The paper "Risks of Internationalisation" is a great example of management coursework. Internationalisation refers to the tendency of firms to gradually increase operations in foreign countries (Verbeke et al. , 2011). Several theories explain the rationale for internationalisation of operations. For instance, the product life cycle theories argue that internationalisation can be attributed to the maturity of products (De Jonge & Tomasic, 2017). The stage theories offer a different approach that concentrates on the behaviour of firms as they internationalise. According to Breat (2009), the stage theories reflect a sequential approach that begins with limited activities in the foreign market and ends with firms investing in manufacturing facilities.
This essay seeks to determine whether the stage theories reflect a rationale for gradually reducing the risks of internationalisation. The paper begins by describing the stage theories of internationalisation and the risks that businesses face as they internationalise. This is followed by an attempt to establish the existence of a link between the stage theories of internationalisation and risk mitigation. Stage Theories of Internationalisation The stage theories of internationalisation advocate for an incremental approach to serving foreign markets.
The fundamental assumption in the stage theories is that internationalisation is a slow process where firms use a gradual increase in foreign activity to mitigate uncertainty and a lack of market knowledge. According to Andersson and Holm (2010), the stage theories came about as a response to the contemporary models that were based on neo-classical economic theory. While the contemporary models looked at the decision on whether to invest or not, the stage theories focused on a firm’ s investment behaviour over time. The noticeable influence of the stage models in internationalisation behaviour of firms since the late 1970s is an indication of the legitimacy of the stage theories (Andersson & Holm, 2010). The Uppsala model is one of the most recognised models of internationalisation that falls under the stage theories.
The model was advanced by Johanson and Vahlne, and it argues that international expansion is a learning-oriented process that is recognisable by different incremental phases (Daidj, 2014). According to the model, internationalisation begins with a lack of regular export activities. This phase is followed by export activities that are facilitated by independent representatives.
These might be local businesses that recognise a market need that can only be satisfied by importing products. A gradual increase in exports allows a firm to recognise a foreign market opportunity which leads to the third step in the Uppsala Model. Here, a business establishes an overseas subsidiary that manages sales operations. An increase in sales and a better understanding of the foreign market then allows the firm to establish subsidiaries that produce and manufacture products (Daidj, 2014). Like the Uppsala model, the innovation model of internationalisation views international expansion as an incremental process.
Firms focus on proceeding from one step to another while obtaining the knowledge and experience on how to operate in a specified market (Cavusgil & Knight, 2009). The incremental internationalisation is an acknowledgement that management cannot obtain market information as quickly as they want. As in the case of the Uppsala model, the innovation model is focused on the behaviour of firms as they enter into new markets (Cavusgil & Knight, 2009). The key difference is that innovation is the driver of internationalisation in the innovation model.
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