Does Psychic Distance Still Matter? Empirical Evidence from Poland

Abstract

Objective: The objective of the article is to fill a research gap regarding the impact of psychic distance on the initiation of relationships by managers from Poland-based firms and to analyze the psychic distance’s influence on firm performance. Research methodology: The article is based on quantitative research conducted among managers from 201 Poland-based companies operating in foreign markets. The study used a structured questionnaire consisting mainly of closed questions. The dataset contained companies representing all sizes, industries, and ownership status from all over Poland. Findings: Two types of companies were identified following managers’ (un)willingness to initiate relationships with actors located in psychically distant markets. The study conclusions reveal that psychic distance matters for Polish managers and that business activities conducted in psychically distant markets are often perceived as more complex than in close markets. These activities involve additional risk, but they bring companies better performance. Limitations: The limitation of the study is that the measurements are based on the subjective perceptions of psychic distance. The research was conducted in Poland only. Originality: The article is a pioneer work on the psychic distance paradox among Polish managers from a diversified group of companies (from small to multinational). The article seeks to identify to what extent Polish managers perceive psychic distance as an important factor in the decision-making process concerning the initiation of relationships with foreign partners.

A literature review on CEE firms’ internationalization: success measurement, achievement and outcomes

“…For instance, Bodlaj et al (2020) measured to how many foreign regional markets firms exported their products, Annushkina (2014) and Götz and Jankowska (2019) counted in how many continents firms were active, while Nowiński and Rialp (2013) and Roolaht (2017) considered having activities on several continents and in a large number of countries as a sign of success. Fonfara et al (2021) and Panibratov and Klishevich (2020) agreed that successful firms operated in psychically distant markets. The number of foreign export markets was also an important indicator for Ferencikova and Hluskova (2015) and Zemplinerová (2012) while Filippov (2011) and Sass and Vlčková (2019) emphasized that successful firms had foreign affiliates in a large number of foreign countries.…”

“…In addition, some authors have used or suggested using a combination of several objective and/or perceptual/subjective measures . For instance, Fonfara et al (2021) measured performance by calculating an arithmetic average of each firm’s market share, sales, profit and return on investment compared to closest competitors. Stocker and Várkonyi (2022) used an index consisting of several objective and subjective measures representing firms’ adaptivity and operationality.…”

“…From foreign market and/or industry conditions, studies have mentioned favourable economic policies like trade liberalization (Békés and Muraközy, 2012), financial incentives and a favourable investment climate (Gorynia et al , 2015). Foreign customers’ willingness to pay (Nowiński and Rialp, 2013) or buy more (Ciszewska-Mlinaric et al , 2016; Elo, 2016), and, thus, the potential to earn higher profits (Coşkun et al , 2022; Ďaďo et al , 2015; Fonfara et al , 2021; Vissak and Zhang, 2016) can also motivate firms to enter foreign markets. In addition, geographical proximity (Ciszewska-Mlinaric et al , 2016), availability of low-cost resources (Gorynia et al , 2015) and lack of language barriers (Panibratov and Latukha, 2014) can affect location choice.…”