The Internationalization Process of the Firm-a Model of Knowledge Development and Increasing Foreign Market Commitments

On the basis of empirical research, a model of the internationalization process of the firm is developed. The model focuses on the gradual acquisition, integration and use of knowledge about foreign markets and operations, and on the incrementally increasing commitments to foreign markets. In particular, attention is concentrated on the increasing involvement in the individual foreign country. * Several studies of international business have indicated that internationalization of the firms is a process in which the firms gradually increase their international involvement. It seems reasonable to assume that, within the frame of economic and business factors, the characteristics of this process influence the pattern and pace of internationalization of firms. In this paper we develop a model of the internationalization process of the firm that focuses on the development of the individual firm, and particularly on its gradual acquisition, integration, and use of knowledge about foreign markets and operations, and on its successively increasing commitment to foreign markets. The basic assumptions of the model are that lack of such knowledge is an important obstacle to the development of international operations and that the necessary knowledge can be acquired mainly through operations abroad. This holds for the two directions of internationalization we distinguish: increasing involvement of the firm in the individual foreign country, and successive establishment of operations in new countries. In this paper we will, however, concentrate on the extension of operations in individual markets. We have incorporated in our model some results of previous empirical studies of the development of international operations, seeking theoretical explanation through the behavioral theory of the firm (Cyert and March, 1963). Specifically, we believe that internationalization is the product of a series of incremental decisions. Our aim is to identify elements shared in common by the successive decision situations and to develop thereby a model of the internationalization process which will have explanatory value. Because we, for the time being, disregard the decision style of the decision-maker himself, and, to a certain extent, the specific properties of the various decision situations, our model has only limited predictive value. We believe, however, that all the decisions that, taken together, constitute the internationalization process-decisions to start exporting to a country, to establish export channels, to start a selling subsidiary, and so forth-have some common characteristics which are also very important to the subsequent internationalization. Our model focuses on these common traits. We hope that the model will contribute to conceptualization in the field of internationalization of the firm and thus increase understanding of the development of international operations as described in the empirical studies. We hope, too, that it can serve as a frame of reference for future studies in the problem area and may also be useful as a tool in the analysis of the effects of various factors on the pattern and pace of internationalization of the firm. * Jan Johanson is a member of the faculty of the Center for International Business Studies at the University of Uppsala, Sweden. Jan-Erik Vahlne is on the faculty of the Institute of International Business, Stockholm School of Economics, Stockholm, Sweden. The authors are indebted to their colleagues at the Center for Internatonal Business Studies, Department of Business Administraton, University of Uppsala for valuable comments and to David Baker for careful criticism of content and language. Financial support has been given by the Svenska Handelsbanken Foundation for Social Science Research. INTRODUCTION