INTERNATIONAL

ENTREPRENEURSHIP SUMMARY
SESSION 7: YOUNG/SMALL FIRMS GOING ABROAD: MARKET SELECTION AND ENTRY MODES
Johanson, & Vahlne (2009), The Uppsala internationalization process model revisited: From liability of
foreigness to liability of outsidership

Introduction Problems and opportunities in international business become less country-specific & more
relationship-specific and network-specific
§ who are business actors in market and how connected
§ knowledge, learning, commitment, trust, opportunity development important factors
The 1977 Model Swedish companies began with ad hoc exporting, then replacing intermediary agents with own
salesforce in target country, then setting up own manufacturing plant in target country
§ step-wise approach of internationalization (establishment chain)

First into foreign markets that were close in terms of psychic distance àliability of foreignness

Declining validity of Model
§ Companies leapfrog stages àborn globals
§ however, rather born regionals as operations do not span whole globe but rather region
§ model does not suggest that internationalization cannot be done quickly
o first regional then global is quick but still a stepwise approach
§ Psychic distance lost importance
o Managers have more international experience than when model was designed
o Thus, relationship entry markets and psychic distance has weakened
o However, relationship appears on individual decision-maker level (not on firm level)
o Still: The larger psychic distance, the more difficult to build relationships
§ JV and acquisitions more used than at time Uppsala model was built
§ Entry mode is no longer considered reliable indicator of level of commitment
§ Contextual aspects important for choosing entry mode
The Business Firm’s business network/relationships impact on foreign market selection and mode of entry:
Network View § Business network = network of connected business relationships, exchange in one
relationship is linked to exchange in another
§ Network enabling and constraining companies
§ Weak ties transform into strong relationships but takes time to establish working
relationships
§ Firm’s success requires that firm is established in one or more networks (=insider),
otherwise liability of outsidership
§ Insidership necessary but insufficient condition for successful business development
§ Firm expected to go abroad based on relationships with partners committed to developing
business through internationalization
o More likely to find interesting opportunities with these partners through networks
o Partners asks firm specifically to go abroad with them
§ Knowledge & Opportunities + Network position àRelationship commitment decisions +
Learning & Creating & Trust-building

Firm’s environment made up of networks, with implications for:
§ Knowledge and learning
§ Commitment and trust
§ Opportunity creation
Knowledge &
Learning Institutional knowledge Business market knowledge
§ Language § Relationships between firms in environment
§ Laws & rules § Not only exchange knowledge but also create new insights by
§ Psychic distance combining different knowledge
§ Liability of § Prior relationships of management team important
foreignness § Critical kind of knowledge (e.g. identify relevant market
actors)
§ Liability of outsidership
§ Opportunities as most important knowledge of firms
Experiential learning basic mechanism in business network view to acquire knowledge
àperceive concrete opportunities, rather than theoretical opportunities
Trust and
Commitment Trust Commitment
Building

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 INTERNATIONAL ENTREPRENEURSHIP SUMMARY
§ important for successful learning & § Long term interest over short-term
development of new knowledge goals
§ can also substitute knowledge (e.g. firm § Opportunities and dependencies of
using trusted middleman) both firms
§ Especially important in uncertainty § Calculative commitment (formal e.g.
§ trust = ability to predict another’s behavior JV), affective commitment (attachment
§ prerequisite for commitment to other party)
à Trust and commitment both together àhigher productivity, efficiency, effectiveness
Opportunity § Exploration vs. exploitation à opportunity development includes both
Development § Opportunity discovery vs. opportunity creation à opportunity development includes both
§ Prior knowledge more important than personal characteristics of individual on discovery à
firm should focus on own internal resources?
§ However, network view: companies have privileged access to information of firms within
network àinteraction between partners àopportunities emerge
§ Many opportunities emerge at boundary of firms where necessary relationship experience
exists àe.g. subsidiaries dealing directly with partners, customers (not HQ)

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