Psychic Distance and Organizational Performance: An Empirical Examination of International Retailing Operations
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Distance
Performance: An of
and
Organizational Empirical Examination
International
Retailing
Operations Jody Evans*
MELBOURNE BUSINESS SCHOOl.
Felix T. Mavondo** MONASH UNIVERSITY
We develop a reconceptualization and operationalization of psychic distance that broadens the concept. We then empirically test this operationalization and investigate the relationship between psychic distance and organizational performance. Our results suggest that psychic distance, as a summary construct, explains a significant INTRODUCTION As the internationalization of the retail industry develops rapidly, so research in the area continues to advance. Much of this research is concerned primarily with describing the scale and motivations for international expansion by retail businesses (Akehurst and Alexander, 1995; Hollander, 1970; Williams, 1992). However, the internationalization literature on the retail industry has been generally bereft of coherent theoretical
proportion of the variance in financial performance and strategic effectiveness. However, disaggregation of the construct substantially increases its explanatory power. The results also support a psychic distance paradox, where psychic distance has a positive relationship with organizational performance.
frameworks that are more predictive in nature. In contrast, the more general literature on the internationalization of the firm has identified psychic distance as a key explanatory factor in its theoretical framework (Johanson and Vahlne, 1977; Johanson and Wiedersheim-Paul, 1975; Nordstrom and Vahlne, 1994; Vahlne and Wiedersheim-Paul, 1977). The sequence of foreign expansion described in many models of internationalization implies that companies perform
*JodyEvans is Senior Lecturerin Marketingat MelbourneBusiness School, The University of Melbourne. Her research interests include international strategy, cross-cultural issues and retailing. **Felix T. Mavondo is Associate Professor in Marketingat Monash University. His research interests include business strategy, research methodology and measurement issues. The authors would like to thank the Editor, Dr. Thomas L. Brewer, and three anonymous reviewers for their insightful comments and guidance. JOURNAL OF INTERNATIONALBUSINESS S'IUDIES, 33, 3 (THIIRDQUARTER
2002): 515-532
515
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PSYCHIC DISTANCE AND ORGANIZATIONALPERFORMANCE
best in foreign markets most similar to their domestic market (Johanson and Vahlne, 1977; Nordstrom and Vahlne, 1994). This negative relationship between psychic distance and organizational performance is attributed to the fact that psychically close countries are easier to learn about and understand (Nordstrom and Vahlne, 1994). Despite the general acceptance of a negative relationship between psychic distance and organizational performance, empirical findings are rather inconclusive (Ali, 1995; O'Grady and Lane, 1996; Stottinger
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