Eclectic Paradigm

AAA

DEFINITION of '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. The eclectic theory paradigm is based on the assumption that institutions will avoid transactions in the open market when internal transactions carry lower costs.

INVESTOPEDIA EXPLAINS 'Eclectic Paradigm'

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.

RELATED TERMS
  1. Absolute Advantage

    The ability of a country, individual, company or region to produce ...
  2. Paradigm Shift

    A major change in how some process is accomplished. A paradigm ...
  3. Comparative Advantage

    The ability of a firm or individual to produce goods and/or services ...
  4. New Paradigm

    In the investing world, a new paradigm is a totally new way of ...
  5. Foreign Direct Investment - FDI

    An investment made by a company or entity based in one country, ...
  6. Welfare Capitalism

    Definition of welfare capitalism.
Related Articles
  1. Forex Education

    Dollarization Explained

    Find out how fledgling economies can find some stability in their currency and attract foreign investment.
  2. Economics

    What Is An Emerging Market Economy?

    Emerging markets provide new investment opportunities, but there are risks - both to residents and foreign investors.
  3. Economics

    What Is Happening To The BRIC Economies?

    Ten years ago, it was about the BRIC countries –Brazil, Russia, India, and China, and it was thought that capitalizing their resources would elevate them.
  4. Economics

    The Economic and Social Effects of Corruption

    Corruption results in inefficiencies in the operations of emerging economies, and prevents such economies from reaching the maximum level of development.
  5. Economics

    Sanctions & Falling Oil Prices Hit Ruble Hard

    Russia, through its aggressive actions, has brought upon itself sanctions which, coupled with falling oil prices, have adversely impacted its economy.
  6. Professionals

    How Mukesh Ambani Has Expanded Reliance Industry

    Mukesh Ambani has expanded Reliance Industries and increased its revenues, but his public image, and that of his company, have not fared as well.
  7. Options & Futures

    What percentage of the global economy is comprised of the forest products sector?

    Find out what percentage of the global economy is comprised of the forest products sector, and learn why coming up with an accurate estimate may be difficult.
  8. Economics

    What developed countries have the greatest exposure to oil & gas drilling?

    Find out which countries have the largest proven reserves of oil and gas, and learn how the energy landscape has changed due to technological advances.
  9. Markets

    Why Are Investors Turning Down The Volume?

    Many U.S. investors are choosing to turn down the volume over the holidays, perhaps saving their song for when volatility improves.
  10. Investing

    Top 10 Largest Global IPOs Of All Time

    We have compiled a list of the top 10 largest IPOs of all time. The results may surprise you.

You May Also Like

Hot Definitions
  1. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  2. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  3. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  4. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  5. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
  6. Key Performance Indicators - KPI

    A set of quantifiable measures that a company or industry uses to gauge or compare performance in terms of meeting their ...
Trading Center