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Masters Programmes

Assignment Cover Sheet


Submitted by: <1356301 >

Date Sent: 14.04.2014

Module Title: Global Business Strategy

Module Code: IB92N0

Date/Year of Module: 2014

Submission Deadline: 14.04.2014

Word Count: 2713 words

Number of Pages: 31

Question: The stage model of internationalization has passed its sell by date.
Critically examine this statement. Use examples to illustrate your analysis

This is to certify that the work I am submitting is my own. All external references and
sources are clearly acknowledged and identified within the contents. I am aware of the
University of Warwick regulation concerning plagiarism and collusion.
No substantial part(s) of the work submitted here has also been submitted by me in
other assessments for accredited courses of study, and I acknowledge that if this has
been done an appropriate reduction in the mark I might otherwise have received will be
made.
2
Content:

1. INTRODUCTION: AN OVERVIEW OF THE STAGE MODEL5

2. RELEVANCE OF THE STAGE MODEL.....8

3. LIMITATIONS OF THE STAGE MODEL..12
3.1 RATIONAL STRATEGIC CHOICE13
3.2 EMERGING MARKET FIRMS14

3.3. FIRMS IN HIGH-TECH SERVICE INDUSTRIES...16
3.4 BORN GLOBAL FIRM..18
4. CONCLUSION.24

References26














3
List of Figures and Tables:

Figure 1: Uppsala Model of Internationalization
Figure 2: Major Assumptions of the Uppsala Model
Figure 3: Timeline of the Internationalization process of Carrefour
Figure 4: Application of the Stage Model is the present business context

Figure 5: Limitations of the Stage Model
Figure 6: Internationalization of Emerging Market firms
Figure 7: Characteristics and Reasons for Emergence of Born Global firms
Figure 8: Product, Operation and Market Strategy of Add2Phone
Figure 9: Conceptual Framework of a Born Global Firm
Figure 10: Stage Theory view vs Born Global view
















4










The stage model of internationalization has passed its sell by date.
Critically examine this statement. Use examples to illustrate your
analysis

















5
1. Introduction: An Overview of the Stage Model

Based on the explanation provided by Johanson and Wiedersheim-Paul
(1975) on the internationalization of the Swedish firms, Johanson and Vahlne
(1977) developed the dynamic Uppsala Model (stage model), in which the
outcome of one cycle becomes the input to the next, thus explaining the
logical stage-wise internationalization path of firms (Barkema and Drogendijk,
2007, pp. 1146).














Figure 1: Uppsala Model of Internationalization (Kamel Mellahi, 2011, p. 158)
The above diagram of the stage model depicts the traditional gradual
internationalization process, which is a result of experiential knowledge and
incremental steps (Hadjikhani, 1997, pp. 43--46). Increasing market
knowledge through experience leads to greater commitment of resources to
Market Knowledge
Market Commitment
Market Knowledge
Market Commitment
6
the market and increased business activities in the foreign markets. The direct
relation between market commitment and foreign market knowledge highlights
the stage aspects of the model (P and Ian et al., 2002). Market commitment
focuses on amount of resources and degree of commitment to the market,
while foreign market emphasizes on the acquisition of experiential knowledge
(Hadjikhani, 1997, pp. 43--66).
Since the firms behavior is influenced more by environmental and internal
factors rather deliberate development of strategies, the internationalization
process is described as cyclical and evolutionary (Moen and Servais, 2002,
pp. 52). The most basic assumption of the model is that the lack of
knowledge about foreign market is a major barrier for internationalization and
it can only be overcome by learning about foreign market conditions through
current operations (Forsgren and Hagstr\"Om, 2007, pp. 293). Thus there is a
focus on learning by doing to reduce uncertainty and subsequently increase
the investment in the market (Johnson, 1988, pp. 84)
In order to critically examine whether the stage model has passed its date, it
is vital to understand the various assumptions of the model and analyze
whether the firms hold these assumptions in the present hypercompetitive
markets by adopting the gradual evolutionary process of internationalization.It
is vital to note that the Uppsala model focuses on two distinct decisions in the
internationalization process: choice of mode entry and choice of country and
how these both are determined by psychic distance (P and Ian et al., 2002).
The stage model emphasizes that a firm first establishes its strong hold in
the domestic market, then expands to neighboring countries or countries with
low physic distance to gain experiential knowledge and then finally expands to
markets, which have greater physic distance. Further, the model explains that
the level of ownership in various markets is related with their physic distance,
with low levels of ownership in markets with greater psychic distance
(Freeman and Cavusgil, 2007, pp. 23).


