Internationalization theories and models

Engaging in innovation ecosystems holds matters that need to be carefully addressed. To engage in an appropriate ecosystem company executives should systematically recognize the organization with which the industry future is most closely connected and define the network of dependencies that will contribute to business advancement (Pellikka & Ali-Vehmas 2016). The scholars continue that the ecosystem participants must share a common vision which leads to alignments with goal settings, and the shared resource allocations must meet the actual expectations of all the participants. The ecosystem leader must develop and promote a shared vision for the innovation ecosystem, create a sufficiently open innovation work architecture and carefully manage the mutually beneficial ecosystem relationships of the participants (Pellikka and Ali-Vehmas 2016).

The suggested solutions for commercialization challenges are somewhat comprehensive but could be more specific and therefore leave room for further research. The empirical research of the thesis intends to discover further understanding of the solutions to the challenges (Chapter 4). However, because commercialization process of high technology is related to international markets the next chapter discusses central internationalization theories.

international commercialization process (e.g., Groen et al. 2015 & Raatikainen 2013) and born globals, which typically is the model for companies producing high technology (e.g., Luostarinen &

Gabrielsson 2004).

None of the internationalization theories are rather new; they originate from the late 1960s to early 2000s. In the early product life cycle theory by Vernon (1966) internationalization is regarded as a continuum for the life cycle of a product. According to the theory after developing and launching an innovative product its life cycle can be further extended by expanding to other countries where the demand of the product can be developed. This expansion happens initially through export and can be further developed to implementation of subsidiaries (Vernon 1966; Roque et al. 2019).

Pre-export activities theory by Wiedersheim-Paul et al. (1978) emphasizes the venture’s pre-export role by analyzing the effect of factors that lead the company to export activities. The theory considers that the company’s behavior is affected by the manager’s characteristics as a decision-maker and the company’s characteristics, surroundings, and location. The gained experience in the domestic market influences the chosen subsequent internationalization model (Wiedersheim-Paul et al. 1978; Roque et al. 2019). Already in such an early theory the acquired knowledge is underlined as a decisive factor for subsequent operations as in the case of opportunity recognition and development, non- sequential model and network theory which are discussed later.

Some of the most acknowledged early theories are The Uppsala Model and The Innovation Model. The Uppsala Model (U-Model) by Johansson and Vahlne (1977) focuses on gradual acquisition, integration and use of knowledge about foreign markets and operations. Internationalization is a seen as a process in which firms gradually increase their international involvement in the individual foreign country (Johansson & Vahlne 1977). The foundations of the model are based on a study by Johansson and Wiedersheim-Paul (1975) in which the process is distinguished to four stages:

1. Only domestic activity without any export

2. Export through independent representatives such as agents

3. Establishment of sales subsidiary in target market 4. Actual production and manufacturing in foreign location

The progression from one phase to the next happens sequentially through gradual expansion. The diffusion to new market areas is supposed to happen to target locations that are both physically close and culturally similar. After reaching the target market companies concentrate extended efforts to establish procedures, structures, and systems to develop a balanced routine for their activities in the new environment (Johansson & Vahlne 1977). After that it is time to start advancing even further to new areas. Under this model internationalization proceeds slowly because companies do not increase their commitment or resources toward further internationalization before they feel comfortable with their current amount of knowledge. Obtaining such know-how and self-assurance can take a long time (Groen et al. 2015). Target countries are selected based on psychic distance between target and home country. Psychic distance refers to factors that prevent flow of information from and to the market such as language, education, culture, and business practices. Expansion happens first into countries with lower psychic distance and later to more distant locations (Johansson & Vahlne 1977).

The model has been subject to further development many times by its creators. For instance, in 2009 Johansson and Vahlne suggested incorporating entrepreneurship theory and business network theory into the model, and in 2013 and 2017 the scholars expanded their model to describe the evolution of the multinational business enterprise from early steps abroad to being a global firm.

Their later studies have received attention and criticism (e.g., Forsgren 2016; Paul & Rosado-Serrano 2018).

In The Innovation Model (I-model) the initial involvement in international markets is regarded as innovations within the firms’ closed environment, and internationalization is viewed as development steps for the enterprise. The internationalization decision is affected by either “push” or “pull”. “Push”

refers to external change which initiates the decision to export and “pull” refers to an internal change explaining the shifting from one step to the next (Cavusgil 1980; Lin 2010).

In the Innovation Model internationalization consists of five stages: (1) domestic marketing referring to being preoccupied with the home market, (2) pre-export which implies to intentionally searching for information and doing initial evaluation of the feasibility of engaging in international marketing activities, (3) experimental involvement which involves the initiation of limited international marketing activities, (4) active involvement including systematically exploring expanding possibilities in international marketing activities, and finally (5) committed involvement, during which resource allocation is done based on existing international opportunities (Cavusgil 1980). The I- and U-model are often regarded as being very similar, though Welch and Paavilainen-Mäntymäki (2014) argue that the early I-model was a variance-based approach, and the U-model provided a process-based explanation to internationalization. However, due to their nature the U-Model and the I-Model have often been mentioned as ‘stage approaches’ or ‘stage models’ (See e.g., Lin 2010; Welch & Paavilainen- Mäntymäki 2014; Wadeson 2020) and studies have also referred to them as process theories of internationalization (See e.g., Amdam 2009; Lindstrand & Hånell 2017; Freixanet & Renart 2020).

Non-sequential model can be seen as a counterpart to models in which internationalization happens over time in stages (Roque et al. 2019). It suggests that the capability to internationalize is dependent on two types of fundamental knowledge: knowledge related to a specific market and general knowledge of how to operate in international markets (Clark et al. 1997). Companies can aim to cultivate the latter by developing three kinds of know-how at their home country that are useful for overcoming difficulties regarding foreign expansion: (1) knowledge to manage complexity by having several operations at home, (2) knowledge to manage differences in competitive conditions by operating in B2B-industries and (3) knowledge to manage differences in institutional environments by cooperating with a foreign firm at home (Cuervo-Cazurra 2011). If ventures can accumulate such know-how either from previous internationalization experiences or from home markets it is not necessary to internationalize next time according to a linear stage model or to a target country resembling the country of origin (Clark et al 1997).