A literature review is the process in which a researcher summarises, interprets and critically assesses material that has been published on their de

Introduction

A literature review is the process in which a researcher summarises, interprets and critically assesses material that has been published on their desired topic. The intention of a literature review is to clarify the understanding of the topic, identify patterns and trends and highlight gaps that may require further research or further redefine the topic of interest and to create a theoretical framework for a research project CITATION Cha24 l 3081 (Charles Sturt University, 2024). This literature review will consider the well-established concept in international business being psychic distance. Psychic distance from the start has been defined as a set of factors that impedes information flow between a local company to a foreign market CITATION Joh75 l 3081 (Johanson & Wiedersheim-Paul, 1975). The concept was first introduced by Wilfred Beckerman in 1956 and has since continued to be a trending topic for researchers for international market entry and success. This literature review will discuss the research approach taken to find, review and determine which literature was appropriate for this review. Following on from this will be consideration for the definition and interpretation of what psychic distance is and the level at which the distance is measured. The review will then highlight the gaps within the existing knowledge and research and highlight avenues to further explore these gaps.

Approach

In order to conduct a successful literature review, it is important to search for seminal sources that are of importance and influential for the topic being considered. If researchers use unreliable sources for their literature review their credibility can become tainted and the resulting work be less powerful. Therefore, using reliable databases to retrieve reliable and appropriate peer reviewed literature was the starting point in the research for this literature. To commence the research the terms Psychic Distance + Origin were searched in Google to find the starting point of the concept. From here the original literature by Wilfred Beckerman in 1956 was located through Google Scholar. To understand how the psychic distance concept has grown since it was first introduced a search using the terms Psychic Distance + History was completed where over 880,000 results were populated. In order to narrow down the results to more specific resources a further word search including the term Internationalisation was conducted where the results returned were only 21,000. The final refinement of the search process was to include the term Decision Making which would then become the focal point of the literature review. It was important to take time when reading through the literature and record the main findings (Appendix A) from each literature which could then become the key points of this review, highlight the gaps in the field and provide opportunities for future research projects.

Review One

The concept of psychic distance was first introduced by Wilfred Beckerman where he was researching the distance patterns of intra-European trade CITATION Bec56 l 1033 (Beckerman, 1956). The concept was introduced in the conclusion of Beckermans literature as more of an afterthought and area that required future research. As further research was conducted, and the number of literature resources grew the definition of psychic distance also grew. Over 20 years after Beckermans initial introduction of the concept two Swedish researchers worked together to develop a model on the gradual acquisition, integration and use of knowledge on foreign markets in parallel to the increasing commitments to the foreign market CITATION Joh77 l 1033 (Johanson & Vahlne, 1977). In their study psychic distance was defined as the combination of factors that prevents the flow of information to and from the market where factors include difference in language, education, culture, industrial development and even business practices CITATION Joh77 l 1033 (Johanson & Vahlne, 1977). Through their research and the model development they confirmed the hypothesis that as market knowledge and commitments grew by businesses their activities would too grow, which in turn further developed their knowledge and allowed for even further commitments CITATION Joh77 l 1033 (Johanson & Vahlne, 1977) which was supported by earlier studies by CITATION Yai66 l 1033 (Aharoni, 1966). The conclusion of this literature claimed that the lack of knowledge by a firm is indeed an obstacle for the development of international operations however this study only focused on the extension of operations within the foreign market and did not consider the establishment of new operations in the foreign market. The case studies supporting the model only included two industries (pharmaceutical and engineering) with home origins of Sweden expanding into existing markets predominately through acquisitions of partnered companies or agents. Whilst their gradual acquisition model is supported by their findings it is apparent that the psychic distance in these instances is likely to be quite small due to the existing relationships between partnered companies allowing for knowledge development prior to entry through acquisition. Other than consideration within the empirical background research psychic distance has little acknowledgement throughout the literature although through reading this concept is implied to be significant for the model with the requirement of knowledge growth. Another factor that the authors gave little acknowledgement of was the prior experience of those specific people in the host countries to the foreign market who were making the entry decisions. The authors hoped that their research and the development of their gradual acquisition model would spark future research to further develop this concept and initiate future comparisons studies on different firms and industries CITATION Joh77 l 1033 (Johanson & Vahlne, 1977). In addition to this more consideration of the decision makers should be built into the details of model and how this impacts international market entry success.

