This document discusses several theories of internationalization: 1) The Uppsala internationalization model proposes that firms gradually increase their foreign market commitment and geographic diversification over time, starting with no regular exports and progressing to foreign production and sales subsidiaries. 2) The transaction cost analysis model suggests that firms will choose to internalize activities through wholly-owned subsidiaries if the transaction costs of using external organizations are too high. 3) Other internationalization theories discussed include the OLI paradigm, born global firms, and factors influencing national competitiveness like openness to trade and quality of business environment regulations.

1. INTERNATIONALIZATION
THEORIES

3. Market Responsiveness
MCDONALDIZATION DEGLOBALIZATION

4. INTERNATIONALIZATION
a firm makes a strategic decision to
enter foreign markets
adapts its operations to international
environments by committing both
tangible and intangible assets,
experiential knowledge, learning, and
human resources to this effort.

5. INTERNATIONALIZATION
• MOTIVATION FOR INTERNAL (domestic) vs.
EXTERNAL (foreign) EXPANSION

6. Example
• Focusing on cities with the biggest growth
potential.
• After decades of doing business in South Africa
and its neighboring countries, in 2014, the
company operates in a total of 14 markets on
the continent.

7. Barriers to
Market
Expansion
• comparative market distance;
• competition from other firms in foreign
markets;
• differences in product usage in foreign markets;
• language and cultural differences;
• difficulties in finding the right distributor in the
foreign market;
• differences in product specifications in foreign
markets;
• complexity of shipping services to overseas
buyers.

11. Gravitational
Model of
Trade
Jan
Tinbergen,
Geographical proximity Economic size (mass) of the
respective countries (M)
Similarities in consumer
preferences and economic
development

12. 12

13. 13

15. Exhibit 2.3 Internationalization of Haier – proactive and reactive motives

16. Dominoes
Video

18. 18

22. Uppsala internationalization model
Johanson and Wiedersheim-Paul, 1975
No regular
export
(sporadic)
Independent
representatives
(export modes)
Foreign sales
subsidiary
Foreign
production
and sales
subsidiary
Market A
Market B
-
Market N
Increasing market commitment
Increasinggeographic
diversification

23. Companies

24. The transaction costs analysis model
Coase, 1937, Williamson, 1985)
Organization of international activities and the choice
of international market entry mode
1
„If the transaction costs through externalization (e.g.
through and importer or agent) are higher than the
control cost through an internal hierarchical system,
then the firm should seek internalization (hierarchies)
of activities, i.e. implementing the global market
strategy in wholly –owned subsidiaries. Or… if the
friction between buyer and seller is too high then the
firm should rather internalize, in the form of its own
suubsidiaries.“(Hollensen, S., 2007)
2

28. Born Global

29. OLI

30. OLI

31. OLI

32. LLL

33. National Competitiveness “policy clusters”
External
Competitiveness
•Openness to
international trade
Regulatory
Competitiveness
•Attractiveness of
the domestic
business
environment
•Regulation
supportive of
efficient markets
Public sector
Competitiveness
Investment in
infrastructure
Security
Education
Dangers: ideological bias (“liberalisation”) lack of economic analysis
Source: Weymouth and Feinberg

34. Theory
Red Ocean Blue Ocean