Process View on Management –
Strategy and internationalisation from a Scandinavian
Perspective
L6
The Uppsala Model
Thursday February 9, 2009
Peter Gustavsson, Ph D
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The Uppsala Model
Who and Where
Developed by Johanson & Wiedersheim-Paul in 1975 at Uppsala University
- Complemented by Johanson & Vahlne in 1977
- What
Empirical Bases:
Four Swedish Company: Volvo, Sandvik, Atlas Copco, and Facit
The model was made in accordance with the entry form and the choice of the market of these Swedish
firms.
Theoretical Contribution:
Establishment Chain (International Penetration)
- Psychic Distance (International Expansion)
- Dynamic Model (Knowledge Development and Increasing Foreign Market Comittment)
- Source: Johanson & Wiedersheim-Paul (1975), Johanson & Vahlne (1977)
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The Uppsala Model
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The Uppsala Model
Empirical Evidences of Swedish companies
Sandvik
Atlas Copco
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The Uppsala Model
Establishment Chain (Four-Stage Model)
The firm tends to gradually increase its involvement in a specific foreign market
- A sequential and successive process is followed from No Regular Export, to Export via
Agents, to Establishment of Overseas Subsidiaries, to Overseas Production.
- The stages both represent the increasing resources commitment and accumulated
market experience
- Illustration:
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The Uppsala Model
Hollensen, S. (2001), p.48
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The Uppsala Model
Internationalization as an Incremental Approach
Source: Developed by us based on Hollensen S. (2001)
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The Uppsala Model
Psychic Distance
Psychic distance: the sum of the factors preventing the flow of information from and to the market
- Factors: differences in language, education, business practice, culture and industrial development
- Firms tend to enter markets with successively greater psychic distance, in most cases greater
geographical distance
- Illustration:
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The Uppsala Model
Dynamic Model
A model of knowledge development and an increasing foreign market commitment
- State Aspects: Market Knowledge & Incremental Commitment
- Change Aspects: Commitment Decision & Current Activities
- Interaction between state aspects & change aspects
- “Market knowledge and market commitment are assumed to affect decision regarding commitment of resources to foreign
markets and the way current activities are performed. Market knowledge and market commitment are in turn affected by
current activities and commitment decisions”
Illustration:
Source: Johanson & Vahlne (1977)
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The Uppsala Model
Market Knowledge
General Knowledge
-Marketing methods,
- Common characteristics of customers
- Market Specific Knowledge
- Business culture,
- Climate, characteristics of customer firms
and their personnel
- Market Commitment
Amount of resources
- size of investment (marketing, organization,
personnel)
- Degree of commitment
- Alternative use for the committed resources
and transferring them into the alternative one
- Source: Johanson & Vahlne (1977)
Commitment Decisions
Perceived opportunities and problems on a
specific market
- The economic effect
- Uncertainty effect
- Current Business Activities
A lag in current business and their
consequences
- The prime source of experiences
- Ekonomiska institutionen
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The Uppsala Model
The basic mechanism of Internationalization
Johanson, J., & Vahlne, J. E. (1990) p.12
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The Uppsala Model
To sum up
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The Uppsala Model
Three Expectation of Use of Uppsala Model
1
2
When firms have abundant resources, the
consequences of commitments are relatively
much smaller, under such circumstance, larger
internationalization steps are likely to be taken.
When market environment is stable or
homogeneous, relevant market knowledge can
be acquired from other ways rather than
experience from current activities.
3
When the firm owns plenty of experience
deriving from former similar markets, it might
be possible to generalize and apply this
experience to other specific markets.
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Source: Johanson & Vahlne (1990)
The Uppsala Model
Criticism on Uppsala Model
Establishment Chain
1. The initial step does not necessarily begin with
exporting
- Leap Frogging
- De-internationalization
- 2. Psychic Distance
Firms more interested in entering markets with
greatest opportunities.
- Greater psychic distance but high industry
similarities
- Following-clients-business
- Globalization shorten the psychic distance
- 3. Market Penetration Depth
Localization
- Market commitment beyond overseas
production
- Source: Bell & Yong, in Hooley, Loveridge & Wilson (1998) , Grady & Lane (1996)
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The Uppsala Model
Industry characteristics
- It has important impact on internationalization
process, such as economies of scale, R&D,
government policies effecting the need of
local production, etc.
Experiential knowledge
- It can be obtained through grafting which
means acquire local units that has necessary
market knowledge.
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To be discussed…
Globalization?
Efficiency in communication?
Applicability in different industries?
Applicability in other countries?
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