ECLECTIC THEORY (OLI PARADIGM) OF INTERNATIONAL

PRODUCTION.

Paula Silva, Karina Cardozo, Gabriela Lozano

1. Does Biocon illustrate the main hypothesis on which the Eclectic Paradigm is

predicated? If so, make sure to include the four conditions explained by the authors. (Dunning &

Lundan, 2008; 99)

Yes, Biocon illustrates the main hypothesis on which the eclectic paradigm is based,

which is the International Direct Portfolio Investment (IDI) Theory. This theory holds that

multinational companies (MNCs) decide to invest abroad when they expect to earn profits that

exceed what they could earn in their home markets.

According to the eclectic paradigm, MNEs consider four conditions before making an

overseas investment decision:

Ownership advantage (O): the firm must have unique advantages, such as intellectual

property, technology, trademark, or management skills, that allow it to have a competitive

advantage over other firms in the market.

Location advantage (L): the company must invest in a location that offers advantages in

terms of natural resources, skilled labor, infrastructure, access to markets and other factors

relevant to its economic activity.

Internalization advantage (I): the company must have the ability to coordinate and control

the production and distribution of its products or services abroad, rather than simply selling or

licensing its technologies to a local company.

 Competition (C): the company must be competing with other companies that are also

considering investing in the same geographic location, and the investment must make financial

sense.

In Biocon's case, the company has an ownership advantage in the production of biotech

products, and has invested in strategic locations that offer access to markets, natural resources

and skilled labor, such as the United States and Europe. In addition, it has internalized the

production and distribution of its products in these locations, which has allowed it to maintain

total control over its supply chain. Finally, Biocon competes with other companies in the

biotechnology market, and its investment abroad has been financially profitable. All this reflects

the main hypothesis of the eclectic paradigm. (Dunning & Lundan, 2008).

2. Summarize the application of the eclectic framework – OLI Paradigm to the case

of Biocon. Explain both theoretically and with fact-based examples (Taxonomy of OLI

Advantages)

The Eclectic Framework - Brouthers, (Brouthers & Werner, 1999) OLI Paradigm is a

theory that explains why multinational companies decide to invest abroad. This paradigm argues

that firms consider three types of advantages before making an overseas investment decision:

ownership advantages (O), location advantages (L) and internalization advantages (I). In the case

of Biocon, we can apply this framework as follows:

Ownership advantage (O): Biocon has an ownership advantage in the production of

biotech products. The company has developed proprietary technologies for the production of

high quality drugs, such as insulin and other biologics. It has also filed patents for its
manufacturing processes and for its pharmaceutical products. These proprietary advantages are

valuable because they give Biocon a competitive advantage in the global marketplace.

Location advantage (L): Biocon has invested in strategic locations that offer access to

markets, natural resources and skilled labor. For example, the company has established a

subsidiary in the United States called Biocon Biologics, which produces biologic drugs for the

U.S. market. The company has also established a factory in Malaysia to take advantage of

cheaper labor and one in Europe to access the European market. All of these locations offer

localization advantages that enable Biocon to operate efficiently and competitively in global

markets.

Internalization advantage (I): Biocon has internalized the production and distribution of

its products in the locations in which it has invested. The company has established subsidiaries

and acquired local companies in order to control the production and distribution of its products.

For example, Biocon Biologics has acquired local companies in the United States to control the

production and distribution of its biologic drugs in that market. Internalization has enabled

Biocon to maintain control over its supply chain and to maintain high quality standards in the

production of its products. (Jain, 2013).

In summary, Biocon has applied the eclectic framework theory - OLI Paradigm as

follows:

The company has leveraged its ownership advantages in the production of biotechnology

(O) products.

It has invested in strategic locations that offer advantages in terms of natural resources,

skilled labor, infrastructure and access to markets (L).

 It has internalized the production and distribution of its products to maintain control over

its supply chain (I).

All this has allowed Biocon to have a competitive advantage in the global market for

biotechnology products.

3. Describe Dunning’s approach to international production and how it applies to the

case.

Dunning's approach to international production is based on the concept of ownership,

location, and internalization (OLI) advantages. According to this approach, a firm must possess

certain advantages in terms of ownership, location, and internalization to become successful in

foreign direct investment (FDI). These advantages include intangible assets such as technology,

brand reputation, and management skills, as well as tangible assets such as natural resources and

physical capital. (Dunning & Lundan, 2008).

In the case of Biocon India Ltd, the company has demonstrated its ability to leverage its

ownership advantages by developing and patenting its own biotechnology products and

technologies. This has given Biocon India Ltd a competitive advantage in the global market for

biopharmaceutical products. In addition, Biocon India Ltd has effectively leveraged its location

advantages by investing in countries with favorable business climates and strong healthcare

systems. For instance, the company has set up operations in the United States, Malaysia, and

Europe, which have provided access to large markets and a diverse pool of skilled labor.

Biocon India Ltd has also effectively internalized its operations by establishing

subsidiaries and joint ventures in various countries. This has allowed the company to maintain a

high level of control over the production and distribution of its products, ensuring consistent
quality and timely delivery. Additionally, Biocon India Ltd has acquired companies and formed

strategic partnerships to further enhance its ownership, location, and internalization advantages.

