A note on Penrosean growth, resource bundles and the Uppsala model of internationalisation.
| Verfasser | Steen, John T. |
Abstract and Key Results
* The Uppsala model of the internationalisation process of the firm has many similarities with Penrosean growth theory but has been limited by ambiguity about the internal mechanisms of growth. Core insights from Penrose's Theory of the Growth of the Firm may advance development of the Uppsala model.
* Penrose's theory of growth is a powerful adjunct to the Uppsala model of the internationalisation process of the firm.
* We propose a variation on the Uppsala model that incorporates the dynamic and interdependent interaction between managerial choice, the formation of resource bundles and their connection to external opportunities.
Key Words
Uppsala Model, Penrose, Resources, Internationalisation, Structure, Agency Theory
Introduction
The internationalisation of the firm has attracted scholarly attention from several perspectives, but these fall into two main themes. On the one hand, and largely attributable to the dominant form of international business at the time in the mid-1970s, theory emerged from an economics heritage to explain the very nature of the large MNE (Buckley/Casson 1976, Rugman 1981, Dunning 1981). Under this market internalisation theory, imperfections in international markets motivate transactions cost minimising firms to bring exchange into the firm's governance structure. The large MNE becomes a structure of geographically dispersed, internal markets (Dunning 1988, Pitelis 2002a). This explains well the nature of the large MNE, but it is static and it demands that markets are imperfect or missing (Pitelis 1991). At about the same time, a 'Nordic' school of thought, internationalisation process theory, sought to explain the process through which internationalising firms traversed as they moved into foreign markets and deepened their involvement in these markets (Carlson 1974, Johanson/Wiedersheim-Paul 1975, Johanson/Vahlne 1977, Wiedersheim-Paul/Olson/Welch 1978). This approach took on a behavioural heritage in attempting to bring dynamism into understanding the internationalisation of the firm, and it attributes internationalisation dynamics to managerial commitment, resources and acumen. While both of these explanations sometimes are identified with the process of firm internationalisation, Penrosean expansion through international extension is clearly of the latter Nordic genre.
In this paper we review the Uppsala model of internationalisation with particular emphasis upon the conceptual connections within the model to Penrosean growth theory. Existing criticisms of the Uppsala model are discussed and the potential for theoretical advancement of the model by revisiting fundamental insights from Penrose's (1959) The Theory of the Growth of the Firm (TGF) is evaluated by examining more recent commentary on Penrose's work. Empirically, we suggest that Penrosean approaches to the process of internationalisation need to be able to follow the extension of resource bundles within the firm as they establish connections with other networks beyond the boundary of the firm. These resource bundles and external connections both constrain and enable managerial strategic choice as the internationalisation process unfolds.
TGF and the Oppsala Model of the Internationalization Process
The Uppsala model views internationalisation as a dynamic evolutionary process where the firm gradually increases its international involvement (Johanson/Vahlne 1977, 1990, Petersen/Pedersen 1997, Forsgren 2002). More specifically, a cyclical relationship exists between the state and change aspects of internationalisation. The state aspects of internationalisation are market commitment and market knowledge. These are presumed to affect the change aspects of resource commitment decisions and current activities. In many respects, the Uppsala model is the most Penrosean of all theories that explain the form and expansion of multinational enterprise (Bjorkman/Forsgren 1997). Penrose herself saw her theory as a critique of neoclassical theories of the firm that excluded consideration of internal firm processes and development, leading to "... cumulative movements in any one direction" (Penrose 1959, p. 1).
Johanson and Vahlne (1990) have indicated that some theoretical basis for the Uppsala model exists within behavioural theories of the firm (cf. Cyert/March 1963). However, Penrose's (1959) TGF is obviously influential. A key feature of the Uppsala model, which is derived from TGF, is the separation of objective knowledge from experiential knowledge that is acquired through personal experience. This distinction was originally proposed to account for the gradual nature of the internationalisation process that was observed in the original Uppsala case studies of the mid-1970s (Johanson/Wiedersheim-Paul 1975, Johanson/Vahlne 1977). If it is presumed that the firm's knowledge of international markets is subjective and primarily derived from experience, then the firm can be expected to commit resources incrementally as it gains experience from current activities in the market. Foss (1999) suggests that a central concept of TGF is productive opportunity which is defined as "...the productive possibilities that its 'entrepreneurs' see and can take advantage of. A theory of the growth of the firm is essentially an examination of the changing productive opportunity of firms" (Penrose 1959, pp. 31 et seq.). Clearly, this insight is also key to the change aspects of the Uppsala model where international growth is also dependent upon the change in the perceived opportunity set. In their discussion of international commitment decisions Johanson and Vahlne (1977, p. 29) state that:
Problems and opportunities--that is awareness of need and possibilities of business actions--are assumed to be dependent on experience. Like Penrose, we might even say that opportunities--and problems--are part of that experience. Firm experience as well as market experience is relevant. Problems are mainly discovered by those parts of the organization that are responsible for operations on the market and primarily by those who are working there. For them, the natural solution to problems will be the extension of the operations on the market to complementing operations. The importance of experiential knowledge and changing productive opportunity can explain two patterns in the internationalisation process that were observed by early studies of internationalisation processes (Cavusgil 1980, Johanson/Vahlne 1990, Andersen 1993, Forsgren 2002, Lamb/Liesch 2002). The first of these is that the firm's level of engagement within a country will follow an establishment chain, which ranges from no regular export activities to offshore manufacturing, bringing a gradual increase in market experience at each step (Denis/Depelteau 1985, Welch/Luostarinen 1988). Second, firms enter new markets sequentially, with successively greater differences in language, culture and other factors that hinder the flow of information between the market and the firm (Johanson/Wiedersheim-Paul 1975, Kogut/Singh 1988, Dow 2000, Brewer 2001). These factors may be disruptive to the flow of information into the firm but can be overcome with increasing experiential knowledge of similar markets (Erramilli/Rao 1990, Liesch/Knight 1999).
More recent empirical research confirms the similarities between TGF and Uppsala internationalisation theory. For example, Eriksson, Johanson, Majkgard and Sharma (1997) have suggested that a lack of business knowledge in the form of knowledge about international competitors, clients and markets abroad, as well as a lack of institutional knowledge on understanding languages, laws, norms and standards in foreign markets, will increase the perceived cost of internationalisation. These results are in agreement with the original Uppsala model in that the experiential knowledge is located in the decision-making routines and structures within the firm. Such structures and routines cannot be established in advance and are instead built as a consequence of the cycle of learning and Penrosean growth that is implied in the Uppsala model. Another study that investigated explanatory factors of the internationalisation of Danish...
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