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The Uppsala internationalization model (also known as the Uppsala model or U-Model) is one of the stage theories of internationalization of enterprises, which assumes that a company undergoes a sequential progression through various stages in the process of its international expansion. This theory, developed in the 1970s, was created by Scandinavian economists Jan Johanson and Finn Wiedersheim-Paul[1] and was later expanded by Jan Johanson and Jan-Erik Vahlne.[2] The name of the model derives from the Swedish town of Uppsala, as all three authors were affiliated with Uppsala University.
Place of the Uppsala model in internationalization theories
editDifferent models of enterprise internationalization attempt to clarify the accepted aspect of internationalization and address various research problems, depending on the model. These include:[3]
- How does the process of internationalization of a company look?
- What is the decision-making process regarding the internationalization of a company's activities?
- What are the reasons (motivations, premises) for a company's internationalization?
- What internationalization instruments do companies choose, and why?
- What are the typical characteristics of companies that are internationalizing their operations?
- How do companies select international locations for their ventures?
The Uppsala model belongs to the group of stage models of internationalization. It is the primary and leading model within stage theories. It explains how the process of internationalization of a company unfolds.[4] The model assumes that a company, while internationalizing its operations, progresses through specific stages, starting from activities in the domestic market to engaging in sales and production beyond its national borders.[4]
Historical outline
editInitially, all issues related to internationalization were analyzed within macroeconomic or mesoeconomic theories in the context of the subdiscipline of international economic relations. During this time, theories of international trade and foreign direct investment were developed.[5] The origins of the theory of enterprise internationalization in the strict sense (at the microeconomic level and within management sciences) can be traced back to the 1950s (e.g., Dunning's eclectic paradigm). According to Marian Gorynia, "Among the concepts of firm internationalization, the so-called Uppsala model gained the most popularity".[5]
This model was first published in 1975 by Jan Johanson and Finn Wiedersheim-Paul,[1] then modified in 1977 by Jan Johanson and Jan-Erik Vahlne,[2] and further developed in 1978 by Finn Wiedersheim-Paul, Hans C. Olson, and Lawrence S. Welch.[6]
Assumptions and variables of the Uppsala model
editThe theoretical foundation for the Uppsala model is based on two earlier economic theories, namely behavioral theory and resource-based theory. The model relies on the concept of empirical knowledge. It is assumed that a company's behavior in the internationalization process is determined by the practical knowledge it possesses.[7]
The model is constructed on four factors. The fixed factors are V1 market knowledge and V2 market commitment. The variable factors are V3 decision-making commitment and V4 ongoing activities.[8] As the company develops its knowledge about foreign markets (V1), its commitment of resources to the foreign market (V2) increases. These two static factors influence the two dynamic factors (V3 and V4), as knowledge determines and triggers decision-making behavior regarding further internationalization, which in turn affects the intensity of internationalization, or ongoing activities. The dynamic factors, in turn, create feedback that influences the static factors, making the model dynamic.[8]
The cyclical nature of this process suggests that internationalization generally progresses in small steps. The internationalization of a company is, in fact, a long-lasting and gradual process.[8]
Mechanisms of the Uppsala model
editThe model utilizes the mechanism of psychological distance to explain companies' involvement in international activities.[9] Initially, companies prefer to enter markets of countries with which they have a smaller psychological distance. This distance encompasses dimensions such as language, culture, level of education, economic development, political system, and legal system.[9]
The model emphasizes the organization’s learning mechanism, rooted in organizational theory and management. As a company acquires knowledge (learns), its commitment to foreign activities increases. The main barrier to internationalization is a lack of knowledge.[10]
Stages of the Uppsala model
editDepending on the authorship, stage models distinguish between from 3 to 8 sequential stages. The Uppsala model identifies four stages of a company's internationalization, namely:[1]
- irregular export;
- export through intermediaries;
- establishment of trading subsidiaries;
- initiation of production abroad.
A further development of the concept introduced a zero stage of internationalization, referred to as domestic internationalization, which consists of three phases:[6]
- lack of willingness to begin exporting;
- slight willingness to begin exporting;
- significant willingness to begin exporting.
Uppsala model and POM model
editIn the literature, the Uppsala model is often compared to the POM (Product – Operation mode – Market) model due to the significant similarities between these two theoretical models explaining the process of internationalization of enterprises.[11]
In both models, prior experience in the domestic market is required before expanding into foreign markets, and the expansion occurs gradually according to the criterion of geographical proximity.[11] In both models, an increase in the level of empirical knowledge is a necessary determinant for further expansion; however, the Uppsala model states that the level of commitment may also decrease or fade if the performance of the venture is not sufficient.[11]
The Uppsala model advocates starting foreign sales with irregular export activities, while the POM model posits that regular export is the first step (the POM model assumes that the first extension of a company's operations involves expanding into new foreign markets).[11]
Conclusions from the Uppsala model
editThe Uppsala model of internationalization of enterprises provides the following conclusions for a holistic theory of corporate internationalization:[5]
- Enterprises usually start with export activities, and only after some time do they decide on actions requiring greater commitment.