7


























Major Assumptions of the Uppsala Model

Market Commitment

Psychic distance
(Ghemawat, 2001, pp.
137--147)
Firms follow incremental
expansion of market
commitment. The initial
entry mode is a low
commitment mode (eg
export, sales agent) and is
followed by higher levels of
market commitment (eg
wholly owned subsidiary)
(P and Ian et al., 2002)
The internationalization
process of the firms is related
to the concept of physic
distance. The initial expansion
is into foreign markets, which
are familiar and closer in
terms of physic distance. After
achieving sufficient
experiential knowledge, firms
make subsequent entries in
markets with greater physic
distance. (Johanson and
Wiedersheim-Paul, 1975, pp.
305-322)

Do firms hold these assumptions and internationalize by following a
gradual evolutionary process of experiential learning?
8
2. Relevance of the Stage Model

In order to critically examine the current usefulness of the stage model, one
must understand its relevance in helping firms internationalize successfully. It
is vital to recognize that in the process of internationalization, the primary
rationale of the firm is to reduce the risk of uncertainty. Thus, in order to tackle
the uncertainty about foreign markets, many firms adopt the Uppsala model
to internationalize in an incremental and slow manner (Kamel Mellahi, 2011, p.
157). Many firms believe that perceived risk is a function of the level of
experiential market knowledge, which is achieved through the firms
operations (Forsgren, 2002, p. 263). As the rms gain more knowledge, the
perceived risk decreases and their level of commitment increases, though this
is a gradual and incremental process (Johnson, 1988, pp. 86). It is also widely
observed that firms, which internationalize utilizing gradual global strategy,
emphasize having a strong base in the home market before going
international (Chetty and Campbell-Hunt, 2004, pp. 63). The Uppsala model is
a very general model and therefore applicable to many different firms and
different situations, which makes it the most well known model of
internationalization behavior (Petersen and Pedersen, 1997).
The French retailer Carrefour is the perfect example of how a firm tackled
uncertainty in foreign markets by successfully following a gradual and
incremental process of internationalization after establishing a strong base in
the home country. Soon after opening its first store in 1960, Carrefour
established its stronghold in France by creating a new store concept- the
hypermarket and achieving the first-mover advantage in the supermarket
industry. It adopted the gradual global process by first moving to neighboring
European countries before expanding to the Latin American markets and
finally making direct investments in China and Japan



9
Gradual Global Process of Carrefour
Figure 3: Timeline of the Internationalization process of Carrefour (Kamel Mellahi,
2011, p. 157)
Carrefour adopted a gradual internationalization process allowing for interplay
between the acquisition of knowledge about foreign market and increasing
commitment of resources (Moen and Servais, 2002, pp. 67). Its successfully
implemented all its plans as its international expansion was carefully driven by
experiential knowledge of foreign markets. It is critical to understand that a
major factor that led to the success of Carrefours international strategy is the
careful selection of countries and the gradual internationalization process.
Through exposure in international markets, Carrefour accumulated vital
institutional knowledge, internationalization knowledge and business
knowledge (Eriksson and Johanson et al., 1997, pp. 337--360). This
experiential knowledge allowed Carrefour to make critical business decisions
such as decreasing stores in unprofitable countries like Belgium and
increasing commitment of resources in profitable markets like Brazil and
China (Kamel Mellahi, 2011, p. 148). Further, the French retailer tactfully
applied the concepts of the Uppsala model by using the low commitment
franchisee model to enter countries with a great physic distance, such as
1960
Opened first supermarket in France
Revolutionalized the shopping concept in France
1970-1980
Expanded to neighbouring countries
Expanded to Switzerland in 1970, Britain and Italy in 1972 and
Spain in 1973
1980-1990
Expanded outside Europe to Latin American Markets(Brazil) and
Asia (Taiwan)
Accelerated Internationalization process
1990-2000
After gaining experiental market knowldge took further incrmental
steps by making direct investments in far off countries like China,
Japan and Singapore.
10
UAE, Qatar and Tunisia (Kamel Mellahi, 2011, p148). Thus, the firm
effectively utilized the stage model to guide its business decisions and
reduce perceived risk by dealing with uncertainty. Today, the company has
more than 10,000 stores in 34 different countries and is the second largest
retailer worldwide (Carrefour, 2014). Various other retailers such as Marks
and Spencer and GAP have also successfully adopted the stage model to
tackle uncertainty in foreign markets and ensure successful
internationalization of the firm (Bhardwaj and Eickman et al., 2011, pp. 293--
307).













