Psychic distance and Australian export market selection

The Uppsala internationalisation model developed the concept of psychic distance in the international business literature and proposed that firms select international markets based on 'psychic proximity'. The actual operationalisation of psychic distance in research is usually undertaken by estimating or calculating in some fashion the real or perceived 'differences' between the firm's environment and target countries. However this does not reflect the original definition of the concept which emphasised the importance of information flows from country market to firm. This paper first demonstrates the wide use of the 'differences' measures in research and shows how that procedure is problematic. The paper suggests measuring psychic distance through not only differences between the firm and the target country but also other important measures of information flow. This is especially relevant to the Australian context where the country market selection of firms does not generally match country similarities. An information based measure of psychic distance is developed and is then applied to psychic distances between Australia and twenty five other countries. Actual Australian exporter behaviour in terms of international market selection supports the predictive powers of the new measure. Suggestions for future research are made.