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(c) P
Thisidenmus BegplotdistBenwhathe
Wal ThefourEco
ankaj Ghemaw
2. Dif
s note introntify and prst address w
gin by consts Walmartance betwe
ntonville, Arat other typemarkets tha
lmart Intern
e CAGE disr major c
onomic. Diff
wat / For copyrig
fferences an
oduces the rioritize the
when develo
sidering thet’s operatineen each corkansas. Thes of differeat were prof
national’s O
tance framecategories: fferences alo
ght permissions
nd the CAG
Pankaj Gh
CAGE diste differencesoping cross-
e example ng margin ountry’s caphe impact ofence or distfitable for W
ExhibiOperating M
ework disagCultural,
ong these di
s, please e-mail
GE Distanc
hemawat
tance frames between c-border strat
summarizeby countr
pital and Wf geographicance can yo
Walmart from
it 2-1 Margin by Co
ggregates diAdministra
imensions g
globecourse@g
ce Framewo
ework, whicountries thtegies.2
d in exhibiry in 2004
Walmart’s hec distance isou identify tm those tha
ountry (200
istance or diative, Geoggenerally ha
ghemawat.com
ork1
ich is used hat compani
it 2-1, whi4 against teadquarters s obvious, bthat separat
at weren’t?
4 estimates
ifference intgraphic, aave a negati
m
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ich the in
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to and ive
effediffencotype
ect on manferences aloourage rathes of differe
Culturabeliefs, of the organizreligiouvalues. market effects, businesmarketsleast, tie
Adminis
betweentenor oexchangdifferencourse, countrylevels oprofitabStates iFree Tras clasunincor
Geogra
involveother: ocountryaccess t1 makeprofitab
ny cross-boong a limither than discence or dista
al distance:values, andgame—th
zations. Cuus beliefs, r
Societies power andboth form
sses operats share linges through l
strative disn countriesof current ge betweennces along
do adminy such as auof corruptionble countriein a regionrade Agreemssified by rporated terr
aphic distanes more thaother attrib
y’s physicato the ocean
es it clear thble “countr
order intered subset ocourage sucance is illus
: Culture cd social nor
hat shapeultural distarace/ethniciteven diffe
d globalizamally via ree. 4 Interesguistic, relilarge diaspo
stance: His—colonial
relationshn them—wthese dime
nistrative autarchic poln. In the Wa
es, Canada anal free tradment (NAFT
Walmart,ritory of the
nce: The gan just howbutes to beal size, witn, topographhat the capries” is ge
ractions, alof CAGE dch interactiostrated by th
an be definrms—the unthe behaviance encomty, languag
er in their ation in waegulation a
stingly, Wagious and ora.
storical anlinks, free
hips—profouwhich is thensions matattributes slicies or wealmart examand Mexicode agreemeTA). And a , Puerto Re United Sta
geographic w far two ce considerethin-countryhy, and eveital city of
eographicall
though in dimensions ons.3 Each ohe Walmart
ned as the nwritten, unior of indmpasses d
ge, and socisocial attit
ays that haand informaalmart’s foethnic simi
nd political e trade agrundly affe
he same astter a greatspecific to eak institutimple, note tho, partner wient, the Nor
third profitRico, is ates.
dimensioncountries ared include y distancesen time zonf each of Wly closer t
some casecan actual
of these broexample.
collection nspoken ruldividuals adifferences ial norms atudes towa
ave importaally, on ho
our profitabilarities or,
associatioreements, tect economs saying tht deal. So,
a particulions and hihat two of tith the Unitrth Americtable “countofficially
n of distanre from eacontiguity,
s to bordenes. Exhibit
Walmart’s foto 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 Integravintebetweconrelaattridiffof oand
headquaadditionthe Uni
Economlabor aeconomin availcompleharder fnumbereconomliabilityprocurindistanceits entistrategi
at the Numb
ernational evitation toeractions. Tween two conomic size
ated to the pibute). Augferences as wone such an
economic e
arters than n, Canada aited States.
