Globalization and global markets are dominating in the today’s business arena. Companies are more often than not required to internationalize and operate in global markets instead of just competing within national borders. Due to the high level of globalization, psychic distance between nations and countries is argued to have decreased significantly. However, underlying national and business culture differences still very much exist and companies must be aware of and take the differences into account in their international operations. For decades cross-cultural science has been guided by Hofstede’s cultural dimensions model and it is widely used to research and describe national cultures and differences between different cultures. Psychic distance concept is one of the most applied constructs of multinational enterprises’ internationalization and it has deservedly attracted a lot of attention within the literature and research of international business. Psychic distance is recurrently utilized when presenting and evaluating differences between a company’s home and foreign market. The general underlying notion of psychic distance is that companies operating in psychically close countries will succeed in their international operations. However, there is an increasing amount of research and literature providing contradictory evidence, referred to as psychic distance paradox. According to the concept of psychic distance paradox, perceived similarities within countries may result in cultural overconfidence and inadequate preparation prior entering psychically close markets resulting in poor organizational performance. The aim of the dissertation is to contribute in the research of the psychic distance concept regarding the existence of the psychic distance paradox and how it appears in the international business. The main focus is on management’s perceptions of psychic distance and how they affect a company’s organizational performance in psychically close foreign market. From the research conducted it can be concluded that the management’s perceptions of psychic distance can essentially affect the company’s organizational performance in a foreign market. In case the management’s perceptions of psychic distance are not in accordance with reality and the differences are overlooked, the company can face difficulties and poor organizational performance even in a psychically close market. The findings of the research provide additional proof to the existence of the psychic distance paradox concept.

Digitalisation is one of the greatest transformations in modern times and has impacted organisations, industry structures and the society as a whole. It provides new opportunities for fashion firms to interact with different stakeholders and has altered the way firms operate in foreign markets. Based on in-depth interviews with managers of Swedish high-end fashion firms, the aim of the study was to explore what impact digitalisation has on managers’ perceived psychic distance in their international operations. In particular, how managers use digital technologies to obtain and interpret information about supply and demand conditions in foreign markets was examined. The empirical findings indicate that digital technologies are essential for firms today, as they have increased information availability, enhanced information usage and improved interactive communication. This, in turn, leads to a reduction of managers’ perceived psychic distance.

Due to strong growth in the virtual business environment, online internationalization has become a topic of high interest. This makes it necessary for firms providing software online to carefully investigate and understand barriers and differences in countries before entering them. Further, companies expanding abroad face a variety of differences compared to their home market, which has to be carefully understood in order to succeed internationally and to avoid misinterpretations. This thesis took a qualitative approach and was based on six semi-structured interviews with open-ended questions, all performed with CEOs, founders or managers with explicit knowledge in the online internationalization phase of their firms. The insights from the interviews acknowledge which differences and barriers the firms faced and how they perceived them. The outline and result of the study were based on the four dimensions of cultural, administrative, geographic and economic challenges. The result showed that the cultural and geographic dimensions were barely perceived as barriers by the firms, the administrative dimensions moderately, whereas the companies clearly perceived the economic dimensions as barriers in their internationalization processes. Additional findings of the study were the importance of cultural leadership, hierarchies & decision-making processes, high-density clusters and pricing strategies.