The approach in which firms internationalize incrementally. Meanwhile

 

 

 

 

 

The RBV
constant redevelopment emsures that valuable insight will thus be gained in the
future. As for future research using the RBV, one detrimental shortcoming would
be the absence of  an insight into how
valuable, rare, inimitable and non-sustainable resources are created within a
firm.

Despite
both their flaws the RBV stands as the favoured to providing a valid and
holistic insight into internalisation. >>> why?

The Upsala
model describes incremental learning process on internalisation which has been
dwarfed in its credibility owing to issues s

 

A hybrid
approach entailing the significance of the inimitability of a resource base
highlighted by the RBV, the importance of knowledge acquisition emphasized by
the Uppsala model and –  in conjunction
with each other these would produce the ideal ingredients for a holistic stream of research into the
study of internalization.

An area worth
investigating for future research intertwined

It is
undeniable that both ‘The Uppsala Stage Model and’ and ‘The Resource Based View
model’  provide cogent/lucid insight into
concept of the internalization process. The Upsala model, which has been
criticised for its dithering applicability, pragmatic deficiency and its
failure to consider various institutional and managerial variables(strategic
alliances), describes a linear approach in which firms internationalize incrementally.
 Meanwhile the RBV, despite having its
specific flaws, explores in-depth the utilisation of firm-specific resources in
foreign market exporting. Irrespective of the limitations this essay has exposed
of both approaches, the RBV seems to provide a more lucid and comprehensive
explanation of internalization.

 

Conclusion

 

Omission

Nordstr?m (1990) argues that given the increasing homogeneous nature of
the world, has meant that the notion of psychic distance has fallen out of
favour. Nevertheless, his argument fails to contemplate upon the possibility of
over embeddedness posing as a gradual obstacle to internalization which may
restore the importance of psychically distant exporting. The RBV’s
dependency on the VRIN framework to generate a competitive advantage does not
coincide with this drift towards isomorphism. It is more probable that within a
more homogenous environment,  firms will
bypass phases of the model given the ability to more easily emulate and exploit
other firm’s strategies.

Whilst this goes in line with the idea of sequential psychic entry
highlighted by the Upsala model, the subsequent attempts at entering foreign
markets unsuccessfully aligned with the model. 
Is this thus an indication of a mushrooming gap between the applicability
of the Uppsala at its birth and in modern-day business?  If so does this suggest a
declining relevance of the theory behind the RBV too? 

has made it relatively easier to conduct business overseas. Using the
study Jonsson and Fosson (2011) conducted on IKEA to examine the internalization
process as example,

Given the fact
that it is relatively dated, the Uppsala model can seem to be somewhat obsolete
in this new age where the depth of knowledge of available

Relevance with
Contemporary business

Classifying
them as completely separate, the Upsala model does not consider the
interdependence between regional markets ( Hollensen, 2004). Contrastingly, …Unlike
this, the RBV, though originated in developed economies, still maintains a
holding within international operation. Lu et al (2009) argues that despite the
difference in institutional environments, when analysing 300 firms over 6
regions  within China, they found the RBV
to be prevalent in recognising the potential of institutional capital and
managerial ties to enhance the firm’s competitive advantage.

The RBV is much more relevant with regards to the
jeopardy of exporting fluidity and track due to the impact of resource  constraints/Rather, the influence of resource constraints having a major effect on
overseas expansion speed and direction credits the RBV more when looking at
SME’s

Seeing as
the Upsala model was uniquely derived from four Swedish manufacturing firms,
one of its notable limitations is its misleading assumption that it can be
applied to all other types of firms. Jones and Crick’s (2000) study
demonstrated SMEs do not necessarily utilise the same internalization
approaches as MNCs. The study, which consisted of ten home-grown firms each
with up to 100 employees and all unacquainted with international expansion,
showed that the Upsala model was not so pertinent for SMEs. Despite all having
begun expanding overseas, six out of the eight firms did not utilise a
subsidiary abroad.   