Figure 4: Application of the Stage Model is the present business context
It would be a mistake to conclude that the Uppsala model has passed its sell-
date in the present rapidly globalizing world. It is vital to understand that
Experiential knowledge creates and often sometimes is the only way to
achieve market knowledge and reduce uncertainty experience, making it an
owner-specific advantage in the eclectic paradigm of international production
To reduce
perceived
market risk
Help managers
deal with
uncertainty
Facilitate the successful internationalization of firms
Application of Stage Model
11
(Dunning, 1991, p. 121). Further, even in the rapidly globalizing world,
multinationals use the the stage model to address the problem of psychic
distance, and decrease the liability of foreignness, which refers to the costs
of doing business abroad that result in a competitive disadvantage for a
multinational enterprise (Zaheer, 1995, pp. 341--363).

















12
3. Limitations of the Stage Model
In order to critically examine the current practicality of the Uppsala model, one
must analyze the limitations of the model. Despite the broad appeal of the
Uppsala Model, there are a lot of questions unanswered about its current
usefulness. The model can only be applied to understand the initial market
choice and entry mode and not does provide a perspective on the behavior of
large multinationals that already have extensive international operations
across the globe (Melin, 1992, pp. 109). Most importantly, the stage model
cannot explain why many firms internationalize rapidly and do not follow the
logical sequence of steps or choose to enter distant markets in the early
stages. The four main phenomenon which underpins the expiry of the model
in the current business context are: international expansion of a firm as an
outcome of a rational strategic choice, the international expansion of
emerging market firms, small firm internationalization in high-technology and
service sector and the Born Global firm

Figure 5: Limitations of the Stage Model
Criticis
m of
the
Upsalla
Model
Born
Global Firm
Rational
strategic choice
of markets
Internationaliza
tion of
emergeing
market firms
Small Firm
internationalization in
high tech service
sector
13
3.1 Internationalization of a firm as an outcome of a rational
strategic choice

The most basic assumption of the Uppsala model is that the firms
international expansion is an outcome of a learning process (Johanson and
Vahlne, 1990, pp. 11-24). However, this assumption may not hold true, as the
internationalization of various firms is an outcome of a rational strategic
choice. The nature of the business defines the feasible locations, as the firm
sometimes will expand into more distant locations while at other times expand
into locations closer to the home country (Benito and Gripsrud, 1992, pp.
1132-48).
For instance, the Chinese smartphone giant Xiaomis first foray into markets
outside Greater China (year 2013) was marked by a conscious effort to
expand into Singapore (Yu, 2014). This market selection was not a result of
the learning process or close psychic proximity but the outcome of a long-term
strategy to set up the international HQ in Singapore (Wong, 2014). The
central location of Singapore would facilitate the management of overseas
expansion, and coordination of all activities including the launch of future
products. Rather than choosing to expand to a neighboring country, Xiaomi
chose to set up a base in Singapore first and avail the significant support of
the government for tech companies who invest locally in Singapore (Mckenzie
and Mckenzie et al., 2013). Thus, it is vital to note that the location choices of
many firms could be discrete rational choices, and not a result of a cultural
learning process as stated in the stage model
Further, location advantages may play a crucial role in selection of foreign
markets (Zucchella and Palamara et al., 2007, pp. 273). For instance China
offers cheap labor and superior production opportunities compared to other
nations (So, 2012). Thus, an upcoming European firm looking to cut costs
would make a rational strategic choice to internationalize and develop its
manufacturing facilities in a distant China rather than in a costly neighboring
European country

