Johanson and Valhne 2009

The Uppsala internationalization process model revisited: From liability of Foreignness
to Liability of Outsidership
Author(s): Jan Johanson and Jan-Erik Vahlne
Source: Journal of International Business Studies , Dec., 2009, Vol. 40, No. 9 (Dec., 2009),
pp. 1411-1431
Published by: Published by: Palgrave Macmillan Journals on behalf of Academy of
International Business.
Stable URL: https://www.jstor.org/stable/27752460
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Journal of International Business Studies (2009) 40, 1411 -1431
? 2009 Academy of International Business All rights reserved 0047-2506
www.jibs.net
The Uppsala internationalization process model

revisited: From liability of foreignness to liability
of outsidership
Jan Johanson1 and Abstract

Jan-Erik Vahlne2 The Uppsala internationalization process model is revisited in the light of
changes in business practices and theoretical advances that have been made
Uppsala University, Uppsala, Sweden; since 1977. Now the business environment is viewed as a web of relationships,
2Gothenburg University, Gothenburg, Sweden a network, rather than as a neoclassical market with many independent
suppliers and customers. Outsidership, in relation to the relevant network,
Correspondence: more than psychic distance, is the root of uncertainty. The change mechanisms
J Johanson, Uppsala University, in the revised model are essentially the same as those in the original version,
PO Box 513, SE-751 20, Uppsala, Sweden. although we add trust-building and knowledge creation, the latter to recognize
Tel: + 46 859255215;
the fact that new knowledge is developed in relationships.
E-mail: [email protected]
journal of International Business Studies (2009), 40, 141 I -1431.
doi:IO.I057/jibs.2009.24
Keywords: internationalization theories and foreign market entry; network relations

theory; experiential knowledge; commitment; trust; opportunity
INTRODUCTION
Much has changed since our model of the internationalization
process of the firm was published in the Journal of International
Business Studies (JIBS) (Johanson & Vahlne, 1977). In fact, the
economic and regulatory environments have changed dramati
cally. Company behavior is also different in some respects. The
research frontier has moved too. There are some concepts and
insights that did not exist when our model was published.
The Uppsala model explains the characteristics of the inter
nationalization process of the firm. When we constructed the
model there was only a rudimentary understanding of market
complexities that might explain internationalization difficulties,
but subsequent research on international marketing and purchasing
in business markets provides us with a business network view of the
environment faced by an internationalizing firm. We further develop
this view and explore its implications for the internationalization
process of the firm. Our core argument is based on business
network research, and has two sides. The first is that markets
are networks of relationships in which firms are linked to each
other in various, complex and, to a considerable extent, invisible
Received: 10 July 2007
Revised: 15 October 2008 patterns. Hence insider ship in relevant network(s) is necessary
Accepted: 4 November 2008 for successful internationalization, and so by the same token there
Online publication date: 21 May 2009 is a liability of outsidership. Second, relationships offer potential

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for learning and for building trust and commitment,(1966), Cyert and March (1963), and Aharoni
(1966). The underlying assumptions of our 1977
both of which are preconditions for internationaliza
tion. Before we look at this business network view in
model are uncertainty and bounded rationality. It
depth, we summarize our original model. also has two change mechanisms. First, firms
change by learning from their experience of opera
THE 1977 MODEL tions, current activities, in foreign markets. Second,
they change through the commitment decisions
Researchers in the Department of Business Studies
at Uppsala University in the mid-1970s made
that they make to strengthen their position in
the foreign market. We define commitment as the
empirical observations that contradicted the estab
lished economics and normative, international
product of the size of the investment times its
business literature of the time. According to that degree of inflexibility. While a large investment in
literature, firms choose, or should choose, the saleable equipment does not necessarily indicate a
optimal mode for entering a market by analyzing strong commitment, unwavering dedication to
their costs and risks based on market characteristics
meeting the needs of customers does. Experience
builds a firm's knowledge of a market, and that
and taking into consideration their own resources
body of knowledge influences decisions about
(e.g. Hood & Young, 1979). However, our empirical
observations from a database of Swedish-owned the level of commitment and the activities
subsidiaries abroad, and also from a number of that subsequently grow out of them: this leads to
industry studies of Swedish companies in internathe next level of commitment, which engenders
more learning still (Figure 1). Hence the model is
tional markets, indicated that Swedish companies
frequently began internationalizing with ad hocdynamic.
exporting (Carlson, 1975; Forsgren & Kinch, 1970; The model does not specify the form that increased
H?rnell, Vahlne, & Wiedersheim-Paul, 1973;commitment might take. Indeed, commitment may
Johanson, 1966; Nellbeck, 1967). They would
decline, or even cease, if performance and prospects
subsequently formalize their entries through dealsare not sufficiently promising. Contrary to the views
with intermediaries, often agents who represented expressed by some, the process is by no means
deterministic. We assumed nonetheless that the
the focal companies in the foreign market. Usually,
process of internationalizing will continue as long
as sales grew, they replaced their agents with their
own sales organization, and as growth continued as the performance and prospects are favorable.
they began manufacturing in the foreign market to We also assumed that learning and commitment
building take time. This explains why moves into
overcome the trade barriers that were still in place
in the post World War II era. We labeled this more risky, but potentially rewarding, modes and
dimension of the internationalization pattern themoves into markets that are more distant in terms
establishment chain. Another feature of the pattern
of psychic distance are made incrementally.
was that internationalization frequently started inWe considered the model to be descriptive,
foreign markets that were close to the domestic largely because we based it on Cyert and March
market in terms of psychic distance, defined as
factors that make it difficult to understand foreign State Change
environments. The companies would then gradu
ally enter other markets that were further away
in psychic distance terms (Johanson & Wiedersheim Market Commitment
Paul, 1975; Vahlne & Wiedersheim-Paul, 1973). This knowledge decisions
process had its origin in the liability of foreignness, a
concept that originally explained why a foreign
investor needed to have a firm-specific advantage to
more than offset this liability (Hymer, 1976; Zaheer,
1995). The larger the psychic distance the larger is the Market Current activities
commitment
liability of foreignness.
We searched primarily in the theory of the firm
for explanations for the deviations between what
the extant theories prescribed and the Swedish
pattern of internationalization, and developed ourFigure 1 The basic mechanism of internationalization: state
original model based on the work of Penrose
and change aspects (Johanson & Vahlne, 1977: 26).
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(1963). It has generally been characterized in the tionalization. Our aim differs from that of Coviello
subsequent literature as behavioral, compared with in that we focus on business networks as a market
other theories that are seen as economic, such as structure in which the internationalizing firm is
internalization theory (Buckley & Casson, 1976), embedded and on the corresponding business
transaction cost theory (Hennart, 1982), and the network structure of the foreign market. While our
eclectic paradigm (Dunning, 1980). More recent goal is to develop a more general business network
empirical studies have indicated that the internamodel of firm internationalization, Coviello's (2006)
tionalization process as explained by our model work is nevertheless of great interest, as she shows
has a positive impact on performance (Barkema,that "insidership" in networks, developed before
Bell, & Pennings, 1996; Delios & Beamish, 2001; Li,entry into a new market, even before the founda
1995; Luo & Peng, 1999). Our model can thereforetion of the firm, is instrumental to the specific
be considered a model of rational internationaliza internationalization process at hand.
tion, and can be used for prescriptive purposes. The studies on which the 1977 model was based
indicated that the received theories of markets and
THE FIRM IN THE MARKET ENVIRONMENT: marketing were not useful in trying to understand
A BUSINESS NETWORK VIEW the market situation of individual firms. An inter
A number of studies have demonstrated the role of
national business-to-business marketing research
networks in the internationalization of firms.program started in Uppsala in the mid-1970s in
Coviello and Munro (1995, 1997) conducted
order to develop a better understanding of business
empirical studies of the internationalization of
markets and marketing. Early observations that
small software firms. They found that network firms develop lasting relationships with important
relationships have an impact on foreign market customers were an important input into this research
selection as well as on the mode of entry in the
program (Forsgren & Kinch, 1970; Johanson, 1966).
context of ongoing network processes. Their findAn interaction approach that focused on the
adaptation and exchange between suppliers and
ings led them to develop a model that combines the
process model and the network approach. Incustomers
a was used as a theoretical framework for
study of the international expansion of Japanese studies of business relationships (H?kansson &
suppliers of automotive components, Martin,?stberg, 1975).
Swaminathan, and Mitchell (1998) found that theA large-scale empirical study of international
inter-organizational relationships of suppliers, marketing and purchasing of industrial products
(the IMP project) that was carried out in the late
especially those with buyers, affected their pattern
of international expansion. Other researchers 1970s and early 1980s by researchers from Sweden
have looked at networks in studies of internationaand four other European countries was based on the
lization strategy (Welch & Welch, 1996), theinteraction approach (Ford, 1997; H?kansson,
location of foreign direct investment (Chen &1982; Turnbull & Valla, 1986). Work done during
Chen, 1998), the first step abroad (Ellis, 2000),the project demonstrated that close and lasting
SME internationalization (Chetty & Blankenburg business relationships between suppliers and cus
Holm, 2000), internationalization of firms from tomers are indeed important, be they within a
emerging markets (Elango & Pattnaik, 2007), and given country or between countries (Hallen, 1986).
rapid internationalization (Loane & Bell, 2006), A
to number of studies since then have shown the
name but a few. importance of relationships in the internationaliza
We conclude that our original model needs totion process - client-following strategies for example
be developed further in light of such clear evidence
(Bonaccorsi, 1992; Erramilli & Rao, 1990; Majkg?rd
of the importance of networks in the interna& Sharma, 1998; Sharma & Johanson, 1987).
tionalization of firms. The research that has beenIMP project studies also showed that such relation
done to date generally has studied the ways inships usually involve a number of managers who
which networks influence internationalization, coordinate the activities of the different firms,
without discussing how those networks have been and who together create interrelated routines
created, and without considering the network(Cunningham & Homse, 1986). Moreover, these
structure in the country or countries firms entered. relationships seem to develop through social
Based on case analyses, Coviello (2006) developedexchange processes in which the firms involved
a model of "how [international new venture] enact the relationship interactively and sequen
tially (Kelley & Thibaut, 1978). The result is the
networks evolve" during the early phase of interna
Journal of International Business Studies