Legitimacy and
Generalisability

 

Is the
Uppsala therefore only relevant to businesses involving customer interaction? If
so, with technological advances being so pervasive in this era and causing the
digitalization of sector, is the impact of psychical distance over-exaggerated/overstating/over-amplified
in the Uppsala model’s explication/version
of the internalization process?

When
examining the Uppsala model in the light of firms with an intangibly dominated resource
base, the applicability of the psychic distance concept falters. Whereas
object-based services such as fast food restaurants/ supermarkets rely less on
interpersonal dealings and are thus less sensitive to cultural disparities,
intangible services such as consulting entail more “customer contact and
customisation, and greater need for cultural adaptation” (Knight,
1999/Multilateral institutions and the internalisation of consulting providers:
Client following, market seeking or network positioning? Catherine Welch)

In their
study, Johanson and Vahlne (1977) use the RBV to illustrate that, should a firm
not have the exclusive resources to withstand the inevitable obstacles, psychic
distance tends to be barrier to entry. 
Firms are dissuaded to embark on international expansion due to the
foreseeable augmented risks and in turn costs associated with commencing
business in the psychically distant countries. Nevertheless, recognising clear
distinctions in the level of tangibility of firms’ services, as Caneiro el al
(2008) so crucially did in his study, can raise questions over the relevance of
the psychic distance theory.

 Carson (2004) states “when new threats or
opportunities arise, procedures often neeed to be changed.  The design of new procedures is an important
aspect of the entrepreneurial response to changing situation”. The
entrepreneur’s ability and objectives are considered by the RBV. Unlike the RBV
however, a notable limitation is the Uppsala model’s failure to recognize these
disparities in managerial decision styles and the goals of an entrepreneur in a firm’s ability to enter
export markets ( Carson 2003, 2004).

It is clear
both models consider experiential knowledge to be crucial in making practical
decision with regards to the overseas expansion process. However, whereas the
RBV emphasizes on the qualities of the resource base that maintain a
competitive advantage, the Uppsala’s focus is skewed more towards the way
knowledge is accrued; more specifically the gradual manner in which it is
acquired (Conor, 2002). One could infer that the RBV’s focus on the qualities
of the resource base undermines/disregards the conventional principles of
rational decision-making, perfect information and symmetry in risk aversion. In
suggesting that “decision- makers possess the cognitive capability to maintain
a balance between perceived and tolerable market risks”, the Uppsala model
perceives entrepreneurs to be rational, which is an economically viable stance.

 

 The idea that it is more probable for those
with a denser network to export is one that the RBV recognizes, unlike the
Uppsala’s linear view which does taking account external factors.

 

The notion
that a competitive advantage is derived from firm- specific resources is a
notion proposed by the RBV, it
therefore sees the assemblage of resources asan 
internal process ( Dierickx and Cool, 1989).

According
to a study by Westhead et. al (2001), foreign markets are more penetrable to
firms equipped with a larger resource base. This ties in with this statement by
Bloodgood et. al (1996) affirming that a firm’s ability to accrue both
intangible and intangible resource stock impacts the degree to which it can
penetrate an overseas market. This is underpinned by the RBV’s notion that competitive
advantage is an ‘internal paradigm’- i.e. it is derived from firm-specific
resources which are accumulated internally (Connor 2002).

Model Conventions                                                                                                                                             

 

Their model
is underpinned by this sequential commitment to allow for the acquisition of
objective and experiential knowledge. Firms’ awareness of ‘factors disturbing
flows of information between firm and market’ ( ibid p.308) are the cause of
their decision to gradually commit to international expansion. This notion is
called psychic distance and is caused by market differences such as culture,
language, level of industrial development and political systems’. The
risk-avoidance nature of the Uppsala model often means markets with greater
psychical proximity tend to be firms’ primary destination to undergo
international expansion (Bjorkman and Forsgren, 2000).

