1、THE INTERNATIONALIZATION PROCESS OF THE FIRM-A MODEL OF KNOWLEDGE DEVELOPMENT AND INCREASING FOREIGN MARKET COMMITMENTS JAN JOHANSON* Center of International Business Studies University of Uppsala JAN-ERIK VAHLNE* Institute of International Business Stockholm School of Economics Abstract. On the bas
2、is of empirical research, a model of the internationalization process of the firm is developed. The model focuses on the gradual acquisition, integration and use of knowledge about foreign markets and operations, and on the incrementally increasing commitments to foreign markets. In particular, atte
3、ntion is concentrated on the increasing involvement in the individual foreign country. * Several studies of international business have indicated that internationalization of the firms is a process in which the firms gradually increase their international involvement. It seems reasonable to assume t
4、hat, within the frame of economic and business factors, the characteristics of this process influence the pattern and pace of internationalization of firms. In this paper we develop a model of the internationalization process of the firm that focuses on the development of the individual firm, and pa
5、rticularly on its gradual acquisition, integration, and use of knowledge about foreign markets and operations, and on its successively increasing commitment to foreign mar- kets. The basic assumptions of the model are that lack of such knowledge is an important obstacle to the development of interna
6、tional operations and that the necessary knowledge can be acquired mainly through operations abroad. This holds for the two directions of internationalization we distinguish: increasing involvement of the firm in the individual foreign country, and successive establishment of operations in new count
7、ries. In this paper we will, however, concentrate on the extension of operations in individual markets. We have incorporated in our model some results of previous empirical studies of the development of international operations, seeking theoretical explanation through the behavioral theory of the fi
8、rm (Cyert and March, 1963). Specifically, we believe that internationalization is the product of a series of incremental decisions. Our aim is to identify elements shared in common by the successive decision situations and to develop thereby a model of the internationalization process which will hav
9、e explanatory value. Because we, for the time being, disregard the decision style of the decision-maker himself, and, to a certain extent, the specific properties of the various decision situations, our model has only limited predictive value. We believe, however, that all the decisions that, taken
10、together, constitute the internationalization process-decisions to start exporting to a country, to establish export channels, to start a selling subsidiary, and so forth-have some common characteristics which are also very important to the subsequent internationalization. Our model focuses on these
11、 common traits. We hope that the model will contribute to conceptualization in the field of internationalization of the firm and thus increase understanding of the development of international operations as described in the empirical studies. We hope, too, that it can serve as a frame of reference f
12、or future studies in the problem area and may also be useful as a tool in the analysis of the effects of various factors on the pattern and pace of internationalization of the firm. * Jan Johanson is a member of the faculty of the Center for International Business Studies at the University of Uppsal
13、a, Sweden. Jan-Erik Vahlne is on the faculty of the Institute of International Business, Stockholm School of Economics, Stockholm, Sweden. The authors are indebted to their colleagues at the Center for Internatonal Business Studies, Department of Business Administraton, University of Uppsala for val
14、uable comments and to David Baker for careful criticism of content and language. Financial support has been given by the Svenska Handelsbanken Foundation for Social Science Research. INTRODUCTION 23 Palgrave Macmillan Journalsis collaborating with JSTOR to digitize, preserve, and extend access toJou
15、rnal of International Business Studieswww.jstor.orgIn the first section we described the empirical background of our study. Next we outline the model of the internationalization process, defining the main variables and the interaction among them. We then sum up by discussing some implications of the
16、 model and suggesting some problems for future research. EMPIRICAL The model is based on empircal observations from our studies in international business at the BACKGROUND University of Uppsala, that show that Swedish firms often develop their international operations in small steps, rather than by
17、making large foreign production investments at single points in time. Typically, firms start exporting to a country via an agent, later establish a sales subsidiary, and eventually, in some cases, begin production in the host country. We have also observed a similar successive establishment of opera
18、tions in new countries. Of particular interest in the present context is that the time order of such establishments seems to be related to the psychic distance between the home and the import/host countries (Hornell, Vahlne similarly, local production is generally preceded by sales subsidiaries. A s
19、ummary of the results we reached in two studies follows. They are by no means meant to be statistically representative, but the results are typical of studies we know. The first example is a case study of the internationalization process of the second largest Swedish pharmaceutical firm, Pharmacia.
