The RBVconstant redevelopment emsures that valuable insight will thus be gained in thefuture. As for future research using the RBV, one detrimental shortcoming wouldbe the absence of an insight into howvaluable, rare, inimitable and non-sustainable resources are created within afirm. Despiteboth their flaws the RBV stands as the favoured to providing a valid andholistic insight into internalisation. >>> why? The Upsalamodel describes incremental learning process on internalisation which has beendwarfed in its credibility owing to issues s A hybridapproach entailing the significance of the inimitability of a resource basehighlighted by the RBV, the importance of knowledge acquisition emphasized bythe Uppsala model and – in conjunctionwith each other these would produce the ideal ingredients for a holistic stream of research into thestudy of internalization.
An area worthinvestigating for future research intertwinedIt isundeniable that both ‘The Uppsala Stage Model and’ and ‘The Resource Based Viewmodel’ provide cogent/lucid insight intoconcept of the internalization process. The Upsala model, which has beencriticised for its dithering applicability, pragmatic deficiency and itsfailure to consider various institutional and managerial variables(strategicalliances), describes a linear approach in which firms internationalize incrementally. Meanwhile the RBV, despite having itsspecific flaws, explores in-depth the utilisation of firm-specific resources inforeign market exporting.
Irrespective of the limitations this essay has exposedof both approaches, the RBV seems to provide a more lucid and comprehensiveexplanation of internalization. Conclusion OmissionNordstr?m (1990) argues that given the increasing homogeneous nature ofthe world, has meant that the notion of psychic distance has fallen out offavour. Nevertheless, his argument fails to contemplate upon the possibility ofover embeddedness posing as a gradual obstacle to internalization which mayrestore the importance of psychically distant exporting. The RBV’sdependency on the VRIN framework to generate a competitive advantage does notcoincide with this drift towards isomorphism. It is more probable that within amore homogenous environment, firms willbypass phases of the model given the ability to more easily emulate and exploitother firm’s strategies. Whilst this goes in line with the idea of sequential psychic entryhighlighted by the Upsala model, the subsequent attempts at entering foreignmarkets unsuccessfully aligned with the model.
Is this thus an indication of a mushrooming gap between the applicabilityof the Uppsala at its birth and in modern-day business? If so does this suggest adeclining relevance of the theory behind the RBV too? has made it relatively easier to conduct business overseas. Using thestudy Jonsson and Fosson (2011) conducted on IKEA to examine the internalizationprocess as example, Given the factthat it is relatively dated, the Uppsala model can seem to be somewhat obsoletein this new age where the depth of knowledge of available Relevance withContemporary business Classifyingthem as completely separate, the Upsala model does not consider theinterdependence between regional markets ( Hollensen, 2004). Contrastingly, …Unlikethis, the RBV, though originated in developed economies, still maintains aholding within international operation.
Lu et al (2009) argues that despite thedifference in institutional environments, when analysing 300 firms over 6regions within China, they found the RBVto be prevalent in recognising the potential of institutional capital andmanagerial ties to enhance the firm’s competitive advantage. The RBV is much more relevant with regards to thejeopardy of exporting fluidity and track due to the impact of resource constraints/Rather, the influence of resource constraints having a major effect onoverseas expansion speed and direction credits the RBV more when looking atSME’s Seeing asthe Upsala model was uniquely derived from four Swedish manufacturing firms,one of its notable limitations is its misleading assumption that it can beapplied to all other types of firms. Jones and Crick’s (2000) studydemonstrated SMEs do not necessarily utilise the same internalizationapproaches as MNCs. The study, which consisted of ten home-grown firms eachwith up to 100 employees and all unacquainted with international expansion,showed that the Upsala model was not so pertinent for SMEs. Despite all havingbegun expanding overseas, six out of the eight firms did not utilise asubsidiary abroad.
Legitimacy andGeneralisability Is theUppsala therefore only relevant to businesses involving customer interaction? Ifso, with technological advances being so pervasive in this era and causing thedigitalization of sector, is the impact of psychical distance over-exaggerated/overstating/over-amplifiedin the Uppsala model’s explication/versionof the internalization process? Whenexamining the Uppsala model in the light of firms with an intangibly dominated resourcebase, the applicability of the psychic distance concept falters. Whereasobject-based services such as fast food restaurants/ supermarkets rely less oninterpersonal dealings and are thus less sensitive to cultural disparities,intangible services such as consulting entail more “customer contact andcustomisation, and greater need for cultural adaptation” (Knight,1999/Multilateral institutions and the internalisation of consulting providers:Client following, market seeking or network positioning? Catherine Welch)In theirstudy, Johanson and Vahlne (1977) use the RBV to illustrate that, should a firmnot have the exclusive resources to withstand the inevitable obstacles, psychicdistance tends to be barrier to entry. Firms are dissuaded to embark on international expansion due to theforeseeable augmented risks and in turn costs associated with commencingbusiness in the psychically distant countries. Nevertheless, recognising cleardistinctions in the level of tangibility of firms’ services, as Caneiro el al(2008) so crucially did in his study, can raise questions over the relevance ofthe psychic distance theory. Carson (2004) states “when new threats oropportunities arise, procedures often neeed to be changed. The design of new procedures is an importantaspect of the entrepreneurial response to changing situation”. Theentrepreneur’s ability and objectives are considered by the RBV. Unlike the RBVhowever, a notable limitation is the Uppsala model’s failure to recognize thesedisparities in managerial decision styles and the goals of an entrepreneur in a firm’s ability to enterexport markets ( Carson 2003, 2004).
