The FDI psychic distance paradox: Myth or reality?

Psychic distance is derived from the Greek word psychikos which refers to an individual’s mind and distance refers to degree of psychological gap when specific individuals consider subjective and objective phenomena. It is regarded as an individual’s subjective perception of phenomena and their unique subjective distance of these phenomena from their own psychikos or ‘mind’s eye.’ In the business context, Psychic Distance refers to the tendency of companies embarking on internationalization to choose countries that are psychically close in terms of a number of key criteria that make business success easier to achieve, including: language, geographical proximity and historical and cultural ties. In this regard, the ‘Psychic Distance Paradox’ concept originally arose from an attempt to explain contradictory evidence from Canadian companies that had embarked on FDI in the physically close USA, which indicated that only a few had been functionally successful.

The current paper purpose is to investigate whether psychic distance and the psychic distance paradox provide cogent theoretical and empirical models; or whether they arise from a methodological approach built on a unidirectional, ‘deficit model’ consisting of lists of objectives (researcher conceived) ‘psychic factors’ obtained from the internationalization experiences of countries.

The paper critically analyses the concepts of psychic distance and its paradox as theoretically and logically cogent constructs based on valid and rigorous empirical evidence.  It aims to contribute to the extant literature by providing an original theoretical critique and describing an example of a recent South African empirical study that potentially surpasses the original psychic distance methodological approach by considering quantitative and qualitative context-specific factors in a triangulated quantitative and qualitative cross-sectional research design.

Findings of the theoretical and empirical analyses suggest that Psychic Distance and the Psychic Distance Paradox may be more myth than reality, and may derive from the limitations of the model’s deficit-focused configuration its emphasis on objective measurement indices and a paucity of qualitative data.