Introduction nations has weakened. The importance of the concept

Introduction

 

According
to Thomas Freidman (2007), due to globalization, the world has flattened and shrunk
to a size enabling every nation to be part of the global market and every
individual be a global market plater. Through the stages of globalization 1.0
to 3.0, the world has become gradually smaller from large, to small and tiny
size. In this globalization 3.0 stage, with the technologies of
telecommunication, transportation, and the internet,
the
world has not only become tiny, but also
flattened. In theconsequence, companies are no
longer sole players in global markets. Individuals from all over the worldnow can
 can now be
connected to almost every resources around
the world they want and be is a key player in a
globalized market.

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It seems that in a flattened world, the power of boarders
between nations whichis are
considered to be barriers that slower down,
or sometimes even block the flow of trade between
nations has weakened. The importance of the concept and value of “sharing”
whole through the digitized world, such as knowledge- sharing
and cloud computing, have increased and eventhe
technologies such as AI, 3-D printing, and
nanotechnology which are defined as the main technologies for the 4th
industrial revolution (Klaus Schwab, 2017) haves
become popular,. Therefore,
it seems that distance is no longer an important matter in this high-tech
digitalized world. In other words, to regarding
AI and blockchain technologies, the distance factor seems to be irrelevanthas no
reason to be on the table.

 

However, Ghemawat, inhis the
articleof called
‘Distance Still Matters’ (2001), Ghemawat claims
that
the world is not flat and that we
are onin the
stage of semi- globalization
where
in which we should be concerned
about various forms of distances when building business strategies
for globalization. According to Ghemawat, geographic distance is not the only
distance that matters. Along with geographic distance, we should pay
attention to concern cultural, administrative and
political, and economic distance when analysing distance between nations.

 

 

Why and with what effects distance still
matters in a globalizing world?

According to Ghemawat’s
article (2001), Star TV’s attempt to deliver television programming toa
media-starved Asian countries failed in the late
1990s. It failed even though their CPA
(Country Portfolio Analysis), which was based on gravity theory that
analyses which country to expand to,start their new markethad
made them be sure to head to the Chinese market. He argued pointed
outthat the analytical tools they choose,
the CPA, was not the proper tool to analyse global markets in the first place.
Even though, it was widely used and might be a
useful tool to analyse how the conditions of the market would be like by focusing
on national GDP, levels of consumer wealth, and
people’s propensity to consume, it still is not a useful tool to analyse the
possible costs and risks of starting a business
in a foreign market which a company has never haveexperienced
before because it does not consider the differences, which would later be
explained as distance, between home country market and a whole new different
market outside home country.

 

Tothe Star
TV, the Asian market was not only a geographically
far from their home country, but was also wasa
far different place culturally, politically, and economically. With the failure
ofthe Start TV
expanding its global business into
the Asian market, Ghemawat introduced the importance of the four
dimensions of distance: Cultural distance, Administrative and Political distance,
Geographic distance, and Economic distance. (CAGE framework).

 

 

What is ‘Distance’ : CAGE
theory

 

Ghemawat proposed the CAGE
framework to make it possible for a company to analyse the possibility of
entering a foreign market through 4 distance dimensions.
Analysing various dimensions of distance is meaningful as Frankel and Rose’s
research which wasthat cited in Ghemawat’s
article cited in his article showed: CAGE
factors such as a common currency, a common
membership in a regional trading block, or a history
of colony-coloniszer
relationship increase thetrade by at least over 100 percent,
while traditional theory factors such as economic size only increase only0.8
percent per 1percent increase of GDP.

 

According to the CAGE
framework, we should focus on 4 different distances when we try to enter toa
foreign market. Cultural differences are the first distance that Ghemawat
introduced introduced. Differences in language,
ethnicities, religions, national work systems and values are distinguished as
cultural distances. These factors could be a barrier tofor
a company if it decidesd to keep
its domestic market strategy for the new foreign market as well
because the market would fail to understand the cultural differences and may
become allergic to it. It can be said to be a matter of understanding the
customer behaviour when you decided to communicate with a market from the
different cultural background.

Also, administrative
differences such as the lack of colonial ties, or a shared
regional trading block brings represent difficulties
when entering thea new market.
If a company is not prepared for the administrative differences, it’s attempt
to enter the new market would fail on their first step because the fact that a
company does not understand the administrative distance, means it does not meet
a minimum condition for a new market.

Geographic differences,
which is the most intuitive distance among 4 distance factors of CAGE, is also
an important barrier when entering into a foreign market. When a company needs
to ship or sell their products, environmental factors such as climate and
temperature change, as well as geographic distance matter.

