Summary Final

International Business
A Summary Of
The internationalization Process of the firm
-A Case Study
BY: Tomas Sylverberg
Summary of internationalization process of firm
Contents
1. Introduction .............................................................................................................................................. 4 1.1 Background ......................................................................................................................................... 5 1.2 Problem ............................................................................................................................................... 5 1.3 Research questions ............................................................................................................................. 5 1.4 Purpose ............................................................................................................................................... 6 1.5 prerequisites ....................................................................................................................................... 6 1.6 Study object ........................................................................................................................................ 6 2. Method ..................................................................................................................................................... 6 2.1 The thesis Writers View on reality ...................................................................................................... 7 2.2 The thesis writers view on knowledge................................................................................................ 7 2.3 The thesis writers view on methodological approach ....................................................................... 8 2.3.1 Deductive Approach..................................................................................................................... 9 2.3.2 Combining a positivistic with a hermeneutic view ...................................................................... 9 2.4 The Study ............................................................................................................................................ 9 2.4.1 Choice of firm ............................................................................................................................. 10 2.4.2 Qualitative Approach ................................................................................................................. 10 2.4.3 Interview .................................................................................................................................... 11 2.4.4 Data Handling............................................................................................................................. 11 2.4.5 Case Study .................................................................................................................................. 12 2.4.6 Criticism ..................................................................................................................................... 12 3. Frame of Reference:................................................................................................................................ 13 3.1 The Uppsala Model: .......................................................................................................................... 13 3.1.1-The Establishment Chain: .......................................................................................................... 13 3.1.2 Psychic Distance ......................................................................................................................... 15 3.1.3 A Dynamic model of Internationalization .................................................................................. 17 3.1.4 Criticism toward Model ............................................................................................................. 19 3.1.5 Industry Structure, Firm Structure and validity of the model.................................................... 20 3.2 Internationalization, a Search for Competitive Advantage .............................................................. 20 3.2.1 The Porterian framework, a bridge between the eclectic paradigm and Uppsala model......... 21 3.2.2 Multidomestic versus global Industries ..................................................................................... 21 3.2.3 The Value Chain ......................................................................................................................... 22
3.2.4 Coordination and configuration of international activities ....................................................... 23 3.2.5 Configuration, Coordination and competitive Advantage ......................................................... 24 3.2.6 Configuration, Coordination, and the pattern of international competition ............................ 25 3.2.7 Global strategy and Comparative Advantage ............................................................................ 25 3.3 Determinants of national advantage ................................................................................................ 25 3.3.1 Factor Conditions ....................................................................................................................... 26 3.3.2 Demand Conditions.................................................................................................................... 28 3.3.3 Related and supporting Industries ............................................................................................. 28 3.3.4 Firm strategy, structure and rivalry ........................................................................................... 28 4. Empirical Material ................................................................................................................................... 29 4.1 Bukowski design ................................................................................................................................ 29 4.2 The Internationalization process ...................................................................................................... 29 4.3 Production......................................................................................................................................... 30 4.4 Price setting and profit...................................................................................................................... 30 4.5 Knowledge......................................................................................................................................... 31 4.6 Selling Structure ................................................................................................................................ 31 4.7 Firm Strategy ..................................................................................................................................... 32 4.8 Economies of scale ............................................................................................................................ 32 4.9 Competition ...................................................................................................................................... 33 4.10 Government .................................................................................................................................... 33 4.11 Clients.............................................................................................................................................. 33 5. Analysis ................................................................................................................................................... 34 5.1 The Uppsala model ........................................................................................................................... 34 5.1.1 Psychic distance and the internationalization process of the firm ............................................ 34 5.1.2 Market size and the internationalization process of the firm ................................................... 35 5.1.3 Knowledge and the internationalization process ...................................................................... 35 5.1.4 Market commitment and the internalization of the firm .......................................................... 37 5.1.5 Current business activities and the internalization of the Firm ................................................. 38 5.1.6 Commitment decisions and the internationalization of the firm .............................................. 38 5.1.7 Interaction between the factors ................................................................................................ 39 5.1.8 The factories seen in the light of the Uppsala model ................................................................ 39 5.1.9 The Uppsala models explanatory value .................................................................................... 40 Summary of internationalization process of firm
5.2 The Porterian Framework ................................................................................................................. 41 5.2.1 The Industry ............................................................................................................................... 41 5.2.2 The value chain .......................................................................................................................... 41 5.2.3 Strategic considerations............................................................................................................. 42 5.2.4 Economies of Scale and coordination ........................................................................................ 43 5.3 Competitive Advantage of the Nations............................................................................................. 43 5.3.1 Factor Condition......................................................................................................................... 43 5.3.2 Demand Conditions.................................................................................................................... 44 5.3.3 Related and Supporting Industries ............................................................................................ 44 5.3.4-Firm strategy, structure and rivalry ........................................................................................... 45 5.4 An integrated view: ........................................................................................................................... 45 5.5 internationalization........................................................................................................................... 46 6. Conclusion ............................................................................................................................................... 47 6.1 Conclusions ....................................................................................................................................... 47 6.2 Further Research ................................................................................................................................... 48 Minimal question bank ............................................................................................................................... 49
1. Introduction
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International Business The introduction part tells us the research problems, background and the purpose of this thesis written by tom sylverberg.
1.1 Background
The world, in the past decades has become a global village. In the seventies information revolution took place in the organizations and the world, due to which it became possible to follow all the events that occur in almost all the countries of the world. The environment is so competing as organization have taken an advantage of removal of trade barriers and tariffs by the European Free Trade Agreement back in 1960s. Husted and Melvin (1998) Drucker (1998) all believe that society internationalization is no longer a utopia as the earliest stage is regionalism. Drucker (1998) believed that when industrialization started there was shortage of labour and capital. Nowadays the scarce resource is knowledge. And small firms can also compete with the bigger firms.
1.2 Problem
The firms have the following problems in its internationalization process or which type of process to choose. Determining profitability and survival Choosing strategies Relation between behavior and limited resources Managing tasks
1.3 Research questions
International Business After looking at the problems the following questions were raised and they provided the direction of study. a. To what extent can the Uppsala model explain the internationalization process of a small firm? b. In which way can the Porterian framework complement and help to explain the internationalization process of the firm? c. What limits the firms international expansion?
1.4 Purpose
The reason this thesis was conducted was to study to what extent the Uppsala model is applicable to small manufacturing firm, and to see if the theory, combined with the Porterian framework, can provide a more solid framework for the description of the internationalization process of the firm.
1.5 prerequisites
The reader should have the basic knowledge of Porters theories to better understand the thesis.
1.6 Study object

In this thesis, Bukowski Design a firm selling teddy bears with only five employees and important activities abroad is the object of study. Further details are given in 4.1
2. Method
International Business This case study intends to clarify the views of writer on knowledge and its relation to the study. Arbor and Bjerke believe that it is crucial that an investigator shows his adopted views since it provides knowledge about limitations in the study and its results.
2.1 The thesis Writers View on reality

