Watch Your Psychic Distance!

By John Barton, specialist in foreign market entry strategies and implementation, and transformational management, Managing Partner at Santiva and Senior Teaching Fellow in International Business, Leeds University Business School.

Entering foreign markets can be a difficult process involving risk and uncertainty where the main challenges can often be associated with the degree of ‘foreignness’ involved. This foreignness is often related to geographic distance, but there are other types of distance to be considered that can have potentially greater impacts. Cultural Distance is fairly obvious and is often a cause of misunderstanding – there are numerous examples of international market failures due to cultural differences or misalignments.

However, differences due to Psychic Distance can also have unintended consequences.  This occurs when people, who could be from the same culture,  hold differing values or experiences.  Surprisingly perhaps, psychic distance can have an impact even between countries with similar languages—take English for example and compare psychic differences between the UK and US, South Africa, Australia and New Zealand. Similarly, Spanish speaking countries may be culturally close but psychically quite far apart.

Cultural distance tends to be considered on a national basis and is somewhat stereotypical, but psychic distance needs to be considered on an individual level and directly affects interactions and relationships between people. It can have a direct impact on activities such as sales and marketing strategy and negotiations and is impacted by a manager’s personal psychic values. From a business perspective, consideration of (and planning to overcome) psychic distance can have an advantageous impact on foreign market entry. In marketing for example, communication styles, choice of media and the message itself need to consider psychic distance. Also in sales, value propositions can be seen quite differently if there are significant psychic differences. And negotiation styles can be seriously impacted (for better or unfortunately quite often for worse).

So when choosing people from your company to conduct these kind of activities, consider their likely psychic distance with the other parties – matters may progress more smoothly if you can select staff that are likely to have a shorter psychic distance with their foreign counterparts. They are likely to be sensitive and aware of cultural differences and can read signals that are both verbally and non-verbally expressed.

Another way to consider this is when in the process of selecting which foreign markets to enter. Most companies will perform some form of screening process in order to determine a short list of possible countries and subsequently a ranking of countries. Typical parameters that are considered in this selection process are market factors such as potential size, competitive situation, demographic factors, etc. These parameters may be extended to include political factors (stability, law, etc) as well as language, but rarely if ever are psychic differences considered.  Given a short list of countries that appear equally appealing, it might well be the psychic factors, such as the ones below, that could determine the final choices:

  • How easy would it be to work with local employees, suppliers or agents?
  • What is the likely degree of adaptation needed to the product or service?
  • To what extent is language an issue?

Taking the UK specifically, psychic distance may already be present between the north and south of the country (sometimes called the North/South divide), so this would be even more challenging for a foreign company seeking to enter.  Which is why gaining local knowledge about the UK as well as using people who are likely to be able to reduce or overcome the psychic distances present could be your biggest competitive advantage.

Read out top tips for successful market entry here