Theories of Internationalization in International Business

This document discusses the theories of internationalization in international business, including the Dunning eclectic paradigm theory, Kruger's first mover advantage theory, and Vernon's product lifecycle theory. It explores the advantages of each theory and provides case studies to illustrate their application. The document also compares the advantages between these theories.

International Business
Theories of internationalization
business
Student name

International Business 1
Contents
Introduction....................................................................................................................2
Dunning eclectric paradigm Theory...............................................................................2
Kruger’s First mover advantage theory..........................................................................4
Vernon’s product lifecycle theory..................................................................................5
Comparison based on advantages between theories......................................................7
Comparison based on disadvantage between theories...................................................9
Conclusion....................................................................................................................10

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Introduction
International business highlights those business activities, which are done across national
borders. It majorly focuses on the purchasing and selling of the goods, commodities, and the
services outside the geographical borders. In international business aspect there are numerous
benefits to the nation and firms such as, It encourage the nation to obtain the foreign
exchange, it also helps country to enhance its development prospects and further making
opportunities for employment (Cassiman, and Golovko, 2011). Other than this, it helps in
improving the profits of the organisations by selling products in nation where cost is high.
Lastly, international businesses helps organisation in enhancing the vision as it makes them
more aggressive and diversified (Shenkar, Luo, and Chi, 2014).
Dunning eclectric paradigm Theory
(Source: MBN, 2019)
This theory is based on the conceptual framework given by the eclectric paradigm, which
represents the improvement, and highlighting on all others transactions cost theory, including
the core business and its locations factors. This theory is also known as OLI model or OLI
structure (Dunning, 2013). This concept highlights that the trades are made within an

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organization if the operation cost on the free market are complex than the inner costs. This
entire process is known as Internationalization (Verbeke, 2013).
In ownership: Ownership specifically highlights about the competitive advantage of the
companies who are engaged in foreign direct investment. In this if, an enterprise is having a
greater competitive advantage they will surely be more engaged in the foreign productions
(Dunning, 2015). Likewise, Amazon prime, there major competitive advantage is an
extremely efficient and accurate along with the fastest speed are their major priority.
Customers getting guarantee two days shipping on all products, which are the prime eligible.
Their competitive advantage is based on two major aspects one is the customers’ conditions
and secondly, encourages more purchases. Due to its speedy delivery as a competitive
advantage amazon as widely available in the foreign production.
Location advantages: In this, there must be some kind of locality benefit in the market, in
which the corporation is trying to enter. In this, the host company offers the competitive
advantages to make it valuable to undertake foreign direct investment. Likewise, Netherlands
is in amongst the greatest economies like UK and Germany, which are present because of the
presence of cheap raw material, low earnings and trained labour (Lundan, 2012). Similarly, in
china there are more of value chain activities abroad through FDI, due to the cheap raw
material, skilled labour and with the special taxes and tariffs. Lastly, the management should
look for the location advantage then id their yes; they should perform certain value chain
activities either through licencing or through FDI (Siddiqui, et al 2012)
Internationalization advantages: In this, The Company can be benefited through a
partnership arrangement such as licencing or the joint ventures (Andersson, Evers, and
Kuivalainen, 2014). In this, the firms have to organize themselves in creation and exploitation
of their core competencies. In this, if the company having a greater net benefits of
internalizing cross-border, they are more likely to prefer being engaged in foreign production
itself (Ferreira, Pinto, Serra, and Filipe, 2011). Example related to the internationalization
advantage is, apple, which wants to uphold control over its knowledge, copyrights,
industrialized processes and lastly the superiority of its products. Another example is of 18
Alcoa, have also internationalized its operations instead of handling by the outside
independent supplier are- firstly, they want to minimize dissemination of knowledge about its
aluminium refining operations. Secondly, due to internationalization provides them the best
returns and allows then to minimize the cost of operations. Thirdly, Alcoa wants to relate

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dissimilar prices strategies to its diverse customers. Finally, Alcoa wants to control it to
maintain the quality of its products (Arnett, and Madhavaram, 2012).
Case study:
Nike is one of the well-known multinational corporations that focus on linking the diverse
economies on a global scale for carrying out its manufacture purposes. Nike focuses on
assembling dissimilar material and non-material resources through the construction of
multifaceted arrangement between the assorted international economies. Nike’s foreign
direct investment bought a lot of advantage to the firm. Likewise, in location terms- Nike
owned manufacturing factories in the foreign countries such as Indonesia, Internationally,
collaborative ventures with R and D technologies (Li, Qian, and Qian, 2012). Nevertheless, in
labour force conditions it is very much critical concern to Nike. Due to the cheap labour, they
use child labour for the completion for their production material in order to generate more of
its competitive advantage over the other companies (Kye, 2018).
Kruger’s First mover advantage theory
This theory highlights about the advantaged gained by the company, which firstly introduces
a product or any services to the market. In this such advantage allows the company to
establish the strong brand recognition along with this, also helps in maintaining product or
service loyalty in front of the others entrants. This theory applies to the larger companies that
move into a market (Holmes, 2017).
The idea based bon this theory is related to the “the early bird gets the worms” In corporate
terms, a corporation applying this strategy gets the long lasting effects or benefits or
competitive advantage. The first mover companies are also called as the market pioneers. The
benefits to these market pioneers may result in market dominance and higher profitability
over time. The benefits to the early entrants is understanding and using of technologies, along
with this, the company also learns how to reduce cost of producing a product through
accumulated experiences (Deng, and Wang, 2016). Moreover, control of resources is very
much necessary for the business. For example, if a new restaurant in town choose the best
location. For this, Walmart was a first mover to locate discounts stores in the small town.
Such types of companies always have an opportunity to build resources that may discourage
the other companies. Another benefits related to this is the buyers switching cost. In this, if
the earlier product is costly or inconvenient, customers can shift to the new brand, and the

