Chapter 4 Flashcards
According to Pankaj Ghemawat, managers do have to take into account
Distance when making decisions about global expansion and assessing host country advantages
Differences between home and host country
Differences in culture, economic status, societal institutions and physical location.
Ghemawat’s term distance has different components, which can be
categorized into four categories:
Cultural distance
Administrative/institutional distance
Geographic/ spatial distance
Economic distance
Cultural distance
Results from differences in national cultural attributes.
Examples of this are differences in language, race and religion.
Administrative/institutional distance
Reflects differences in societal institutions. This distance is low when two countries share a
history, have political ties, trade with each other or synchronise politics.
Geographic/ spatial distance
Represents the physical distance between the countries, taking into account the ease of transport between both.
This distance is high when there are differences in topography and climate.
The geographic distance is low when two countries have a common border. Also human intervention, like good transportation or a good communication can reduce the geographic distance.
Economic distance
Represents differences in consumer wealth, income level, infrastructures and costs and quality of natural, financial and human resources
The higher those distances between countries
The lower the trade levels will be
Ghemawat focuses on the risk of penetrating too many high-distance output markets. However, Vestring, Rouse and Reinert focus on
Rouse and Reinert focus on the risk of using too few high distance output markets.
What do Vestring, Rouse and Reinert argue?
They argue that the MNEs that intend to be cost leaders in their industry should have portfolios of the low-cost countries where activities can be outsourced to.
These portfolios should be based on the set of location advantages that each host country offers
What do Schmitt and Pan focus on?
They focus on cultural distance and provide guidance for Western MNEs that sell branded consumer products when penetrating high-distance Asian markets.
