This assignment explains the concept of psychic distance and what this means for the global activity of small, medium, large sized businesses operating in foreign markets. After giving a literature review about psychic distance, it’s influencinng factors and different entry modes in foreign market, an example of Stabucks Corporation acting global in South Korea is clearly presented. The example specifies all the different factors like economy, environment, politics etc. which are important in this case between the United States and South Korea. Moreover the pontential benefits, risks, drawbacks and a recommend entry mode are explained.
The goal is to give an overview about the topic psychic distance and to show which factors contribute to this particular type of distance especaiily for the global work of Starbucks operating in South Korea.
Table of Contents
- 1 Introduction
- 2 Psychic Distance
- 3 Business Size
- 4 Politcal Factors
- 5 Entry modes in foreign markets
- 6 Example Starbucks
- 7 United States vs. South Korea
- 8 Recommended Entry Mode
- 9 Conclusion
Objectives and Key Themes
This assignment aims to explain the concept of psychic distance and its implications for the global activities of businesses of varying sizes operating in foreign markets. It uses the example of Starbucks in South Korea to illustrate the cultural, geographic, political, and economic factors contributing to psychic distance and explores different entry modes.
- The concept of psychic distance and its influencing factors.
- The impact of business size on internationalization strategies.
- The role of political, economic, and cultural factors in determining psychic distance.
- Different entry modes into foreign markets.
- A case study of Starbucks' global operations in South Korea.
Chapter Summaries
1 Introduction: This introductory chapter sets the stage for the entire assignment. It clearly states the objective of explaining the concept of psychic distance and its influence on the global activities of businesses of various sizes. It also previews the methodology, indicating the use of a literature review and a case study of Starbucks' operations in South Korea to analyze the cultural, economic, political, and environmental factors involved in international business. The chapter explicitly mentions the intention to discuss potential benefits, risks, and drawbacks, and to recommend a suitable entry mode for businesses looking to expand globally. The introduction provides a roadmap for the subsequent chapters.
2 Psychic Distance: This chapter delves into the core concept of psychic distance, defining it as the perceived differences between a firm's home country environment and the foreign market. It draws on existing research, referencing works like Johnson & Turner (2003) and O'Grady and Lane (1996) to establish the concept’s historical development and diverse interpretations. The chapter highlights the subjective nature of psychic distance, which depends not only on objective differences but also on a firm's perception and ability to adapt. It emphasizes the significant role of Hofstede's cultural dimensions in measuring and understanding psychic distance, illustrating the complexity of this multifaceted concept and the ongoing research into its operationalization and measurement.
3 Business Size: While not explicitly detailed in the provided text, this chapter likely explores how the size of a business influences its approach to internationalization and its perception of psychic distance. Larger firms, with greater resources and experience, might be more comfortable navigating greater psychic distances, while smaller and medium-sized enterprises (SMEs) may favor markets with lower psychic distance due to limited resources and expertise. This chapter would likely discuss the strategic implications of business size on the choice of entry modes and market selection, linking back to the concept of psychic distance as a major factor influencing these decisions.
4 Politcal Factors: This chapter likely focuses on the impact of political factors on psychic distance and international business expansion. It would discuss how political stability, government regulations, trade policies, and political risk affect a firm's perception of and ability to operate in a foreign market. The chapter likely incorporates examples of how differing political systems and potential political instability contribute to the perceived distance between home and foreign markets, thereby influencing strategic choices regarding entry modes and market selection.
5 Entry modes in foreign markets: This chapter examines the various methods businesses employ to enter foreign markets, such as exporting, joint ventures, franchising, and foreign direct investment (FDI). The chapter would likely discuss how the level of psychic distance influences the choice of entry mode. Firms facing high psychic distance might opt for less risky strategies like exporting or licensing, whereas those with lower perceived distance might choose more direct investment options like joint ventures or FDI. The chapter would likely analyze the advantages and disadvantages of each entry mode in relation to psychic distance.
6 Example Starbucks: This chapter presents a case study analyzing Starbucks' expansion into South Korea. It would explore the specific cultural, geographic, political, and economic factors affecting Starbucks' operations and decisions in this market, illustrating the practical application of the psychic distance concept. It would likely discuss the strategies employed by Starbucks to overcome the challenges posed by the psychic distance between the US (its home market) and South Korea.
