The Uppsala model of Foreign Direct Investment (FDI) is a theory that explains the internationalization process of firms. The model argues that firms invest in countries which are similar to their home countries.
During the 1970’s a number of Swedish researchers at the university of Uppsala focused their interest on the internationalization process. They studied the internationalization process of Swedish manufacturers.
They found that:
- Companies appear to begin their operations abroad in markets that are geographically close
- Companies enter new markets through exports (rather than through subsidiaries)
Also Read: Psychic Distance in Internationalization
Thus, the Scandinavian stage model suggests a pattern of successive entry into foreign markets depending of commitment to each market.
Firms tend to intensify their commitment to foreign markets as their experience grows, and additional market commitments are made in small incremental steps.
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