mic distanceare the m
mic distancelability (or ments, andfor Walmarr of data p
mic distancey for Walmng merche, particularire internaties in section
bers Tell Us
economists o describe Thus, the sountries pres (a unilate
physical distgmented grawell as unil
nalysis that effects on tr
the capitalsand Mexico
e: Consumemost obvioue between c
lack) of red organizatrt to do welpoints is ve has not bmart. The andise frorly in termsional store n 5, which d
s
have adatrade an
implest graedicts that teral attributance betweavity modelateral attribevaluated c
rade.
s of any of o share a co
er wealth anus (and reountries. Oesources, intional capall in poorer very limitebeen entirecompany
om China—s of labor co
network. Wdiscusses ar
apted Newtnd otheravity modetrade will beute of eacheen them (aels add meabutes. Exhibcultural, adm
the unprofiommon land
nd income aelated) detthers includnputs, infra
abilities. It countries—
d. Note, hely or evensaves mor—exploitinosts—than iWe will rerbitrage.
ton’s law internationa
el of interne directly re
country) aa bilateral orasures of obit 2-2 showministrative
table ones; d border wi
and the cost erminants de differencastructure a
seems a b—although thowever, thn primarilyre money bng economit makes froeturn to su
of universal economnational traelated to theand inverser country-pa
other types ws the resue, 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,
DDC A G E
ExhDimensions oDistance/ProxCultural
Administrative
Geographic
Economic
SourInterBusi
The signimany Theyouglobmagcolowithties effeorigthatsuch SimhelpThucoun
hibit 2-2 Effeof ximity
e
rce: Pankaj rnational Tradiness School B
estimates corificant at the 1y other studie
e signs on mur intuitionbalized “flagnitudes of onial ties arhout them,
in generatects decadesginal colonit complete h considerat
milarities verp explain fous, for U.S.ntry is Cana
cts of Simila DeterminaCommon la Common reColony/coloCommon cuDifferences Physical disPhysical sizLandlockedCommon la Economic sIncome leve
Ghemawat ade Networks:
Boston, Februa
rrect for unob1% level but a
es, apparently
most of thes (althoughat” world). f some of tre apt to tror even moting culturas and, in sial relationsglobalizatiotions—is ex
rsus differeoreign direc companiesada 60 perc
arities Versus
ant anguage
egional tradingonizer links urrency s in corruption
stance: 1% incze: 1% increasdness and border
size: GDP (1%el: GDP per ca
and Rajiv Ma A Gravity-Bary 2003.
bserved threshare, in a numbdue to the cor
e estimates h they ca
What are the effects—rade almostore if one alal similaritiome instanships were on—as in txtremely un
ences along ct investmes that operacent of the t
s Difference
g bloc
n
crease se
% increase) apita (1% incr
Mallick, “The ased Approac
holds for partber of cases, srrection
in the tabnnot be reprobably m
—for examt three timelso accounties! The pe
nces, more dissolved r
the disappenlikely anyti
many of thent or compate in just otime (and 10
s on Bilatera
rease)
Industry-Levch,” working
icipation in trsmaller than t
le probablyeconciled wmore surpr
mple, that ces as muchts for the roersistence othan a centreinforce th
earance of time soon.
he same dimpanies’ foreone 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 wiwith a ful
rising are tountries wi
h as countriole of colonof such lartury after the conclusithe effects
mensions aleign presenc
country, thf 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 crostranand is thmat Iden Havdistframaccoregaof th Exh
Cou(bila
Cou(uni
United Kinss-border insactions, p
even the inhat differentter in signif
ntifying and
ving highligances, the r
mework to ounted for ard by identhe CAGE c
hibit 2-3 The
untry pairs ateral)
untries ilateral)
ngdom).5 Grnteractions atent citatio
ncidence of nces betweeficant, predi
d Prioritizin
ghted the perest of this
identify ain developitifying bilat
categories.
