Uppsala Model of Internationalisation and Transaction Cost Analysis

This report critically evaluates the Uppsala model of internationalisation in relation to current international business expansion, comparing it with the product life cycle model and transaction cost theory. It outlines the Uppsala model's components, including its stages of internationalization, and discusses its advantages and disadvantages. The report applies theoretical concepts to real-life examples, such as NUMMI and IKEA, to illustrate the model's practical application. Furthermore, it analyzes the transaction cost theory and its relevance to market expansion. The report concludes by assessing the Uppsala model's suitability in the modern business environment, considering its limitations and the dynamic nature of international markets. The report also discusses the limitations of the Uppsala model, such as its inability to account for market-specific variations and its focus on SMEs. The report also includes an overview of key theoretical concepts and their interconnections.

Running head: GLOBAL MARKET AND SALES
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Name of the Student
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Author Note

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Introduction
The main aim of this paper will be to evaluate the Uppsala model of internationalisation
critically in relation to current expansion of international business and comparison with another
internationalisation model, which is the model of product life cycle. This essay will include the
main components of the Uppsala model along with its comparison with the product life cycle’s
model, and will analyse the relevancy of the Uppsala model in describing the nature of
internationalisation that is evident in the current market conditions, using examples to illustrate
the points. Critical evaluation and compare these two internationalisation theories. Theoretical
concepts will be applied in this paper, which will help to identify and discuss two suitable real-
life instances to illustrate both the theories on internationalization. At the end, a conclusion will
be drawn to assess whether Uppsala model is totally suitable in modern business environment or
not.
Uppsala Model of Internationalism
The Uppsala model, which gets its name from a business school of the city of Sweden,
can be regarded as the internationalization model that relies on wisdom and learning. It can also
be stated that the utilization of the gathered knowledge about important markets may not be vital
for the success of the internationalization if the conditions of the foreign market are homogenous
and stable. On the other hand, if the organizations are successful in gathering knowledge and
data on similar markets, it will require only one stage to enter related market places. There are
four stages on which the procedure of progressive internationalization is founded on. The stages
are foreign sales subsidiaries, export via independent representatives, production and
manufacturing units in global markets and sporadic export. The Uppsala model is also known by

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the name of progressive model and possess the power to explain how companies get success
while learning and gaining knowledge during their operations related to internationalization.
Market specific knowledge is assumed to be obtained mainly via market experience while
operations knowledge can be shifted from one country to another. Geographic diversification is
facilitated with the help of general knowledge that can be easily achieved. Although a slower
process, the knowledge acts as an impulse for the internationalization and helps in generating
business opportunities (Pyddoke–VTI 2017).
Advantages
The process is evolved as an interplay between the growth of knowledge regarding the
global operations and market and a growing resources commitment towards those markets. The
model possesses certain primary issues such as how the companies learn and in which ways are
their learning impacting the behaviour of investment. This Uppsala model focuses on the process
of showing the knowledge that is exercised by the organizations in order to influence the
investing behaviour of the people present in the market place across the world. Insufficient
knowledge possessed by the management of the business entities regarding performing their
businesses on fresh markets restricts the organizations to follow international commitments
through a gradual process. If the management is successful in gathering more knowledge about
the market places, less will be the risk and, the commitments done by them will be stronger,
manly in the foreign or international market places.
The identification of the target-market also plays an integral role in this Uppsala model of
internationalization. One organization which uses this model is NUMMI (New United Motor
Manufacturing Inc), which is regarded as the joint venture between Toyota and General Motors.
Toyota is benefitted from access to the US market, and on the other hand, General Motors is