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accumulation of knowledge and building of trust,

autonomous: they are linked by a non-trivial level
and eventually greater commitment, as also of mutual control.
demonstrated in channel and relationship marketResearch has now also shown that firms are
ing studies (Anderson & Weitz, 1992; Dwyer, frequently involved in a set of different, close and
Schurr, & Oh, 1987; Morgan & Hunt, 1994).lasting
In relationships with important suppliers
the process, weak ties and unilateral dependence
and customers (Cowley, 1988; H?kansson, 1989).
can be transformed into strong relationships
As those firms presumably in turn are engaged in a
and bilateral interdependence, and ultimately
number of additional business relationships, firms
increased joint productivity (Hallen, Johanson, &
operate in networks of connected business relation
Seyed-Mohamed, 1991; Zajac & Olsen, 1993). As ships (Anderson, H?kansson, & Johanson, 1994;
with the internationalization process model, the
Cook & Emerson, 1978; H?gg & Johanson, 1982).
research done in the IMP project shows that The term connected means that exchange in one
relationships develop through a process of experi
relationship is linked to exchange in another. These
ential learning whereby firms learn about the webs of connected relationships are labeled business
networks.
resources and capabilities of their counterparts,
and gradually increase their commitments (H?gg The firm may create new knowledge through
exchanges in its network of interconnected rela
& Johanson, 1982). There is one important differ
ence between our model and the findings tionships.
of Knowledge creation is an outcome of the
the IMP project: relationship development isconfrontation
a between producer knowledge and
bilateral process that involves two parties who
user knowledge. The process of creating knowledge
is not separate from the other activities in business
learn interactively and make a mutual commitment
to the relationship (Anderson & Weitz, 1992;
relationships; rather it is embedded in them.
Knowledge does not accrue only from the firm's
Blankenburg Holm, Eriksson, & Johanson, 1999).
own activities, but also from the activities of its
When we constructed our original model we were
not aware of the importance of mutual commit
partners, and since those partners also have other
ment for internationalization. Now our view relationship
is partners with whom their activities
that successful internationalization requires
area coordinated, the focal firm is indirectly engaged
in a knowledge creation process that extends far
reciprocal commitment between the firm and its
counterparts (Johanson & Vahlne, 1990; Vahlne &
beyond its own horizon. Thus a network of business
Johanson, 2002). relationships provides a firm with an extended
It takes time - some data indicate as long asknowledge
5 base (H?gg & Johanson, 1982; Kogut,
years - and managerial effort to create working2000).
Penrose (1966) and the resource-based view (RBV)
relationships, and many attempts fail (Hohenthal,
(Barney, 1986) assume that resources are hetero
2001). Thus a working relationship is the result
geneous, and that these idiosyncratic resource
of considerable investment, and is an important
bundles lead to value creation, irrespective of
firm resource (Dyer & Singh, 1998). While there
market
may be some formal aspects, developing relation conditions. The business network view
ships is essentially an informal process (Powell,
starts with these same assumptions, and adds that
1990). Intentions, expectations, and interpreta
exchange within a network allows a firm to acquire
tions are important. Relationships are basically
knowledge about its relationship partners, including
socially constructed. The informal and subtle their resources, needs, capabilities, strategies, and
nature of relationships makes it almost impossible
other relationships. Relationship partners are there
fore indirectly a source of relevant business infor
for anyone who is not personally involved to judge
the scope of the investment that has gone into mation about their own partners and more distant
actors in the network. Thus the firm commands
building it, or its value. The larger the psychic
distance, other things being equal, the more
privileged knowledge about its business network.
difficult it is to build new relationships. This Basedis on the above, we view the firm as a
business entity engaged primarily in exchange
the effect of the liability of foreignness. Two firms
that are parties to a relationship are tied to each activities (Snehota, 1990) - exchange, rather than
other to some extent: they share in their mutual production, being the distinctive feature of the
future development, and may exercise some firm (cf. Alchian & Allen, 1964). Indeed, the value
of production is derived from exchange. While
degree of power over one another (Granovetter,
1985). Thus, in practice, they are not fully
traditional economic theory defines a firm without

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reference to other firms, we define a firm on the