CAGE Fram
Cultural Distance Different
languages Different
ethnicities;lack of connective ethnic or social networks
Different religions
Lack of tru Different
values, norand disposition
Insularity Traditional
ravity modeas divers
ons, immigwars! The b
en countriesictable way
ng Differenc
ersistent impsection foc
and prioritiing global steral and un
mework at the
AdminDistan
ust
rms,
ns
Lack oties
Lack oregionbloc
Lack ocurren
Politic
lism Nonma
econombias vsbias)
Lack omembeinternaorganiz
Weak corrup
els have alsoe as equit
grant flows,basic conclus—and diff
ys.
ces
pact of croscuses on usize the difstrategies. Enilateral 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 adapty trading, air traffic,usion from
ferences in
ss-country dsing the CAfferences tExhibit 2-3ctors to cons
evel
GeographicDistance Physical dista Lack of land b Differences in
zones Differences in
climates / diseenvironments
Landlockedne Lack of intern
navigability Geographic si Geographic
remoteness Weak transpo
or communiclinks
pted to explae-commer
, phone calthis literatudifferences—
differences AGE distanthat must helps in thsider for ea
c EcoDis
ance border n time
n ease s
Ricdiff
Othdiffcosof nresofinaresohumresoinfrandinfokno
ess nal
ize
ortation ation
Eco Low
inc
5
ain rce lls, ure —
or nce be his ach
onomic stance ch/poor fferences her fferences in st or quality natural ources, ancial ources, man ources,
frastructure, d formation or owledge
onomic size w per capita ome
Theencounilframacrotheyset cardComPercPortcominduwithMordiffevennetw Havit isstrucapta ctreavaricounadmincoelseconwhi
Thedistsincpart
e most disompasses tlateral attrmeworks thoss countriey assume thof yardstic
dinal indicmpetitiveneceptions Indter’s “diamo
mpetitivenesustries. Buth ideas suchre general
ferences of tn occupyinwork instead
ving drawn s useful to aucture. Specturing counountry’s in
ated as a cious dimensntries (ch
ministrative omes) can be. That saidceptions toich countrie
e other poinance matter
ce geographticular impo
stinctive fethe bilateraributes of at have bee
es (or locatihat countriescks. Note tces such ss Index dex but alsond” framess of diffet indexicalith as “The Ully, indexicthe sort nec
ng) space ind of as an a
that distincadd that thecifically, unntry-specificnvolvement common cosions from aharacterized
policies, phbe thought d, one needo capture thes are close
nt worthy ofr to differenhic distanceortance to c
eature of tal attributes
individualen proposedions) focus s can be assthat this chas the Wor Transpo to ordinawork for di
erent countty of this s
U.S. is closecality is
cessary to enn relation torray along a
ction betweeey can be fnilateral mec attributes t
in cross-bomponent all other cou
d by unihysical remof as beings to add bihe idea thaand which o
f even morent extents ie affects thcompanies d
the CAGEs of countrl countriesd for thinkion just uni
sessed one bharacterizati
World Econarency Int
al ranking siagnosing thtries as h
sort is restrier to Canadaincapable nvision couo each othea common y
en unilaterafitted togetheasures of ithat generalborder econof that countries. Forique, ingr
moteness, org relatively ilateral indiat a compaones are far
e emphasisin different he costs ofdealing in h
E frameworry pairs ass. Most ong about thilateral attriby one againion applies
nomic Foruternational’schemes suche (relative)ome basesictive sincea than it is t
of capturuntries as exer, that is, ayardstick.6
al and bilateher into the isolation (olly decreasenomic activ
ountry’s disr example, rrown cultur extremelydistant fromcators to su
any’s homerther away.
is that diffeindustries.
f transportaheavy or bu
rk is that s well as tof the othhe differencbutes; that nst a comms not only um’s Globs Corruptich as Micha) internations in specife it can’t deto Indonesiaring bilaterxisting in (aas nodes in
eral influencsame over
or integratioe (or increasvities can stances aloreally isolatures, closy high or lom everywheuch unilater
e base affec
ferent types For instanc
ation, it is ulky produc
6
it the her ces is,
mon to
bal on ael nal fic eal a.” ral
and n a
ces, rall on) se) be ng ted sed ow ere ral cts
of ce, of
cts.