Review Two

In a journal article published in 1996 the authors detailed how the definition of psychic distance differs within literature depending on how the concept is operationalised CITATION OGr96 l 1033 (O'Grady & Lane, 1996). Some researches use factors such as economic development, level of education, differing languages, culture and trade channels CITATION Joh77 l 1033 (Johanson & Vahlne, 1977) whereas later studies Kogut and Singh [1988]; Benito and Gripsrud [1992] cited in CITATION OGr96 l 1033 (O'Grady & Lane, 1996) considered Hofstedes research on measures of culture to quantify differences between counties. This in turn resulted in cultural distance being used a synonym for psychic distance CITATION OGr96 l 1033 (O'Grady & Lane, 1996). Whilst this literature supports the expanded definition to include Hofstedes cultural dimensions it also highlights a need to consider other factors of business such as the industry and the competitive environment CITATION OGr96 l 1033 (O'Grady & Lane, 1996). This study considered the psychic distance between two geographically close countries with the assumption of market similarities being Canada and the United States. This resulted in the concept of Psychic Distance Paradox being brought to life. This concept occurs when organisations have the assumption or belief that familiarity between the host and foreign markets exist which can create barriers to learning and incorrect decision making as the markets are actually very different CITATION OGr96 l 1033 (O'Grady & Lane, 1996). This was supported the research of Evans, Lane and OGrady [1992] only 7 out of 32 (22% of the sample) Canadian retailers successfully infiltrated the American market as cited in CITATION Ter93 l 1033 (Terpstra, 1993). However, the same literature detailed the success of American retailers (100% of the sample) entering the Canadian market highlighting that distances between a host and foreign market may not be the same in reverse CITATION Ter93 l 1033 (Terpstra, 1993). The outcome of this literature detailed the importance of treating the perceived geographically and psychically close markets as foreign and conducting thorough research and testing assumptions prior to entry. It also outlines that decision makers are key components to successful market entry as long as their information and knowledge of a market is sufficient and the interpretation is accurate CITATION OGr96 l 1033 (O'Grady & Lane, 1996). The literature suggested future study be conducted to refine the psychic distance definition with the introduction of legal and competitive environments. Another area for further consideration is the symmetry of distance and why they may not be the same. This study unlike other studies has looked deeper than the country to country comparisons. It identified the need to look below the surface level (country) to areas such as regions, industries and personal experience where significant difference that had been identified that could have been missed from a higher level assessment.

Review Three

The final literature for review was an action research designed to redefine psychic distance to factor in the levels below the host and foreign countries and their markets. The research considered the existing literature and identified the inconsistency of psychic distances application. Taking Harzings [2004] existing research Nebus and Chai looked to develop a measure of psychic distance that built on from Harzings points being managers (not the firm or home countries), managerial decision making process, managers experience CITATION Har04 l 1033 (Harzing, 2004) and introduce a fourth component that is the nature of the decision CITATION Ned14 l 1033 (Nebus & Chai, 2014). This literature, supported by many others including Bouquet et al., [2009], Elsbach et al., [2005], Harzing [2004] and Lant [2002] cited in CITATION Ned14 l 1033 (Nebus & Chai, 2014) details the lack of consideration of the decision maker and their environment in the existing research when considering or measuring psychic distance and entering international markets. Whilst some psychic distance studies have included the manager in their research they have only asked for an assessment of the general country differences and not what their own criteria was for making their decision CITATION Ned14 l 1033 (Nebus & Chai, 2014). Measuring psychic distance only at the country level can lead to the assumption that those involved in the decision making process have a rational, economic driven and unbiased perceptions and that their individual experiences are limited to only the host country. Managers and decision makers are in fact front and centre in the move to enter international markets, but their levels of knowledge, awareness, understanding and even perception are factors that can prevent organisations from falling into context traps CITATION Doz97 l 1033 (Doz & Santos, 1997). In addition to this, the literature also emphasized the large discrepancies in the defining of psychic distance with this alternating between perceptual, subjective perspective and factual objective viewpoints CITATION Ned14 l 1033 (Nebus & Chai, 2014). Whilst the need to capture the thoughts, knowledge and experience of the individuals involved in the decision making is considered to be important in measuring the psychic distance, the ability to research this may be an ambitious goal with cognitive measures being rather invasive in comparison to using secondary data or basic surveys to gain primary data. Further consideration may also be required to find ways in which to quantify these findings and include them into the measuring of the perceived psychic distances.

