You are on page 1of 4

According to Root (1994) [2], international entry strategy is a comprehensive

plan and it sets forth objectives, goals, resources and policies that will guide the
international business activities. The selection of an entry mode involves
following decisions: 1) Choice of a target product/market 2) Objectives and goals
in the target market 3) Choice of an entry mode to penetrate the target market
country 4) Marketing plan to penetrate the target market 5) Control system to
monitor performance in the target market

The classification of foreign market entry modes is not easy and there are many
relevant criteria to take into consideration. Brassington & Pettitt (2000) [3], Wild,
Wild & Han (2003) [4], and Armstrong G. & Kotler P. (2005) [5] presented several
different types of foreign entry mode: Direct export Indirect export Licensing
Franchising Contracting Sales subsidiaries Manufacturing subsidiaries Joint
ventures Strategic alliances

according to Hollensen (2001) [6], there are some additional factors influencing
companys choice of foreign entry modes: Company size International
experience Product complexity and differentiation Risks Control Flexibility
Root, F.R. (1994) Entry Strategies for International Markets. Revised and
Expanded Edition, Lexington Books, New York, 324 p

Hollensen, S. (2003) Marketing Management: A Relationship Approach. Financial


Times Prentice Hall, Harlow, 787 p

The Uppsala model (Johanson & Vahlne, 1977, 1990) is one of most frequently cited
models in the internationalization literature (c.. Andersen, 1993; Langhoff, 1997; Oviatt
& McDougall, 1994). The model states that firms will tend to internationalize first to
psychically close countries and gradually move to more psychically distant markets. The
model also states that, as a firm chooses a new foreign country, it will start from a low
resource-commitment mode and only move to higher commitment modes as it gains
experiential knowledge in the foreign market.

Assumptions of the Uppsala Model

The Uppsala Internationalization Model (Johanson & Vahlne, 1977, 1990) was initially
developed based on case studies of Swedish manufacturers (Johanson & Wiedersheim-
Paul, 1975) adopting a behavioral perspective (Andersen & Buvik, 2002; Bjrkman &
Forsgren, 2000) inspired by the work of Penrose (1959), Cyert and March (1963), and
Aharoni (1966). The model asserts that a firm's market knowledge (or lack thereof)
would be the driving force of its internationalization path. Market knowledge is seen as a
function of psychic distance between home and host countries and the firm's
accumulated experience in each given market. The model contends that (i) firms choose
new countries for expansion according to their psychic closeness to the host country,
moving to more psychically distant countries only as they gain experiential knowledge
from past international operations; and (ii) resource commitments in each selected
country increase in incremental steps as the firm gains experience in each market.

The model has been tested mainly in manufacturing industries. However,


considering the growing importance of services in the world economy, it is
questionable whether the model assumptions would also apply to servic
Limitations of Uppsala model In spite of great contribution Uppsala model had on
international business, this model experienced several limitations. In the
following chapter those will be emphasized. Due to widely present globalization
and environment characterized with faster changes, nowadays companies
cannot allow expanding in slow and incremental steps. This can be limiting factor
having in mind Uppsala model is developed more than 30 years ago. Nowadays,
owing to rapid development of technology and constantly changing business
environment, companies need to adjust faster to consumer behavior and existing
market situation. Hence, neglecting external factors, such as existing
competitions and market potentials, and focusing only on internal factors within
the company, as knowledge gathering is, represents the biggest limitation of
Uppsala model (Hollensen, 2007). According to Johanson and Vahlne, companys
internationalization process always starts with sporadic export and developing
towards collaboration with independent representative. Other modes of entering
markets, such as franchising and licensing, characterized with less risk and low
levels investment are neglected (Doole and Lowe, 2008). Uppsala authors
statement that, in order to enter a new market company needs to have sufficient
level of knowledge about particular market was also criticized. If company
perceives a risk of not being present on particular market higher than risk of
entering without the sufficient knowledge, company will invest. Learning process
does not have to progress in incremental steps. 34 Mirela Matic and Vita Vabale |
Master Thesis | IBE According to Forsgren (2002), organizational learning can be
conducted in many ways. One of the ways he is advocating, is learning from the
network company belongs to. Through the participating in established network,
company can learn from other members. Alternative could be hiring people with
knowledge about the market, or acquiring company that possess the knowledge
and is already present on the particular market (Ibid). Due to existing
globalization and previously mentioned business conditions, for some companies
gradually internationalization process is not an option. Subsequently, this model
is not applicable for born global companies. This content refers to company that
gains competitive advantage through using resources and organizing value chain
in different countries and see the world as marketplace (Knight, 1996). According
to Hennart (2014), the Uppsala model can be applied only to a specific group of
firms, mostly to those, which customers require adapted marketing strategies
and logistical investments. Hennart claims that internationalization speed
depends on the business model of the firm, meaning that internationalization
pattern hinge on what they sell, how they sell and to whom they sell (Hennart,
2014, pp. 117). Firms selling niche products may internationalize rapidly because
there may be no need to spend more time or resources for sales to customers
abroad than to domestic customers. Moreover, Uppsala model is more
appropriate when analyzing internationalization process of firms that use equity
entry modes that require huge investments and are more risky. Before making
investment decisions, firms need to examine a new market more carefully and
this process can take more time. Such companies need more time to assess risks
and opportunities in a target market. In contrast, born global firms quite often
sell niche products and there may exist the shared knowledge between
customers and the seller regarding the product. The shared knowledge reduces
psychic distance between the country of product origin and the buyers country,
thus allowing firms to internationalize more rapidly and do not need to enter
psychically close markets before moving to more distant markets (Fan and Phan,
2007) as Uppsala model suggests. 35 Mirela Matic and Vita Vabale | Master
Thesis | IBE Revisited Uppsala model Having in mind numerous limitations
Uppsala model was facing with, pronounced authors of the theory decided to
revise it, and consider how company can simplify internationalization process
through strengthening position within an existing network. According to Johanson
and Vahlne (2009), companys decision regarding entering on market and
applied entry mode is predetermined with participation in the business network.
In addition, here is an assumption that company already belongs to the business
network and has built interrelationship with others in that network. By using the
other companies gained knowledge within the network, company can expand
area of interest and enter in markets with higher distance. This will strengthen
companys position in the network and ease decision making in regard to
relevant entry mode. In revised model, Johanson and Vahlne perceiving
internationalization process as a set of opportunities that should be explored
(2009). This can be described as one of the main differences comparing with the
previous model, where internationalization is explained as overcoming of
uncertainties (Ibid). Figure 5- Revised Uppsala model (Source: Johanson and
Vahlne, 2009) Instead of previously mentioned level of knowledge as prerequisite
for companys commitment on the market, here in focus are exploitation of
opportunities and network position as crucial determinants of commitment level.
Briefly, in revised Uppsala model Johanson and Vahlne (2009) argue that
company needs to build strong level of commitment with other companies in 36
Mirela Matic and Vita Vabale | Master Thesis | IBE the same network. By
strengthening those commitments, company is gaining access to knowledge,
which can contribute in detection of new opportunities. In the revised Uppsala,
for authors, opportunities are the most important source of knowledge. Other
relevant elements of knowledge are capabilities, companies networks and
strategies (Ibid). The revised Uppsala is pointing out that internationalization
process is more effective in the network, where companies can learn and build
the trust. Further development of relationships among companies in the network
is resulted from development of knowledge, commitment and trust building
(Ibid).