The writer believes that different people interpret reality in their own ways which means that it is not actually detached from subjective thinking but it can be sealed with as it was. At once humans are not able to interpret so many realities. It depends on various factors like age, social class etc. There are different views about peoples perceptions about reality. Though the perception of reality varies among different people it does not necessarily mean that all the facts are available. The writer believes that small observations even can add features to peoples reality. Arbnor and Bjerke have called this idea as a systems view where different parts can be summed up into a whole. According to them it is important to pay attention to the way these parts are assembled or else the value of separate parts may differ from the sum of the parts. In short the writer believes that the social environment and perceptual limitations influence humans perception. Most people cannot observe the way air swings around the wings of an aero plane but in special settings it can be observed. The writer believes that knowledge of a person gets created the moment he interprets it. Knowledge has an individual nature.
2.2 The thesis writers view on knowledge
International Business When it comes to knowledge, a few comments can be made from the writers view on reality. The writers perception of knowledge may be different from another individuals understanding of knowledge. The need to discuss reality proposes that knowledge has an individual nature. In everyday life the knowledge that an individual perceives is only the use the words of the system view or abstraction that can be considered as true reality. Whenever someone interprets the reality his knowledge about that particular reality gets created. By applying the empirical data that is gathered to existing bodies, the thesis writer wanted to transmit his own interpretation of internationalization process of the firm to the readers. Arbnor and Bjerke both argued that as long as the context is not changed it is possible to argue that parting from specific actions similar patterns can be found in different cases. Through some key concepts humans can understand more complex patterns. This view is also shared with scientists of natural sciences. What is true in some cases might not be true in other cases. Some theories were proposed to explain some particular processes but falsified later. If a theory lacks explanatory power an alternative theory should be used instead. But the thesis writer proposes that rather than rejecting a theory completely if possible, it should be adjusted. The writer is more interested in knowledge that is possible to operationalize, but this does not mean that he is not interested in knowledge that is not possible to operationalize. By adopting a critical view on knowledge and human behavior it is possible to eliminate some of the risks that are related to thesis writers view on reality. The choice to use Uppsala model was effected by writers view on knowledge. If the writer believed that the theory should be falsified as it does not provide perfect explanatory value in all settings, he would not have chosen to use this theory. Knowledge is dependent of individual.
2.3 The thesis writers view on methodological approach

Different investigators use different methodological approaches depending on their views. This involves a theoretical study of the parts.
International Business 2.3.1 Deductive Approach
The research questions are general rather than specific to a particular firm. According to Arbnor and Bjerke, this approach is used when general rules are applied to a specific case. The first stage in this particular study is the creation of a framework and then the collection of empirical material. The use of this approach requires that the writer decides at an early stage that what to study. It was necessary to collect as much data as possible about the internationalization process of the firm. At this stage the writer was not sure about the accuracy of Uppsala model. It was defendable to first understand some theories to understand the relationship between environment and firm. This gave rise to a redefinition of the questions that were going to be posed. 2.3.2 Combining a positivistic with a hermeneutic view
Two different views can be used to describe how the thesis writer can be related to science. According to Alvesson and Skoldberg (1998), the posivistic view is more concentrated on systematization of the researchers experience which makes data collection and structure important. The writer believes that it is almost impossible to find such generalize patterns. The writer believes it is convenient tousle a hermeneutic view that includes the assumption that people interpret the world in different ways. As per Arbnor and Bjerke the hermeneutic researchers try to have a common approach when it is tried to understand how different parts are related to a whole system. The important hermeneutic perspective provided a good starting point for the study. The view on reality presented by the hermeneutic view is possible to unite with writers view on reality and knowledge. The writer has tried to handle the empirical data as objectively as possible i.e. the writer has tried to work objectively but also included subjective thinking. Alvesson and Skoldberg argued hermeneutic view is needed because there is no clear evidence that todays scientists are completely neutral. The writer did not let his assumption influence the study and applied the Uppsala model as far as possible.
2.4 The Study
International Business This part will explain how study was conducted and what decisions were made. One difficult part is to identify what to study and why? Choices may affect the outcomes. 2.4.1 Choice of firm The focus of this study was on small firms while Uppsala model studied relatively larger firms. The only comment that should be made regarding the use of Uppsala model to smaller firms is that this model does not provide a good framework for smaller firms. In this study Porter (1986, 1998) has been used to compliment the model. The writers intent of using Uppsala model to a new setting could be related to system view. The researcher that uses a system view tries to find analogies between cases similar in structure. The writer claimed that in some studies only one particular study object is used. It means that more studied objects would have minimize the possibilities for an in-depth study of internationalization process of the firms which means that this study does not provide enough evidence on this process. The writer believed that it was possible to draw tentative conclusions applicable to similar firms. The choice of the firm is also relevant in this study. However, the study object could be unique which minimizes the possibilities to generalize. The writer chose Bukowski design firm because the writer believed that this firm is a good example of a firm that is small and able to grow outside its own country. It was taken into consideration that the chosen firm must have started its internationalization process recently. To be able to describe the internationalization process of another firm it is possible that other aspects would have been high lightened as important. Bukowski design firm is present on almost all world markets and also its products are not produced in Sweden. It should also be possible to study the decision process. The interviewee must be able to recall all the steps. The writer believed that the information provided was reliable. 2.4.2 Qualitative Approach
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International Business The main reason is to get deeper information about the study project. According to Lekvall and Wahlbin, to study past events, Qualitative approach is best. Arbnor and Bjerke said that researchers can study past events and case studies to get subjective thoughts about a particular study object which can be made interesting with Qualitative approach. Quantitative approach gives objective view on certain aspects. So to give a holistic view of the decision basis, Uppsala model can be complemented by the frame work of competitive advantage. This cant be done with qualitative methods. It is important to understand how values of the study object are mixed with a competitive framework. 2.4.3 Interview
According to Arbnor and Bjerke, interviews are very important and questionnaires are almost never used. It is important to talk to the maximum number of persons that knew something about the internationalization process. To understand the atmosphere of the firm, only visit is not enough although it gives valuable information. Interviewers may interpret that relaxed environment affected the study positively. An interview was the best method to use to make it possible to understand the internationalization process. According to Lundahl and Skarvad, it is common to use a tape recorder during structured interview but it may negatively affect the interviewee. The interviewer tried to include as much information as possible without exposing the firm too much. The advantage of unstructured interview is that it provides the interviewee a great liberty and he can spoke freely about the organization.
2.4.4 Data Handling
To make better interpretations of the data, some material has to be excluded from data. The validity of the data has to some degree been controlled by other people who have superficial knowledge about the firm. Empirical material represents what the interviewee said and text
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International Business reflects the interpretation of thesis writer. Iterative process of listening to the tapes and write down what interviewee said refined the empirical material. Some issues mentioned by interviewee could be understood when heard in a broader context. 2.4.5 Case Study Lekvall and Wahlbin as well as Eriksson and Wiedersheim-Paul said that a case study is the indepth study of few cases. This study is also based on a case study of Bukowski design which is thoroughly studied and analyzed. The focus is on the system view and wanted to identify the internationalization process of the company in first step. Case study can be used to understand the underlying values and motives for the decision taken by the firm. it is valuable when researcher does not know the important aspects so study of a specific case made it possible to better understand the inter nationalization process. Researcher choose to study many objects but within one case. By studying a case study, researcher can improve or develop theories. Ejvegard argues that researcher must be careful when drawing conclusions. 2.4.6 Criticism
Whenever a study has been made, it is necessary to consider its validity and to find factors that can reduce its value especially in human sciences. Salner argue that empirical studies ion human sciences have been accused of lacking validity and it is difficult to separate objectivity from subjectivity. It is also difficult to differentiate between objective and subjective. Every person perceives the things differently depending on the interpretation of his brain. Jensen said language becomes especially important in qualitative analysis and becomes as a tool during interviewee. Interpretation must take place when empirical data is analyzed. During interviewee, complicated terms shouldnt be used. For drawing a better conclusion, extensive empirical material is required but in this case only one person was able to describe the firms process. A person can deliberately give the wrong data. When there is only a single person it is important that the person does not lie. Researcher believes that the interviewee was honest with him and data is reliable. According to Arbnor and Bjerke, the important thing is how the collected data can be used in the study rather than the reliability. How data is interpreted
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International Business depends on the design of the frame of the references. Limitations of frame of references can leave out important aspects from the analysis. The limitations have been done in a way that permits to draw conclusions, trying to keep relationship with the outer system as few as possible. Arbnor and Bjerke said when system approach is used, when one component is removed than there is a risk of drawing of wrong conclusions because some relationships are removed. They said it is important that the results are believable considering the specific system.
3. Frame of Reference:
In this section we will discuss the Uppsala model with some articles written by different authors which will explain the internationalization process of a firm.
3.1 The Uppsala Model:

