The role of psychic distance in market entry sequence and channel partner initiation : a study of New Zealand food and beverage SMEs : 156.799 Master of Business Studies thesis, Massey University, School of Commuication, Journalism & Marketing
The approach that individuals within exporting firms take towards market selection is a significant area of
academic research and practitioner interest. The concept of psychic distance goes some way to explaining how
and why firms select markets for exporting, especially with regard to initial market entry sequence. It is argued
however that channel partner initiation is just as if not more important in considering the method to how one
market is selected above another – especially in the case of emerging markets.
Aim: The primary objective of this thesis is to study the impact of psychic distance on market entry sequence
and channel partner initiation for small and medium sized enterprises (SMEs).
Theoretical Background: The theoretical background for this study is centred on forty years of academic
research into the concept of psychic distance. Particular focus is targeted at methodologies used to measure
psychic distance to determine its relevance in the modern era and it’s adaptability for SMEs operating from
small domestic markets. The Uppsala model (U-model) of internationalisation is a fundamental reference point
for traditional market entry strategies and this is contrasted with the born-global approach with application to
small exporting nations. Stimulating factors for internationalisation and export readiness are explored to
determine the connection between proactive and reactive export behaviours. Modes of channel partner
initiation are examined with an emphasis on different approaches that may be employed in the case of
Methodology: The mixed methodology design encompasses the application of two means of measuring psychic
distance across 25 selected export markets. An objective index approach is taken using statistical data and
facts and is then contrasted with the perceptions of an expert panel of thirteen export promotion organisation
(EPO) senior employees. Qualitative insights into key stimulating factors and export readiness for New Zealand
food and beverage (F&B) SMEs are collated to provide context for certain export behaviours. The expert panel
then provides a perception based rating of the most common modes of channel partner initiation for the 25
Findings: The results of the research reveal a negative correlation between the perceived psychic distance of
export markets and the method of channel partner initiation. Distant markets display a highly reactive
relationship with buyers predominantly initiating new channel partnerships either through unsolicited export
orders or through influences from social ties and networks. Psychically close markets generally follow the Umodel
staged approach and are driven by proactive seller-led activity. The psychic distance paradox was
discovered as a key inhibitor of export growth in markets considered psychically close.
Conclusions: New Zealand F&B SMEs are pushed in to exporting at a much earlier stage of their business life
cycle due to the small nature of the domestic market. As such they are often unprepared for
internationalisation and must face the influence of psychic distance without a large human resource or
financial base. Most firms follow the U-model approach but are confronted with the psychic distance paradox
which may put additional stress on cash flow or force them to withdraw from exporting. Psychically distant
emerging markets offer much larger growth opportunities but come with a higher perceived risk. Social ties and
networks are a key means of overcoming these perceived hurdles.
Implications: Theoretical implications indicate the continued relevance of psychic distance and the psychic
distance paradox for market selection and channel partner initiation. This creates further consideration on how
academics, practitioners and policy makers alike can support narrowing the psychic distance gap to take
advantage of emerging market opportunities. EPOs should continue to build tailored programmes to match the
required channel partner initiation approach for emerging markets to expedite entry of SMEs. Fostering alumni
groups of international students and better consideration of the Immigrant Effect are two proposed solutions.
This leads to further attention required in determining how EPOs can support export sectors to close psychic
distance gaps to emerging growth markets – particularly with respect to F&B SMEs.