Masters Programmes

Assignment Cover Sheet

Submitted by: <1356301 >

Date Sent: 14.04.2014

Module Title: Global Business Strategy

Module Code: IB92N0

Date/Year of Module: 2014

Submission Deadline: 14.04.2014

Word Count: 2713 words

Number of Pages: 31

Question: “The stage model of internationalization has passed its sell by date”. Critically examine this statement. Use examples to illustrate your analysis

“This is to certify that the work I am submitting is my own. All external references and sources are clearly acknowledged and identified within the contents. I am aware of the University of Warwick regulation concerning plagiarism and collusion.

No substantial part(s) of the work submitted here has also been submitted by me in other assessments for accredited courses of study, and I acknowledge that if this has been done an appropriate reduction in the mark I might otherwise have received will be made.”

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Content:

1. INTRODUCTION: AN OVERVIEW OF THE STAGE MODEL……………5

2. RELEVANCE OF THE STAGE MODEL………………………………….....8

3. LIMITATIONS OF THE STAGE MODEL…………………………………..12

3.1 RATIONAL STRATEGIC CHOICE…………………………………13

3.2 EMERGING MARKET FIRMS………………………………………14

3.3. FIRMS IN HIGH-TECH SERVICE INDUSTRIES………………...16

3.4 ‘BORN GLOBAL’ FIRM……………………………………………..18

4. CONCLUSION……………………………………………………………….24

References…………………………………………………………………………26

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List of Figures and Tables:

Figure 1: Uppsala Model of Internationalization

Figure 2: Major Assumptions of the Uppsala Model

Figure 3: Timeline of the Internationalization process of Carrefour

Figure 4: Application of the Stage Model is the present business context

Figure 5: Limitations of the Stage Model

Figure 6: Internationalization of Emerging Market firms

Figure 7: Characteristics and Reasons for Emergence of Born Global firms

Figure 8: Product, Operation and Market Strategy of Add2Phone

Figure 9: Conceptual Framework of a Born Global Firm

Figure 10: Stage Theory view vs Born Global view

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“The stage model of internationalization has passed its sell by date”. Critically examine this statement. Use examples to illustrate your analysis

4

1. Introduction: An Overview of the Stage Model

Based on the explanation provided by Johanson and Wiedersheim-Paul

(1975) on the internationalization of the Swedish firms, Johanson and Vahlne

(1977) developed the dynamic ‘Uppsala Model’ (stage model), in which the

outcome of one cycle becomes the input to the next, thus explaining the

logical stage-wise internationalization path of firms (Barkema and Drogendijk,

2007, pp. 1146).

Figure 1: Uppsala Model of Internationalization (Kamel Mellahi, 2011, p. 158)

The above diagram of the ‘stage model’ depicts the traditional gradual

internationalization process, which is a result of experiential knowledge and

incremental steps (Hadjikhani, 1997, pp. 43--46). Increasing market

knowledge through experience leads to greater commitment of resources to

the market and increased business activities in the foreign markets. The direct

relation between market commitment and foreign market knowledge highlights

the ‘stage aspects’ of the model (P and Ian et al., 2002). Market commitment

Market Knowledge

Market Commitment

Market Knowledge

Market Commitment

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focuses on ‘ amount of resources and degree of commitment to the market’,

while foreign market emphasizes on the ‘acquisition of experiential

knowledge’ (Hadjikhani, 1997, pp. 43--66).

Since the firm’s behavior is influenced more by environmental and internal

factors rather deliberate development of strategies, the internationalization

process is described as cyclical and evolutionary (Moen and Servais, 2002,

pp. 52). The most basic assumption of the model is that the ‘lack of

knowledge’ about foreign market is a major barrier for internationalization and

it can only be overcome by learning about foreign market conditions through

current operations (Forsgren and Hagstr\"Om, 2007, pp. 293). Thus there is a

focus on ‘learning by doing’ to reduce uncertainty and subsequently increase

the investment in the market (Johnson, 1988, pp. 84)

In order to critically examine whether the ‘stage model’ has passed its date, it

is vital to understand the various assumptions of the model and analyze

whether the firms hold these assumptions in the present hypercompetitive

markets by adopting the gradual evolutionary process of internationalization.It

is vital to note that the Uppsala model focuses on two distinct decisions in the

internationalization process: choice of mode entry and choice of country and

how these both are determined by psychic distance (P and Ian et al., 2002).