trust, and developing commitment, as well as about
basis of its exchange with specific other actors
identifying and exploiting opportunities. Such
(Forsgren, Holm, & Johanson, 2005). activities must be understood within the context
Johanson and Mattsson (1988) developed aof business networks where the liability of outsider
network model of internationalization based on
ship is an impediment. In the following three
business network research. They discussed thesections we discuss these activities, which in
internationalization of firms in the context of both
simultaneity may result in business development
the firm's own business network and the relevant and internationalization.
network structure in foreign markets. In contrast to
many other network studies, their model highlights KNOWLEDGE AND LEARNING
the importance of the network structure outside theOur original model is based on the assumption that
firm's own business network. It stresses the impor developing knowledge is fundamental to a firm's
tance of specific business relationships in a firm's
internationalization, and in particular that knowl
edge that grows out of experience in current
internationalization, though it lacks dynamic ele
ments. That model provided conceptual input foractivities (operations) is crucial to the learning
our work on the mechanism of internationa
process. We also assumed that learning by
lization, in which we view internationalization asexperience results in a gradually more differen
a multilateral network development process tiated view of foreign markets, and of the firm's
(Johanson & Vahlne, 1990). own capabilities. It is such learning that makes
developing foreign operations possible. In recent
A firm's success requires that it be well established
in one or more networks. Anything that happens,decades there has been a growing in interest in
happens within the context of a relationship, andorganizational
a learning in general, as well as in the
firm that is well established in a relevant network context of internationalization. In this section
or networks is an "insider." As shown above, it is we examine some implications of the research that
to a large extent via relationships that firms learn,has grown out of this interest for the business
and build trust and commitment - the essential network view of the internationalization process.
elements of the internationalization process. WeTwo reviews of our original model have been
argue that insidership is a necessary but insufficient written that discuss its concepts of knowledge and
condition for successful business development. learning (Forsgren, 2002; Petersen, Pedersen, &
A firm that does not have a position in a relevant Sharma, 2003). Petersen et al. discuss some of the
network is an "outsider." If a firm attempts to entercritical assumptions of our model, one of which is
a foreign market where it has no relevant network that market-specific knowledge is the critical kind
position, it will suffer from the liability of outsider of knowledge. A number of studies have supported
ship and foreignness, and foreignness presumably this conclusion (Barkema et al., 1996; Erramilli,
1991; Luo & Peng, 1999).
complicates the process of becoming an insider.
Outsidership makes it impossible to develop aIn a study based on the network view, Axelsson
business, and yet somehow the internationalization and Johanson (1992) examined how three firms
process begins. It might happen that a potential entered foreign markets. They showed that foreign
market entry should not be studied as a decision
partner inside the target market requests a service
about modes of entry, but should instead be studied
from the focal firm, thus creating an initial insider
opportunity. The learning process, and trust- andas a position-building process in a foreign market
commitment-building, may then begin. It could network. Their cases revealed the complexities
also happen that another firm in the focal firm'sassociated with learning when a firm enters a
home country would need to have productsforeign market network. For example, firms
delivered to its own customer's new facility inhave
a to identify the relevant market actors in order
foreign market, and so might ask the focal firm to determine how they are connected in often
to
do that. In that case the focal firm's existing invisible complex patterns. These patterns can be
identified only by the actions of the entering firm,
insidership in a relevant network may help it enter
which
a foreign market. Evidently, the process may start causes other market actors to reveal their ties
through efforts by the focal firm. to each other. The liability of outsidership must
In our view a firm's environment is made up ofbe overcome. The Axelsson and Johanson study
networks, and this has implications for the wayshighlights the market-specific learning process that
in which we think about learning, building
we assumed in developing our 1977 model, and
??? Journal of International Business Studies

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provides some input into the business network

to contribute to more general knowledge about
analysis of internationalization. international relationship development, and also to
In their study of experiential learning in the
help the partners learn about ways in which they
internationalization process, Eriksson, Johanson,
can develop different and transferable relationships
Majkg?rd, and Sharma (1997) found that lackin alternative situations (cf. Hoang & Rothaermel,
of institutional market knowledge and lack 2005).
of Indeed, variations in the character of
business knowledge require different amountsrelationships may have a positive impact on the
of time to overcome, and have dissimilar effects
development of general relationship knowledge.
on the perceived cost of internationalization. A lack
Furthermore, the importance of business network
of institutional market knowledge - that is, lackcoordination,
of as we wrote in the section about the
knowledge about language, laws, and rules - has business network view, suggests that learning
to do with factors related to psychic distance, how
and to coordinate sets of relationships is impor
to the liability of foreignness. Lack of business
tant. Such learning may develop in relationships
market knowledge is related to a firm's businessbetween partners that are located in different
environment that, according to the business countries
net - for instance, suppliers in some countries
work view, consists of the firms with which itand is customers in others (Johanson & Vahlne, 2003).
doing business, or trying to do business, and the Moreover, knowledge development in business
relationships between firms in this environment. networks is different from the kind of knowledge
The lack of such market-specific business knowledge development we assumed in our original model. In
constitutes the liability of outsidership. business networks knowledge development is not
In developing our original model we stressed that only a matter of learning extant knowledge from
there is general market knowledge that may other actors. The interaction between a buyer's user
be transferred between organizational units. More knowledge and a seller's producer knowledge may
recent research has shown that more general also result in new knowledge.
internationalization knowledge - that is, knowledge Prior experience with management teams may
that reflects a firm's resources and its capabilities have
for a strong effect on internationalization, at least
engaging in international business - is also impor in new and small companies (Reuber & Fischer,
tant (Eriksson et al., 1997; Welch & Luostarinen, 1997). This is particularly interesting, as the 1977
1988). Furthermore, several studies have shown
model says nothing about the beginnings of
internationalization (Andersen, 1993). From a
that a number of different aspects of general
internationalization knowledge may be important
business network point of view it is important to
as well. We believe now that the general interemphasize that the management team's prior
nationalization knowledge that encompasses several
relationships probably provide extremely impor
kinds of experience, including foreign market entry
tant knowledge. We return to this issue later.
(Sapienza, Autio, George, & Zahra, 2006), mode Petersen et al. (2003) discuss our original model
specific (Padmanabhan & Cho, 1999), core business
under the headings From simplicity to complexity and
(Chang, 1995), alliance (Hoang & Rothaermel,
From determinism to managerial discretion. Under the
2005), and acquisition (Nadolska & Barkema,
first heading they compare the simple view of
2007), and other specific kinds of internationaliza
knowledge presented in our early model with later
tion experience, is probably more important thanresearch in knowledge and organizational learning.
we had assumed back in 1977. It is worth notingWe agree that research on organizational learning
that knowledge about internationalization does has
not demonstrated that learning is much more
only result from the types of learning identified
complex than we had assumed 30 years ago. When
we constructed our model we believed - and
above. For instance, it has been shown that
continue to believe - in a parsimonious approach
internationalization knowledge is positively related
to variations in the experiences a firm hastoin
theory development. The aim of theory building
different markets (Barkema & Vermeulen, 1998).is not to replicate a complex reality; it is to explain
Given the business network view, we add to our
its central elements. The conclusion of subsequent
research has been that experiential learning is
model the concept of relationship-specific knowledge,
which is developed through interaction betweenindeed a central factor in a firm's internationaliza
the two partners, and that includes knowledge tion. In his critical review of the Uppsala and the
about each other's heterogeneous resources andinnovation models (Bilkey & Tesar, 1977; Cavusgil,
capabilities. Moreover, we expect that interaction
1980) of the internationalization process, Andersen

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(1993) noted that the Uppsala model does notGiven all the points made above, we conclude that
consider specific situations, phases, firms, or foreignthere is good reason to retain experiential learning
as a basic mechanism in the business network view
markets. In Andersen's view, the model is general.
Obviously a model that has general applicability of the internationalization process. Of course,
experiential learning can be complemented with
cannot also consider all the kinds of knowledge and
learning that might occasionally be relevant. It isother ways of knowledge development.
likely that ways of learning other than experiential
learning may be important for studies of specific TRUST AND COMMITMENT BUILDING
internationalization episodes and situations. In his
Our original model does not explicitly include any
critical review of our original model, Forsgren affective or emotional dimensions in relationships,
(2002) argues that three types of non-experiential though it can be argued that they are implicitly
present in the concept of knowledge. We now think
learning - the acquisition of other firms, imitation,
and search - may also speed up the internationa
that those dimensions should be explicit. First,
much has since been written on social capital,
lization process. He consequently means that our
model exaggerates the gradual nature of the
trust, and similar concepts, which of course include
process. both affective and cognitive elements. Second, we
Under the heading From determinism to managerial realize from empirical observation that affective
discretion, Petersen et al. (2003) write that the model dimensions are indeed important for understanding
we developed in 1977 is deterministic, though the relationships that are a critical component of
research has demonstrated the existence of sub our model. Third, trust plays an important part
stantial managerial discretion in the internationa in recent research on relationship development
lization of firms. We disagree with their (Morgan & Hunt, 1994) and business networks
characterization. We do not see a causal relation 0ohanson & Mattsson, 1987). We recognized the
between experiential learning and resource com possibility of including these aspects in our model
mitment as deterministic. A causal relation in a later note on the Uppsala internationalization
between two variables does not mean that process model 0ohanson & Vahlne, 2006). Building
one determines the other; only that one influences on the work of Nahapiet and Ghoshal (1998),
the other, usually in combination with other Granovetter (1985,1992), Madhok (1995) and others,
variables. We do agree that managerial discretion we conclude that trust is an important ingredient
is important, although we think that path depen for successful learning and the development of
dence and problemistic search tend to make new knowledge. Trust can also substitute for
managers prefer certain specific alternatives to knowledge, for instance when a firm lacks the
other ones. We also think that the model can easily necessary market knowledge and so lets a trusted
incorporate managerial discretion and strategic middleman run its foreign business (cf. Arenius,
intentions. 2005). We also introduce in this section a definition
In spite of the critical views raised above, we of commitment without the tautological relation
think that empirical studies of the internationaliza ship to knowledge that, according to Andersen
tion process demonstrate the central role of (1993), is a problem in the original model (cf.
experiential learning in the process. In addition, Hadjikhani, 1997).
other important research streams have stressed Morgan and Hunt (1994) provide definitions of
learning mechanisms that are consistent with our trust. Trust keywords and phrases include "integ
model. For example, research on learning curves rity/' "reliability," and that "the word ... of another
highlights learning based on experience, and is can be relied upon." In short, a sense of trust
one of the fundamental sub-areas within the field implies an ability to predict another's behavior.
of learning studies (Argote, 1999). Nelson and Trust also assumes that human behavior is char
Winter's (1982) evolutionary theory emphasizes acterized by high ethical standards. Trust may
routines developed through experience that develop into commitment if there is willingness
result in behavioral continuity and limited path and positive intentions. Thus trust is a prerequisite
dependence. The concept of absorptive capacity for commitment - a conclusion that is consistent
developed by Cohen and Levinthal (1990) is a third with the results obtained by Morgan and Hunt. If
example. Like experiential learning, absorptive trust does lead to commitment, it implies that
capacity means that knowledge development tends there is a desire to continue the relationship, a
to be a cumulative process. willingness to invest in it, even recognition of the

