The Concept of Psychic Distance - Coursework Example

Psychic Distance Name Course Institution Date Psychic Distance Psychic distance is a very renowned concept not just in international trade, but also in other disciplines of academics. On the face value, the appropriateness of this concept in relation to international business is in line with the emerging need for market research before venturing into a new market (Kim & Rhee, 2001, p. 289). In the current business environment, firms are investing a lot of money in research and development in order to gain substantial information regarding the performance of the market. Understanding the market makes it easier for a firm venturing since it lays a platform upon which best strategies can be designed (Dow 2000, p. 55). Psychic distance seems to be a major factor in determining which countries to venture in relation to seeking trading opportunities. According to Eichengreen and Irwin (1998, p. 189), multinational companies spend a lot of resources like time and money in the process of seeking to establish what will be considered as the most suitable country to venture. The feasibility studies that involve international business are mostly very expensive (Lee 1998, p. 18). Based on the definition of psychic distance being the factors that influence the flow of information between key stakeholders, in this case being firms and markets in different countries, it is impossible to ignore it in seeking international markets (Pedersen & Petersen, 2004, p. 118). It is rather common sense that the management in most cases lean towards countries which information relating to its business opportunities are easily available when it comes to selecting countries for international trade. Through this concept, firms are tasked with a lot of issues when it comes to venturing into new international markets. For instance, one of the factors that influence information flow is the differences in the business environment of the firm and the potential market being considered(Stottinger & Schlegelmilch, 2000, p. 173). Most firms believe that markets that possess features that are similar to those in the company’s host country are tentatively easy to venture as compared to those with huge differences. This indicates that the company has to design strategies particularly basing on the nature of the market that has been preferred (Swift 1998, p. 184). In reality, in the process of selecting the appropriate country, dissimilarities are identified. The company must study carefully these dissimilarities in order to gain understanding of the kind of strategies that ought to be employed in order to penetrate the selected market. Nevertheless, companies with more dissimilarity are less preferred in the process and those with less dissimilarity are preferred (Reid 1984, p. 154). One point of dissimilarity could be cultural differences. This in most cases has been found to be a critical factor in selecting markets for international trade. In order to deal with the issue of psychic distance, a series of elements come into play. Firms and individual managers in companies are challenged to put structures in place to ensure that organizations are exploring international markets. Firms are tasked with training managers and equipping them appropriately in relation to addressing international trade issues. Lee (1998, p. 21)argues that managers must be enlightened and thoroughly equipped with the various tactics that directly influence international trade. In the same way, managers must gain a deeper understanding of international trade flows. This is very critical as it helps them to project the trends and cycles that directly or otherwise influence the flow of international trade. Ignoring such trends indeed can be very dangerous when it comes to harnessing a formidable marketing strategy to aid in penetrating international market. All these elements actually point to facilitating decision making process in the organizations. With such information accessible by the management, better decisions can be made in relation to making a venture into the international market (Andersen 1993, p. 223). In doing all these, companies are working towards overcoming challenges that brought about by what is considered as psychic distance. The continued investigation into the topic of psychic distance has revealed quite a lot in the recent past. Research indicates that in analyzing the issue of psychic distance, emphasis has been laid upon cultural differences between the countries involved (Davidson 1983, p. 440). Interestingly, there are situations where culture is used interchangeably with the other which shows the extent to which cultural difference has been perceived to determine psychic differences. An issue that arises out of this is the fact that most researchers are banking their studies of psychic distance on the cultural differences in the selected countries. As a result, organizations are informed in relation to how to address this issue as part of the strategy of penetrating the international market (Gomez-Mejia & Palich, 1997, p. 321). Organizations are intensively involved in strategies that are aimed at ensuring that they break the cultural deadlock in order to pursue business deals in the international market. Analyzing the marketing strategies of most multinational organizations will definitely point out the fact that emphasis on cultural differences. In most strategies, the focus is on issues like language, use of local people in marketing, etc.