This term paper deals with the Uppsala model of internationalization and the question whether it is still working today or if modern companies have more possibilities to enter new markets in foreign countries in a different way.
The model was developed almost forty years ago and the framework and conditions of internationalization and technological progress have changed a lot. In economics, internationalization is the process of increasing involvement of enterprises in international markets, although there is no agreed definition of internationalization. There are several internationalization theories which try to explain why there are international activities.
This paper will stick to the classic school theory, the Uppsala model or international stage model in comparison to modern ways of internationalization by the example of ‛Born Globals’. The Uppsala model provides a universal explanation of how internationalization works in the form of sequential stages during its early development. ‛Born Globals’ are young companies that start to globalize very fast from the beginning without any preceding long term period of internationalization. They do not follow the stages in the suggested order, they rather leap-frog some of the steps given by the model.
The aim is to show that the business world has changed and the model is not contemporary anymore. This paper will start with the backround of the Uppsala model, its structure. A description of the establishment chain and the psychic chain will follow. After that the internationalization model will be illustrated which will lead to the critical view of the Uppsala model. Chapter three describes the modern way of internationalization using the example of ‛Born Globals’. The last chapter of this term paper is the conclusion.
Table of Contents
1 Introduction
2 The Uppsala internationalization model
2.1 Backround of the Uppsala model
2.2 The establishment chain - international penetration
2.3 The psychic chain - international expansion
2.4 The internationalization model
2.5 Critical view
3 Born Globals
4 Conclusion
Objectives and Research Focus
This paper examines the relevance of the classic Uppsala model of internationalization in the modern business environment. By comparing the traditional stage-based approach to the rapid globalization patterns of "Born Globals," the work investigates whether the original model remains a valid framework for contemporary firms or if technological and market shifts have rendered its sequential process obsolete.
- Theoretical analysis of the Uppsala internationalization model.
- Examination of the establishment and psychic distance chains.
- Contrast between stage-based internationalization and modern "Born Globals."
- Evaluation of the impact of technological development on market entry strategies.
- Critical assessment of the model's limitations in the current global economy.
Excerpt from the Book
2.2 The establishment chain – international penetration
According to Johanson and Wiedersheim-Paul, the Uppsala model sub-divides the process of entering an international market into four different steps, where the successive stages represent higher degrees of international involvement and market commitment. Those steps have to be viewed from a company’s perspective combined with the market and the market knowledge.
Step 1 – No regular export activities (sporadic exports)
Step 2 – Export via independent representatives (export modes)
Step 3 – Establishment of a foreign sales subsidiary
Step 4 – Foreign production/manufacturing units
Those steps indicate business activities depending on the market experience gained by the company during their process of development and expansion.
Step 1 is the initial one where the company starts to enter a foreign market but does not export on a regular basis. Market knowledge is limited and experience is gained by chances not systematical.
In step 2 the company exports systematical through agents. This indirect export will provide the company with some experiences and market knowledge about the customers in this market.
If a company is willing to commit itself to more export, in step 3 it will take over the middleman’s operation and try on its own. This means that the firm has to have the necessary knowledge and information about the market and how to establish its own operations.
The last step is to establish the production facilities of the company in the market it already exports to. This happens as the company has the feeling of having enough knowledge and wants to gain locational advantages. Of course it can always be that it is forced to offshore as regulation demands this or risks like currency risks can hedge this way.
Summary of Chapters
1 Introduction: Provides an overview of the Uppsala model and sets the research objective to compare traditional internationalization theories with the emergence of "Born Globals."
2 The Uppsala internationalization model: Details the theoretical foundations of the model, specifically the establishment and psychic distance chains, and illustrates the incremental decision-making process.
3 Born Globals: Analyzes companies that achieve rapid globalization from inception, identifying the driving factors behind this alternative, accelerated market entry strategy.
4 Conclusion: Synthesizes the critical findings, noting that while the Uppsala model provided a foundational framework, modern technological and economic changes have diminished its contemporary applicability.
Keywords
Uppsala model, internationalization, establishment chain, psychic distance, Born Globals, market commitment, foreign market entry, globalization, incremental development, business strategy, technological progress, export intensity, market knowledge, emerging economies, cultural differences.
Frequently Asked Questions
What is the core focus of this research paper?
The paper explores the validity of the Uppsala internationalization model in today's business world and contrasts it with the rapid globalization strategies employed by modern "Born Global" companies.
What are the primary themes discussed?
Central themes include the establishment chain of internationalization, the impact of psychic distance on market entry, the influence of technological advancement, and the rise of firms that bypass traditional internationalization stages.
What is the main research question?
The work seeks to determine if the Uppsala model still functions effectively for modern companies or if the current global landscape necessitates new, non-sequential market entry methods.
Which scientific methodology is utilized?
The author uses a theoretical approach, reviewing classic economic literature and existing theories on internationalization, supported by analysis of specific concepts like the establishment and psychic chains.
What topics are covered in the main body?
The main body breaks down the history and structure of the Uppsala model, details its specific components such as psychic distance and resource commitment, and analyzes the characteristics and success factors of "Born Globals."
Which keywords best characterize this work?
Key terms include Uppsala model, Born Globals, psychic distance, internationalization, market commitment, and incremental development.
How does the author define "psychic distance"?
Psychic distance is defined as the perceived differences between a home market and a foreign market, encompassing factors like language, culture, and political systems, which influence the difficulty of market entry.
What does the author suggest about the current relevance of the Uppsala model?
The author concludes that while the model provided a vital foundation, its focus on internal company factors is limited today, as technological progress has made global market entry faster and less dependent on traditional, sequential steps.
- Arbeit zitieren
- Claus Hombrecher (Autor:in), 2014, The Uppsala model of internationalization. A critical review, München, GRIN Verlag, https://www.grin.com/document/458052