14

3.2 Internationalization of emerging market firms

The Uppsala model is unable to explain the internationalization of many firms
from emerging markets (Liu and Xiao et al., 2008, pp. 500). Recently, many
leading emerging market rms with a long-term strategic view have begun to
internationalize with an aim to become global players in international markets
(Child and Rodrigues, 2005, pp. 403). It is vital to recognize that many
emerging market firms view internationalization as the means to enhance their
capabilities and gain sustainable competitive advantage. For instance firms
like Lenovo have made acquisitions of established brands like IBM to secure
brand advantage and develop into a global brand (ESCP, 2009).









Figure 6: Internationalization of Emerging Market firms (Child and Rodrigues, 2005,
pp. 381--410)

Factors such as limited marketing capability, weak R&D and lack of brand
development have weakened the competitive strength of dynamic Chinese
firms in relation to global companies (Nolan, 2001). Thus, many Chinese rms
are going abroad to acquire R&D capabilities, advanced technology and
brand advantage, which will help them develop a sustainable differentiation
advantage, rather than exploit a competitive advantage that was developed in
Emerging
Market firms
Psychically
Distant
markets
Catch-up with
established
multinationals
through accelerated
learning and gain
differentiation
advantage.
15
the domestic market.

For example, the main component of the international strategy of the Haier
Group was to gain global brand recognition (Child and Rodrigues, 2005, pp.
382). The management of the firm recognized the importance of brand
recognition as an essential reputational asset to gain competitive advantage
in the consumer goods industry. Thus, the Chinese rm did not adopt the
stage model to internationalize gradually and focused on distant markets like
USA, Japan and Europe early on, keeping in line with the philosophy of CEO
Zhang to enter a difcult advanced market rst to build an international brand
name and then go to easy, underdeveloped markets (Ding and Akoorie et al.,
2009, p. 148). Further, without any experiential knowledge it made huge
market commitment, which involved greeneld establishment of subsidiaries
and facilities within targeted markets. Contrary to the entry mode strategy
described by the Uppsala model, it designated resources to set up local
manufacturing facilities in distant markets such as USA and Europe at a
relatively early stage of internationalization (Child and Rodrigues, 2005, pp.
400-402). For instance, Haier started to export to the US market in 1990 and
invested US$40 million in a new production plant in South Carolina soon after
(Leonard, 2008).

Today, Haier is studied as the the ofcial template for the Chinese MNC of
the new millennium (Warner and Sek Hong et al., 2004, pp. 324--345), and its
CEO Zhang Ruimin is one of the most respected Chinese business leaders
worldwide (Zhang, 1996, pp. 141-164). The stage model is unable to explain
the rapid internationalization behavior of several such emerging market firms
that enter distant markets rapidly with high resource commitment and build
essential capabilities.




16
3.3 Internationalization of small firms in the high technology
and service industry