The Uppsala model composed of two articles written by Johanson and Wiedershein-Paul and other by Johanson and Vahlne and both explain establishment chain and give an experience based model of internationalization. According to Johanson and Wiedershein-Paul, after the internationalization of a firm, changes in its degree of internationalization are conditioned by its earlier performance. Johanson and Vahlne also supported this idea and said firms present possibilities depend on his earlier activities. Johanson and Wiedersheim-Paul define the term international as an attitude of the firm towards foreign activities. Attitudes are related to behavior of the firm which is influenced by the firms past experience. 3.1.1-The Establishment Chain:
Johanson and Wiedersheim-Paul discuss that how a firm which is already internationalized extends its operations. If the risk is lower than then the firms try to expand his operations. Also if there is a great demand of a commodity than firm try to increase his sales and for that
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International Business purpose the firm has to expand its operations. Sometimes firm expand his business to export his products to the neighboring countries with similar situations. Nordstrm and Vahlne also supported this idea because most of the firms mostly start internationalization process geographically close markets. With the passage of time firms try to develop their presence depending how well they perform in individual countries. It is not necessary to go through all the stages, firm may jump from one stage to another. According to Johanson and Wiedersheim-Paul, when a firms wants to internationalize his operations, at start it has no regular export activities but after that the firm start exporting through independent export agents. After gaining confidence and taking response from the customers firms setup sales subsidiaries and last firms start their manufacturing functions in other countries. But it is not necessary to follow all the steps, firm may skip one or more steps according to their desired objectives but it depends on the market structure and on the experience of the firm. A model is presented on next page.
Frame of Reference
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No Regular Export Summary of internationalization process of firm Activities
No Regular Export Activities
But at first stage the firm may have no experience but with the passage of time in 2 nd stage firm have important information about the market structure and they can take decisions according the structure of the market. 3.1.2 Psychic Distance
According to Johanson and Wiedersheim-Paul, psychic distance is important. Psychic distance is correlated with the geographic distance and composed of various factors like political system, culture and level of industrial development. Psychic distance is not constant but changes slowly with the time due to the change in communication system, trade and other kinds of social
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International Business exchange. But at the same point they said, psychic distance is decreased because the world is becoming more homogeneous. Psychic distance is important but other factors are also important like size of market. At start, firms may more focus on psychic distance rather the market size but with the passage of time they direct their attention towards market size and available resources. It is hard to find correlation between Psychic Distance and production establishment. Psychic distance is important but other factors like tariffs and transportation are also important. Stottinger and Schlegelmilch said psychic distance tends to explain export behavior but it does not explain internationalization. Going abroad may provide opportunities to the firm but it has to face many challenges like different consumer behaviors, purchasing power and language. Psychic distance may not be empirically useful and is defined differently by different authors. They said although there is an intense business activity between two countries but there may exist a high Psychic distance. Psychic distance doesnt have such an important impact on growth of export ratio. Inspire of criticism on Psychic Distance, Stottinger and Schlegelmilch said, Although Psychic Distance is not so much important in initial exports but with the growth in business it becomes an important to study and predict possible results and concept of Psychic Distance should be further discussed because there is a need of further discussion.
Klein and Roth 1990 tried to discuss five aspects which are sometimes very similar and sometimes very different. The five aspects were:
1. Language of the country 2. Accepted business Practices

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3. Economic Environment 4. Legal system 5. Communication infrastructure
3.1.3 A Dynamic model of Internationalization
Johanson
and
Wiedersheim-Paul
believe
that
firms
use
different
strategies
for
internationalization. Sometimes market size is more important and sometimes Distance is more important. And for both cases, different strategies are required. According to them, internationalization process is not a result of a search of resource allocation but a result of incremental adjustment to a constantly changing environment. Johanson and Vahlne gave a model (Figure M) for this purpose which shows that there is a mutual dependence between the market knowledge and market commitment at one hand and commitment decisions and current activities, on the other hands. State Aspects There are two state aspects which are Market knowledge and market commitment. Market commitment consists of two aspects which are: the amount of resources committed and degree of commitment. Committed resources cannot easily be used in different settings. Resources located in particular market can be committed to that particular market. The more specialized the resources to a market, the more will be the commitment. The amount of resources committed can be understood by the Size of investment in that particular market.
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Market Knowledge
Commitment Decisions
A major obstacle is the lack of knowledge and resources in the process of internationalization. The knowledge of differences between the countries is necessary for the firm to be internationalized and the best way is of getting knowledge is through operations abroad. The 2nd state aspect is the market knowledge which is vital for the firm success. The first type of knowledge is the knowledge of opportunities or problems. This helps in decision which further helps in the evaluation of alternatives. The evaluation is based on the knowledge of market environment and on the performance of the activities being done. Knowledge may be of Objective or experiential type. Objective knowledge can be taught and experiential
knowledge can be learnt through personal experience and this knowledge is important one because it creates opportunities and reduces risks. More the experiential knowledge a firm has, more the firm will be committed to the resources. This knowledge is important in both domestic as well as in foreign markets. Managerial work and marketing depends on experiential knowledge.
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International Business Nordstrom and Vahlne argue that there is a strong relationship between the increased experiences of the firm in international field and between the international processes. Along with experience, Technology, Human Resource and Finances are also important for a firm. It is possible to make distinction between general knowledge and market specific knowledge. General knowledge is knowledge that the market is independent e.g. market methods and types of customers and market knowledge is the knowledge about culture patterns, business climate and about market structure. General knowledge can be transferred from one market to another. Change Aspects Current business activities and commitment decisions are change aspects. Current business activities are to a certain degree are dependent on the lag between the current activities and their consequences e.g. marketing activities which have to be presented before they can be the reason of larger sales. If we talk about commitment decisions, the decision to commit resources to foreign resources depends on what decision alternatives are available and how they are chosen. Decisions are actually the responses against the opportunities and problems. A firm will be offered more or less opportunities depending on the commitment to the market and the uncertainties can be reduced through interaction and integration with the market environment, increased communication with customers and establishment of new service activities.
3.1.4 Criticism toward Model The model has been criticized because it only explains the first stages of the internationalization. The authors agree with the critics and said that the process model is based
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International Business on the empirical material from the early stages of the internationalization which makes it consistent with the view that if a firm has activities in several countries, than market knowledge and resources are no longer a problem for a firm, so the firm can allocate its resources on the basis on real market conditions. This implies that Uppsala model is only applicable in early stages of internationalization. 3.1.5 Industry Structure, Firm Structure and validity of the model
Nordstrom and Vahlne gives three types of firm structure; National, Regional and global. They argue that when a firm goes from national to regional to global, its actions and structure changes accordingly. They argue that a national firm will have such an international coordination or experience as a global firm has. They claim that there are various factors that affect the internationalization process which are Economies of scale, R&D intensity, product differentiation, government policies and transportation costs. These factors are in an aggregated state as industry characteristics. Nordstrom and Vahlne seem to believe that competitive considerations become more important when the firm and the industry globalize. We have to see the all the activities of other firms to take decisions according to their policies.
3.2 Internationalization, a Search for Competitive Advantage

