Ghemawat states that administrative distance in relation to preferential trading agreements involves gold, electricity, coffee, tea, cocoa spices, textiles fibers as well as sugar, sugar preparations and honey. Also included are gas and travel goods such as handbags as well as footwear and sanitary, plumbing, heating and lighting fixtures and furniture parts. Geographic distance factors impact products such as electricity current transfer over long distances, gas transfer, paper, paperboard and live animals as well as sugar, sugar preparations and honey. Included as well are other numerous products. Economic distance is derived through wealth differences and distance in economics results in a decrease in trade. Linguistic distance is the most severe in the range of distance impacts with second in sensitivity being administrative distance followed by geographic and then finally economic distance being the less in the range of sensitivity to impact on product because of existing distance.
Distance is often created by the target country government and resulting is a raising of “barriers to foreign competition.” (Ghemawat, 2001) the factors that arise from these barriers include “…tariffs, trade quotas, restrictions on foreign direct investment and preferences for domestic competitors in the form of subsidies and favoritism in regulation and procurement.” (Ghemawat, 2001) Measurement criteria is stated as the following:
1) the company is a large employer;
2) the company is seen as a national champion;
3) the measures of protection are required and vital to national security;
4) the company produces staples;
5) the company is a producer of entitlement services or goods;
6) the company exploits resources that are natural;
7) the company is in an industry that makes requirements of “large, geography-specific sun investments” (example: oil). (Ghemawat, 2001)
SUMMARY & CONCLUSION
There are four basic dimensions of distance related in the work of Ghemawat (2001) including cultural, administrative, geographic and economic dimensions. The severity of the distance in cultural linguistic terms is much more severe than are economic conditions with administrative and geographic distances falling in the midrange of the ranges of distance severities.
The work of Boerner (2008) reiterates these dimensions that exist and which are more distance dimensions than merely geographical distances existing between companies. These distances affect decision-making in the company. These four dimensions are referred to as the CAGE model and is one in which these various dimensions, factors of those dimensions, and the result due to distance factors are identified. The work of Frankel and Rose as stated in the work of Ghemawat (2001) sets out distance attributes and percentage change in international trade between countries due to the attributes that are listed. Attributes of cultural distance have been listed in this work and it has been noted that linguistic distance is the most severe of all the four dimensions. Linguistic and cultural differences have an effect on products and companies due to linguistic content that is high such as in television and radio advertising and this is only one example. Difficulties in trade arise due to distance in administrative method of countries and this affects electricity, drugs, farming as well as other industries. Geographical distance is less in severity than are the first two and often involves consideration of perishable products and makes communications and connectivity vitally important. Economic distance is the lesser in the range of severity and includes differences in both costs and quality of natural resources, financial resources, human resources, infrastructure, intermediate inputs and information or knowledge according to Ghemawat (2001) Impacts that arise from economic distance includes the variation of the nature of demand along with variation in levels of income as well as economies of standardization being considered important with labor costs being salient and distributions systems that are different requiring that companies are agile and responsive in order to be competitive internationally.
Boerner, Beatrice Barbara (2008) Flat or Not: World Economies, Here Comes Business! Oxford Business & Economics Conference Program. Online available at http://www.gcbe.us/2008_OBEC/data/Beatrice%20Barbara%20Boerner.doc
Ghemawat, Pankaj (2001) Distance Still Matters:.