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Edited by Geoffrey Wood and Mehmet Demirbag
Chapter 9: Categories of Distance and International Business
Alvaro Cuervo-Cazurra and Mehmet Erdem Genc* 9.1 INTRODUCTION Distance between and within countries is a central topic of study for economic geographers (e.g. geographic clusters, agglomeration economies), trade economists (e.g. gravity models of trade) and international business researchers (e.g. location choice, competitive advantage). Curiously, distance has generally been considered an adversity in all of these literatures. For instance, in international economics gravity models predict that interaction between two entities (regions, countries, economies, and so on) is inversely related to distance between them. Thus, gravity models predict that countries that are distant from each other will trade less (e.g. Bergstrand 1985), will have fewer equity flows (e.g. Portes and Rey 2005), and will have fewer migration flows (e.g. Isard 1960; Lucas 2001). In a similar vein, the literature discusses co-location advantages and agglomeration economies, which result from companies locating at a short distance from each other to solve distance challenges (e.g. Krugman 1991; Jaffe et al. 1993; Saxenian 1994; Porter 2000; Morgan 2004). The concept of distance also occupies a central place in international business literature and has important implications for strategic firm decisions, such as location choice (e.g. Johanson and Vahlne 1977; Xu and Shenkar 2002; Mudambi 2008; Cuervo-Cazurra 2011), transfer of organizational practices (Kostova and Roth 2002), and mode of entry (Kogut and Singh 1988; Cuervo-Cazurra 2008). The initial key contribution in this area was the work of Johanson and Vahlne (1977), which introduced and defined psychic distance as: ‘the sum of factors preventing the flow of information from...
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