In this model, the internationalisation of the firm, which has its theoretical base in the behavioural theory of the firm (Cyert and March, 1963; Aharoni, 1966) and Penrose´s (1959) theory of the growth of the firm, is seen as a process in which the enterprise gradually increases its international involvement. This process evolves in an interplay between the develpoment of knowledge about foreig markets and operations on one hand and an increasing commitment of resources to foreign markets on the other.
A distinction is made between state and change aspects of internationalisation. The state aspects of internationalisation are market commitment and market knowledge; the change aspects are current business activities and commitment decisions. Market knowledge and market commitment are assumed to affect decisions regarding commitment of resources to foreign markets and the way current activities are performed. Market knowledge and market commitment are, in turn, affected by current activities and commitment decision (Figure 1). Thus, the process is seen as causal cycles.
The internationalisation process model can explain two patterns in the internationalisation of the firm (Johanson and Wiedersheim-Paul, 1975). One is that the firm´s engagement in the specific country market develops according to an establishment chain, i.e. at he start no regular export activities are performed in the market, the exports takes place via independent representatives, later through a sales subsidiary, and eventually manufacturing may follow. In terms of the process model, this sequence of stages indicates an increasing commitment of resources to the market. It also indicates current business activities which differ with regard to the market experience gained. The first stage gives practically no market experience. The second stage sees the firm as having an information channel to the market and receiving fairly regular but superficial information about market conditions. The subsequent business actitivies being performed in the market lead to more differentiated and wide market experience, which even may include factor markets.
The second pattern explained is that firms enter new markets with sucessively greater psychic distance. Physic distance is defined in terms of factors such as differences in language, culture, political systems, etc., which disturb the flow of information between the firm and the market (Vahlne and Wiedersheim-Paul, 1993). Thus firms star internationalisation by going to those markets they can most easily understand. There they will see opportunities, and there the perceived market uncertainty is low.
Source: Johanson, A. & Vahlne, J.E.(2007). “The mechanism of internationalisation”. International Business Review, pp. 11-24.