From liability of foreignness to liability of outsidership

The Uppsala internationalization process model
revisited: From liability of foreignness to liability
of outsidership
Jan Johanson1 and
Jan-Erik Vahlne
1Uppsala University, Uppsala, Sweden;
2Gothenburg University, Gothenburg, Sweden
J Johanson, Uppsala University,
PO Box 513, SE-751 20, Uppsala, Sweden.
þ 46 859255215;
E-mail: [email protected]
Received: 10 July 2007
Revised: 15 October 2008
Accepted: 4 November 2008
Online publication date: 21 May 2009
The Uppsala internationalization process model is revisited in the light of
changes in business practices and theoretical advances that have been made
since 1977. Now the business environment is viewed as a web of relationships,
a network, rather than as a neoclassical market with many independent
suppliers and customers. Outsidership, in relation to the relevant network,
more than psychic distance, is the root of uncertainty. 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, the latter to recognize
the fact that new knowledge is developed in relationships.
Journal of International Business Studies (2009), 40, 1411–1431.
Keywords: internationalization theories and foreign market entry; network relations
theory; experiential knowledge; commitment; trust; opportunity
Much has changed since our model of the internationalization
process of the firm was published in the
Journal of International
Business Studies
(JIBS) ( Johanson & Vahlne, 1977). In fact, the
economic and regulatory environments have changed dramatically. Company behavior is also different in some respects. The
research frontier has moved too. There are some concepts and
insights that did not exist when our model was published.
The Uppsala model explains the characteristics of the internationalization process of the firm. When we constructed the
model there was only a rudimentary understanding of market
complexities that might explain internationalization difficulties,
but subsequent research on international marketing and purchasing
in business markets provides us with a business network view of the
environment faced by an internationalizing firm. We further develop
this view and explore its implications for the internationalization
process of the firm. Our core argument is based on business
network research, and has two sides. The first is that markets
are networks of relationships in which firms are linked to each
other in various, complex and, to a considerable extent, invisible
patterns. Hence
insidership in relevant network(s) is necessary
for successful internationalization, and so by the same token there
is a
liability of outsidership. Second, relationships offer potential
Journal of International Business Studies (2009) 40, 1411–1431
& 2009 Academy of International Business All rights reserved 0047-2506
for learning and for building trust and commitment,
both of which are preconditions for internationalization. Before we look at this business network view in
depth, we summarize our original model.
Researchers in the Department of Business Studies
at Uppsala University in the mid-1970s made
empirical observations that contradicted the established economics and normative, international
business literature of the time. According to that
literature, firms choose, or should choose, the
optimal mode for entering a market by analyzing
their costs and risks based on market characteristics
and taking into consideration their own resources
(e.g. Hood & Young, 1979). However, our empirical
observations from a database of Swedish-owned
subsidiaries abroad, and also from a number of
industry studies of Swedish companies in international markets, indicated that Swedish companies
frequently began internationalizing with
ad hoc
exporting (Carlson, 1975; Forsgren & Kinch, 1970;
Ho¨rnell, Vahlne, & Wiedersheim-Paul, 1973;
Johanson, 1966; Nellbeck, 1967). They would
subsequently formalize their entries through deals
with intermediaries, often agents who represented
the focal companies in the foreign market. Usually,
as sales grew, they replaced their agents with their
own sales organization, and as growth continued
they began manufacturing in the foreign market to
overcome the trade barriers that were still in place
in the post World War II era. We labeled this
dimension of the internationalization pattern the
establishment chain. Another feature of the pattern
was that internationalization frequently started in
foreign markets that were close to the domestic
market in terms of
psychic distance, defined as
factors that make it difficult to understand foreign
environments. The companies would then gradually enter other markets that were further away
in psychic distance terms (Johanson & WiedersheimPaul, 1975; Vahlne & Wiedersheim-Paul, 1973). This
process had its origin in the
liability of foreignness, a
concept that originally explained why a foreign
investor needed to have a firm-specific advantage to
more than offset this liability (Hymer, 1976; Zaheer,
1995). The larger the psychic distance the larger is the
liability of foreignness.
We searched primarily in the theory of the firm
for explanations for the deviations between what
the extant theories prescribed and the Swedish
pattern of internationalization, and developed our
original model based on the work of Penrose
(1966), Cyert and March (1963), and Aharoni
(1966). The underlying assumptions of our 1977
model are uncertainty and bounded rationality. It
also has two change mechanisms. First, firms
change by learning from their experience of operations, current activities, in foreign markets. Second,
they change through the commitment decisions
that they make to strengthen their position in
the foreign market. We define commitment as the
product of the size of the investment times its
degree of inflexibility. While a large investment in
saleable equipment does not necessarily indicate a
strong commitment, unwavering dedication to
meeting the needs of customers does. Experience
builds a firm’s knowledge of a market, and that
body of knowledge influences decisions about
the level of commitment and the activities
that subsequently grow out of them: this leads to
the next level of commitment, which engenders
more learning still (Figure 1). Hence the model is
The model does not specify the form that increased
commitment might take. Indeed, commitment may
decline, or even cease, if performance and prospects
are not sufficiently promising. Contrary to the views
expressed by some, the process is by no means
deterministic. We assumed nonetheless that the
process of internationalizing will continue as long
as the performance and prospects are favorable.
We also assumed that learning and commitment
building take time. This explains why moves into
more risky, but potentially rewarding, modes and
moves into markets that are more distant in terms
of psychic distance are made incrementally.
We considered the model to be descriptive,
largely because we based it on Cyert and March
State Change
Current activities
Figure 1 The basic mechanism of internationalization: state
and change aspects (Johanson & Vahlne, 1977: 26).
The Uppsala model revisited Jan Johanson and Jan-Erik Vahlne
Journal of International Business Studies
(1963). It has generally been characterized in the
subsequent literature as behavioral, compared with
other theories that are seen as economic, such as
internalization theory (Buckley & Casson, 1976),
transaction cost theory (Hennart, 1982), and the
eclectic paradigm (Dunning, 1980). More recent
empirical studies have indicated that the internationalization process as explained by our model
has a positive impact on performance (Barkema,
Bell, & Pennings, 1996; Delios & Beamish, 2001; Li,
1995; Luo & Peng, 1999). Our model can therefore
be considered a model of rational internationalization, and can be used for prescriptive purposes.
A number of studies have demonstrated the role of
networks in the internationalization of firms.
Coviello and Munro (1995, 1997) conducted
empirical studies of the internationalization of
small software firms. They found that network
relationships have an impact on foreign market
selection as well as on the mode of entry in the
context of ongoing network processes. Their findings led them to develop a model that combines the
process model and the network approach. In a
study of the international expansion of Japanese
suppliers of automotive components, Martin,
Swaminathan, and Mitchell (1998) found that the
inter-organizational relationships of suppliers,
especially those with buyers, affected their pattern
of international expansion. Other researchers
have looked at networks in studies of internationalization strategy (Welch & Welch, 1996), the
location of foreign direct investment (Chen &
Chen, 1998), the first step abroad (Ellis, 2000),
SME internationalization (Chetty & Blankenburg
Holm, 2000), internationalization of firms from
emerging markets (Elango & Pattnaik, 2007), and
rapid internationalization (Loane & Bell, 2006), to
name but a few.
We conclude that our original model needs to
be developed further in light of such clear evidence
of the importance of networks in the internationalization of firms. The research that has been
done to date generally has studied the ways in
which networks influence internationalization,
without discussing how those networks have been
created, and without considering the network
structure in the country or countries firms entered.
Based on case analyses, Coviello (2006) developed
a model of ‘‘how [international new venture]
networks evolve’’ during the early phase of internationalization. Our aim differs from that of Coviello
in that we focus on business networks as a market
structure in which the internationalizing firm is
embedded and on the corresponding business
network structure of the foreign market. While our
goal is to develop a more general business network
model of firm internationalization, Coviello’s (2006)
work is nevertheless of great interest, as she shows
that ‘‘insidership’’ in networks, developed before
entry into a new market, even before the foundation of the firm, is instrumental to the specific
internationalization process at hand.
