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Introduction
Entrepreneurship can be conceptualised as the entry into a new venture by an individual or a business. New entry refers to the process of entering into either a new or an existing market with new or pre- existing services and goods. In this regard, new entry tries to explain the processes and initiatives of entrepreneurship (Czinkota, Ronkainen, Sutton- Brady & Beal, 2011: p. 45). New entry and entrepreneurship are concepts that are still being developed by many authors and researchers.
It is against this backdrop that the current essay is written. In this essay, the author is primarily concerned with entrepreneurial orientation (herein referred to as EO) and the Uppsala model of the internationalisation process. EO refers to the decision-making activities, practices, and process that give rise to new entries. EO is characterised by the desire for autonomy in business, innovativeness, aggressiveness, and risk taking (Saul, 2005: p. 67).
Regardless of this, it is important to note that there are many successful enterprises which function on the basis of some of these traits. This essay aims to outline the conflict between entrepreneurial orientation and the Uppsala model of international expansion. It is the opinion and position of this author that the revised edition of the Uppsala model can be applied in large and small enterprises alike.
Given the fact that the paper is argumentative in nature, the researcher will make a stand in the issue and then defend that stand throughout the paper. Terms will be clearly identified and justified using examples. To this end, the researcher will use information from several references such as books and articles. Opposing views will be acknowledged and the researcher will fully address them to check for their veracity or lack of it thereof.
The Uppsala Model and the Entrepreneurial Orientation: A Critique
It is noted that the Uppsala model was developed in 1977 from a publication by two scholars in this field. These scholars are Johanson and Vahlne. Since then, the perspective has undergone four revisions. The model was primarily based on the manner through which firms in Sweden were internationalising in the 1960s and 1970s (Steen & Liesch, 2007: p. 12). This model suggests that business firms internationalise in an incremental fashion.
They progressively commit themselves to an international market and increase their presence as they continue to understand the dynamics of their particular market niche. Initially, firms expand into new markets depending on the extent of similarities between the firm and the domestic markets (Bogun, 2008: p. 71).
In their first publication, Johanson & Vahlne (1977) pointed out that the level of commitment for firms that are internationalising for the first time is very low. This behaviour is evidenced by their use of agents and establishment of sales subsidiaries. They invest more of their resources into the venture as they continue to comprehend the market. The 1977 paper focused more on the different modes of entry (Birgegard & Lindquist, 1996: p. 25).
However, subsequent articles point out that the applicability of the model is not dependent on the various modes of entry (Onetti, Zucchella, Jones & McDougall- Covin, 2012: p. 337).
The model explains the decisions taken by the management with regard to risk taking and exploitation of opportunities on the basis of the firm’s level of commitment in the international market. Additionally, the model extensively outlines the impacts of learning processes and experiences on the decisions taken by the management to operate the firm.
As already indicated, the model is used to explain the activities of firms that are expanding their scope from the local or domestic market and into the international arena. The model is closely related to the POM model which also tries to explain the activities of such firms (Basu & Kronsjo, 2009: p. 34).
According to this model, the internalisation process is a gradual one and follows a particular pattern. The firm may start by receiving and processing a few orders placed by clients from abroad. This is then followed by a gradual growth in the volume of the exports as the number of clients placing the orders grows. This model has however being fiercely criticised by practitioners in this field. The author will look into some of these criticisms in subsequent sections of the paper.
The concepts depicted in the Uppsala model were drawn from findings of studies conducted on large industrial firms from Sweden which were in the process of internationalisation. This has led to conflicts among entrepreneurship scholars on whether the model can be sufficiently applied to smaller enterprises that are going global. Nonetheless, most of those criticising the model do not point out specific reasons for their concern.
The business environment has also changed significantly from the time the model was formulated (Basu & Kronsjo, 2009: p. 51). There are also increased impacts on business models as a result of technological innovations in the recent past. Additionally, production industries have been outgrown by service industries. Such environmental changes have challenged many internationalisation models and as a result, the models have to be updated on a regular basis.
International business strategies and opportunities have been on the rise as globalisation continues to take root in contemporary society. Moreover the threats of remaining in the domestic market- even among the most diversified of firms- are also increasing (Hickman & Olney, 2011: pp. 237-259).
As a result of this, a firm will invest in another country when it finds out that it is faced with greater threats if it remains in the domestic market. Some of the factors that can make the home market quite hostile are increasing competition, low rates of market growth and poor economic environment (Saul, 2005: p. 69).
