Uppsala Model

Definition

The Uppsala model is a theory that describes the internationalization process of firms, particularly how they gradually increase their international involvement over time. It suggests that companies tend to start with limited international operations and then expand their international presence incrementally as they gain more knowledge and experience.

5 Must Know Facts For Your Next Test

1. The Uppsala model suggests that firms start their international expansion by entering markets with lower psychic distance, and then gradually move to markets with higher psychic distance as they gain more experience.
2. The model proposes that firms increase their international involvement in incremental steps, starting with exports, then moving to sales subsidiaries, and eventually establishing production units in foreign markets.
3. Experiential knowledge gained through international operations is a key driver of the firm's gradual internationalization process, as it helps reduce uncertainty and risk.
4. The Uppsala model emphasizes the importance of learning and knowledge acquisition in the internationalization process, as firms become more committed to foreign markets over time.
5. The model has been widely used to understand the internationalization strategies of small and medium-sized enterprises (SMEs), as well as larger multinational corporations.

Review Questions

• Explain how the Uppsala model relates to the importance of international management (6.1 Importance of International Management).
  • The Uppsala model highlights the importance of international management by emphasizing the gradual and incremental nature of a firm's internationalization process. According to the model, as companies expand into foreign markets, they need to develop specialized international management capabilities to navigate the complexities of operating in diverse cultural, political, and economic environments. Effective international management, including the ability to acquire and leverage experiential knowledge, is crucial for firms to successfully navigate the various stages of internationalization and increase their global presence over time.
• Describe how the Uppsala model's emphasis on experiential knowledge and gradual internationalization relates to the necessity of global markets (6.7 The Necessity of Global Markets).
  • The Uppsala model's focus on the gradual accumulation of experiential knowledge and the incremental expansion into foreign markets is closely tied to the necessity of global markets. As firms gain more experience and reduce uncertainty through their international operations, they become better equipped to navigate the complexities of global markets and identify new opportunities for growth. The model suggests that the ability to gradually expand into diverse markets, while leveraging the knowledge gained from previous international experiences, is a key factor in a firm's long-term success and competitiveness in the global marketplace. This highlights the necessity for companies to engage in global markets in order to acquire the necessary knowledge and capabilities to thrive in an increasingly interconnected world.
• Analyze how the Uppsala model's concept of 'psychic distance' can influence a firm's internationalization strategy and its ability to succeed in global markets.
  • The Uppsala model's concept of 'psychic distance' is crucial in understanding how firms navigate the necessity of global markets. According to the model, firms tend to initially enter markets with lower psychic distance, which refers to factors such as cultural, linguistic, and political differences that make it difficult to understand a foreign environment. As firms gain more experiential knowledge through their gradual internationalization process, they become better equipped to overcome the challenges posed by higher psychic distance markets. This ability to navigate diverse global markets with varying levels of psychic distance is a key determinant of a firm's long-term success in the global marketplace. By systematically reducing psychic distance through incremental internationalization, firms can more effectively identify and capitalize on opportunities in global markets, ultimately enhancing their competitiveness and ability to thrive in an interconnected world.

Related terms

Internationalization: The process by which a company expands its operations and involvement in international markets.

Psychic Distance: The factors that make it difficult to understand a foreign environment, such as differences in language, culture, political systems, and level of education.

Experiential Knowledge: The knowledge a firm gains through direct experience in international markets, which helps reduce uncertainty and facilitate further international expansion.