Question

1: What is the Uppsala model?

2: What are two (2) examples of the means of internationalisation?

3: Why is parochialism a disadvantage when conducting international business?

Answer 1

Ans 1)

The Uppsala Model has been one of the most discussed theories in International Business studies and has affected many research studies in the way to explain the Internationalization of companies. In this model, the internationalization of the firm is seen as a process in which the enterprise gradually increases its international involvement. The process involves in an interplay between the development of knowledge about foreign markets and operations on one hand, and an increasing commitment of resources to foreign markets on the other.

The model can explain two patterns in the internationalization of the firm (Johanson and Wiedersheim-Paul,1975) One is that the firm’s involvement in a specific market develops according to an establishment chain, i.e. at the start, no regular export activities are performed in the market, the exports take place through individual representatives, later through a sales subsidiary, and eventually manufacturing may follow. In terms of the process model, this sequence indicates an increasing commitment of resources to the market. The first stage gives practically no market experience. The second stage sees the firm as having an information channel to the market and therefore obtaining better information.

The second pattern explained is that the firms enter new markets with successively greater psychic distance. Psychic distance is defined in terms of factors such as differences in language, culture, political systems, etc, which obstruct the flow of information between the firm and the market (Vahlne and Weidersheim-Paul 1993). Thus, firms commence internationalization by entering those markets that they can most easily understand. In those markets, opportunities will present themselves with low market uncertainty.

Ans 2)

Means of Internationalization- Franchising and Licencing

a) Franchising – Franchising is basically a right which manufacturers or businesses give to others. The right permits the beneficiaries to sell products or services of the manufacturers or parent business. These rights could even include intellectual property rights. The individual or business that grants the right is called the franchisor, while the beneficiary is called Franchisee.

For example. Several fast food chains like Dominoes and McDonalds operate in India through franchising.

Advantages to Franchisors

• Great way to expand a business
• Helps in building brand name of the business and reach new customers

Advantages to Franchisees

• A Franchise can use franchising to start a business on a pre-established brand name of the franchisor.
• Franchisees will get to know business technique and trade secrets of the brands.

Disadvantage for Franchisor

• Lack of direct control over the sale of its products. As a result, its own goodwill can take a hit if the franchisee does not maintain quality standards.
• Risk of the franchisor’s secrets being leaked by the franchisee to the rivals

Disadvantages for Franchisees

• Lack of complete control over the business.
• The franchisee always has to pay some royalty to the franchisor on a routine basis.

b) Licensing is defined as a business agreement, wherein a company authorises another company by issuing a license to temporarily access its intellectual property rights, i.e. manufacturing process, brand name, copyright, trademark, patent, technology, trade secret etc under specified conditions. The firm that authorise is the Licensor and the firm to whom the license is issued is the licensee

For example, under the licensing system, Coco-Cola and Pepsi are globally produced and sold, by local bottlers in different countries.

Advantages of Licensing

• Creates an easier entry into foreign markets.
• Overcomes restrictive investment barriers.
• Provides additional profitability with little investment.

Disadvantages of Licensing

• Increases the opportunities for Intellectual property theft.
• It increases the dependency upon the licensor.
• Possibility of creating a future competitor.

Ans 3)

Parochialism in simple terms is the process of viewing the world solely through one’s own perspective.

When parochialism is viewed in the context of business from an internal standpoint, the view of success becomes defined not necessarily by organizational success but by what the department is asked to do. The department begins to view its world as the piece and not the puzzle. This promotes a connection to a minor part of the process while losing connection to the overall outcome. As resources become tighter, some individuals or departments tend to exert an extreme amount of control over the people and resources at their disposal without having any thought about the bigger picture and the implications that the present actions may cause in the long term.

In the context of world view, people with parochial attitude fail to recognize that others have different ways of living and working. It is a significant obstacle for managers working in a global business world. If managers fall into the trap of ignoring others’ values and customs while applying a self-centred approach, they will find it difficult to compete with other organizations around the world that are seeking Globalization.