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pankaj ghemawat > articles
Harvard Business Review

Ghemawat, Pankaj.
"Distance Still Matters: The Hard Reality of Global Expansion."
Harvard Business Review
79, no. 8 (September 2001): 137-147.
Companies routinely overestimate the attractiveness of foreign markets. Dazzled by the sheer size of untapped markets, they lose sight of the difficulties of pioneering new, often very different territories. The problem lies in the use of analytic tools such as country portfolio analysis (CPA) that focus on national wealth, consumer income, and people's propensity to consume. CPA emphasizes potential sales and ignores the costs and risks of doing business in a new market that result from the barriers created by distance which does not refer only to geography. The CAGE framework of distance presented here considers four attributes: cultural distance (religious beliefs, race, social norms, and language); administrative or political distance (colony-colonizer links, common currency, and trade arrangements); geographic distance (the physical distance between the two countries, the size of the target country, access to waterways and the ocean, internal topography, and transportation and communications infrastructures); and economic distance (disparities in the two countries' wealth and variations in the cost and quality of financial and other resources). The article explores how (and by how much) various types of distance can affect different types of industries and shows how dramatically an explicit consideration of distance can change a company's picture of its strategic options.

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