The studies on which the 1977 model was based
indicated that the received theories of markets and
marketing were not useful in trying to understand
the market situation of individual firms. An international business-to-business marketing research
program started in Uppsala in the mid-1970s in
order to develop a better understanding of business
markets and marketing. Early observations that
firms develop lasting relationships with important
customers were an important input into this research
program (Forsgren & Kinch, 1970; Johanson, 1966).
An interaction approach that focused on the
adaptation and exchange between suppliers and
customers was used as a theoretical framework for
studies of business relationships (Ha˚kansson &
O¨ stberg, 1975).
A large-scale empirical study of international
marketing and purchasing of industrial products
(the IMP project) that was carried out in the late
1970s and early 1980s by researchers from Sweden
and four other European countries was based on the
interaction approach (Ford, 1997; Ha˚kansson,
1982; Turnbull & Valla, 1986). Work done during
the project demonstrated that close and lasting
business relationships between suppliers and customers are indeed important, be they within a
given country or between countries (Halle´n, 1986).
A number of studies since then have shown the
importance of relationships in the internationalization process – client-following strategies for example
(Bonaccorsi, 1992; Erramilli & Rao, 1990; Majkga˚rd
& Sharma, 1998; Sharma & Johanson, 1987).
IMP project studies also showed that such relationships usually involve a number of managers who
coordinate the activities of the different firms,
and who together create interrelated routines
(Cunningham & Homse, 1986). Moreover, these
relationships seem to develop through social
exchange processes in which the firms involved
enact the relationship interactively and sequentially (Kelley & Thibaut, 1978). The result is the
The Uppsala model revisited Jan Johanson and Jan-Erik Vahlne
Journal of International Business Studies
accumulation of knowledge and building of trust,
and eventually greater commitment, as also
demonstrated in channel and relationship marketing studies (Anderson & Weitz, 1992; Dwyer,
Schurr, & Oh, 1987; Morgan & Hunt, 1994). In
the process, weak ties and unilateral dependence
can be transformed into strong relationships
and bilateral interdependence, and ultimately
increased joint productivity (Halle´n, Johanson, &
Seyed-Mohamed, 1991; Zajac & Olsen, 1993). As
with the internationalization process model, the
research done in the IMP project shows that
relationships develop through a process of experiential learning whereby firms learn about the
resources and capabilities of their counterparts,
and gradually increase their commitments (Ha¨gg
& Johanson, 1982). There is one important difference between our model and the findings of
the IMP project: relationship development is a
bilateral process that involves two parties who
learn interactively and make a mutual commitment
to the relationship (Anderson & Weitz, 1992;
Blankenburg Holm, Eriksson, & Johanson, 1999).
When we constructed our original model we were
not aware of the importance of mutual commitment for internationalization. Now our view is
that successful internationalization requires a
reciprocal commitment between the firm and its
counterparts (Johanson & Vahlne, 1990; Vahlne &
Johanson, 2002).
It takes time – some data indicate as long as 5
years – and managerial effort to create working
relationships, and many attempts fail (Hohenthal,
2001). Thus a working relationship is the result
of considerable investment, and is an important
firm resource (Dyer & Singh, 1998). While there
may be some formal aspects, developing relationships is essentially an informal process (Powell,
1990). Intentions, expectations, and interpretations are important. Relationships are basically
socially constructed. The informal and subtle
nature of relationships makes it almost impossible
for anyone who is not personally involved to judge
the scope of the investment that has gone into
building it, or its value. The larger the psychic
distance, other things being equal, the more
difficult it is to build new relationships. This is
the effect of the liability of foreignness. Two firms
that are parties to a relationship are tied to each
other to some extent: they share in their mutual
future development, and may exercise some
degree of power over one another (Granovetter,
1985). Thus, in practice, they are not fully
autonomous: they are linked by a non-trivial level
of mutual control.
Research has now also shown that firms are
frequently involved in a set of different, close and
lasting relationships with important suppliers
and customers (Cowley, 1988; Ha˚kansson, 1989).
As those firms presumably in turn are engaged in a
number of additional business relationships, firms
operate in networks of connected business relationships (Anderson, Ha˚kansson, & Johanson, 1994;
Cook & Emerson, 1978; Ha¨gg & Johanson, 1982).
The term
connected means that exchange in one
relationship is linked to exchange in another. These
webs of connected relationships are labeled
The firm may create new knowledge through
exchanges in its network of interconnected relationships. Knowledge creation is an outcome of the
confrontation between producer knowledge and
user knowledge. The process of creating knowledge
is not separate from the other activities in business
relationships; rather it is embedded in them.
Knowledge does not accrue only from the firm’s
own activities, but also from the activities of its
partners, and since those partners also have other
relationship partners with whom their activities
are coordinated, the focal firm is indirectly engaged
in a knowledge creation process that extends far
beyond its own horizon. Thus a network of business
relationships provides a firm with an extended
knowledge base (Ha¨gg & Johanson, 1982; Kogut,
Penrose (1966) and the resource-based view (RBV)
(Barney, 1986) assume that resources are heterogeneous, and that these idiosyncratic resource
bundles lead to value creation, irrespective of
market conditions. The business network view
starts with these same assumptions, and adds that
exchange within a network allows a firm to acquire
knowledge about its relationship partners, including
their resources, needs, capabilities, strategies, and
other relationships. Relationship partners are therefore indirectly a source of relevant business information about their own partners and more distant
actors in the network. Thus the firm commands
privileged knowledge about its business network.
Based on the above, we view the firm as a
business entity engaged primarily in exchange
activities (Snehota, 1990) – exchange, rather than
production, being the distinctive feature of the
firm (cf. Alchian & Allen, 1964). Indeed, the value
of production is derived from exchange. While
traditional economic theory defines a firm without
The Uppsala model revisited Jan Johanson and Jan-Erik Vahlne
Journal of International Business Studies
reference to other firms, we define a firm on the
basis of its exchange with specific other actors
(Forsgren, Holm, & Johanson, 2005).
Johanson and Mattsson (1988) developed a
network model of internationalization based on
business network research. They discussed the
internationalization of firms in the context of both
the firm’s own business network and the relevant
network structure in foreign markets. In contrast to
many other network studies, their model highlights
the importance of the network structure outside the
firm’s own business network. It stresses the importance of specific business relationships in a firm’s
internationalization, though it lacks dynamic elements. That model provided conceptual input for
our work on the mechanism of internationalization, in which we view internationalization as
a multilateral network development process
( Johanson & Vahlne, 1990).
A firm’s success requires that it be well established
in one or more networks. Anything that happens,
happens within the context of a relationship, and a
firm that is well established in a relevant network
or networks is an ‘‘insider.’’ As shown above, it is
to a large extent via relationships that firms learn,
and build trust and commitment – the essential
elements of the internationalization process. We
argue that insidership is a necessary but insufficient
condition for successful business development.
A firm that does not have a position in a relevant
network is an ‘‘outsider.’’ If a firm attempts to enter
a foreign market where it has no relevant network
position, it will suffer from the
liability of outsidership and foreignness, and foreignness presumably
complicates the process of becoming an insider.
Outsidership makes it impossible to develop a
business, and yet somehow the internationalization
process begins. It might happen that a potential
partner inside the target market requests a service
from the focal firm, thus creating an initial insider
opportunity. The learning process, and trust- and
commitment-building, may then begin. It could
also happen that another firm in the focal firm’s
home country would need to have products
delivered to its own customer’s new facility in a
foreign market, and so might ask the focal firm to
do that. In that case the focal firm’s existing
insidership in a relevant network may help it enter
a foreign market. Evidently, the process may start
through efforts by the focal firm.
In our view a firm’s environment is made up of
networks, and this has implications for the ways
in which we think about learning, building
trust, and developing commitment, as well as about
identifying and exploiting opportunities. Such
activities must be understood within the context
of business networks where the liability of outsidership is an impediment. In the following three
sections we discuss these activities, which in
simultaneity may result in business development
and internationalization.