Cultprefor mbusilikedist
CultDist
Culturmatterwhen: Pro
ling(TV
Procultiden
Provarysizestan(eleequ
Procouquaasso(win
App Theitselthe
tural distanferences andmedia compiness. Exhib
ely to makeance.
Exhibi
tural tance ral differences r the most : ducts have high
guistic content V programs) ducts matter to tural or nationalntity (foods) duct features y in terms of e (cars) or ndards ectrical uipment) ducts carry
untry-specific ality ociations nes)
plications of
e CAGE fralf to a verymost impor
nce, on thd should bepany—but bit 2-4 prov
e an industr
it 2-4 The C
AdminisDistance
h
l
Governmentinvolvementindustries th Producers
goods (ele Producers
“entitleme Large emp
(farming) Large sup
governmetransporta
National c(aerospace
Vital to nasecurity (telecomm
Exploitersresources
Subject tocosts (infr
f the CAGE
amework, ony broad arrartant ones.
he other he a crucial cis much le
vides a sumry particular
CAGE Fram
strative e t t is high in
hat are: s of staple ectricity) s of other ents” (drugs) ployers
ppliers to ent (mass ation) champions e) ational
munications) s of natural (oil, mining)
o high sunk rastructure)
E Distance F
nce it is takay of applic
hand, shapconsideratio
ess importanmmary of thrly sensitiv
mework at th
GeographiDistance
Geography plamore importanwhen: Products hav
value-to-weibulk ratio (ce
Products areor perishablefruit)
Local supervand operatiorequirementshigh (service
Framework
ken down tocations. Let
es consumon for a connt for a cem
he charactere to a parti
he Industry L
ic EcDi
ays a nt role
ve a low ight or ement)
e fragile e (glass,
vision onal s are es)
Econmakimpa Na
va(ca
Ecstasc(ce
Lafacdifsa
Dibuare(in
Cobeagap
o the industrt’s focus he
mers’ produnsumer gooment or steristics that aicular kind
Level
onomic stance nomic differenc
ke the biggest act when: ature of demandaries with incomars) conomics of andardization oale are limited ement) abor and other ctor cost fferences are lient (garmentsistribution or usiness systems e different nsurance) ompanies need e responsive andgile (home ppliances)
ry level, lenere on four
7
uct ods eel are of
ces
d me
or
s)
to d
nds of
Mak Onediffwortracdiffcannsensand forg Und A sdiffcomforebe aWhlookthes Ass Eveoverbe uof mcan Laticomvaluthanmor
king Differe
e applicatioferences visrth belaboriced back toference or dnot simplysitivity to d
2-4 can getfulness an
derstanding
second appferences acmpanies releignness—oa useful exeen there arek to acquirse barriers.
sessing Natu
en if multinr local comused at a finmultinationa
help explain Americ
mparatively uable whenn decisive. Tre than “nat
ences Visib
on of the sible. Whileing, most no a failuredistance. Fuy fall back ifferences. Chelp even
nd cognitiv
the Liabilit
plication ofcross counlative to lor more genercise for be substantiae or set up
ural Owners
nationals campetitors in ner level of als from difain why Spaca, but al
easier forn conductedThus, partictural owners
le
CAGE dise this applicnotable intee to apprecurthermore,
on personChecklists on experien
ve overload
ty of Foreig
f the CAGntries thatocal compnerally affeboth multinaal liabilities p joint vent
s and Comp
an be confida particularresolution t
fferent counanish firmslso why
U.S. firmd at the indcularly goodship” advan
tance framcation may ernational bciate a key
in a very dnal experienof the sort eced peoplein a comple
gnness
GE framewt might
petitors—thect their relaationals andof foreignn
tures with l
paring Forei
dent that thr market, thto shed lighntries. For es do well insuccess in
ms. 7 Again, dustry leveld or bad glontages.