This includes ideas of Porters about internationalization that are related to competitive advantage. This part includes the following topics
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International Business 3.2.1 The Porterian framework, a bridge between the eclectic paradigm and Uppsala model
Porter writes that in the 1950s the world trade began to significantly exceed the growth in the world GNP He argues that that was a period of fundamental change in the international competitive environment. Porter describe a firms overall international strategy and how this strategy should be chosen. The porters ideas for this thesis could be argued from the stand point that it is the subset of elected paradigm. According to Dunning, one of the authors that have worked on the elected paradigm, there are various factors that have been depicted in the literature to influence the strategy of MNCs toward foreign operations. These factors are, for example, structure of the MNCs investment portfolios and risk exposures, their competitive strengths and weaknesses, product portfolios and bargaining power with government etc. it seems to be possible to consider Porters theories a bridge between the eclectic paradigm and Uppsala Model. According to Dunning, in eclectic Paradigm, three sets of advantages first stemmed from exclusive privileged possession of or access to particular income generating assets. The 2 nd is enjoyed by a branch plant compared with a de novo Firm. The last advantage is a consequence of geographical diversification and multinationality. Much of this thinking can be found in Porters Thinking.
3.2.2 Multidomestic versus global Industries
Porter said the way the industry is organized affects how the competitive advantage is acquired, lost and sustained. Depending on the type f the industry, different aspects become important.
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International Business According to Porter, A multidomestic industry is one in which the competition in one country is essentially independent from that of another country. The firms success depends on how well it adapts its tangible assets to the special characteristics of each country. The competitive advantage in different countries will be different. In the other extreme of the scale are global industries. A global industry is defined by porter as an industry in which the firm competitive position in one country is influenced by its position in other countries. This implies that there is a relationship between different countries and between their firms. Now the firms compete on international level. Porter said that the firms in multidomestic industry should treat its international activities like a portfolio which is not applicable in global industry. If a firms competing in a global industry would try to manage its activities like a portfolios, it would take away all of its sources for competitive advantage therefore a firm in global industry must try to integrate its activities on a worldwide basis to take advantage of the linkages exist among different countries. Although if a firm is in global industry, some functions has to be carried out in each of the countries in which it competes. This means that a firm competing with a global strategy still has to maintain same local perspectives. 3.2.3 The Value Chain
To explain the competitive advantage on a national and international level, Porter uses the Value Chain. There are many activities which a firms performs like selling the product, performing repairs, process design etc. Porter argues that these activities are physically quite distinct, thus creating the need for a less aggregated view to be able to see the competitive advantage. There are two types of competitive advantage, low relative cost or differentiation. Profit is more the result of a major perception of value as compared to the price of creating this value. A firm can choose between creating a low buyer value by working more efficiently or it can create greater value than its competitors and thus command a premium price. The activities a firm performs can be grouped into each other. Lets have a look on the figure.
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Porter argues that all these activities in the figure are used in almost all the firms. It might possible that some firms have different name conventions for these activities. He also further explains that every group can be divided into different activities that are industry or firm specific. Activities can be divided into two different groups, primary activities and support activities. Primary activities are those that are physically involved in the creation of a product or services, its delivery, marketing and its support after sale. The support activities provide the framework in which primary activity will take place. There are linkages between different activities of a firm e.g. linkage between its suppliers and buyers. Porter further argues that the connection between activities is essential to achieve competitive advantage. 3.2.4 Coordination and configuration of international activities
Porter mentions that the efforts to create good reputation or to build a strong brand name in one country do create entry barriers in this specific country. Porter discusses two key
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International Business dimensions that describe how a firm competes internationally; configuration and coordination. The configuration is related to where the company has chosen to establish its activities in the value chain; it also includes the number of places where the firm has its activities. The coordination dimension is related to how the firm coordinates its activities that are similar between different countries e.g. if there are any relations between production plants located in different countries. A firm can choose among a diversity of configuration options. If the company prefers a very concentrated configuration, then it will only have each activity in one location that will serve the demand for the whole firms. In operations the main issue is to decide where to locate production facilities for components and products. When it comes to coordinates, the company should account how to transfer the technology and production know-how to the different plants. Another issue is to decide how to coordinate the international plans. The marketing and sales activities must consider what product lines they want to offer and in which market. Most of the success of a firms internationalizations can depend on how it coordinates its marketing and sales activities.
3.2.5 Configuration, Coordination and competitive Advantage Porter explains that to be able to understand the competitive advantage of a global strategy, it is important to specify the conditions in which global concentration of activities and coordination of dispersed activities are a basis for either cost advantage or differentiation. Coordination permits to some extend the sharing of know-How among dispersed activities; it is possible that different locations will provide different aspects that can be used by the rest of the organization.
Although activities are dispersed it is sometimes possible to obtain economies of scale if the activities are coordinated, this occurs when the different locations allow for some kind of
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International Business specialization. Porter claims that coordination can prepare the firm for shifts in comparative advantage. 3.2.6 Configuration, Coordination, and the pattern of international competition Porter argues that if the benefits from configuration and coordination exceed the costs, then the industry will globalize. He further argues that the coordination and configuration determines the competitive advantage. In some cases the global leadership shifts, and this can be induced by structural changes in the industry which creates opportunity for other firms. The international strategy is the result of a search for competitive advantage throughout the chain. Moreover, a firm can choose to standardize some activities while it tailors others. 3.2.7 Global strategy and Comparative Advantage
Comparative advantage explains that if a country has competitive edge in production of all the products then that country should produce only those products in which that country is more efficient and other should be left for other country and same is the case with firms. And this is applied to the whole value chain. Porter argues that due the rapid changes in today life e.g. Increase in prices of raw material or decrease in the prices of Labor wages and due to other similar rapid changes, the importance of traditional comparative advantage is decreased.
3.3 Determinants of national advantage

Porter discuss the four determinants of national advantage which are, factor conditions, demand conditions, related and supporting industries and the last one firm strategy, structure and rivalry. Together the four determinants create a system that creates the context in which the firm competes but they can also be studied individually. In some industries it is possible to have competitive advantage based on only one or two determinants but this type of advantage is usually unsustainable.
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International Business Chance is an element that cannot be controlled by the firm and it refers to for example technological breakthrough, wars etc. the government policies can also affect the firm in both positive and negative ways.
3.3.1 Factor Conditions Factors of production are the inputs that are necessary for a firm to exist in an industry. Few factors of production are inherited by a nation and most important factors are not inherited. It is surprising to have abundance of resources and sometimes it is better to have selective disadvantage to be able to sustain the comparative advantage.
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International Business Factor Endowment Porter said that if we talk about comparative advantage, it is necessary to talk about the factors of the theory of trade which are: Human Resources are a necessary source and it has different skills, cheaper or expensive, and is abundant or scarce. Physical Resources are also important and represent the resources that can be found within a country i.e. land, water, Minerals etc. Knowledge Resources are also important and related to the mental capabilities of individuals e.g. technical, scientific or market knowledge etc. Capital Resources are usually scarce resources But necessary for organization. Infrastructure is the backbone of industries now days. Without proper transportation, communication and buildings, how can a firm succeed? Hierarchies among factors Porter distinguishes the factors between basic and advanced factors. Basic resources can be obtained without any particular effort like Unskilled or semiskilled labor, natural resources and debt capital. Advanced factors include factors such as modern digital communication infrastructure and highly skilled labor. Today the basic factors have lost their importance and advanced factors are most important. Implications of different factor Types The quality and quantity of the factors determine the level of sophistication of the competitive advantage. Competitive advantage based on basic factors tends to be unsustainable when other nations progress but competitive advantage based on the advanced factors is more sustainable and can be a source of competitive advantage for a firm over the years.
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International Business 3.3.2 Demand Conditions
Different types of demand influence the competitive advantage of the industry. A firm always tries to satisfy its customers. There are three important characteristics to achieve competitive advantage whichare Segment structure of demand, sophisticated and demanding buyers and finally anticipatory buyer needs. Sophistication of buyers is more important because it is possible for the firms of an industry to see the needs of most advanced buyers. 3.3.3 Related and supporting Industries
Competitive supplier industries in a nation can create advantages in several ways for the industries. A competitive Supplier may give access to machinery or inputs. A close Cooperation between world class suppliers and industry creates competitive advantage. 3.3.4 Firm strategy, structure and rivalry National advantage is the result of combination of firms, organizations and their environments. The pattern of local rivalry has an important impact on the process of innovation and the prospect to succeed on an international market. Porter argues that vigorous domestic rivalry is a predictor of competitive advantage in an industry. Local competition forces firms expand their functions and create an advantage for the whole industry and as a result firm cover more segments and use different types of strategies to improve quality, reduce prices etc.
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4. Empirical Material
The following empirical material was collected through an interview by Tomas Sylvergerg, the thesis writer
4.1 Bukowski design

