Globalization and Internationalization: The Uppsala Model - Essay Example

Assessment of the claim that the Uppsala model is a poor guide to the internationalization process Introduction The term globalization and internalization have been in use for some time. Through a deeper look into the international market, it becomes evident that many authors from different times agree that the ‘global’ nature of the world is becoming more and more. For example, the world has become increasingly connected, which has made business to work like it was smaller, and the trend is heading forward as time goes by (Loane and Bell, 2006). Further, the barriers limiting trade have been lifted using trade agreements and the world trade Organization (WTO) has further reduced trade tariffs. More importantly, goods, money, people and data are crossing borders at a faster rate than ever before. For example, from a comparison of current statistics and those of 1990, cross-border capital flows expanded at a rate which is thrice that of the growth of the world’s GDP (Bisson, Stephenson and Vigueri, 2010). The developments that have taken place in the circles of transportation, communication technologies, and the changing processes of production are the forces behind these changes. This paper will explore the claim that the Uppsala model is poor in explaining the process of internalization, and where necessary, the model will be compared with other theories of internalization. Discussion The internalization of many companies is evident from the expansion of business and marketing activities beyond territorial and regional borders. However, it is important to note that the changes that are incorporated require a lot of planning, examination, implementing and inspection strategies, all through the internalization process (Blankenburg Holm, Eriksson and Johanson, 1999). Many researchers have formulated a range of theories and tools to explain the internalization process, and have proposed different strategies for coping with the change of business scope and outlook. In this case, the Uppsala model has been used to explain the internalization process, irrespective of the fact that it is not a fully, process-based model. The weakness of the model will be exposed through comparing it with other theories of internalization, and also through the examination of its applicability to different situations (Blomstermo and Scharma, 2003). The Uppsala model on internalization is grounded on the resource-based outlook Johanson and Vahlne (1990), whose roots can be traced to the classical theory of the firm (Penrose, 1959). The model was formulated through the research done among major Swedish manufacturing firms, during the 1970s. The main conclusions of the study included that firms enter new markets in an incremental manner, depending on their knowledge about markets. The study also emphasized that entry modes affect time, notably, due to the fact that the model is split into two main aspects: the market knowledge (which is a state) and (current activities) referring to the changes incorporated. The model is grounded on a number of concepts, including learning, knowledge, risk, uncertainty and commitment. The high points of the model include that it is the only one which is adaptive, among process-based models (Blomstermo and Scharma, 2003). The weaknesses exposed from comparing the Uppsala model to other internalization Theories From the comparison of the Uppsala model and the PLC-theory, a number of differences come out clearly. Firstly, it is important to note that the observations of developments were administered in different settings: the Uppsala model is grounded on the observation of the international developments of Swedish firms, while the PLC-theory is founded on the observations made from American firms. The emphasis of the model, on large Swedish firms leads to questions about the reliability of the model, in explaining the internationalization process of smaller firms and enterprises, for instance SMEs. The fact that the model was formulated on the basis of the study of large firms serves as evidence to tell that it could be very poor, when used to guide the internalization process of smaller firms. One of the notable differences between the two, which exposes one weakness of the Uppsala model include that the American firms developed international competitive advantage before venturing into international markets, which is different from the case of the Swedish firms. Swedish firms, on the other hand, had to venture into international markets before they could benefit from economies of scale. From a comparison of the two models, it is also evident that the model emphasizes that market knowledge is the major factor that influences the internalization process, which is not necessarily true, noting that the model pays little attention to the strategies of different firms (Blomstermo and Scharma, 2003). From a comparison of the Uppsala model (Crinkota, 1982) and the innovation-based model (Johanson and Vahlne, 1977), it becomes clear that the two are behavioural-oriented. The weaknesses exposed through the comparison of the two include the emphasis made that, firms internationalize in an incremental, slow manner – where the environment is regarded as a constant (unchanging) factor. This weakness has major implications, noting that the study of international and local markets shows that they are constantly changing, especially due to the policy changes and the technological developments taking place (Axinn and Matthyssens, 2002). The strong points shared by the two include their emphasis that the results that yield from a decision on foreign expansion influences the inputs incorporated into a future decision: the emphasis demonstrates that it is dynamic in nature (Merriam, 1998). The outlook increases the credibility of the theory as a guide for internalization, but its outlook