The paper "The Concept of Psychic Distance" is a perfect example of business coursework. 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 a 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 is 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 an 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 is 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 the international market. All these elements actually point to facilitating the 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.
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