Conclusion

The purpose of this literature review was to summarise, interpret and critically assess existing published material on the well-established concept in international business namely psychic distance. Whilst several literatures were reviewed three were highlighted as significant pieces of work that would form the content of this review. They all appeared to have trending themes throughout which has identified gaps within the research topic that would benefit from future research being conducted. On analysing and documenting the three main pieces and reviewing many other literatures it has become very apparent that there are significant gaps in the defining of psychic distance CITATION Joh77 l 1033 (Johanson & Vahlne, 1977), CITATION OGr96 l 1033 (O'Grady & Lane, 1996), CITATION Ned14 l 1033 (Nebus & Chai, 2014) and CITATION Cis16 l 1033 (Ciszewska-Mlinaric & Radoslaw, 2016). With psychic distance having many definitions and interpretations it results a level ambiguity in the research and leaves an uncertain path forward for future research and openness up many different avenues. Without a clearer and unanimous definition researchers will fail to obtain a deeper understanding of the topic and continue to create their own interpretations and measures which will result in conflicting research outcomes. This has also led to many differing units of measure of psychic distance to come into play which will make it difficult for organisations exploring international market entry to find an appropriate unit of measure as each equation will return varying results. It would be beneficial for future research to be conducted to establish a single, clear and unified definition of psychic distance. This will then allow for researchers to establish a clear model and measuring methodology to assist organisations in their international market entry research when searching for suitable foreign markets. The clear definition and measuring model should then assist those international venturers on how to find success in the foreign markets.

References

Aharoni, Y., 1966. The Foreign Investment Decision Process. Boston: Harvard University.

Available at: https://archive.org/details/foreigninvestmen0000ahar/page/n7/mode/2up

Beckerman, W., 1956. Distance and Patterns of Intra-European Trade. The Review of Economics and Statistics, 38(1), pp. 31-40.

Available at: https://www.jstor.org/stable/1925556

Charles Sturt University, 2024. Literature Review: Home. [Online]

Available at: http://libguides.csu.edu.au/review

Ciszewska-Mlinaric, M. & Radoslaw, T. P., 2016. The Psychic Distance Concept: A Review of 25 Years of Research (19902015). Journal of Management and Business Administration Central Europe, 24(2), pp. 2-31.

Available at: https://www.researchgate.net/publication/304529103_The_Psychic_Distance_Concept_A_Review_of_25_Years_of_Research_1990-2015

Doz, Y. & Santos, J. F., 1997. On the Management of Knowledge: From the Transparency of Collocation and Co-setting to the Quandary of Dispersion and Differentiation. Fontainebleau: Insead.

Available at: chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://flora.insead.edu/fichiersti_wp/inseadwp1997/97-119.pdf

Harzing, A.-W., 2004. The Role of Culture in Entry-Mode Studies: From Neglect to Myopia?. In: Managing Multinationals in a Knowledge Economy: Economics, Culture. Leeds: Elsevier JAI, pp. 75-127.

Available at: https://www.researchgate.net/publication/234021581_The_Role_of_Culture_in_Entry-Mode_Studies_From_Neglect_to_Myopia

Johanson, J. & Vahlne, J.-E., 1977. The Internationalization Process of the Firm: A Model of Knowledge Development and Increasing Foreign Market Commitments. Journal of International Business, 8(1), pp. 23-32.

Available at: https://www.researchgate.net/publication/5223466_The_Internationalization_Process_of_the_Firm_A_Model_of_Knowledge_Development_and_Increasing_Foreign_Market_Commitments/link/00b7d528a8b360df2e000000/download?_tp=eyJjb250ZXh0Ijp7ImZpcnN0UGFnZSI6InB1YmxpY2F

Johanson, J. & Wiedersheim-Paul, F., 1975. The Internationalization of the Firm - Four Swedish Cases. Journal of Management Studies, 12(3), pp. 305-323.

Available at: https://onlinelibrary.wiley.com/doi/pdf/10.1111/j.1467-6486.1975.tb00514.x

Nebus, J. & Chai, K. H., 2014. Putting the psychic Back in Psychic Distance: Awareness, Perceptions, and Understanding as Dimensions of Psychic Distance. Journal of International Management, 20(1), pp. 8-24.

