Inertia and Managerial Intentionality: Extending the Uppsala Model.

Author:Dow, Douglas
Position:RESEARCH ARTICLE - Report

1 Introduction

For more than 40 years the original Uppsala internationalization process model (Johanson and Vahlne 1977) and its subsequent variants (e.g., Johanson and Vahlne 1990, 2003, 2006, 2009) have been the dominant explanation of how firms extend and deepen their international expansion. (1) This model and its variants continue to generate debate and inspire empirical investigation (e.g., Vahlne and Ivarsson 2014; Welch and Paavilainen-Mantymaki 2014; Forsgren 2016). However, while substantial modifications to the model have been suggested, virtually all of the formulations are predicated on a narrow and common set of limiting and releasing mechanisms influencing 'state of change' decisions. Surprisingly, these core mechanisms have not been contested theoretically, nor subjected to empirical testing (Forsgren 2002; Johanson and Vahlne 2006; Petersen and Pedersen 1997). Thus the primary objective of this paper is to question the underlying limiting and releasing mechanisms of the Uppsala model, and propose that a pair of mechanisms commonly employed in the other branches of management literature--specifically inertia (Tushman and Romanelli 1985; Greenwood and Hinings 1996) and managerial intentionality (Lewin and Volberda 1999)--may play such a role in the Uppsala model.

In their original model, Johanson and Vahlne (1977) proposed that firms in general tend to follow a process of gradual, incremental internationalization and that resistance to a 'change of state' is attributable to a key limiting mechanism: the risk and uncertainty arising from imperfect knowledge about foreign markets. This proposition was subsequently expanded to include lack of awareness of opportunities (Johanson and Vahlne 2006), and a sense of outsidership and lack of trust (Johanson and Vahlne 2009). Countering these limiting mechanisms, all of the existing variants of the Uppsala model propose that experiential learning is the key releasing mechanism. Indeed, Johanson and Vahlne (2009, p. 1411) themselves state, "The change mechanisms in the revised model are essentially the same as those in the original version, although we add trust-building and knowledge creation... (p. 1424) the basic structure of the model is the same as the one we built in 1977". The same holds for the most recent variant of the model (Vahlne and Ivarsson 2014).

We argue that the aforementioned set of limiting and releasing mechanisms may be too narrow; and in particular, the concept of inertia may play an important role as a limiting mechanism. For the purposes of this paper, we draw on the strategy and change management literature (Tushman and Romanelli 1985; Greenwood and Hinings 1996), defining inertia as a resistance to fundamental reorientations in strategy or firm activities. Our proposed modification is significant for two related reasons. First, the existing variants of the Uppsala model are all framed as positive self-reinforcing cycles: ceteris paribus, with the passage of time, as firms operate in an international environment, they will learn more about that environment and build stronger relationships. This will decrease the uncertainty and perceptions of risk, as well as increase trust and opportunity awareness, enabling the firms to increase their international commitments. However, we propose that if inertia plays a significant role as a limiting mechanism, this may imply a negative self-reinforcing cycle, where the passage of time and the accumulation of experiential knowledge may increase the strength of this limiting mechanism. While Johanson and Vahlne (2009) acknowledge in passing the possibility of learning having a negative impact on international commitment, this possibility is not recognized formally in the existing models.

Bringing inertia into the model raises a second significant issue: if the passage of time and accumulation of experiential knowledge can lead to the entrenchment of inertia, what is the mechanism that releases the firm from this inertial cycle? Here we again draw on the broader management literature and propose that managerial intentionality (Lewin and Volberda 1999), often operating in concert with environmental change, acts as a releasing mechanism. Note here that we are not rejecting the limiting and releasing mechanisms of the original Uppsala model (e.g., the importance of risk, uncertainty and experiential learning), but rather we are proposing that the process may involve a broader array of limiting and releasing mechanisms than the existing models acknowledge, specifically inertia and managerial intentionality.