20、At the time of the case study (1972) Pharmacia had organizations of its own in nine countries, of which three were performing manufacturing activities. In eight of these cases the development pattern was as follows. The firm received orders from the foreign market and after some time made an agreeme
21、nt with an agent (or sold licenses regarding some parts of the product line). After a few years Pharmacia established sales subsidiaries in seven of those countries (and in the eighth they bought a manufacturing company bearing the same name, Pharmacia, that had previously served as an agent). Two o
22、f the seven sales subsidiaries further increased their involvement by starting manufacturing activities. It is interesting to note that even this production decision was incremental; the new production units began with the least complicated manufactur- ing activities and later successively added mor
23、e complicated ones. In the ninth country Pharmacia started a sales subsidiary almost immediately when demand from the market was discovered. But the company did not totally lack experience even in this case. The decision-maker had received parts of his education in.the country in question, and befor
24、e the decision he had become acquainted with the representative of another pharmaceutical firm who was later made the head of the subsidiary (Hornell, Vahlne, this pattern holds for all the firms. With regard 24 to the production establishments there is a diffe,ence between Sandvik and Atlas Copco o
25、n Table I Establishment Patterns for the Investigated Firms. Sales Production Pattern subsidiary subsidiary n a n a s Firm 4 I I i i s s p p p Sandvik 2 18 0 2 13 Atlas Copco 3 14 0 3 9 Facit 0 14 0 2 3 Volvo 2 10 0 2 3 7 56 0 9 28 “n“ denotes no regular export activity “a“ denotes selling via agent
26、 “s“ denotes sales subsidiary “p“ denotes production subsidiary an arrow denotes change from one state to another one hand, where twenty-two out of twenty-seven establishments were preceded by sales subsidiaries, and Facit and Volvo on the other, where five out of seven occurred without the firm hav
27、ing any sales subsidiary in the country. However, in no case has a firm started production in a country without having sold in the country via an agency or a sales subsidiary before. Regarding the first establishments of sales subsidiaries, they do not seem to have been a step in a conscious and goa
28、l directed internationalization-at least not in Sandvik, Atlas Copco, and Volvo. For various reasons they had to take over representatives or start sub- sidiaries. As they gradually have gained experience in starting and managing subsidiaries, they have developed policies of marketing through subsid
29、iaries in some of the firms. It should be noted that the firm, Atlas Copco, which most consistently used subsidiaries for export marketing did so when it acquired a new general manager, a former manager of a department store. The producing subsidiaries almost all produce for local or in some cases r
30、egional markets. Their activity embraces finishing, assembly, or component works which could be called marketing production. The only exception is Atlas Copcos factory in Belgium making station- ary pneumatic equipment. Generally the development of the firm seems to be in accordance with the increme
31、ntal internationalization view discussed. This gradual internationalization is not exclusively a Swedish phenomenon, as the following quotations demonstrate: On its part exporting is a means also of reducing costs of market development. Even if investment is necessary in the future, exporting helps
32、to determine the nature and size of the market. As the market develops, warehouse facilities are established: later sales branches and subsidiaries (Singer, National Cash Register, United Show Machinery). The record of company development indicates that the use of selling subsidiaries at an early st
33、age reduced the later risks of manufacturing abroad. These selling affiliates permitted the slow develop- ment of manufacturing from repairing, to packaging, to mixing, to finishing, to processing or assembling operations, and finally to full manufacture (Behrman, 1969, p 3). Within countries there
34、is often a pattern of exports from the United States, followed by the establishment of an assembly or packaging plant, followed by progressively more integrated manufacturing activities (Vaupel, 1971, p 42). Without reference to any specific empirical observations Gruber, Mehta, and Vernon (1967) me