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benefitted from the technological knowledge of Toyota and its renowned management structures
(Deutschmann 2014). Being a dynamic model, Uppsala model has another essential aspect which
discusses a firm’s internationalization as a process. Another organization which uses this model
successfully is IKEA, which is a manufacturing organization from Sweden uses Uppsala model
in their establishment chain of business where exports are done through independent
representatives apart from setting manufacturing or production units in some places across the
world.
Disadvantages
A justified conclusion need to be drawn based on the marketing audit that will help to
comprehend the fact that why India was chosen for Uppsala as an appropriate global market for
developing its business and whether it will be successful or not. One of the major criticisms that
is faced by this Uppsala model is its connection with both the organization and the market where
they are operating (Kubíčková 2013). The model tends in the process of internationalisation by
itself only in a particular market place where a particular business organization is operating. It
can be stated that the market operations will vary from market to market, and the model is
incapable to use the data and information which can be transferred from one market place to the
other. Apart from this, Uppsala model is also incapable of considering the particular marketing
environment along with the characteristics of the business sector of the targeted nation.
It is important to know the economies of scale, government regulations and research and
development process that are followed in this targeted nation, so that it will help to design the
strategies and implement them accordingly. This model is usually followed by the Small and
Medium Enterprises, where they gradually increase their presence in the international market
places. So, the risk factor is comparatively more for the management of these business entities as

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they lack international knowledge. Uppsala model helps them with providing international
knowledge but misses one of the most vital part, which is to provide them proper and adequate
financial knowledge. This is also another major disadvantage possessed by this model.
Usage of Core Theoretical Concepts
To describe the internationalization process of companies, several theories have been
developed. The Uppsala model can be regarded to be founded on four key concepts, which are
market commitment, commitment decisions, market knowledge, and latest activities. Again,
these four ideas are segregated into change and into aspects of the state. The international
environment as well as the company are assorted in a way of showing several situations and
conditions. Commitment decisions and latest activities are the two change aspects, whereas the
two state aspects are market knowledge and market commitment (Welch, Nummela and Liesch
2016). All these four concepts are inter-connected with each other. Uppsala model, in this
context, can be regarded as one of the theories which helps to describe the internationalization
processes followed by the companies. The model helps to state the business entity to select the
nearby market place to enter with low market commitments. The extensive interest in the process
of internationalization of the organizations has resulted in the formation of several models and
approaches in order to describe how the business houses can enter global markets. Some
varieties in this model are static, dynamic, predictive such as Uppsala model and descriptive like
the Network (Oliveira, Figueira and Pinhanez 2018).
Transaction Cost Theory
Transaction Cost Theory, which was created by Ronald Coase, can be regarded as a part
of the corporate governance and agency theory. This helps to help an economy in the trading

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process when an organization operates in a market (Verbeke and Kano 2013). This cost can be
divided into three other costs, which are search and information sots, policing and enforcement
costs and bargaining and decision costs. The legal fees, charges of communication, information
costs of finding the exact price and the cost of labour are examples of these cost theory. In
comparison this to the Uppsala model, the knowledge and data are gathered to expand the
business of the companies, whereas this Transaction Cost Theory helps in the trading process
which is connected with this market expansion (Mroczek 2014). All the negotiation and
bargaining process can be related with this model, as it helps to operate a particular business in
an international market.
Advantages and Disadvantages
This model focuses on the cost along with their impact on the selection of the market
place where an organization will enter into this new market place. This model also focuses on the
structure of a company for establishment and safeguarding the transactions along with reducing
the transaction costs between the entities who are operating across the organizational boundaries
(Carroll and Sapinski 2013). All the informational cost related to searching data and information
in a new market are included in this. Ford uses this model throughout their operation of
manufacturing and selling different models of vehicles across the world. Another organization
which uses this model is Bosch, which is regarded as one of the five biggest suppliers of
automotive industry. The major limitation of this model is the assumptions that the corporate
managers make on the data and information from this theory, which affects the overall business
operations as well as the overall performance of those business firms. Competitive advantage is
lost due to these insufficient factors and failure of gathering adequate and efficient data from the
new international market place (Teece 2017).

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Conclusion
From the above discussion, it can be said that Uppsala model of internationalisation plays
an integral part in the business operations of an organization across the world irrespective of its
industry. It can be said in this context that this model helps in gathering relevant information that
is required by an organization to operate in the international markets, so that proper designs and
structures can be achieved and competitiveness can be gained by the management of these
business entities in those international market places. The model helps to state the business entity
to select the nearby market place to enter with low market commitments and perform there
effectively and efficiently.

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