Psychic Distance: Antecedents, Retail Strategy Implications, and Performance Outcomes

Abstract

The authors propose a conceptual model of the psychic distance-organizational performance relationship that incorporates organizational factors (international experience and centralization of decision making), entry strategy, and retail strategy implications. The findings suggest that when entering psychically distant markets, retailers should adopt lowcost/low-control entry strategies and adapt their retail strategy to a greater extent than in psychically close markets. However, the authors find that such strategic responses have an adverse effect on performance. They find that international experience, psychic distance, entry strategy, and retail strategy adaptation are significant drivers of organizational performance and factors that determine critical success in international retailing.Psychic distance has attracted heightened research interest of both a conceptual and empirical nature over the past decade. Much of the recent literature in the field of psychic distance has concentrated on the conceptualization and operationalization of the construct (Brewer 2007;Dow 2000; Dow and Karunaratna 2006; Evans and Mavondo 2002;Sousa and Bradley 2006), but few researchers agree on the empirical usefulness of psychic distance. In the current literature, there is no clear consensus regarding the role of psychic distance, or its constituent elements, in determining foreign market selection (Stottinger and

Institutional Distance and Foreign Subsidiary Performance in Emerging Markets: Moderating Effects of Ownership Strategy and Host-Country Experience

“…Our finding supports previously found arguments on the negative association between psychic distance and subsidiary performance in single emerging market countries such as China (Carlsson et al 2005). Our finding also contrasts with prior studies that have argued that cultural and psychic distance is a positive driver of MNEs' foreign affiliates' performance in other contexts, such as in the global retail industry (Evans and Mavondo 2002;Evans et al 2008) and among foreign subsidiaries in specific emerging market regions such as Central and Eastern Europe (Dikova 2009). Thus, our study, conducted in 17 emerging markets, provides alternative evidence in relation to the previously found explanations of why greater cultural distances are positively associated with subsidiary performance, and it contributes to the on-going debate on the psychic distance paradox (O'Grady and Lane 1996).…”

Does learning at home and from abroad boost the foreign subsidiary performance of emerging economy multinational enterprises?

“…Pre-existing knowledge of international operations also enables subsidiaries to better utilise local market knowledge as EMNEs have built knowledge stocks and do not need to start from scratch. Equipped with knowledge accumulated through domestic learning, subsidiaries can better make sense of the newly acquired host market specific knowledge and develop strategies and adapt services and products according to local competitive behaviour and market needs (Evans, Mavondo, & Bridson, 2008). By doing so, subsidiaries can more effectively convert host market knowledge into improved performance.…”

Influences of Institutional Distance and MNEs’ Host Country Experience on the Ownership Strategy in Cross-Border M&As in Emerging Economies

“…Earlier studies have demonstrated that the possession of market-specific information by the investing firm creates an understanding of the market and its characteristics such as business climate, culture, structure of the market system, and individual customers (Carlsson et al 2005;Evans et al 2008). As a consequence, local market experience eliminates factors that prevent MNE's learning about the foreign environment (Dikova 2009).…”