Does relationship psychic distance matter for the learning processes of internationalizing SMEs?

• We examine psychic distance effects on the foreign customer relationships of SMEs.
• We analyze 314 foreign customer relationships of Swedish SMEs.
• Psychic distance enhances the knowledge development in foreign customer relationships.
• Psychic distance is positively related to SMEs foreign market network cooperation.
• Network cooperation enhances the knowledge development of SMEs and their customers.

This study builds on two theoretical assumptions: (1) Because SMEs tend to internationalize fast on a wide global scale, their market selections do not seem to be dictated by distance measures. (2) Business relationships seem to be vital for these firms when acquiring knowledge and developing their ongoing businesses in foreign markets. Based on these assumptions, this study applies Linear Structural Relations (LISREL) analysis to investigate the relationships of 314 Swedish SMEs and their most important foreign customers. In specific, we investigate what potential effects relationship psychic distance has on SMEs’ knowledge transfer in ongoing foreign customer relationships. The results demonstrate, rather counter-intuitively, that relationship psychic distance actually enhances knowledge transfer in the investigated customer relationships.