Theories of Internationalization

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Submitted by to the category Business and Industry on 02/03/2013 03:26 AM

THEORIES OF INTERNATIONALISATION AND THEIR IMPACT ON MARKET ENTRY

The article discusses the following four theories of internationalization and their impact on the international market entry decision.

1. THE UPPSALA MODEL (Johanson and Valhne, 1977)

The key feature of the Uppsala model is that the firm develops its activity abroad over time and in an incremental fashion based on the knowledge development (firms expanding first into the closest markets and then into more distance markets as their knowledge develops, also known as experiential knowledge).

The concept has been supported in relation to the development of exporting and has been transmitted to many firms in Germany, US and Japan. However, some authors have questioned the theory. In response, the Uppsala model included 3 exceptions to their model of incremental market commitment.

2. THE ECLECTIC PARADIGM AND TRANSACTOIN COST ANALYSIS (Dunning, 1988)

This second theory sets out to explain “the extent, form and pattern of international production”, in other words, the model is based on an analysis of the cost of the transaction in which the benefits of integration must be compared with the costs of integration and therefore evaluate whether or not to establish in a market abroad.

The eclectic paradigm theory suggests that firms make a choice based on an evaluation of the costs of an entry mode relative to its objectives.

3. THE INDUSTRIAL NETWORK APPROACH (IMP Group)

The industrial network approach differentiates from the two theories above because it does not only concentrate on the firm in developing its international marketing activity but also it focuses on the characteristics of the firm and the market that seem important in industrial systems. For example, a total of four groups of variables are identified as being also influential in the interaction process:

a) the elements and processes of interaction

b) the characteristics of the parties involved (buyers/suppliers)

c) the...

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