Introduction
The globalization is claimed to be a major trend in this contemporary world as it entails different factors and perspectives that shows advance information technology for better communication in global stage. The global business has been greatly aided by adopting different international trade model. In the context of internationalization overall trade has gained chances to enter different countries trade market more rapidly and efficiently in order to utilize the global trade opportunities and avoid the problems regarding slow expansion of business (Knight and Liesch, 2016).
Discussion
Detail analysis of international model theories
There are diverse motives concerning international business decision and choices of company’s management to adopt suitable model to enter the international business. The approach of Uppsala model is different from traditional approach that explores the questions like why any firm should invest in foreign market and how profitable are such investments (Autio, 2017). The aim of this assessment is to evaluate mainly two international theories presented by well-known academics and compare their similarities and dissimilarities in the framework of different industries.
The Uppsala Model
The well-known model of internationalization is known as Uppsala model originated in Sweden at the University Uppsala. According to Johanson and Vahlne the basic thought of internationalisation of business is a dynamic, gradual and incremental process which consists two main parts: the model of internationalisation and the pattern of internationalisation. Whereas, the pattern describes findings from various practical studies and the model represents theoretical representation. The pattern of internationalisation has four stages of establishment chain in which first stage means the company has not done any export activities and second stage refers company mostly exported through sales representatives. The third stage involves building up independent distribution network in any new market and the last stage is completed by setting up company’s own production and sales office in foreign market (Yamin and Kurt, 2018). Uppsala model is an internationalization process by a company stressed on the business seeks exposure in new country with successive progressive steps which starts from export activities in new market and with an objective to establish business operation in that new market . This theory assumes that a company first prefers to invest in neighborhood markets then further increase its business and psychic distance. Each step in this model is the platform for another step and by this the company may expand their business in foreign markets. Moreover, this model indicates initially the developing company may enter into a new market that not only geographically closer but also smaller in psychic distance then subsequently expand in farther countries (both geographically and psychic point of view) (Kaur et al. 2016).
Advantages of the Uppsala model
The Uppsala model considers internationalization is an incremental process of accumulation, acquisition and applies the knowledge on global marketing and sales. Some advantages of adopting Uppsala model are:
- Annual net profit is increased by transferring competition in global market
- A complete performance improvement process and opens doors for new innovation
- Using new foreign market sales capacity to increase sales volume of the company
- Critically diversify the risk factors involved in building up business in foreign market by step-by-step establishment chain process
- Companies has more access to advance technologies of global market
- Global market becomes more homogenous as psychic distance lessen so the companies are willing to invest in foreign market
Criticism of the Uppsala model
The main reason for criticism of Uppsala model is its simplicity and single dimension approach. Excessive generalization is also a reason for criticism because different companies have different goals of building operational activities in foreign market. Other demerits to approve Uppsala model in internationalization are:
- Detail learning process to analysis the affects of internationalization is extremely time consuming
- This model is awfully deterministic
- This model is not applicable in service industries
- Uppsala model may not be implemented in condition of highly internationalized industries
- This model lacks of learning goals of organization and learning market risks. Risk of Socio-cultural differences is always there while expanding business in global market.
- Competitive structure of Uppsala model is less favorable as it includes the risk of price conflict with local market
The Born Global model
The term born global means any company that from beginning tries to multiple its sales in product for or digital form. This theory of internationalization is quite different from the other models because from initial stage born global companies have very progressive view to expand their business at international market. Generally, the Born global model is applied on industries involves in consumer products, metal fabrication, furniture and processed food industries. The management of born global companies does not observe the global market is just expansion of their local market but they have extremely tough entrepreneurial mindset. Also, majority of born global companies are technology based companies. For example, Google, Fiweex, and facebook most born global companies have a tendency of self –financed and tech dominated sector (Santangelo and Meyer, 2017).
This model has both merits and demerits as other models have but born theory consists of maximum internationalization quality as compared to other models. Some marginal gap mainly born global strategic approach must be addressed properly.
