Psychic Distance, Innovation, and Firm Performance

Goudarz Azar () and Rian Drogendijk
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Goudarz Azar: Swedish University of Agricultural Sciences
Rian Drogendijk: Uppsala University

Management International Review, 2014, vol. 54, issue 5, No 1, 613 pages

Abstract: Abstract Previous research suggests that internationalization improves a firm’s ability to innovate, but the effect of internationalizing into specific target markets or destinations on the innovation ability of firms has not been fully investigated. This study examined whether the psychic distance between target market and home market affects firms’ propensity to innovate. The starting assumption was that perception of a high degree of differences and subsequent environmental uncertainty when expanding into psychically distant markets triggers strategies for interacting and integrating with the market environment. These include producing and adopting innovations to processes and products and to organizational strategy, structure, and administrative procedures to cope with the new environment and overcome uncertainties. These innovations and the associated competitive advantages can improve firm performance. Hypotheses regarding the relationships between psychic distance, innovation, and firm performance were tested here by structural equation modeling using data from 186 export ventures into 23 international markets by Swedish companies. The results indicate that the link between psychic distance and firm performance is mediated by innovation.

Keywords: Psychic distance; Innovation; Internationalization; Firm performance; Uncertainty (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1007/s11575-014-0219-2

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