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necessity of making short-term sacrifices that

terms of opportunities or of switching costs, it may
benefit another for reasons of long-term interest be rational to act on partially subjective opinions.
for oneself. Therefore, given the circumstances, the decision
In a comment on his 1995 article on interna makers in our model are rational. Clearly, knowledge
tional joint ventures, Madhok (2006) discusses is never complete. In fact, in some situations knowl
whether it makes sense to assume either trust or edge does not exist until the parties have developed
opportunism. His conclusion implies that there are it together. Nonetheless, Gounaris (2005) finds in his
reasons for firms to rely on the trustworthiness of empirical analysis that calculative commitment has
their business partners. We agree, though we a negative impact on the parties' intentions to
believe that it is unrealistic to assume that trust preserve and strengthen their relationship, and so
is permanent, or that commitment or extreme suggests that firms may want to avoid dependence
opportunism are either. It is realistic, though, to and lock-in situations. However, dependency is an
assume that an extant degree of commitment will unavoidable by-product of a beneficial relationship.
persist and increase when partners believe that We agree with Madhok (2006: 7) that "trust
continuing a relationship is in their long-term building is a costly and time-consuming process."
interest. While opportunities are the key factor in Boersma, Buckley, and Ghauri (2003) picture the
making commitments, the other side of the coin is process as a sequence of phases in which the output
dependency. One partner may not necessarily of one phase constitutes the input of the next.
appreciate everything the other one does, and As the output from each phase consists of either an
yet some actions will be tolerated for the sake of increased or a decreased level of trust, the process is
long-term interests (Thorelli, 1986). not deterministic. Commitment is developed late
Trust persuades people to share information, in the process (in Boersma et al.'s analysis, this
promotes the building of joint expectations (Madhok, occurs after joint venture negotiations). We believe
1995), and is especially important in situations of that this view applies to relationships in general,
uncertainty. Trust is crucial in the early phases of a with or without negotiations, as long as firms signal
relationship, and its importance may be permanent their intent to commit.
if the relationship requires continued efforts to
create and exploit opportunities. Madhok's (1995)
contention is that trust "induces reciprocity and
OPPORTUNITY DEVELOPMENT
coordinates action." This supports Morgan and In our original model we assumed that market
Hunt's (1994) conclusions that "trust is a major commitment and market knowledge affect "perceived
determinant of commitment" (see also Gounaris, opportunities and risks which in turn influence
commitment decisions and current activities."
2005). They go on to say that they see "relationship
commitment as an exchange partner believing that (1977: 27) Moreover, we assumed "that the com
an ongoing relationship with another is so impor mitment to a market affects the firm's perceived
tant as to warrant maximum efforts at maintaining opportunities and risk." (1977: 27) We also stated,
it." (1994: 23) We agree with this definition, with "knowledge of opportunities or problems is
the caveat that we do not believe anything is ever assumed to initiate decisions." (1977: 27) Despite
maximized. Commitment is rather a question of these assumptions, our model has generally been
more or less intensive efforts. We do, however, regarded as a risk (or uncertainty) reduction (or
agree with Morgan and Hunt that "when both avoidance) model. We think that risk is unavoid
commitment and trust - not just one or the other - able when embarking on a journey into the
are present, they produce outcomes that promote unknown, and so stated that the firm's approach
efficiency, productivity and effectiveness." (1994: 22) to risk is complicated and variable. This assertion,
Mathieu and Zajac (1990) distinguish between however, does not imply risk avoidance, only a
calculative and affective commitment. Calculative need for risk management. Research on business
commitment is built on cognitive assumptions. networks and entrepreneurship has made consider
Examples include available joint opportunities. able progress since the publication of our original
Affective commitment is based on "a generalized model. We recognize now that we probably did
sense of positive regard for and attachment to the neglect the opportunity dimension of experiential
other party" (Gounaris, 2005). Affective commit learning. Still, we did write:
ment may then replace cognitive analysis. In the An important aspect of experiential knowledge is that it
absence of knowledge, if the stakes are high in provides the framework for perceiving and formulating

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opportunities. On the basis of objective knowledge it isincluding the external resources that are partially
possible to formulate only theoretical opportunities, experi
ential knowledge makes it possible to perceive "concrete"
available through network relationships.
opportunities - to have a "feeling" about how they fit intoArdichvili, Cardozo, and Ray (2003) see
opportu
present and future activities. (1977: 28) nity development as the central element
in their
theory of entrepreneurial opportunity identifica
The field of opportunity research has grown tion and development, and as such it should be its
significantly. We believe that by combining find primary focus: "The need or resource 'recognized'
ings from that research with the business net or 'perceived' cannot become a viable business
work perspective on markets described inwithout the this 'development'" (2003: 106). According
previous section, we can take a step forwardtoin the network perspective on markets, opportunity
discussing opportunities in the internationalizationdevelopment is based on interaction between
process. partners who build knowledge together and come
Kirzner (1973) offers a starting point. Entrepre to trust each other as they commit themselves
neurial discovery of opportunities plays a central further to the relationship. Provided that there is
role in his theory of the market process. He argues some basic entrepreneurial alertness, opportunities
that opportunities exist in the market because are likely to emerge as a consequence of the
markets are never in equilibrium. Opportunity privileged knowledge that the two partners develop
recognition involves discovering the hitherto during their interaction. This knowledge may
unknown; it is a result of entrepreneurs being allow them to recognize opportunities that others
alert and prepared for surprises. This view implies do not (Agndal & Chetty, 2007). Furthermore, they
that opportunity recognition is associated with may identify and understand ways in which their
ongoing business activities rather than with specific idiosyncratic resources match those of their partner
opportunity-seeking activities. He also sees entre (von Hippel, 1988). The opportunity development
preneurial discovery as an outcome of serendipity process is similar to the internationalization pro
(Kirzner, 1997). cess, and to the relationship development process
Following Kirzner, Shane (2000) studied the role (Ghauri, Hadjikhani, & Johanson, 2005). It is a
of prior knowledge and showed that it seems to have matter of interrelated processes of knowledge
a stronger impact on discovery than the personal development and commitment to an opportunity.
characteristics of individuals do. Prior knowledge The process may be unilateral, with one firm
makes individuals better at discovering some oppor learning about another firm's needs, capabilities,
tunities, which means that opportunity-seekers markets, and network, thereby identifying an
should concentrate on what they know, rather opportunity. Alternatively, it may be bilateral when
than on what others say. Similarly, building on the two firms in interaction identify an opportunity. It
resource-based view, Denrell, Fang, and Winter may even be multilateral, with several firms inter
(2003) conclude, as Barney (1986) argued, that the acting and increasing their commitment to an idea
firm does not have any privileged knowledge about or opportunity. In this type of multilateral oppor
external resources required for identifying an tunity development, firms that are connected to
opportunity. Therefore, as Shane (2000) suggests, the two focal firms are likely to be involved in the
the firm should focus its opportunity analysis on its process, a process that may be facilitated by trust.
own internal resources, where it presumably has One would expect network configuration and
privileged knowledge. Like Kirzner (1997), Denrell relational embeddedness to influence the type of
et al. conclude that identifying opportunities is opportunity, Kirznerian or Schumpeterian, that is
likely to be the result of a serendipitous strategy developed (Andersson, Holm, & Johanson, 2005).
characterized by effort and luck, combined with An important conclusion based on the network
alertness and flexibility. view is that both Kirzner (1997) and Denrell et al.
However, according to the network view of (2003) exaggerate the role of serendipity.
markets, firms do have privileged access to infor Consistent with the view that opportunity iden
mation about their relationship partners and their tification is a side-effect of an ongoing business
business network. Moreover, opportunity recogni relationship, we believe that exploitation and
tion is likely to be an outcome of ongoing business exploration (March, 1991) overlap. Partly because
activities that add experience to the existing stock of heterogeneity, and partly because of the unavail
of knowledge. An important part of that experience ability of information, market research may be
is knowledge of one's own firm and its resources, unable to identify many of the opportunities that
????? ? journal of International Business Studies

