Internationalization Model Essay

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The internationalization process of the firm has been of interest  to  researchers  for  decades.  Indeed,  the process of internationalization has been the subject of  widespread  theoretical   and  empirical  research.

Over this time, the views about the process of foreign expansion  and about  drivers explaining the logic of the process have evolved.

One difficulty with scholarship  relating to internationalization  is that most of the research has concentrated  on large firms, using cross-sectional  studies or case studies and often focusing on one country of   origin.   However,   the   internationalization   of smaller firms across different countries  and regions has increasingly been of more practical concern  to international business. More particularly, small and medium-sized  firms  (SMEs) and  their  role  in  the internationalization process  are gaining increasing attention  by both academics and the business community. This is so because the fall in trade barriers over the last few decades, the increasing importance for  the  world’s economies  of innovation  and  new technology, and the general expansion in globalization have meant a growing role of SMEs in international  markets.  While  there  has been  research  on the  applicability of international models  to  SMEs, they are decidedly limited. Yet, the internationalization process of SMEs has paramount importance  for economic  development,  especially in smaller economies  where  local  markets  cannot  by themselves sustain growth. Continued economic expansion in these economies  requires  their  SME population  to successfully enter into foreign markets.

Recent investigations that do exist have in particular examined the rise within, and internationalization of SMEs from, a growing range of Asian and eastern European  countries.  With  respect  to  the  situation in eastern Europe, we observe that, as the European Union  (EU) has expanded  and become  more  internally integrated,  central and eastern European SMEs find themselves with greater  access to international markets.  Thus attention increasingly has been shifting to  how  these  so-called  transition  economies— Hungary,  Poland,  the  Czech  Republic,  the  Baltic States, etc.—can effectively compete  internationally with western Europe and the United States. The rise of entrepreneurial SMEs in Asia and eastern Europe, and their ability to generate value added by operating in the global arena, is seen as key to the eventual success of these countries.

Over the  last three  decades, several internationalization theories  have evolved. Some have concentrated  only on  development  of exports  and  on  the steps  prior  to  exports.  For example, S. T. Cavusgil distinguished five steps or stages involved in the evolution  of exporting  activity of firms. These various other  studies  distinguish  between  “lower,” “middle,” and “higher” stages of export involvement.

Entry Modes

There  have  been  studies  that  look  at  the  reasons why SMEs increase the breadth  and depth  of their exporting  activities. When  barriers  arise  to  internationalization,  these  investigations  tend  to  focus on  internal  problems  in a country,  such  as political instability, decaying infrastructure, and so forth. But beyond this more  empirical  focus are broader theories  that  see internationalization as advancing either  in  increments   (staged)  or  “rapid  leaps.”  In the  former  case, rapid  SME internationalization is assumed  unlikely because  of financial constraints, the lack of international market experience or information, cultural friction, and other factors. Thus the increment lists hold  that  SMEs will internationalize and create value for a country in an evolutionary manner, first undertaking the least complex forms of entry (e.g., exporting)  and then  evolving into more complicated  types of market entry strategies—from the  rather  passive forms of contracting  work (e.g., becoming  part  of an  outsourcing  network)  to  the more active entry modes of licensing, joint venturing, and merging and acquiring.

In  1970s and  1980s, a number  of Scandinavian authors  published  articles  on  the  internationalization  process  of SMEs that  appears  to  support  the increment list model. The so-called Upsala School of scholarship  suggests sequential  modes of entry into successive foreign markets with a progressive deepening of commitment to each market. In these theories, the initial lack of market-specific knowledge and the subsequent  need for a gradual learning  process  are the main assumptions. These theories see firms starting their internationalization process in culturally and geographically close markets. This research focuses on the concept of “psychic distance” as an important factor involved with the gradual approach and examines factors related to the hindrances  to the flow of information needed for SMEs to internationalize, such as language  differences,  differences  in  culture,  political systems, level of education,  or level of industrial development. Initial lack of market experience causes firms to be cautious  and rather  risk averse in their approach  to  committing  resources.  As they gradually learn to cope with a target market environment, the perceived threats  are reduced  and commitment, including financial commitment, increases. Feedback from activities in each subsequent  entry mode helps them to advance to the next level; from simple exporting to engaging in wholly owned subsidiaries.

Sharply contradicting these staged-based  theories are studies that argue that firms in high-tech  industries often have to be global as soon as they enter the foreign market (the so-called born-global model) and that  the  concept  of incremental  development  does not hold when a firm’s owner manager has accumulated  market  knowledge  even before  the  establishment  of the current  firm or when demand  is inherently global.

It is not clear the extent  to which internationalization,  once  started,  continues  unabated  within  a firm or country. There is increasing evidence that the internationalization process contains within it the seeds of its own destruction—or  at the least curtailment. Recent studies suggest that, in certain contexts, inward-outward linkages that may initiate the internationalization process can, at a certain point, hinder as well as propel  outward  international expansion. This has broad  implications  related  to the  rate  and direction  of SME internationalization and,  in turn, the ability of an industry to create and capture value added, that is essential in future economic growth.


  1. J. Buckley and P. Ghauri, The Internationalization of the Firm (Academic Press, 1993);
  2. T. Cavusgil, “On the Internationalization Process of Firms,” European Research (v.8/6, 1980);
  3. Mary Han, “Developing Social Capital to Achieve Superior Internationalization: A Conceptual Model,” Journal of International Entrepreneurship (v.4/2–3, 2006);
  4. John S. Hill, International Business: Managing Globalization  (Sage, 2009);
  5. Elizabeth Maitland,  Elizabeth L. Rose, and Stephen  Nicholas, “How Firms Grow: Clustering As a Dynamic Model of Internationalization,” Journal of International  Business Studies (v.36/4, 2005);
  6. Melin, “Internationalization as a Strategic Process,” Strategic Management Journal (v.13, 1992);
  7. I. Millington and B.T. Bayliss, “The Process of Internationalisation: UK Companies in the EC,” Management International Review (v.30/2, 1990);
  8. Janet Morrison,  International  Business: Challenges in a Changing World  (Palgrave Macmillan,  2009);
  9. A. Nordstrom, “The Internationalization Process of the Firm: Searching for New Patterns and Explanations,” Ph.D. diss. (Stockholm School of Economics, 1991);
  10. R. Reuber and E. Fischer, “The Influence of the Management Team’s International Experience on the Internationalization Behaviors of SMEs,” Journal of International  Business Studies  (v.4, 1997);
  11. Sullivan and A. Bauerschmidt,  “Incremental Internationalization: A Test of Johanson and Vahlne’s Thesis,” Management International Review (v.30/1, 1990);
  12. W. Turnbull, “A Challenge to the Stage Theory of the Internationalization Process,” in Managing Export Entry and Expansion, P. J. Rosson and S. D. Reid, eds. (Praeger, 1987);
  13. S. Welch and R. Loustarinen, “Internationalization: Evolution of a Concept,” Journal of General Management (v.2, 1988).

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