Globalization and the concept of distance Flashcards
what is the effect of distance?
distance introduces friction and complexity to cross-border activities, increasing the challenges of achieving and sustaining successful cross-border activities.
Describe the dimensions of distance
Ghemawat suggested that distance can be split into four dimensions:
- Cultural: affects consumers’ preferences.
- Administrative: Historical and political associations shared by countries greatly affect trade
- Geographic: affects the costs of transportation and communications
- Economic: Wealth of consumers is the most important economic attribute creating distance.
What effect does distance have in transaction cost theory?
- transaction cost theory suggests that firms weigh the costs of market transactions against the costs of internalization, based on this the firm chose to internalize or externalize international activities.
- distance creates uncertainty which lead to higher costs in managing overseas markets, when the cost of managing a foreign subsidiary exceed the market transaction cost it will make the company externalize their internationalization.
What outcomes are affected by distance?
Four main types of outcomes are affected by distance:
- market selection: in accordance with the Uppsala model – distance is negatively associated with the probability of market selection
- entry mode: as cultural distance increases, firms favor low-commitment entry modes.
- Performance: most argue for a negative relationship between cultural distance and performance.
- knowledge transfer and interorganizational relationships: negative effects of distance – in particular cultural distance.
Describe hofstede’s cultural dimesions
According to Hofstede, the way people in different countries perceive and interpret their world varies along four dimensions:
- Power distance refers to the degree of inequality between people.
- Uncertainty avoidance concerns the degree to which people in a country prefer formal rules and fixed patterns of life.
- Individualism denotes the degree to which people in a country learn to act as individuals rather than as members of groups.
- Masculinity relates to the degree to which ‘masculine’ values, such as achievement, performance, success, money, and competition, prevail over ‘feminine’ values, such as quality of life, maintaining personal relationships, care for the weak, preserving the environment and solidarity.
What is psychic distance?
psychic’ distance is defined as the sum of factors preventing the flow of information from and to the market. It is distance between the home market and a foreign market, resulting from the perception of both cultural and business differences.
What is “psychic distance stimuli”?
Objective country level distance: Cultural, administrative, geographic, and economic distance.
What is perceived psychic distance?
subjectively perceived distance.