mework is tseem too o
business deby type of diverse wornce to ensembedded ine avoid erex environm
work is to handicap e so-calledative positiod their localness, multinlocal firms
ign Competi
hey are goihe CAGE frht on the relexample, CAn many indun Mexico
such analand is ind
obal strategi
to make kobvious to bacles can cross-countrld, managesure adequan exhibits 2rrors due
ment.
pinpoint tmultination
d liability ons. This cl competito
nationals oftto overcom
itors
ing to prevramework clative positiAGE analysustries acrohas prov
lysis is modicative rathies can matt
8
key be be try ers ate 2-3
to
the nal of
can rs. ten me
vail can on sis oss ved ost her ter
Com ThepersanalmarWhsomhowadjuin dsect
Stra
“DisRevichapPresHowthat
ratheand t
direc“EgaHarv
Mul
contPres
ComMan
mparing Ma
e CAGE fraspective of lysis of thisrket size orile such d
me adjustmew much dustments at deciding to tion, on Gro
1 Pankajtegy” , (Harv
2 For a stance Still Miew, Septembepter 2 of Panks, 2007), and
w to Achieve Ihighlight dista
3 For furter than discouthe references
4 For an ct investmenalitarianism, vard Business
5 Susan ltinationals,”
6 For a mext, see Andrs, 2001).
7 Subrammpetition amonagement Jour
arkets and D
amework caa particulars type is to r potential
discounting ents of markdistance mall. Some center or exi
olsch).
j Ghemawatvard Busines
more extendeMatters: The Her 2001. This kaj Ghemawatd chapter 3 ofIt (Harvard Buance effects, s
ther discussionurage cross-bos cited therein
original discnt, see JordCultural DistSchool, Bosto
E. Feinberg” unpublishe
more extendedrew Abbott,
manian Rangaong Foreign rnal 25, no. 3:
Discounting
an also be r company. discount (spwith measinvolves n
ket potentiamatters, thacompanies dit markets (
t And Jordans Review Pre
ed treatment Hard Reality topic is also
t, Redefining f Pankaj Ghemusiness Reviesee www.ghem
n of the ways order activity, .
cussion of cudan Siegel, tance, and Fon, October 2
g, “The Expd working p
d discussion oChaos of Dis
an and AldemMultinationa
: 285–293.
by Distanc
used to comOne methopecifically, sures of disnumerous aal for distanan refrainido formally(as describe
n I. Siegel, “ess, 2011):59
of this mateof Global Exaddressed at sGlobal Stratemawat, Worldew Press, 201mawat.com.
in which CAGsee the discu
ltural distancAmir Lich
DI: A New 2008.
ansion and paper, Rutger
of indexicalitysciplines (Chi
mir Drummonals in a Foc
ce
mpare markd to conducdivide) raw
stance, broapproximati
nce is a betteng from
y use methoed in the firs
“Cases on Re9-69 erial, see Panxpansion,” Hasubstantially g
egy (Harvard Bd 3.0: Global1). For a col
GE differencession of arbitr
e and how itht, and Sha
Approach,”
Location Pars University
y in a broadeicago: Univer
nd, “Explainincal Host Ma
kets from tct quantitatiw measures adly defineions, makier idea, givmaking ads of this sost case in th
edefining Glo
nkaj GhemawHarvard Busin
greater lengthBusiness Schol Prosperity allection of ma
es can encourarage in section
t affects foreialom Schwar
working pap
atterns of Uy, 2005.
er social scienrsity of Chica
ng Outcomes arket,” Strateg
9
the ive of
ed. ng
ven any ort his
bal
wat, ess
h in ool and aps
age n 5
ign rtz, per,
U.S.
nce ago
in gic
