The Four Dimensions of Distance

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The Four Dimensions of Distance

Distance between two countries can manifest itself along four basic dimensions: cultural, administrative, geographic, and economic. The types of distance influence different businesses in different ways. Geographic distance, for instance, affects the costs of transportation and communications, so it is of particular importance to companies that deal with heavy or bulky products, or whose operations require a high degree of coordination among highly dispersed people or activities. Cultural distance, by contrast, affects consumers' product preferences. It is a crucial consideration for any consumer goods or media company, but it is much less important for a cement or steel business.

Cultural Distance
* Culture determine how people interact with one another and with companies and institutions * Some cultural attributes are not easily perceived like social norms * Cultural attributes influence the choices that consumers make between substitute products because of their preferences

Administrative or Political Distance
* Historical and political associations shared by countries greatly affect trade between them * Countries can also create administrative and political distance through unilateral measures * Weak institutional infrastructure can serve to dampen cross-border economic activity

Geographic Distance
* The farther you are from a country, the harder it will be to conduct business in that country * Physical size of the country, average within-country distances to borders, access to waterways and the ocean, and topography should be taken into account * Geographic attributes influence the costs of transportation * Intangible goods and services are also affected by geographic distance

Economic Distance
* The wealth of income of consumers is the most important economic attribute that creates distance between countries, and it has a marked effect on the levels of trade and the types...
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