This is a firm in Sweden which manufactures and sells teddy bears internationally. It only has five workers in Sweden but it hires more when in need but it has over a thousand employees altogether. In the beginning Bukowski design started by producing and selling Stationary products such as pencils, agendas and notebooks itself and from other Asian countries such as Korea, Taiwan and China. The teddy bear was invented by chance for CEOs sons when they were born. The CEO always wanted to produce teddy bears but she was told by her husband to stick with the established products and avoid uncertainty projects. The CEO threw her husbands advice and went to Poland, bought material and sewed seven prototypes of teddy bears herself. She resembled the current teddy bears to old English ones with rough look. In 1989 at the Formex trade fair the teddy bear was exposed along with firms office products and that where the success story started as the orders for established products were less than those of teddy bears. The demand of teddy bears was so high, the CEO made thirty more models for the next fair six months later. This was such a success that the teddy bear was chosen as the main product and the office equipment was given up for it. The teddy bears ranged from small 2cm to large life size ones.
4.2 The Internationalization process

Sweden was the country where the firm started its business because of its popularity the firm decided to expand to other states as well. The customers first really didnt know the main purpose of the products gifts instead of toys. The firm went to Denmark and Finland trade fairs, its success meant that they were a new market. The Nordic countries were next in line followed by France. With the expansion, the firm wanted to start another factory from scratch just to
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International Business meet with the rising demands. Just to retain market shares the firm decided to have a setup with single or multiple agents in different countries. There are also some markets where the firm does not have agents. These agents expose the products on national trade fairs of the whole world. The firm also has agents that produce similar products e.g. France has agent hat produces furniture and sells it to the furniture shops and other companies. Spain is one of the newest and the hardest country to penetrate for the firm to acquire an agent from. Italy unlike Spain is familiar market for years its also a bit tricky but gives high sales when well managed.
4.3 Production
The firm operates two plants both in China (Shanghai and Shingdow) but does not own them. The firms only provided finance to a person that was interested in starting a factory. The firm decides what work is carried out. Once the firm was able to survive the firm took back its capital. When production is not sufficient the firm cooperates with the third factory also located in Shingdow.
4.4 Price setting and profit

The firm does not own the factory but buys from it so it uses a complex process that has steps in setting the price. It includes the following Material required in quantity and Cost Factory employees salary or wages and taxes Profit margin of factory owner Shipping and handling costs Salaries of the firms employees
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International Business If the price is not suitable then CEO and factory owner see to the material used to lower the prices. The same product can have different prices in two different countries as the firms usually have 60% profit which includes 10-30% of agents, The agents get a trial contract of one year if it functions well then it might be renewed. Nonetheless taste of product should also be considered while setting the price.
4.5 Knowledge
The firm with careful research found out the taste of its customers and designs its products for each market. It quickly learns and adapts to the change of design and material for the product according to needs. All the efficiency comes from the agents, from which the CEO is very pleased because they have managed to win various awards as the best company of the year.
4.6 Selling Structure

The selling structure of Bukowski design is uncommon. It lets the clients contact the firm instead of selling its products to sellers because it never had a problem finding buyers for its products. The firm closely works with its agents and gives them suggestions regarding where and to whom to sell the products. It gives priorities to gift shops and not toy stores and cheap selling chains. The firm first analyzes the feasibilities of agents that are interested to sell the products. Its order of entering different countries (the internationalization process) was decided when an interested agent contacted the firm. The contract is given to an agent after studying his/her history. The contract is not renewed if the agents do not function well; they are then awarded to another agent. This hardly ever happens as the firm has strict control over its agents. Bukowski design itself handles the Swedish and the German market and does not open its own stores in other countries because it requires responsibility and commitment.
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International Business The firm only sells directly to a small number of firms in USA and Australia. It does not have agents there which would mean to open a new factory. It would be time consuming. The contract with DHL for delivering the firms packages for 25 Euros is the main reason why the firm prefers to handle the distribution itself in Sweden and Germany.
4.7 Firm Strategy

The strategy that is being used by the firm is unprofessional in the beginning, the mission of the firm according to the CEO was to provide work for people and give them meaningful lives but the decision to internationalize made the firm much more oriented towards profit and increased their business activities. The firm stands on a solid ground which changed the priorities to thinking for the well-being of the firm and its employees. The firm strategy now focused on getting feedback and they did this by visiting as many trade fairs as possible and then products are made on suggestion, The concept of the teddy bears has evolved to such an extent that they are considered as persons and not products.
4.8 Economies of scale

The company variety of production is so huge that it can easily take advantage in exploiting the customers. The raw material that is used is textile which is gained from china in bulk quantity and eyes of the teddy bear are bought from Italy. The quantity and quality of raw material is the determiner in how much the firm should produce the product. There are 20 to 50 thousand order placed for each model of teddy bear, after finished its send to Stockholm for packaging and preparation. The more the quantity the less the price is an easier way of looking at economies of scale.
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4.9 Competition
The firm has many competitors in the market. Its first one is Teddy Kompaniet a firm which followed the Bukowski Design and imitated its products but still no match for Bukowski Design. TY and Raspberry were also other competitors. Raspberry was a bit threat in the beginning as it sent people to spy and bought the teddy bears for the purpose of reverse engineering. It also lowered its prices by 30 % to match the Bukowski Design. TY is not considered a direct competitor as its bears are not as elaborate. There are, however other competitors in the market, but are not taken as seriously as they havent reacted strongly for whatever reason.
4.10 Government
The role of government has been very minor as it has not provided any support nor has restricted the Bukowski firm out of the normal circumstances. The firm has totally independent and relies on own capabilities. It did provide a loan worth 50000 Kr. In the start other than that no external financiers were used.
4.11 Clients
The firm has the following clients that it deals with. a. Agents: are clients who buy and distribute the product of the firm to foreign markets. b. Retailers: clients that sell the products to local markets. c. Consumer: the final clients in which sales are tied to promotion tours. Although the firm has an important relationship with is clients, the firm decides how and where the products are promoted and sold.
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5. Analysis
This part analyzes the data about the firm collected from the theoretical structure that was presented.
5.1 The Uppsala model

