1) CONCEPT OF PSYCHIC DISTANCE
2) DIFFERENT COMPONENTS OF PSYCHIC DISTANCE
3) STAGES OF BUSINESS RELATIONSHIP DEVELOPMENT & COMPARISON OF PSYCHIC DISTANCE ELEMENTS IN THE STAGES OF BUSINESS RELATIONSHIP DEVELOPMENT
5) CONCLUSION
6) REFERENCES
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1) INTRODUCTION OF PSYCHIC DISTANCE:
Psychic distance is two important elements: Psychic and distance. Psychic is derived from the term psyche which refers to the mind or soul (Sykes, 1987). Thus, it is not the simple presence of external environmental factors that determines the degree of psychic distance. Psychic distance is the mind’s processing, in terms of perception and understanding, of cultural and business differences. Distance relates to similarity or difference in regard to the degree or amount of separation between two points (Sykes, 1987). Psychic distance is an aspect of cross culture relationships. Psychic distance is a consequence of a number of interrelated factors among perception is a major determent. Perception is an interpretation of data in terms of individual’s personal experiences and value systems. Value systems are largely a product of one’s cultural background. Perception of one person may be influenced by the culture, if it influenced then it leads to psychic distance. So culture influenced indirectly on psychic distance. According to Hallen and Wiedersheim-paul (1984) psychic distance is “difference in perceptions between buyer and seller regarding either needs or offers”. Evans and Mavondo (2002) defines Psychic distance is “the distance between the home market and a foreign market, resulting from the perception of both cultural and business differences”. According to Hofstede’s (1991), culture differences are dimensions of national culture, where as business differences are incorporate economic, legal and political, business practice, market structure, and language differences. Nordstrom and Vahlne (1994) define psychic distance as “factors preventing or disturbing firm’s learning about and understaning a foreign environment”. According to O’Grady and Lane (1996), psychic distance can be defined as “a firm’s degree of uncertainty about a foreign market resulting from cultural differences and other business difficulties that present barriers to learning about the market and operating there”. Vahlne and Wiedersheim-Paul (1973) defined psychic distance as ``factors preventing or disturbing the flow of information between potential and actual suppliers and customers''. Cultural distance and psychic distance are not similar to each other the distinction between cultural distance and psychic distance can be made on the basis the two concepts are operationalised. Cultural distance is most commonly measured using Hofstede's (1983) dimensions of national culture. In contrast, psychic distance is operationalised in terms of differences in
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language, business practices, political and legal systems, education, economic
development, marketing infrastructure, industry structure and culture (Lee, 1998; Nordstrom and Vahlne, 1994; Vahlne and Wiedersheim-Paul, 1973; 1977). psychic distance is essentially cultural distance plus levels of experience and trust that refine and determine the perceptual distance that is psychic distance because “it is ‘culture’ that underpins all the facets of psychic distance” (Swift, 1999).
2) ELEMENTS OF PSYCHIC DISTANCE:
Elements are the factors which will make distance between two organisations, the elements are variable depend upon the type of the organisation it was. There is no standard elements which causes to psychic distance, sometimes the elements are more in number sometimes less depend upon type of business any organisation doing. According to Boyacigiller (1990) the list of factors contributing to psychic distance are 'dominant religion, business language, form of government, economic development and levels of emigration'. Evans et al. (2000) recommend 'language, business practices, political and legal systems, education, economic development, marketing infrastructure, industry structure and culture’. Originally from Johanson and Vahlne (1997) who stated the psychic distance factors, those are differences in language, education, business practices, culture and industrial development. According to Paul (2007) for
· Culture
· Language
· Education level
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· Political systems
· Trust
· Experience
· Commitment
a) CULTURE:
Culture can be defined as “the system of shared beliefs, values, customs, behaviours, and artefacts that the members of society use to cope with their world and with one another, and that are transmitted from generation to generation through learning”. A person's culture influences not only how they behave, but also how they communicate information to others, and how they interpret information (Carlson, 1974). Large cultural distances between two groups of individuals will increase the cost of interpreting information flows between the parties, and also increase the risk of misinterpretation (Boyacigiller, 1990). These increases in transaction costs, both real and perceived, will in turn influence a manager's perception of the attractiveness of doing business with a group of individuals. It is on this basis that large cultural differences among countries are predicted to influence managerial decisions such as market selection for both exporting (Johanson and Wiedersheim-Paul, 1975) and direct foreign investment (Davidson, 1980; Kogut and Singh, 1988). So differences in national culture will be negatively associated with the intensity of trade between countries.