- Companies typically first expand into the markets of neighboring countries.
- Cultural distance and physical distance play a crucial role in the process of internationalizing the enterprise.
- Market knowledge, experience, and intuition are determinants for expanding into new markets.
- In foreign operations, enterprises utilize both general knowledge (related to internationalization) and specific knowledge (related to a particular market).
- The decision to enter a foreign market depends on the stage of development of the enterprise.
- Expansion is preceded by success in the domestic market and is a consequence of numerous decisions made within the company.
Critique of the Uppsala model
editThe Uppsala model, like any stage theory model, faces criticism. It is accused of two inappropriate axiological assumptions.[12] First, not every enterprise is initially oriented towards the domestic market. Nowadays, there are more and more companies that operate on international markets from the very beginning of their existence, referred to as "born globals".[12] Second, not every enterprise goes through all stages of the process from the first to the last. While the Uppsala model – unlike other stage theories – allows for the omission of certain stages, it still implies a sequential progression that does not apply to all firms.[12]
See also
editReferences
edit- ^ a b c Johanson, Jan; Wiedersheim-Paul, Fin (1975). "The Internationalization of the Firm: Four Swedish Cases". Journal of Management Studies. 12 (3): 305–323. doi:10.1111/j.1467-6486.1975.tb00514.x.
- ^ a b Johanson, Jan; Vahlne, Jan-Erik (1977). "The Internationalization Process of the Firm: A Model of Knowledge Development and Increasing Foreign Commitments". Journal of International Business Studies. 8 (1). doi:10.1057/palgrave.jibs.8490676.
- ^ Gorynia, Marian (2007). Strategie zagranicznej ekspansji przedsiębiorstw [Strategies for Foreign Expansion of Enterprises] (in Polish). Warsaw: Polskie Wydawnictwo Ekonomiczne. p. 35.
- ^ a b Daszkiewicz (2004)
- ^ a b c Gorynia, Marian; Jankowska, Barbara (2007). "Teorie internacjonalizacji" [Theories of Internationalization] (PDF). Gospodarka Narodowa (in Polish). 10: 22. Archived from the original (PDF) on 2013-12-14.
- ^ a b Wiedersheim-Paul, Fin; Olson, Hans C.; Welch, Lawrence S. (1978). "Pre-Export Activity: The First Step in Internationalization". Journal of International Business Studies. 9: 47–58. doi:10.1057/palgrave.jibs.8490650.
- ^ Fonfara, Krzysztof (2009). "Istota i zakres procesu internacjonalizacji firmy" [The Essence and Scope of the Internationalization Process of a Company]. Zachowanie przedsiębiorstwa w procesie internacjonalizacji: podejście sieciowe [Company Behavior in the Internationalization Process: A Network Approach] (in Polish). Warsaw: Polskie Wydawnictwo Ekonomiczne. p. 13. ISBN 978-83-208-1822-2.
- ^ a b c Daszkiewicz (2004, p. 38)
- ^ a b Kraśnicka, T., ed. (2008). Przedsiębiorczość międzynarodowa. Aspekty teoretyczne i praktyczne [International Entrepreneurship: Theoretical and Practical Aspects] (in Polish). Katowice: Wydawnictwo Akademii Ekonomicznej w Katowicach. p. 25.
- ^ Morawczyński, Rafał (2008). Przedsiębiorczość międzynarodowa [International Entrepreneurship] (in Polish). Kraków: Wydawnictwo Uniwersytetu Ekonomicznego. p. 11. ISBN 978-83-7252-388-4.
- ^ a b c d Blomstermo, Anders; Sharma, Dharma Deo, eds. (2003). Learning in the internationalisation process of firms. New horizons in international business. Cheltenham; Northampton, MA: E. Elgar. pp. 262–263. ISBN 978-1-84064-662-7.
- ^ a b c Daszkiewicz (2004, p. 45)
Bibliography
edit- Daszkiewicz, Nelly (2004). Internacjonalizacja małych i średnich przedsiębiorstw we współczesnej gospodarce [Internationalization of Small and Medium Enterprises in the Modern Economy] (in Polish). Gdańsk: Scientific Publishing Group. ISBN 83-921075-0-0.
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