Logically sequence the following in the process of entering international markets outlined in the uppsala model. (A) Sporadic (Ad hoc) exports (B) Foreign production and manufacturing (C) Establishing a foreign sales subsidiary (D) Domestic operations and production (E) Exporting via independent representative Choose the correct answer from the options given below:
(D), (A), (E), (C) and (B)
Understanding the Uppsala Model of Internationalization
The Uppsala model, developed by researchers at Uppsala University in Sweden, describes how firms gradually increase their international involvement. It suggests that internationalization is a process of incremental learning and commitment to foreign markets. Companies typically start with activities that require minimal commitment and then move to more involved activities as they gain market knowledge and experience.
The model outlines a sequence of stages that a firm typically follows when entering international markets. This sequence is based on the firm's increasing market knowledge and commitment.
Stages of International Market Entry in the Uppsala Model
Let's examine the stages provided and understand their typical order in the Uppsala model:
- (D) Domestic operations and production: Before venturing abroad, a firm operates solely within its home country. This is the starting point, focusing on the domestic market.
- (A) Sporadic (Ad hoc) exports: The first step into international markets is often irregular or occasional exporting, often in response to unsolicited foreign orders. This involves minimal commitment and risk.
- (E) Exporting via independent representative: As exports become more regular, firms might use independent agents or distributors in foreign markets. This is a more structured form of exporting than sporadic sales, indicating a slightly higher but still relatively low commitment.
- (C) Establishing a foreign sales subsidiary: This stage involves setting up a physical presence in the foreign market, such as a sales office. This requires a significant increase in investment and commitment compared to exporting through intermediaries. It allows for better market control and direct interaction with customers.
- (B) Foreign production and manufacturing: The highest level of commitment in this sequence involves setting up production facilities or manufacturing operations in the foreign market. This represents a substantial investment and deepens the firm's presence and integration in the international market.
Logical Sequencing Based on the Uppsala Model
Based on the typical path described by the Uppsala model, the logical sequence of the given stages is from lower commitment and knowledge to higher commitment and knowledge:
Domestic Operations (D) → Sporadic Exports (A) → Exporting via Independent Representative (E) → Foreign Sales Subsidiary (C) → Foreign Production (B)
Sequencing Summary Table
| Stage | Description | Commitment Level | Typical Order |
|---|---|---|---|
| (D) Domestic operations and production | Operating only in the home country. | Lowest | 1st |
| (A) Sporadic (Ad hoc) exports | Irregular, reactive exporting. | Low | 2nd |
| (E) Exporting via independent representative | Regular exporting using foreign intermediaries. | Medium-Low | 3rd |
| (C) Establishing a foreign sales subsidiary | Setting up a sales office abroad. | Medium-High | 4th |
| (B) Foreign production and manufacturing | Setting up production facilities abroad. | Highest | 5th |
Therefore, the correct logical sequence is (D), (A), (E), (C), and (B).
Revision Table: Key Concepts of Uppsala Model
| Concept | Explanation |
|---|---|
| Incremental Internationalization | Firms expand into foreign markets step-by-step. |
| Market Knowledge | Learning about foreign markets reduces perceived risk. Two types: Objective (data, info) and Experiential (through activities). |
| Market Commitment | Investment in foreign operations (resources, personnel, facilities). Increases with knowledge and experience. |
| Psychic Distance | Factors preventing the flow of information between firm and market (language, culture, political systems, education). Firms often enter markets with lower psychic distance first. |
Additional Information on Uppsala Model Implications
The Uppsala model suggests that market-specific knowledge, particularly experiential knowledge gained through operations in a market, is crucial for reducing the uncertainty associated with international activities. As a firm gains more experience in a foreign market, its perceived risk decreases, leading to a willingness to commit more resources to that market.
The model also implies that firms tend to enter markets that are geographically and culturally closer (lower psychic distance) first, before venturing into more distant markets. This is because lower psychic distance is associated with less uncertainty and easier knowledge acquisition.
While the Uppsala model provides a useful framework for understanding the traditional internationalization process, it has been criticized for not fully explaining rapid internationalization ('born global' firms) or entries into high psychic distance markets early on. Nevertheless, it remains a foundational model in international business studies for understanding gradual market entry strategies.
Important Questions from International Marketing
Which of the following products would require intensive modification in the international arena?
Occasional sale of a commodity at a lower price abroad in order to unload an unforeseen and temporary surplus of the commodity without reducing domestic prices is called:
Which one of the following statements is false?
- Which one of the following non-tariff barrier is designed to protect domestic industries by imposing additional charges on imported goods that are priced below the cost of production ?
