These two scholars thought about international business and gave guidelines to entrepreneurs pursuing such interests. Mark Cason links the theory of MNE with the theory of entrepreneurship and embeds these theories with broader social and political factors necessary for an effective running of the business across international borders.
According to Mark the transactional economies and resource-based theories of a firm are irrelevant and therefore he does not pay much focus on them. He looks at the global aspect of international business by carefully analyzing the entrepreneurs’ acumen and the potential capability that defines his/her scope of international operations, how he captures foreign markets, survives global competition and establishes market niches (John, 2007).
He argues that with the limited competitive space firms will increasingly need to adopt greater use of communication, especially on the international markets to better position themselves in the market. International markets are dynamic and that customers are case sensitive. In this case, the market will be highly elastic and only those who have established channels of communication can prosper (John, 2007).
Mark Cason again stresses the need to be flexible. Flexibility is a prerequisite in doing international business. In our early content, we explored in depth why flexibility can play a vital role in reshaping the firm’s responsiveness both to local and international business. International entrepreneurs must act very fast upon receipt of any important information, decide the same way and take the responsibility for their actions. Mark argues that is the only way of achieving international objectives in the global environment. Finally, he asserts that an international trader should establish a strong social and political network (John, 2007).
On the other hand, John Dunning a professor at Rutgers University came up with the Electric theory that incorporates three main theories of direct foreign investment. John argued that foreign direct investment is equal to ownership advantages + Location advantages + internalization Advantages. This theory is narrated below.
Ownership advantages, he argues that a firm’s advantages are always intangible and can be passed with international commerce at low costs. These advantages are associated with cost reduction or rise in revenue and will go a long way offsetting the cost of doing an overseas business. john further argues that an international firm may be strategically disadvantaged as a result of the failure of knowledge about a local market, difficulty in understanding the diverse cultural, legal, institutional, and language backgrounds, and finally increased cost of communication across the international borders (John, 2007).
Location advantages
These advantages will comprise economic, political, social and cultural advantages. The economic factors will entail qualities and quantities of factors of production, transport and telecommunication cost scope and size of a market being sought. Remember that these are critical factors in the success of any business.
John argues that political factors are synonymous to the relationship between the government and the existing business fraternity and include; specific laws and regulations on direct foreign investment (Michael, 2004).
Social-cultural advantages include mainly the cultural and language diversity that become the scope of international transactions.
Internationalization advantages
He argues that international firms have different options of entry to a market, from the industry position to market rankings and the hierarchical structures. They can choose to trade internationally where the costs to entry route too high eliminating the number of competitors (Michael, 2004).
From these points, one clearly understands that John gives much attention to transactional economies and resources, but fails to recognize the fact that greater use of communication in international business is significantly important.
Again he gives much focus on the firm itself and does not seem to welcome the magnitude of global systems.
List of references
- John, D 2007, OLI Paradigm – The Eclectic Theory was evolved by.
- Michael, E. P 2004, Competitive Advantage.