Added Psychic Distance Stimuli and MNE Performance

Thomas Hutzschenreuter, Ingo Kleindienst and Sandra Lange

Journal of International Management, 2014, vol. 20, issue 1, 38-54

Abstract: Distance has long been recognized as a major impediment in MNEs' international expansion. However, it still remains unclear: (1) If different psychic distance stimuli (PDS) constitute different sources of complexity and (2) how PDS affect MNE performance during international expansion. That is, the unconditioned argument that distance increases complexity needs further development, specifically, with regard to the nature of distance. In this study we distinguish between different PDS and provide crucial insights about the degree of complexity and the associated performance effects. In particular, acknowledging that the underlying constructs vary across different PDS, we theorize and empirically demonstrate that different PDS have a significant effect on firm performance and, as a result, constitute distinct sources of complexity within firms' international expansion. Applying the CAGE-framework on a unique panel dataset of 91 German MNEs and relying on the concept of added distance, the results reveal that added governance, cultural, and geographic distances all have a negative effect on firm performance. In addition, added governance distance seems to explain the largest part of variation in firm performance, followed by added cultural distance. In conjunction with research on the relationship between perceived psychic distance and PDS, we are able to conclude that MNEs' awareness of PDS may constitute a major determinant of the performance effects. Thus, the effect on firm performance may depend on the degree to which MNEs are aware of inter-country differences and therefore proactively take measures to mitigate potential negative effects of added PDS on performance.

Keywords: Psychic distance stimuli; Added distance; Internationalization; Firm performance; Cultural distance; Governance distance; Economic distance; Geographic distance (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (41)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S107542531300029X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:intman:v:20:y:2014:i:1:p:38-54

Ordering information: This journal article can be ordered from
http://www.elsevier.com/wps/find/journaldescription.cws_home/601266/bibliographic
http://www.elsevier. ... 601266/bibliographic

DOI: 10.1016/j.intman.2013.02.003

Access Statistics for this article

Journal of International Management is currently edited by M. Kotabe

More articles in Journal of International Management from Elsevier
Bibliographic data for series maintained by Catherine Liu ().