Fostering Internationalization Through Networks: An Inter-organizational Psychic Distance Perspective

Because of the growth of international business integration, internationalization of firms has become necessary in order to try to remain and develop the business regardless the size of firm, managed resources, and type of the activity. Multinational companies seek to accelerate their internationalization because of the extremely rapidly changing environment, as well as in order to reach companies’ long-term goals. Especially small and medium size enterprises (SMEs), which are one of the most important market players, are seeking to internationalize their business activities quickly in that small businesses lack the financial, time and other resources. Involvement in networks becomes the main precondition for the rapid internationalization of SMEs. Due to the lack of resources, SMEs need to accumulate and acquire knowledge through networks and the prior experience of the founding or management team. The nature of SMEs conditions the internationalization pattern in foreign countries. Mostly in order to reach critical profit margins this kind of company competes in niche markets in a large number of different countries. This behavior of SMEs implies that psychic distance (PD) is likely to have a greater impact on SME’s internationalization through networking. Therefore, this chapter aims is to create a theoretical construct aimed at developing a greater understanding of fostering internationalization through networks by focusing on psychic distance at the inter-organizational relationship level of small and medium enterprises and their foreign partners. The study contributes to conceptualization of these constructs, by providing a conceptual framework from an inter-organizational perspective.