The globalisation process that has been occurring and indeed accelerating in recent times has been due to various factors; changes in information technology have given the impression of reduced physical distance, and so have the advances in communication technology. Also, the (economic) rise of developing nations has added new actors to the global stage. All this has been greatly aided by the adoption of various forms of international trade agreements including the establishment of economic areas such as the European Union, just to mention the most prominent example. Whatever the causes and nature of the globalisation process, in this context the internationalisation of an individual firm has gained more and more importance as firms now have the need, and at the same time the incentive, to enter new countries and markets quickly and effectively, in order to exploit the opportunities that the global stage offers, and to avoid being left behind by their rivals. There are different motives that can lead to a firm’s internationalisation decision, and different choices that the firm’s management has to make as to the mode of entry into the international market. The aim of this essay is to outline and critique some of the various theories that have been presented by academics, which try to describe how and why the internationalisation process occurs.
The Uppsala model describes the internationalisation process by a firm as a gradual and incremental phenomenon whereby the expansion into a new country, and therefore into a new market, happens in subsequent progressive steps, starting from exports into the new markets and aiming to the establishment of operations in that country/market (Johanson and Vahlne, 1977). The key to this process is the experiential learning or knowledge gained by the individuals who work in the firm as they proceed with the expansion. Each step in the process is thus a platform for the next step, and the firm can then expand into other countries and markets. Also, this model postulates that the expanding firm will try to enter markets and countries to which it feels closer to, and with which the psychic distance is smaller, subsequently progressing to countries and markets which are further away (not merely geographically but from a psychic distance point of view) and more different. It is a stages-based approach which has a sequential take on the internationalisation process (Whitelock, 2002). The model has been criticised for its simplicity and perhaps excessive generalisation. Forsgren (2001) for example, addresses the scope and nature of the organisational learning that the model assumes, which only really considers the experiential learning by the organisation’s management, while in practice there may be other ways in which the learning occurs. For instance, firms can learn through imitation of their competitors, by altogether taking a radically different approach from the existing one, or even by simply acquiring other firms that already operate in the new market and thus possess the relevant knowledge and/or skills. Another criticism is the one-dimensioned approach of this model,
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