The ‘stage model’ emphasizes that a firm first establishes its strong hold in

the domestic market, then expands to neighboring countries or countries with

low physic distance to gain experiential knowledge and then finally expands to

markets, which have greater physic distance. Further, the model explains that

the level of ownership in various markets is related with their physic distance,

with low levels of ownership in markets with greater psychic distance

(Freeman and Cavusgil, 2007, pp. 23).

Major Assumptions of the Uppsala Model

6

2. Relevance of the Stage Model

In order to critically examine the current usefulness of the stage model, one

must understand its relevance in helping firms internationalize successfully. It

is vital to recognize that in the process of internationalization, the primary

rationale of the firm is to reduce the risk of uncertainty. Thus, in order to tackle

Firms follow incremental expansion of market

commitment. The initial entry mode is a low

commitment mode (eg export, sales agent) and is followed by higher levels of

market commitment (eg wholly owned subsidiary) (P and Ian et al., 2002)

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the uncertainty about foreign markets, many firms adopt the ‘Uppsala model’

to internationalize in an incremental and slow manner (Kamel Mellahi, 2011,

p. 157). Many firms believe that perceived risk is a function of the level of

experiential market knowledge, which is achieved through the firm’s

operations (Forsgren, 2002, p. 263). As the firms gain more knowledge, the

perceived risk decreases and their level of commitment increases, though this

is a gradual and incremental process (Johnson, 1988, pp. 86). It is also widely

observed that firms, which internationalize utilizing ‘gradual global strategy’,

emphasize having a strong base in the home market before going

international (Chetty and Campbell-Hunt, 2004, pp. 63). The Uppsala model is

a very general model and therefore applicable to many different firms and

different situations, which makes it the most well known model of

internationalization behavior (Petersen and Pedersen, 1997).

The French retailer ‘Carrefour’ is the perfect example of how a firm tackled

uncertainty in foreign markets by successfully following a gradual and

incremental process of internationalization after establishing a strong base in

the home country. Soon after opening its first store in 1960, Carrefour

established its stronghold in France by creating a new store concept- the

hypermarket and achieving the first-mover advantage in the supermarket

industry. It adopted the ‘gradual global’ process by first moving to neighboring

European countries before expanding to the Latin American markets and

finally making direct investments in China and Japan

‘Gradual Global Process of Carrefour’

8

Figure 3: Timeline of the Internationalization process of Carrefour (Kamel Mellahi,

2011, p. 157)

Carrefour adopted a gradual internationalization process allowing for interplay

between the acquisition of knowledge about foreign market and increasing

commitment of resources (Moen and Servais, 2002, pp. 67). Its successfully

implemented all its plans as its international expansion was carefully driven by

experiential knowledge of foreign markets. It is critical to understand that a

major factor that led to the success of Carrefour’s international strategy is the

careful selection of countries and the gradual internationalization process.

Through exposure in international markets, Carrefour accumulated vital

institutional knowledge, internationalization knowledge and business

knowledge (Eriksson and Johanson et al., 1997, pp. 337--360). This

‘experiential knowledge’ allowed Carrefour to make critical business decisions

such as decreasing stores in unprofitable countries like Belgium and

increasing commitment of resources in profitable markets like Brazil and

China (Kamel Mellahi, 2011, p. 148). Further, the French retailer tactfully

applied the concepts of the ’Uppsala model’ by using the low commitment

‘franchisee model’ to enter countries with a great physic distance, such as

UAE, Qatar and Tunisia (Kamel Mellahi, 2011, p148). Thus, the firm

effectively utilized the ‘stage model’ to guide its business decisions and

1960

Opened first supermarket in FranceRevolutionalized the shopping concept in France

1970-

1980

Expanded to neighbouring countriesExpanded to Switzerland in 1970, Britain and Italy in 1972 and Spain in 1973

1980-

1990

Expanded outside Europe to Latin American Markets(Brazil) and Asia (Taiwan)Accelerated Internationalization process

1990-

2000

After gaining experiental market knowldge took further incrmental steps by making direct investments in far off countries like China, Japan and Singapore.

