Psychic Distance is an often discussed theme in internationalization of firms.
Psychic Distance refers to the differences in the business environment between the nation of origin (of a firm) and the foreign market.
This is considered a one of the factors that disturbs the flow of information between firm and the market.
Greater the Psychic Distance, more is the complexity.
Hence most firms expand to foreign markets that are closer or similar to their own market.
After gaining more experience of operating in foreign markets, firms ay expand in more dissimilar foreign markets.
US and EU investments in the UK is a good example of the Uppsala model as the similarities in terms of language, culture, business practices and education system minimizes the uncertainty of investing in the host economy (the UK). In this case, the psychic distance is smaller, and gives comfort to firms.
References
Evans, J., Treadgold, A. and Mavondo, F.T., 2000. Psychic distance and the performance of international retailers–a suggested theoretical framework. International marketing review, 17(4/5), pp.373-391.
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