1.

Introduction
The eclectic paradigm is generated by Dunning (1979) to explain determinants within
firms' internalisation process. This paradigm identifies three inds of functional
ad!antages" including ownership" location" and internalisation ad!antages (#$%).
Thus" this paradigm also refers to as #$% &aradigm or #$% 'odel. This article to
examine to what extent the selected '() deri!es" #$% ad!antages. *hina (ational
&etroleum *orporation (*(&*) chosen as a sample of '()s. +s one of the three
*hina stated,owned oil and gas groups. %t is also one of the world's largest oil and gas
groups. +ccording to its -.11 annual report" its annual turno!er reaches /'0
-"..1"231 million (45 6111"971 million).
This article aims to analysis *(&*'s competiti!e ad!antages basis on #$% model. %t
re!iews a number of academic materials" particularly including some recent theories.
%n addition" some news and 7ournal articles are referred as well.
2. Analysis Basis on OLI Model
2.1 O-Advantages Analysis
#wnership specific ad!antages are the competiti!e ad!antages that the firms seeing
to engage in 8oreign direct in!estment (8D%). These ad!antages are necessary to
produce in foreign countries and reduce production costs of foreignness. +ccording to
Dunning (1921)" #,ad!antages" which ha!e been created in the home country" can
in!ol!e both tangible assets and intangible assets such as nowledge" brands and
organisational sills" and so forth. They also include some factor endowments such as
human resources" nature resources" capital" return to scale" and so forth (Tolentino" as
cited in )rdener 9 5hapiro" -..:).
%n *(&*" #,ad!antages mainly reside in some intangible proprietary asset such as
brands and nowledge and technology" and in some factor endowments including
capital" human resources" and return to the scale.
8irstly" as one of the three stated owned enterprises in the oil and gas industry" *(&*
has !isible brand ad!antage. #n one hand" it has a leading position in the industry in
mainland *hina. #n the other hands" after years of operation" *(&* has accumulated
upstanding industrial prestige in both mainland *hina and o!erseas (*hina (ational
&etroleum *ompany" -.11).
5econdly" to be different with most '()s" *(&* is nown as a stated owned
enterprise. %t meas that *hina's go!ernment pro!ides financial supports behind *(&*.
*entral ban data has shown that *hina's foreign exchange reser!es are the massi!e in
the world (as cited in +runachalam" -.1.). +ccording to the %nternational 'onetary
8und" in -.11 *hina;s foreign currency reser!es has swelled to 61.-.1 trillion" which
is more than :.< of its =D& of 6:.27 trillion" two trillion more than >apan's 61.-
trillion (top -). #f this amount" 7:< are held in 45 Dollar,denominated assets such as
cash" bonds and treasuries (/apo?a" -.11). %n this circumstance" with *hina's
go!ernment's support" *(&* has strong ad!antages in financing and industrial loan.
&articularly in the pro7ects of asset ac@uisition" *(&* has !isible capital ad!antage
compared with other pri!ate '()s (*heng" -..2).
Thirdly" as a state,owned large enterprise" *(&* also has scale ad!antage. Aith a
large economic scale" *(&* has achie!ed !ertical integration. The group engages in
each le!el of !alue chain" from exploration to de!elopment" from production to
distribution. 0esides" its products in!ol!es almost all of segments" such as crude oil
and natural gas" the reining of crude oil and petroleum products" basic and deri!ati!e
chemical products an other chemical products" etc (*hina (ational &etroleum
*ompany" -.11). &articularly in the circumstance of high oil price and lac of talents
employees" compared with other international oil firms" *(&* could be able to
intensi!ely distribute a!ailable resources in order to offset production costs and to
carry out ma7or pro7ects smoothly (*heng" -..2).
0esides" *(&* also has management and techni@ue professional with high @uality. +s
these professionals are employed by the stated owned company" the costs of human
resources are rele!ant lower. #n the other hand" through the application of domestic
technologies" *(&* could be able to reduce technical costs and rise profitability
(*heng" -..2).
%n addition" Dunning (-..-) introduced relational assets to his #$% model (*ontractor
9 $orange" -..-). +s abo!e mentioned" as a stated owned company" *(&* achie!ed
massi!e supports from *hina's go!ernment" not only financially but also politically.
