The Uppsala internationalization process model is revisited in the light of [615185]

Abstract
The Uppsala internationalization process model is revisited in the light of
changes in business practices and theoretical advances that have been made
since 1977. Now the business environment is viewed as a web of relationships,
a network, rather than as a neoclassical market with many independent
suppliers and customers. Outsidership, in relation to the relevant network,
more than psychic distance, is the root of uncertainty. The change mechanisms
in the revised model are essential ly the same as those in the original version,
although we add trust -building and knowledge creation, the latter to recognize
the fact that new knowledge is developed in relationships.
Journal of International Business Studies (2009),
Much has changed since our model of the internationalization
process of the firm was published in the Journal of International
Business Studies (JIBS) ( Johanson & Vahlne, 1977). In fact, the
economic and regulatory environments have changed dramatically.
Company behavior is al so different in some respects. The
research frontier has moved too. There are some concepts and
insights that did not exist when our model was published.
The Uppsala model explains the characteristics of the internationalization
process of the firm. When w e constructed the
model there was only a rudimentary understanding of market
complexities that might explain internationalization difficulties,
but subsequent research on international marketing and purchasing
in business markets provides us with a busines s network view of the
environment faced by an internationalizing firm.We further develop
this view and explore its implications for the internationalization
process of the firm. Our core argument is based on business
network research, and has two sides. Th e first is that markets
are networks of relationships in which firms are linked to each
other in various, complex and, to a considerable extent, invisible
patterns. Hence insidership in relevant network(s) is necessary

for successful internationalization, and so by the same token there
is a liability of outsidership. Second, relationships offer potential for learning and for building trust
and commitment,
both of which are preconditions for internationalization.
Before we look at this business network view in
depth, we summarize our original model.
Researchers in the Department of Business Studies
at Uppsala University in the mid -1970s made
empirical observations that contradicted the established
economics and normative, international
business literature of the time. According to that
literature, firms choose, or should choose, the
optimal mode for entering a market by analyzing
their costs and risks based on market characteristics
and taking into consideration their own resources
(e.g. Hood & Young, 1979). However, our empirical
observations from a database of Swedish -owned
subsidiaries abroad, and also from a number of
industry studies of Swedish companies in international
markets, indicated that Swedish companies
freque ntly began internationalizing with ad hoc
exporting (Carlson, 1975; Forsgren & Kinch, 1970;
Ho¨rnell, Vahlne, & Wiedersheim -Paul, 1973;
Johanson, 1966; Nellbeck, 1967). They would
subsequently formalize their entries through deals
with intermediaries, ofte n agents who represented
the focal companies in the foreign market. Usually,
as sales grew, they replaced their agents with their
own sales organization, and as growth continued
they began manufacturing in the foreign market to
overcome the trade barriers that were still in place

in the post World War II era. We labeled this
dimension of the internationalization pattern the
establishment chain. Another feature of the pattern
was that internationalization frequently started in
foreign markets that w ere close to the domestic
market in terms of psychic distance, defined as
factors that make it difficult to understand foreign
environments. The companies would then gradually
enter other markets that were further away
in psychic distance terms (Johanson & Wiedersheim –
Paul, 1975; Vahlne & Wiedersheim -Paul, 1973). This
process had its origin in the liability of foreignness, a
concept that originally explained why a foreign
investor needed to have a firm -specific advantage to
more than offset this liability (Hymer, 1976; Zaheer,
1995). The larger the psychic distance the larger is the
liability of foreignness.
We searched primarily in the theory of the firm
for explanations for the deviations between what
the extant theories prescribed and the Swedish
pattern of internationalization, and developed our
original model based on the work of Penrose (1966), Cyert and March (1963), and Aharoni
(1966). The underlying assumptions of our 1977
model are uncertainty and bounded rationality. It
also has two change mechanisms. First, firms
change by learning from their experience of operations,
current activities, in foreign markets. Second,
they change through the commitment decisions
that they make to strengthen their position in
the foreign market. We define commi tment as the
product of the size of the investment times its

degree of inflexibility. While a large investment in
saleable equipment does not necessarily indicate a
strong commitment, unwavering dedication to
meeting the needs of customers does. Experience
builds a firm’s knowledge of a market, and that
body of knowledge influences decisions about
the level of commitment and the activities
that subsequently grow out of them: this leads to
the next level of commitment, which engenders
more learning still (Fi gure 1). Hence the model is
dynamic.
The model does not specify the form that increased
commitment might take. Indeed, commitment may
decline, or even cease, if performance and prospects
are not sufficiently promising. Contrary to the views
expressed by so me, the process is by no means
deterministic. We assumed nonetheless that the
process of internationalizing will continue as long
as the performance and prospects are favorable.
We also assumed that learning and commitment
building take time. This explains why moves into
more risky, but potentially rewarding, modes and
moves into markets that are more distant in terms
of psychic distance are made incrementally.
We considered the model to be descriptive,
largely because we based it on Cyert and March (1963). It has generally been characterized in the
subsequent literature as behavioral, compared with
other theories that are seen as economic, such as
internalization theory (Buckley & Casson, 1976),
transaction cost theory (Hennart, 1982), and the
eclect ic paradigm (Dunning, 1980). More recent

empirical studies have indicated that the internationalization
process as explained by our model
has a positive impact on performance (Barkema,
Bell, & Pennings, 1996; Delios & Beamish, 2001; Li,
1995; Luo & Peng, 1 999). Our model can therefore
be considered a model of rational internationalization,
and can be used for prescriptive purposes.