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Reading 1-2: Distance Still Matters: The Hard Reality of Global Expansion by Mind Map: Reading 1-2: Distance Still Matters:
The Hard Reality of Global
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Reading 1-2: Distance Still Matters: The Hard Reality of Global Expansion

Distance still matters, and companies must explicitly and thoroughly account for it when making decisions about global extensions. Traditional country portfolio analysis needs to include an evaluation of several dimensions of distance and their probable impact on opportunities in foreign markets

Companies often overestimate the potential of untapped markets and overlook the obstacles they have to overcome

Tools managers use for decision-making underestimate the costs of doing business internationally

Country Portfolio Analysis (CPA), Places emphasis on potential sales and overlooks costs and risks of doing business in a new market, National GDPs, Levels of consumer wealth, Peoples propensity to consume

Four Dimensions of Distance

Cultural Distance

Differences in beliefs, race, social norms can create distance between people and thus inhibit trade

Administrative or Political Distance

The European Union is a good example for of deliberate efforts to diminish administrative distance and political distance among trading partners.

Historical and political assiciations, Historical and political associations between countries greatly affect trade. For example, the former colonies of the Commonwealth.

Governmental Restrictions, Target country's government often imposes restrictions on foreign direct investment if a domestic industry:, Is a large employer, Is seen as a national champion, Boeing vs. Airbus, Is vital to national security, Produces Staples, Goods that are important for the everyday life of the citizens, Produces an "entitlement" good or service, Governments impose standards on goods that people feel they are entitled to like health care, Exploits natural resources, Physical assets are seen as part of a national heritage, Involves high sunk-cost commitments, especially vulnerable to governments

Weak institutional infrastructure, Target country may have weak institutional infrastructure (Corruption etc.).

Geographic Distance

the farther you are from a country, the harder it will be to conduct business in it

Geographic attributes influence the costs of transportation. Factors:, physical size, access to waterways, topography, transportation and communication infrastructure

Economic Distance

Wealth and income of consumers

Rich countries engage in more cross-border economic activity than poor countries

Poor countries trade more with rich countries than with poor countries

Companies often have to focus on couintries similar to their home country because their business model does not work in other economic scenarios

Other companies e.g. clothing are dependent on cheap labour and exploit the economic distance