THE INTERNATONALIZATION THEORY

The internationalization theory suggested by Johansson and Vahlne (1977 1990)

Abstract

Globalization and virtual economy are external factors that drive companies to approach the global market from start up, giving birth to new studies on internationalization strategy, which represent an evolution of the classical stage models. According to the stage approach, companies start selling products in their home markets and then they sequentially look at new countries. Many firms do not follow incremental stage approach but is often reported that they start their international activities from their birth: they enter different country at once, approaching new markets for both exporting and sourcing. Debate in literature is still trying to define if the born global perspective is a new concept or a new label to indicate an old phenomenon. The study will go through a review and an analysis of the literature on market entry and sourcing strategy. The purpose of this paper is therefore to identify and categorize factors that drive companies' choice towards the global approach instead of the stage approach.

The internationalization theory suggested by Johansson and Vahlne (1977 1990)

Introduction

Globalization, outsourcing, virtual economy and development in communication standards are external factors that drive companies to approach the global market in a different way as compared to one described by the traditional stage model (Oviatt & McDougall, 1994 Pp. 14-18)).

According to the stage approach, companies start selling products in their home markets and then they sequentially look at new countries. Two main models can be identified within the stage approach: the Product Life Cycle Theory by Raymond Vernon (1966; 1971; 1979) and the Uppsala Internationalization Model (Johanson & Wiedersheim-Paul, 1975; Johanson & Vahlne, 1977, 1990). According to Vernon (1966; 1971) the internationalization process of the firm follows the development of the product Life Cycle: companies usually introduce new products only in their home market and then they eventually go abroad in the product maturity phase. The Uppsala Internationalization Model (Johanson & Vahlne, 1977, 1990) maintains that the “enterprise gradually increases its international involvement” (Johanson & Vahlne, 1990, p. 11). The entering of new markets by the firm is usually linked to the psychic distance: companies start their internationalization from those markets perceived as psychically near.

Many firms do not follow incremental stage approach but is often reported that they start their international activities from their birth (Anderson et al., 2004), they enter different country at once, approaching new markets for both exporting and sourcing. Literature on internationalization defines them as born global firms or international new ventures. The first ones are defined as “the firms that view the world as their marketplace from the outset and see the domestic market as a support for their international business” (McKinsey & Co., 1993 Pp. 56-59), while the second ones as “business organizations that from inception seeks to derive significant competitive advantage from the use of resources and the sale of outputs in multiple countries” (Oviatt & McDougall, 1997).

The study will go through a review and an analysis of the literature on ...