Overall, Dunning's approach to international production provides a useful framework for

understanding Biocon India Ltd's success in the global market for biopharmaceutical products.

By effectively leveraging its ownership, location, and internalization advantages, Biocon India

Ltd has been able to establish a strong presence in multiple countries and maintain a competitive

advantage in the global market.

4. According to Dunning & Lundan (2008) “At any given moment of time, the more

a country’s enterprises possess desirable O advantages, the greater the incentive they have to

internalize rather than externalize their use, the more they find it in their interest to access or

exploit them in a foreign location, then, the more they are likely to engage on outbound FDI”.

Explain this argument using specific facts from the case.

The argument presented in "Multinational enterprises and the global economy" suggests

that the possession of ownership advantages by a country's enterprises increases the likelihood of

engaging in outbound FDI. This is because firms with desirable ownership advantages have a

greater incentive to access or exploit them in a foreign location rather than externalizing their

use. (Dunning, & Lundan, 2008).

In the case of Biocon India Ltd, the company possessed several ownership advantages

that made it attractive for the company to engage in outbound FDI. For example, Biocon India

Ltd had a strong focus on R&D and innovation, which gave the company a competitive edge in

the biopharmaceutical market. As a result, the company was able to leverage its ownership

advantages and expand its operations to other countries. (Brouthers, Brouthers & Werner,1999).
 Another ownership advantage possessed by Biocon India Ltd was its expertise in

biosimilars. The company was one of the first in India to enter the biosimilars market and had a

significant advantage over its competitors. This ownership advantage gave Biocon India Ltd the

confidence to invest in setting up manufacturing facilities in countries like Malaysia and Ireland,

which allowed the company to access new markets and customers.

Furthermore, Biocon India Ltd's ownership advantages in terms of product diversification

and cost-effectiveness also motivated the company to engage in outbound FDI. For example, the

company's joint venture with Mylan allowed it to expand its portfolio of biosimilar products and

tap into the global market for biologics. Additionally, the company's investment in Malaysia was

driven by the country's low-cost manufacturing capabilities and favorable business environment.

Overall, the possession of ownership advantages by Biocon India Ltd was a key driver

behind the company's decision to engage in outbound FDI. The company's focus on R&D and

innovation, expertise in biosimilars, product diversification, and cost-effectiveness motivated it

to expand its operations to other countries, allowing it to access new markets and customers

while maintaining a competitive edge in the biopharmaceutical industry.

5. Research the current situation of Biocon, and explain a current example of

Internationalization. Do you think that the Eclectic Paradigm still applies in their

Internationalization processes?

As of 2023, Biocon has continued to expand its international operations, particularly in

the areas of biosimilars and biopharmaceuticals. One example of Biocon's current

internationalization efforts is its partnership with Viatris, a global pharmaceutical company based

in the United States. In 2021, Biocon and Viatris announced the launch of their co-developed
insulin biosimilar Semglee in the US market, which is expected to have a significant impact on

the diabetes care market in the US. (Biocon, 2023).

This partnership between Biocon and Viatris is an example of Biocon's continued focus

on leveraging its ownership, location, and internalization advantages to expand its international

operations. By partnering with Viatris, Biocon is able to access the US market, which is one of

the largest markets for biosimilars in the world. Additionally, the partnership allows Biocon to

leverage Viatris' expertise in commercialization and distribution in the US market, which can

help accelerate the growth of Biocon's biosimilar business in the region. (Dey, 2019).

In terms of the Eclectic Paradigm, it can still be applied to Biocon's current

internationalization efforts. The company's ownership advantages, such as its focus on R&D and

innovation, expertise in biosimilars, and product diversification, continue to be important drivers

behind its international expansion. Additionally, Biocon's location advantages, such as its access

to skilled labor and favorable business environments in countries like Malaysia and Ireland, have

allowed the company to establish manufacturing facilities and expand its operations in these

regions. Lastly, Biocon's internalization advantages, such as its ability to maintain control over

its operations and production processes through subsidiaries and joint ventures, have been

critical to its success in the global market.

Overall, the Eclectic Paradigm remains relevant in understanding Biocon's current

internationalization efforts. By leveraging its ownership, location, and internalization advantages,

Biocon has been able to establish a strong presence in multiple countries and maintain a

competitive edge in the global market for biopharmaceutical products.

 REFERENCES

Dunning, J. H., & Lundan, S. M. (2008). Multinational enterprises and the global economy.

Edward Elgar Publishing.

Brouthers, L. E., Brouthers, K. D., & Werner, S. (1999). Is Dunning's eclectic framework

descriptive or normative?. Journal of International Business Studies, 30, 831-844.

Jain, P. (2013). Economics behind the internationalization of Biocon India Ltd. Emerald

Emerging Markets Case Studies, 3(7), 1-20.

Kalegaonkar, A., Locke, R., & Lehrich, J. (2008). Biocon India Group.

Dey, S. (2019). Biocon: Taking a Crack at the Global Biosimilar Market. South Asian Journal of

Business and Management Cases, 8(1), 100-110.

Biocon. (n.d.). Biocon. Retrieved March 30, 2023, from https://www.biocon.com/