We study the Uppsala model in this part. 5.1.1 Psychic distance and the internationalization process of the firm
The psychic concept conditions the firm to go to psychically close markets. The thesis writer used the cultural difference as the approximation to psychic distance. According to the thesis writer, firm started selling to a country that was predicted to be a user of Uppsala model. In the decision making of firm, psychic distance is considered important. The firm first searched two markets while the third market or country in which they sold their product resulted as a perceived business opportunity. The internalization process can be explained exclusively by the psychic distance. The Hofstedes study also showed that the targeted countries were psychically close. It was witnessed that the psychic distance has always influenced the firms decision making. The writer believed especially France was an odd choice if the firm only considered psychic distance. Optimal resource allocation is considered as the first stage of internalization for a moment of given limited resource. One more possible explanation can be that the firm found an alternative strategy which helped the firm to ignore the psychic distance. The difference between the trade fair of Frankfurt and other trade fairs was the presence of international agents. Firms internalization process can be explained by psychic distance as a predicted variable.
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International Business The firms internalization process was difficult to explain because the pattern was rough as the firm started covering Europe, before the other countries in the continent. This shows that some factors other than psychic distance were more important for that firm. The pattern of first expanding in Europe could be explained in a better way if Europe could be considered as a regional market and, the expansion to other continents or countries was very difficult for the firm.
5.1.2 Market size and the internationalization process of the firm
Johanson and Wieldersheim-Paul (1975) believe that potential market size becomes more important than the psychic distance as a firm progress. The potential market size is considered important in the Bukowski design. This places limitations on the firm. Another reason is that the firm does not search for its clients but the clients come to the firm. So the firm does not face the problem of contacting people in the interested countries. Good relations with the agents are also emphasized by the firm. When the firm has reached the total risk edge, now the next step by the firm requires greater commitment, the firms willingness to accept the perceived risk increases. They claim that the firm commits itself more to the market so the market size is increasing rapidly over time. Some firms have small interest in market size because the firm does not believe that it is ready to target big markets. So they are interested in market size from another point of view and it is true that the firm is present in markets. There is no evidence of Johanson and Wieldersheim-Paul to be incorrect; however there is no proof that market size becomes more important over time as well.
5.1.3 Knowledge and the internationalization process
The Uppsala model has strong assumption that the firm lacks knowledge and the knowledge is obtained through market presence. As the firm internationalize the total resistance increases. The firm in this thesis has gained knowledge but the knowledge has not changed the firms behavior in choosing of market. Johanson and Vahlne (1977) argued lack of knowledge to be
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International Business the most important constraint for a firm to overcome during internationalizing process. At least in the cases when firm gets more involved in a country and when the firm consecutively establishes operations in new countries. The firm in the thesis did not have enough knowledge at beginning to start operation in a different country but this is not taken as a limitation on the firm, given its way to expand to new markets. As stated earlier that the firm has started its internationalization by presenting the firms products on local trade fairs. Interesting alternative for the small firms to internationalize are trade fairs as they minimize the wastage of time. A barrier on further expansion as perceived by firm as the lack of knowledge about the other markets will not be as such a barrier if the firm uses agents since the agent knows about the infrastructure of the country. In case of Bukowski design the Uppsala models first step was followed till it came to trade fairs having international agents. At that point the firm had a chance to write contracts with agents belonging to many different countries. If a low market commitment is strived and the agent is competent then even limited knowledge is enough for expanding to different markets. If there are problems then firm has to choice to change the agent or stop operation in a particular country. Objective knowledge and experiential knowledge are important to discuss according to thesis writer. There is no doubt the both of them are important for the firm. Objective knowledge is limited in the firm. Since the CEO in the firm do not have any formal business management education so all the managing process are reflection of basic experiential knowledge. This has made the thesis writer to consider that the broad experiential knowledge helped Bukowski design in its first stages. According to the writer, CEO due to early experiences had required experiential knowledge to take the risk of going abroad with the current products. But this knowledge could have limited the firms internalization at the same time.
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International Business Johanson and Vahlne distinguish market knowledge from the general knowledge. The firm is quite limited even if it knows what different customers demand but it does not have any knowledge that a more committed firm would have, it means most of the firms only have superficial knowledge. In countries where the firm experience problems to go in, it has some deeper knowledge because it has being involved in problem solving.
The market knowledge is best acquired through specific market operations as reflected in case company. The firms CEO were never interested in obtaining deep knowledge about other countries in the case. Market commitment and market knowledge are closely related to each other, it is interesting to find implications of this in the firm.
5.1.4 Market commitment and the internalization of the firm As the firm possess superficial market, knowledge it will tend commit more to the market. The firm has reduced market commitment as claimed by the thesis writer. Resource commitment and the degree of commitment are the two factors that define market commitment. The market commitment has changed because the Bukowski design did not have much resources committed to specific market. At the start the firm learned a lot from selling their products in Norway and Denmark. According to johansan and vahlne (1977) this increased the knowledge of the firm to increase market commitment. The firm started using agents for different countries and withdrew itself from the countries. the firm finds it less interesting investing too much in small countries so, thats why the firms commitment was low in that country. Today the firm has contacted with various markets, like US and Australia.ceo claims that if agents were used then the firm would not be able to handle sales of various markets.CEO wanted to gain the maximum control. The firm would have to commit specific resources for the expansion of their market.CEO lived in Poland for several years and gained knowledge about the German markets. This knowledge helped him to expand his operations with stronger commitments. According to writer commitment appears in markets that are important for the firm.
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International Business 5.1.5 Current business activities and the internalization of the Firm According to johanson and vahlne the firms currents business activities determine to a high degree what knowledge a firm can acquire. It helps in the accumulation of knowledge by the firm. At the start the firm knows nothing but with the passage of time the firm gains knowledge about different countries demand. Sales figures and visits to agents abroad give knowledge to firms. The firms agents have greater knowledge about the choice of its customers. As the firms expands its activities it gains more knowledge about different markets.
5.1.6 Commitment decisions and the internationalization of the firm These decisions depend upon what decision a firm has made earlier. In Bukowsi firm all decision was made by one person so that create difficult to remember to what decision has made previously. But firm has been able to perceive real business opportunity like in Germany. The firm has also find opportunity in U.S.A and its presence in U.S.A market make firm more attractive in the views of its clients. The firm does nothing when it detected reactions from its competitors that entered in European market, but at that time the firm has to find the new factors and find the opportunities to expand its business. One factor that effects the commitment decision is the uncertainty in the environment. May be a firm has two faces the uncertainty economic conditions. Bukowsi firm when decided to enter in Norway, its uncertainty increased since it did not have much knowledge. According to Johanson and Vahlne if a firm has lack of knowledge so it creates difficulties to identify present and future market. A firm should identify that the market in which it is going to enter has demand or suitable agents. The try-out is a mean reason why the firm perceives the low risk
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International Business 5.1.7 Interaction between the factors The firm had no idea that it would be successful all over the world when at first it started operations in Sweden. The firm had low commitment to the market at first so it started learning about the market. Firm considered Norway as an interesting market, so firm committed some more resources. The firm did not perceive high uncertainty because the firm thought that its products are already very popular. The firm moved a step further and made it clear for itself that its products can be sold outside Sweden. The firm went to trade fair once again, in Finland it did not have to go even to trade fairs. Firm felt that it was difficult to target Finland but it had to sell its products itself. Firm has found a concept that could work in other countries as well. The psychic distance was avoided by the firm by using agents. The agent would be affected by the failure of the firm being involved in unsuccessful market entry. The firm used agents because of the limited resource and the usage of agents proved fruitful for the firm. The firm then increased its commitment to bigger markets. The writer believed the withdrawal from Norwegian and Danish markets can chance its concept to internationalize, instead of selling in few countries the firm can manage sales in different countries and can increase its profitability.
5.1.8 The factories seen in the light of the Uppsala model The Uppsala model was constructed using large firms that expanded their operations abroad with the passage of time and started subsidiaries, manufacturing plants etc, Bukowski design differs from this because of its specific knowledge and small firm. The firm faced difficulty in using the psychic distance concept in its next firm in china. Since Asian countries have same pattern so it is possible that china would also show high psychic distance. The CEO was already engaged in doing business with countries of Asia. Firm did not have any clear knowledge about production in china even if some knowledge about the market was present. One factory was created by CEO but the firm did not share any capital in the factories.
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International Business The firm had control and influence on the factories to maintain control and for a firms business mutual trust is very important. As if open book accounting with the suppliers is used by the firm to maintain control which is usually financial control. Resource commitment is an aspect of the relation between the firm and the factory.
5.1.9 The Uppsala models explanatory value The Uppsala model do not explain the psychic distance clearly so the writer has decided to complete this term with other authors view of psychic distance. How the firm changed its operation in Nordic countries is the factor that the writer considered important. Adequate information about the factories of the firm is not provided by the Uppsala model. The model also dont explain the firms present patterns and why after the very first countries the firm seem to ignore the psychic distance and lack of knowledge, the writer thinks that this could be better through internalization approach that tries to optimize resource allocation. The position of industry in one country affects in position in another country on the basis of which the writer categorizes it as semi global or regional. There are other regional markets in which the firm operates and EU can be considered as a regional market. The firm may try to position itself between regional and global market but it lacks sufficient knowledge to be truly global. The firm which has limited resources will have a gradual internalization process according to nordstrom and Vahlne (1993). The writer believes that this fits with the description of internalization process. If the firm uses a more face-to-face strategy then it could possible explain the different internationalization process compared to the model. If the firm is considered global then it becomes powerful and competitive as compared to its competitors. The movement to new countries depends on what the firm considers right from competitive and resource point of view. The Uppsala model is reduced as firm making the industry more global.
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5.2 The Porterian Framework

