3 What are the strengths of the eclectic theory of FDI Can y

3. What are the strengths of the eclectic theory of FDI? Can you see any shortcomings? How does the eclectic theory influence management practice?

Solution

Not only the organization’s possession of the internal abilities and resources but alos the ability to coordinate these so that some competitive advantage can be obtained will decide the success or the failure of the foreign investment. This can consist of strong brand name, physical assets, R&D facilities, patents and innovations along with a varied class of other organizational efficiencies, for example, latest technologies based strategic tools or economies of scale.

I is necessary for MNCs to have some unique advantages which can accommodate the disadvantages faced by these firms while dealing the competition of local firms in the home country. There can be twofold location benefits. When the firm is near to the customers or the markets, the advantage of location can be gained. This will facilitate the regular supply but the various costs associated with the transportation, warehousing, developing cost can be avoided. Similarly, if the firm is near to the suppliers of raw material, this will also benefit it. This will eliminate a long time for acquiring the resources and maintaining higher quality.

In fact, there are some incidents where foreign investment can gain the advantages such as cheap labors or make the firm visible to scarce immobile resources only accessible to local firms. This will help in FDI adoption. The advantage of location can be gained if the performance of operations is more cost-effective in the foreign locations in comparison to a home country.

Thus we can say that the strengths of the eclectic theory are that it brings the best aspects of different theories together and helps in combining the single explanation. It explains that location advantages can be both positive and negative. The location related advantages can result from the usage of resources endowment or assets which are related to a certain foreign location and these are found as valuable by the firm to combine with the unique assets.

If the firm is lacking a strong marketing ability, technological and management capabilities, then the firm will not be able to accomplish their requirements which they need to fulfill their management practices.