Distance Still Matters by Pankaj

Distance Still Matters by Pankaj Ghemawat

Pankkaj Ghemawat has written an incisive analysis of contemporary business practices with his article, "Distance Still Matters." Within this work, the author directly addresses the increasing trend of globalization, specifically as it pertains to international expansion. However, as the world becomes smaller due to routine global investments resulting in a worldwide marketplace, the author posits the notion that there are a number of inherent mistakes companies may make while attempting to expand. His article addresses these mistakes and propounds an unconventional view of taking into account four different forms of distance which, when properly considered and aligned with an organization's goal, can make expansion considerably lucrative.

The author's principle thesis is that the probable impact of distance in a foreign investment or expansion effort should be gauged by calculating the effects of that distance in the aforementioned four categories. Each of the four is equally important, and the results of analyzing these different areas present a synthesis of the prospects for success or failure. Moreover, Ghemawat contends that traditionally, businesses have considered expansion purely in financial terms via the country portfolio analysis, which considers international prospects via "focusing on a national GDP, levels of consumer wealth, and people's propensity to consume, CPA places all the emphasis on potential sales" (1).

The author believes that this type of analysis is outdated due to intrinsic circumscriptions in its areas of focus. To his credit, he offers a couple of case studies that readily prove his point, the most salient of which is the hundreds of million dollars that media conglomerate Star lost in its proposed expansion to Asia because it did not properly consider cultural factors involved in its move. Whereas most companies typically consider distance from the perspective of geography, the distance based on culture and on politics/administration also factor prominently into Ghemawat's consideration of distance affecting expansion. Cultural distance includes variations in languages, religion and religious practices, as well as is social traditions and mores. In terms of recommendations, it sorely behooves an enterprise to significantly study and attempt to quantify its distance from a foreign market in terms of culture before proceeding with any expansionist plans.

Political and administrative distance includes issues of legality as well as any perceived hostilities between the two countries. There are various components of political and administrative distance that are tied into economic distance, such as the hegemony of indigenous financial institutions as well as any political or monetary allies (or dearth of such allies) existent. This is because "Historical and political associations shared by countries greatly affect trade between them" (2). The vast majority of the calculations involved in determining economic distance is taken into consideration via a country portfolio analysis, and pertain to income and financial prowess of consumers in the foreign market, as well as specific differences in cost and production. Lastly, geographic distance factors in as well in terms of accessibility and issues of transportation or forms of communication