The internationalization process model known as the IP model or Uppsala model (Johanson & Vahlne 1977; Johanson & Vahlne 2009) is rooted in organizational learning and resource dependence theory. There are several theoretical paradigms of this model. The focus of this study is on the 2009 model. However, the 1977 model is referenced where necessary especially with regards to earlier contribu-tions and the role of business relacontribu-tionships in the internationalization of firms.
Though the 1977 and 2009 model has different ontological assumptions, however, the basic mechanisms of internationalization in both models are still the same.
The following discussion will center on (1) earlier contributions of the 1977, its criticisms and clarifications, (2) distinction between the 1977 and 2009 model and (3) how the 2009 model will be explored in the current study.
Scholars have used the 1977 model (i.e. Johanson & Vahlne 1977) to argue that the choice of acquisition is as a result of learning (e.g. March 1991; Andersson, Johanson & Vahlne 1997; Barkema & Vermeulen 1998; Hayward 2002; Hale-blian, Kim & Rajagopalan 2006; Lin, Peng, Yang & Sun 2009). For example, Andersson et al. (1997) developed a model of international acquisition from the internationalization process model. The model depicts how firms undergo interna-tional acquisition through learning from a direct/indirect relationship with their business partners with/without a local presence. The model shows three ways international acquisition can occur via learning (Andersson et al. 1997: 81-82).
First, international acquisition can result from a direct relationship with a business partner when the firm has or do not have a local presence. In cases when it has a local presence and a direct relationship with the target firm, the main motive un-derlying such acquisition is a defensive strategy against a potential competitor. In cases when it has a local presence, and no direct relationship with the target firm, the main motive underlying such acquisition is to enter new geographical mar-kets. Second, international acquisition can result from an indirect relationship
with a business partner when the acquiring firm has or do not have a local pres-ence. They argued that this type of acquisition is more prone for efficiency-seeking motives where the acquiring firm aims to strengthen their market position or consolidate the MNE capability network. Third, international acquisition can also result in a situation where the acquiring firm has no relationship with any business partner in the local market with or without a local presence. According to them, the first two are organic acquisitions involving incremental steps in the internationalization process of the firm while the latter are non-organic acquisi-tions. (ibid)
Irrespective of the above attempt to apply Uppsala model in explaining interna-tional acquisitions, the model is still been criticized for been deterministic (Reid 1981; Young & Wilkinson 1989; Melin 1992; Andersen 1993). The Uppsala model has also been argued to have a stage assumption, as a consequence, cannot be used to explain internationalization of born global firms and international ac-quisitions (Andersson, Johanson & Vahlne 1997; Oviatt & McDougall 1994;
2005). Johanson and Vahlne (2009: 1412) clarified these criticisms by arguing that the Uppsala model does not specify the form that increased commitment might take because commitment decisions may increase or decrease depending on their performance. Consequently, the model is by no means deterministic (ibid).
The criticisms that the Uppsala model cannot be used to explain international ac-quisitions because of its four stage model assumption (from no regular export to export via independent agents, sales subsidiary and FDIs) has be clarified that the stage model is not part of the Uppsala model, but rather a summary of the empiri-cal observations on which they based their inductive theoretiempiri-cal arguments (Jo-hanson & Vahlne 2009: 1420).
In this study, it is argued that the Uppsala model can be used to explain interna-tional acquisitions. The IP model is suitable to explain foreign acquisitions, on the assumption that an acquisition is much more likely to be successful if it is preced-ed by some exchange between the acquirer and the target firm (Andersson et al.
1997; Johanson & Vahlne 2009). Thus, acquisitions without previous relationship or experience with the target firm may result in conflicts and a likely chance to fail because the parties will have to learn about each other after the acquisition for post-acquisition integration to go further (ibid). Furthermore, the advancement of the IP model (i.e. Johanson & Vahlne 2009) to one that takes into cognizance the role of business networks, trust and knowledge development in business relation-ships is an attempt to clarify the criticisms of the IP model. It also enhances our understanding of the model and provides basic mechanics on how Uppsala model can be used to explain international acquisition.
The difference between the 1977 model (Basic Mechanism of Internationalization Johanson and Vahlne 1977) and 2009 version (The Business Network Interna-tionalization Process Model (Johanson & Vahlne 2009) is primarily centered on the recognition of the role of business networks in internationalization, and the advancement of trust in business relationships. The two versions of the IP model are shown in Figure 7 below. The 1977 model is shown in Figure 7[A] and the 2009 model is shown in Figure 7[B].
Figure 7. Internationalization Process Model (Johanson and Vahlne 1977;
2009)
The 2009 model like the 1977 model (See Figure 7[A] and 7[B]) has the state and change variable. The state variable refers to the state that impact on the change variable. The state and change variable also impact on each other. While the change variable in the 1977 model consists of current activities, the 2009 model consist of trust-building and knowledge creation. The 2009 model is one of a dy-namic process depicting how mutual relationships commitment between a firm and its partner networks builds up their knowledge and opportunities. The four variables in the 2009 model are network position, knowledge opportunities, rela-tionship commitment decisions, and learning and creating trust building.
Network position: The model assumes that the existing business relationships a firm occupies within its business network make up the network position of the firm. According to Johanson and Vahlne (2009: 1423), the network position makes it possible for the firm to identify and exploit opportunities, determine which geographical market to enter and the corresponding entry mode to use to enter the geographical market. Thus, a firm’s network position is pivotal to how, when and where its internationalization process will start (ibid).