35、ntion that “one way of looking at the overseas direct investments of U.S. producers of manufac- turers is that they are the final step in a process which begins with the involvement of such producers in export trade“. Knickerbocker (1972) also refers to this process and explicitly disting- uishes ag
36、ents and sales subsidiaries as separate steps in the process. Lipsey and Weiss (1969; 1972) refer to a “market cycle“ model with similar characteristics. However, in none of these cases have the dynamics of this process been investigated. It has only been used as an argument in the discussion of rel
37、ated problems 25 Specificaton of the Problem THE INTER- NATIONALIZA- TION MODEL If internationalization indeed follows the pattern described above, how can we explain it? We do not believe that it is the result of a strategy for optimum allocation of resources to different countries where alternativ
38、e ways of exploiting foreign markets are compared and evaluated. We see it rather as the consequence of a process of incremental adjustments to changing conditions of the firm and its environment (cf. Aharoni, 1966). Changes in the firm and its environment expose new problems and opportunities. Lack
39、ing routines for the solution of such sporadic problems, the concerns management “searches in the area of the problem“ (Cyert and March, 1963). Each new discontinuity is regarded as an essentially unpre- cedented and unparalleled case; the problems and opportunities presented are handled in their co
40、ntexts. Thus commitments to other markets are not explicitly taken into consideration; resource allocations do not compete with each other. Another constraint on the problem solution is the lack of, and difficulty of obtaining market knowledge in international operations. That internationalization d
41、ecisions have an incremental character is, we feel, largely due to this lack of market information and the uncertainty occasioned thereby (Hornell, Vahlne and Wiedersheim-Paul, 1972; Johanson, 1970). We believe that lack of knowledge due to differences between countries with regard to, for example,
42、language and culture, is an important obstacle to decision making connected with the development of interna- tional operations. We would even say that these differences constitute the main characteristic of international, as distinct from domestic, operations. By market knowledge we mean information
43、 about markets, and operations in those markets, which is somehow stored and reasonably retrievable-in the mind of individuals, in computer memories, and in written reports. In our model we consider knowledge to be vested in the decision-making system: we do not deal explicitly with the individual d
44、ecision-maker. As indicated in the introduction, a model in which the same basic mechanism can be used to explain all steps in the internationalization would be useful. We also think that a dynamic model would be suitable. In such a model the outcome of one decision-or more generally one cycle of ev
45、ents-constitutes the input of the next. The main structure is given by the distinction between the state and change aspects of internationalization variables. To clarify, we can say that the present state of internationalization is one important factor explaining the course of following internationa
46、li- zation, as in expression (1) below. A I = f(l. ) where I state of internationalization The state aspects we consider are the resource commitment to the foreign markets-market commitment-and knowledge about foreign markets and operations. The change aspects are decisions to commit resources and t
47、he performance of current business activities. The basic mechanism is illustrated schematically in Figure 1. Figure 1. The Basic Mechanism of Internationalization-State and Change Aspects. Market knowledge Commitment decisions Current activities Market commitment 26 Market knowledge and market commi
48、tment are assumed to affect both commitment decisions and the way current activities are performed. These in turn change knowledge and commitment (cf. Aharoni, 1966). In the model, it is assumed that the firm strives to increase its long-term profit, which is assumed to be equivalent to growth (Will
49、iamson, 1966). The firm is also striving to keep risk-taking at a low level. These strivings are assumed to characterize decision-making on all levels of the firm. Given these premises and the state of the economic and business factors which constitute the frame in which a decision is taken, the model assumes that the state of internationalization affects per- ceived opportunities and risks which in turn influence commitment decisions and current activities. We will discuss the mechanism in detail in the following sections. The two state aspects are resources committed to foreign markets-ma