Our original model is based on the assumption that
developing knowledge is fundamental to a firm’s
internationalization, and in particular that knowledge that grows out of experience in current
activities (operations) is crucial to the learning
process. We also assumed that learning by
experience results in a gradually more differentiated view of foreign markets, and of the firm’s
own capabilities. It is such learning that makes
developing foreign operations possible. In recent
decades there has been a growing in interest in
organizational learning in general, as well as in the
context of internationalization. In this section
we examine some implications of the research that
has grown out of this interest for the business
network view of the internationalization process.
Two reviews of our original model have been
written that discuss its concepts of knowledge and
learning (Forsgren, 2002; Petersen, Pedersen, &
Sharma, 2003). Petersen et al. discuss some of the
critical assumptions of our model, one of which is
that market-specific knowledge is the critical kind
of knowledge. A number of studies have supported
this conclusion (Barkema et al., 1996; Erramilli,
1991; Luo & Peng, 1999).
In a study based on the network view, Axelsson
and Johanson (1992) examined how three firms
entered foreign markets. They showed that foreign
market entry should not be studied as a decision
about modes of entry, but should instead be studied
as a position-building process in a foreign market
network. Their cases revealed the complexities
associated with learning when a firm enters a
foreign market network. For example, firms
have to identify the relevant market actors in order
to determine how they are connected in often
invisible complex patterns. These patterns can be
identified only by the actions of the entering firm,
which causes other market actors to reveal their ties
to each other. The liability of outsidership must
be overcome. The Axelsson and Johanson study
highlights the market-specific learning process that
we assumed in developing our 1977 model, and
The Uppsala model revisited Jan Johanson and Jan-Erik Vahlne
Journal of International Business Studies
provides some input into the business network
analysis of internationalization.
In their study of experiential learning in the
internationalization process, Eriksson, Johanson,
Majkga˚rd, and Sharma (1997) found that lack
of institutional market knowledge and lack of
business knowledge require different amounts
of time to overcome, and have dissimilar effects
on the perceived cost of internationalization. A lack
of institutional market knowledge – that is, lack of
knowledge about language, laws, and rules – has
to do with factors related to psychic distance, and
to the liability of foreignness. Lack of business
market knowledge is related to a firm’s business
environment that, according to the business network view, consists of the firms with which it is
doing business, or trying to do business, and the
relationships between firms in this environment.
The lack of such market-specific business knowledge
constitutes the liability of outsidership.
In developing our original model we stressed that
there is general market knowledge that may
be transferred between organizational units. More
recent research has shown that more general
internationalization knowledge – that is, knowledge
that reflects a firm’s resources and its capabilities for
engaging in international business – is also important (Eriksson et al., 1997; Welch & Luostarinen,
1988). Furthermore, several studies have shown
that a number of different aspects of general
internationalization knowledge may be important
as well. We believe now that the general internationalization knowledge that encompasses several
kinds of experience, including foreign market entry
(Sapienza, Autio, George, & Zahra, 2006), modespecific (Padmanabhan & Cho, 1999), core business
(Chang, 1995), alliance (Hoang & Rothaermel,
2005), and acquisition (Nadolska & Barkema,
2007), and other specific kinds of internationalization experience, is probably more important than
we had assumed back in 1977. It is worth noting
that knowledge about internationalization does not
only result from the types of learning identified
above. For instance, it has been shown that
internationalization knowledge is positively related
to variations in the experiences a firm has in
different markets (Barkema & Vermeulen, 1998).
Given the business network view, we add to our
model the concept of
relationship-specific knowledge,
which is developed through interaction between
the two partners, and that includes knowledge
about each other’s heterogeneous resources and
capabilities. Moreover, we expect that interaction
to contribute to more general knowledge about
international relationship development, and also to
help the partners learn about ways in which they
can develop different and transferable relationships
in alternative situations (cf. Hoang & Rothaermel,
2005). Indeed, variations in the character of
relationships may have a positive impact on the
development of
general relationship knowledge.
Furthermore, the importance of business network
coordination, as we wrote in the section about the
business network view, suggests that learning
how to coordinate sets of relationships is important. Such learning may develop in relationships
between partners that are located in different
countries – for instance, suppliers in some countries
and customers in others (Johanson & Vahlne, 2003).
Moreover, knowledge development in business
networks is different from the kind of knowledge
development we assumed in our original model. In
business networks knowledge development is not
only a matter of learning extant knowledge from
other actors. The interaction between a buyer’s user
knowledge and a seller’s producer knowledge may
also result in new knowledge.
Prior experience with management teams may
have a strong effect on internationalization, at least
in new and small companies (Reuber & Fischer,
1997). This is particularly interesting, as the 1977
model says nothing about the beginnings of
internationalization (Andersen, 1993). From a
business network point of view it is important to
emphasize that the management team’s prior
relationships probably provide extremely important knowledge. We return to this issue later.
Petersen et al. (2003) discuss our original model
under the headings
From simplicity to complexity and
From determinism to managerial discretion. Under the
first heading they compare the simple view of
knowledge presented in our early model with later
research in knowledge and organizational learning.
We agree that research on organizational learning
has demonstrated that learning is much more
complex than we had assumed 30 years ago. When
we constructed our model we believed – and
continue to believe – in a parsimonious approach
to theory development. The aim of theory building
is not to replicate a complex reality; it is to explain
its central elements. The conclusion of subsequent
research has been that experiential learning is
indeed a central factor in a firm’s internationalization. In his critical review of the Uppsala and the
innovation models (Bilkey & Tesar, 1977; Cavusgil,
1980) of the internationalization process, Andersen
The Uppsala model revisited Jan Johanson and Jan-Erik Vahlne
Journal of International Business Studies
(1993) noted that the Uppsala model does not
consider specific situations, phases, firms, or foreign
markets. In Andersen’s view, the model is general.
Obviously a model that has general applicability
cannot also consider all the kinds of knowledge and
learning that might occasionally be relevant. It is
likely that ways of learning other than experiential
learning may be important for studies of specific
internationalization episodes and situations. In his
critical review of our original model, Forsgren
(2002) argues that three types of non-experiential
learning – the acquisition of other firms, imitation,
and search – may also speed up the internationalization process. He consequently means that our
model exaggerates the gradual nature of the
Under the heading
From determinism to managerial
, Petersen et al. (2003) write that the model
we developed in 1977 is deterministic, though
research has demonstrated the existence of substantial managerial discretion in the internationalization of firms. We disagree with their
characterization. We do not see a causal relation
between experiential learning and resource commitment as deterministic. A causal relation
between two variables does not mean that
one determines the other; only that one influences
the other, usually in combination with other
variables. We do agree that managerial discretion
is important, although we think that path dependence and problemistic search tend to make
managers prefer certain specific alternatives to
other ones. We also think that the model can easily
incorporate managerial discretion and strategic
In spite of the critical views raised above, we
think that empirical studies of the internationalization process demonstrate the central role of
experiential learning in the process. In addition,
other important research streams have stressed
learning mechanisms that are consistent with our
model. For example, research on learning curves
highlights learning based on experience, and is
one of the fundamental sub-areas within the field
of learning studies (Argote, 1999). Nelson and
Winter’s (1982) evolutionary theory emphasizes
routines developed through experience that
result in behavioral continuity and limited path
dependence. The concept of absorptive capacity
developed by Cohen and Levinthal (1990) is a third
example. Like experiential learning, absorptive
capacity means that knowledge development tends
to be a cumulative process.
Given all the points made above, we conclude that
there is good reason to retain experiential learning
as a basic mechanism in the business network view
of the internationalization process. Of course,
experiential learning can be complemented with
other ways of knowledge development.