Available at: https://www.sciencedirect.com/science/article/pii/S1075425313000033

O'Grady, S. & Lane, H. W., 1996. The Psychic Distance Paradox. Journal of International Business Studies, Volume 27, pp. 309-333.

Available at: https://link.springer.com/article/10.1057/palgrave.jibs.8490137

Terpstra, V., 1993. Review: Border Crossings: Doing Business in the U.S. by Wendy Evans, Henry Lane, Shawna O'Grady. Journal of International Business Studies, 24(3), pp. 608-610.

Available at: https://www.jstor.org/action/doBasicSearch?Query=ti%3A%22Border+Crossings%3A+Doing+Business+in+the+U.S.%22&so=rel

Review Point Reference Methodology Main findings Conclusion Critique Concept

Beckerman, W., 1956. Distance and Patterns of Intra-European Trade. The Review of Economics and Statistics, 38(1), pp. 31-40.Available at: https://www.jstor.org/stable/1925556 Grounded Theory (building a theory on the distances (perceived and real) impact international trade) relative distance (measure of social, economic, political and cultural relatedness, not symmetrical) will affect both distribution of exports and imports each country's exports are some other country's imports and vice versa relative distances are not necessarily symmetrical (eg Aus to NZ might not be the same as NZ to Aus) the final pattern of trade is a mixture of the various pulls for export and import less developed countries of Europe (usually have less diversified economies) had a more concentrated trade versus the more developed countries introduction of aircraft travel (over sea and rail) is area for future research future research for casual connection between level of development and distance - noting of absolute distance not just relative distance to and from other countries through the course of Beckerman's study he determined that psychic distance is the perceived distance given to a foreign country based on factors such as geographical location, transport modes/times/costs and the import/export tariffs initial introduction to psychic distance more of an afterthought to the research than the topic concept introduced as more of an area requiring more research study was focused on trading within Europe and not so much international market entry (establishing businesses within new markets) Psychic Distance

One Johanson, J. & Vahlne, J.-E., 1977. The Internationalization Process of the Firm: A Model of Knowledge Development and Increasing Foreign Market Commitments. Journal of International Business, 8(1), pp. 23-32.Available at: https://www.researchgate.net/publication/5223466_The_Internationalization_Process_of_the_Firm_A_Model_of_Knowledge_Development_and_Increasing_Foreign_Market_Commitments/link/00b7d528a8b360df2e000000/download?_tp=eyJjb250ZXh0Ijp7ImZpcnN0UGFnZSI6InB1YmxpY2F Grounded Theory (building a standard model to explain all steps in internationalisation) defined as the combination of factors that prevents the flow of information to and from the market where factors include difference in language, education, culture, industrial development and even business practices (Johanson & Vahlne, 1977) creating a model of internationalisation based on gradual acquisition, integration and use of knowledge about foreign market and operations and slowly increasing commitments lack of knowledge is an hurdle to the development of international operations - knowledge can be acquired through partnered operations considers exporting/establishing export channels/start a selling subsidiary to all have common characteristics that are important to the subsequent internationalisation future research - hopes that the model can be a framework for future studies and further developed, further comparative studies on different firms market knowledge and commitment are assumed to affect both commitment decisions and the way activities are performed this in turn mean the more knowledge is established and commitments grows the firms activities change and strength reducing psychic distance through partnered operation abroad allows growth of market knowledge leading to international market entry study does not consider the decision style of the decision maker and the specific properties of the decision situations study focused on the extensions of operations in individual markets rather than the establishment of operations in new countries two case studies to support research were on Swedish based companies (pharmaceutical and engineering) study does not detail how psychic distance plays a role within their model Psychic Distance + Internationalisation

