Do You Believe The Eclectic Theory Is All-encompassing As It Is Purported To Be? (Essay Sample)

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Do you believe the eclectic theory is all-encompassing as it is purported to be?
The eclectic dunning theory is one of the popular theories of internationalization that has been widely applied by organizations while deciding on the right mode of entry in new market. In the 21st century, the greatest challenge for multinational enterprises has been to make a decision on how to penetrate new markets as they seek to escape pressure that has accumulated in their domestic markets. Although new markets pose new opportunities, many companies are wary that failure to choose the right mode of entry can be costly considering that such markets are complex. Although the eclectic theory combines the RA, international trade, and TCA theories to make it more integrative in predicting the best market entry mode, it is criticized for failing to consider market complexity, existence of risks in foreign countries, and failing to acknowledge the diverse range of market entry modes. On this ground, this theory is not an all-encompassing theory as it is deemed to be because it fails to include above market factors that may impact internationalization strategy
One of the strengths of this theory is its ability to combine the concepts laid down in several theories. Dunning combines the RA, international trade, and TCA theories by terming organizational, location, and internalization advantages respectively as the essential factors that firms should consider while choosing the market entry mode (Malhotra, Agarwal, and Ulgado 6). However, there are a number of reasons that show that this theory suffers from weaknesses that make is less comprehensive. First, this model considers export, licensing, and own subsidiary as the only market entry modes forgetting to consider other means such as joint ventures that companies have found more reasonable to use while expanding their business across the borders. Secondly, this model assumes all markets are technology intensive, which is controversial considering most emerging markets are less endowed with technology (Andersen, Ahmad, and Chan 54). In fact, Malhotra, Agarwal, and Ulgado argue that no particular theory on its own is comprehensive enough to decide the right entry mode (24). These weaknesses point to the possibility that this theory is not all-encompassing as it is expected to be.
Thirdly, the statement that “eclectic theory, also known as eclectic paradigm is defined as an argument that combining location-specific assets or resource endowments and the firm’s own unique assets often require FDI; it requires the first to establish production facilities where those foreign assets or resource endowments are located” is subject to criticism (Hill 673). The market imperfections theory seems to offer a perspective of criticizing Dunning’s generalization. This theory claims that markets are generally uncertain and the risk of failure is high for foreign firms even when such markets appear advantageous (Malhotra, Agarwal, and Ulgado 4). The rationale of this argument is that when companies get into new markets, there are always internal factors in the new market that reduce the potential to apply its organizational advantages such as labor alignment. Market factors such as competition, demand, and culture impact on the organizational success (Malhotra, Agarwal, and Ulgado 16: Andersen, Ahmad, and Chan 45). Consequently, this makes it risky even when l...