Our original model does not explicitly include any
affective or emotional dimensions in relationships,
though it can be argued that they are implicitly
present in the concept of knowledge. We now think
that those dimensions should be explicit. First,
much has since been written on social capital,
trust, and similar concepts, which of course include
both affective and cognitive elements. Second, we
realize from empirical observation that affective
dimensions are indeed important for understanding
the relationships that are a critical component of
our model. Third, trust plays an important part
in recent research on relationship development
(Morgan & Hunt, 1994) and business networks
(Johanson & Mattsson, 1987). We recognized the
possibility of including these aspects in our model
in a later note on the Uppsala internationalization
process model (Johanson & Vahlne, 2006). Building
on the work of Nahapiet and Ghoshal (1998),
Granovetter (1985, 1992), Madhok (1995) and others,
we conclude that trust is an important ingredient
for successful learning and the development of
new knowledge. Trust can also substitute for
knowledge, for instance when a firm lacks the
necessary market knowledge and so lets a trusted
middleman run its foreign business (cf. Arenius,
2005). We also introduce in this section a definition
of commitment without the tautological relationship to knowledge that, according to Andersen
(1993), is a problem in the original model (cf.
Hadjikhani, 1997).
Morgan and Hunt (1994) provide definitions of
trust. Trust keywords and phrases include ‘‘integrity,’’ ‘‘reliability,’’ and that ‘‘the word
y of another
can be relied upon.’’ In short, a sense of trust
implies an ability to predict another’s behavior.
Trust also assumes that human behavior is characterized by high ethical standards. Trust may
develop into commitment if there is willingness
and positive intentions. Thus trust is a prerequisite
for commitment – a conclusion that is consistent
with the results obtained by Morgan and Hunt. If
trust does lead to commitment, it implies that
there is a desire to continue the relationship, a
willingness to invest in it, even recognition of the
The Uppsala model revisited Jan Johanson and Jan-Erik Vahlne
Journal of International Business Studies
necessity of making short-term sacrifices that
benefit another for reasons of long-term interest
for oneself.
In a comment on his 1995 article on international joint ventures, Madhok (2006) discusses
whether it makes sense to assume either trust or
opportunism. His conclusion implies that there are
reasons for firms to rely on the trustworthiness of
their business partners. We agree, though we
believe that it is unrealistic to assume that trust
is permanent, or that commitment or extreme
opportunism are either. It is realistic, though, to
assume that an extant degree of commitment will
persist and increase when partners believe that
continuing a relationship is in their long-term
interest. While opportunities are the key factor in
making commitments, the other side of the coin is
dependency. One partner may not necessarily
appreciate everything the other one does, and
yet some actions will be tolerated for the sake of
long-term interests (Thorelli, 1986).
Trust persuades people to share information,
promotes the building of joint expectations (Madhok,
1995), and is especially important in situations of
uncertainty. Trust is crucial in the early phases of a
relationship, and its importance may be permanent
if the relationship requires continued efforts to
create and exploit opportunities. Madhok’s (1995)
contention is that trust ‘‘induces reciprocity and
coordinates action.’’ This supports Morgan and
Hunt’s (1994) conclusions that ‘‘trust is a major
determinant of commitment’’ (see also Gounaris,
2005). They go on to say that they see ‘‘relationship
commitment as an exchange partner believing that
an ongoing relationship with another is so important as to warrant maximum efforts at maintaining
it.’’ (1994: 23) We agree with this definition, with
the caveat that we do not believe anything is ever
maximized. Commitment is rather a question of
more or less intensive efforts. We do, however,
agree with Morgan and Hunt that ‘‘when both
commitment and trust – not just one or the other –
are present, they produce outcomes that promote
efficiency, productivity and effectiveness.’’ (1994: 22)
Mathieu and Zajac (1990) distinguish between
calculative and affective commitment. Calculative
commitment is built on cognitive assumptions.
Examples include available joint opportunities.
Affective commitment is based on ‘‘a generalized
sense of positive regard for and attachment to the
other party’’ (Gounaris, 2005). Affective commitment may then replace cognitive analysis. In the
absence of knowledge, if the stakes are high in
terms of opportunities or of switching costs, it may
be rational to act on partially subjective opinions.
Therefore, given the circumstances, the decisionmakers in our model are rational. Clearly, knowledge
is never complete. In fact, in some situations knowledge does not exist until the parties have developed
it together. Nonetheless, Gounaris (2005) finds in his
empirical analysis that calculative commitment has
a negative impact on the parties’ intentions to
preserve and strengthen their relationship, and so
suggests that firms may want to avoid dependence
and lock-in situations. However, dependency is an
unavoidable by-product of a beneficial relationship.
We agree with Madhok (2006: 7) that ‘‘trustbuilding is a costly and time-consuming process.’’
Boersma, Buckley, and Ghauri (2003) picture the
process as a sequence of phases in which the output
of one phase constitutes the input of the next.
As the output from each phase consists of either an
increased or a decreased level of trust, the process is
not deterministic. Commitment is developed late
in the process (in Boersma et al.’s analysis, this
occurs after joint venture negotiations). We believe
that this view applies to relationships in general,
with or without negotiations, as long as firms signal
their intent to commit.
In our original model we assumed that market
commitment and market knowledge affect ‘‘perceived
opportunities and risks which in turn influence
commitment decisions and current activities.’’
(1977: 27) Moreover, we assumed ‘‘that the commitment to a market affects the firm’s perceived
opportunities and risk.’’ (1977: 27) We also stated,
‘‘knowledge of opportunities or problems is
assumed to initiate decisions.’’ (1977: 27) Despite
these assumptions, our model has generally been
regarded as a risk (or uncertainty) reduction (or
avoidance) model. We think that risk is unavoidable when embarking on a journey into the
unknown, and so stated that the firm’s approach
to risk is complicated and variable. This assertion,
however, does not imply risk avoidance, only a
need for risk management. Research on business
networks and entrepreneurship has made considerable progress since the publication of our original
model. We recognize now that we probably did
neglect the opportunity dimension of experiential
learning. Still, we did write:
An important aspect of experiential knowledge is that it
provides the framework for perceiving and formulating
The Uppsala model revisited Jan Johanson and Jan-Erik Vahlne
Journal of International Business Studies
opportunities. On the basis of objective knowledge it is
possible to formulate only theoretical opportunities, experiential knowledge makes it possible to perceive ‘‘concrete’’
opportunities – to have a ‘‘feeling’’ about how they fit into
present and future activities. (1977: 28)
The field of opportunity research has grown
significantly. We believe that by combining findings from that research with the business network perspective on markets described in the
previous section, we can take a step forward in
discussing opportunities in the internationalization
Kirzner (1973) offers a starting point. Entrepreneurial discovery of opportunities plays a central
role in his theory of the market process. He argues
that opportunities exist in the market because
markets are never in equilibrium. Opportunity
recognition involves discovering the hitherto
unknown; it is a result of entrepreneurs being
alert and prepared for surprises. This view implies
that opportunity recognition is associated with
ongoing business activities rather than with specific
opportunity-seeking activities. He also sees entrepreneurial discovery as an outcome of serendipity
(Kirzner, 1997).
Following Kirzner, Shane (2000) studied the role
of prior knowledge and showed that it seems to have
a stronger impact on discovery than the personal
characteristics of individuals do. Prior knowledge
makes individuals better at discovering some opportunities, which means that opportunity-seekers
should concentrate on what they know, rather
than on what others say. Similarly, building on the
resource-based view, Denrell, Fang, and Winter
(2003) conclude, as Barney (1986) argued, that the
firm does not have any privileged knowledge about
external resources required for identifying an
opportunity. Therefore, as Shane (2000) suggests,
the firm should focus its opportunity analysis on its
own internal resources, where it presumably has
privileged knowledge. Like Kirzner (1997), Denrell
et al. conclude that identifying opportunities is
likely to be the result of a serendipitous strategy
characterized by effort and luck, combined with
alertness and flexibility.
However, according to the network view of
markets, firms do have privileged access to information about their relationship partners and their
business network. Moreover, opportunity recognition is likely to be an outcome of ongoing business
activities that add experience to the existing stock
of knowledge. An important part of that experience
is knowledge of one’s own firm and its resources,
including the external resources that are partially
available through network relationships.
