Which theory of international business (firm-based) better explains entry into the Chinese automobile industry? Outline the key characteristics of your chosen theory and discuss how it applies to the current case.

Answer)   FDI Based Explanations: Dunning’s Eclectic Paradigm is an international business theory that can better explain the entry into the Chinese automobile industry. Following are the key characteristics or basic conditions of Dunning’s Eclectic Paradigm that determine either the company has the capability to enter a foreign country through foreign direct investment or not:

Ownership-specific advantages – capabilities, knowledge, physical assets, skills, or relationships that are owned by a firm and are the basis of competitive advantages of that firm

Location-specific advantages – just like the comparative advantages, location-specific advantages existing in the domestic country that a multinational enterprise has entered, or looking forward to entering, such as skilled labor, low-cost labor, or natural resources.

Internalization advantages – internalizing foreign-based manufacturing derive the control along with distribution, and other activities regarding value chain.

This theory applies to the automobile industry of China as its characteristics, mentioned above, are appropriate and relatable. The third characteristic shows that automobile companies work and maintain its control over the manufacturing process, patents, knowledge and product quality. Furthermore, the ownership-specific advantages required in the first condition are suitable for the production of the vehicle. The location-specific advantage is also essential for vehicle manufacturing.