CandNo: 64327

International Business
861N1
Tutor: Roger Strange
CandNo: 64327
MSc International Management

The Uppsala model is one of several behavioural models of firm internationalisation.

Critically discuss the Uppsala model, and compare its main features with those of one
other behavioural model.

Introduction
The first ideas of sequential internationalization and importance of experiences in that process
can be found from an article published as early as 1956 by Penrose. She claimed that “a very
considerable input of the managerial and technical resources of the investing firms may be
required to ascertain what foreign opportunities exist and how they may best be taken
advantage of” (Penrose 1956, pp. 228). Robert Owen Keohane (1996), in his book,
Internationalization and Domestic Politics, referred Internationalization as the process
generated by underlying shifts in transaction costs that produce observable flow of goods,
services and capital. Rapid increases in International economic exchanges during the last three-
four decades have led to the growth of international trade and investment and hence
Internationalization. Internationalization affects the aggregate welfare of countries, their
sensitivity and vulnerability to external changes (Keohane, 1996).

Several studies of international business have indicated that Internationalization of the firms is
a process in which the firms gradually increase their international involvement. If this is to be
assumed within the frame of economic and business factors, the characteristics of this process
determines the pace and pattern of Internationalization of firms (Johanson and Vahlne, 1977).

The Internationalization of firms can be viewed and measured through two broad perspectives.
Under the first perspective or the market internationalization theory, “imperfections in
international markets motivate transactions cost minimizing firms to bring exchange into the
firm’s governance structure.” (Steen and Liesch, 2007). At the same time, on the other hand,
another theory, made famous by Carlson 1974,Johanson/Wiedersheim-Paul 1975, etc., emerged,
which took the behavioral approach to explain the process through which firms who go
international, traversed as they moved into foreign markets and got very involved in these
markets (Steen and Liesch, 2007).

Behavioral Models of internationalization are concerned with the processes as well as the
outcomes of international expansion (Aaharoni, 1966; Johanson & Vahlne, 1977).

1
 CandNo: 64327
There are broadly four behavioral models of firm internationalization.

 The decision process model by Aharoni, 1966

 The Uppsala process model for company internationalization
 A Finnish variant proposed by Luostarinen (1979)
 Innovation process models for corporate internationalization

The Behavioral models that received the most appreciation from prominent scholars are the
Uppsala process model for firm internationalization (U- model) and the Innovation process
models for corporate internationalization (I-model). These two models are by far more practical
and broad.

The Uppsala Internationalization Model

The internationalization of the firm, over the years, have been greatly studied at the department
of Business Administration in Uppsala University, Sweden. Prof. Sune Carlson and his colleagues
started this research in the 1960s. His contributions towards the concepts of different stages
which were used in this process, formed the starting points for the later researchers. The
Uppsala internationalization process is most closely associated with the research of Johanson &
Weidersheim-Paul (1975) and Johanson & Vahlne (1977,1990).

This model describes internationalization as a sequential process, where market commitment

decisions and current activities depend on market knowledge and current commitment in this
particular market and vice versa, forming a casual cycle (Johanson & Vahlne, 1977).

Johanson and Wiedersheim-Paul (1975) distinguish between four different modes of entering
an international market, where the successive stages represent higher degrees of international
involvement :

Stage 1. No regular export activities.

Stage 2. Export via independent representatives (agents).
Stage 3. Establishment of an overseas sales subsidiary.
Stage 4. Overseas production/manufacturing units.

Johanson and Vahlne in their two articles (1977,1990) had made three basic assumption,
 Lack of knowledge about foreign markets is a major obstacle to international operations,
but such knowledge can be acquired (Johanson & Vahlne, 1977, pp. 23)
 Decisions and implementations concerning foreign investment are made incrementally
due to market uncertainty. Incrementalism can be seen as a management learning
process. The more the firm knows about the market, the lower the perceived risk will be,
and the higher the level of foreign investment.
 Knowledge is highly dependent on individuals and hence difficult to transfer to others
(Forsgren, 2002).

2
 CandNo: 64327
Another assumption that some scholars say this process makes is that market knowledge and
market commitment affect both commitment decisions and the way current decisions are
performed, which in turn, affect market knowledge and commitment (Tornroos, 2002). This
theory was initially applied on four Swedish firms, Volvo, Sandvik, Atlas Copco and Facit. The
Uppsala model is quite simple and is presented in figure 1.

