Differences and the CAGE Distance Framework, make a summary of this article.

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Th es of differe at were prof national’s O tance frame categories: fferences alo ght permissions nd the CAG Pankaj Gh CAGE dist e differences oping cross- e example ng margin ountry’s cap he impact of ence or dist fitable for W Exhibi Operating M ework disag Cultural, ong these di s, please e-mail GE Distanc hemawat tance frame s between c -border strat summarize by countr pital and W f geographic ance can yo Walmart from it 2-1 Margin by Co ggregates di Administra imensions g globecourse@g ce Framewo ework, whi countries th tegies.2 d in exhibi ry in 2004 Walmart’s he c distance is ou identify t m those tha ountry (200 istance or di ative, Geog generally ha ghemawat.com ork1 ich is used hat compani it 2-1, whi 4 against t eadquarters s obvious, b that separat at weren’t? 4 estimates ifference int graphic, a ave a negati m to ies ich the in but ted ) to and ive effe diff enco type ect on man ferences alo ourage rath es of differe  Cultura beliefs, of the organiz religiou values. market effects, busines markets least, tie  Adminis between tenor o exchang differen course, country levels o profitab States i Free Tr as clas unincor  Geogra involve other: o country access t 1 make profitab ny cross-bo ong a limit her than disc ence or dista al distance: values, and game—th zations. Cu us beliefs, r Societies power and both form sses operat s share ling es through l strative dis n countries of current ge between nces along do admin y such as au of corruption ble countrie in a region rade Agreem ssified by rporated terr aphic distan es more tha other attrib y’s physica to the ocean es it clear th ble “countr order inter ed subset o courage suc ance is illus : Culture c d social nor hat shape ultural dista race/ethnicit even diffe d globaliza mally via re e. 4 Interes guistic, reli large diaspo stance: Hi s—colonial relationsh n them—w these dime nistrative a utarchic pol n. In the Wa es, Canada a nal free trad ment (NAFT Walmart, ritory of the nce: The g an just how butes to be al size, wit n, topograph hat the cap ries” is ge ractions, al of CAGE d ch interactio strated by th an be defin rms—the un the behavi ance encom ty, languag er in their ation in wa egulation a stingly, Wa gious and ora. storical an links, free hips—profou which is th ensions mat attributes s licies or we almart exam and Mexico de agreeme TA). And a , Puerto R e United Sta geographic w far two c e considere thin-country hy, and eve ital city of eographicall though in dimensions ons.3 Each o he Walmart ned as the nwritten, un ior of ind mpasses d ge, and soci social attit ays that ha and informa almart’s fo ethnic simi nd political e trade agr undly affe he same as tter a great specific to eak instituti mple, note th o, partner wi ent, the Nor third profit Rico, is ates. dimension countries ar ed include y distances en time zon f each of W ly closer t some case can actual of these bro example. collection nspoken rul dividuals a differences ial norms a tudes towa ave importa ally, on ho our profitab ilarities or, associatio reements, t ect econom s saying th t deal. So, a particul ions and hi hat two of t ith the Unit rth Americ table “count officially n of distan re from ea contiguity, s to borde nes. Exhibit Walmart’s fo to Walmar 2 es, lly oad of les and in and ard ant ow ble at ons the mic hat of lar gh the ted can try” an nce ach a ers, 2- our rt’s Wha Inte grav inte betw econ rela attri diff of o and headqua addition the Uni  Econom labor a econom in avail comple harder f number econom liability procurin distance its enti strategi at the Numb ernational e vitation to eractions. T ween two co nomic size ated to the p ibute). Aug ferences as w one such an economic e arters than n, Canada a ited States. mic distance are the m mic distance lability (or ments, and for Walmar r of data p mic distance y for Walm ng merch e, particular ire internati es in section bers Tell Us economists o describe Thus, the s ountries pre s (a unilate physical dist gmented gra well as unil nalysis that effects on tr the capitals and Mexico e: Consume most obviou e between c lack) of re d organizat rt to do wel points is v e has not b mart. The andise fro rly in terms ional store n 5, which d s have ada trade an implest gra edicts that t eral attribu tance betwe avity mode lateral attrib evaluated c rade. s of any of o share a co er wealth an us (and re ountries. O esources, in tional capa ll in poorer very limite been entire company om China— s of labor co network. W discusses ar apted Newt nd other avity mode trade will be ute of each een them (a els add mea butes. Exhib cultural, adm the unprofi ommon land nd income a elated) det thers includ nputs, infra abilities. It