The Uppsala Internationalization Model, also known as the Uppsala Model, is a theoretical framework developed by Johanson and Vahlne in the 1970s to explain the internationalization process of firms.
The model is based on the premise that international expansion is an incremental and experiential process characterized by increasing commitment and knowledge accumulation over time.
According to the Uppsala Model, firms gradually increase their international involvement through sequential stages of market entry, starting with markets that are geographically and culturally close before expanding to more distant and unfamiliar markets.
Components of the Uppsala Internationalization Model:
Market Knowledge and Commitment:
The Uppsala Model emphasizes the importance of acquiring market knowledge and commitment as firms expand internationally.
Firms start with limited knowledge and commitment in foreign markets and gradually accumulate experience and confidence through repeated interactions and learning processes.
Market Entry Modes:
The Uppsala Model distinguishes between different modes of market entry, ranging from indirect exports and contractual agreements to direct investments such as joint ventures and wholly owned subsidiaries.
Firms initially opt for less resource-intensive and risky entry modes in markets that are close and familiar before progressing to more complex and demanding entry modes in distant and unfamiliar markets.
Stages of Internationalization:
No Regular Export Activities:
In the initial stage, firms have no regular export activities and may engage in occasional or sporadic exports in response to unsolicited orders or inquiries.
The level of commitment and market knowledge is low, and firms rely on intermediaries or agents to facilitate export transactions.
Export via Independent Representatives:
In the second stage, firms begin exporting through independent representatives or agents who handle sales and distribution in foreign markets.
Firms gain insights into foreign markets and establish relationships with local partners, but their level of control and commitment remains limited.
Establishment of Sales Subsidiaries:
In the third stage, firms establish sales subsidiaries or branches in foreign markets to strengthen their presence and control over distribution channels.
Firms invest in market-specific resources and capabilities and gradually increase their commitment and knowledge through direct engagement with customers and partners.
Establishment of Production Facilities:
In the final stage, firms establish production facilities or wholly owned subsidiaries in foreign markets to localize production and enhance market responsiveness.
Firms achieve deep integration and commitment in foreign markets, leveraging their accumulated knowledge and experience to compete effectively and sustain growth.
Key Features of the Uppsala Internationalization Model:
Incremental Learning and Adaptation:
The Uppsala Model emphasizes incremental learning and adaptation as firms navigate the complexities of international markets.
Firms start with limited knowledge and commitment and gradually increase their involvement and investment as they gain experience and confidence.
Risk Management and Resource Allocation:
The Uppsala Model helps firms manage risks and allocate resources effectively by matching entry modes with the level of market knowledge and commitment.
Firms adopt gradual and cautious approaches to international expansion, minimizing risks and maximizing returns on investment over time.
Dynamic and Context-Specific:
The Uppsala Model recognizes that the internationalization process is dynamic and context-specific, varying across industries, markets, and firms.
Firms adapt their internationalization strategies based on factors such as market attractiveness, competitive dynamics, regulatory environment, and organizational capabilities.
Benefits of the Uppsala Internationalization Model:
Strategic Guidance:
The Uppsala Model provides firms with strategic guidance and a roadmap for international expansion, helping them navigate the complexities of global markets and make informed decisions about market entry and resource allocation.
Risk Mitigation:
By adopting a gradual and incremental approach to internationalization, firms can mitigate risks associated with uncertainty, complexity, and cultural differences in foreign markets.
Learning by doing allows firms to gain valuable insights and adjust their strategies in response to market feedback and changing conditions.
Long-Term Success:
The Uppsala Model promotes long-term success and sustainability by emphasizing the importance of building relationships, acquiring market knowledge, and gradually increasing commitment in foreign markets.
Firms that follow the Uppsala Model are better equipped to compete effectively, adapt to market dynamics, and capitalize on opportunities for growth and expansion.
Challenges of the Uppsala Internationalization Model:
Resource Constraints:
Implementing the Uppsala Model requires significant resources, including financial capital, human capital, and managerial expertise.
Small and medium-sized enterprises (SMEs) and emerging market players may face resource constraints that limit their ability to engage in international expansion and compete with larger firms.