Partial acquisition can also serve as previous/existing relationships that form part of a firm's network position. Through partial acquisition acquiring MNEs and partially acquired firms can learn from each other, identify and exploit
opportuni-ties. By complimenting this argument with the fact that firms can have business relationship with a target firm before undergoing acquisitions, it is argued that partial acquisition and target-specific experience (relationship-specific knowledge) can provide a platform (state variable) where knowledge, trust or commitment to the firm-specific relationships develops that leads into later com-mitment decision. The later comcom-mitment decision can be increasing comcom-mitments such as increasing equity stake in the acquisition or decreasing equity commit-ments depending on the outcome of previous commitment decisions.
Knowledge Opportunities: The 2009 model assumes that knowledge opportuni-ties serves as the basis for relationship commitment decisions. Thus, the knowledge opportunities that is inherent in firms relationships with its partner firms initiates the process of learning, creating opportunities and building trust.
Depending on the outcomes of learning, the attainment of knowledge oppor-tunties ultimately changes the firms’ network position to a higher or lower level.
Full acquisition or increased equity commitments could be seen as knowledge opportunities and as an outcome or consequence of trust building and relationship the partners develop during their interaction in previous exchange relationships (e.g., partial acquisition, Joint venture relationship, customer relationships, sup-plier relationships, distributor relationships). It could also be seen as opportunity that develops (opportunity development) as a result of the interaction between partners who build knowledge together and come to trust each other as they commit themselves further to the relationship (Johanson & Vahlne 2009). Oppor-tunity development entails gradually and sequentially increasing recognition (learning) and exploitation (commitment) of an opportunity in the existence of trust (ibid). The opportunity that develops from this relationship (e.g., full acqui-sition) may be unilateral, with the parent firm learning about the target firm needs, capabilities, markets and networks (ibid: 1419). It may also be bilateral when the two firms in interaction identify an opportunity (e.g., a joint venture or a merger or sellers willingness to accept full acquisition). Moreover, it may also be multilateral when multiple firms identify an opportunity (e.g., a shared partial acquisition). Conversely, in the absence of opportunity development, firms could find no reasons to keep their ongoing relationship with the target firm. In the case of an already existing partial or full acquisition, the relationship may be dissolved, and consequently parent MNE will divest their investments.
Learning, trust-building and relationship commitment decisions: The nature and the presence of direct relationship with existing partner firm drive the dynam-ic and cumulative process of learning as well as trust building and their subse-quent relationship commitment decisions.
Firms that have valuable network partners or existing relationship in the target market or with a target firm in a target market have privileged access to infor-mation about the market, the target firm, and their business network. This makes up the firm network position and thus provides the firm with alliance learning, closeness centrality (the extent to which a firm occupies a central position such that it has independent access to other network ties) and structural hole position (a firm's brokerage locations between two otherwise disconnected firms in the net-work) (Lin et al. 2009). Market research may be unable to identify such privilege information the firm has access to (Johanson & Vahlne 2009: 1420). Consequent-ly, the firm enjoys insidership within its network, and opportunity recognition and development is likely to be an outcome of the ongoing business activities (ibid:
1423). It is supposed that firms that enjoy such insidership position will have a tendency to increase their commitments or make full acquisition. For example, studies have found support that firms increase their commitments or acquire part-ner firms (e.g., Vanhaverbeke, Duysters & Noorderhaven 2002; Akhigbe et al.
2007; Fatica 2010; Yang, Li & Peng 2011) as a result of explorative alliance learning (Yang et al. 2011).
When the existing or previous relationships with a target firm is that of a partial acquisition without an option to acquire fully, a firm willing to increase their commitment or equity stake can still acquire more equity through renegotiations with the target firm. If it is a public listed firm, this could be achieved by acquir-ing the remainacquir-ing equity from the public market offeracquir-ings. The firm’s willacquir-ingness to increase equity stake in target firm will result from trust and the positive out-come of learning and relationships building. Otherwise, the outout-come will be the one of decreasing commitments in the target firm. Building trust in business rela-tionship takes time (Madhok 2006: 7) because it is not based on formal agree-ments but a shared history of at least minimal satisfactory and or successful joint business experience (Johanson & Vahlne 2009: 1418). This explains why the in-crement in commitments decisions in acquisitions may take several years.
Learning from previous relationship entails learning about partner’s/acquisition target’s culture, learning about the partner/target assets, business environment and organizational processes. Learning from previous relationship builds the stockpile of knowledge the acquiring firm needs to make the next commitment decisions.
However, knowledge about the partner and the outcome of relationship building are not the only factors that impact the commitment decisions of the acquiring firms. For example, Santangelo and Meyer (2011) showed that the process of learning, opportunity creation and trust building are moderated by institutional influences. Institutional influences lead to the difference between realized and intended strategies of multinationals (ibid). Thus, internationalization process is
not only influenced by business networks, network positions, and business rela-tionships; rather institutions moderate the outcomes of state and change variables in the internationalization process (Pogrebnyakov & Maitland 2011).
In summary, the 2009 Uppsala model is the focus of this dissertation. It is ex-plored and integrated with institutional theory and other literature in this disserta-tion. In doing so, the focus is on the Internationalization Process Model and not the four stages/sequential progressive development in internationalization (from no regular export to export via independent agents, sales subsidiary and FDIs).
More so, certain theoretical boundaries are applied to ensure the explication of the assumptions that bound the theory (Andersen 1993). These boundaries are dis-cussed in more details in Section 2.4.2.