As such,
the process consists of causal, path-dependant cycles . (
doclib.ihasselt.be)

This model
suggests that in the aim of ascertaining their commitment to the market, firms
will incrementally acquire, integrate and utilise knowledge about foreign
markets and operations. Developed by Johanson an Vahnle (1977), the Upsala
model was first empirically studied by Johanson and Widedersheim-Paul 1975 on
four Swedish firms undergoing international expansion in sequential stages. The
Upsala model is characterized by the following four phases: a domestic market
is established, subsequently firms begin exporting through an overseas agent,
which is followed by the establishment of a sales subsidiary abroad and finally
production overseas commences via a subsidiary operation in the host country.

Uppsala Model

 

 

 

Similarly, Olmos 
(2011) further supports the relevance of the RBV in
internalization;  multivariate analysis
of 211 wineries showed a positive relationship between the size of the firm and
the degree of internalization, with this being attributed to the breadth of
resource within the larger firms

Selasie et
al. (2004) conclude that within small firms engaged in exporting increases with
firm size: ‘the larger firms the higher the export intensity and the more
experience in internalisation’. Burns (2005) broadens the debate by placing
learning and relational networks at the centre of the entrepreneurial
architecture needed to develop larger entrepreneurial organisations. To him
these are the key entrepreneurial components in any context or arena, including
age and size.

Confining
resources to land, labour, financial capital (Hunt and Morgan, 1995, p.3) the
neoclassical model was not in alignment with entrepreneurship literature with regards
to resources and has thus been altered. The Resourced-Based view cultivated in
the paper of Penrose (1959), has since been incorporated into studies of
entrepreneurship. Through the lens of the RBV, firms are made up of an
inimitable assemblage of resources deployed to achieve a competitive advantage
(Barney, 1991). The inimitable, rare, valuable and non-substitutable resource
base is what differentiates the RBV from other respective approaches. (ibid). The
predisposition of firms to deploy their inimitable collection of resources via
internationalization has originated from this desire to achieve a competitive
advantage (Bloodgood et al. 1996). Firms’ inclination to engage in the
exportation of goods and services abroad were attributed to various factors
which Westhead et al (2001) recognised in their study. Conducting various
interviews and questionnaires with service, manufacturing and construction
firms, their study findings noted the competitive strategies used by these
firms and their respective performances were heavily determined by their
internal resources base. Businesses likely to engage in overseas expansion had
‘older principal founders, with more resources, denser contact networks and
more management savoir-faire’ (ibid p.335).

Resource-Based View

The increasingly globalized and penetrative
nature of markets, communication technologies and transportation methods has
shifted great importance towards the study of internalization and its
application in the growth strategies of entrepreneurial firms (Knight, 2000,
p.12).  Defined as a process whereby firms expand sales into foreign markets, with
potential to increase profitability, competitiveness and innovation
(Knight, 2000.p.16), internationalization encompasses several explanatory
theories.  The cultivation of theories
and frameworks from psychological, financial and economic disciplines has been
possible given the broad academic scope of international entrepreneurship and
business ( Oviatt & Mc Dougall 2005). In this essay, I will examine ‘The
Resource-Based View’ and ‘The Staged Uppsala Model’ and their respective
contributions to the field of internalization. 
‘The Staged Upssala Model’ and ‘The Resource-Based View Model’ will be
evaluatively contrasted, with the aim of highlighting their similarities as
well as delving into their differences. This essay will first introduce the
original framework of the approaches, and will then provide a comparison of the
approaches on the following measures: model assumptions, validity and relevance
to contemporary business.  Finally, a
conclusion will be provided whilst outlining potential areas for further
research to add potency to the subject matter and a verdict of which I approach
I personally think provides the understanding on the study of internalization.

Introduction

Compare and contrast  two approaches to the study of
internalization.