The Disadvantages Of Globalization: The Uppsala Model Of Internationalization

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2.2 Internationalization
The increase in international trade, international relationships, treaties and alliance has caused internationalization to become a key factor (Herman, 1999). It is important to know that internationalization, just like open strategy, can be defined and interpreted in several ways. A study from Knight and Cavusgil (1996) explains that the internationalization of a firm is a process that moves further from the consolidation of the firm in the home market. The Uppsala model of internationalization from Johanson and Vahlne (1977) defines internationalization to be a slow and progressive process that depends on the experience and knowledge that a firm gains through their entry into successive new foreign markets. According
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A study from Hofstede (1980) suggests that the possible cultural differences and liabilities of foreignness can lead to ineffective communication and management. These differences also have an effect in slowing down the progress of internationalization of the firm. A study from Reeb and Kwok (1998) suggests that the more firms invest to internationalize, the more financial risks they have to face, such as inflation and exchange-rate fluctuations. Interestingly, this study conflicts with previous studies about the advantages of portfolio diversification, as how much these financial risks would offset the advantages of the portfolio diversification (Reeb & Kwok, 1998). According to Brouther (1995) and Bouncken and Kraus (2014) the physical distance and differences in market development has an effect on internationalization and the decision process. However, Bouncken and Kraus (2014) mention that the physical distance is becoming less of a concern for firms due to improved developments and globalization. The factors that drive internationalization decisions are: an increase in the probability of legitimacy (Roth & Dacin, 2008), maximizing changes of survival (Delios & Beamish, 2001) and minimizing the liabilities of foreignness (Zaheer, 1995). To internationalize, Lavie and Miller (2008) …show more content…
The theory of foreign direct investment suggest that portfolio diversification decreases the performance risk. This means that the investments are spread over different locations, and consequently, a firm does not have the same exposure to risk (Lessard, 1974). Another benefit of foreign direct investment, according to Buckley and Casson (1976), is that the scope and economies of scale lower the costs by dividing common functions within the firm and increasing its volume. Another study from Hymer (1976) supports the foreign direct investment theory mentioned by Lessard (1974) in regards to market power enhancement. Market power enhancement shows that the market is imperfect and that firms are capable to benefit from their market power to gain strong revenues by investing cross borders. To emphasize on the relationship between internationalization and firm performance there are more studies that show that there is a positive linear relationship between internationalization, value and firm performance (Kim,

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