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reduce perceived risk by dealing with uncertainty. Today, the company has

more than 10,000 stores in 34 different countries and is the second largest

retailer worldwide (Carrefour, 2014). Various other retailers such as Marks

and Spencer and GAP have also successfully adopted the stage model to

tackle uncertainty in foreign markets and ensure successful

internationalization of the firm (Bhardwaj and Eickman et al., 2011, pp. 293--

307).

Figure 4: Application of the Stage Model is the present business context

It would be a mistake to conclude that the Uppsala model has passed its sell-

date in the present rapidly globalizing world. It is vital to understand that

‘Experiential knowledge” creates and often sometimes is the only way to

achieve market knowledge and reduce uncertainty experience, making it an

owner-specific advantage in the eclectic paradigm of international production

(Dunning, 1991, p. 121). Further, even in the rapidly globalizing world,

multinationals use the ‘the stage model’ to address the problem of ‘psychic

To reduce perceived

market risk

Help managers deal with

uncertainty

Facilitate the successful internationalization of firms

Application of Stage Model

10

distance’, and decrease the ‘liability of foreignness’, which refers to ‘the costs

of doing business abroad that result in a competitive disadvantage for a

multinational enterprise’ (Zaheer, 1995, pp. 341--363).

3. Limitations of the Stage Model

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In order to critically examine the current practicality of the Uppsala model, one

must analyze the limitations of the model. Despite the broad appeal of the

Uppsala Model, there are a lot of questions unanswered about its current

usefulness. The model can only be applied to understand the initial market

choice and entry mode and not does provide a perspective on the behavior of

large multinationals that already have extensive international operations

across the globe (Melin, 1992, pp. 109). Most importantly, the stage model

cannot explain why many firms internationalize rapidly and do not follow the

logical sequence of steps or choose to enter distant markets in the early

stages. The four main phenomenon which underpins the expiry of the model

in the current business context are: international expansion of a firm as an

outcome of a rational strategic choice, the international expansion of

emerging market firms, small firm internationalization in high-technology and

service sector and the ‘Born Global’ firm

Figure 5: Limitations of the Stage Model

Criticism of the

Upsalla Model

Born Global Firm

Rational strategic choice

of markets

Internationalization of

emergeing market firms

Small Firm internationalization in

high tech service sector

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3.1 Internationalization of a firm as an outcome of a rational strategic choice

The most basic assumption of the Uppsala model is that the firm’s

international expansion is an outcome of a learning process (Johanson and

Vahlne, 1990, pp. 11-24). However, this assumption may not hold true, as the

internationalization of various firms is an outcome of a rational strategic

choice. The nature of the business defines the feasible locations, as the firm

sometimes will expand into more distant locations while at other times expand

into locations closer to the home country (Benito and Gripsrud, 1992, pp.

1132-48).

For instance, the Chinese smartphone giant Xiaomi’s first foray into markets

outside Greater China (year 2013) was marked by a conscious effort to

expand into Singapore (Yu, 2014). This market selection was not a result of

the learning process or close psychic proximity but the outcome of a long-term

strategy to set up the international HQ in Singapore (Wong, 2014). The

central location of Singapore would facilitate the management of overseas

expansion, and coordination of all activities including the launch of future

products. Rather than choosing to expand to a neighboring country, Xiaomi

chose to set up a base in Singapore first and avail the significant support of

the government for tech companies who invest locally in Singapore (Mckenzie

and Mckenzie et al., 2013). Thus, it is vital to note that the location choices of

many firms could be discrete rational choices, and not a result of a cultural

learning process as stated in the ‘stage model’