7 United States vs. South Korea: This chapter directly compares the business environments of the United States and South Korea, highlighting the relevant cultural, economic, and political differences that contribute to the psychic distance between them. It may involve a detailed comparison of cultural values (using Hofstede’s dimensions, for example), economic conditions, political systems, and regulatory frameworks. This comparative analysis serves as the foundation for understanding the challenges Starbucks faced in entering the South Korean market.
8 Recommended Entry Mode: Based on the analysis presented in previous chapters, this chapter offers a recommended entry mode for businesses seeking to expand into markets with similar characteristics to South Korea (i.e., markets with a potentially significant psychic distance). The recommendation would consider factors such as the level of psychic distance, business size, risk tolerance, and resource availability. This chapter would justify the recommended approach by referencing the case study and the theoretical framework established earlier in the assignment.
Keywords
Psychic distance, internationalization, foreign market entry, business size, political factors, cultural factors, economic factors, entry modes, case study, Starbucks, South Korea, Hofstede’s cultural dimensions.
Frequently Asked Questions: A Comprehensive Language Preview
What is the main topic of this language preview?
This preview covers the concept of psychic distance and its impact on the internationalization strategies of businesses of varying sizes. It uses a case study of Starbucks in South Korea to illustrate the interplay of cultural, geographic, political, and economic factors affecting market entry decisions.
What are the key themes explored in this preview?
Key themes include the definition and influencing factors of psychic distance, the impact of business size on internationalization, the role of political, economic, and cultural factors in determining psychic distance, various entry modes into foreign markets, and a detailed case study of Starbucks' operations in South Korea.
What is psychic distance, and why is it important for businesses?
Psychic distance refers to the perceived differences between a firm's home country environment and a foreign market. It's crucial because it influences a firm's perception of risk and the choice of entry mode into a foreign market. Higher perceived distance often leads to more cautious strategies.
How does business size influence internationalization strategies?
Larger firms often have more resources and experience, allowing them to navigate greater psychic distances. Smaller businesses may prefer markets with lower psychic distance due to resource constraints.
What political and economic factors affect psychic distance?
Political stability, government regulations, trade policies, political risk, economic conditions, and regulatory frameworks all contribute to a firm's perception of psychic distance and influence its market entry decisions.
What are the different entry modes discussed, and how does psychic distance impact their selection?
The preview explores various entry modes such as exporting, joint ventures, franchising, and foreign direct investment (FDI). Higher psychic distance typically favors less risky strategies like exporting or licensing, while lower distance might allow for more direct investment.
What is the role of the Starbucks case study in South Korea?
The Starbucks case study in South Korea serves as a practical illustration of the psychic distance concept. It demonstrates how cultural, geographic, political, and economic factors influenced Starbucks' decisions and strategies in this specific market.
How does the comparison between the US and South Korea contribute to the analysis?
Comparing the business environments of the US and South Korea highlights the cultural, economic, and political differences that contribute to the psychic distance between them. This comparison clarifies the challenges faced by Starbucks in entering the South Korean market.
What entry mode is recommended for businesses entering markets similar to South Korea?
Based on the analysis, a specific entry mode is recommended for businesses targeting markets with high psychic distance, considering factors like risk tolerance, resource availability, and the level of psychic distance. The recommendation is justified by the case study and theoretical framework.
What are the key takeaways from this language preview?
The key takeaway is a comprehensive understanding of how psychic distance influences internationalization strategies. The preview emphasizes the importance of considering various factors—business size, political and economic conditions, and cultural nuances—when selecting an appropriate market entry mode for global expansion.
What keywords are associated with this language preview?
Keywords include: Psychic distance, internationalization, foreign market entry, business size, political factors, cultural factors, economic factors, entry modes, case study, Starbucks, South Korea, Hofstede’s cultural dimensions.
- Quote paper
- Master of Arts Daniel Korte (Author), 2016, The concept of "psychic distance" and its meaning for the global activity of small, medium, large sized businesses operating in foreign markets, Munich, GRIN Verlag, https://www.grin.com/document/370223