Bell (1993) dismisses the relevance of stage-theory in the current context,
especially in the high-tech and service industry, by offering an interesting
perspective on internationalization of small computer software firms that
operate in small open economies such as Ireland, Finland and Norway.
According to him, the Uppsala model has passed its sell-date as it can only be
applied to traditional manufacturing industries and cannot explain the
internationalization of modern firms in the rapidly growing high technology and
service-intensive industry.
In the software industry, firms based their market selection and entry mode
decisions on client followership, sectoral targeting and computer industry
trends rather than on geographic or psychic distance of markets (Bell, 1995,
pp. 67). For instance, a Norwegian firm that produced software for the oil
industry first expanded to Venezuela as a result of a large domestic clients
internationalization strategy. Further, many software firms applied sectoral
targeting by expanding into markets, which were experiencing growth in their
specialized niches. For example, a Finnish producer of a hotel management
package exported first to Spain and then entered Portugal, Turkey and
Yugoslavia respectively (Bell, 1995, pp. 74). This pattern of
internationalization was a result of potential growth and development of
tourism in these markets. Thus, it is critical to recognize that the firms did not
give geographical or psychological closeness importance in the market
selection decision.
Also, most of the software firms of the sample internationalized very rapidly,
rather than in small incremental steps. The age and the size of the software
firms in the domestic market did not impact its decision to internationalize in
the dynamic software industry, as small firms focused on commercializing
new applications as quickly as possible to recover the investment made (Bell,
1995, pp. 71).
17
Lastly, the approach of the software firms to any given market remained
constant even after a considerable length of time. Contrary to the assumption
of the Uppsala Model, the firms did not increase market commitment
gradually over time, as there was no systematic shift from exporting to high
commitment modes like joint venture and Greenfield establishments (Bell,
1995, pp. 60--75).
Thus, the Uppsala Model does not reflect the internationalization pattern of
the software firms. The stage theory cannot be generalized to the dynamic
technological and service-intensive industries. Considering the rapid growth of
high-technology intensive firms and the service industry across the globe, it is
not unreasonable to assume that the stage model has passed its sell date.




















18
3.4 Born Global Firm
Rapid change in the global business environment in the last decade has had
a significant impact on the internationalization process of firms around the
world. A new phenomenon of Born Global firms has emerged to contradict
the traditional stage theory and explain the internationalization process of a
large number of firms across the globe, thus indicating that Uppsala model
may no longer apply (Hashai and Almor, 2004, pp. 465--468). The reduction
in communication and international transportation costs, faster information
flows and the shortening of product life cycles have led to the emergence of
these Born Global firms. These changes in the business environment have
led to homogenous consumer needs and increase in global demand, which
has forced firms in certain industries to adopt an international perspective and
expand rapidly irrespective of foreign experience and age mae, .
Born Global firms from inception, seek to derive significant competitive
advantage from the use of resources and sales of output in multiple countries
(Laanti and Gabrielsson et al., 2007, pp. 1107). They appear to have unique
features: they are small firms that are young that operate internationally from
inception, they are entrepreneurial, they perceive the world as one market and
they view internationalization as an opportunity rather than an obstacle
(Argyrous, 1993, p. 106). Their strong resources and capabilities allow them
to compete on value and qulaity created through product design and
innovative technology(Rennie, 1993, pp. 45-52).
Various names such as international new ventures (Mcdougall and Oviatt,
1996, pp. 23--40), born globals (Knight and Cavusgil, 1996, pp. 11), instant
internationals (Preece and Stephen et al., 1999, pp. 259) and global start-
ups (Mcdougall and Oviatt, 1994, pp. 45) have been given to firms that
internationalize rapidly and do not adopt the stage model of
internationalization. Contrary to the firms that adopt the stage model, Born
Global firms follow accelerated internationalization, they do not select
markets according to physical or psychic distance, they do not strengthen
domestic sales before going abroad and they use multiple modes of entry
(including high commitment modes in distant markets at an early stage) to tap
19
on various markets at the same time. The Uppsala Model emphasizes on
refinement of the firms existing knowledge base through experiential learning
and incremental steps, reducing risks of foreign expansion. On the other hand,
Born Global firms are more strategic in nature and focus on Exploration by
identifying market seeking or resource seeking expansion opportunities in
distant markets (March, 1991, pp. 74).