Ardichvili, Cardozo, and Ray (2003) see opportunity development as the central element in their
theory of entrepreneurial opportunity identification and development, and as such it should be its
primary focus: ‘‘The need or resource ‘recognized’
or ‘perceived’ cannot become a viable business
without this ‘development’’’ (2003: 106). According
to the network perspective on markets, opportunity
development is based on interaction between
partners who build knowledge together and come
to trust each other as they commit themselves
further to the relationship. Provided that there is
some basic entrepreneurial alertness, opportunities
are likely to emerge as a consequence of the
privileged knowledge that the two partners develop
during their interaction. This knowledge may
allow them to recognize opportunities that others
do not (Agndal & Chetty, 2007). Furthermore, they
may identify and understand ways in which their
idiosyncratic resources match those of their partner
(von Hippel, 1988). The opportunity development
process is similar to the internationalization process, and to the relationship development process
(Ghauri, Hadjikhani, & Johanson, 2005). It is a
matter of interrelated processes of knowledge
development and commitment to an opportunity.
The process may be unilateral, with one firm
learning about another firm’s needs, capabilities,
markets, and network, thereby identifying an
opportunity. Alternatively, it may be bilateral when
two firms in interaction identify an opportunity. It
may even be multilateral, with several firms interacting and increasing their commitment to an idea
or opportunity. In this type of multilateral opportunity development, firms that are connected to
the two focal firms are likely to be involved in the
process, a process that may be facilitated by trust.
One would expect network configuration and
relational embeddedness to influence the type of
opportunity, Kirznerian or Schumpeterian, that is
developed (Andersson, Holm, & Johanson, 2005).
An important conclusion based on the network
view is that both Kirzner (1997) and Denrell et al.
(2003) exaggerate the role of serendipity.
Consistent with the view that opportunity identification is a side-effect of an ongoing business
relationship, we believe that exploitation and
exploration (March, 1991) overlap. Partly because
of heterogeneity, and partly because of the unavailability of information, market research may be
unable to identify many of the opportunities that
The Uppsala model revisited Jan Johanson and Jan-Erik Vahlne
Journal of International Business Studies
insiders can. As a result, exploitation breeds
exploration, at least for the type of opportunities
that are induced by the market. While exploitation
is risky, that risk can be reduced by progressing in
small steps and building successive commitments.
Shane (2000) concluded that since opportunity
recognition is associated with prior knowledge, it is
difficult to centralize the search for opportunities.
This is consistent with Bjerre and Sharma’s finding
‘‘that a major portion of the knowledge in
international firms is indeed local, deposited in
local subsidiaries,’’ (2003: 138) which supports our
view that market-derived opportunities will be
discovered and/or created at the boundary of the
firms where the necessary relationship experience
exists. It also supports the view that subsidiary
entrepreneurial initiatives are likely to be important for the multinational enterprise (Birkinshaw,
The following two positions, which we see as
being at two ends of a spectrum, are frequently
mentioned in opportunity research: opportunity
discovery, which assumes that there are opportunities in the market waiting to be recognized
(Kirzner, 1973); and opportunity creation, which
assumes that the opportunity is created and
realized by one of the firms (Gelbuda, Starkus,
Zidonis, & Tamasevicius, 2003; Schumpeter, 1934;
Weick, 1995). Our position is that the process of
opportunity development includes elements of
both discovery and creation (Ardichvili et al., 2003).
We mean that it is meaningless to say that either
one is more important. Furthermore, opportunity
research usually distinguishes between two stages:
recognition and exploitation. Once again our
position is that opportunity development is an
interactive process characterized by gradually and
sequentially increasing recognition (learning) and
exploitation (commitment) of an opportunity, with
trust being an important lubricant. It follows then
that the process of opportunity identification and
exploitation in the network perspective is very
similar to the internationalization process and to
the relationship development process.
Most of the criticism of the internationalization
process model is based on the observation that
company behavior has changed since we built our
model. Examples of this are that companies sometimes leapfrog over stages in the establishment
chain (Hedlund & Kverneland, 1985); that they
start to internationalize soon after their birth
(Oviatt & McDougall, 1994); that the internationalization process proceeds more rapidly now (Oviatt
& McDougall, 1994; Zahra, Ireland, & Hitt, 2000);
and that the order in which companies enter
foreign markets no longer correlates with psychic
distance (Madsen & Servais, 1997). Also, joint
ventures and strategic alliances are modes that are
much more commonly used today than previously.
Internationalization through acquisitions has also
grown enormously in terms of value (UN World
Investment Report, 2000).
We do not dispute that these observations appear
to be inconsistent with the establishment chain we
proposed. The establishment chain implied that
companies start to internationalize in neighboring
markets and subsequently move further away in
terms of psychic distance, and also that in each
market companies begin by using low-commitment
modes, such as a middleman, and subsequently
switch to modes that suggest a stronger commitment, such as wholly owned subsidiaries. Some
researchers who have observed company behavior
that deviates from the establishment chain of
internationalization pattern have occasionally used
their observations to criticize our internationalization process model. We review some of those
comments in the following paragraphs. We respond
first, though, in pointing out that the establishment chain is not part of the model, but rather
a summary of the empirical observations on which
we based our inductive theoretical arguments. We
also argue that for the most part changes in
company behavior have more to do with changes
in the international environment than with changes
in internationalization mechanisms. The network
view, presented above, also helps to explain deviations from the establishment chain.
According to a review of articles that were
published during the first 4 years of this decade in
nine important academic journals (Andall &
Fischer, 2005), one of the most debated issues in
internationalization research is whether the phenomena of international new ventures (Oviatt &
McDougall, 1994, 2005) and born globals (Knight
& Cavusgil, 1996) are consistent with our model.
We think they are, to the extent that most born
globals are really ‘‘born regionals,’’ with international activities that do not really span the globe
in any significant fashion (see also Rugman &
Verbeke, 2007). In fact, many of the companies the
internationalization pattern of which we studied
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Journal of International Business Studies
(see, for example, Johanson & Wiedersheim-Paul,
1975) should be considered born regionals or
international new ventures.
We use Sandvik, a well-known multinational
company, as an example. In 1862 steel production
was started in Sandvik to exploit the Bessemer
The founder of Sandvik, G.F. Go¨ransson, had brought the
process to Sweden from the UK through contacts he had
made when he was a general manager of a Swedish trading
firm that had extensive international contacts. The first
firm soon went bankrupt, but in 1868 the company now
known as Sandvik was formed. In the same year, relationships with representatives in Denmark, Norway and the UK
were established, and, one year later, in Germany. In 1870 a
representative in France was linked to Sandvik. A representative in Switzerland was taken over at the start. (Vahlne &
Johanson, 2002: 218)
Sandvik relied on external resources, not only for
marketing and selling abroad, but also for technology. While Sandvik’s subsequent internationalization process was rapid, its history does fit the
establishment chain, and correlates with what
we would expect in regard to psychic distance. We
can agree with Oviatt and McDougall (1994) on
one point: international new ventures and born
regionals are old phenomena. As such firms are
frequently founded by individuals with previous
international experience and have established
relationships with foreign companies, they do not
create a problem for our model (Coviello, 2006;
Reuber & Fischer, 1997). True, the knowledge and
the relationships might indeed be in place prior to
the formal founding of the focal firm, but that is a
formality of no major significance. It is true too
that having those factors already in place may
accelerate the process. If a firm starts from scratch
though, as we argued above, the processes of
learning and building commitment will take time.
A wealth of research, including Nahapiet and
Ghoshal (1998), Granovetter (1985), and Ring and
van de Ven (1992), supports this point. There is
nothing in our model that indicates that international expansion cannot be done quickly. In fact it
can, as long as there is sufficient time for learning
and relationship building (Vahlne & Johanson,
2002). Although many contextual aspects have
changed since we made our observations, almost
50 years ago, the ways in which human beings
learn and make decisions have not drastically
changed since. Moreover, experiential learning
and building trust and commitment, the basic
prerequisites for developing business, and hence
for internationalization, certainly have not changed. Partners still have to get involved in some sort
of exchange that will create experience, and while
these exchanges might be performed more quickly
today, it still takes time, and firms still have to face
the risk of failure.