Finally, economic differences
such as in consumer incomes or in the availability of natural, financial, and human,
resources could affect their marketing or operation strategies.

 

Thus, with considerations of
those distances, a company could analyse their possibility to enter a new
foreign market with an in-depth understanding ofn
the market. It is obvious that a company whicho
hasdone conducted an
analysisewith based
on the CAGE framework could be better prepared
for possible barriersmore. In other words, distance still
matters.

Using theWith
CAGE framework, Ghemawat explainsed
Google’s struggle with the Russian and Chinese market in his
article “Differences across countries” (Ghemawat 2007). Google’s biggest problem
in Russia was the relatively difficult language (Cultural distance). And
forRegarding the Chinese
market,definitely the difficulties in dealing
with Chinese censorship (Administrative distance) was definitely the
mostbiggest
problem. In addition, even though Google is offeringservicing
digitized services, it had trouble adapting to the Russian
market, hence it was required so they need
to set up offices there (Geographic distance). Finally, forconsidering
the economic distance, an underdeveloped
payment infrastructure in Russia kept Google to compete with local rivals. Even
to the company who is selling digitalized services,
distance still matters.

 

Does distance sStill
matters forin a digitalized
world?

Ghemawat once told that he often
frequently faces criticismis
asked by people who question his argument of distance. Often,
they ask him whathow he
thinks about  Facebook
(Ghemawat, 2012). In a world of Ffacebook,
distance does not seem to play a big part. You can havebe
friends from anyeverywhere
and hear from all over the world instantly. It seems that here is no border and
no barrier.

 

 As I mentioned before, assince
digital technologies have developed, technologies such as AI, Blockchain, and
3-D printing have become more and more important.
Industries try to focus on those technologies to renew their business models in
a more efficient and innovative way with using
high technologies. In this digitized world, people can order
things even without connecting to a device
physically, but by calling the device’s name.
and
mMajor consulting companies such as
Deloitte started to giving outpublishing
reports on a possible future of blockchain and
finance. In addition, AI technology amazesd
the world almost every day. It does seem like distance is no longer a crucial
factor in this highly digitized world.

 

“Has distance died?” (Mok et
al., 2010). Sit back on the your chair,
take off of your eyes offfrom
the from your
monitor and your cell phone, and just look what is
around yourself. The things thatsurrounding you are physical goods
which were manufactured by factories, not invisible digitized services. In
addition to this, according to the research of The Global Economy
(TheGlobalEcoomy.com, 2016), the average export dependency per GDP from around
the world in 2016 was still 41.52 percent. With Following
this, it is obvious thatthat
the  trading
of goods and services still makes up a majortakes majority
part of the global business, and in the same sense, distance still matters.
Especially, the conceptual distance of the CAGE
theory must be a crucial framework when establishing a firm and thorough global
strategies for the companies which target the markets they have never
experienced before. The CAGE framework could be a guide to their adventure into
a new world.

 

 

Conclusion and critiques

Given the fact that trading
goods and services between nations still
takes a huge part of the global
economy, dealing with barriers to thetrade in
between is the most crucial problem to theglobal
companies have to face. In this case,the
tariff and geographical distances are not
the only major barrier. The distance of cultural differences, administrative
differences, and economic differences are also themajor
barriers when establishing a global business strategy.

 

The CAGE
framework of Ghemawat is a useful tool to analyse the possibility of expanding
a company’s service to a new foreign market by examining thedistance
factors. Since itthe framework makes
it possible forthe companies to consider various
dimensions before they start their globalization strategy. The companies can
reduce the risk of entering the a market.
However, However, even though it enables thecompanies
to prepare possible barriers and build strategies to overcome them, the CAGE
framework itself still has some limitations.

 

First, it seems that this
framework only focuses on measuring the distance
between countries and does not introduce how to deal with the four different
distances. It is a company’s work to find out the solution to each barrier, the
distance, and build strategies when analysing the market with CAGE framework.
Second, its’s
approach to measuring the distance is focusing on finding a negative
effect of the distance factors. For example, when introducing
the cultural differences, Ghemawat introducesd
the factors such as different languages, different ethnicities, different
religions, differences in national work systems
and different values, norms, and dispositions to describe which
factors lengthen the cultural distance between countries. It seems that he
chose a negative approach to make
theforce companies to verify them and
eliminate risk factors instead of choosing a positive
approach which enablesto make
them to find opportunities and the possibility
of success.

 

With
these limitations, even though the CAGE
framework is a good tool for analysing a promising market,but it may
not be able to be a strategic tool for decision making on the strategy building
stage. As a result, it is recommended to use AAA strategies when using the CAGE
framework to complement the strategy making process and let a
company toovercome the distance barriers for a successful
and
soft landing into a new market.

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