Figure 7: Characteristics and Reasons for Emergence of Born Global firms (Knight
and Cavusgil, 1996, pp. 11-26)



Born Global Firms
Reasons for the phenomenon
Mature domestic markets
Faster information flows
Improved communication and
transportation networks
Homogenous consumer needs
High technology investments
which cannot be covered by
sales in domestic markets
Shortening product life cycles
Free movement of goods and
services
Globally standardized products
Reduction of trade barriers
Capabilities of founders and
entrepreneurs
Access to worldwide customers
and suppliers through networks
Characteristics
Small firms
Go global in less than 2 years
from inception
Export 75% of Total sales
Produce leading-edge
technology products
Serve niche markets
Flexible
Adapts its products to rapidly
changing consumer needs and
wants
Knowledge intensive firms
Sell new or radically
different products.


20
Add2Phone Ltd
Add2Phone Ltd, a Finnish B2B SME in the wireless technology sector, is the
perfect example of a Born Global firm. The insuffienct demand in the small
and open economy of Finland, along with rapid development of the wireless
technology industry from 2000-2005 led to the emergence of Add2Phone Ltd
as a global firm. The firm was established in 2000 and catered to a niche
market by developing software for application service providers, portals,
mobile operators and media companies.By 2002, the company had major
international activities with a strong focus on global markets. It catered to 15
different markets across the world, including distant Asian markets like
Philippines and Malaysia. Just like any other Born Global firm, the company
had a clear global vision and staretgic intent to capture the growing
international mobile communications market (Laanti and Gabrielsson et al.,
2007, pp. 1110).






Figure 8: Product, Operation and Market Strategy of Add2Phone (Laanti and
Gabrielsson et al., 2007, pp. 1112).
Add2Phone Ltd
Product Strategy
Started directly with
services and system sales.
Mobile advertiser server
was the main product

Operation Strategy
After inception, it established
sales and R&D offices in both
North America and Europe.
Used inward and co-
operation modes for
expansion
Market Strategy
It had a very short domestic
phase and simultaneously
expanded to distant markets
like USA and Canada to
capture global demand

21
In order to further characterize Add2Phone as a Born Global firm, one must
apply the conceptual framework of the phenomenon to the firm.


Figure 9: Conceptual Framework of a Born Global Firm (Laanti and Gabrielsson et
al., 2007, pp. 1108).
Unique resources and capabilities are crucial to create sustained competitive
advantage in global markets(Crick and Jones, 2000, pp. 70). The foreign
language skills, international work experience, excellent technological
competence and international eductaion of founders helps the firm reduce
uncertanities and enter foreign markets successfully (Reuber and Fischer,
1997, pp. 807-809). The founders of Born Global firms possess
characteristics like flexibility and readiness for change, which are vital for the
firm. The founders of Add2Phone had extensive international business
and technological experience, which helped the firm close the gap in
resources against large international competitors(Laanti and Gabrielsson et
al., 2007, pp. 1104--1117). Many studies have indicated the importance of
Born
Global
Networks
Founders
and
Management
Finance
Innovation
22
international networks, on the organisational and personal level, in rapid
internationalization of the Born Global firms (Andersson and Wictor, 2003,
pp. 270). The firms utilise activity links, actor bonds and resource ties to tackle
resource limitations faced by start-up companies (Madsen and Servais, 1997,
pp. 563). In addition to the founders extensive personal networks,
Add2Phone had developed international networks (eg. HP), domestic
networks (eg. Nokia) and memebership in essential industry forums to enter
world markets quickly and profitably(Laanti and Gabrielsson et al., 2007, pp.
1113). A major barrier for small companies to internationalize rapidly is the
lack of financial resources(Reid, 1983, pp. 47) . In the beginning, Add2Phone
received tremendous venture capitalist funding (eg.Trident capital) and
governmental funding (eg.Tekes) , which helped the firm reach multiple
markets rapidly.The international business experience, global vision and the
linkages of the founders ensured that the firm was financially supported by
large corporations(Laanti and Gabrielsson et al., 2007, pp. 1113). Lastly,
innovative capability of the firm is the most funadamental trait required to
capture competitive advantage in global markets (Madsen and Servais, 1997,
pp. 571). Add2Phones first product, Mobile Advertising server was highly
innovative and helped generate revenues from customers, advertisers and
marketers. The firm leveraged its unique products, technological innovativess
and strong quality to achieve rapid growth in the niche market (Laanti and
Gabrielsson et al., 2007, pp. 1113). Thus, the case of Add2Phones
demonstrates how a growing number of firms in the present business
environment leverage their resources and capbilities to internationalize rapidly
and profitably in distant markets.