We do believe that the correlation between the
order in which a company enters foreign markets
and psychic distance has weakened. Some companies
and individuals have acquired more general knowledge of foreign environments, and perhaps this
instils in them greater confidence in their ability
to cope with psychic distance. This does not mean
that psychic distance is unimportant. However,
the relationship between market entry order and
psychic distance applies at the level of the decisionmaker (Johanson & Vahlne, 2003; Sousa & Bradley,
2006), not at that of the firm. Johanson and Vahlne
(2003) offer some examples. The chairman of a
Swedish company was a visiting professor at an
American university for several years before that
company made its first attempt at establishing a
presence abroad by entering into a joint venture
with the university (2003: 87). The president of the
same company knew someone from Poland who
had worked with other Swedish companies for
many years (2003: 88), and he recruited him to
establish the firm’s next subsidiary in Poland. In
both instances short psychic distance helped the
parties recognize and implement opportunities.
The impact of psychic distance on internationalization may well be indirect, but this does not mean
that it has no effect on relationship building or on
the processes of learning, trust building, and so
on that occur in relationships.
The domestic market may not be the most
relevant unit in terms of psychic distance. The
distance to, and between, cultural blocs is more
relevant in many cases (Barkema & Drogendijk,
2007; Shenkar, 2001). There may be cultural
differences within a country that make it logical
to view parts of the country as entirely different
markets with different psychic distances. Indeed,
the concept of the liability of outsidership does not
necessarily refer to countries. It is a firm-level concept
that may relate to a network within a country, or to a
wider region (cf. Rugman & Verbeke, 2007).
We think that Autio (2005: 12) makes an interesting point when he argues that our original
model emphasizes constraints to internationalization whereas Oviatt and McDougall’s model
emphasizes enabling factors. While we make the
barriers to internationalization explicit in our
The Uppsala model revisited Jan Johanson and Jan-Erik Vahlne
Journal of International Business Studies
model, especially psychic distance, our most basic
‘‘enabler,’’ that is, the company and its firm-specific
advantages, is implicit. Oviatt and McDougall
place more emphasis than we do on the factors
that make internationalization possible. We do
include in our model the presence of one or more
entrepreneurs, which is typical of explanations of
international new ventures and born regionals,
who may identify, develop, and exploit opportunities, and so are obviously indispensable. Our
original article assumed corporate entrepreneurship
(Johanson & Vahlne, 1977), which we explicitly
explored in a subsequent article (Johanson &
Vahlne, 1993).
Some authors emphasize the role played by
‘‘enablers’’ in rapid internationalization – for example, ‘‘boldness in decision-making’’ (Moen & Servais,
2002). On the surface, our decision-makers, who
perhaps want to expand their company’s business,
do not appear to be risk takers. However, in our 1977
article, we state ‘‘it is assumed that the firm strives to
increase its long-term profit, which is assumed to be
equivalent to growth
y The firm is, though, striving
to keep risk-taking at a low level.’’ (1977: 27) Thus
we do not view our model and the rapid internationalization model as essentially different on this
point. Furthermore, entrepreneurs, or at least successful ones, supposedly calculate risks carefully and
try to avoid taking unnecessary risks. Perhaps the
propensity of firms to take bigger risks is higher
today in some cases (cf. Vahlne & Johanson, 2002:
221, in the case of venture capitalists and the
internationalization of IT-consultant companies).
However, it would appear that neither we nor other
researchers really know much about the propensity
for taking risks either in the past or now. Clearly,
entrepreneurs like those at Sandvik, which
we mentioned previously, were taking risks
when they acted on opportunities in foreign
Oviatt and McDougall’s model does specifically
differ from ours when it comes to the choice of
modes. We have observed that companies gradually
enter into what could be seen as more risky, but
also potentially more beneficial and controllable,
modes of operation. Increased knowledge and
commitment make such risk taking desirable and
possible. On the other hand, entrepreneurs behind
international new ventures are expected to optimize mode choice depending on constraints on
resources and outside opportunities. We believe
that this may be true. Today’s companies do use
a wider range of modes, although we do not see
more ‘‘optimization’’ going on in a real sense. It is
often said that environmental changes, such as
globalization, rapid technological change, and
deregulation, force companies to enter into alliances and joint ventures, because no single company owns all the resources required to exploit
larger and continuously changing markets
(Contractor & Lorange, 2002). If that is the case,
companies may not use those modes if their
resources are sufficiently large to allow them to
rely on internalized activities. In fact, companies
have frequently switched from relying on an agent
– that is, relying on external resources – to an
internal operational mode when their performance
makes that possible and there are prospects for
growth and better efficiency. We do not view
leapfrogging or choice of modes such as joint
ventures, which our establishment chain did not
predict, as problematic for our model, as when we
built it neither was common among the Swedish
companies at which we were looking. We no
longer consider the mode a reliable indicator of
the level of commitment. Contextual aspects often
play a more important role. For example, Hedlund
and Kverneland (1985) studied Swedish companies
in Japan that had to forgo the wholly owned
subsidiary mode because the structure of the
Japanese industry, in which they were, made it
necessary to have a local partner, who was already
well established in local networks.
As we have noted, acquisitions have now become
the primary mode of entry in terms of value. This is
a way, of course, for a resource-rich company to
quickly buy itself a position in a network in a
foreign market, as opposed to proceeding incrementally in smaller less risky steps. However, in the
era of globalization other motives may play a role.
The focal company may want to gain access to an
interesting piece of technology or some other
resource, or it may want to reduce the number of
competitors. We have argued that, in accordance
with our model, an acquisition is much more
likely to be successful if it is preceded by some
kind of exchange between the acquirer and the
acquiree. In such exchanges firms have already
acquired a body of knowledge about each other,
and have perhaps established some level of commitment (Andersson, Johanson, & Vahlne, 1997).
Without such a previous relationship the parties
will have to learn about each other after the
acquisition for post-acquisition integration to proceed. This process may include some conflicts, and
will take time (Ivarsson & Vahlne, 2002). Hence an
The Uppsala model revisited Jan Johanson and Jan-Erik Vahlne
Journal of International Business Studies
acquisition is not necessary a way of rapidly
building a position on a foreign market.
It is clear that one reason for the empirically
driven criticism of our model is that the business
world is different today from how it was when we
observed patterns of internationalization. Events
move more quickly and assume somewhat different
forms. Nonetheless, one constant in coping with
uncertainty remains: firms need to learn, and to
create or strengthen relationships in order to
exploit opportunities.
In light of all of this, we have developed our revised
model in the following way. The firm is embedded
in an enabling, and at the same time constraining,
business network that includes actors engaged in a
wide variety of interdependent relationships. Internationalization is seen as the outcome of firm
actions to strengthen network positions by what is
traditionally referred to as improving or protecting
their position in the market. As networks are
borderless, the distinction between entry and
expansion in the foreign market is less relevant,
given the network context of the revised model.
The traditional view of entry – that is, overcoming
various barriers – is becoming less important than
internationalizing undertaken to strengthen a
firm’s position in the network (Johanson & Vahlne,
2003). As a result, we claim that existing business
relationships, because they make it possible to
identify and exploit opportunities, have a considerable impact on the particular geographical market
a firm will decide to enter, and on which mode
to use. This claim is also consistent with the
business network view, where much is contingent
on existing relationships (Ha˚kansson & Snehota,
1995). Learning and commitment building take
place in relationships. Although our 2003 article
did not highlight that particular point, this way
of thinking about internationalization places the
identification of opportunities at the forefront.
While we mention in our 1977 article that
experiential knowledge may lead to the identification of opportunities, this aspect has largely been
neglected. Primarily, it has been assumed that
reducing uncertainty has to do with the differences
between the culture and institutions of the home
country and those of the foreign country. We
now have reason to believe that learning and
commitment are strongly related to identifying
and exploiting opportunities (Johanson & Vahlne,
2006). As some types of knowledge are not
accessible to everyone, and are instead confined
to network insiders, a strong commitment to
partners allows firms to build on their respective
bodies of knowledge, making it possible for
them to discover and/or create opportunities. We
believe that internationalization is contingent
more on developing opportunities than on overcoming uncertainties, for example concerning
institutional conditions in the foreign market
(Eriksson et al., 1997).