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insiders can. As a result, exploitation breeds

chain (Hedlund & Kverneland, 1985); that they
start to internationalize soon after their birth
exploration, at least for the type of opportunities
(Oviatt & McDougall, 1994); that the internationa
that are induced by the market. While exploitation
lization
is risky, that risk can be reduced by progressing in process proceeds more rapidly now (Oviatt
& McDougall, 1994; Zahra, Ireland, & Hitt, 2000);
small steps and building successive commitments.
and that the order in which companies enter
Shane (2000) concluded that since opportunity
foreign
recognition is associated with prior knowledge, it is markets no longer correlates with psychic
distance (Madsen & Servais, 1997). Also, joint
difficult to centralize the search for opportunities.
This is consistent with Bjerre and Sharma's finding
ventures and strategic alliances are modes that are
"that a major portion of the knowledge inmore commonly used today than previously.
much
international firms is indeed local, depositedInternationalization
in through acquisitions has also
grown enormously in terms of value (UN World
local subsidiaries," (2003: 138) which supports our
view that market-derived opportunities willInvestment
be Report, 2000).
discovered and/or created at the boundary of the We do not dispute that these observations appear
firms where the necessary relationship experienceto be inconsistent with the establishment chain we
exists. It also supports the view that subsidiary
proposed. The establishment chain implied that
companies start to internationalize in neighboring
entrepreneurial initiatives are likely to be impor
markets and subsequently move further away in
tant for the multinational enterprise (Birkinshaw,
1997). terms of psychic distance, and also that in each
The following two positions, which we see as market companies begin by using low-commitment
being at two ends of a spectrum, are frequently modes, such as a middleman, and subsequently
mentioned in opportunity research: opportunity switch to modes that suggest a stronger commit
discovery, which assumes that there are opportu ment, such as wholly owned subsidiaries. Some
nities in the market waiting to be recognized researchers who have observed company behavior
(Kirzner, 1973); and opportunity creation, which that deviates from the establishment chain of
assumes that the opportunity is created and internationalization pattern have occasionally used
realized by one of the firms (Gelbuda, Starkus, their observations to criticize our internationaliza
Zidonis, & Tamasevicius, 2003; Schumpeter, 1934; tion process model. We review some of those
Weick, 1995). Our position is that the process of comments in the following paragraphs. We respond
opportunity development includes elements of first, though, in pointing out that the establish
both discovery and creation (Ardichvili et al., 2003). ment chain is not part of the model, but rather
We mean that it is meaningless to say that either a summary of the empirical observations on which
one is more important. Furthermore, opportunity we based our inductive theoretical arguments. We
research usually distinguishes between two stages: also argue that for the most part changes in
recognition and exploitation. Once again our company behavior have more to do with changes
position is that opportunity development is an in the international environment than with changes
interactive process characterized by gradually and in internationalization mechanisms. The network
sequentially increasing recognition (learning) and view, presented above, also helps to explain devia
exploitation (commitment) of an opportunity, with tions from the establishment chain.
trust being an important lubricant. It follows then According to a review of articles that were
that the process of opportunity identification and published during the first 4 years of this decade in
exploitation in the network perspective is very nine important academic journals (Andall &
similar to the internationalization process and to Fischer, 2005), one of the most debated issues in
the relationship development process. internationalization research is whether the phe
nomena of international new ventures (Oviatt &
McDougall, 1994, 2005) and born globals (Knight
THE DECLINING VALIDITY OF THE & Cavusgil, 1996) are consistent with our model.
ESTABLISHMENT CHAIN We think they are, to the extent that most born
Most of the criticism of the internationalization globals are really "born regionals," with interna
process model is based on the observation that tional activities that do not really span the globe
company behavior has changed since we built our in any significant fashion (see also Rugman &
model. Examples of this are that companies some Verbeke, 2007). In fact, many of the companies the
times leapfrog over stages in the establishment internationalization pattern of which we studied

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1421
(see, for example, Johanson & Wiedersheim-Paul, for internationalization, certainly have not chan
1975) should be considered born regionals or ged. Partners still have to get involved in some sort
international new ventures. of exchange that will create experience, and while
We use Sandvik, a well-known multinational these exchanges might be performed more quickly
company, as an example. In 1862 steel production today, it still takes time, and firms still have to face
was started in Sandvik to exploit the Bessemer the risk of failure.
process: We do believe that the correlation between the
order in which a company enters foreign markets
The founder of Sandvik, G.R G?ransson, had brought the and psychic distance has weakened. Some companies
process to Sweden from the UK through contacts he had
and individuals have acquired more general knowl
made when he was a general manager of a Swedish trading
firm that had extensive international contacts. The first edge of foreign environments, and perhaps this
firm soon went bankrupt, but in 1868 the company now instils in them greater confidence in their ability
known as Sandvik was formed. In the same year, relation to cope with psychic distance. This does not mean
ships with representatives in Denmark, Norway and the UK that psychic distance is unimportant. However,
were established, and, one year later, in Germany. In 1870 a
the relationship between market entry order and
representative in France was linked to Sandvik. A represen
tative in Switzerland was taken over at the start. (Vahlne & psychic distance applies at the level of the decision
Johanson, 2002: 218) maker 0ohanson & Vahlne, 2003; Sousa & Bradley,
2006), not at that of the firm. Johanson and Vahlne
Sandvik relied on external resources, not only for (2003) offer some examples. The chairman of a
marketing and selling abroad, but also for technol Swedish company was a visiting professor at an
ogy. While Sandvik's subsequent internationaliza American university for several years before that
tion process was rapid, its history does fit the company made its first attempt at establishing a
establishment chain, and correlates with what presence abroad by entering into a joint venture
we would expect in regard to psychic distance. We with the university (2003: 87). The president of the
can agree with Oviatt and McDougall (1994) on same company knew someone from Poland who
one point: international new ventures and born had worked with other Swedish companies for
regionals are old phenomena. As such firms are many years (2003: 88), and he recruited him to
frequently founded by individuals with previous establish the firm's next subsidiary in Poland. In
international experience and have established both instances short psychic distance helped the
relationships with foreign companies, they do not parties recognize and implement opportunities.
create a problem for our model (Coviello, 2006; The impact of psychic distance on internationaliza
Reuber & Fischer, 1997). True, the knowledge and tion may well be indirect, but this does not mean
the relationships might indeed be in place prior to that it has no effect on relationship building or on
the formal founding of the focal firm, but that is a the processes of learning, trust building, and so
formality of no major significance. It is true too on that occur in relationships.
that having those factors already in place may The domestic market may not be the most
accelerate the process. If a firm starts from scratch relevant unit in terms of psychic distance. The
though, as we argued above, the processes of distance to, and between, cultural blocs is more
learning and building commitment will take time. relevant in many cases (Barkema & Drogendijk,
A wealth of research, including Nahapiet and 2007; Shenkar, 2001). There may be cultural
Ghoshal (1998), Granovetter (1985), and Ring and differences within a country that make it logical
van de Ven (1992), supports this point. There is to view parts of the country as entirely different
nothing in our model that indicates that interna markets with different psychic distances. Indeed,
tional expansion cannot be done quickly. In fact it the concept of the liability of outsidership does not
can, as long as there is sufficient time for learning necessarily refer to countries. It is a firm-level concept
and relationship building (Vahlne & Johanson, that may relate to a network within a country, or to a
2002). Although many contextual aspects have wider region (cf. Rugman Sc Verbeke, 2007).
changed since we made our observations, almost We think that Autio (2005: 12) makes an inter
50 years ago, the ways in which human beings esting point when he argues that our original
learn and make decisions have not drastically model emphasizes constraints to internationaliza
changed since. Moreover, experiential learning tion whereas Oviatt and McDougall's model
and building trust and commitment, the basic emphasizes enabling factors. While we make the
prerequisites for developing business, and hence barriers to internationalization explicit in our

