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1.3.5 Need for Strategies to Respond to Local Needs

When creating a global strategy in a flattened world, it is important to acknowledge that local markets, particularly in developing countries, will have barriers of different heights and types. Global strategies indicate pathways to overcome barriers and realize new business opportunities. Methods to overcome such barriers and exploit the differences in the business environments depends on the type of differences between Japanese and local markets. When proposing the Culture, Administration, Geography, and Economics (CAGE) format, Ghemawat states the necessity of analyzing the differences between countries (Ghemawat uses the term “distance”) (Ghemawat 2007). CAGE represents culture, administration, geography, and economics, all of which are country specific. Physical distance, as represented by geography, has shrunk with the IT revolution and advancements in transportation technology; however, languages and lifestyle related differences (“Culture”) and various economic regulations, tax systems, and regulations on foreign investment (“Administration”) still exist as major differences among countries. Therefore, vast economic differences (“Economics”) exist in per capita GDP and wages.

Global businesses with operations expanding into new markets are akin to investments in new ventures. In such cases, differences between the home and destination countries are considered as risk factors when making investment decisions. It is possible to estimate physical distance (“G”) and economic gaps (“E”) with a certain degree of accuracy. In addition, although it is difficult to quantitatively assess cultural differences (“C”), it is possible to estimate them to a certain degree using past case studies, including those from other companies. Thus, the administrative aspect (“A”) remains the one area of barriers and differences in global business environment for which risk must be seriously evaluated. For example, in October 2006, companies in Shanghai's Jiading District in China were demanded to leave the area without prior notice. The district was designated as a new urban development area headed by the state. Many Japanese companies that became involved in this issue caused the government to also become involved. As of October 2012, this situation remains unresolved. In China, it is possible for the state decision to override a lease agreement for an industrial park, and there have been instances of companies forced to transfer and incur high losses. This example may be extreme, but there have been reports of such incidents in China on a daily basis. The system of contract law, which is the basis for business in developed countries, is imperfect in China; this imperfection is treated as an issue of particularly high risk because of the significant impact on businesses caused by unforeseen changes.

Within developing countries, institutional barriers in business environments arise from domestic circumstances, whether in China, India, or elsewhere. These barriers differ according to the target country. Thus, conducting business operations in China requires an understanding of the institutional imperfections and differences that exist there; the same applies for India and Indian domestic circumstances. Strategies must be created in response to the needs and circumstances of each country.

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