A reviewer of this paper has made us aware of the
‘‘effectuation process’’ that was constructed by
Sarasvathy (2001) to describe the process entrepreneurs follow as they prepare to launch a new
company. According to her, the effectuation process is ‘‘useful in understanding and dealing with
spheres of human action. This is especially true
when dealing with the uncertainties of future
phenomena and problems of existence.’’ (2001:
250) As we have argued, internationalization
resembles entrepreneurship and may be described
as corporate entrepreneurship. Internationalization
too is characterized by high degrees of uncertainty.
The effectuation process has much in common
with our internationalization process model,
including similar environmental characteristics, a
limited number of available options, incremental
development, and an emphasis on cooperative
strategies (2001: 251). However, while Sarasvathy
views the actors and their characteristics as important, our model does not include this point at all.
We do argue, however, that the actors are implicitly
present in our model to the extent that they are the
carriers of (tacit) knowledge, trust, commitment,
and network relations. We therefore consider the
effectuation process as developed by Sarasvathy to
be fully consistent with our model. In addition, our
model underlines the fact that internationalization
has much in common with entrepreneurship.
As in the 1977 version model, the 2009 business
network model consists of two sets of variables:
state variables (shown as the left-hand side of
Figure 2) and change variables (shown as the
right-hand side of Figure 2), or stock and flow,
which are relevant to both sides in a relationship.
The variables affect each other, the current state
having an impact on change, and vice versa. The
model thus depicts dynamic, cumulative processes
of learning, as well as trust and commitment
building. An increased level of knowledge may
thus have a positive or a negative impact on
building trust and commitment. In an extreme
The Uppsala model revisited Jan Johanson and Jan-Erik Vahlne
Journal of International Business Studies
case scenario – which may actually not be so rare –
the firm and/or the firm on the opposite side of the
relationship may in fact reduce the commitment or
even terminate the relationship. These processes
can occur on both sides of a mutual relationship
and at all points in the network in which the focal
firm is a member.
Although the basic structure of the model is the
same as the one we built in 1977, we have made
some slight changes. We have added ‘‘recognition
of opportunities’’ to the ‘‘knowledge’’ concept, as
seen in the upper left-hand box of the model (see
Figure 2). Opportunities constitute a subset of
knowledge. By adding this variable, we intend to
indicate that we consider opportunities to be the
most important element of the body of knowledge
that drives the process. Other important components of knowledge include needs, capabilities,
strategies, and networks of directly or indirectly
related firms in their institutional contexts. The
second state variable is labeled ‘‘network position.’’
This variable was identified in the original model
as ‘‘market commitment.’’ We now assume that
the internationalization process is pursued within a
network. Relationships are characterized by specific
levels of knowledge, trust, and commitment that
may be unevenly distributed among the parties
involved, and hence they may differ in how they
promote successful internationalization. Nonetheless, if the process is seen as potentially rewarding,
a desirable outcome of learning, trust and commitment building will be that the focal firm enjoys a
partnership and a network position.
As to the change variables, we changed the
original label of ‘‘current activities’’ to ‘‘learning,
creating, and trust-building’’ to make the outcome
of current activities more explicit. The concept of
current activities, or operations, in the original
model was intended to indicate that regular daily
activities play an important role, and lead to
increased knowledge, trust, and commitment. Our
use of the term ‘‘learning’’ is at a higher level of
abstraction: that is, we think of it as more than
experiential learning, although we still regard that
to be the most important kind of learning.
The speed, intensity, and efficiency of the
processes of learning, creating knowledge, and
building trust depend on the existing body of
knowledge, trust, and commitment, and particularly on the extent to which the partners find given
opportunities appealing. We have made the affective dimension of trust-building more explicit than
in our earlier model, as we believe it deserves a
status similar to that of the cognitive dimension.
In addition, we want to highlight opportunity
creation, which is a knowledge-producing dimension, because we believe that developing opportunities is a critical part of any relationship.
Furthermore, high levels of knowledge, trust, and
commitment in a relationship result in a more
efficient creative process. The interplay between the
processes of learning, creating opportunities, and
building trust is described well by Nahapiet and
Ghoshal (1998), although they use the concepts of
intellectual capital and social capital.
Finally, the other change variable, ‘‘relationship
commitment decisions,’’ has been adapted from the
original model. We added ‘‘relationship’’ to clarify
that commitment is to relationships or to networks
of relationships. This variable implies that the focal
firm decides either to increase or decrease the level
of commitment to one or several relationships in its
network. In an extreme case scenario, this decision
may manifest itself only on a psychological level.
Usually, however, the decision will be visible
through changes in entry modes, the size of
investments, organizational changes, and definitely
in the level of dependence. A change in commitment will either strengthen or weaken the relationship. From a network point of view, there are two
kinds of decision regarding the commitment to the
relationship. They may primarily be to develop
new relationships, in most cases businesses, in
others they may be about building bridges to new
networks and filling structural holes (cf. Burt,
1992). Alternatively, they may be to protect or
State Change


Figure 2 The business network internationalization process
model (the 2009 version).
The Uppsala model revisited Jan Johanson and Jan-Erik Vahlne
Journal of International Business Studies
support the firm’s existing network of strategic
relationships. For example, a few years ago, Volvo
demanded that some of its important Swedish
suppliers develop relationships with German car
manufacturers in order to demonstrate that Volvo’s
suppliers had the same desirable qualities and skills
as those of its German competitors.
There are some implications of the revised model
for the internationalization process. First, internationalization depends on a firm’s relationships and
network. We thus expect the focal firm to go abroad
based on its relationships with important partners
who are committed to developing the business
through internationalization. These partners may
be at home or abroad. The focal firm is also likely
to follow a partner abroad if that partner firm
has a valuable network position in one or more
foreign countries. There are two possible reasons
for such foreign expansion. One is the likelihood
of finding interesting business opportunities. As
we have said, partner bases of knowledge are
interrelated, and are therefore also indirectly
related to other members of the network. Relying
on a related knowledge base, the focal firm may
thus enter networks abroad, where it may be able
to identify and exploit opportunities. We reiterate:
mutual trust and commitment are based not on
formal agreements but on a common history of at
least minimally satisfactory, if not successful, joint
business experiences. A second reason to go abroad
occurs when a relationship partner who is going
abroad, or already is abroad, wants the focal firm to
follow. By following the partner abroad, the firm
demonstrates its commitment to the relationship.
Where will an internationalizing company go?
The general answer is: where the focal firm and its
partners see opportunities. A foreign market in
which the partner has a strong position is another
possibility. This is not only a matter of the first step
abroad. The same process may continue from
market to market, depending on the actions of
the focal firm’s partners. If the firm has no valuable
partners, however, it may go where it might be easy
to connect with a new firm that already has a
position in the foreign market. For example, it
may link itself to a middleman such as an agent or a
distributor. Eventually, when the focal firm has
established relationships with customers, it may
bypass the middleman and establish its own
subsidiary. Short psychic distance will facilitate
the establishment and development of relationships, which is a necessary but insufficient condition
for identification and exploitation of opportunities.
How might the process start? Given the business
network model’s process view, any determination
of a starting point will be arbitrary (cf. Coviello,
2006; Reuber & Fischer, 1997; Wiedersheim-Paul,
Olson, & Welch, 1978). Regardless of whether we
consider the starting point to be the founding of
the company, the first international market entry,
or the establishment of a specific relationship, our
process model implies that we should look for
explanations in the state variables, such as knowledge, trust, or commitment to the firm’s specific
relationships. For example, the focal firm may
exploit some of its existing connections by using
the trust that a partner has established with another
party or parties (Larson, 1992). Increased knowledge
may cause either the focal firm or its partner to
become dissatisfied with the relationship. Either
firm may then decide to decrease its commitment
or even end the relationship.
We argued in an earlier paper that access to
information is of more relevance to large companies, and that the Uppsala model is therefore more
applicable to smaller firms ( Johanson & Vahlne,
1990). We are now less certain about this observation, as knowledge is highly context specific. The
model should be equally applicable to large and
small firms (Barkema et al., 1996; Steen & Liesch,
2007). Large firms may, however, be better
informed when they acquire a firm in a market in
which they are already active. In such acquisitions,
which are not unusual, it is more a matter of
experience than of size. Such experience may also
explain why international new ventures may grow
very rapidly: The founding entrepreneur already
has access to knowledge and relationships prior to
the internationalization.