5.2.1 The Industry
Porter emphasized on the theory that competitive advantage is very important for a firm as it paves the way for internationalization. The CEO thinks that the firms success in one country has an impact on success in another country; well its not always the case. Competitive advantage is another indicator that the firm competes in a global industry. The ability of how the firm will be competing within the industry depends on the structure of strategy of the firm. It is observed by the thesis writer that the structure of the firm should be more global than multidomestic. Porter believed that international activities should be taken as a portfolio in the multidomestic industry. The strategy of the firm is that to extend its activities to as many countries as possible and not going to new markets without proper research even though it has a competitive advantage. It does so because without it, chances of bad reputation are very high. The firms extension depends mostly on the agents it can trust and also which order the markets have been entered. The firm focuses on the duality of the industry, which means not only to maximize the sales but also minimizing the costs. 5.2.2 The value chain
The firm haves the total control on the activities of factories that operate in China which allows cost optimization which results in increased customers perceived value. It also helps in the procurement part of the value chain as it supports well. The cost of entering a new market is low, but the current factories capacity does not allow the firm to expand and hints new setup of factories for the firm. Its given up because its a huge and costly process.
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International Business The further improvements in the value chain look dim because there is only one person that designs the new model of teddy bears which is the CEO herself. Well, the agents better know how and what the customers want. Its important in dealing with the human resources. The agents are independent and have special training and they guarantee that the brand of the firm is kept consistent. The agents also help in providing value for new markets as they are already familiar with the brand. The linkages of the firm with the agents are very important for the firm as it creates more value as discussed above. It is the most helpful thing in the internationalization. As porter claims that the firms success of internationalization depends on how it coordinates its marketing and sales activities through its clients. The other main reason for improvement of value chain is the coordination between the firms management headquarters in Sweden and its factories and suppliers in China. All this is done to build up value chains and to create more competitive Advantage. The lack of coordination of prices between different markets does not have any effect on the firm. 5.2.3 Strategic considerations
In the beginning the firm started with a global strategy by selling the same product in different markets but now it is more equipped with the market intelligence of knowing which markets want what. That is the reason now that the firm has started to use a strategy which is exporting with decentralized marketing, designing its products for every market which all agents can buy. The lack of managerial resource has also forced the firm to be decentralized. At the same time to overall coordination is controlled by the firm and not the agents, therefore the strategy of the firm is global.
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International Business 5.2.4 Economies of Scale and coordination
Porter (1986) said that it is important to study how the concentration and coordination of dispersed activities are aiding either in cost advantage and differentiation. This makes the firm to compete and exploit important economies of scale which are the value adding activities. Before the production occurs in two different factories the raw material is compiled together at the headquarters, helping in coordinating all activities. Then it is sent to the factories with clear instruction. It also reduces transaction costs of transportation and communication. The firm exploits important economies of scale while buying material for the product by negotiating with the suppliers herself and not the factories. This result in lower cost and increase in the raw material of the firms; which means more production.
5.3 Competitive Advantage of the Nations

The theory with porter tells how to provide support which can facilitate the internationaliztion of the firm within the nation. Industry has a more global platform. Firms make use of their expertise to create and sustain competitive advantage. 5.3.1 Factor Condition
Different nations have different factors of production. And according to porter, Bukowski design should choose to locate its activities in countries that are relatively well endowed with the resources that the firm needs. When firm started operations in other countries, Psychic Distance increased and factor costs may decrease.
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International Business There are big differences between the types of human resources in different countries. They may be cheaper in one country and may be expensive in other. In countries like china, labor is cheap and they produce products of high quality which is beneficial for firm although advanced factors are scarce in china. Firms which are interested in china are due to the low cost rather the existence of advanced factors. Some other countries also possess similar characteristics as china but most of the firms choose china because of experiences of other firms with china. A problem could however be the rapid shift in labor costs which would diminish the margins of the firm. Some Asian countries are specialized in the production of clothes and textile industries and it is interesting for firms to consider them. 5.3.2 Demand Conditions
Demand conditions of country also attract the firms. Firms unconsciously distinguishes between different groups of countries; but firms do not consider every country as unique e.g. if we talk about German market, we can estimate that the German taste is representing the taste of many countries that lie nearby. Germans are able to predict the demand of other similar countries. So it can be used as a test market for many countries. 5.3.3 Related and Supporting Industries
Consider China, who is manufacturing much textile, it is possible to believe that the firm firms suppliers are exposed to great competition. Porter said that a close cooperation between suppliers and industry creates competitive advantage. One of the advantages of locating the factories near textile suppliers is that transaction costs are reduced. Firms can use many channels to sell his products to the customers and use of similar channels can create a competitive advantage, if a firm prefers a fast establishment over total control. The search for a good agent by a firm is conditioned by if the agent has contracts with industries that the firm considers related to its own.
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International Business 5.3.4-Firm strategy, structure and rivalry
When a firm is operating in only a single country than the firm may face no competition and initially it is not important for a firm for its internationalization. But when a firm met its competitors, than the firm try to find out a way to compete in the international arena. Porter said patterns of local rivalry have important impact on the decisions of the firm and on the process of innovation. If the firms environment is very competitive; than porter means that the firm is forced to sell abroad if it wants to grow. Due to tough competition, it is hard to see the firms first internationalization. When the firms products within a country reach a saturation level, than it is hard for a firm to increase its market share and as a result fir wants to be internationalized. Most entrepreneurs think that the goals of firm are attached with the sources of competitive advantage. When a company have a competitive edge over its competitors than it can charge premium prices. Also when similar market segments are available than the firms try to expand their businesses and try to acquire more and more market share.
5.4 An integrated view:

It is clear that the Uppsala model does not clearly explains the Bukowski designs internationalization process. The firm that is studies at the masters thesis is different from the firms that were studied in the seventies. The writer broadly explains his experiences including experience about how to develop competitive advantage. Porters theories dont give any explicit internationalization pattern but gives general competitive considerations that influence a firm. Writer considers the porters theories as important because it dont give deterministic view of the internationalization process. Writer feels that too deterministic views like Uppsala model in future might become obsolete. The thesis writer believes that the best model is the combination the two models as the two models jointly fully understand the internationalization process. Further more he believes that it is also reflected in the new model of Valhne and Nordstorm (1993) the model that studies the validity in different settings.
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5.5 internationalization
The firm that is studied here in Bukowski design is classified as a firm at initial stage of internationalization. The writer believes that the Uppsala model do not make an allowance for the Foreign business. A firm with even only two subsidiaries is considered more internationalized than a firm that sells to entire world by using agents, so the writer criticizes the deterministic view on internationalization. The thesis writer believes that the porter (1986.1988) had a more reasonable view on internalization. The company studied here will be quite internationalized according to porter view because it is involved in various activities abroad and sells products abroad. The firm would incorrectly not be considered as internationalized if it has most of its activities as domestic but sells abroad. The writer believes that the degree of internalization should be considered as a combination between firms goals and its structure, the location of activities and the place where the products are sold. It is not possible for all the firms to reach the same level of internationalization. A firm similar to Bukowski design is not ready to internationalize. A large firm can handle new markets and increase commitments by acquiring new managerial resources. The writer thus believes that Bukowski designs internationalization using Uppsala model will not lead to further commitments. The firm is continuously internationalizing and seems like it is preparing itself for further expansion according to the thesis writer. The plans for more development show that the firm might be preparing for further internationalization. The first step towards markets commitment can be considered as the firms own shops. The writer believes that there is a huge difference regarding the level of risk between someone who sells firms products exclusively and opening an entirely own shop. The internationalization process has been highlighted by the need of using the scarce resources as efficiently as possible. May be there is need of considering the regionalization while discussing the internationalization process of firm. The development will make it necessary to revise the internationalization theories that include psychic distance as a factor. The writer believes that globalization should be considers while defining internationalization. There are problems
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International Business regarding differences between internationalization and expansion, If border is the only difference between two countries. Then there is no need of internationalization strategy. So this makes clear to define criteria of what to consider internationalization and its relation to strategic decision making.
6. Conclusion
The thesis writer had drawn a following conclusion after studying the firm and how it was internationalized. He also has developed ideas for further research as well.
6.1 Conclusions
This Study concludes that every step of internationalization seems to follow Uppsala model. But the explanation given about Uppsala model is not enough to fully understand the process of internationalization. There is need to broaden the Uppsala model. Whereas is a theoretical setting a deterministic view of internationalization process might be adequate, so is not the case in the real world. In real world, this type of models creates inconsistencies. The thesis writer believes that the Uppsala model is a powerful tool to explain the main pattern of internationalization whereas inconsistencies can be handled by, for example, the Porterian frame work. The sub sequent stages of the internationalization process cannot be explained by the Uppsala model. At this point, the explanation stems from the Porterian frame work which supports Bukowski actuation. But Porterian frame work is not able to give any concrete propositions for which countries the firm should have entered and in what order. The increased relevance of the Porterian frame work over the Uppsala model in subsequent stages can be seen the light of strategic change. As the firm increase in presence on the international market, faces shift from national competitive scope to a regional, or even a global competitive scope. The use of porter to complement the Uppsala model is valuable since it gives insight into the reason to why a firm expands the way it does, internationalization as well as nationally. Whereas the Uppsala model rapidly loses its explanatory values as the firm precedes its
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International Business internationalization. The concept of psychic distance was probably only important in the first stage of a firms internationalization. But it is not a big issue for an organization to be internationalized because it is result of competitive possession because the firm can expand its business through the agents. The internationalization process of each and every firm differs from other firm because every market and organization has distinct characteristics. Small firm has limited resources so the correct allocation of these is relatively more important. Agents can help in many ways to the firm to be internationalized, they can provide knowledge about the market, their characteristics and needs, competitors, Suppliers, tastes and preferences of the customers and about the economic policies of that state which enables a firm to have a faster internationalization process. But it is might seem uninteresting by the larger many firms, who wants a strict control over their channels. Markets can provide the firm with necessary information to keep developing its products, at the same time, this commitment signals to the market its importance. Some writers believe that a firm can internalize by ignoring some steps of Uppsala model. The thesis writer believes that a rapid expansion, similar to that of Bukowski design, is the result of various factors. May be the most important is the need to exploit economies of scale, also the organization of the firms internationalization activities favor and extension of the activities to more countries, Johanson and Vahlne mean that a firm will extend its activities as long as the perceived risk is lower than the total tolerable risk. In the case of Bukowski design the use of agents has maintained the risk below the limit, at the same time as additional extensions have been profitable.
6.2 Further Research

Many researchers believe that there is need to further research the topics of Psychic Distance and the process of internationalization because there are many issues problems related to this study.
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Minimal question bank

The whole investigation was done through an interview of the CEO by the interviewee. The following were the main questions that were asked. 1. How many employees does the firm have? What do they do, and how are they organized? Does the firm manufacture its products? Where? When?
2. Which are the firms suppliers? Client? Competitors? Are they powerful? What relation do they have with the firm?
3. How is the decision process in the firm? Who decides what the firm should do? How has the firm tried to position itself in the market? Why?
4. Which was the first country that the firm sold to? Which were the subsequent countries? Why did the firm choose to enter markets? Did any government intervene or persuade the firm to enter a market?
5. How did the firm start its activities in Sweden and later in other countries? In which countries is the firm present? In what order did the firm enter the markets?
6. What did the firm know about the markets it entered? And what does it know now?
7. Are there any differences when it comes to consumer taste? Other important differences between different countries?
8. Did the firm perceive the internationalization as a risky operation? Why did the firm internationalize?
49
International Business 9. What problems did the firm face when it was internationalized? What has limited the internationalization? Why?
10. How are the sales organized in different countries? Does the firm have its own shops, factories etc?
11. Does the firm coordinate its activities on a worldwide basis? How? Are there any benefits from coordinating activities?
12. Can the firm exploit economies of scale? How? How is the cost structure of the firm?
13. How does the price setting work?
14. How does the firm use agents? Why does the firm use agents? How are they controlled?
15. What is the strategy of the firm?
16. What plans does the firm ha for future expansion? For the future is general?
50

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International Business

BY: Tomas Sylverberg

Summary of internationalization process of firm

Summary of internationalization process of firm

1.3 Research questions

Summary of internationalization process of firm

1.6 Study object

Summary of internationalization process of firm

2.1 The thesis Writers View on reality

2.2 The thesis writers view on knowledge

Summary of internationalization process of firm

2.3 The thesis writers view on methodological approach

Summary of internationalization process of firm

International Business 2.3.1 Deductive Approach

2.4 The Study

Summary of internationalization process of firm

Summary of internationalization process of firm

2.4.4 Data Handling

Summary of internationalization process of firm

Summary of internationalization process of firm

3.1 The Uppsala Model:

Summary of internationalization process of firm

No Regular Export Summary of internationalization process of firm Activities

No Regular Export Activities

1. Language of the country 2. Accepted business Practices

3. Economic Environment 4. Legal system 5. Communication infrastructure

3.1.3 A Dynamic model of Internationalization

Summary of internationalization process of firm

Summary of internationalization process of firm

3.2 Internationalization, a Search for Competitive Advantage

Summary of internationalization process of firm

3.2.2 Multidomestic versus global Industries

Summary of internationalization process of firm

Summary of internationalization process of firm

Summary of internationalization process of firm

Summary of internationalization process of firm

3.3 Determinants of national advantage

Summary of internationalization process of firm

Summary of internationalization process of firm

Summary of internationalization process of firm

International Business 3.3.2 Demand Conditions

Summary of internationalization process of firm

4.1 Bukowski design

4.2 The Internationalization process

Summary of internationalization process of firm

4.4 Price setting and profit

Summary of internationalization process of firm

4.6 Selling Structure

Summary of internationalization process of firm

4.7 Firm Strategy

4.8 Economies of scale

Summary of internationalization process of firm

Summary of internationalization process of firm

5.1 The Uppsala model

Summary of internationalization process of firm

5.1.2 Market size and the internationalization process of the firm

5.1.3 Knowledge and the internationalization process

Summary of internationalization process of firm

Summary of internationalization process of firm

Summary of internationalization process of firm

Summary of internationalization process of firm

Summary of internationalization process of firm

Summary of internationalization process of firm

5.2 The Porterian Framework