It is clearboth models consider experiential knowledge to be crucial in making practicaldecision with regards to the overseas expansion process. However, whereas theRBV emphasizes on the qualities of the resource base that maintain acompetitive advantage, the Uppsala’s focus is skewed more towards the wayknowledge is accrued; more specifically the gradual manner in which it isacquired (Conor, 2002). One could infer that the RBV’s focus on the qualitiesof the resource base undermines/disregards the conventional principles ofrational decision-making, perfect information and symmetry in risk aversion. Insuggesting that “decision- makers possess the cognitive capability to maintaina balance between perceived and tolerable market risks”, the Uppsala modelperceives entrepreneurs to be rational, which is an economically viable stance. The idea that it is more probable for thosewith a denser network to export is one that the RBV recognizes, unlike theUppsala’s linear view which does taking account external factors. The notionthat a competitive advantage is derived from firm- specific resources is anotion proposed by the RBV, ittherefore sees the assemblage of resources asan internal process ( Dierickx and Cool, 1989).
Accordingto a study by Westhead et. al (2001), foreign markets are more penetrable tofirms equipped with a larger resource base. This ties in with this statement byBloodgood et. al (1996) affirming that a firm’s ability to accrue bothintangible and intangible resource stock impacts the degree to which it canpenetrate an overseas market. This is underpinned by the RBV’s notion that competitiveadvantage is an ‘internal paradigm’- i.e. it is derived from firm-specificresources which are accumulated internally (Connor 2002).Model Conventions Their modelis underpinned by this sequential commitment to allow for the acquisition ofobjective and experiential knowledge.
Firms’ awareness of ‘factors disturbingflows of information between firm and market’ ( ibid p.308) are the cause oftheir decision to gradually commit to international expansion. This notion iscalled psychic distance and is caused by market differences such as culture,language, level of industrial development and political systems’. Therisk-avoidance nature of the Uppsala model often means markets with greaterpsychical proximity tend to be firms’ primary destination to undergointernational expansion (Bjorkman and Forsgren, 2000). As such,the process consists of causal, path-dependant cycles . (doclib.
ihasselt.be)This modelsuggests that in the aim of ascertaining their commitment to the market, firmswill incrementally acquire, integrate and utilise knowledge about foreignmarkets and operations. Developed by Johanson an Vahnle (1977), the Upsalamodel was first empirically studied by Johanson and Widedersheim-Paul 1975 onfour Swedish firms undergoing international expansion in sequential stages. TheUpsala model is characterized by the following four phases: a domestic marketis established, subsequently firms begin exporting through an overseas agent,which is followed by the establishment of a sales subsidiary abroad and finallyproduction overseas commences via a subsidiary operation in the host country. Uppsala Model Similarly, Olmos (2011) further supports the relevance of the RBV ininternalization; multivariate analysisof 211 wineries showed a positive relationship between the size of the firm andthe degree of internalization, with this being attributed to the breadth ofresource within the larger firms Selasie etal. (2004) conclude that within small firms engaged in exporting increases withfirm size: ‘the larger firms the higher the export intensity and the moreexperience in internalisation’.
Burns (2005) broadens the debate by placinglearning and relational networks at the centre of the entrepreneurialarchitecture needed to develop larger entrepreneurial organisations. To himthese are the key entrepreneurial components in any context or arena, includingage and size.Confiningresources to land, labour, financial capital (Hunt and Morgan, 1995, p.3) theneoclassical model was not in alignment with entrepreneurship literature with regardsto resources and has thus been altered. The Resourced-Based view cultivated inthe paper of Penrose (1959), has since been incorporated into studies ofentrepreneurship. Through the lens of the RBV, firms are made up of aninimitable assemblage of resources deployed to achieve a competitive advantage(Barney, 1991).
The inimitable, rare, valuable and non-substitutable resourcebase is what differentiates the RBV from other respective approaches. (ibid). Thepredisposition of firms to deploy their inimitable collection of resources viainternationalization has originated from this desire to achieve a competitiveadvantage (Bloodgood et al. 1996). Firms’ inclination to engage in theexportation of goods and services abroad were attributed to various factorswhich Westhead et al (2001) recognised in their study. Conducting variousinterviews and questionnaires with service, manufacturing and constructionfirms, their study findings noted the competitive strategies used by thesefirms and their respective performances were heavily determined by theirinternal resources base. Businesses likely to engage in overseas expansion had’older principal founders, with more resources, denser contact networks andmore management savoir-faire’ (ibid p.
335). Resource-Based ViewThe increasingly globalized and penetrativenature of markets, communication technologies and transportation methods hasshifted great importance towards the study of internalization and itsapplication in the growth strategies of entrepreneurial firms (Knight, 2000,p.12). Defined as a process whereby firms expand sales into foreign markets, withpotential to increase profitability, competitiveness and innovation(Knight, 2000.p.16), internationalization encompasses several explanatorytheories. The cultivation of theoriesand frameworks from psychological, financial and economic disciplines has beenpossible given the broad academic scope of international entrepreneurship andbusiness ( Oviatt & Mc Dougall 2005).
In this essay, I will examine ‘TheResource-Based View’ and ‘The Staged Uppsala Model’ and their respectivecontributions to the field of internalization. ‘The Staged Upssala Model’ and ‘The Resource-Based View Model’ will beevaluatively contrasted, with the aim of highlighting their similarities aswell as delving into their differences. This essay will first introduce theoriginal framework of the approaches, and will then provide a comparison of theapproaches on the following measures: model assumptions, validity and relevanceto contemporary business. Finally, aconclusion will be provided whilst outlining potential areas for furtherresearch to add potency to the subject matter and a verdict of which I approachI personally think provides the understanding on the study of internalization.
IntroductionCompare and contrast two approaches to the study ofinternalization.