Uppsala model for internationalization

Background

The Uppsala model was developed by the Swedish researchers Johanson and Vahlne in the 1970s at Uppsala University.

The Uppsala model, also known as the Uppsala internationalization model, is a theory that explains how companies gradually intensify their activities in foreign markets.

The model claims that companies internationalize incrementally and move through a series of phases. The internationalization process is thus an incremental process. According to Johanson and Vahlne, this applies especially to small and medium-sized companies. 

The model is developed over 2 axes:

On the horizontal axis is the form of the export. It is called Mode of operation

On the vertical axis are the individual geographical locations to which exports are made. It is referred to as a market or a country.

Under Mode of operation, we have:

•Sporadic export

•Export modes/independent representatives

•Foreign sales subsidiary 

•Foreign production and sales subsidiary

Under market we have:

•Market A, B, C, D, etc.

In other words, the markets and countries the company exports to

Mode of operation

Sporadic export

No regular export activities: Initially, the company has no significant involvement in international markets. 

Export mode – independent representatives

Export through independent representatives: The company starts exporting to foreign markets with the help of independent agents or distributors, which minimizes the company's risk and investment.

In this phase, it is important that the company has confidence in its agents or distributors and ensures that they do not pass on secret data to competitors, for whom they may also be agents. 

Foreign sales subsidiary

Establishment of foreign sales subsidiary. As the company gets more knowledge and experience, it establishes its own sales subsidiary in the foreign market to better control its activities.

Foreign production

In the final phase, the company may decide to establish production facilities in the foreign market, which represents a significant commitment and investment.

Market knowledge and commitment: 

The model emphasizes that it is important to have market knowledge and a commitment to the market, both in terms of knowing the market and making contacts. 

The company's market commitment is increasing the more it connects to a new market

Companies are more likely to start by entering markets with low psychological distance. They choose countries and markets with similar languages, cultures and business practices, as these require less prior knowledge and new knowledge and thus entail a lower risk.

The company's geographic diversification is increasing the more markets it enters

Critique of the model

Critics argue that the model underestimates the ability of firms to skip stages due to factors such as technological advances, strategic alliances and acquisitions.

Overall, the Uppsala model remains a valuable tool for understanding the dynamic and incremental nature of the internationalization process, where one constantly builds on one's knowledge and experience.