*hina go!ernment's specific relationship with particular region (such as 'iddle )ast)
also pro!ide location attraction to *(&*.
2.2 L-Advantages Analysis
$ocational ad!antages refers to the specific nations or regions" where '()s
undertae !alue adding acti!ities. Ahen a specific nation or region has more
immobile" natural or created resources which contribute to companies' competiti!e
ad!antages in this location" firms tend to augment their #,ad!antages through 8D%
(Dunning" -...). To decide to which location '()'s assets would transfer" '()s
need to examine !arious locational considerations related to the host countryB and how
to match between the characteristics of host and home country (Da!idson" as cited in
)rdener 9 5hapiro" -..:). The determinants of '()'s locational strategies are
!arious" including resources,seeing" mareting,seeing" efficiency,seeing and
strategic assets,seeing (Dunning" as cited in )rdener 9 5hapiro" -..:). %n *(&*
case" the main dri!es of its strategies can be identified as resources,seeing"
efficiency,seeing and strategic seeing. +nother location ad!antage is the well
politic relationship between *hina and 'iddle )ast.
8irstly" 'iddle )ast has the richest oil and gas reser!es in the world. *urrent estimates
re!eal that o!er 2.< of world's pro!en oil reser!es are located in #&)* 'ember
nations. Aith #&)*'s current pro!en oil reser!es reach around 1"19. billion barrels"
C: < of these amounts are reser!ed by 'iddle )ast countries (see chart 1 in
+ppendices). *ompared with 'iddle )ast" oil reser!es in mainland *hina is more
infertile. )!en *hina;s oil disco!eries ha!e been increasing steadily during the past
nine years" ne!ertheless" till -.1." the pro!ed oil reser!ices in *hina merely reached
1.. million barrels. %ts production capacity is also far less than its consumption
(/apo?a" -.1-). %n this circumstance" the rich oil reser!es (natural resources) in
'iddle )ast created !isible $,ad!antage for *(&* to engage in 8D% in this region.
5econdly" the production costs in 'iddle )ast is much lower than in *hina. +ccording
to 8eng" 5hiliang" the deputy 5ecretary,general of (ational De!elopment and /eform
*ommission ((D/*)" in -.11" *hina's oil exploit costs was as high as :. to C.
dollars per barrel" compared with less than fi!e dollars in 5audi +rabia. +lso" oil
exploit difficulty in 'iddle )ast is much smaller than in *hina. Thus" the efficiency
maes 'iddle )ast attract *(&* to in!est directly.
0esides" as abo!e mentioned" *(&* achie!es supports form *hina's go!ernment.
Thus" *hina go!ernment's relational assets in 'iddle )ast has created significant
location ad!antage. *ompared with western pri!ate '()s" *hina's go!ernment has
de!eloped close relationship with 'iddle )ast countries lie 5audi +rabia. This tie
could go bac to mid,192.'s of last century" when *hina sold intermediate range ballistic
missiles to 5audi +rabia. %n 1999" *hina's &resident >iang Demin pronounced a
'strategic oil partnership' between *hina and 5audi +rabia. These ties guarantee
*hina's benefits in &ersian =ulf (Dorra7 9 )nglish" -.1-).
%n addition" as a stated,owned company" *(&* is ine!itable in!ol!ed in *hina's
strategy of ac@uisition of oil resources in 'iddle )ast. #n the other hand" with the
increasing exploit costs in *hina" *(&* also needs to see new resources from
o!erseas. Thus" with a !iew of strategic assets,seeing" 'iddle )ast has !isible $,
ad!antages.
2.3 I-Advantages Analysis
%,ad!antages are those ad!antages by own production rather than production through
engaging in a partnership. %t refers to the ability of a company to organise the
de!elopment and exploitation of their competiti!e ad!antages at international
marets. The greater net benefits a firm could achie!e from cross,border intermediate
product marets" the more possibility the company would engage in 8D%. %,
ad!antages are often related with two @uestionsE 1) how to apply transaction cost
economicsB and -) how to transfer proprietary assets best (0ucley 9 *asson" as cited
in as cited in )rdener 9 5hapiro" -..:).
+ccording to Dunning (1991)" the establishment of wholly,owned subsidiaries could
reduce the possibility of maret failures associated with assets transferring"
particularly with the transfer of intangible assets such as nowledge and technology.
