INTRODUCTION
The evaluation will be conditioned by three factors; experience, uncertainty and distance. Experience in existing and previous relationship provides the criteria by which the potential and performance of a new partner will be judged — a partner of which the company has no experience. The buyer will face uncertainty about the potential costs and benefits which are likely to be involved in dealing with a new supplier. The costs can be separated into those involved in making a change to a particular partner, e.g., in a buyer modifying its own product to suit that of a new seller. Additionally, there are the opportunity costs involved in the continuing relationship, when compared with alternative partners, e.g., in a buyer having to accept less frequent deliveries.
Evans, Jody and Kerrie Bridson (2005), “Explaining Retail Offer
Adaptation Through Psychic Distance,” International Journal of
Retail & Distribution Management, 33 (1), 69–78.
Hofstede, Geert (1991), Cultures and Organizations: Software of the
Mind.
Psychic distance is defined as “the distance between the home market and a foreign market, resulting from the perception of both cultural and business differences”. Cultural differences are derived from Hofstede’s (1991) dimensions of national culture, whereas business differences incorporate economic, legal and political, business practice, market structure, and language differences.
psychic distance has a direct relationship to organizational performance. Organizational performance is operationalized in terms of both financial and strategic performance.
The relationship between psychic distance and organizational performance does not exist in a vacuum, and we propose that psychic distance can also have an indirect effect on organizational performance through the mediating roles of entry strategy and retail strategy.
Vahlne and Wiedersheim-Paul (1973) defined psychic distance as ``factors preventing or disturbing the flow of information between potential and actual suppliers and customers''.
two most important elements: psychic and distance. Psychic is
derived from the term psyche which refers to the mind or soul (Sykes, 1987).
Distance relates to similarity or difference in regard to the degree or amount of separation between two points (Sykes, 1987).
Vahlne, J.-E. and Wiedersheim-Paul, F. (1973), ``Economic distance: model and empirical
investigation'', in Hornell, E., Vahlne, J.-E. and Wiedersheim-Paul, F. (Eds), Export and
Foreign Establishments,
Vahlne, J.-E. and Wiedersheim-Paul, F. (1977), ``Psychic distance ± an inhibiting factor in
international trade'', Department of Business Administration,
Lee, D.-J. (1998), ``The effect of cultural distance on the relational exchange between exporters and importers: the case of Australian exporters'', Journal of Global Marketing, Vol. 11 No. 4, pp. 7-22.
Nordstrom, K.A. and Vahlne, J.-E. (1994), ``Is the globe shrinking? Psychic distance and the establishment of Swedish sales subsidiaries during the last 100 years'', in Landeck, M. (Ed.), International Trade: Regional and Global Issues,
The distinction between cultural distance and psychic distance can be made on the basis of the way in which the two concepts are operationalised. Cultural distance is most commonly measured using Hofstede's (1983; 1991) dimensions of national culture. In contrast, psychic distance is operationalised in terms of differences in 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).
Swift, J. (1999), “Cultural closeness as a facet of cultural affinity”, International Marketing Review, Vol. 16 No. 3, pp. 182-201.
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, p. 184).
Feely, A. and Harzing, A.-W. (2003), “Language management in multinational companies”, Cross Cultural Management, Vol. 10 No. 2, pp. 37-52.
Welch, D.E., Welch, L.S. and Marschan-Piekkari, R. (2001), “The persistent impact of language on global operations”, Prometheus, Vol. 19 No. 3, pp. 194-209.
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, p. 194) 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 of international activity.
conceptually, language is seen to influence culture, culture influences psychic distance and psychic distance influences commercial decisions: in this case, the decision of a group of service operations to select international markets for expansion.
Boyacigiller (1990) suggests that the list of factors contributing to psychic distance should include '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, and industry structure' in addition to culture.
Thus, it is not the simple presence of external environmental factors that determines the degree of
Information exchange is at the heart of the original Johanson and Wiedersheim-
Paul (1975) psychic distance definition based on ease of information flows. But
there has been an important departure from this original definition in the most
common forms of psychic distance interpretation in the literature, namely, country
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
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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).
Differences in national culture will be negatively associated with the intensity of trade between countries.
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.
Another factor that arguably influences 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.
POLITICAL SYSTEM:
Differences in political systems can potentially impact on managers at two levels. First of all, 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.
Johanson, J. & Wiedersheim-Paul, F. 1975, ‘The internationalisation of the firm: Four Swedish case studies’, The Journal of Management Studies, vol. 12, pp. 305–22.
Johanson, J. & Vahlne, J. 1977, ‘The internationalization process of the firm: a model of knowledge development and increasing foreign commitments’, Journal of International Business Studies, vol. 8, pp. 23–32.
Crovitz, L. 1994, ‘Overview’, Far Eastern Economic Review, vol. 158, pp. 7–12
Cavusgil, S.T. (1980) 'On the internationalization process of firms', European Research 8(November): 273–281.
Tushman, M.L. (1978) 'Technical communication in R&D laboratories: the impact of project work characteristics', Academy of Management Journal 21(4): 624–644.
Welch, D.E., Welch, L.S. and Marschan-Piekkari, R. (2001) 'The persistent impact of language on global operations', Prometheus 19(3): 193–209.
Boyacigiller, N. (1990) 'The role of expatriates in the management of interdependence, complexity and risk in multinational corporations', Journal of International Business Studies 21(3): 357–381.
Davidson, W. (1980) 'The location of foreign direct investment activity: country characteristics and experience effects', Journal of International Business Studies 11(2): 9–22.
Kogut, B. and Singh, H. (1988) 'The effect of national culture on the choice of entry mode', Journal of International Business Studies 19(3): 411–432.
According to Brewer (2007) for
Paul Brewer. (2007) ‘Psychic Distance and Australian Export Marketing’, Australian Journal of Management, Vol. 32, No. 1, The Australian Graduate School of Management.
The system of shared beliefs, values, customs, behaviours, and artifacts 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.
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.
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 believes 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 influences 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.
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 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.
Trust
Trust is a fundamental of developing any relationships between the two organisation. 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 relatioship. (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
Moorman, Christine, Gerald Zaltman, and Rohit Deshpande. 1992. “Relationships Between Providers and
Users of Marketing Research: The Dynamics of Trust Within and Between Organizations.”
Journal of Marketing: Research 29 (August): 3 14-329
Dwyer, F. Robert and Rosemary R. LaGrace. 1986. “On the Nature and Role of Buyer-Seller Trust.”
AMA Summer Educators Conference Proceedings. Ed. T. Shimp et al.
Marketing Association
Schurr, Paul H. and Julie L. Ozanne. 1985. “Influences on Exchange Processes: Buyers’ Preconceptions
of a Seller’s Trustworthiness and Bargaining Toughness.” Journal of Consumer Research 11
(March): 939-953
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, p. 18).
Ford, D. (1984), ``Buyer/seller relationships in international industrial markets'', Industrial Marketing Management, Vol. 13 No. 2, pp. 101-13.
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