Final answer:
The eclectic paradigm, or OLI framework, includes ownership-specific advantages, location-specific advantages, and internalization advantages as three of its key characteristics for explaining foreign direct investment decisions by companies.
Step-by-step explanation:
The eclectic paradigm, also known as OLI (Ownership, Location, and Internalization), is a theory in economics that explains why companies choose to engage in foreign direct investment (FDI) as opposed to other forms of entry into international markets. According to this paradigm, two characteristics that are part of the FDI decision-making process are:
- Ownership-specific advantages: These are competitive advantages that a company possesses, such as proprietary technology, brand reputation, or unique products and services, that can be transferred within the firm and give it an edge over foreign competitors.
- Location-specific advantages: These involve factors that make a particular foreign market attractive for investment, including access to natural resources, cost-effective labor, geographic proximity to target markets, and favorable regulatory environments.
- Internalization advantages: These refer to the benefits a company obtains by internalizing business activities rather than contracting them out or licensing them, which can include control over production, better management of intellectual property, and avoidance of transaction costs.
The market-specific advantages are not considered a characteristic of the eclectic paradigm.