The concept of distance Flashcards
Describe distance
Degree of closeness between to objects. We distinguish between extent (scores) and type of distance (according to Ghemawat is it shown by the CAGE framework)
Describe psychic distance
“The psychic distance is defined as the sum of factors preventing the flow of information
from and to the market. Examples are differences in language, education, business
practices, culture, and Industrial development.” (Johanson and Vahlne, 1977)
Mention authors on Distance
Ghemawat (CAGE), Levitt, Hutzchenreuter Kleindienst and Lange (Performance effects, Cultural, adm), Johanson and Vahlne 1977 (phychic distance)
Explain the effect of distance
Often negatively correlated with Peformance, entry mode choice, market selection, while mixed influence on knowlegde transfer.
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Explain benefits of distance
- Economic: Arbitrage, upstream integration, AAA-framework by Ghemawat.
- Learning effect:
- Maybe not affect a software firm as much. (geographical distance and language is easily adaptable).
Compare objective and subjective distance
Objective: Country-level (CAGE)
Subjective: Firm level distance, managers perception. It variates. Some managers perceive distance higher than others ceteris paribus.
Explain the PDS and PPD relationship by Hutzhenreuter et all.
PDS= psychic distance stimuli = objective country level differences (CAGE) PPD= perceived phychic distance (firm level).
PDS of cultural, administrative and geographic all negatevely affect firm performance.
- Cultural distance: may impede learning and hinder decision making
- Administrative distance: can create high risk and uncertainty of operations
- Geograpihical distance is there also, but is less complex to solve
- Economic distance: difficult to measure (consumer behavior),
How can we measure distance?
Distance = x-y = knowlegde in host country - home country. But reference point is important. Home country HQ, closest neighbor, cluster or portfolio.