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1422
model, especially psychic distance, our most basicmore "optimization" going on in a real sense. It is
often said that environmental changes, such as
"enabler," that is, the company and its firm-specific
advantages, is implicit. Oviatt and McDougall
globalization, rapid technological change, and
place more emphasis than we do on the factors deregulation, force companies to enter into alli
that make internationalization possible. We doances and joint ventures, because no single com
include in our model the presence of one or more
pany owns all the resources required to exploit
entrepreneurs, which is typical of explanations oflarger and continuously changing markets
international new ventures and born regionals,(Contractor & Lorange, 2002). If that is the case,
companies may not use those modes if their
who may identify, develop, and exploit opportu
nities, and so are obviously indispensable. Our
resources are sufficiently large to allow them to
rely on internalized activities. In fact, companies
original article assumed corporate entrepreneurship
(Johanson & Vahlne, 1977), which we explicitly have frequently switched from relying on an agent
explored in a subsequent article (Johanson -&that is, relying on external resources - to an
Vahlne, 1993). internal operational mode when their performance
Some authors emphasize the role played by makes that possible and there are prospects for
"enablers" in rapid internationalization - for exam growth and better efficiency. We do not view
ple, "boldness in decision-making" (Moen & Servais, leapfrogging or choice of modes such as joint
2002). On the surface, our decision-makers, who ventures, which our establishment chain did not
perhaps want to expand their company's business, predict, as problematic for our model, as when we
do not appear to be risk takers. However, in our 1977 built it neither was common among the Swedish
article, we state "it is assumed that the firm strives to companies at which we were looking. We no
increase its long-term profit, which is assumed to be longer consider the mode a reliable indicator of
equivalent to growth ... The firm is, though, striving the level of commitment. Contextual aspects often
to keep risk-taking at a low level." (1977: 27) Thus play a more important role. For example, Hedlund
we do not view our model and the rapid inter and Kverneland (1985) studied Swedish companies
nationalization model as essentially different on this in Japan that had to forgo the wholly owned
point. Furthermore, entrepreneurs, or at least suc subsidiary mode because the structure of the
cessful ones, supposedly calculate risks carefully and Japanese industry, in which they were, made it
try to avoid taking unnecessary risks. Perhaps the necessary to have a local partner, who was already
propensity of firms to take bigger risks is higher well established in local networks.
today in some cases (cf. Vahlne & Johanson, 2002: As we have noted, acquisitions have now become
221, in the case of venture capitalists and the the primary mode of entry in terms of value. This is
internationalization of IT-consultant companies). a way, of course, for a resource-rich company to
However, it would appear that neither we nor other quickly buy itself a position in a network in a
researchers really know much about the propensity foreign market, as opposed to proceeding incre
for taking risks either in the past or now. Clearly, mentally in smaller less risky steps. However, in the
entrepreneurs like those at Sandvik, which era of globalization other motives may play a role.
we mentioned previously, were taking risks The focal company may want to gain access to an
when they acted on opportunities in foreign interesting piece of technology or some other
markets. resource, or it may want to reduce the number of
Oviatt and McDougall's model does specifically competitors. We have argued that, in accordance
differ from ours when it comes to the choice of with our model, an acquisition is much more
modes. We have observed that companies gradually likely to be successful if it is preceded by some
enter into what could be seen as more risky, but kind of exchange between the acquirer and the
also potentially more beneficial and controllable, acquiree. In such exchanges firms have already
modes of operation. Increased knowledge and acquired a body of knowledge about each other,
commitment make such risk taking desirable and and have perhaps established some level of com
possible. On the other hand, entrepreneurs behind mitment (Andersson, Johanson, & Vahlne, 1997).
international new ventures are expected to opti Without such a previous relationship the parties
mize mode choice depending on constraints on will have to learn about each other after the
resources and outside opportunities. We believe acquisition for post-acquisition integration to pro
that this may be true. Today's companies do use ceed. This process may include some conflicts, and
a wider range of modes, although we do not see will take time (Ivarsson & Vahlne, 2002). Hence an

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1423
2006). As some types of knowledge are not

acquisition is not necessary a way of rapidly
building a position on a foreign market. accessible to everyone, and are instead confined
to network insiders, a strong commitment to
It is clear that one reason for the empirically
driven criticism of our model is that the business
partners allows firms to build on their respective
world is different today from how it was when we bodies of knowledge, making it possible for
observed patterns of internationalization. Eventsthem to discover and/or create opportunities. We
move more quickly and assume somewhat different believe that internationalization is contingent
forms. Nonetheless, one constant in coping with more on developing opportunities than on over
uncertainty remains: firms need to learn, and to coming uncertainties, for example concerning
create or strengthen relationships in order toinstitutional conditions in the foreign market
exploit opportunities. (Eriksson et al., 1997).
A reviewer of this paper has made us aware of the
A BUSINESS NETWORK MODEL OF THE "effectuation process" that was constructed by
INTERNATIONALIZATION PROCESS Sarasvathy (2001) to describe the process entrepre
neurs follow as they prepare to launch a new
In light of all of this, we have developed our revised
model in the following way. The firm is embedded company. According to her, the effectuation pro
in an enabling, and at the same time constraining,cess is "useful in understanding and dealing with
business network that includes actors engaged in spheres
a of human action. This is especially true
when dealing with the uncertainties of future
wide variety of interdependent relationships. Inter
nationalization is seen as the outcome of firm phenomena and problems of existence." (2001:
actions to strengthen network positions by what 250)
is As we have argued, internationalization
resembles entrepreneurship and may be described
traditionally referred to as improving or protecting
their position in the market. As networks are as corporate entrepreneurship. Internationalization
borderless, the distinction between entry and too is characterized by high degrees of uncertainty.
expansion in the foreign market is less relevant,The effectuation process has much in common
given the network context of the revised model.with our internationalization process model,
The traditional view of entry - that is, overcoming
including similar environmental characteristics, a
various barriers - is becoming less important thanlimited number of available options, incremental
internationalizing undertaken to strengthen development,
a and an emphasis on cooperative
firm's position in the network (Johanson & Vahlne, strategies (2001: 251). However, while Sarasvathy
2003). As a result, we claim that existing businessviews the actors and their characteristics as impor
relationships, because they make it possible to tant, our model does not include this point at all.
identify and exploit opportunities, have a consider
We do argue, however, that the actors are implicitly
able impact on the particular geographical market present in our model to the extent that they are the
a firm will decide to enter, and on which mode carriers of (tacit) knowledge, trust, commitment,
to use. This claim is also consistent with the and network relations. We therefore consider the
business network view, where much is contingent
effectuation process as developed by Sarasvathy to
on existing relationships (H?kansson & Snehota,
be fully consistent with our model. In addition, our
1995). Learning and commitment building take model underlines the fact that internationalization
place in relationships. Although our 2003 articlehas much in common with entrepreneurship.
did not highlight that particular point, this way As in the 1977 version model, the 2009 business
of thinking about internationalization places thenetwork model consists of two sets of variables:
identification of opportunities at the forefront. state variables (shown as the left-hand side of
While we mention in our 1977 article that
Figure 2) and change variables (shown as the
experiential knowledge may lead to the identificaright-hand side of Figure 2), or stock and flow,
tion of opportunities, this aspect has largely been
which are relevant to both sides in a relationship.
neglected. Primarily, it has been assumed that The variables affect each other, the current state
having an impact on change, and vice versa. The
reducing uncertainty has to do with the differences
between the culture and institutions of the home model thus depicts dynamic, cumulative processes
country and those of the foreign country. We of learning, as well as trust and commitment
now have reason to believe that learning and building. An increased level of knowledge may
commitment are strongly related to identifying thus have a positive or a negative impact on
and exploiting opportunities (Johanson & Vahlne,building trust and commitment. In an extreme