Further, location advantages may play a crucial role in selection of foreign

markets (Zucchella and Palamara et al., 2007, pp. 273). For instance China

offers cheap labor and superior production opportunities compared to other

nations (So, 2012). Thus, an upcoming European firm looking to cut costs

would make a rational strategic choice to internationalize and develop its

manufacturing facilities in a distant China rather than in a costly neighboring

European country

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3.2 Internationalization of emerging market firms

The Uppsala model is unable to explain the internationalization of many firms

from emerging markets (Liu and Xiao et al., 2008, pp. 500). Recently, many

leading emerging market firms with a long-term strategic view have begun to

internationalize with an aim to become global players in international markets

(Child and Rodrigues, 2005, pp. 403). It is vital to recognize that many

emerging market firms view internationalization as the means to enhance their

capabilities and gain sustainable competitive advantage. For instance firms

like Lenovo have made acquisitions of established brands like IBM to secure

brand advantage and develop into a global brand (ESCP, 2009).

Figure 6: Internationalization of Emerging Market firms (Child and Rodrigues, 2005,

pp. 381--410)

Factors such as limited marketing capability, weak R&D and lack of brand

development have weakened the competitive strength of dynamic Chinese

firms in relation to global companies (Nolan, 2001). Thus, many Chinese firms

are going abroad to acquire R&D capabilities, advanced technology and

brand advantage, which will help them develop a sustainable differentiation

advantage, rather than exploit a competitive advantage that was developed in

Emerging Market firms

Psychically Distant markets

Catch-up with established

multinationals through accelerated

learning and gain differentiation advantage.

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the domestic market.

For example, the main component of the international strategy of the Haier

Group was to gain global brand recognition (Child and Rodrigues, 2005, pp.

382). The management of the firm recognized the importance of brand

recognition as an essential reputational asset to gain competitive advantage

in the consumer goods industry. Thus, the Chinese firm did not adopt the

stage model to internationalize gradually and focused on distant markets like

USA, Japan and Europe early on, keeping in line with the philosophy of CEO

Zhang to ‘enter a difficult advanced market first to build an international brand

name and then go to easy, underdeveloped markets’ (Ding and Akoorie et al.,

2009, p. 148). Further, without any experiential knowledge it made ‘huge

market commitment’, which involved greenfield establishment of subsidiaries

and facilities within targeted markets. Contrary to the entry mode strategy

described by the Uppsala model, it designated resources to set up local

manufacturing facilities in distant markets such as USA and Europe at a

relatively early stage of internationalization (Child and Rodrigues, 2005, pp.

400-402). For instance, Haier started to export to the US market in 1990 and

invested US$40 million in a new production plant in South Carolina soon after

(Leonard, 2008).

Today, Haier is studied as the ‘the official template for the Chinese MNC of

the new millennium’ (Warner and Sek Hong et al., 2004, pp. 324--345), and its

CEO Zhang Ruimin is one of the most respected Chinese business leaders

worldwide (Zhang, 1996, pp. 141-164). The stage model is unable to explain

the rapid internationalization behavior of several such emerging market firms

that enter distant markets rapidly with high resource commitment and build

essential capabilities.

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3.3 Internationalization of small firms in the high technology and service industry

Bell (1993) dismisses the relevance of ‘stage-theory’ in the current context,

especially in the high-tech and service industry, by offering an interesting

perspective on internationalization of small computer software firms that

operate in small open economies such as Ireland, Finland and Norway.

According to him, the Uppsala model has passed its sell-date as it can only be

applied to traditional manufacturing industries and cannot explain the

internationalization of modern firms in the rapidly growing high technology and

service-intensive industry.

