Distance Still Matters
The Hard Reality of Global Expansion

Pankaj Ghemawat argues the reasons for driving companies to overvaluation profit potential in foreign markets in the article which is named “Distance Still Matters, The Hard Reality of Global Expansion”. He examines the problems of some companies’ international expansion strives to detect that makes these problems mutual. According to his researches, he decides that these problems and failures have a mutual point as distance.

He explains it that companies inadequately take advantage from wrong method when deciding on international expansion as CPA ( country portfolio analysis). The CPA is related with national GDP ( gross domestic product), welthness of the people and tendency of people for consuming. However this tendency pass over “the costs and risks of doing business in the market.”

In the article, these costs are grouping as four main title: cultural distance, administrative distance, geographic distance and economic distance. Ghemawat created a schema which is called The CAGE Distance Framework. Cultural distance consists of different languages,race,religions and social norms. Administrative distance comprises of lack of colonial ties, shared monetary or political association, political contrast, government policies and organizational powerlessness. Physical position, absence of common frontier and sea access, greatness of country, weaknesses of communication and transportation networks and different climates are parts of the geographic distance. Economic distance includes income, cost and quality differences. Arranging a company’s CPA for a company compounding distance induces a absolutely different conclusion of a the growth potential of the country.

Ghemawat created a unique system and descriptor the CAGE Distance Framework for valuation the international expansion chances for companies. His opinions about it clearly defined but there is a missing point. For instance, we do not know which companies should use the CAGE Distance Framework or is it available for every company. Defining potential viewers may improve the effect of the CAGE Distance Framework.

In addition to this, most significant outcome of Ghemawat is his association of distance in a CPA resolution. After all, Ghemawat is not successful enough for describing in case of how Ghemawat attached a distance in a CPA. The outcome and entire effectiveness of the theory of the CAGE Distance Framework is open to discussion if we do not elaborating how it works.