Assignment on

Internationalization Theories

Course Title: Global Marketing

Course Code: ALD 3103

Submitted To:

Lecturer Sanjida Amin

Faculty of Business Studies
Bangladesh University of Professionals

Submitted By:

Name: Rahid Rishat Rafel

Student ID: 18251031
Program: BBA in Marketing
Semester: 5th
Batch: 2017-18
Section: A
Internationalization is a term used to describe the act of designing a product in a way that it

may be readily consumed across multiple countries. This process is used by companies looking

to expand their footprints beyond their counties of domicile, by branching out into international

markets. Nowadays internationalization has become one of the key elements of a good

functioning of a firm as well as its future perspectives. In order for a company to be competitive

at a local level, it is crucial to be such on the international level. ... Helps to improve a general

company's image. There are mainly four theories of internationalization and they are the Uppsala

model of internationalization; the eclectic paradigm and transaction cost analysis; the interactive

network approach of the International Marketing and Purchasing Group; and what may be

termed the business strategy approach.

The Uppsala Internationalization Model

Swedish researchers (Johanson and Wiedersheim-Paul, 1975; Johanson and Vahlne, 1977) from

Uppsala University had vast criticisms of the theories at the time, which explained international

involvement. They believed most existing theorises at that time toned down the problems of

cultural differences and ignored the internal foundations needed so that companies could handle

international activities. The Uppsala Internationalization Model distinguishes four different steps

of entering an international market, which cannot be viewed independently of a company’s

situation, market and the market knowledge.

 Step 1: No regular export activities (sporadic export).

 Step 2: Export via independent representative (export mode).

 Step 3: Establishment of a foreign sales subsidiary.

 Step 4: Foreign production/manufacturing.

Additional market commitments are made in small incremental steps: choosing additional

geographic markets with small psychic distances, combined with choosing entry modes with few

additional risks. There, they have enhanced knowledge of the market and more control of

resources, thereafter gradually when the companies have become more experienced and acquired

better resources, they expand to the more distance market. The core explanation of the model is

that increased market knowledge will lead to increased market commitment, and vice versa.

Limitations of Uppsala Model in Global Era

Even though the Uppsala Model has contributed greatly to broader understanding of

internationalization process of companies but the model itself suffer in some fundamental bases

to describe the Total Internationalization Process as it meant to be its original unit of analysis,

even before we consider the changes in business environmental during the last 20 years and its

impact on the theory’s development. Some of the critics include:

 The model is too deterministic

 The model does not take into account interdependencies between different country

markets

 This model is not valid for service industries because the cumulative reinforcement of

foreign commitment is absent

 Looking at the u-model in the contemporary business environment it highlights even

more deficit in the original model which needs to be looked over and evolved in order to

describe the internationalization process of modern companies.

  The change in trend of internationalization process for Born Global firms could be due to

that world has become much more homogeneous and that consequently psychic distance

has decreased

 This model is not valid in cases of highly internationalized firms and industries as

competitive forces and factors override psychic distance

The Transaction Cost Analysis Method

The ‘friction’ between buyer and seller, which is explained by opportunistic behavior is termed

as transaction cost. Transaction cost analysis concludes that if the ‘friction’ between buyer and

seller is higher than through an internal hierarchical system then the firm should internalize. The

transaction cost analysis (TCA) framework argues that cost minimization explains structural

decisions. Firms internalize, that is, integrate vertically, to reduce transaction costs. Transaction

costs can be divided into different forms of costs related to the transactional relationship between

buyer and seller. The underlying condition for the following description of the cost elements is

this equation: transaction cost = ex ante costs + ex post costs = (search costs + contracting costs)

+ (monitoring costs + enforcement costs)

The process of how this model works is in mainly 3 steps which are:

1. Entry mode determinism- the theoretical structures

2. Transaction costs as the entry mode determinants

3. Beyond transaction costs- the new determinant in entry mode research

Limitation of TCA Method

 Narrow assumptions of human nature

 Excluding internal transaction costs

 Relevance of intermediate form of SME’s

 Importance of production cost is understated

The Network Model Approach

According to the network model of internationalization, the process of

company internationalization is defined as the establishment, maintenance and development of

relations with network participants on foreign markets. This method stresses the importance of

maintaining long term interactions with entities from the foreign government.

