Lecture 7: Home & Host Country Distance

Question 1

Distance may originate from differences along four dimensions

Answer 1

CAGE

• Cultural = A country’s cultural attributes determine how people interact with one another and with companies and institutions
• Administrative / Political = Historical and political associations shared by countries greatly affect trade between them
• Geographic = It is not simply a matter of how far away a country is in miles or kilometers. Other attributes that must be considered include: physical remoteness, lack of common borders, lack of sea or river access, weak transportation and communication links, differences in time and climates
• Economic = The wealth or income of consumers is the most important economic attribute that creates distance between countries. in addition, there is a difference in costs and quality of natural resources, human resources, financial resources, infrastructure, intermediate inputs, information or knowledge.

Question 2

Bilateral measure

Answer 2

The physical distance between capitals

Question 3

Unilateral measure

Answer 3

For example corruption or freedom of the press

Question 4

Distance (in IB)

Answer 4

The extent of differences between country pairs

Question 5

What is the underlying assumption of distance-related research

Answer 5

Differences prevent or disturb the flows of information between the firm and the market. Basically, distance introduces friction and complexity to cross-border activities and increases the challenges.

Question 6

The distance can be measured with:

Answer 6

• Geographic distance
• Institutional distance: currency, barriers to trade
• Economic distance differences in wealth, income and standard of living
• Cultural distance
• Multi-dimensional distance

Question 7

Benefits of distance

Answer 7

Better decision-making

Question 8

Drawbacks of distance

Answer 8

• Costs of FDI
• Liabilities of LOF
• Since distance increases, the complexity of managing a dispersed network will lead to higher management costs

Question 9

Outcomes that are affected by distance are:

Answer 9

• Market selection
• Entry mode
• Performance

Question 10

Hofstede’s definition of culture

Answer 10

The collective programming of the mind which distinguishes the members of one category of people from another.

• Individualism/Collectivism
• Power Distance
• Uncertainty avoidance
• Masculinity/Femininity
• Long-term orientation

Question 11

Moderating effects of distance

Answer 11

Firm characteristics, market characteristics and industry characteristics