In the software industry, firms based their market selection and entry mode

decisions on client followership, sectoral targeting and computer industry

trends rather than on geographic or psychic distance of markets (Bell, 1995,

pp. 67). For instance, a Norwegian firm that produced software for the oil

industry first expanded to Venezuela as a result of a large domestic client’s

internationalization strategy. Further, many software firms applied sectoral

targeting by expanding into markets, which were experiencing growth in their

specialized niches. For example, a Finnish producer of a hotel management

package exported first to Spain and then entered Portugal, Turkey and

Yugoslavia respectively (Bell, 1995, pp. 74). This pattern of

internationalization was a result of potential growth and development of

tourism in these markets. Thus, it is critical to recognize that the firms did not

give geographical or psychological closeness importance in the market

selection decision.

Also, most of the software firms of the sample internationalized very rapidly,

rather than in small incremental steps. The age and the size of the software

firms in the domestic market did not impact its decision to internationalize in

the dynamic software industry, as small firms focused on commercializing

new applications as quickly as possible to recover the investment made (Bell,

1995, pp. 71).

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Lastly, the approach of the software firms to any given market remained

constant even after a considerable length of time. Contrary to the assumption

of the Uppsala Model, the firms did not increase ‘market commitment’

gradually over time, as there was no systematic shift from exporting to ‘high

commitment modes’ like joint venture and Greenfield establishments (Bell,

1995, pp. 60--75).

Thus, the Uppsala Model does not reflect the internationalization pattern of

the software firms. The ‘stage theory’ cannot be generalized to the dynamic

technological and service-intensive industries. Considering the rapid growth of

high-technology intensive firms and the service industry across the globe, it is

not unreasonable to assume that the stage model has passed its sell date.

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3.4 ‘Born Global’ Firm

Rapid change in the global business environment in the last decade has had

a significant impact on the internationalization process of firms around the

world. A new phenomenon of ‘Born Global’ firms has emerged to contradict

the traditional stage theory and explain the internationalization process of a

large number of firms across the globe, thus indicating that Uppsala model

may no longer apply (Hashai and Almor, 2004, pp. 465--468). The reduction

in communication and international transportation costs, faster information

flows and the shortening of product life cycles have led to the emergence of

these ‘Born Global’ firms. These changes in the business environment have

led to homogenous consumer needs and increase in global demand, which

has forced firms in certain industries to adopt an international perspective and

expand rapidly irrespective of foreign experience and age (Omae, 1990).

‘Born Global’ firms ‘from inception, seek to derive significant competitive

advantage from the use of resources and sales of output in multiple countries’

(Laanti and Gabrielsson et al., 2007, pp. 1107). They appear to have unique

features: they are small firms that are young that operate internationally from

inception, they are entrepreneurial, they perceive the world as one market and

they view internationalization as an opportunity rather than an obstacle

(Argyrous, 1993, p. 106). Their strong resources and capabilities allow them

to compete on value and qulaity created through product design and

innovative technology(Rennie, 1993, pp. 45-52).

Various names such as “international new ventures” (Mcdougall and Oviatt,

1996, pp. 23--40), “born globals” (Knight and Cavusgil, 1996, pp. 11), “instant

internationals” (Preece and Stephen et al., 1999, pp. 259) and “global start-

ups” (Mcdougall and Oviatt, 1994, pp. 45) have been given to firms that

internationalize rapidly and do not adopt the ‘stage model’ of

internationalization. Contrary to the firms that adopt the ‘stage model’, ‘Born

Global’ firms follow accelerated internationalization, they do not select

markets according to physical or psychic distance, they do not strengthen

domestic sales before going abroad and they use multiple modes of entry

(including high commitment modes in distant markets at an early stage) to tap

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on various markets at the same time. The Uppsala Model emphasizes on

refinement of the firm’s existing knowledge base through experiential learning

and incremental steps, reducing risks of foreign expansion. On the other

hand, ‘Born Global’ firms are more strategic in nature and focus on

‘Exploration’ by identifying ‘market seeking’ or ‘resource seeking’ expansion

opportunities in distant markets (March, 1991, pp. 74).