Comparison of two internationalization theories
| The Uppsala Model | The Born Global Model |
| Similarity: | |
| This model emphasis on knowledge and learning practice in internationalization and extremely simple to implement in business. | This model is also simple to implant in internationalization process. |
| Dissimilarity: | |
| · The U-model is developed by Johanson and Vahlne.
· This model of internationalization process involves four stages of establishment chain. · Minimize the chances of uncertainty by getting complete knowledge of financial and legal aspects of new country market · Interdependencies among different countries market is often ignored · Initial investment is quite high as establishing new distribution system in foreign market |
· It is classically known as international new ventures (INV).
· No stage of model is involved in born global model it proactively involves in expansion of business. · Chances of uncertainty are there as different countries have different legal aspects but this model utilizes the resources to multiple the sale output. · The born global firm operates independently in each foreign market. · Initial investment is very low because born model firms are SMEs that started with low budget then grows aggressively. |
Application of the two internationalization theories in companies
The Google is a born global company, they aggressively and proactively handle international market by adopting new innovation and take high risks for business growth. The real – example of born global model company is Google which aims to categorize the information so it easy to access globally. The world’s largest search engine is Google whose customer satisfaction is the main motto and expanding very aggressively.
Amazon is another example who applied born global model in internationalization. They have global customers using internet technology of Amazon.com to access thousands of products available online. It is the real life example of born global model. The customers of one country uses this site to order online and the products or items are delivered from the local warehouse within 36-72 hours at the doorstep of customers. Customers using website of Amazon find it more useful and interactive because it displays numerous products of customer’s choice.
Individual companies have different goals to building up export facilities in foreign market. For example, getting export license may be high choice for many tech-companies. For that Uppsala model must be executed because it provides step-by-step process to execute export facilities in new country. The theory of Uppsala is applied in companies of China where export is the most crucial business activities. The various factors like licensing, technology upgrade, development of business qualities during internationalization helps to promote the internationalization process (Forsgren, 2016).
One more real-life example of Uppsala model is to execute export based methods in internationalization process. The products produced in local market may exported by proper scrutiny of new country market. This model helps in internationalization by exporting through direct agents or by indirect import method. Extremely wide market knowledge is required to introduce the product in international market. Thus, big manufacturing companies like Atlas Copco, Sandvik, and Volvo applied Uppsala model for internationalization of their business (Schellenberg et al. 2018).
Conclusion
Many theories on internationalization articulated that have different aspects of company’s internationalization assessment and all models have their own merits and demerits. The basic question arises before companies that how to establish trade activities in global market, for that various international theories has adopted by global business leaders. Two popular theories are discussed above from one of them is Uppsala model which is prominent model of internationalization. The Uppsala model mainly evolves in the central issues which examine the learning process that affects firm’s investment behavior. Though Uppsala model provides detail learning process but it somehow suffers some backwardness in today’s business environment. It is further concluded that in internationalization process born global model proved a drastic change in advancement of new technologies. Therefore, from the above individual assessment it is concluded that different firma has dissimilar aims and goals to achieve in foreign market and the management must choose best internationalization model for their business expansion.
References
Autio, E., 2017. Strategic entrepreneurial internationalization: A normative framework. Strategic Entrepreneurship Journal, 11(3), pp.211-227.
Forsgren, M., 2016. A note on the revisited Uppsala internationalization process model–the implications of business networks and entrepreneurship. Journal of International Business Studies, 47(9), pp.1135-1144.
Kaur, M., Khatua, A. and Yadav, S.S., 2016. Infrastructure development and FDI inflow to developing economies: Evidence from India. Thunderbird International Business Review, 58(6), pp.555-563.
Knight, G.A. and Liesch, P.W., 2016. Internationalization: From incremental to born global. Journal of World Business, 51(1), pp.93-102.
Santangelo, G.D. and Meyer, K.E., 2017. Internationalization as an evolutionary process. Journal of International Business Studies, 48(9), pp.1114-1130.
Schellenberg, M., Harker, M.J. and Jafari, A., 2018. International market entry mode–a systematic literature review. Journal of Strategic Marketing, 26(7), pp.601-627.
Yamin, M. and Kurt, Y., 2018. Revisiting the Uppsala internationalization model. International Marketing Review.