We identify here but a few of the exciting research
issues that follow from our revised internationalization process model and are well worth exploring.
As a step towards formulating a more unified
explanation of the emergence and growth of multinational enterprise, it could prove both interesting
and important to look for similarities between the
internalization theory (Buckley & Casson, 1976;
Hennart, 1982; Rugman, 1981) and the eclectic
paradigm (Dunning, 1980) on one hand, and the
business network model of the internationalization
process on the other. The process of changing modes
of operation is also frequently a matter of internalization or externalization. The version we propose now
implicitly assumes that an internationalizing firm
The Uppsala model revisited Jan Johanson and Jan-Erik Vahlne
Journal of International Business Studies
has access to one or more specific advantages. The
original version of our model focused explicitly on
location specificity as an explanation for uncertainty
(Rugman & Verbeke, 2004: 12). While location
specificity does matter, we now pay more attention
to relational shortcomings, knowledge, and commitment as reasons for uncertainty and, indirectly,
for location specificity. This implies that established
relationships offer a firm-specific advantage worthy
of attention. We observe that Dunning’s (1997) OLI
paradigm has also been revised to include strategic
alliances and, more recently, even broad network
relationships (Dunning & Lundan, 2008). We have
argued elsewhere (Johanson & Vahlne, 1990) that
two large issues need to be addressed when
attempting to merge the eclectic paradigm and the
Uppsala model. The original version of the eclectic
paradigm was rather static, and rested on the
behavioral assumption of strong rationality, whereas
the Uppsala model is dynamic and assumes bounded
rationality, a difference that has now, fortunately,
largely disappeared with the latest extension of the
OLI paradigm (Dunning & Lundan, 2008). To the
extent that firm-specific advantages are based on
Penrose and RBV thinking, the conceptual distance
between the OLI paradigm and our business network
model of internationalization is still further reduced.
At this point the problem seems to lie primarily in
the relationship to the market environment that
Penrose did not consider a major issue, and about
which RBV thinking says little. This is the core issue
in our original model, and it is even more important
in our new model, which we see as an extension of
the ‘‘unknowable market’’ of Penrose and the RBV
perspective. The remaining conceptual problem is
related more to the internalization model. While
that model focuses on explaining firm boundaries,
our model focuses on the processes driving continuous change of those boundaries. Buckley and
Casson (1998) address the evolving boundary issue,
though it is unclear from their discussion whether
they see it as falling within internalization theory or
separate from it. In any case, organizational learning
is now discussed within both lines of research
(Benito & Tomassen, 2003; Kay, 2005; Pitelis, 2007).
We highlight two studies that combine the
concept of firm-specific advantages with the internationalization process. Sande´n and Vahlne (1976)
developed the concept of an
advantage cycle to
describe how some firm-specific advantages
increase over time while others decrease. The cycle
is initiated by an internal firm-specific advantage
that allows the MNE to develop strong positions in
foreign markets. These will subsequently constitute
the MNE’s main firm-specific advantages. In a
recent empirical study of internationalization,
Hsu and Pereira (2008) develop a model in which
firm-specific advantage has a direct impact on
internationalization and an indirect impact on
performance. In addition, organizational learning
moderates the effect of internationalization on
performance. Both of these studies offer opportunities for fruitful research that combines the two
approaches without really integrating them.
Second, as we have argued, business relationships
provide a firm with an extended and unique
resource base that it only partially controls.
Furthermore, exploiting the potential of such an
extended resource base requires that the firm’s own
resources be coordinated with those of one or
several of its partners. The goal of business network
coordination is joint productivity of a set of relationship partners, which is difficult to implement
as it involves coordinating the partners’ activities
(Hohenthal, 2006). When partners operate in different countries, cross-country business network
coordination is also needed, and is more difficult
still. How hard this will be to achieve may vary
with the psychic distance between the actors. This
brings to mind many interesting sub-issues, including the means of coordination and the possible
allocation of coordination responsibilities between
designated organizational units (Galbraith, 1973;
Mintzberg, 1979). We expect that these units will
be located in the strategic partners’ home countries.
We are convinced that international business network coordination will become an increasingly
important phenomenon with strong implications
for firm-specific advantage as well as for internationalization.
Third, the subtitle of this paper,
From liability of
foreignness to liability of outsidership
, refers to the fact
that a firm’s problems and opportunities in international business are becoming less a matter of
country-specificity and more one of relationshipspecificity and network-specificity. For example,
the problems associated with foreign market entry
are largely the same as those associated with entry
into any other market. The firm does not know who
the business actors are, or how they are related to
each other, unless it already enjoys relationships
with one or several actors in that market. There is a
need for research that may explain when the
liability of foreignness is the main problem in
foreign market entry and when the liability of
outsidership is the primary difficulty. Research into
The Uppsala model revisited Jan Johanson and Jan-Erik Vahlne
Journal of International Business Studies
ways in which the two approaches might be
combined would also be interesting. For example,
we suggest that studies of the impact of psychic
distance on the formation and deepening of
relationships, as well as of the role of relationships
as vehicles in learning about institutional and
cultural conditions, would both be worthwhile.
The business network model of internationalization can be used to study both resource-seeking
and market-seeking internationalization. Pyndt and
Pedersen (2006) found that at the resource-seeking
end of the value chain the dynamics of learning
and trust and commitment building lead to
exploration and exploitation in the context of
expanding upstream activities. As our business
network model is symmetrical in terms of suppliers
and customers, it can be used to analyze international sourcing and supply chain development.
While there is considerable research on global
supply chain development, little of it appears in
international business journals compared with the
number of studies on market-seeking internationalization. In recent years, however, two articles
on international sourcing have been published in
JIBS (Griffith & Myers, 2005; Murray, Kotabe, &
Zhou, 2005). In both articles the authors study the
performance of global supply relationships and
alliance-based sourcing. The dynamics of the internationalization of supply networks is an increasingly important problem in international business
that our model can address.
Our business network view of the firm as an
exchange unit rather than a production unit, in
contrast to received microeconomic theory, offers
new opportunities to analyze the internationalization of companies that operate fundamentally as
networks. A rapidly growing number of modern
firms are built around a brand, a design, or patented
technology for which production and services are
performed by a network of other firms (e.g., Nike,
IKEA). We think that the business network model
will be useful in enhancing understanding of their
internationalization. Trading companies are
another type of network firm with a long international business tradition. Although they are very
important, they have been almost entirely
neglected in the international business literature
except, for their recognition as more or less
marginal partners to manufacturing firms. The
research by Ellis (2001) is one of the few exceptions.
We recommend research on these firms based on
the business network model of internationalization.
Although we have avoided constructivist methodology, we believe that it does have the potential to
contribute to a deeper understanding of the international network development processes that we
have conceptualized in this paper. An interesting
study of internationalization of professional services (Reihlen & Apel, 2005) demonstrates that this
approach merits further research, possibly using
longitudinal case studies. Such studies would add
particularly to our understanding of the term
‘‘creating’’ in the business network model of the
internationalization process.
The authors thank numerous colleagues, students, and
authors of IB articles who through the years have
contributed views and remarks, critical and encouraging. We also thank the editor, Alain Verbeke,
and three anonymous reviewers who helped put this
paper in a much better shape. We express gratitude
to the Torsten and Ragnar So¨derberg Foundations for
financial assistance.
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Jan Johanson (F.L., Uppsala University) is Professor
Emeritus at Uppsala University, Sweden. His research
interests include internationalization processes and
business networks. He is a native of Sweden and can
be reached at [email protected]
Jan-Erik Vahlne (Ph.D., Uppsala University) is
a Professor at Gothenburg University, Sweden.
His research interests include internationalization
and globalization processes. He is a native of
Sweden and can be reached at [email protected]
Accepted by Alain Verbeke, Area Editor, 4 November 2008. This paper has been with the authors for four revisions.
The Uppsala model revisited Jan Johanson and Jan-Erik Vahlne
Journal of International Business Studies