Ghemawat Distance Still Matters

Ghemawat – Distance still matters

About the problems of distances in global business.

Organizations routinely overestimate the attractiveness of foreign markets; country portfolio analysis (CPA) is a technique which may help a company in their decicions.

There are four dimensions of distanceL

* cultural

* administrative and political

* geographic

* economic

Cultural:

Religious beliefs, race, social norms (deeply rooted system of unspoken principles) and language. People in other countries may also have preferences for specific features like color.

Sensitive: meat (preparations), cereals (preparation), miscellaneous edible products (preparations), tobacco, office machines and automatic data-processing equipment

Less sensitive: photografic apparatuses, optical goods, watches, road vehicles, cork, wood, metalworking machinery and electricity current

Administrative or political distance:

Sometimes also historical associations like colony-colonizer link will boost the trade by 900%. Other variables are: preferential trading arrangement, common currency and political union. Countries can also create administrative and political distance through unilateral measures.

Countries want to protect their domestic industries by: tariffs, trade quotas, restrictions on foreign direct investment and preferences for domestic competitors in the form of subsidies and favoritism in regulation and procurement. Most likely implemented in:

* it’s a large employer (farmers in europe)

* it is seen as a national champion

* it is vital to national security

* it produces staples

* it produces an ‘entitlement’ good or fervice

* it exploits natural resources

* it involves high sunk-cost commitments

Other distances are infrastructure and corruption or social conflicts.

Sensitive: gold, nonmonetary, electricity current, coffee, tea, cocao, spices, textile fibers, sugar

Less sensitive: gas, travel goods, handbags, footwear,...