International Business Environment
1) Discuss the implications of the availability and use of the Internet for the Uppsala model of internationalization.
International Business concerns commercial cross-border activities. It is the international movement of goods, capital, services, employees, and technology. “Businesses undertake international operations in order to expand their sales, acquire resources from foreign countries or diversify their activities.” (Anderson 1990). In former times there were many obstacles like, foreign languages, laws, customs…and it was much harder to overcome them and do international businesses than today.
The Uppsala model of internationalization was established in order to explain the process of internationalization of firms. It was established in 1977 by Jan Johanson from the Uppsala University in Sweden, after which the model is named and Jan-Eric Vahlne from the Stockholm School of Economics in Sweden.
The Uppsala model has grown out of empirical research based on microeconomic and marketing theory about Swedish firms competing internationally. Research from other countries had the same results like in Sweden and confirmed the Uppsala model. It is one of the most widely spread concepts of the mechanism of internationalization. It is based on the behavioral theory of the firm (Cyert and March 1963; Aharoni 1966) and Penrose’s theory from 1959 of the growth of the firm. The Uppsala Model sees the internationalization as a slow, step-by-step process whereby firms slowly get more and more involved in international businesses. This process is an interplay between the development of knowledge of foreign markets and transactions on the one hand and commitment of more and more resources to foreign sales on the other. According to the Uppsala model, a firm can get market knowledge mainly from the experience of operating in the foreign country.
This experience is country specific and cannot be generated to other foreign markets. But once a firm has this specific experience and knowledge it gets further business opportunities, reduces market uncertainty and increases its international operations.
Characteristic for the Uppsala model is that it sees the firms as a system of small parts that are loosely connected and each part has its own interests and ideas.
The Uppsala model says, that there are just three circumstances in which the slow process with its small stages can be accelerated. These three exceptions are:
1) When the firm has so large resources, that the consequences of failure would have no real effect.
2) When the firm already has experience from similar markets and can generalize this experience to the specific market.
3) When the market is stable and the firm can gain the relevant knowledge in other ways than with experience.
When the Uppsala model was established in 1977 the possibility of getting knowledge without making experience was small. There were many barriers and obstacles on the way to internationalization like geographic distance, language problems, communication possibilities, customs… but now these barriers can be overcome with the help of the Internet.
The Internet is a connection of many networks to one network. It links individual, companies, governments, universities, and research establishments in the whole world together.
It was originally established in the early 1970’s for the US Defence Department but only in the early 1990s, it was opened up for everyone. The public was and still is highly interested in the Internet. In 1996 the Internet-user numbers were estimated between 35 and 75 million people with a 10% growth per month. IBM even predicted 500 million users for the year 2000 (Financial Times; 14.11.1996), but I think that the number is much higher now, than estimated.
People using the Internet can communicate easy, freely and directly, e.g. with e-Mails, so that the geographic and communication (common language on the Internet is English) barriers are overcome. The Internet is a totally different environment for doing business internationally for all the companies. The companies can get the useful knowledge of doing business in a foreign country from the World Wide Web (WWW), the fastest growing part of the Internet, a network of documents they can access through the Internet. There they can find the market researchers… and don’t have to do everything themselves. The Internet can be a powerful source of competitive advantage when it is used properly. It redefines the dynamics of international commerce and leads to a faster internationalization of businesses. It reduces costs e.g. for advertising and communication and makes it therefore also possible for small firms to become international and to compete on the world market. There are several reasons why the internationalization today is no longer a slow step-by-step process, according to the Uppsala model, but a fast development. The main reasons are the Internet and the fact that internationalization is an irreversible process i.e. that the experience doesn’t have to be made each time again.
Overall we have to wonder if the Uppsala model is still valid after this development. In my opinion, the evaluation of the Internet made the Uppsala model old fashioned and increasingly less valid. The Internet changed the situation for the firm and it became much easier and faster for them to get information through the Internet rather than through experience like they had to in the Uppsala model. Although the possibility of getting the relevant knowledge in other ways than through experience is mentioned in the Uppsala model, but just as an exception and not “rule”, because the Internet simply wasn’t available at that time. With the invention of the Internet, the exception of the Uppsala model became standard and the main point, the slow, gradually evolutionary stages in the process of internationalization became an exception. The internationalization accelerates the slow process, the balance of the Uppsala model is distributed and to explain the internationalization process it would be no longer the accurate model. Read about different types of business information
2) There is no point in an international business worrying about cultural differences because in the modern world all national cultures are becoming similar. Evaluate and discuss this statement.