However, Vahlne, Ivarsson & Johanson (2011: p. 193) point out that the presupposition does not conflict with the model. This is given the fact that its foundation is not the main reason why companies choose one market over another. In contrast, the Uppsala model is founded on the operations and activities of a firm that has already decided to internationalise.
According to the original model formulated by Johanson and Vahlne, firms enter into diverse markets in a systematic manner. The order of entry is determined by physical and psychic distance (Johanson & Vahlne, 2009: p. 1420). Consequently, they start with those countries that are closer to the home country, proceed to the region and later to other nations abroad.
Globalisation has made the world more accessible to most business firms operating in the international market. However, it is to be noted that the physical distance has not changed. As companies expand into different parts of the world and as people travel and work in other nations, they interact more with other cultures. Such an interaction has made the management of cultures to become an essential part of doing business abroad.
The nursing of relationships among nations and global network participation have been made easier by convenient travelling and digitalisation. This means that in spite of the unchanged physical distances between two geographical locations in the world, people can move freely and with much ease from one region to the other. Convenient travelling and digitalisation has culminated into other channels of distribution such as e- commerce that were non- existent in 1977 (Ninan & Puck, 2010: p. 670).
In this regard, the Uppsala model is assumed to overestimate the effects of psychic and physical distance when choosing which country to go to or the best mode of entry into a new market. In their 2006 edition of the model, Johanson and Vahlne acknowledged and appreciated this change.
As a result of this, they adjusted their argument from psychic distance to the risk a firm is likely to face if it was not a part of an established network (Johanson & Vahlne, 2006: p. 168). They posit that psychic distance is very important in determining the uncertainties that a firm is likely to face in a foreign market. However, they point out that the risk is significantly reduced if the firm joins a network of existing businesses in the market.
When firms are using e- commerce to internationalise, they can have a very wide reach without using the Uppsala model’s incremental approach. In this regard, online transactions increase the speed of internationalisation. This leads to a significant reduction on the effects of distances- both psychic and physical. On the other hand, Figueira-de- Lemos, Johanson & Vahlne (2011: p. 147) point out that the impacts of online commerce are in agreement with the model’s risk equation.
This is on the basis of market uncertainty and commitment. They argue out that the level of commitment for firms which depend on the internet is quite low. Consequently, the firm can be involved in uncertain deals but still remain minimally exposed to total risk. With such an argument, the model is in agreement with e- commerce as we know it today.
Today, the opportunities and threats that are presented by the process of globalisation affect firms of all sizes. Smaller firms with a large technological capacity have the ability of reaching out to large markets. Small and Medium Enterprises (herein referred to as SMEs) use different internationalisation approaches. Additionally, Czinkota et al (2011: p. 51) point out that smaller firms are subjected to more pressures to go global than larger ones.
Critics of the Uppsala model have come up with the ‘born- global’ concept. Firms that are born- global are those that begin offering their products and services in countries other than their home country as soon as they are formed (Fernández- Ortiz, Emeterio & Menorca, 2012: p. 24). Such a phenomenon is quite difficult to explain while using some popular internationalisation theories.
Johanson & Vahlne (2009) responded to the criticism using the same argument of joining networks. They used the empirics of other researchers to portray the importance of inter- firm relationships and networks. The two scholars point out that as firms get more interconnected, they acquire more knowledge and are able to globalise at a faster pace.
They also point out that the model does not infer that the process of globalisation is slow. On the contrary, the model acknowledges that firms require time to gather knowledge so as to reduce uncertainty (Johanson & Vahlne, 2009: p. 1416).
The manufacturing and service industries are very different from each other with respect to business character and organisation. In this regard, it is difficult to create services in one location and market them in a different target market. The exceptions include using telephone and internet services where the customer and service provider are in different geographical locations. Firms in these two divergent sectors do not use the same internationalisation approaches.
The processes vary on the basis of type, reversibility and amount of resources required. For example, a company that is involved in service provision does not necessarily have to ensure that goods are transported in a certain manner; neither does it have to invest in constructing factories. However, service providers have a larger need of fitting into the culture of the foreign country- such as through customs and language- than manufacturing companies (Dewhurst, Harris, Heywood & Aquila, 2012: p. 76).
The model is also criticised for being extremely deterministic and static. However, Johanson & Vahlne (2009: p. 345) posit that the model is very dynamic. The two are of the view that their theorised model acknowledges the fact that firms are always changing the areas within which they are operating.
