At first we analyzed the Uppsala model, or Swedish model, on the internationalization of companies. This model bases its analysis on how and where, however it does not go into analyzing the reasons that lead companies to expand the borders of their businesses.
With the eclectic paradigm, formulated by Dunning, an explanation is sought about the reasons that lead a company to start producing abroad, the reason for these processes.
Why the company should become international
According to the eclectic paradigm, and as stated in the article by Juan José Renau Piqueras, “the importance of international production, as the form and behavior of it and, consequently, of the companies that carry it out are determined by the configuration of three sets of advantages:
· asset advantages
· transaction advantages
· location advantages
The advantages of property or assets refer to the assets that are owned by companies compared to those of other companies.
The transaction advantages are based on the transactional benefits that the company has when coordinating and controlling assets located in different countries.
The advantages of localization occur when it is more beneficial to combine transferable intermediate products, especially those produced in the country of origin, with other products produced in other countries.
For international production to take place, according to this paradigm, companies that have property advantages must be interested in transferring them to other countries, within the company, to obtain cost savings.
Likewise, the greater the three advantages (assets, transaction and location), the better the benefits and the more suitable it will be to carry out the internationalization process.
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If you want more information about the design and implementation of Internationalization Strategies, please contact us.
In the next blog post, we will analyze the Porter paradigm that allows us to analyze mainly the “where should internationalization take place”.
Juan José Renau Piqueras was a professor of Business Economics and Dean of the Faculty of Economic and Business Sciences of the University of Valencia.