International Business Report
Introduction
Operating on a large scale in business mostly involves looking for new international markets where the company can establish itself and gain market share. A lot of businesses today are trying to take advantage of technology and other sources of information to establish themselves in other countries. The need to expand to other countries is not a twenty-first century phenomenon. Going through history, a lot of companies have created international brands by internationalisation. Different companies use different approaches to make themselves known in other countries. Internationalisation has been growing really fast over the years with the introduction of new technologies and changes in the economic climate. Companies are always looking for a way to increase revenue and profits.
Models and approaches have been developed to show how companies can achieve internationalisation. Most of these models are either based on research carried out in a particular country or industry. This report will be looking at two main models that have been developed over the years. There is the Uppsala Model that was created in the 70s and the Born Global which is a modern day model. Both models look at the approach of internationalisation in different ways.
This report will be looking at the similarities and differences between the two models. Although developed in different years, the models still have some similarities. The report will later look at the criticism of the Born Global Concept. A final conclusion will be made based on the research carried out. The main question that a lot of companies need to ask is how relevant theses models and procedures involved are to use in today’s changing climate.
Internationalisation and concepts
Internationalisation is one of those terms in economics and business that can be seen as difficult to define. Despite this difficulty, a number of people have been able to come out with some explanation that will make the term understandable for others. This is when a company establishes itself and increasing its involvement/presence in foreign markets (Akehurst & Alexander, 1996). There have been many theories and approaches that have been developed over the years to support internationalisation. Internationalisation theories include; absolute cost advantage (Adam Smith), Gravity Model and Location Theory, just to name a few (Akehurst & Alexander, 1996). Some models such as Diamond model (Michael Porter), Eclectic paradigm and Uppsala model have been used to show how different companies go into internationalisation (Akehurst & Alexander, 1996). Factors such are differences in political, economic, language and culture has caused companies to used different approaches to enter foreign market.
The Uppsala Model is a theory used to explain a company’s gradual integration in an international market (Forsgren, 2002). The concept surrounding this model is that a company first gains experience in its domestic market then later move to foreign markets; first to market with similar culture and background and then to those distant from the domestic country (Forsgren, 2002). Companies using this model start sales operations by carrying out occasional and later regular exportation to foreign countries (Forsgren, 2002). The process in the Uppsala Model is a gradual one. This gradual process is designed to minimise risks that may affect the company. The foreign market has to be researched properly before operations are carried out in the market.
On the other hand, there is the born global approach that does not follow the gradual process. In this approach, the company starts its internationalisation from when it is founded and continues to expand (Chetty and Collin, 2004). The growth and availability of technology has made it easier for companies to establish in different countries with ease (Chetty and Collin, 2004). This was based on a research carried out on high tech companies in Australia (Chetty and Collin, 2004).
Differences of the Uppsala and Born Global model
- One of the main differences between the two methods can be found in their definitions. The Uppsala Model is a much slower pathway than the Born Global. In the Uppsala model companies move gradually from their domestic market into new markets by following a number of processes. The company started by operating in its existing market; then to other markets by exporting; later sets up retail outlets and finally carrying out operations in the foreign market (Margardt, 2009). They establish themselves in different markets by carrying out intensive research and slowing building their presence. On the other hand Born Global companies just like the name, established themselves from birth and continue to grow (Moen & Servais, 2002).
- The second difference that could identify is the difference in time and sizes of the companies. The Uppsala model was created in the 70s by Swedish researchers Johanson and Vahlne, based on large companies looking for opportunities to take their businesses global (Margardt, 2009). This theory just looks at large companies without taking into consideration small and medium size enterprises (SMEs). This model is also an old model that did not look in to the future to anticipate the changes in information access. Meanwhile the Born Global model looks at the present and SMEs and also takes into consideration the development of technology and how companies can take advantage of this technology to create (Moen & Servais, 2002). Technology has played a big part in helping companies get information about other countries. The internet supplies instant information concerning a country’s economic and political situation, therefore, making it easier for companies to identify their market and establish themselves in a foreign market at birth
- In the Uppsala model, the company starts establishing in its domestic market and gradually moving to foreign markets by establishing their own operations and sales agents (Moen & Servais, 2002). Most SMEs moving in a new market using acquire a firm in another country; or for strong partnership or alliance with another company in the new market. Born Global companies use this alliance to help them learn go pass the cultural and language barrier easily.
