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Born global VS. U-Model
Transcript of Born global VS. U-Model
Ronya Gilani, Veronica Chan, Wei Jiang
Discuss the underlying logic of Uppsala model by drawing on an actual company's internationalisation process. Does this model explain the 'born-global' phenomenon well? Why/ why not? Use an example of a born-global company in your explanation.
The underlying concept of Uppsala model
Asymmetry of information between firm and foreign market
Uncertainty due to difference in culture, language, education and economic development.
Begin with small psychic distance market
Gain experience then expand to more distance market
The importance of psychic distance
What is Uppsala model?
• By Johanson and Wiedersheim-Paul, furthered edited by Johansan and Vahlne
• 4 stages a firm undertakes to enter an international market
• Each successive stage represents a greater degree of internationalism
Why do some companies ignore the Uppsala model and not go through the 4 steps?
• American coffee company
• Founded in 1971
• In 1987, 17 stores in USA and Canada
• In 2012, more than 19000 store worldwide
• Timing of market entry
• Environmental factors
• Legal factors
• Political factors
For example, European firm makes a careful and considerate decision to move the manufacturing production to a low-cost country. More likely to be in China than a neighboring country.
Pros and cons of U-model → Limitations
• Provides a guideline for businesses who have a lack of knowledge of the foreign market.
• Ignored some forms of market entries e.g. franchising
• Does not take different market situations into account
• Original model purely looked at the internal capabilities whilst ignoring the external factors e.g. market potential
• Too product oriented → Service industries account for 70% in US and 60% in Europe (2006)
• The model is too generalised. A flexible template should have been adopted which will aid more companies
What is internationalisation? Why would businesses want to go international?
Internationalisation is basically the action where a business decides to operate across its domestic market.
Declined demand in the domestic market
Restrictive government regulations in Australia
To take advantage of economies of scale especially when you have excess goods
Opportunities to increase sales and market share
Cheaper labour and inputs
Access to skills and technology that is lacking in the parent country
Harvey Norman and the U-model
Step 1 → Did not engage in export, only had domestic activity during the establishment.
Step 2&3 →The first Harvey Norman franchise store opened in Slovenia and consequentially began export activity to the store.
Step 4 → As they expanded their product range into electronics, production was made overseas due to cost advantages.
Born global is where a company seeks to partake in trade outside of its national borders since the beginning of its operations in order to gain a competitive advantage through global sourcing.
Born Global VS. U-Model
• Performance – export growth, foreign sales, its success in the international market
• Structural – degree of resources, offices overseas (transnationality index, 3 ratios)
• Attitudinal – how involved the MNE is to the foreign countries they operate in
1. In international markets, higher returns are usually associated with:
a. High risk and high attractiveness
b. high risk and low attractiveness
c. low risk and high attractiveness
d. low risk and low attractiveness
2. Psychic distance refers to factors such as:
a. differences in language, culture and political systems
b. difference in the structure of channels of distribution
c. size and nature of international competition
d. all of the above
3. Which of the following is not a stage in the Uppsala internationalisation model?
a. Establishment of a foreign sales subsidiary
b. No regular export activities
c. Foreign production/ manufacturing units
d. Joint venture
4. If you were in a small undeveloped firm from China and wanted to establish into multinational firm, would you follow the Uppsala model or not, and why?
5. What are the pros and cons of being an internationalised corporation?
6. Distinguish between "Born Global" and the "U-model", use two examples other than the one used in this presentation to illustrate your answer.
Pandian, R & Sim, A 2002, 'Internationalisation Process: Revisiting the Uppsala Model in the Asian Context. In T. Chan & G. Lui (Eds.)’, WTO and Global Competition: A new Era for International Business Hong Kong: Lingnan University.
Johanson, J & Vahlne, JE 1977, 'The Internationalization Process of the Firm – A Model of Knowledge Development and Increasing Foreign Market Commitments’, Journal of International Business Studies, vol. 8, no. 1, pp. 23-32
Forsgren, M & Hagstrom, P 2007, 'Ignorant and impatient internationalization?: The Uppsala model and internationalization patterns for Internet‐related firms', Critical perspectives on international business, vol. 3, no. 4, pp. 291 - 305
Zohari, T. (2012). The Uppsala Internationalization Model and its limitation in the new era |. [online] DigitPro. Available at: http://www.digitpro.co.uk/2012/06/21/the-uppsala-internationalization-model-and-its-limitation-in-the-new-era/ [Accessed 7 Aug. 2015].
Harm Kuiper's Blog, (2011). Motivation to go abroad: pull and push factors. [online] Available at: https://harmkuiper.wordpress.com/2011/03/09/motivation-to-go-abroad-pull-and-push-factors/ [Accessed 6 Aug. 2015].
Harveynorman.com.au, (2015). About Harvey Norman Stores | Harvey Norman Australia. [online] Available at: http://www.harveynorman.com.au/about-harvey-norman-stores/ [Accessed 8 Aug. 2015].
Ways to measure degree of internationalism
Google.com, (2015). Company – Google. [online] Available at: http://www.google.com/about/company/ [Accessed 9 Aug. 2015].
Gogoro - Introducing the world's first and only Smartscooter™, (2015). Gogoro - Introducing the world's first and only Smartscooter™. [online] Available at: https://www.gogoro.com/smartscooter/faster [Accessed 8 Aug. 2015].
However, Starbucks does not follow the Uppsala model. Why?
• Skipped steps
• Entered foreign markets with great psychic distance
• Used a variety of entry modes as below:
1. International licensing agreement (eg Australia)
2. Wholly-owned stores (eg UK)
3. Joint venture (eg China)
Why in general some companies do not follow the 4 stages?
Guideline for a domestic company who wants to interact to an international level
Market knowledge leads to commitment decisions which leads to market activities and eventually leads to market commitment