The Uppsala Model: The Network Model Of Internationalization

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INTRODUCTION : To keep up with the fast moving phase of the global business era, it is a necessity for organizations to understand the larger forces that is shaping the macroenvironment of the foreign market. Companies usually decide to expand their market to grow their revenue in an untapped market, however, before doing so, the obstacles that are not typically encountered in the domestic market should be taken into account. According to Hansen (2013), the understanding of the foreign market before expansion is important as it helps understand the potential and future direction of operations. The understanding of a foreign market is prioritized in order to reduce the impact and effects of potential threats to the organization, to enable …show more content…

One of the theories that is generally used as a guideline for managers is the Uppsala Model which focuses on the gradual acquisition, integration and use of knowledge about foreign markets and operations, and on incremental increasing commitments to foreign markets (Johanson & Vahlne, 1977). Some of the other theories that competes with the Uppsala Model in the context of internationalization and market expansion is the Network Model of Internationalization and the Transaction Cost Theory. The Network Model of Internationalization allows the influence of external factors or organization affect the internationalization of the firms (Hadley and Wilson,2003). The Transaction Cost theory focuses on costs and how it would affect a firm's choice of market and mode of entry. The objective of this essay is to critically analyze the Uppsala model of internationalization in relation to international market selection for the expansions of small and medium sized …show more content…

According to the stage approach, companies start of by selling their products in the home country and only then do they sequentially enter foreign market (Baronchelli & Cassia, 2008).The different stages in this model represent the different degree of market involvement or commitment. The Uppsala researchers explained the internationalization process by observing Swedish manufacturing firms. According to Hollensen (2004), they had noted that initially companies begin their operations in a host country which is very similar to the home market. After this the firms would then enter a market which is more different than the home market. At the second stage companies enter new markets by using export as its mode of entry and only after several years do firms open wholly owned or foreign owned subsidiaries in the host country. A study conducted by Johanson and Wiedersheim-Paul on the year 1975 demonstrated that knowledge is one critical factor in the internationalization on the firm (Forsgren et al.,2015). The other concepts that the model is based on market commitment, commitment decisions and also current activities (Macquarie University,

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