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The role of psychic distance in the process of internationalization – repercussions for the company's competitive advantage
Krzysztof Fonfara, Aleksandra Hauke-Lopes and Marcin Soniewicki
Place of Publication
The paper was published at the 32nd IMP-conference in Poznan, Poland in 2016.
Purpose. The process of internationalisation of a company is influenced, among other things, by psychic distance. This concept has been explored from many perspectives in the company's process of internationalisation. However, we find that there is a gap in the literature concerning the role of psychic distance in the internationalisation process of a company in terms of results obtained in a new market. Despite many aspects addressed in the literature and research concerning psychic distance (definitional or measurement problems, different views about its impact on the company), we find that the influence of psychic distance on the company's performance in the process of internationalisation has not been investigated in depth. Methodology.This article is based qualitative and quantitative research results. One of the objectives of qualitative research, consisting of five case studies, was to identify the existence of psychic distance in the company’s decision making process, especially if it is relevant in the selection of foreign partners. Qualitative research served as the starting point for preparing extensive quantitative research. Moreover, qualitative research results from the beginning were meant to facilitate the understanding and interpretation of quantitative research data. The qualitative study was conducted at the end of 2014 and the beginning of 2015 and the quantitative study was carried out in 2015: both studies were performed in Poland. In the latter more than 200 companies were surveyed. Findings. The empirical study has revealed that business activities conducted in psychically distant markets are often more complex and complicated and involve additional risk. In many cases, however, activities of this kind bring greater profits than activities conducted at psychically closer locations and in more familiar business areas, because there are more competing businesses in less risky areas, which contributes to greater competitiveness and, consequently reduces benefits. Research limitations. This article reports the results of a study based on both quantitative and qualitative data, which were collected as part of a larger study aimed at analysing companies in the process of internationalisation. One of the research topics was the role of psychic distance in the process of entering a new foreign market in the context of achieving competitive advantage. Given the character of the survey questionnaire, the research problems raised in the article do not address all aspects connected with psychic distance but, above all, focus on managers' opinions about the impact of this concept on the performance of a company engaged in the process of internationalisation. The survey was conducted using a standardised questionnaire, which is why some personal views expressed by the managers about psychic distance can be ignored. Practical implications. Psychic distance is a challenge for companies, an obstacle which needs to be overcome. It can, however, also be perceived as an opportunity. If a company manages to overcome this barrier, in many cases, this paves the way for higher profits by enabling the company to get involved in markets that competitors are most reluctant to enter. Originality/value. The existing literature on psychic distance in the process of internationalisation does not adequately account for the impact of psychic distance on the company's performance in the process of internationalisation. By reporting and interpreting the results of the quantitative and qualitative study, the article attempts to bridge the knowledge gap concerning the relationship between psychic distance and the performance of companies involved in the process of entering a foreign market.