The internationalization of a company results from its intention to strengthen its position by

extending its business network beyond the borders of its home country. Depending on the

position it currently occupies, a company may decide on

• international extension

• international penetration

• international integration.

The first variant of network relationships in the process of company internationalization and

international extension, involves relationships with partners from the foreign network in the

country targeted for expansion. The second option involves relationships with foreign network
partners from non-target countries. The final possibility involves relations with partners in a local

business network (in the home country).

When considering the network model of internationalization, both the individual company (its

own assets) and the network which it belongs to (market assets) must be taken into account.

According to the network model of internationalization, entering a new foreign market requires

the development of a network of relations on this market (the establishment, maintenance and

extension of relations). From the network-based point of view, the process of entering foreign

markets itself may also be perceived as an effect of the mutual interaction between entities from

within the company (internal actors) and external entities from the network (external actors).

We may conclude that, according to the network model of internationalization, the

internationalization process is neither linear nor sequential, as it is in the case of the stage-based

models (especially the Uppsala model). On the contrary, here the process is rather a combination

of a set of multilateral relations and links, in which the moves companies make depend on their

situation within the business network. The network model of internationalization may be

successfully used for the analysis of company internationalization processes.

Q1: Which of the internationalization models presented in this chapter best

fits the internationalization of Zumba?

The model which suits the internationalization of Zumba is the network model.

This is because, among many market players, it talks about managing interdependencies. 

The key aspect of the model is that the organization itself can not operate on its own, it relies hea

vily on other-managed capital and resources.
We benefit from their classes, academies, classes 'lessons, monthly payments from students 

in their network and their brand products, similar to the Zumba case study. A total of 82,500 site

s offer Zumba classes performed by Zumba-certified instructors (known as ZINs). 

Such teachers serve as business actors and help Zumba develop.

The actors are linked by exchange relationships with each other. This is important for the

company to maintain a good relationship with its teachers to ensure development and

competitiveness, as they are all interdependent. Then it is more complex and versatile.

In the case the instructors are known as autonomous businessmen.

They will join as members, take the course to obtain license, and then they will be able to operate 

to either freelance or start theire own workout class. This allows for a network that is more open, 

flexible and inclusive. Nonetheless, all of them depend on each other for support.

Since the teachers of the Zumba are the ones who communicate directly with the customers, they

are the ones that represent Zumba to the group. The instructors therefore need to be updated

regularly, as it is very essential for Zumba branding. Zumba has since reached out globally,

breached into global markets through informal advertising. The network model also seems to

address this approach. So from the discussions it can be concluded that Zumba and network

model internationalization seems to be similar in their approaches.

Q2: Why has Zumba’s global business model been so successful?

Zumba's growth has been very visible, and can be considered a born global in such a short period

of time. Rather than the approach that they embraced, it was the medium that they used to

promote themselves that made the change effect.

The popularity of Zumba is due to the involvement of many celebrities which spark interest in

many people. This information can be easily accessed and updated via social media, for example,

all the news and information about celebrities is available online.

Zumba fitness also benefitted immensely from internet advertising and social media. The

simplicity and accessibility of internet ads quash certain sources of publicity. There has been a

increase in the number of people using search engines to find the goods, information and services

they need. Many people over Youtube, an online video site, stumble upon Zumba.

Smartphone Aids, ipads, and other devices have increased the rate of information transmission,

enabling it to be readily available to all. Anyone can view the video online at any time, at almost

anywhere. It's also easy to upload, and can quickly go viral. In social media channels Zumba is

listed every 11 seconds.

As Zumba kept the clothing lines to themselves rather than licensing, they were able to do

extensive market research without wasting a great deal of money and becoming a sensation

themselves.

As Zumba kept the clothing lines to themselves rather than licensing, they were able to do

extensive market research without wasting a great deal of money and becoming a sensation

themselves.