Figure 1. the internationalization process of the firm (Johanson & Vahlne,1990)

To explain the internationalization across country markets, it was hypothesized that firms
would enter new markets with successively greater psychic distance. The concept, psychic
distance, has been defined as the sum of the factors preventing the flow of information firm and
the market, involving factors such as language, education, business practice, culture, political
system and the level of industrial development (Johanson & Vahlne 1977, pp. 24). The role of
knowledge is being seen fundamental in this process. This model deals with knowledge
acquisition (learning). The main emphasis is on experimental learning through ongoing
activities.

Market Knowledge
- General Knowledge
- Marketing methods,
- Common characteristics of customers
- Market Specific Knowledge
- Business culture,
- Climate, characteristics of customer firms and their personnel

Market Commitment
- Amount of resources
- Size of investment (marketing, organization, personnel)
- Degree of commitment
- Alternative use for the committed resources and transferring them into the alternative one

Commitment Decisions
- Perceived opportunities and problems on a specific market
- The economic effect
- Uncertainty effect

Current Business Activities

- A lag in current business and their consequences
3
 CandNo: 64327
- The prime source of experiences.

(Source: Johanson & Vahlne, 1977).

The Uppsala model has its share of critics. Andersen(1993), states that the relationship between
market knowledge and market commitment is not straightforward. Forsgren(2002) in his study
mentions that the relationship between experiential knowledge and incremental behavior is
negative rather than being positive. He also proposed that firms can acquire knowledge not only
through knowledge but also from imitation, search and acquisition of foreign firms. Another
limitation of this model is that it pays little attention to the internationalisation processes of
multinationals (Forsgren 1989,2002). The model is only applicable for small and inexperienced
firms.

In spite of all its criticisms, one important strength of the Uppsala model is its simplicity. This
model has found support by the researches carried out by Juul & Walters(1987) and
Calof(1995). These researches have given support to the idea of gradualism and sequential
moves in the foreign markets. Other studies have confirmed that experiential knowledge plays a
pivotal role in the internationalisation of the firms.

There are some propositions presented by Forsgren in his paper published in 2002. They are :
 “Firms invest in a foreign market at an increasing pace.
 Firms sometimes invest in foreign markets without own experiential knowledge.
 Firms invest abroad without possessing any substantial knowledge if the perceived risk
of investing abroad is lower than the perceived risk of not investing abroad.
 Gradual accumulation of market knowledge does not restrain the firm from radical
changes in foreign investment behavior.”

To sum up the Uppsala model a table is being presented (figure 2.).

4
 CandNo: 64327

Figure 2. The Uppsala Model in brief

The Innovation Process models

Rogers(1962) presented the best-known theoretical work on diffusion of innovation and an
innovation stage model. Andersen (1993) further makes a well-structured presentation about
these models referring to some articles by Bilkey & Tesar(1977), Cavusgil(1980),
Czinkota(1982) and Reid(1981). The phases presented in these articles closely follow the
articles closely follow the ideas put forth by Rogers(1962), but in this case as illustrating
internationalization steps instead of innovation steps. The models are derived from Roger's
stages of the adoption process [Rogers 1962, pp. 81-86]. Andersen(1993) gives a comparative
study to show how these authors have used steps in order to see how firms start exporting and
deepen their involvement from a non-exporting firm into international markets. These process
models are mainly directed towards explaining export behavior and not other
internationalisation alternatives (Tornroos,2002). The models put forward these core points :
 “A stepwise, incremental involvement to exporting and new markets.

5
 CandNo: 64327
 The experimental nature and the innovative phases are explicated through empirical
evidence
 The existence of psychic distance, which is overcome through experiential learning.”

Comparison of the U-Model with the I-Models

Since, both these models are behavioral models, it will hard to compare them. But they still have
some differences as shown by Andersen(1993).
 The U-model is presented as a more dynamic model, whereas the I-models portray the
internationalization process as a step by step development.
 If Boundary(space and time) is taken as an aspect of distinction then it can be seen that
U-model has no specified restrictions as to units of analysis or time whereas I-model can
only be implied to small and medium sized firms and it is time bounded.
 The U-model describes the internationalization process as casual cycles. No explanation
is presented regarding how the process will start. But in case of the I-models, there is a
clear understanding of the assumed sequence or time order of the internationalization
process.
 The concepts of U-model are not defined. And there is a lack of proper definitions.
Whereas, the I-models follow proper explanatory chains. Here efforts have been made to
specify variables and operationalizational definitions for the stages involved.