is weakened by the fact that the model does not incorporate the inclusion of new ways of doing business and strategies into the internalization process. The model, predominantly, emphasizes the time consuming nature of the learning process, which is not always the truth when internationalizing (Madsen and Servais, 1997). The changing environment is an important area that highlights the failure of the Uppsala model in explaining and guiding the internalization process, taking into account, the fact that it has emphasized that the market environment does not change. The view, in general, is compromised, noting that globalization has widened the internationalization processes available, following the increment in international opportunities and the consequences of failing to expand. One case that demonstrates the consequences of not internationalizing (expanding) is that of automobile companies into emerging, due to the pressure of the firms that have already entered emerging markets like China (Chyen Yee and Cremer, 2014). For example, following the entry of Volkswagen into China and the success it has made there, GM has also started the plans of investing USD 12 billion in China (Chyen Yee and Cremer, 2014). The weakness of the Uppsala model, explored earlier, in explaining the expansion of firms was also explored by Forsgen (2002), who emphasized that firms can enter international market at their own volition (intentionally), despite having low knowledge of foreign market, in the cases where the foreseen risks of failing to invest are higher than those of investing (internationalizing). Such a case is demonstrated by companies like Volkswagen and GM, which suffered from the fierce competition in the saturated local markets of developed countries, including US, UK and Germany. The examination of the entry models used by the two automotive companies, another weakness of the Uppsala model in explaining the internationalization process, also becomes evident from the fact that it does not explain the reasons behind internalization (Johanson and Vahlne, 2009). Instead, the Uppsala model emphasizes the actions of a firm after it has made the decision to enter a foreign market (Figueira-de-Lemos, Johanson and Vahlne, 2010). There is a weakness of the Uppsala model, in guiding the internationalization process of firms, which is evident from its insistence that the entry of businesses into international markets is dependent on the physical and the psychic distances of the given market (Johanson and Vahlne, 1977). This weakness makes it a poor model, noting that changes in technology have made physical distances less of a concern. The limitations of physical distance have been resolved by the increased travel of people and the increasing globalization of firms. Further, the digitization of communication has made long-distance communication simpler; it has improved the capability of engaging global networks, and the internet has offered alternate distribution platforms for selling the delivery of products (Axinn and Matthyssens, 2002). These changes disapprove the premises of the Uppsala model, which proves that it is a poor guide to internationalization. The last weakness of the Uppsala model, which proves that it is a weak guide for the process of internalization, is that the Uppsala model is mainly suited for product companies and not service-provision companies (Loane and Bell, 2006). This area of difference demonstrates that the model is fit for explaining the globalization process of some companies and not others, noting that products can be produced in one place and consumed at another, unlike in the case of many services (Hansen, 1999). The weaknesses of the model are demonstrated by the differences between the differences in the outlook of the service and the products business, where changing trends are allowing for the production of services at one place and their consumption taking place at another. In the case of such services, the entry pattern is highly not congruent with the approach of the Uppsala model. This is the case, taking into account that such a company will not need to invest in the construction of factories and also the transportation of goods to the market (Axinn and Matthyssens, 2002, p. 445). However, it is important to note that such a service company will need to overcome cultural barriers like customs and language, which are not adequately addressed by the Uppsala model. Conclusion Globalization and internalization have been around for some years, but a deeper exploration of the changes triggered by globalization push for the widening of the concepts. The internalization of firms requires planning, examination and the implementation of other strategies, which have not been fully addressed by the Uppsala model. The weaknesses of the model demonstrate that it is weak in guiding the internalization process. These weaknesses include that the model is based on the study of large firms only; the emphasis on market knowledge and the fact that it does not accommodate the incorporation of new approaches to business. Other weaknesses of the model, which prove that it is poor in explaining internationalization include that it does not take into account the changes in the environment and it does not explore the reasons behind the expansion. Finally, the model does not take into account, the voluntary expansion of firms and the fact that physical distance has become less of a barrier to market expansion. The different weaknesses of the model prove that it is poor, therefore cannot be used to explain the process of internationalization adequately. Reference List Axinn, C. N. and Matthyssen, P., 2002. Limits of internationalization theories in an unlimited world. International Marketing Review, 19, pp. 436-449. Bisson, P., Stephenson, E. and Viguerie, S. P., 2010. The global grid. 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