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business to gain buyers will have benefit. Examples in this concern are the Coca-Cola soft
drinks (Cahill, 2016). Kleenex facial tissues are the well-known brands who are dominating
for the long time.
It not always that being a first mover always guarantees an advantage, investors for being
always a first mover can erupt disadvantages like the first mover have to invest heavily in
pursuing customers to try their new product. Other than this, later entrants do not have to
invest to inform their buyers and neither has to invest much on educating customers about the
new launched products. Moreover, laggards’ entrants can avoid those faults, which were
already made by the first mover. If the first mover is incapable to capture their customers
with their products, later entrants can take advantage of it by attracting those, which were left
out by the first mover. Lastly, the later competitors can identify the area of development by
the first mover and take advantage of it. This is how the first mover advantage has certain
drawbacks, which benefits the later entrants for being late (Kenton, 2018).
Case Study of Amazon Logistics:
Amazon undoubtedly was the first mover advantage in e-commerce industry. Amazon
continues to steal the market share year after year. In recent year, Amazon made giant
investments in logistics assets. In last technology conference, it was declared that amazon
was not aiming to take over the last mile of delivery but their goal was to support peak season
fulfilment. Moreover, Amazon.com was also applied first mover in different ways, by
collaborating with borders and continuing to extent its products offering to apparel,
electronics, toys and housewares.
Vernon’s product lifecycle theory
The product life cycle stages were developed Raymond Vermon in 1966. He explains that
product lifecycle stages comprises of products, in which each product has a certain life cycle
that initiates with the development process and finishes with the decline. He explains that
there are four main phases in the product life cycle, those are introduction, growth, maturity
and lastly, decline (Bilir, 2014).

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(Source: Bilir, 2014)
This cycle highlights about the life span of merchandise and how fast it goes through the
entire life cycle depends on its market request and on their usage of marketing instruments. In
Introduction stage when an organisation develops it products they are introduced to national
or international market. In order to generate demand companies do investment with the
respect of promotion and according to customers’ needs, a new product is formed and sold in
the market. At this particular stage, profits are very low as well as low competitors. When
more items are sold in the market, product automatically jumps on to the next stage of life
cycle (Levitt, 2018).
Growth Stage: In this stage, the demand for the product is increased so as with sales.
Therefore, its reduces the companies production cost and increase the profits of the firm. By
the promotions and the other techniques applied by the company, now the product is widely
known by its customers, competitors. In this, competitors to win over them they reduces the
prices of their product in order to attract as much as possible customers. Nevertheless, the
original company focuses on its promotional spending and keeps growing in their selling and
profit making aspect. In addition, when company attract more of the new customers, which
purchased their product company automatically, enter into the next stage.
Maturity Stage: In this stage of the product life cycle, the creation is widely known and are
accepted by the customers. Opposition with the other companies is very much intense and
they can do anything to remain stable in the market. In this the companies adopts new
strategy, low price strategy in which they sold their products at low price and also start
looking for the commercial opportunities such as adaption of new technologies or trying to

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get some innovation to their product. Further, customers are also insist for the replacing the
old product with the newer one. At this stage the marketing and promotion, cost for the
product is very high. The company in this stage has a fear for the decline of the product
(Levitt, 2018).
Decline Stage: At this stage, the market becomes saturated and the merchandise demand
falls and is no longer traded and become unpopular in the eyes of the customers. The results
of this stage of the product life cycle are naturally occurred. Alternatively, company starts
introducing new and innovate products and services to their loyal customers so that they also
remain attached with the products, which they love.
Example: The Philips light bulb was the brand, which has reached its peak point right at
kits maturity stage. The duration of the each stage depends on its demand, promotion cost,
and the revenue earned. Lower the production cost and the higher demand itself- highlights
that the product is more in demand and ensures a longer creation life. Nevertheless, when the
production cost is more and the demand is less for the product it highlights that the survival
of the product is no longer safe and eventually get vanish away from the market through
decline stage (Philips, 2018).
Case Study:
Coca-Cola diet cokes are the fantastic instance of the product that has had a much extended
product life cycle. At an earlier stage of life cycle, Coca-Cola due to the firmness and
competence of keeping a huge and trustworthy groups of stable customers. The company was
travelling a longer period in the maturity phase then Due to the competitors and their
innovations reduced the demand for the Coca-Cola diet coke. Hence, in order to maintain
their customers, Coca-Cola in 2018 has launched the new diet coke with its different flavours,
which kept itself in the competitive advantage in the eyes of the ultimate customers (Moye,
2018).
Comparison based on advantages between theories
Theories Comparison and Contrast (Advantages )
Dunning eclectic Paradigm  Advantage of this theory business
owner attains this when they consider
internationalization.