Figure 7:

Characteristics and Reasons for Emergence of Born Global firms (Knight and

Born Global Firms

Reasons for the phenomenon

Mature domestic markets Faster information flows Improved communication and

transportation networks Homogenous consumer needs High technology investments

which cannot be covered by sales in domestic markets

Shortening product life cycles Free movement of goods and

services Globally standardized products Reduction of trade barriers Capabilities of founders and

entrepreneurs Access to worldwide customers

and suppliers through networks

Characteristics

Small firms Go global in less than 2 years

from inception Export 75% of Total sales Produce leading-edge

technology products Serve niche markets Flexible Adapts its products to rapidly

changing consumer needs and wants

Knowledge intensive firms Sell “new” or “radically different”

products.

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Add2Phone Ltd

Add2Phone Ltd, a Finnish B2B SME in the wireless technology sector, is the

perfect example of a ‘Born Global’ firm. The insuffienct demand in the small

and open economy of Finland, along with rapid development of the wireless

technology industry from 2000-2005 led to the emergence of Add2Phone Ltd

as a global firm. The firm was established in 2000 and catered to a niche

market by developing software for application service providers, portals,

mobile operators and media companies.By 2002, the company had major

international activities with a strong focus on global markets. It catered to 15

different markets across the world, including distant Asian markets like

Philippines and Malaysia. Just like any other ‘Born Global’ firm, the company

had a clear global vision and staretgic intent to capture the growing

international mobile communications market (Laanti and Gabrielsson et al.,

2007, pp. 1110).

Figure 8: Product, Operation and Market Strategy of Add2Phone (Laanti and

Gabrielsson et al., 2007, pp. 1112).

Add2Phone Ltd

Product Strategy

Started directly with services and system sales. ‘Mobile advertiser server’

was the main product

Operation Strategy

After inception, it established sales and R&D offices in both North America and Europe.

Used inward and co-operation modes for

expansion

Market Strategy

It had a very short domestic phase and simultaneously

expanded to distant markets like USA and Canada to capture global demand

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In order to further characterize ‘Add2Phone’ as a ‘Born Global’ firm, one must

apply the conceptual framework of the phenomenon to the firm.

Figure 9: Conceptual Framework of a Born Global Firm (Laanti and Gabrielsson et

al., 2007, pp. 1108).

Unique resources and capabilities are crucial to create sustained competitive

advantage in global markets(Crick and Jones, 2000, pp. 70). The foreign

language skills, international work experience, excellent technological

competence and international eductaion of founders helps the firm reduce

uncertanities and enter foreign markets successfully (Reuber and Fischer,

1997, pp. 807-809). The founders of ‘Born Global’ firms possess

characteristics like flexibility and readiness for change, which are vital for the

firm. The 10 founders of ‘Add2Phone’ had extensive international business

and technological experience, which helped the firm close the gap in

resources against large international competitors(Laanti and Gabrielsson et

al., 2007, pp. 1104--1117). Many studies have indicated the importance of

Born Global

Networks

Founders and

Management

Finance

Innovation

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international networks, on the organisational and personal level, in rapid

internationalization of the ‘Born Global’ firms (Andersson and Wictor, 2003,

pp. 270). The firms utilise activity links, actor bonds and resource ties to tackle

resource limitations faced by start-up companies (Madsen and Servais, 1997,

pp. 563). In addition to the founder’s extensive personal networks,

‘Add2Phone’ had developed international networks (eg. HP), domestic

networks (eg. Nokia) and memebership in essential industry forums to enter

world markets quickly and profitably(Laanti and Gabrielsson et al., 2007, pp.

1113). A major barrier for small companies to internationalize rapidly is the

lack of financial resources(Reid, 1983, pp. 47) . In the beginning, ‘Add2Phone’

received tremendous venture capitalist funding (eg.Trident capital) and

governmental funding (eg.Tekes) , which helped the firm reach multiple

markets rapidly.The international business experience, global vision and the

linkages of the founders ensured that the firm was financially supported by

large corporations(Laanti and Gabrielsson et al., 2007, pp. 1113). Lastly,

innovative capability of the firm is the most funadamental trait required to

capture competitive advantage in global markets (Madsen and Servais, 1997,

pp. 571). Add2Phone’s first product, ‘Mobile Advertising server’ was highly

innovative and helped generate revenues from customers, advertisers and

marketers. The firm leveraged its unique products, technological innovativess

and strong quality to achieve rapid growth in the niche market (Laanti and

Gabrielsson et al., 2007, pp. 1113). Thus, the case of ‘Add2Phones’

demonstrates how a growing number of firms in the present business

environment leverage their resources and capbilities to internationalize rapidly

and profitably in distant markets.