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1424
As to the change variables, we changed the

State Change original label of "current activities" to "learning,
creating, and trust-building" to make the outcome
of current activities more explicit. The concept of
Knowledge Relationship current activities, or operations, in the original
commitment
Opportunities
decisions model was intended to indicate that regular daily
activities play an important role, and lead to
increased knowledge, trust, and commitment. Our
use of the term "learning" is at a higher level of
Learning abstraction: that is, we think of it as more than
Network
Creating experiential learning, although we still regard that
position Trust-building to be the most important kind of learning.
The speed, intensity, and efficiency of the
processes of learning, creating knowledge, and
building trust depend on the existing body of
Figure 2 The business network internationalization process
knowledge, trust, and commitment, and particu
model (the 2009 version).
larly on the extent to which the partners find given
opportunities appealing. We have made the affec
tive dimension of trust-building more explicit than
in our earlier model, as we believe it deserves a
case scenario - which may actually not be so rare - status similar to that of the cognitive dimension.
the firm and/or the firm on the opposite side of the In addition, we want to highlight opportunity
relationship may in fact reduce the commitment or creation, which is a knowledge-producing dimen
even terminate the relationship. These processes sion, because we believe that developing opportu
can occur on both sides of a mutual relationship nities is a critical part of any relationship.
and at all points in the network in which the focal Furthermore, high levels of knowledge, trust, and
firm is a member. commitment in a relationship result in a more
Although the basic structure of the model is the efficient creative process. The interplay between the
same as the one we built in 1977, we have made processes of learning, creating opportunities, and
some slight changes. We have added "recognition building trust is described well by Nahapiet and
of opportunities" to the "knowledge" concept, as Ghoshal (1998), although they use the concepts of
seen in the upper left-hand box of the model (see intellectual capital and social capital.
Figure 2). Opportunities constitute a subset of Finally, the other change variable, "relationship
knowledge. By adding this variable, we intend to commitment decisions," has been adapted from the
indicate that we consider opportunities to be the original model. We added "relationship" to clarify
most important element of the body of knowledge that commitment is to relationships or to networks
that drives the process. Other important compo of relationships. This variable implies that the focal
nents of knowledge include needs, capabilities, firm decides either to increase or decrease the level
strategies, and networks of directly or indirectly of commitment to one or several relationships in its
related firms in their institutional contexts. The network. In an extreme case scenario, this decision
second state variable is labeled "network position." may manifest itself only on a psychological level.
This variable was identified in the original model Usually, however, the decision will be visible
as "market commitment." We now assume that through changes in entry modes, the size of
the internationalization process is pursued within a investments, organizational changes, and definitely
network. Relationships are characterized by specific in the level of dependence. A change in commit
levels of knowledge, trust, and commitment that ment will either strengthen or weaken the relation
may be unevenly distributed among the parties ship. From a network point of view, there are two
involved, and hence they may differ in how they kinds of decision regarding the commitment to the
promote successful internationalization. Nonethe relationship. They may primarily be to develop
less, if the process is seen as potentially rewarding, new relationships, in most cases businesses, in
a desirable outcome of learning, trust and commit others they may be about building bridges to new
ment building will be that the focal firm enjoys a networks and filling structural holes (cf. Burt,
partnership and a network position. 1992). Alternatively, they may be to protect or

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1425
support the firm's existing network of strategic How might the process start? Given the business
network model's process view, any determination
relationships. For example, a few years ago, Volvo
demanded that some of its important Swedish of a starting point will be arbitrary (cf. Coviello,
suppliers develop relationships with German car 2006; Reuber & Fischer, 1997; Wiedersheim-Paul,
manufacturers in order to demonstrate that Volvo's
Olson, & Welch, 1978). Regardless of whether we
consider the starting point to be the founding of
suppliers had the same desirable qualities and skills
as those of its German competitors. the company, the first international market entry,
There are some implications of the revised model or the establishment of a specific relationship, our
process model implies that we should look for
for the internationalization process. First, interna
tionalization depends on a firm's relationships andexplanations in the state variables, such as knowl
network. We thus expect the focal firm to go abroadedge, trust, or commitment to the firm's specific
based on its relationships with important partners relationships. For example, the focal firm may
who are committed to developing the business
exploit some of its existing connections by using
through internationalization. These partners may the trust that a partner has established with another
be at home or abroad. The focal firm is also likely party or parties (Larson, 1992). Increased knowledge
to follow a partner abroad if that partner firm may cause either the focal firm or its partner to
has a valuable network position in one or more become dissatisfied with the relationship. Either
foreign countries. There are two possible reasonsfirm may then decide to decrease its commitment
for such foreign expansion. One is the likelihood or even end the relationship.
of finding interesting business opportunities. As We argued in an earlier paper that access to
we have said, partner bases of knowledge are information is of more relevance to large compa
interrelated, and are therefore also indirectly nies, and that the Uppsala model is therefore more
related to other members of the network. Relying applicable to smaller firms (Johanson & Vahlne,
on a related knowledge base, the focal firm may 1990). We are now less certain about this observa
thus enter networks abroad, where it may be able tion, as knowledge is highly context specific. The
model should be equally applicable to large and
to identify and exploit opportunities. We reiterate:
mutual trust and commitment are based not on small firms (Barkema et al., 1996; Steen & Liesch,
formal agreements but on a common history of 2007). at Large firms may, however, be better
informed when they acquire a firm in a market in
least minimally satisfactory, if not successful, joint
business experiences. A second reason to go abroad which they are already active. In such acquisitions,
occurs when a relationship partner who is going which are not unusual, it is more a matter of
abroad, or already is abroad, wants the focal firm experience
to than of size. Such experience may also
follow. By following the partner abroad, the firmexplain why international new ventures may grow
demonstrates its commitment to the relationship.very rapidly: The founding entrepreneur already
Where will an internationalizing company go? has access to knowledge and relationships prior to
the internationalization.
The general answer is: where the focal firm and its
partners see opportunities. A foreign market in
which the partner has a strong position is another SUGGESTED RESEARCH AGENDA
We identify here but a few of the exciting research
possibility. This is not only a matter of the first step
abroad. The same process may continue from issues that follow from our revised internationaliza
market to market, depending on the actions of tion process model and are well worth exploring.
the focal firm's partners. If the firm has no valuable As a step towards formulating a more unified
explanation of the emergence and growth of multi
partners, however, it may go where it might be easy
to connect with a new firm that already hasnationala enterprise, it could prove both interesting
position in the foreign market. For example, it and important to look for similarities between the
may link itself to a middleman such as an agent orinternalization
a theory (Buckley & Casson, 1976;
Hennart, 1982; Rugman, 1981) and the eclectic
distributor. Eventually, when the focal firm has
paradigm (Dunning, 1980) on one hand, and the
established relationships with customers, it may
bypass the middleman and establish its own business network model of the internationalization
process on the other. The process of changing modes
subsidiary. Short psychic distance will facilitate
the establishment and development of relation operation is also frequently a matter of internaliza
of
tion or externalization. The version we propose now
ships, which is a necessary but insufficient condition
implicitly assumes that an internationalizing firm
for identification and exploitation of opportunities.