- Companies that use the Born Global model usually have a niche market. This means the company focuses its attention in a particular sub segment of its market by satisfying the specific needs (Moen & Servais, 2002). A niche market can be formed because the particular niche is profitable. While in the Uppsala Model, the company does not look for a particular niche market but rather concentrate on all its foreign market.
Similarities with Uppsala and Born Global
Despite the differences listed about, both models are similar in a way.
- The most significant similarity is that both models seek to explain how companies can move to gain international markets. Both models are designed to explain the different ways companies can move to operate in a foreign market. These models help companies to grow internationally and establish themselves in markets outside domestic markets.
- The second similarity is that both models create global competition. Slow or fast movement into a foreign market always increase the completion in both the domestic and foreign market. For example, if an established Dutch company like ING Group decides to move it operations slowly into western African countries, they will increase the competition in the banking sector in this region because other banks will want to make sure they offer the best rate and services possible than IMG. A new IT Service company that has just been created in London wanting to immediately establish itself in India will create competition in the IT industry in India.
Criticism of the Born Global Concept
- This concept was based on technology and how it has influenced Born Global companies. Madsen & Servais (1997) argue that technology is not the only drive and success to Born Global companies but also the company’s ability to identify a niche market and keep it plays a big role in the model. This means without a niche, it might be possible the company will not establish itself in a foreign market.
- Another criticism of this model is that it does not look at other firms in other industries. This models only talks about the high tech firms in Australia and not the food processing or other manufacturing companies. There are other SMEs that establish themselves but cannot move to foreign markets at birth because of the nature of the business. Manufacturing companies cannot carry heavy machines to other countries. It will cost more.
- According to Freeman et al. (2006), companies tend to move to other foreign markets quickly not just because of technology but because their domestic market has been saturated. This means in places like the United States, high tech companies do not need to go global because the domestic market is still available.
Conclusion
This report has looked at internationalisation by looking at its meaning and an overview of the concept. The report later looked at the two important models that will be the focus of the report. The report looks at the Uppsala and Born Global Models of internationalization by comparing and contrasting both models.
The mains part of this report gives the similarities and differences of both models. The report later talked about the criticism of the Born Global model. From the arguments drown in the report; we can say the models are more different than similar. They were both designed at different periods and countries and therefore have different view on internationalization. It is therefore fair to say that different companies have different strategies to enter a new market based on their financial stability, ability to manage international business and desire to grow. Changes in the economic climate can therefore affect these theories today
References
Madsen, T. K., & Servais P. (1997), “The Internazionalization of Born Globals: An Evolutionary Process?”, International Business Review, 6
Akehurst, Gary & Alexander, Nicholas (1996). The internationalisation of retailing. Routledge
Forsgren, M (2002). The concept of learning in the Uppsala internationalization process model: a critical review. Volume 11, issue 3
Chetty, Sylvie and Colin Campbell-Hunt (2004). A strategic approach to internationalization: a traditional versus a” born-global” approach. Journal of International Marketing. Vol. 12
Margardt, Daniela (2009). A Critical Comparison of Internationalisation Theories: Eclectic Paradigm of Dunning Vs. Uppsala School. GRIN Verlag.
Moen, Oystein & Servais, Per (2002). Born Global or Gradual Global? Examining the Export Behavior of Small and Medium-Sized Enterprises. Journal of International Marketing, vol.
Freeman, S., & Cavusgil, S. T. (2007), “Toward a Typology of Commitment States Among Managers of Born-Global Firms: A Study of Accelerated Internationalization,