Ciszewska-Mlinaric, M. & Radoslaw, T. P., 2016. The Psychic Distance Concept: A Review of 25 Years of Research (19902015). Journal of Management and Business Administration Central Europe, 24(2), pp. 2-31.Available at: https://www.researchgate.net/publication/304529103_The_Psychic_Distance_Concept_A_Review_of_25_Years_of_Research_1990-2015 Narrative Review/Analysis (gathering and analysing existing narratives) Smith, Dowling, and Rose (2011, p. 130) state that psychic distance should be described as the perception a businessperson has of the level of difficulty they would encounter in a foreign market if they were to undertake business operations in that market. This implies stimuli at the national level reach the individual as knowledge flows and are then received. dependant on objective (international experience, levels of education, or language skills) and individual characteristics, which can lead to the perception of psychic distance or the perceived operating difficulty in foreign markets hassle factor by Schotter and Beamish (2013) other than language also include matters like climate, business facilitation, health risks and medical standards, internet access, food and water hygiene, local transport standards, visa requirements, personal safety risks The above items negatively influences the relationship between foreign direct investment potential and investment intensity. Future research is needed, broader operationalization of difficulties in foreign markets and the individual and firm-level factors affecting perception. psychic distance is generally found to decrease the exposure to risks it is more complicated and affected by a number of factors at the firm and country level. psychic distance reduces the speed and level of entry questions to the national, firm and individual factor level determine perceived distance and how they cope with the distance, further testing is needed Limited research with only 55 papers reviewed for a period spanning 25 years little comparability between the papers due to the vast variety of the firms researched, how these papers interpreted psychic distance and the research object this like other literature reviewed outlines the importance of a clear, universal definition to be applied by all with further research into the differences deeper than a national level Psychic Distance + History

Two O'Grady, S. & Lane, H. W., 1996. The Psychic Distance Paradox. Journal of International Business Studies, Volume 27, pp. 309-333.Available at: https://link.springer.com/article/10.1057/palgrave.jibs.8490137 Case Study (researching Canadian retailers entering American markets where assumed psychic distance is small)Survey (questionnaire to measure sixteen cultural differences, with a sample of 400 retail companies within each country) psychically close before venturing to more distant countries[Johanson and Vahlne 1992] psychically close reduces the level of uncertainty firms face in the new market[JohansonandVahlne1992 Familiarity may breed carelessness Psychic Distance Paradox - created by common but unexplored assumptions or beliefs Preconceived ideas that geographically close countries may create barriers to learning about the new market treat even geographically close markets as foreign markets, do not assume markets are similar or the same test assumptions and perceptions prior to entry decision making relies on accurate information and the knowledge of those making decisions gathering information about market will only help if the interpretation correct develop the ability to learn, increase knowledge and understanding future study proposal refinement of psychic distance to include areas such as legal and competitive environments and what are the most important factors further study directionality or symmetry ie is the distance between Canada and the US the same as the US to Canada Consider other physically close countries and measure their performance in comparison to Canada/US to find similarities/difficulties (is NZ to Australia) the paradox was that what appeared to be similar and familiar turned out to be very different than expected - argue that it may be very difficult to enter similar markets because decisionmakers may not be prepared of differences psychic distance is measured at the national level and fails to capture potential differences of regions with the countries, cultural and structural differences within the industry, and individual differences and experiences whereas this study has identified significant differences when looking below the surface Psychic Distance + Decision Making

Three Nebus, J. & Chai, K. H., 2014. Putting the psychic Back in Psychic Distance: Awareness, Perceptions, and Understanding as Dimensions of Psychic Distance. Journal of International Management, 20(1), pp. 8-24.Available at: https://www.sciencedirect.com/science/article/pii/S1075425313000033 Action Research (redefine psychic distance to include managerial level assessments) in addition to managers (not firms of home countries), managerial decision making, and managers experience (Harzing's 2004:103-104), the nature of the decision should also need factored in to psychic distance inconsistencies between perceptual, subjective perspective and a factual objective viewpoint most psychic distance models are measured on country characteristics and do not factor in the qualities of the decision maker and their environment (Bouquet,MorrisonandBirkinshaw,2009;Elsbach,BarrandHargadon,2005;Lant,2002) Operationalize a manager's knowledge with the dimensions of awareness, perception, and understanding which reduces context traps (FelinandFoss,2005) measuring psychic distance at the country level makes assumptions that the decision makers are rational and economic, have unbiased perception and experiences limited to only their country further study is needed to factor in the individuals impact on psychic distance and international market success the manager is front and centre their decision making is included in the mechanism by which the foreign environment affects firm outcomes elements of the foreign environment which are captured in psychic distance are solicited from and prioritized by the manager according the outcome being decided managerial experiences, biases and knowledge come into play during their assessment of the foreign environments this and all the literature reviewed shows the significant need for psychic distance to be broken down further. Measuring the perceived distance at the country level is not adequate when considering the decision makers bias, experience or knowledge of the foreign market to the home country. Psychic Distance + Decision Making