(Gomez-Mejia & Palich, 1997, p. 312). These organizations focus on overcoming language barrier in the entire marketing process. In order to achieve this, most organizations prefer to use local people in the marketing process. These are some of the strategies that most multinational companies have innovated over time and they clearly show that these organizations are focused on overcoming cultural diversities in the name of dealing with psychic distance. Besides the cultural differences, marketers have also noted politics as a key player in the selection of the country to venture. It is evident that political temperature in a country has an impact on the psychic distance (Dow 2000, p. 154). In real sense, political tension and related waves seem to elongate the psychic distance. Companies are freer to do business in countries that enjoy optimum political stability. In the same way, organizations prefer doing business with countries which have close political ties. The close political ties seemingly shorten the perceived differences and ultimately the psychic distance. With this information, organizations are keen to design marketing strategies that actually align with the political situation in the target country. Organizations believe that it is easier to penetrate in countries which enjoy good relationship with the country hosting the organization. Therefore, organizations are tasked with studying such trends in order to ascertain the ease of venturing in these countries. At the end of it, decisions and strategies designed are based on information collected from these countries. In addition, the geographic disposition of a country plays a critical role in international trade. It is considered to determine the psychic distance between two countries intending to engage into trade. Countries which exhibit shorter geographical distance have shorter psychic distance (Dow 2000, p. 51). Geographic disposition has a direct influence since it directly affects the cost of transporting products across the two countries. Organizations are keen to select countries that will save on cost especially in relation to transportation. The marketing strategies designed by any given organization must take into consideration the costs involved in transporting the products to the designated country. Based on this information, organization will seek to enter business pacts with other players with the main focus on minimizing the costs involved. Franchising arrangements and other business partnership that most organizations get involved in are majorly a tool used to limit on the overall cost of operation. Having made the above considerations in relation to psychic distance, it all leads to strategies that must be integrated in order to facilitate international trade. It is not a secret that the approach to the international trade is much different from the approach used in marketing products in the domestic market. Multinational companies venturing into the international market face more barriers than actually when dealing with domestic. Nevertheless, this is not supposed to downplay the potential and the opportunities available in international markets. It is interesting that successful multinational companies are mostly those who found a good ground in the international market even more than the domestic market. It is important to consider the fact that challenges experienced in venturing into international market are basically because of the differences that exist between the two countries. Some of these challenges have actually been addressed under the psychic distance discussion. These simply point to the fact that companies must be strategic whenever launching into the international market. The barriers that exist in the international market can only be broken by well-designed strategies. With this information in mind, companies spend considerably a lot of resources in the process of venturing into such markets. Many companies have come to appreciate the need to undertake comprehensive market research before making a decision to launch into such markets. It is a clear indicator that multinationals are coming to a point where they have discovered the benefits streaming from international market and the subsequent strategies that must be put in place to aid the exploration of the market. The market research is aimed at unearthing the various issues that directly or indirectly influence the marketing of product in that given market. Such issues include the cultural diversities, political temperatures, language, level of literacy, economic development. The analysis of such issues will seek to evaluate how these factors influence the penetration of the designed product in that market. In addition, laws that govern business transactions in the country are very important. Such laws may include, but not limited to taxation and licensing of new businesses. There are countries whose bureaucracy makes it impossible for multinational companies to operate. In the same way, the imposition of tariffs and related restrictions may make it difficult for businesses to transact. On the other hand, high taxes will definitely keep off investors since profit margins tend to reduce with increase in taxes, which can make it impossible to make profits out of sales. In conclusion, the psychic distance is a critical factor that must be carefully analyzed in the light of venturing into the international market. It is very difficult for an organization to successfully venture into another country without understanding the issues surrounding the market. Multinational companies ought to understand the dynamics that define international marketing environment in order to ensure the strategies designed are relevant. The training programs that are mostly designed for the expatriates must also be done in line with the information gathered about the target market. This will ensure that the managers and all employees involved in expatriate mission are equipped with the necessary skills and competencies to ensure they are suitable to face the underlying challenges in the new country. Similarly, the specific marketing and promotional activities that the marketing manager ought to use in such a country must align with the particular characteristics of the market as pointed out in the market research. All these strategies are very critical and they determine the overall success of the marketing strategies in an international market environment. References MC, 1993, Emerging Exporters, Australian Manufacturing Council, Melbourne. 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A contribution to the theory of psychic distance’, International Marketing Review, vol. 16, pp. 182–201. Read More