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Discuss Critically The Opportunities And Risks Of Distance In International Expansion

751 words - 4 pages

Globalization has certainly made the world a smaller and interconnected place. The reduction in trader barriers and technological advancements in communication and transportation have given firms the opportunity to expand internationally by accessing untapped markets and resources. However, companies routinely exaggerate the attractiveness of foreign markets, which leads to expensive mistakes. This essay shall discuss the opportunities and risk associated with distance in international expansion.

According to Ghemawat (2001), distance between two countries can manifest itself along four basic dimensions: cultural, administration, geographic and economic. Geographic distance, for instance, ...view middle of the document...

Differences in economic distance however, can be a risk for companies that rely on economies of experience, scale and standardization. These companies should focus more on countries that have similar economic profiles as they have to replicate their existing business model to exploit their competitive advantage. This can be difficult to achieve in a country where customer incomes and cost/quality of resources are different.

A country’s culture attributes determine how people interact with one another and with companies and institutions. Countries with high cultural distances are likely to pose risks that could affect the perception and sales of the product being introduced. For example, Mattel’s inability to recognize the cultural distance in China led to the business failure of their House of Barbie store in Shanghai, which result in losses of approximately $30 million. Similar cultural distances, however, can be an opportunity for companies to not only enjoy economics of scale and scope through additional sales of their product or services to new markets but also escape intense competition in their domestic market.

Geographic distance is not simply how far away countries in miles or kilometers. Other attributes that must be considered include the physical size of the country, climate, access to waterways/oceans and man-made geographic attributes such as a country’s transportation and communication infrastructure. Companies selling or sources from...

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