BRIDGING THE GAP: PSYCHIC DISTANCE AND ITS IMPACT ON LOCATION DECISIONS – A CASE STUDY OF SPANISH FIRMS IN TANGIER

Purpose: This study examines the influence of psychic distance on location decisions made by Spanish firms in Tangier, Morocco, addressing a significant gap in international business literature concerning emerging markets. Design/methodology/approach: The research employs a mixed-methods approach, combining quantitative surveys of 30 Spanish companies with qualitative interviews. The study analyzes how perceived cultural, administrative, geographic, and economic differences influence firms' location choices. Findings: The results reveal a strong negative correlation (r = -0.72) between psychic distance and the likelihood of firms choosing Tangier, with geographic proximity being the most significant predictor (β = -0.65, p < 0.01). While firms perceive moderate cultural and administrative challenges, these are often offset by Tangier's strategic location and economic incentives. Implications: The study reveals major implications for theory and practice. For scholars, it demonstrates that psychic distance operates differentially across business sectors, requiring more nuanced theoretical frameworks. For businesses, it suggests differentiated sectoral strategies rather than uniform approaches to internationalization. For policymakers, it highlights the effectiveness of sector-targeted policies in reducing perceived barriers and attracting foreign investment. Synthesis of major results: The study reveals that while geographic proximity (β = -0.65) serves as the primary driver for Spanish investment in Tangier, sectoral analysis shows significant variations in psychic distance perceptions. Automotive firms report lower administrative barriers (mean = 2.7) due to favorable policies, while service firms experience higher cultural challenges (mean = 3.1). Qualitative findings further identify three critical factors in location decisions: cultural ties as facilitators, economic incentives as drivers, and administrative procedures as barriers. These nuanced findings demonstrate that psychic distance operates differentially across sectors, suggesting the need for targeted internationalization strategies rather than uniform approaches to emerging markets. Originality: The study validates the CAGE Distance Framework in an emerging market context while demonstrating the importance of considering both objective and perceptual measures of distance in international business decisions. Practical implications: The sectoral analysis reveals varying perceptions across industries, highlighting the need for customized approaches to international expansion.