Psychic distance

Question 1

What is psychic distance? Which factors affect this perception?

Answer 1

Perceived cultural distance and in general mentality distance between two countries.
The more the foreign market is perceived as distant, the more it will be difficult to collect, analyze and correctly interprete information (higher uncertainties)

Knowledge (availability of information and ability to correctly interpret it), familiarity and sense of understanding of the foreign market.

Question 2

Definition of psychic distance according to Nordstrom and Vahlne (1994)

Answer 2

Set of factors preventing or disturbing a firm’s learning and undestanding of the foreign environment.

Question 3

Uppsala University definition of psychic distance

Answer 3

Set of factors preventing or disturbing the flows of information between potential and actual suppliers and customers.

Question 4

Two statistical items used to measure psychic distance

Answer 4

1. level of development of target market and workforce education
2. trade relations as indication of established information channels

Question 5

Concept of symmetry in psychic distance

Answer 5

Perceived distances from A to B not necessarily equal from B to A (asymmetrical)

Question 6

Which are the components of the CAGE distance framework?

Answer 6

1. cultural distance: language, ethnicity, religion and social norms
2. administrative distance: institutional weakness, political hostility or association
3. geographical distance: climate, transportation links, common boarders
4. economic distance: differences and quality in NFHI (natural, financial, human resources and infrastructure)

Question 7

Role of market-specific knowledge in affecting psychic distance

Answer 7

This type of knowledge eliminates psychic distance as it allows collection, analysis and correct interpretation of information (Dikova, 2009)

So, psychic distance exists only for companies lacking market-specific knowledge.

Question 8

How can market-specific knowledge be acquired?

Answer 8

Through prior investments or the involvement of a foreign local partner