Time and Patience:
The Uppsala Model emphasizes gradual and experiential learning, which requires time, patience, and persistence on the part of firms.
Firms may encounter setbacks, challenges, and obstacles along the way and must remain committed to their internationalization goals despite initial difficulties.
Market Complexity and Uncertainty:
International markets are characterized by complexity, uncertainty, and volatility, which can pose challenges for firms following the Uppsala Model.
Firms must adapt their strategies in response to changing market conditions, competitive dynamics, and regulatory requirements, requiring agility and flexibility in decision-making.
Case Studies of the Uppsala Internationalization Model:
IKEA:
IKEA, a Swedish furniture retailer, exemplifies the Uppsala Model by gradually expanding its international presence through a phased approach.
IKEA initially entered neighboring Nordic countries before expanding to other European markets and eventually establishing a global footprint through organic growth and strategic acquisitions.
H&M:
H&M, a Swedish fashion retailer, follows the Uppsala Model by incrementally expanding its international operations over time.
H&M started with exports to neighboring Nordic countries before establishing retail stores and local subsidiaries in key markets such as Europe, North America, and Asia.
Volvo Cars:
Volvo Cars, a Swedish automotive manufacturer, applies the Uppsala Model to penetrate international markets and establish manufacturing facilities abroad.
Volvo initially exported cars to neighboring European countries before establishing production facilities and joint ventures in key markets such as the United States and China to localize production and enhance market responsiveness.
Conclusion:
The Uppsala Internationalization Model provides a comprehensive framework for understanding the incremental and experiential process of international expansion by firms. By emphasizing gradual learning, commitment, and adaptation, the model helps firms navigate the complexities of global markets and make informed decisions about market entry and resource allocation. While challenges such as resource constraints, time constraints, and market uncertainty exist, the benefits of following the Uppsala Model include strategic guidance, risk mitigation, and long-term success in international markets. Ultimately, by aligning their internationalization strategies with the principles of the Uppsala Model, firms can achieve sustainable growth and competitiveness in the global marketplace.
The ADKAR model is a management tool designed to assist employees and businesses in transitioning through organizational change. To maximize the chances of employees embracing change, the ADKAR model was developed by author and engineer Jeff Hiatt in 2003. The model seeks to guide people through the change process and importantly, ensure that people do not revert to habitual ways of operating after some time has passed.
You can use the Ansoff Matrix as a strategic framework to understand what growthstrategy is more suited based on the market context. Developed by mathematician and business manager Igor Ansoff, it assumes a growthstrategy can be derived from whether the market is new or existing, and whether the product is new or existing.
The business model canvas is a framework proposed by Alexander Osterwalder and Yves Pigneur in Busines Model Generation enabling the design of business models through nine building blocks comprising: key partners, key activities, value propositions, customer relationships, customer segments, critical resources, channels, cost structure, and revenue streams.
The lean startup canvas is an adaptation by Ash Maurya of the business model canvas by Alexander Osterwalder, which adds a layer that focuses on problems, solutions, key metrics, unfair advantage based, and a unique value proposition. Thus, starting from mastering the problem rather than the solution.
The Blitzscaling business model canvas is a model based on the concept of Blitzscaling, which is a particular process of massive growth under uncertainty, and that prioritizes speed over efficiency and focuses on market domination to create a first-scaler advantage in a scenario of uncertainty.
A blue ocean is a strategy where the boundaries of existing markets are redefined, and new uncontested markets are created. At its core, there is valueinnovation, for which uncontested markets are created, where competition is made irrelevant. And the cost-value trade-off is broken. Thus, companies following a blue ocean strategy offer much more value at a lower cost for the end customers.
Business analysis is a research discipline that helps driving change within an organization by identifying the key elements and processes that drive value. Business analysis can also be used in Identifying new business opportunities or how to take advantage of existing business opportunities to grow your business in the marketplace.
In the 1970s, Bruce D. Henderson, founder of the Boston Consulting Group, came up with The Product Portfolio (aka BCG Matrix, or Growth-share Matrix), which would look at a successful business product portfolio based on potential growth and market shares. It divided products into four main categories: cash cows, pets (dogs), question marks, and stars.