+s the characteristic of !alue uncertainties" the costs of transferring intangible assets
internally would be lower than through maret mechanisms.
%n this case" as a large *hina state owned firm. *(&* ha!e de!elopment !ertical
integration ad!antage. %t has massi!e management and techni@ue professionals in
almost each le!el of oil industry. 8urther" as the company's employees" the F/ costs
of assignment of parent country nationals (&*(s) is not higher than engagement of
host country nationals (F*(s). Thus" *(&* is able to transfer technologies and
human resources with rele!ant lower costs. 0esides" as a stated owned firm" *(&*'s
operational and managerial systems are different other pri!ates '()s. Thus" the
using of &*(s" who ha!e been used to its organisational structure and operational
system" would effecti!ely a!oid transfer failure. Thus" these %,ad!antages mae *(&*
engage in 8D% rather than other partnerships.
3. Conclusion
To sum up" basis on the analysis of Dunning;s )clectic (#$%) &aradigm" *(&* dri!es
all of #,ad!antages" $,ad!antages and %,ad!antages to a large extent. The analysis
re!eals that *(&*'s competiti!e ad!antages meet the principles illustrated by #$%
&aradigm. 8irstly" *(&* has significant #,ad!antages which are created in home
country (*hina). 8irstly" as one of the three stated owned enterprises in the oil and gas
industry" *(&* has !isible brand ad!antage. 5econdly" *hina go!ernment pro!ides
abundant financial supports" which gi!e *(&* strong ad!antages in financing and
industrial loan. Thirdly" *(&* has scale and integration ad!antages. +lso" *(&* also
has significant human resources ad!antages and !isible politic ad!antages in 'iddle
)ast. %n the !iew of $,ad!antages" the main dri!es of its strategies can be identified as
(oil) resources,seeing" efficiency (lower production costs),seeing and strategic
(ac@uisition of oil resources) seeing. %n addition" well politic relationship between
*hina and 'iddle )ast also pro!ide *(&* competiti!e ad!antages compared with
other pri!ate '()s. Then" *(&* also represents %,ad!antages through the creation of
wholly,owned subsidiaries" which largely a!oid transfer failure of assets" particularly
intangible assets such as nowledge" technologies and human resources.
References
+runachalam" &. (-.1.). 8oreign exchange reser!es in %ndia and *hina. African
Journal of Marketing Management, - (3)" C9,79.
*heng" 0. F. (-..2). 'iddle )ast oil maretE opportunities" challenges and strategics.
Internationalized Operation, 3 (1)" -C , 1..
*hina (ational &etroleum *ompany. (-.11). -.11 +nnual financial report. /etrie!ed
from www. &etrochina.com.cn.
*ontractor" 8. >. 9 $orange" &. ()d.). (-..-). Cooperative Strategies and Alliances.
#xfordE )lse!ier.
Dorra7" '. 9 )nglish" >. ). (-.1-). *hina's strategy for energy ac@uisition in the
'iddle )astE potential for conflict and cooperation with the 4nited 5tates.
Asian Politics & Polic, ! (-)" 171,191.
Dunning" >. F. (1921). %nternational &roduction and the 'ultinational )nterprise.
$ondonE+llen and 4nwin.
Dunning" >. F. (1991). Multinational enterprises and t"e glo#al econom. (ew GorE
+ddison,Aesley.
Dunning" >. F. (-...).The eclectic paradigm as an en!elope for economic and
business theories of '() acti!ity. International $usiness %evie&, ' (-)" 1C1,
19..
)rdener" *. 9 5hapiro" D. '. (-..:). The %nternationali?ation of *hinese family
enterprises and Dunning;s )clectic '() &aradigm. Management and
Organization %evie&, ( (1)" 311 , 31C.
/apo?a" H. (-.11" #ctober -:). *hina's cash position swells to record high. )or#es.
/etrie!ed from httpEIIwww.forbes.comIsitesIenrapo?aI-.11I1.I1:Ichinas,cash,
position,swells,to,record,highI
/apo?a" H. (-.1-" 8ebruary -3). *hina increasing oil reser!es with new disco!eries.
)or#es. /etrie!ed from httpEIIwww.forbes.comIsitesIenrapo?aI-.1-I.-I-3Ichina,
increasing,oil,reser!es,with,new,disco!eriesI
Appendices
*hart 1.