The Role of Psychic Distance in Entry Mode Decisions: Magnifying the Threat of Opportunism or Increasing the Need for Local Knowledge?
D Dow, DW Baack, R Parente
Global Strategy Journal | Wiley | Published : 2020
Research Summary: With respect to entry mode decisions, psychic distance may play two contradictory roles. On one hand, the transaction cost perspective is concerned with opportunism. Psychic distance magnifies the threat of opportunism, which encourages higher levels of control by foreign firms. Conversely, the new internalization perspective emphasizes the role of complementary assets controlled by local entities. Distance increases the need to access local knowledge, which encourages firms to seek joint ventures. By adopting an experimental approach and measuring managers' a priori perceptions of distance, this article contributes to the literature by providing a more sophisticated approa..View full abstract