Conclusion
Although the Penrosean growth theory and the Uppsala model has many similarities, the
Uppsala model suffers from conceptual ambiguity about the mechanisms within the firm that
enable the exploitation of international market opportunities(Steen & Liesch, 2007). The U-
model is pointing out the existence of a gradual process, usually towards a deeper penetration of
markets as well as to geographically and culturally more distant markets (Johanson & Vahlne,
1977, 1990). In the account of more recent historical evolution of the Uppsala model, Johanson
& Vahlne(2003) claim that a new and more realistic picture of the internationalization of the
firm emerged from the research being carried out at the Uppsala University. It can be concluded
by saying that the application of organizational learning in the Uppsala Model is limited to
certain aspects leaving out the other aspects (Forsgren, 2002). He has also put forth some
propositions which has been discussed earlier in the essay.

6
 CandNo: 64327

Bibliography
Aharoni, Y. (1966) “The Foreign Investment Decision Process”, Harvard University, Boston.

Andersen, O. (1993) “On the Internationalisation Process of Firms: A Critical Analysis”, Journal
of International Business, Second Quarter, 209-231.

Bilkey, W. J. & G. Tesar (1977) “The Export Behavior of Smaller Wisconsin Manufacturing
Firms”, Journal of International Business Studies, (Spring/Summer), 93-98.

Calof, J. (1995, October) “Internationalization behavior of small and medium-sized South African
Enterprises”, Journal of Small Business Management , 33(4), pp. 71-79.

Carlson, S. (1966) International Business Research, Uppsala: Acta Universitatis Upsaliensis.

Cavusgil, S. T. (1980) “On the Internationalization Process of Firms”. European Research, 8

(November), 273-281.

Czinkota, M. R. (1982) “Export development Strategies: US Promotion Policies”. Praeger

Publications. New York.

Forsgren, M. (2002) “The Concept of Learning in the Uppsala Internationalization process Model
: A Critical Review”, International Business Review, 11,3, pp. 257-277.

Forsgren, M. (1989) “Managing the Internationalization Process: the Swedish Case”. London:
Routledge.

Johanson, J. & Wiedersheim-Paul, F. (1975) “The Internationalization of the Firm-Four Cases”,

Journal of Management Studies, 12, 305-322.

Johanson, J. & Vahlne, J. E. (1977,March) “The Internationalization Process of the Firm – a Model
of Knowledge Development and Foreign Market Commitment”, Journal of International Business,
8, 23-32.

Johanson, J. & Vahlne, J. E. (1990) “The Mechanism of Internationalization”, International

Marketing Review, 7(4), 11-24.

Johanson, J. & Vahlne, J. E. (2003) “Business Relationship Learning and Commitment in the
Internationalization Process”, Journal of International Entrepreneurship, 1, pp. 83-101.

Juul, M. & Walters, P. (1987) “The Internationalization of Norwegian Firms: A Study of the UK
experience”, Management International Review, 27(1), 9-25.

Keohane, R. O. (1996) “Internationalization and Domestic Politics”, Cambridge University Press,

London.

Luostarinen, R. (1979) “ Internationalization of the Firm”, Helsinki School of Economics,

Dissertation, Series A: 30, Helsinki School of Economics, Helsinki.

7
 CandNo: 64327
Penrose, E. (1959) “ Theory of the Growth of the Firm”. John Wiley & Sons, New York.

Rogers, E. M. (1962) “Diffusion of Innovation”, New York: The Free Press.

Steen, J. T. & Liesch, P. W. (2007) “A Note on Penrosean Growth, Resource Bundles and th
Uppsala Model of Internationalisation”, Management International Review, Vol. 47, pp. 193-206.

Tornroos, J-A (2002) “Internationalisation of the Firm – A Theoretical Review with Implications
for Business Network Research”, 18th Annual IMP Conference, September, Lyon.