International Production: Some Empirical Tests 23 John H. Dunning 3 The Eclectic Paradigm of International Production: A Restatement and Some Possible Extensions 50 John H. Dunning 4 Political Aspects of MNE Theory 85 Jean J. Boddewyn 5 Reappraising the Eclectic Paradigm in an Age of Alliance Capitalism 111 John H. Dunning 6 Is Dunning’s Eclectic Framework Descriptive or Normative? 143 Lance Eliot Brouthers, Keith D. Brouthers and Steve Werner 7 Is Knowledge Power? Knowledge Flows, Subsidiary Power and Rent-Seeking Within MNCs 157 Ram Mudambi and Pietro Navarra 8 An Evolutionary Approach to Understanding International Business Activity: The Co-evolution of MNEs and the Institutional Environment 192 John Cantwell, John H. Dunning and Sarianna M. Lundan 9 A Dynamic Capabilities-Based Entrepreneurial Theory of the Multinational Enterprise 224 David J. Teece Index 274 v List of Figures and Tables Figures 3.1 The endowment/market failure paradigm of international production 62 3.2 Illustration of use of factor endowment/market failure paradigm in explaining three main forms of international production 63 7.1 Knowledge creation in the subsidiary 163 7.2 The model: knowledge flows, subsidiary power and rent-seeking 165 9.1 Best-practice diffusion 244 9.2 Logical structure of the dynamic capabilities paradigm 248 Tables 2.1 The determinants of international production 28 2.2 Ownership and location advantages 33 2.3 H1 determinants of participation ratios of U.S. MNEs in seven countries, 1970 38 2.4 H2 determinants of export/local production ratios (X/AS) of U.S. MNEs (DV4) in seven countries, 1970 39 2.5 H1 determinants of participation ratios of U.S. MNEs in five advanced countries, 1970 40 2.6 H2 determinants of export/local production (X/AS) ratios (DV4) of U.S. MNEs in five advanced countries, 1970 42 2.A2 U.S. affiliate sales, U.S. exports, and total industry sales in seven countries, 1970 44 2.A3 List of industries (and concordance) 46 5.1 A reconfiguration of the eclectic paradigm of international production 124 6.1 Discriminant analysis of entry mode predicted by organisational, locational, and internalization characteristics 151 6.2 Regression estimates of performance satisfaction 152 7.1 High technology industries and the sample 169 vi List of Figures and Tables vii 7.2 Summary statistics 170 7.3 Factor analysis of firm-specific qualitative variables: varimax rotation 174 7.4 Knowledge flows, subsidiary power and rent-seeking: iterated 3SlS estimates 176 7.5 Subsidiary profitability vs subsidiary bargaining power 180 7.A1 Variable definitions are shown in Table A1 189 8.1 Institutional evolution in the global economy 204 8.2 Forms of MNE institutional engagement 206 9.1 The interrelation of dynamic capabilities and strategy 240 9.2 Elements of the capabilities framework 245 1 An Introduction to the Eclectic Paradigm as a Meta-Framework for the Cross-Disciplinary Analysis of International Business John Cantwell A major aim of this book on the eclectic paradigm is to enable scholars com- ing to the International Business (IB) field from a cognate discipline, perhaps for the first time, to be able to connect their own way of thinking about IB issues to a framework for IB analysis that is already well established in our field. It is also hoped that this collection of chapters originally published in the Journal of International Business Studies (JIBS), the leading journal in the IB field, will help to remind mainstream IB scholars of how the framework of the eclectic paradigm has emerged and developed, and of the contribution that JIBS has played in this development. As is well known among IB scholars, the eclectic paradigm was first incarnated as the eclectic theory (by John Dunning in 1977), but rather quickly metamorphosed into a paradigm (Dunning, 1988, 2001), or a meta-framework for the conduct of IB analysis and IB concept or theory building. While Dunning had initially been caught up in the enthusiasm of the early days of the genesis of the IB field to suggest a ‘general theory’ of the multi national enterprise (MNE) and the international production that MNEs organize around the world, he soon appreciated that the synthesis he proposed was instead a means by which the various relevant theories of IB could be identified (according to which question was being asked), and then suitably combined or compared as appropriate. The different theories of IB at that time, and subsequently, can be characterized as addressing selected aspects of the ownership (O), location (L) and internalization (I) advantages that are necessary for the emergence, growth and evolution of international production under common control and coordination across borders. Hence, the eclectic paradigm is also known as the OLI paradigm, and it provides a structure for bringing together and applying various kinds of theories of IB (Dunning, 1990). Thus, the eclectic paradigm distinguishes between influences on IB activities associated with the nationality of ownership (O) or the foreign 1 2 An Introduction to the Eclectic Paradigm origin of firms engaged in IB, the extent of the internalization (I) of mar- kets across borders which affects the boundaries of the MNE, and the characteristics of the host location(s) (L) in which IB activities are sited. In other words, the eclectic paradigm is essentially about how to appropri- ately combine issues of firm network-derived and home country inherited capabilities (O), transaction costs (I), and the resources, capabilities and institutions of locations as host production sites (L). This analytical struc- ture has laid a common foundation for a progressive conversation between different perspectives on IB that enables an increasing interchange to be conducted across various streams of research that might otherwise have found it difficult to relate to one another. While originally the eclectic paradigm helped us to bring together and compare mainly economic theo- ries of IB, today its greater value is as a framework that has the potential to enable us to relate to one another IB theories derived from ideas taken from different disciplines and constructed at different levels of analysis. To help promote a greater conversation between those interested in the theo- retical explanation of IB activities from various different backgrounds or starting points, we are pleased to offer this special collection of JIBS articles that help to trace out the f oundations and the potential applications of the eclectic paradigm. The origins of the eclectic paradigm Without yet using the terminology of the eclectic paradigm, in his earlier work Dunning’s (1958, 1970) analytical reasoning about the determinants of international production had been based on explanations of O and L advantages, and accounts of how such O and L factors may interact with one another over time. This focus on theories of O and L advantages was true of most of the pioneering studies that established the IB field in the 1950s and 1960s, including the contributions of others such as Hymer, Kindleberger, Reddaway or Vernon. The center of empirical attention in those years was the growth of US MNE operations in Europe, and the primary concern was most often with explaining aggregate patterns of foreign direct investment (FDI) and their relationship with international trade and the balance of payments. Explanations were provided for the interaction between home country and parent company (O) and host country (L) conditions in driv- ing an expansion of FDI, and as a means of examining the likely impacts on home and host countries as well as on MNEs. While Dunning, Vernon and especially Hymer did theorize about the MNE and the growth of the MNE as a firm, this was generally placed in the wider context of understanding the overall implications of FDI and its likely home and host country effects. Hence, the theory of the firm, such as it was in that early period of theoriz- ing about IB, was seen as part of the study of a wider system of relationships at a country level, and so I advantages were not a prominent part of analysis