Psychic Distance Term Paper

Pages: 10 (2744 words)  ·  Style: Harvard  ·  Bibliography Sources: 17  ·  File: .docx  ·  Topic: Anthropology

Psychic Distance

The natural occurrence of globalization is bringing the world increasingly closer together through the exchange of culture, products and services, information, and knowledge. Over the last several decades, the speed of this global connection has become much greater, because of continual technology, communications, and science advancements. Research has recognized that within this global interaction, countries will begin the internationalization process with some nations that are called "psychically close" before venturing to more distant countries at a psychic distance. This concept of psychic distance significantly impacts cross-cultural business ventures. However, researchers have not yet developed a consistent approach with reliable variables for developing a psychic distance strategy. Recently, the only agreement point is that a number of different variables, besides Hofstede's cultural factors, impact psychic distance. Businesses have to look at their own particular parameters to determine the best way of proceeding at each stage of the cross-cultural relationship development.

The term psychic distance was first defined by Beckerman (1956) in his empirical research on intra-European trade flows:

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special problem is posed by the existence of 'psychic' distance. It is probable that the manner in which the purchases of raw materials by a firm are distributed geographically will depend partly on the extent to which foreign sources have been personally contacted and cultivated.

While the transportation costs paid by an Italian entrepreneur on a raw material supplied by Turkey may be no greater than the same material supplied by Switzerland, he is more likely to have contacts with Swiss suppliers, since

Switzerland will be 'nearer' to him in a psychic evaluation fewer language difficulties, and so on), as well as in the economic sense that air travel will absorb less of his time

Term Paper on Psychic Distance Assignment

Since then, "psychic distance" has become a much-utilized term in international business and one of the key ingredients in determining the "right" country markets (Brewer 2007). When working in an international rather than a domestic environment, the degree of success of a marketing strategy relationship is greatly dependent on levels of psychic distance. The greater the level of psychic distance, the more resources required to establish a productive business relationship. However, establishing a comparative analysis of the relative importance of the various elements of psychic distance at each of the stages of the process of cross-cultural business relationship development becomes problematic for a number of reasons.

The first difficulty is the lack of consistency in the way the word is used and defined. Sivakumar and Nakata (2001) noted that "Psychic distance is one of the most commonly cited, yet vaguely measured, constructs within the realm of international business research." Many rely on a previously developed scale of Hofstede (1980), some researchers employ empirical measures of psychic or cultural distance, and others create their own estimates of psychic or cultural distance.

Hofstede looked at five cultural elements that impacted psychic distance: 1) the Power Distance Index (PDI) focuses on the degree of equality or inequality among people in a country's society. A High Power Distance ranking indicates that inequalities of power and wealth have been allowed to grow within the society, such as a caste system. A Low Power Distance ranking indicates the society de-emphasizes the differences between citizen's power and wealth. 2) Individualism looks at how much the society reinforces individual or collective achievement and interpersonal relationships.

High Individualism indicates that individual rights are highly desired and individuals may tend to form a larger number of looser relationships. Low Individualism typifies societies with close ties between individuals and that reinforce extended families and collectives; 3) Masculinity emphasizes the degree the society reinforces the traditional masculine work role model of male achievement, control, and power. With a High Masculinity ranking, the country has a high degree of gender differentiation and males dominate a significant portion of the society and power structure and females are controlled by male domination. A Low Masculinity ranking indicates the country has a low level of differentiation and discrimination between genders. 4) the Uncertainty Avoidance Index analyzes the degree of tolerance for uncertainty and ambiguity. A High Uncertainty Avoidance ranking indicates there exists little tolerance for uncertainty and ambiguity and a rule-oriented society that institutes laws, regulations, and controls to reduce uncertainty. A Low Uncertainty Avoidance ranking indicates the country values tolerance for a variety of opinions more than ambiguity and uncertainty; and 5) Long-Term Orientation focuses how much the society emphasize long-term devotion to traditional, forward thinking values. High Long-Term Orientation ranking indicates the country values long-term commitments and tradition and supports a strong work ethic, where long-term rewards are expected. In a Low Long-Term Orientation culture, change can occur more rapidly as long-term traditions and commitments do not become impediments to change.

