There is an abundance of models and theories which describe and explain internationalization, foreign entry modes and the foreign operations of firms (Elo, 2005). These models can be divided into two different perspectives: behavioural and economic (Elo, 2005, p.65). It is also suggested that the literature based on economic theory, which focuses on new market opportunities, internationalization, vertical integration and corporate growth, has been dominating. Whereas, behavioural related theories refer to a firm’s social and organisational side. The business environment has changed considerably in terms of technology such as the internet, business practices, theoretical advances and the reduction of trade barriers due to globalisation, which have all provided new methods of working. But what is internationalization? Internationalization in economics is viewed as a process of increasing involvement of firms in international markets (Susman, 2007). Whereas globalisation refers to the increase in global relations of people, cultures and economic activity, it is this increase in relations that facilitates a firm’s internationalization process. As already stated there are many theories which try to explain the internationalization of firms. This essay evaluates the Uppsala model as an explanation for internationalization, and contrasts the model with the literature on ‘born global’ firms and the network model, which are behavioural theories.
The Uppsala Model
The Uppsala Model is a ‘stages’ theory developed by (Johanson & Vahlne, 1977) the framework explains how firms proceed towards internationalization. Their research was a longitudinal case study involving four Swedish firms who were already established aboard. The 1977 model suggests that firms tend to internationalize in logical steps first to countries that are psychically close, this does not necessary mean close in nautical miles but close in psychic distance. The firms then move to more psychically distant markets, where the firm will use a low resource-commitment mode such as exporting. The model assumes that knowledge development is a fundamental factor in the internationalization process, with an emphasis on knowledge from current activities and experience. Forsgren, (2002) state that the lower the perceived market risk, the higher the level of investment in that market. Which Johanson & Vahlne, (1977) describe as the establishment chain, whereby the firms start with low commitment modes, such as middlemen and as trust is built firms switch modes, all the way up to wholly owned subsides showing stronger commitment. The establishment chain as explained above, which Johanson & Vahlne (2009) state was not part of the model, has, never the less been widely critised (see figure 1) due to the phenomenon of International New Ventures (INV) also referred to as Born Globals (GB) who it is argued ‘leap-frog’ stages instead of going through an incremental process and so are involved in direct foreign investments with unexpected speed (Oviatt & McDougall 1994). Figure 1
The authors have responded to the critisms, although as previously stated the model was first written in 1977, and the business environment has changed considerably in terms of technology such as the internet, business practices and theoretical advances, which have all provided new methods of working. To take into account the changed environment the model has been revisited in an attempt to move the theory forward. One of the many theoretical advances is the studies into network relationships (Korsgaarf, S. 2011; Johanson, J., Mattsson, L. 1993; Evers, N., O’Gorman, C. 2011) this has been incorporated into the model, as the emphasis has moved away from psychic distance (foreignness) to network relations and if firms are not in an appropriate network, their internationalization process is said to suffer from (outsidership). Hakeranson suggests that psychic distance is a...
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