Eclectic Paradigm And Market

There exist a number of reasons a company would want to establish itself outside its home country. Motives could be several, such as saturation of the home market, or the possibility of reduced taxes, cost of production in the other country, or seeking new markets or geographical advantage. Aston Martin Lagonda Limited a British Based luxury sports car manufacturer is intending to internationalize its operation to South Korea but seeks theoretical frameworks for this move.

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The eclectic paradigm developed by Dunning offers a wide variety of entry-mode approaches ranging from ownership advantage meant to overcome liability of foreignness, location advantage in which the host country is providing a compelling advantage that makes it worthwhile to per take foreign direct investment (FDI) and internalization advantage (Hanson et al., 4). In this case, Aston Martin may consider internationalization in South Korea considering that the state is developing thus its liability of foreignness exist in its stock market (Baik et al, 391). In addition, the market capitalization of stock held by foreigners is increasingly growing due to minimal regulations on FDI by the S. Korea government.

According to Hanson et al., (6), Market-seeking theory focuses on the demand aspects where the company accesses particular markets or rather accesses strategic geographical advantages and rely on the fact that direct presence internationally is important for the access to foreign investment (Hill, 174). For that reason, South Korea is strategically situated in Far East Asia, offering a supply of the Aston Martin products to Asian states that could not access the product initially from Britain.

Hanson et al. (7), on resource seeking, the cost of production theory depicts that the price of a commodity is determined by the total cost of the resources that were used in making the commodity. The Aston Martin Company would immensely reduce its cost of production due to available cheap materials such as steel in making the motor vehicles. South Korea has been lately the home for some of the greatest global players in technology and steel industry; this would foster investment of such an automobile company like Aston Martin.

On incentives such as tax breaks, Adam Smith the father of modern economics, on absolute advantage claim that a company can take advantage of unrestricted trade rules such as free trade (Hill, 179). For that reason, S. Korea from the year 2016 reduced tax and provides incentives to attract foreign investors. Tax reduction was focused on industries such as automotive, pharmaceuticals and chemical, into which Aston Martin Company should take full advantage of.

In conclusion, Aston Martin Company in regards to the theories of internationalization could open a plant in S. Korea and perform effectively. It is possible due to reduced cost of production, and strategic geographical advantage and reduced taxes rendering the automobile industry to internationalize itself efficaciously.

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Reference

  • Baik, Bok, et al. "The liability of foreignness in international equity investments: Evidence from the US stock market."Journal of International Business Studies 44.4 (2013): 391-411.
  • Hansson, Anders, and Kim Hedin. "Motives for internationalization: Small companies in Swedish incubators and science parks." (2007). Pp.1-48
  • Hill, C.W.L. (2014) International Business: Competing in the Global Marketplace. 10th Global edition. McGraw Hill Education. pp. 1-670

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