A greater difficulty comes from the many different variables that must be considered in psychic distance. Brewer (2007, p. 1391), for example, most recently argues that the concept of the flow of information has been lost in definitions since Beckerman first coined the word psychic distance. "Measuring psychic distance through not only differences between the firm and the target country but also other important measures of information flow" is essential. Another important parameter, noted Brewer, may be the particular characteristics of the managers of a firm, because it is they, not nations, which perceive psychic distance. Managers may have lived in very foreign countries for extended periods and therefore feel comfortable with the level of knowledge they have of those particular markets. This level of pre-existing familiarity could make those countries much closer to those particular firms than any national average would indicate.

Earlier Johanson and Wiedersheim-Paul (1975) suggested that the "sum of factors" will include "differences in language, culture, political systems, the level of education, level of industrial development..." Subsequent international business researchers in a wide range of areas have added to the list of factors. Boyacigiller (1990, 363) made the suggestion that this list of the factors that contribute to psychic distance should also include the variables of "dominant religion, business language, form of government, and degree of economic development and the levels of emigration."

Evans et al. (2000) recommended "language, business practices, political and legal systems, education, economic development, marketing infrastructure, and industry structure" as well as culture. These authors examined the psychic distance between psychic distance and organizational performance in an international retailing context. The results suggested that psychic distance has a positive effect on both financial performance and strategic effectiveness. It was also found that psychic distance has a positive influence on research and planning and adaptation of the retail offer, but a negative one on entry strategy. In addition, entry strategy has a negative effect on financial performance and a positive effect on strategic effectiveness, while retail offer adaptation adversely affects financial performance. Dow and Karunaratna (2006) suggested a multidimensional instrument to measure psychic distance. They looked at the following variables: culture, language, educational levels, industrial development, political systems, religion, time zones and previous colonial ties.

More problematic, at different stages of relationship development, different variables of psychic distance assume relatively greater levels of importance that are likely to have an impact on the implementation of the business strategy. Shenkar (2001) described this as "the assumption of equivalence," where it is incorrect to assume that each factor contributes equally to the overall psychic distance construct. However, when researchers utilize Kogut and Singh's (1988) methodology for combining Hofstede's cultural dimensions, they are not looking at the unequal factors.

Barkema and Vermeulen's (1997) demonstrated the negative results of this uni-lateral approach by finding the apparent relationship between a composite measure of Hofstede's cultural dimensions and international joint venture survival was driven completely by only three of five dimensions. Thus, the importance of different factors cannot be determined apart from appropriate dependent variables. The various factors need to be weighed and determined empirically in conjunction with the dependent variable(s).

Dow and Karunaratna (2006) presented a "wake-up call" to international business researchers. For nearly two decades, the authors noted, a significant number of researchers have utilized the psychic distance concept but employed a single scale, or a composite measure of Hofstede's cultural dimensions, to empirically testing their ideas. These researchers have been forgetting a sizeable portion of the total psychic distance effect. The authors conclude that Hofstede measures of cultural distance are, at best, a minor component of a much broader set of psychic distance stimuli and that other psychic stimuli, such as differences in language, education and political systems, receive stronger and more consistent support by countries.

Further, in terms of the concerns of a practicing manager these authors found their research falls in a different area: Regardless of all rhetoric concerning declining transportation costs and the global economy, "geographic distance is still the single most influential 'trade inhibitor'" (p. 585) Geographic distance accounts for nearly double the total variance explained as all the other psychic distance stimuli combined; and this is for a set of industries that Conlon (1985) specifically identified as having low transportation costs. This is consistent with the Leamer and Storper (2001)… [END OF PREVIEW] . . . READ MORE

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