This assignment explains the concept of psychic distance and what this means for the global activity of small, medium, large sized businesses operating in foreign markets. After giving a literature review about psychic distance, it’s influencinng factors and different entry modes in foreign market, an example of Stabucks Corporation acting global in South Korea is clearly presented. The example specifies all the different factors like economy, environment, politics etc. which are important in this case between the United States and South Korea. Moreover the pontential benefits, risks, drawbacks and a recommend entry mode are explained.
The goal is to give an overview about the topic psychic distance and to show which factors contribute to this particular type of distance especaiily for the global work of Starbucks operating in South Korea.
Table of Content
1 Introduction
2 Psychic Distance
3 Business Size
4 Politcal Factors
5 Entry modes in foreign markets
6 Example Starbucks
7 United States vs. South Korea
8 Recommended Entry Mode
9 Conclusion
Research Objectives and Key Topics
The primary objective of this assignment is to investigate the concept of "psychic distance" and its profound impact on the internationalization strategies of businesses of varying sizes. The research explores how cultural, geographical, political, and economic factors contribute to this distance and analyzes how these variables influence market entry decisions, specifically focusing on a case study of Starbucks Corporation’s expansion into South Korea.
- The theoretical definition and evolution of "psychic distance" in international business.
- The relationship between business size, risk perception, and foreign market entry.
- An analysis of cultural, political, and economic barriers between the United States and South Korea.
- Evaluation of different foreign market entry modes, including non-equity and equity-based strategies.
- A practical application of internationalization theory through the example of Starbucks in South Korea.
Excerpt from the Book
2 Psychic Distance
The role of psychic distance is one of the most discussed themes on the internationalization of firms. The psychic distance concerns the distinction between a nation of origin business environment and an external one, which is the foreign market place. The first concept was defined around 1970 by a group of researchers in Uppsala as: „Factors preventing or disturbing the flows of information between firm and market.“ (Johnson & Turner, 2003)
The concept of psychic distance is basically the perception of the differences between the home and the foreign country (O’Grady and Lane, 1996). Psychic distance within the internationalization process is not only based on the nature of the specific business and the degree of adjustment, but also on authoritative and administrative qualities. Therefore the distinction between different environments, the country of origin, as well as the foreign marketplace establish the concept of psychic distance.
The following graphic displays the great amount of authors and researchers who were involved in studies regarding psychic distance. All researches are somehow linked to Hofstede’s study and model, however, it is also obvious that several different views of psychic distance exist. While many authors share a general opinion, some views greatly differ; consequently several definitions and views on psychic distance have remained over time and the topic is further researched.
Summary of Chapters
1 Introduction: Provides an overview of the concept of psychic distance and outlines the study's goal to analyze its impact on global business expansion, specifically regarding Starbucks in South Korea.
2 Psychic Distance: Discusses the theoretical framework of psychic distance, explaining it as the perception of differences between home and foreign markets, and introduces its various dimensions.
3 Business Size: Analyzes how the size of a firm, categorized by employees and revenue, influences its approach to risk and its capacity to enter foreign markets.
4 Politcal Factors: Examines how political stability, trade regulations, and government interventions act as critical components that define the psychic distance between nations.
5 Entry modes in foreign markets: Categorizes and details the various methods companies use to enter international markets, distinguishing between non-equity and equity-based modes.
6 Example Starbucks: Illustrates the practical application of internationalization strategies using the global expansion of Starbucks as a flagship case study.
7 United States vs. South Korea: Provides a comparative analysis of cultural, geographic, political, and economic factors between the two nations to identify existing psychic distance.
8 Recommended Entry Mode: Proposes a joint venture as the optimal entry strategy for Starbucks in South Korea, weighing potential benefits against risks and drawbacks.
9 Conclusion: Summarizes the key findings, reiterating that understanding psychic distance is essential for informed decision-making and successful long-term international expansion.
Keywords
Psychic Distance, Internationalization, Market Entry, Starbucks, South Korea, Joint Venture, Cultural Differences, Political Factors, Business Size, Risk Management, Globalization, Foreign Market, Economic Development, Hofstede, Strategic Alliance.
Frequently Asked Questions
What is the core subject of this assignment?
The work examines the concept of "psychic distance," which refers to the perceived differences between a company's home country and a foreign market that can impact its international operations.
What are the central themes explored?
The paper explores how cultural, political, and economic factors create distance, the impact of company size on market entry, and how firms choose between various entry modes like exporting, licensing, or joint ventures.
What is the primary research goal?
The goal is to demonstrate how psychic distance affects the internationalization process and to provide a practical recommendation for Starbucks' entry strategy into the South Korean market.
Which scientific methodology is applied?
The study employs a literature review to define key theoretical constructs, followed by a qualitative comparative analysis of the United States and South Korea, and a practical case study approach applied to Starbucks.
What does the main body cover?
It covers the definition and academic discussion of psychic distance, the influence of business size on risk, an analysis of international entry modes, and a detailed comparison of the US and South Korean business environments.
Which keywords best characterize this work?
Key terms include Psychic Distance, Internationalization, Market Entry, Joint Venture, and Cultural Differences.
Why is the concept of "Kibun" relevant in this research?
Kibun represents a crucial aspect of South Korean social and business culture (pride or state of mind), which highlights why foreign firms must adapt their management style to succeed in that specific market.
How does company size influence market entry strategies?
Larger companies generally possess greater resources and are less sensitive to perceived risk, whereas smaller or medium-sized firms may face higher barriers due to limited knowledge and expertise in psychically distant markets.
- Quote paper
- Master of Arts Daniel Korte (Author), 2016, The concept of "psychic distance" and its meaning for the global activity of small, medium, large sized businesses operating in foreign markets, Munich, GRIN Verlag, https://www.hausarbeiten.de/document/370223