International business involves commercial cross-border transactions. But doing business in foreign countries can be very difficult, because of the cultural differences among the nations/countries.
When doing business in a foreign country, special problems can arise, which are normally not expected and experienced when doing business in the home country. These problems stem from cultural differences and emergency managers to pay attention to them in order to overcome them.
Culture can be defined as a part of a human action that is not genetically but socially transmitted. It includes norms, values, and beliefs, which are reflected in behavior, practices and institutions.
According to Fons Trompenaars (1993), culture exists in three layers. The first is the most visible, which represents those artifacts and goods that mostly distinguish one culture from another. The second one is at a deeper level and includes our ideas of right and wrong, bad and good, our norms and values. The third one is the deepest, where culture represents a set of basic assumptions that operate automatically to enable groups of people to solve the problems of their daily life without thinking about them.
Culture is the reason for a group to act collectively. The actions of cultural groups are different and distinguish from each other.
Culture has three primary characteristics: it is shared by a group; it is learned and passed down from one generation to the next, and it depends on environmental circumstances.
The most important thing, when analyzing culture, is the identification and characterization of norms and values. Norms are perceptions of how things should be done, shared by a group, common attitudes, feelings and beliefs. They are like a guideline for how to behave in the group and therefore facilitate the integration into a group.
Values are basic moral convictions that people have, regarding what is right and wrong, good and bad, important and unimportant. They are influenced by the environment and therefore change over time.
The key aspects of culture are religion, language, politics, color, lifestyle, and education.
Factors like: the Internet, English as a common business language, the improvement in transport and communication, globalization of media, adoption of similar techniques, similarities in tastes and consumption have risen the convergence of certain aspects of culture among nations. The Internet, for example, has no cultural differences; it has a common language (English), no religious influence, no politic influence and equal opportunities.
According to this modernization, many learned-men claim that this will create, or at least lead to a worldwide common culture. But there although exist common products, services… they haven’t the same meaning in different cultures.
Having one culture can have advantages like better communication, better understanding and higher profits for businesses, but having many cultures has advantages, too. Cultural advantages can arise from differing values and ways of seeing the world. They can be a competitive advantage by outlining them. Culture shouldn’t just be considered as an obstacle for the businesses to do international businesses. It can provide benefits and can be used competitively.
Ignoring or mishandling cultural differences can mean an inability to retain and motivate employees, misinterpreted the potential of cross-border alliances and failure to build sustainable sources of competitive advantage. This can lead to ineffective and frustrated managers and organizations. On the other hand managing, cultural differences successfully can lead to innovative business practices, faster and better learning within the organization and sustainable sources of competitive advantage.
Managers of multinational companies have to realize the importance of cultural factors. They should obtain knowledge about the countries culture by learning the language, knowing its history, live in the country with its habitants, socially as well as in working situations for several years. But these are almost impossible tasks and therefore managers seek to identify some key variables believed relevant to the firm’s operations. Key variables include e.g. a typical day in the life of a local consumer of a certain type of product, employee relations, and factors that cause an attraction to a certain type of good of local consumers…
Regarding G.P. Murdock’s influential study of “Cultural universals” there exist cultures that can be found in all societies. Here societies can be regarded as essentially the same and cultural differences between them are relatively unimportant, e.g. sports, bodily adornment, sexual taboos, etc. Therefore analysis of culture concentrates especially on lifestyle and the taxonomy of cultures into “high context” and “low context” categories.
“High context” relates to that what is internalized and embedded within a person and not expressed (implicit; non-verbal communication). Low context means controversy that communication has to be explicit. E.g. On the one hand, Asian countries are high context countries, because they rely heavily on non-verbal communication and on the other hand European countries, which are low context countries, because communication with words, symbols, rituals etc. is very important. Within a high context, culture communication is fast and efficient and behavior is stable and predictable, while in a low context culture communication is clear and precise and individualism is more emphasized than collectivism.
But will international businesses not have to worry about cultural differences in the future, because all cultures become similar?
Some similarities can be found between different cultures, but I don’t think that the different cultures can melt together into one common culture. The people of one culture will never be ready to give up e.g. their religion or their customs in order to be part of another common culture. The only thing that really changed is the attitude of people. There are a higher acceptance and respect for people from different cultures than ever before. This is a result of the knowledge that people get from the internationalization and the recognition that businesses had to work together (and therefore to get along with each other) to maximize their profit.