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Stage Theory view vs Born-Global view (Chetty and Campbell-Hunt,

2004, pp. 57--81)

Internationalization Attributes

Stage Theory View Born-Global View

Home Market The domestic market developed before

internationalization process

The domestic market is largely irrelevant

Pace of Internationalization

Gradual Rapid

Psychic distance Firms internationalize in order of psychic

distance

Psychic distance is irrelevant

Extent of internationalization

Foreign Markets developed in a serial

order

Many foreign markets developed

simultaneously

Learning processLearning is based on

accumulated experience (slow and

experiential)

Learning is more rapid as a result of founder’s extensive experience

or superior internationalization

knowledge

Firm StrategyDoes not play a central

role in the firm’s motivation to go

abroad

Strategy to gain competitive

advantage, increase market scope and

develop a niche play a critical role to drive the

firm to go abroad

Time to internationalize

The time is slow and not crucial for the

success of the firm

The time taken is less (within two years of

inception) as it is crucial to the success

of the firm

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4. Conclusion

Internationalization process is much more complex and less structured than

the various models imply. The interntationalization processes and patterns of

indiviudal firms could be highly situation specific and quite unique. It is critical

to recognize that different firms have different routes to internationalization

based on the personal network of entrepreneur, market knowledge, resources

and capabilities and foreign market opportunities (Moen and Servais, 2002,

pp. 53). Further, the attractiveness of some foreign markets in terms of growth

rate, and size can be sufficient to offset the risks associated with psychic

distance. However, this does not imply that the ‘stage model’ is out of date as

recent studies provide evidence that Uppsala model can still explain the

international expansion of firms (Kamel Mellahi, 2011, p. 162).

The ‘Born Global’ phenomenon cannot diminish the applicability of the ‘stage

model’ as recent research suggests that only a negligible number of ‘Born

Global’ firms exist, even in the start-up technology firms (Lopez and

Ciravegna et al., 2009, p. 1237). Further, there are many ‘Knowledge

Intensive-Born Global’ firms that apply the concept of psychic distance in

initial market selection and follow a gradual incremental internationalization

process (Hashai and Almor, 2004, pp. 465--483). However, one can conclude

that the speed of international expansion is much faster today than 50 years

ago due to changes in the business environment such as faster information

flow, shorter product life cycles and cheaper communication modes.

The Uppsala model and the concept of psychic distance are not out of date,

but intelligent managers are finding ways to deal with uncertainties and bridge

physic distances to exploit market opportunities. By relying on a local agent or

partner, using social networks and hiring local professionals, a firm could

obtain tacit knowledge about foreign culture, regulations and business

practices (Kamel Mellahi, 2011, p. 162). The advocates of the stage model

also admit that in the present globalized world, knowledge about foreign

markets can be acquired quickly through network of strategic partners,

customers and suppliers. Another strategy of reducing uncertainty is mimetic

24

behavior. Firms could imitate the successful recipe of leading firms to reduce

uncertainty and internationalize without accumulation of experiential

knowledge. Further, many firms use ethnic networks along with use of joint

venture to overcome the impediments of high psychic distance. High

absorptive capacity or the firms ability to learn rapidly also explains how some

firms are able to invest in high psychic distance markets using high-risk

modes of entry.

It would be a mistake to write-off the significance of the Uppsala model as

even today the customer buying behavior and preferences is very different

across borders. For any firm that wants to internationalize the market

knowledge is low and the perceived uncertainty is high. One cannot buy

market knowledge, which makes experiential learning very vital to reduce

uncertainty. Thus, we can conclude that the slow and incremental

internationalization process is yet economically sound and relevant.

25

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