First proposed by accounting academic Robert Kaplan, the balanced scorecard is a management system that allows an organization to focus on big-picture strategic goals. The four perspectives of the balanced scorecard include financial, customer, business process, and organizational capacity. From there, according to the balanced scorecard, it’s possible to have a holistic view of the business.
A blue ocean is a strategy where the boundaries of existing markets are redefined, and new uncontested markets are created. At its core, there is valueinnovation, for which uncontested markets are created, where competition is made irrelevant. And the cost-value trade-off is broken. Thus, companies following a blue ocean strategy offer much more value at a lower cost for the end customers.
A gap analysis helps an organization assess its alignment with strategic objectives to determine whether the current execution is in line with the company’s mission and long-term vision. Gap analyses then help reach a target performance by assisting organizations to use their resources better. A good gap analysis is a powerful tool to improve execution.
The GE McKinsey Matrix was developed in the 1970s after General Electric asked its consultant McKinsey to develop a portfolio managementmodel. This matrix is a strategy tool that provides guidance on how a corporation should prioritize its investments among its business units, leading to three possible scenarios: invest, protect, harvest, and divest.
The McKinsey 7-S Model was developed in the late 1970s by Robert Waterman and Thomas Peters, who were consultants at McKinsey & Company. Waterman and Peters created seven key internal elements that inform a business of how well positioned it is to achieve its goals, based on three hard elements and four soft elements.
McKinsey’s Seven Degrees of Freedom for Growth is a strategy tool. Developed by partners at McKinsey and Company, the tool helps businesses understand which opportunities will contribute to expansion, and therefore it helps to prioritize those initiatives.
The McKinsey Horizon Model helps a business focus on innovation and growth. The model is a strategy framework divided into three broad categories, otherwise known as horizons. Thus, the framework is sometimes referred to as McKinsey’s Three Horizons of Growth.
Porter’s Five Forces is a model that helps organizations to gain a better understanding of their industries and competition. Published for the first time by Professor Michael Porter in his book “Competitive Strategy” in the 1980s. The model breaks down industries and markets by analyzing them through five forces.
According to Michael Porter, a competitive advantage, in a given industry could be pursued in two key ways: low cost (cost leadership), or differentiation. A third generic strategy is focus. According to Porter a failure to do so would end up stuck in the middle scenario, where the company will not retain a long-term competitive advantage.
In his 1985 book Competitive Advantage, Porter explains that a value chain is a collection of processes that a company performs to create value for its consumers. As a result, he asserts that value chain analysis is directly linked to competitive advantage. Porter’s Value Chain Model is a strategic management tool developed by Harvard Business School professor Michael Porter. The tool analyses a company’s value chain – defined as the combination of processes that the company uses to make money.
Porter’s Diamond Model is a diamond-shaped framework that explains why specific industries in a nation become internationally competitive while those in other nations do not. The model was first published in Michael Porter’s 1990 book The Competitive Advantage of Nations. This framework looks at the firm strategy, structure/rivalry, factor conditions, demand conditions, related and supporting industries.
A SWOT Analysis is a framework used for evaluating the business‘s Strengths, Weaknesses, Opportunities, and Threats. It can aid in identifying the problematic areas of your business so that you can maximize your opportunities. It will also alert you to the challenges your organization might face in the future.
Businesses use scenario planning to make assumptions on future events and how their respective business environments may change in response to those future events. Therefore, scenario planning identifies specific uncertainties – or different realities and how they might affect future business operations. Scenario planning attempts at better strategic decision making by avoiding two pitfalls: underprediction, and overprediction.
The STEEPLE analysis is a variation of the STEEP analysis. Where the step analysis comprises socio-cultural, technological, economic, environmental/ecological, and political factors as the base of the analysis. The STEEPLE analysis adds other two factors such as Legal and Ethical.
A SWOT Analysis is a framework used for evaluating the business’s Strengths, Weaknesses, Opportunities, and Threats. It can aid in identifying the problematic areas of your business so that you can maximize your opportunities. It will also alert you to the challenges your organization might face in the future.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