23
Stage Theory view vs Born-Global view (Chetty and Campbell-Hunt,
2004, pp. 57--81)

Internationalization
Attributes

Stage Theory View

Born-Global View

Home Market

The domestic market
developed before
internationalization
process

The domestic market
is largely irrelevant

Pace of
Internationalization

Gradual

Rapid

Psychic distance

Firms internationalize
in order of psychic
distance

Psychic distance is
irrelevant

Extent of
internationalization

Foreign Markets
developed in a serial
order

Many foreign markets
developed
simultaneously


Learning process

Learning is based on
accumulated
experience (slow and
experiential)

Learning is more rapid
as a result of founders
extensive experience
or superior
internationalization
knowledge



Firm Strategy


Does not play a central
role in the firms
motivation to go
abroad

Strategy to gain
competitive
advantage, increase
market scope and
develop a niche play a
critical role to drive the
firm to go abroad


Time to
internationalize


The time is slow and
not crucial for the
success of the firm

The time taken is less
(within two years of
inception) as it is
crucial to the success
of the firm
24
4. Conclusion

Internationalization process is much more complex and less structured than
the various models imply. The interntationalization processes and patterns of
indiviudal firms could be highly situation specific and quite unique. It is critical
to recognize that different firms have different routes to internationalization
based on the personal network of entrepreneur, market knowledge, resources
and capabilities and foreign market opportunities (Moen and Servais, 2002,
pp. 53). Further, the attractiveness of some foreign markets in terms of growth
rate, and size can be sufficient to offset the risks associated with psychic
distance. However, this does not imply that the stage model is out of date as
recent studies provide evidence that Uppsala model can still explain the
international expansion of firms (Kamel Mellahi, 2011, p. 162).
The Born Global phenomenon cannot diminish the applicability of the stage
model as recent research suggests that only a negligible number of Born
Global firms exist, even in the start-up technology firms (Lopez and
Ciravegna et al., 2009, p. 1237). Further, there are many Knowledge
Intensive-Born Global firms that apply the concept of psychic distance in
initial market selection and follow a gradual incremental internationalization
process (Hashai and Almor, 2004, pp. 465--483). However, one can conclude
that the speed of international expansion is much faster today than 50 years
ago due to changes in the business environment such as faster information
flow, shorter product life cycles and cheaper communication modes.
The Uppsala model and the concept of psychic distance are not out of date,
but intelligent managers are finding ways to deal with uncertainties and bridge
physic distances to exploit market opportunities. By relying on a local agent or
partner, using social networks and hiring local professionals, a firm could
obtain tacit knowledge about foreign culture, regulations and business
practices (Kamel Mellahi, 2011, p. 162). The advocates of the stage model
also admit that in the present globalized world, knowledge about foreign
markets can be acquired quickly through network of strategic partners,
customers and suppliers. Another strategy of reducing uncertainty is mimetic
25
behavior. Firms could imitate the successful recipe of leading firms to reduce
uncertainty and internationalize without accumulation of experiential
knowledge. Further, many firms use ethnic networks along with use of joint
venture to overcome the impediments of high psychic distance. High
absorptive capacity or the firms ability to learn rapidly also explains how some
firms are able to invest in high psychic distance markets using high-risk
modes of entry.
It would be a mistake to write-off the significance of the Uppsala model as
even today the customer buying behavior and preferences is very different
across borders. For any firm that wants to internationalize the market
knowledge is low and the perceived uncertainty is high. One cannot buy
market knowledge, which makes experiential learning very vital to reduce
uncertainty. Thus, we can conclude that the slow and incremental
internationalization process is yet economically sound and relevant.












26
References
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Bell, J. 1995. The internationalization of small computer software firms: A
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