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 In this ownership, location and
internationalization advantage are
critical in the establishment of the
foreign investment.
 Many technological industries such as
apple, Samsung have considered
ownership of various assets in the
country of investment.
 Such technological organisations
have successful own many locations
in the business world such as china,
United Kingdom, United States of
America.
 This entire theory helps in giving a
sense of financial investment security
to the investors.
 Along with this, this theory also helps
investors in purchasing an assets and
location identification to the smooth
carrying of the business operations.
Kruger’s first mover advantage theory  This theory increases the advantage of
the companies by establishing
international business investments.
 In this theory, companies and the
business organisations should first
establish a sense of competitive
advantage over the others.
 This theory aim is to promote success
by keeping foreign investors above its
competitors.
 In first mover advantage theory, the
companies or the organisation who
are investing in the foreign business
need to be ahead in both local and
international business competitors.
 They should be more advanced in the
technology terms from their other
business competitors, which will be
the major advantage point for the
organisation who is investing in
internationalization business.
 This theory is critical because of its
direct impact on sales, security of the
organisations.
 Moreover, with this theory
organizations have abilities to cope
with the unpredictability of the
business environment (Danciu, 2012).

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Vernon’s product lifecycle theory  This theory helps in identifying the
key characteristics of the products
that allows business organisations to
predict the future of the products.
 In this theory, organisation may lead
to the development of the products.
 Organisation dealing in the foreign
business leads to the product
diversification, resultant high in
production of the products in the
foreign market
 Production of the product at the
maturity stage is extensive to
competitive nature of the markets.
Comparison based on disadvantage between theories
Theories Comparison and contrast (disadvantages)
Dunning’s Eclectic Paradigm  This theory is majorly on the basis of
competitive ownership advantages, it
is critical when establishing foreign
investments.
 Some of the organisation fail due to
the considering them as having
competitive advantage over
competitors.
 In this the process of
internationalization, will continue as
long as business organisations are
able to identify and turn themselves
into successfully occupying niche
foreign markets.
 In this theory, today’s analysis of
business world reveals that almost all
business organisations are competing
in the foreign markets.
 This theory possess that organisations
establishes the sense of competitive
advantage that tends to hinder the
success of the internationalization
decisions of the organisations (Teece,
2014).
Kruger’s first mover advantage theory  In this theory, the well-established
and successful business, which

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applies internationalization
sometimes, fails to recognize of
analysing the success of their
competitors organisation in the same
market.
 This theory may cumulatively leads
business investors into decision that
can be costly.
 By the process of business
internationalization, for many
multinational organisations it’s tough
to take decisions on strategies that
would bring success and remain
elusive to many organisation in this
theory.
Kenyon’s product life cycle theory  In this theory, due to some common
issues the business organisation may
face problem and can hinder the
success of business
internationalization.
 The product when goes through a
lifecycle is undeniable but the
elevation due to the problems and the
issues can affects the process of
internationalization.
 Such elevation can be due to the
obsolete technology, other
competitors applying the advance
technology innovations can affects
the product lifecycle.
 For example, apple is one on of the
leading brand, which applies and
were succeeded in establishing the
internationalization business and
through this process the overcome
challenges of the product lifecycle
through the extensive innovation
(Teece, 2014).
Conclusion
From the above paragraphs, we can conclude that, Internationalization remains critical to the
success of the organisation. Many strategies, decision making that would bring success to
many organisations. Foreign direct investment always remains risky to ventures that can ruin
the stability and sustainability of the organisation. There are three major theories of

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internationalization in which Dunning eclectric paradigm talks about the three major aspects
likewise, ownership, location and internationalization in which entire theory helps in giving a
sense of financial investment security to the investors. Along with this, this theory also helps
investors in purchasing an assets and location identification to the smooth carrying of the
business operations. Then, Kruger’s first mover advantage theory highlights that companies
with their competitive advantage within the product allows then to sell its product and attract
as many as customers with its first move over its competitors. Lastly, Kenyon’s product life
cycle theory highlights that every product, which the companies launches has introduction
stage, then growth maturity and lastly the decline stage. In addition, at the time of declining
stage companies do some of the modification in their product so that they can keep up with
their customers trust. Hence, all these theories towards internationalization lead to the success
of the organisation.
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