Connections between Psychic Distance, Entry Modes and Networks : A Case Study of Internationalization Processes

Abstract: Executive Summary Swedish companies have a relatively small domestic market that quickly becomes saturated. For those companies who are dependent on increased sales in order to survive or have the ambition to grow internationalization is the one option. Traditionally companies have ex- panded internationally by first exporting to countries with a short geographical as well as cultural distance. With increased experience the companies have entered markets farther and farther away, culturally as well as geographically. Eventually it might be possible to for example start production abroad. With today’s increasingly internationally competitive market it becomes more frequent that companies establish business in foreign countries at a more rapid pace. The choice was to study PMC Cylinders, a Swedish medium sized company that has been operating internationally for approximately thirty years. This company ́s internationaliza- tion processes have been analyzed in order to understand factors that might bridge these distances to other countries. These distances can be bridged by for instance existing customers, consultants, sister com- panies with complementary resources or employees with host country origin. Further the way of establishing foreign operations can contribute. With shorter distance there is no big issue. For example Norway was perceived almost like selling in Sweden. When the per- ceived distance is medium, here Germany serves as an example, it becomes more compli- cated. Existing British customer relationships made it possible to enter the German market. It was not enough to use an agent which was the case at an earlier failed attempt. Relation- ships with different actors and ways of entering foreign markets become even more impor- tant when this distance is long. Here China can serve as an example; the country is far away geographically as well as culturally. Together with a customer production was established in the Chinese market. This was also seen as an opportunity by a sister company to follow one of their customers. Thus the efforts of the companies were combined. PMC Cylinders also used employees with technical, cultural and language knowledge to bridge the distance. Thus there were a number of factors making the establishment in China possible. By the study of PMC Cylinders internationalization processes certain patterns were found. The outcome of these patterns is a structured model with a number of steps. This model implies that with increased geographical and or cultural distance the importance of connec- tions and ways of entering the market grows. The model is a decision tree which can be seen as an internationalization tool for PMC Cylinders.