b) LANGUAGE:
Language is component of culture. While language may be considered a relatively crude measure of psychic distance and indeed cultural distance, it has an immediate relevance within the everyday experience of commercial activity, social activity and interaction. It is also at the heart of any culture. As Welch et al. (2001) have noted, “Language differences are a crucial element of psychic distance”. Likewise a diversity of languages can also produce considerable internal communication problems for multinational organizations (Feely and Harzing, 2003). Therefore, for firms at an early stage in the internationalization process, while it may, in many ways, mask certain elements of psychic distance, a common language may certainly overcome other market differences to facilitate and determine the direction
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of international activity. Similarities in languages present efficiencies in communication (Tushman, 1978). Welch et al. (2001) add that there is a tendency for firms to remain within their language groups during their initial expansion as a means of containing risk. Differences in languages between markets tend to increase both the costs and the risks of a transaction. As a result, language is a key component of psychic distance, and influences international expansion patterns. Conceptually, language is seen to influence culture, culture influences psychic distance and psychic distance influences commercial decisions.
c) EDUCATION LEVEL:
Education level is one of the element of culture. Education level does not have too much impact to cause psychic distance but it is having some importance because education level means, the manner in which people communicate and interpret information is the education system. Although less commonly cited than culture and language, differences in education levels among countries have been frequently identified as an underlying factor of psychic distance for more than 25 years (Johanson and Vahlne, 1977; Cavusgil, 1980). Large differences in education levels between markets will increase the risk and uncertainty of a manager properly understanding and communicating with the market.
d) POLITICAL SYSTEM:
Differences in political systems can potentially impact on managers at two levels. Most industries involve a substantial amount of business-to-government and government-to-business communication. Dramatic differences in political systems will tend to increase the costs and uncertainty of such communications. Governments also play a key role in policing various business-to-business and business-to-consumer interactions, such as the enforcement of contracts and the monitoring of anti-competitive behaviour. As a result, differences in political systems increase the risk that foreign firms might misjudge how a government is likely to react in specific situations, and how other firms are likely to react in light of any potential government intervention. Both of these phenomena have the potential to increase the costs and risks of doing business in a foreign country, thus influencing market selection decisions.
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e) TRUST:
Trust is a fundamental of developing any relationships between the two organisations. If the companies trust each other the relationship going to be longer, if they are not trusting it leads to poor relationship then it turns to break-off. Most definitions of trust involve a belief that one relationship partner will act in the best interests of the other partner. There are some definitions of trust which will give clear idea about trust:
1. A willingness to rely on an exchange partner in whom one has confidence (Moorman, Zaltman and Deshpande, 1992).
2. A party’s expectation that another party desires coordination will fulfill obligations and will pull its weight in the relationship. (Dwyer, Schurr and Oh, 1987).
3. The belief that a party’s word or promise is reliable and a party will fulfill his/her obligations in an exchange relationship. (Schurr and Ozanne, 1985).
Rotter (1967) sees trust as a generalised expectancy held by an individual that the word of another can be relied upon. In economic exchanges, there is the expectation that parties will make a good faith effort to behave in accordance with any commitments, be honest in negotiations and not take advantage of the other even when the opportunity is available (Hosmer, 1995). Rusbult and Buunk (1993) and Ganesan (1994) see satisfaction and experience as antecedents of trust.
f) EXPERIENCE:
Experience is influential at the individual level and can be a powerful determinant of psychic distance as it influences attitude formation. Individual experience can result in preconceptions regarding suppliers and customers. These prejudices will affect attitudes and behaviour towards those suppliers and buyers (Ford, 1984). Experience can be two types one is individual and other is organisational. In the organisations individual experience play important role for making decisions about other organisations. The individual experience influence other members in the organisation, if the experience is positive then the result is positive otherwise negative because of negative impact on the organisation.
g) COMMITMENT:
Commitment is an important variable in discriminating between “stayers and leavers”. It is the desire to continue the relationship and to work to ensure its continuance. Commitment is an “implicit or explicit pledge of relational
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continuity between exchange partners”. Commitment is an enduring desire to maintain a valued relationship. Commitment implies importance of the relationship to the partners and a desire to continue the relationship into the future. Hardwick and Ford (1986) point out that commitment assumes that the relationship will bring future value or benefits to the partners.
3) STAGES OF BUSINESS RELATIONSHIP DEVELOPMENT:
The nature of relationship development is depends on the similarities of buyer and sellers activities. They conceptualized buyer-seller interaction as dyadic interaction at both the firm and individual levels with the interaction influenced by the atmosphere, a multidimensional construct, involving power/dependence, cooperation, expectations and closeness and the environment of the interaction. Some companies believe that interaction is a series of short-term social interactions which are influenced by the long term business process that bind the firms together. Both the individual buyers and sellers are influenced by traditional firm and individual variables such as, organizational structure, technology levels of the firm and available resources. The individual’s attitudes, goals and experience influence their behavior within the interchange episodes. The atmosphere of the relationship can be thought of as hybrid culture that develops between the buying and selling firms and reflects elements of both firms’ cultures but is different from either firm’s culture.