They also address their critics’ assertion that the model is deterministic in nature. However, they define ‘causality’ by stating that the two factors influence each other as opposed to one determining the other. They add that there are other contributing factors in addition to commitment and experiential learning that influence the relationship.
The fact that the model is accused of being extremely deterministic implies that it does not take into consideration managerial actions (Fernández- Ortiz, Emeterio & Menorca, 2012: p. 89). Unlike their counterparts in the 60s and 70s, contemporary corporations have more flexible inter- firm structures and flatter hierarchies.
In this regard, the management plays a crucial role in developing internationalisation strategies for firms. This is especially so for smaller enterprises which share such characteristics because of their size. Although Johanson and Vahlne agree on the importance of managers’ perceptions and opinions, they posit that managerial decisions are in most cases biased. The reason is that path dependency is a key source of bias when managers are settling for alternatives (Johanson & Vahlne, 2006: p. 168).
The learning concept of the Uppsala model has also attracted a great deal of criticism. The developers of the model outline that learning happens incrementally depending on the amount and speed of gaining experience (Johanson & Vahlne, 1977: p. 25). Nonetheless, there are quite a number of organisational learning dimensions.
For instance, there are very many firms that learnt from their relationship with other firms but have effective internationalisation strategies. Learning can also be imitative. To this end, business firms copy what other successful corporations have done and as such, they gain experience. Other ways through which firms can learn without the need for experience include hiring experienced staff, local firm acquisition or conducting research (Fernández- Ortiz et al., 2011: p. 89).
Although Johanson and Vahlne agree that the model needs some adjustments to factor in other sources of organisational learning, they have a word for critics. They point out that there is need for some level of experience for the firm to successfully determine or select another firm to acquire. The same applies when it comes to the selection of firms to imitate from or when it comes to the hiring of members of staff.
The two scholars also use the network approach to respond to critics. To this end, they point out that models are not formulated to exactly represent reality. On the contrary, the models are meant to explain reality’s most essential components.
The model is very general and as such, it cannot be expected to provide a convincing explanation for the internationalisation process of all firms. However, accumulative and experiential learning is essential and fundamental. This is in spite of being complemented by additional processes of learning (Johanson & Vahlne, 2009: p. 1429).
The internationalisation stages that are captured in the model are also widely criticised. In their 2009 publication, the two authors point out that the model’s establishment chain simply summarises their empirical observations from which they drew their theoretical arguments (Johanson & Vahlne, 2009: p. 1416).
What they are trying to say here is that it does not constitute the model. The model does not focus on the ways that different firms choose to internationalise their operations. This is regardless of the suggestion made to the effect that corporations commit themselves to the market incrementally.
Furthermore, the two scholars note that the accumulation of knowledge and commitment management, are the mainstay of the model. The behaviour of firms depends on the environment within which they are operating and not on the internationalisation mechanism (Vahlne et al., 2011: p. 204).
Scholars and analysts in this field are continuously updating their models so that they can be in line with the changing business environment. At times, the scholars may be accused of integrating theories whose premises are incompatible. In spite of the fact that the Uppsala model was formulated using empirics from established Swedish multinationals, there is evidence that it has been successfully used in explaining the internationalisation process in smaller firms.
The major adjustment that the two authors have made on the model in order to enhance its applicability has to do with the integration of the network approach. In 2009, Johanson and Vahlne made the final adjustment in response to critics and in order to accommodate new theoretical and empirical findings (Vahlne et al, 2011: p. 200).
Conclusion
In conclusion, it should be noted that the Uppsala model can be applied to both small and large businesses. Network effects are more important than the role played by psychic distance in determining the applicability of the model. As long as a firm is in a network of other partners, the model’s obstacle brought about by psychic distance is overcome.
Additionally, the management of a corporation determines how the firm will internationalise and also helps in bridging psychic distances. The Uppsala model may not be adequate to provide explanations for all complexities faced by international firms. However, the general perspective of the model is also its greatest strength. It can be applied to many situations because its main focus is in explaining the essential elements of globalising firms.
References
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Czinkota, M., Ronkainen, I., Sutton-Brady, C., & Beal, T. (2011). International marketing: Asia Pacific edition (2nd ed.). Sidney: Cengage Australia.
Dewhurst, M., Harris, J., Heywood, S., & Aquila, K. (2012). The global company’s challenge. Mckinsey Quarterly, 3, 76-80.
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