countries— d. Note, h ely or even saves mor —exploitin osts—than i We will re rbitrage. ton’s law internationa el of intern e directly re country) a a bilateral or asures of o bit 2-2 show ministrative table ones; d border wi and the cost erminants de differenc astructure a seems a b —although t however, th n primarily re money b ng econom it makes fro eturn to su of univers al econom national tra elated to the and inverse r country-pa other types ws the resu e, geograph 3 in ith of of ces and bit the hat y a by mic om uch sal mic ade eir ely air of ults hic, D D C A G E Exh Dimensions o Distance/Prox Cultural Administrative Geographic Economic Sour Inter Busi The signi many The you glob mag colo with ties effe orig that such Sim help Thu coun hibit 2-2 Effe of ximity e rce: Pankaj rnational Trad iness School B estimates cor ificant at the 1 y other studie e signs on m ur intuition balized “fla gnitudes of onial ties ar hout them, in generat ects decades ginal coloni t complete h considerat milarities ver p explain fo us, for U.S. ntry is Cana cts of Simila Determina Common la Common re Colony/colo Common cu Differences Physical dis Physical siz Landlocked Common la Economic s Income leve Ghemawat a de Networks: Boston, Februa rrect for unob 1% level but a es, apparently most of the s (although at” world). f some of t re apt to tr or even mo ting cultura s and, in s ial relations globalizatio tions—is ex rsus differe oreign direc companies ada 60 perc arities Versus ant anguage egional trading onizer links urrency s in corruption stance: 1% inc ze: 1% increas dness and border size: GDP (1% el: GDP per ca and Rajiv Ma A Gravity-B ary 2003. bserved thresh are, in a numb due to the cor e estimates h they ca What are the effects— rade almost ore if one al al similariti ome instan ships were on—as in t xtremely un ences along ct investme s that opera cent of the t s Difference g bloc n crease se % increase) apita (1% incr Mallick, “The ased Approac holds for part ber of cases, s rrection in the tab nnot be re probably m —for exam t three time lso account ies! The pe nces, more dissolved r the disappe nlikely anyti many of th ent or comp ate in just o time (and 10 s on Bilatera rease) Industry-Lev ch,” working icipation in tr smaller than t le probably econciled w more surpr mple, that c es as much ts for the ro ersistence o than a cent reinforce th earance of t ime soon. he same dim panies’ fore one foreign 0 percent of al Trade Chan +42% +47% +188 +114 –11% –1.1% –0.2% –48% +125 +0.8% +0.7% vel Structure paper, Harva rade and are those reported y accord wi with a ful rising are t ountries wi h as countri ole of colon of such lar tury after t he conclusi the effects mensions al eign presenc country, th f the time it 4 nge in Trade % % % % % % % % % % % of ard all d in ith lly the ith ies nial rge the on of lso ce. hat t is the cros tran and is th mat Iden Hav dist fram acco rega of th Exh Cou (bila Cou (uni United Kin ss-border i nsactions, p even the in hat differen tter in signif ntifying and ving highlig ances, the r mework to ounted for ard by ident he CAGE c hibit 2-3 The untry pairs ateral) untries ilateral) ngdom).5 Gr nteractions atent citatio ncidence of nces betwee ficant, predi d Prioritizin ghted the pe rest of this identify a in developi tifying bilat categories. CAGE Fram Cultural Distance  Different languages  Different ethnicities; lack of connective ethnic or social networks  Different religions  Lack of tru  Different values, nor and disposition  Insularity  Traditional ravity mode as divers ons, immig wars! The b en countries ictable way ng Differenc ersistent imp section foc and prioriti ing global s teral and un mework at the Admin Distan ust rms, ns  Lack o ties  Lack o region bloc  Lack o curren  Politic lism  Nonma econom bias vs bias)  Lack o membe interna organiz  Weak corrup els have also e as equit grant flows, basic conclu s—and diff ys. ces pact of cros cuses on us ize the dif strategies. E nilateral fac e Country Le nistrative nce of colonial of shared al trading of common cy al hostility     arket/closed my (home s. foreign of ership in ational zations institutions, tion      o been adap ty trading, air traffic, usion from ferences in ss-country d sing the CA fferences t Exhibit 2-3 ctors to cons evel Geographic Distance  Physical dista  Lack of land b  Differences in zones  Differences in climates / dise environments  Landlockedne  Lack of intern navigability  Geographic si  Geographic remoteness  Weak transpo or communic links pted to expla e-commer , phone cal this literatu differences— differences AGE distan that must helps in th sider for ea c Eco Dis ance border n time n ease s  Ric diff  Oth diff cos of n reso fina reso hum reso infr and info kno ess nal ize ortation ation  Eco  Low inc 5 ain rce lls, ure — or nce be