According to
1) The Pre-Relationship Stage
2) The Early stage
3) The Development Stage
4) The Long-Term and Maturity Stage
1) The Pre-Relationship Stage:
A company evaluation of a potential new supplier will take place without any commitment to that supplier at this stage. In this stage any company continue with existing sources with relatively little knowledge or evaluation of the wider supply markets available to them. In this stage there is no contact establishment with the
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supplier but scanning the environment for potential supplier through primary and secondary research. So there is no contacts with the organisation it means less psychic distance, there may be distance in culture, language, educational level. Psychic distance elements like commitment/ trust, experience are irrelevant. Generally culture distance is there in the pre-contact stage because the company knows about the country by primary information. The primary information the company have it may be right or wrong, but the decisions are made by basing on the primary information. If the company is geographically closer then there is an assumption that similar in culture and languages again it will depend how similar the country is. If the host country culture is different from home country culture, then the company should understand the host country culture if it happened there is no psychic distance between the organisations.
2) The Early Stage:
In this stage home country make contact with the host country and start beginning to develop relationship between each other and comparing one another in terms of capabilities and resources etc. potential suppliers are in contact with purchasers to negotiate or develop a specification for a capital goods purchase. This stage can also involve sample delivery for frequently purchased components or supplies. At this stage psychic distance is likely to increase because companies are start negotiate so there is a chance to some dissatisfaction. At this stage no trust, political factors effect the organisations because they do not have any experience. Mostly in this stage only relationships going be failed it will happened because of cultural differences. If it happened it is loss for both organisations like waste of time, money and man power etc. in this stage the relationship is between the two organisations only individuals of each organisation do not have any relationship.
3) The Development Stage:
If the relationship is not broken down, it is safe and the psychic distance has decreased: the two organisations are psychologically closer to each other, sharing a greater level of mutual understanding and empathy. In this stage the relationship of organisations are developed but the relationship between individuals should develop. So in this stage trust, experience, educational levels play an important role. At this stage both organisations will consider all the factors like positive and negative factors
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based on that both companies will develop commitment and trust each other. In this stage the home country should aware of host country political changes, if the government changed some rules which are against to home country, but the host country should follow the changed rules then it may cause to psychic distance between the two organisation.
4) The Long-term and maturity stage:
The longer the relationship between the organisation leads to maturity level because of working for long term knowing one other policies, good personal relationship. In this stage the companies will give mutual importance to each other like for making certain decisions both organisations make a combined decisions by participating both parties at the time of decision making. When any one can say the relationship was matured if the transactions between them are larger in number in terms of money and continuous purchases or large scale purchases etc. There is one draw back for maintaining a long-term relationship is the companies do not look other opportunities which are giving same goods and same quality with the low prices.
At this stage culture distance, communication gaps are minimised completely because of extensive contact pattern will develop between the companies and strong relationships will develop between individuals in the companies. So that if problem occurred then mutually solving problem and informal adaptations. For example in the organisation the accountant can contact directly to the other organisation accountant regarding payments or any other issues. In the long-term the companies will become more personalised individual representatives. Successive contracts and agreements between the companies lead to extensive formal adaptations leads to reduction of cost for both companies and increased control over supply or buyer market.
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4) CONCLUSION
Information exchange is at the heart of the original psychic distance definition Johanson and Wiedersheim- Paul (1975) based on ease of information flows. But there has been an important result from this original definition in the most common forms of psychic distance interpretation in the literature, namely, country differences like culture differences. The extrapolation of psychic distance from ‘factors impeding the flow of information’ to ‘country differences’ is unsupported by other than recognition that such differences should affect business relationships. The direct definitional relationship between psychic distance and ease of information flows has been corrupted to a direct one-to-one relationship between psychic distance and differences between countries. Whilst it is accepted that differences may affect country market understanding. Many factors can be expected to play an important part in knowledge development, and as many as possible should be taken into account in any attempt to operationalise psychic distance. Measuring a cognitive phenomenon (such as psychic distance) must be improved through measuring more rather than less of its elements. In essence, more emphasis has been placed on the ease with which firm managers can develop knowledge of country markets rather than a restricted view of differences between countries. Developing a relationship in the host country market depend up on psychic closeness of the host country. If the relationship is good, then the psychic distance is less it means the host country is psychologically close to the home country.
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5) REFERENCES:
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