Companies become so dazzled by the sheer size of untapped markets that they lose sight of the vast difficulties of pioneering new, often very different territories. Managers rely on in making judgements about international investments, tools that consistently underestimate the costs of doing business internationally. The most prominent of these is country portfolio analysis (CPA). CPA places all the emphasis on potential sales. It ignores the costs and risks of doing business in a new market.
Most of those costs and risks result from barriers created by distance. By distance it does not necessarily mean geographical (though it is important). Distances such as cultural, administrative or political also cannot be ignored. According to a recent survey it indicates that trade takes place between two countries 5000 miles apart is only 20%. The survey also indicates that a company is likely to trade with former colony, for instance, than with a country to which it has no ties.
The Four Dimensions of Distance:
Distance between 2 countries can manifest itself along four basic dimensions: Cultural, Administrative, geographic and Economic.
Cultural Dimension: A country’s cultural attributes determine how people interact with one another and with companies and institution. It can also be seen that by cultural difference consumers product preferences tend to get affected. Countries that share a language, for example, will be three times a greater than between countries without a common language.
Administrative or Political dimension: Historical and political associations shared by countries greatly affect trade between them. Policies of individual governments pose the most common barriers to cross border competition. A local government tends to intervene to protect industries that are deemed vital to national security.
Geographic Dimension: In general, the farther you are from one country, the harder it will be to conduct business in that country. Geographic attributes influence the costs of transportation. Products with low value to weight or bulk ratios, such as steel and cement, incur particularly high costs as geographic distance increases.
Economic Dimension: The wealth or income of consumers is the most important economic attribute that creates distance between countries, and it has a marked effect on the levels of trade and the types of partners a country trades with. Companies that rely on economies of experience, scale and standardization should focus more on countries that have similar economic profiles.
No comments:
Post a Comment