Tendering for Contracts in Non-Domestic Markets as a Low Risk Approach to Export and Alternative to Uppsala
(Cite: see end of article)
This short series of articles provides an exploration of how the capability to tender for non-domestic contracts offers an alternative to Uppsala – that is traditional forms of export and a significant opportunity for SMEs. Importantly, with professional free or inexpensive guidance; winning work in new markets, through the writing of powerful tenders is a highly effective means of achieving export for SMEs – from sole traders to large businesses.
The Uppsala model is a traditional view on how firms internationalise. There are many views and challenges to this model: Born Globals and Rapidly Internationalising Ventures; often driven by the potential of ecommerce, are just two. However, a practical opportunity exists for SMEs, from sole traders to larger companies to engage in export and international markets through tendering for contracts outside of the home market. This article centres tendering as a very real, low risk approach to internationisation and alternative to Uppsala.
Brief Introduction to the Uppsala model
The Uppsala (or stages) model is a theory first introduced by Johanson and Wiedersheim-Paul (1975) based, at least initially, on a study of four Swedish firms. This concept was developed further by Johanson and Vahlne (1977) and the model has been steered through a range of various adaptations since the original paper was published.
The model reflects the tone of much post war thinking on internationisation of firms. In particular authors of the Uppsala model were influenced by a number of other incremental models and theories. This included an approach on behavioural theory developed by Cyert and March (1966) which explains the nature of the firm through the behavioural actions of decision makers.
The name Uppsala has been taken from the Swedish university that led both 1970’s studies.
The Uppsala Model Explained
Based on the initial study of four firms, the seminal Uppsala approach provides an explanation on how firms more generally intensify their activities in foreign markets in a gradual or staged way. The model explains a tendency for firms to first gain experience and market knowledge from their home market before they move to foreign markets. A core assumption of the Uppsala model is that firms wish to minimise risk and will only move to new markets when they have built sufficient market knowledge. Market commitment to the new market will then follow.
This concept of minimising risk is at the heart of the model with Johanson and Vahlne (1977) referring to: “it is assumed that the firm strives to increase its long-term profit [and] is also striving to keep risk-taking at a low level. These strivings are assumed to characterise decision-making at all levels of the firm… the model assumes that the state of internationalisation affects perceived opportunities and risks which in turn influence commitment decisions and current activities.”
Given the influence of risk on decision making and commitment to new markets, the model explains a tendency for businesses to commence their internationalisation strategies with countries that are perceived to be close – both culturally and/or geographically.
If successful the firm will then move gradually towards markets that are perceived to be culturally and/or geographically more distant.
Stages of the Uppsala Model
Johanson and Wiedersheim-Paul (1975) identify four main stages of the model:
Stage 1: No Regular Export Activities
stage 2: Export via Independent Representatives
Stage 3: Establishment of a Foreign Sales Subsidiary
Stage 4: Foreign Production/ Manufacturing Units
This series of articles highlights that winning tenders in international markets has the potential to remove the need for Stage: 2, 3 and 4. Thus providing a more rapid entry to global markets, opportunity for smaller business including new starts and genuine alternative to Uppsala.
Next we explore tendering as a means of quicker, lower risk entry to new markets.
Cite: McKay, J.I. (2016) Tendering for Contracts in Non-Domestic Markets as a Low Risk Approach to Export and Alternative to the Uppsala Model. Winning Tenders Academy