These changes have two distinct implications for the Uppsala model. The first is what Alvesson and Sandberg (2011, p. 254) refer to as the challenging of an 'in-house assumption' or assumptions that "are shared and accepted as unproblematic by its advocates". Rather than representing an incremental extension to a theory, it represents a questioning of a fundamental assumption within the existing domain of a theory. In this context we are questioning the role that perceptions of risk and the positive aspects of experimental learning play in the internationalization process. In and of itself, we argue that the questioning of the underlying assumptions of a theory is a critical part of theory development; and thus, this is a major contribution in its own right. Second, this recasting of the Uppsala model to acknowledge the potential role of inertial tendencies and managerial intentionality also may help to explain why all firms do not necessarily following the same internationalization path. Specifically, it has implications for a variety of issues that at times have been viewed as challenges to or limitations of the original and revised Uppsala frameworks, such as rapid internationalization (Knight and Cavusgil 1996; Oviatt and McDougall 1994), regional strategies (Rugman and Verbeke 2004), skipping steps in the establishment chain (Petersen and Pedersen 1997), and firms becoming stuck in one mode of internationalization (Benito et al. 2009).

As a result, the remainder of this paper is structured as follows. Given the breadth of existing literature concerning the Uppsala model, we review the original model and the subsequent critiques and revisions, and propose a meta-model that we argue underlies all the existing variants. From this base, we then set out to develop an extended Uppsala model. The first step is a review of the literature concerning our proposed limiting mechanism, inertia, highlighting how it may influence internationalization decisions. Next we introduce our releasing mechanism, managerial intentionality, and how in combination with changes in the environment, it can trigger a release from inertia. An extended representation of the Uppsala model is presented, with implications and conclusions.

2 The Uppsala Model(s) Reviewed

2.1 The Original Uppsala Model

The original Uppsala model builds on both the growth theory of the firm (Penrose 1959) and the behavioral theory of the firm (Cyert and March 1963). Johanson and Vahlne (1977, p. 23) argue that "internationalization [of the firm] is the product of a series of incremental decisions", and that the process is best viewed as a dynamic learning model (see Fig. 1) incorporating both 'State' (foreign market knowledge and foreign market commitment) and 'Change' aspects (commitment decisions and current activities).

This dynamic model begins with the assumption that imperfect knowledge about foreign markets, arising from psychic distance, is the major obstacle to expanding international operations. In instances where the psychic distance is large, the firm's uncertainty about a market will be magnified by the potential imperfections in information flows. In combination with large and difficult to reverse commitments, a firm may perceive investment in that market as excessively risky. This creates a "barrier to making commitment decisions" (Johanson and Vahlne 1977, p. 30). A firm may seek to reduce this risk either by selecting psychically closer markets--the psychic distance postulate--or by using a lower commitment mode, e.g., licensing or exporting rather than investing in the establishment of a foreign subsidiary. This later behavior is termed the 'establishment chain postulate' by Petersen and Pedersen (1997).

Following Penrose (1959), Johanson and Vahlne stress that experiential learning about foreign markets is the key releasing mechanism that ultimately allows firms to enter more distant markets and/or undertake increased levels of commitment. Once a firm enters and conducts business in a foreign market, it gradually accumulates experiential knowledge about that specific country. In turn, this experiential knowledge reduces the uncertainty about various aspects of the market so that some activities, previously rejected as too risky, begin to fall within acceptable levels of risk, and the firm is able to implement a change of state by progressing to a higher level of commitment.

2.2 Empirical Testing, Criticisms and Critiques of the Original Model

As with any theoretical framework, the original Uppsala model has attracted efforts to empirically validate its predictions, and a range of criticisms and critiques. In terms of empirical validation of the predicted firm behaviors, the overall results are best described as mixed (Bjorkman and Forsgren 2000). On one hand, the Uppsala predictions concerning psychic distance and experiential knowledge are now virtually de rigueur control variables in market selection models (e.g., Ellis 2008). The relationship has been supported with respect to predicting trade flows (Dow and Karunaratna 2006; Srivastava and Green 1986), foreign direct investment (FDI) flows (Davidson 1980; Green and Cunningham 1975) and specific market selection by firms (Berry et al. 2010; Dow 2000). Yet conversely, the growing field of research on born global (BG) firms (Knight and Cavusgil 2004) and...

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