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Uppsala theory is the second most important theory which dominates the internationalization of the firm. Carlson’s (1996) reasoning laid the foundation for this model which mainly deals with knowledge acquisition or learning. Central issues concern how organizations learn and how this learning affects their subsequent investment behaviour. The core concepts of this model are market commitment, market knowledge, commitment decisions and current activities.
This is also known as the stages of the development theory and states that the firms first move through a series of stages in becoming truly international.
Beginning with exporting, the firm moves through establishing a sales office overseas then establishing a warehouse, then manufacturing and finally becoming truly multinational by allowing overseas subsidiaries to exercise a large degree of autonomy. Internationalization according to this theory focuses on learning as a key determinant.
The Uppsala internationalization model, which is predicated upon the behavioural model of the firm and Penrose’s theory (1959) of the growth of the firm, perceives internationalization to be a process of increased involvement.
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As firms develop additional levels of knowledge of the foreign markets and operations, they increasingly commit resources to foreign markets. This model encompasses state and change aspects of internationalization which build upon and enforce each other in a causal cycle.
How much learning a firm accumulates depends heavily in its chosen mode of entry (Solberg, 2006, pp. 160). Using Uppsala model as a background for understanding the mechanisms of initiating and maintaining international distributor relationships leads to the conclusion that exporting manufacturers may resort to forward integration and acquisition strategies to deal with opportunistic, performance weakening distributor behaviour almost by default.
The Uppsala theory assumes that obstacles to internationalization are lack of knowledge and resources.
In the Uppsala model the crucial actors are those that acquire and hold market knowledge. They shape the international process of the firm in accordance with their own learning and risk and also opportunity perception. The model concerns prediction of firm behaviour (Katz, Shepard, 2004, pp. 150). The Uppsala model highlights the importance of experiential learning in inducing international expansion.
According to Johanson and Vahlne (1977), firms learn by doing as their knowledge base expands they seek to use this knowledge in new markets. Learning about local markets and geopolitical conditions, in turn stimulates future international expansion. The Uppsala model also proposes that the companies enter countries that are most similar to their own country’s culture. Over a time, accumulating experience and knowledge enables these firms to enter markets that are culturally dissimilar to their home base markets (Solberg, 2006, pp.160).
It is often said that the Uppsala model echoes some of the principles of Vernon’s theory (1966) of sequential market entry which highlights the product life cycle. Uppsala model does not necessarily agree with Vernon’s model but it does highlight that knowledge gained in domestic markets becomes a foundation for international expansion. The Uppsala model focuses primarily on the initial efforts to internationalize a company’s operations, possibly overlooking those companies that have amassed considerable experience in this regard.
The model also highlights the exploitative side of learning, where the firms go international to make use of their existing knowledge. Uppsala model is limited because it does not say much of the process of competence development in the multinational enterprise. The model also holds a deterministic view of internationalization, proposing a predictably sequential pattern of evolution. Consequently it ignores that some firms may skip some of the steps outlines and leapfrog their competitors (Katz, Shepard, 2004, pp. 151).
Uppsala Theory & Carlson's Impact in Intl. Business. (2020, Jun 02). Retrieved from https://studymoose.com/uppsala-theory-1458-new-essay
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