Global Expansion

Contents [hide] 1 Basic Information of Distance Still Matters: The Hard Reality of Global Expansion 2 Case Summary of Distance Still Matters: The Hard Reality of Global Expansion 3 Case Analysis of Distance Still Matters: The Hard Reality of Global Expansion 4 External Link of Distance Still Matters: The Hard Reality of Global Expansion 5 Relevent File Cabinet of Distance Still Matters: The Hard Reality of Global Expansion 6 Article Purchase Link of Distance Still Matters: The Hard Reality of Global Expansion

Basic Information of Distance Still Matters: The Hard Reality of Global Expansion

Author: Pankaj Ghemawat
Publisher: Harvard Business Review Article
Case Number: R0108K
Publication Date: Sep 1, 2001
Course Category: Strategy

Case Summary of Distance Still Matters: The Hard Reality of Global Expansion

Companies overestimate the attractiveness of foreign markets
• tools underestimate the costs: country portfolio analysis (CPA) ignores costs of risks of doing business in a new market
• barriers created by distance: geographic separation; cultural, administrative or political, and economic dimensions

Factors that increase the likelihood of trade
• former colony
• common currency
• common membership in a trading bloc
• share a language
• preferential trading agreements
• political union

Four dimensions of distance
• Cultural
  o how people interact with one another and with companies and institutions
  o social norms (i.e. copyright infringement)
  o preferences for specific features (color, space, etc)
  o identity associations (religious or cultural implications)
• Administrative or Political
  o historical and political associations can affect trade positively or negatively
  o barriers to foreign competition are most likely to be implemented: large employer, national champion, vital to national security, produces staples, produces an entitlement good or service, exploits natural resources, involves high sunk costs
  o weak institutional infrastructure (corruption, social conflict, etc) can depress trade and investment far more than any explicit policy or restriction
• Geographic
  o the farther away, the harder to conduct business
  o attributes to consider: physical size, distance to borders, waterways, topography
  o transportation infrastructures and information networks are important when assessing geographic influences
• Economic
  o positive correlation between per capita GDP and trade flows
  o poor countries also trade more with rich countries than other poor ones
  o to replicate economies of experience, scale, and standardization, focus on countries with similar economic profiles
  o economic arbitrage- target countries with different economic profiles

Gravity theory of trade flows
• positive relationship between economic size and trade
• negative relationship between distance and trade