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_The Uppsala model revisited Jan johanson and jan-Erik Vahlne
1426
has access to one or more specific advantages. The foreign markets. These will subsequently constitute
original version of our model focused explicitly theon MNE's main firm-specific advantages. In a
recent empirical study of internationalization,
location specificity as an explanation for uncertainty
Hsu and Pereira (2008) develop a model in which
(Rugman & Verbeke, 2004: 12). While location
firm-specific advantage has a direct impact on
specificity does matter, we now pay more attention
internationalization and an indirect impact on
to relational shortcomings, knowledge, and com
mitment as reasons for uncertainty and, indirectly, performance. In addition, organizational learning
moderates the effect of internationalization on
for location specificity. This implies that established
relationships offer a firm-specific advantage worthyperformance. Both of these studies offer opportu
of attention. We observe that Dunning's (1997) OLI nities for fruitful research that combines the two
paradigm has also been revised to include strategic approaches without really integrating them.
alliances and, more recently, even broad networkSecond, as we have argued, business relationships
provide a firm with an extended and unique
relationships (Dunning & Lundan, 2008). We have
resource base that it only partially controls.
argued elsewhere Qohanson & Vahlne, 1990) that
two large issues need to be addressed when Furthermore, exploiting the potential of such an
attempting to merge the eclectic paradigm and theextended resource base requires that the firm's own
resources be coordinated with those of one or
Uppsala model. The original version of the eclectic
paradigm was rather static, and rested on the several of its partners. The goal of business network
coordination is joint productivity of a set of rela
behavioral assumption of strong rationality, whereas
the Uppsala model is dynamic and assumes bounded tionship partners, which is difficult to implement
as it involves coordinating the partners' activities
rationality, a difference that has now, fortunately,
(Hohenthal, 2006). When partners operate in diff
largely disappeared with the latest extension of the
OLI paradigm (Dunning & Lundan, 2008). To the erent countries, cross-country business network
coordination is also needed, and is more difficult
extent that firm-specific advantages are based on
still. How hard this will be to achieve may vary
Penrose and RBV thinking, the conceptual distance
with the psychic distance between the actors. This
between the OLI paradigm and our business network
model of internationalization is still further reduced.
brings to mind many interesting sub-issues, includ
At this point the problem seems to lie primarily ing
in the means of coordination and the possible
the relationship to the market environment that allocation of coordination responsibilities between
designated organizational units (Galbraith, 1973;
Penrose did not consider a major issue, and about
Mintzberg, 1979). We expect that these units will
which RBV thinking says little. This is the core issue
be located in the strategic partners' home countries.
in our original model, and it is even more important
in our new model, which we see as an extension Weofare convinced that international business net
the "unknowable market" of Penrose and the RBV work coordination will become an increasingly
important phenomenon with strong implications
perspective. The remaining conceptual problem is
related more to the internalization model. While
for firm-specific advantage as well as for interna
tionalization.
that model focuses on explaining firm boundaries,
Third, the subtitle of this paper, From liability of
our model focuses on the processes driving contin
uous change of those boundaries. Buckley foreignness
and to liability ofoutsidership, refers to the fact
Casson (1998) address the evolving boundary issue, that a firm's problems and opportunities in inter
though it is unclear from their discussion whether national business are becoming less a matter of
they see it as falling within internalization theory country-specificity
or and more one of relationship
specificity and network-specificity. For example,
separate from it. In any case, organizational learning
is now discussed within both lines of research the problems associated with foreign market entry
(Benito & Tomassen, 2003; Kay, 2005; Pitelis, 2007).are largely the same as those associated with entry
We highlight two studies that combine the into any other market. The firm does not know who
concept of firm-specific advantages with the inter the business actors are, or how they are related to
nationalization process. Sanden and Vahlne (1976) each other, unless it already enjoys relationships
developed the concept of an advantage cyclewith to one or several actors in that market. There is a
need for research that may explain when the
describe how some firm-specific advantages
liability of foreignness is the main problem in
increase over time while others decrease. The cycle
foreign market entry and when the liability of
is initiated by an internal firm-specific advantage
that allows the MNE to develop strong positionsoutsidership
in is the primary difficulty. Research into

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The Uppsala model revisited jan johanson and Jan-Erik Vahlne
1427
ways in which the two approaches might be

technology for which production and services are
combined would also be interesting. For example,performed by a network of other firms (e.g., Nike,
we suggest that studies of the impact of psychicIKEA). We think that the business network model
distance on the formation and deepening will of be useful in enhancing understanding of their
internationalization. Trading companies are
relationships, as well as of the role of relationships
as vehicles in learning about institutional and another type of network firm with a long interna
cultural conditions, would both be worthwhile. tional business tradition. Although they are very
The business network model of internationaliza important, they have been almost entirely
tion can be used to study both resource-seeking
neglected in the international business literature
except, for their recognition as more or less
and market-seeking internationalization. Pyndt and
marginal partners to manufacturing firms. The
Pedersen (2006) found that at the resource-seeking
end of the value chain the dynamics of learning research by Ellis (2001) is one of the few exceptions.
and trust and commitment building lead We
to recommend research on these firms based on
exploration and exploitation in the context ofthe business network model of internationaliza
expanding upstream activities. As our businesstion.
network model is symmetrical in terms of suppliersAlthough we have avoided constructivist metho
and customers, it can be used to analyze interna
dology, we believe that it does have the potential to
tional sourcing and supply chain development. contribute to a deeper understanding of the inter
While there is considerable research on global
national network development processes that we
supply chain development, little of it appears have
in conceptualized in this paper. An interesting
international business journals compared with thestudy of internationalization of professional ser
number of studies on market-seeking internationa vices (Reihlen & Apel, 2005) demonstrates that this
lization. In recent years, however, two articles approach merits further research, possibly using
on international sourcing have been published longitudinal
in case studies. Such studies would add
JIBS (Griffith & Myers, 2005; Murray, Kotabe,particularly
& to our understanding of the term
"creating" in the business network model of the
Zhou, 2005). In both articles the authors study the
performance of global supply relationships and internationalization process.
alliance-based sourcing. The dynamics of the inter
nationalization of supply networks is an increas
ingly important problem in international business ACKNOWLEDGEMENTS
that our model can address. The authors thank numerous colleagues, students, and
Our business network view of the firm as an authors of IB articles who through the years have
exchange unit rather than a production unit, contributed
in views and remarks, critical and encoura
contrast to received microeconomic theory, offersging. We also thank the editor, Alain Verbeke,
new opportunities to analyze the internationalizaand three anonymous reviewers who helped put this
tion of companies that operate fundamentally paper as in a much better shape. We express gratitude
networks. A rapidly growing number of modern to the Torsten and Ragnar S?derberg Foundations for
financial assistance.
firms are built around a brand, a design, or patented
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1431
Zahra, S. A., Ireland, R. D., & Hitt, M. A. 2000. International interests include internationalization processes and
expansion by new venture firms: International diversity, mode business networks. He is a native of Sweden and can
of market entry, technological learning, and performance.
Academy of Management Journal, 43(5): 925-960. be reached at [email protected].
Zajac, E. J., & Olsen, C. P. 1993. From transaction cost to
transactional value analysis: Implications for the study of
organizational strategies. Journal of Management Studies, Jan-Erik Vahlne (Ph.D., Uppsala University) is
39(1): 131-145.
a Professor at Gothenburg University, Sweden.
His research interests include internationalization
ABOUT THE AUTHORS and globalization processes. He is a native of
Jan Johanson (FX., Uppsala University) is Professor Sweden and can be reached at jan-erik.vahlne?
Emeritus at Uppsala University, Sweden. His research handels.gu.se.
Accepted by Alain Verbeke, Area Editor, 4 November 2008. This paper has been with the authors for four revisions.

168.176.5.118 on Sat, 12 Sep 2020 13:55:59 UTC

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The Uppsala internationalization process model revisited: From liability of Foreignness

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The Uppsala internationalization process model

Jan Johanson1 and Abstract

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2006). As some types of knowledge are not

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ways in which the two approaches might be

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Argote, L. 1999. Organizational learning: Creating, retaining

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Galbraith, J. R. 1973. Designing complex organizations. Reading,

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Madsen, T. K., & Servais, P. 1997. The internationalization Ring,

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