DeBeers Case

ADMINISTRATIVE AND/OR POLITICAL DISTANCE ATTRIBUTES:

Historical and political ties shared between countries greatly affect the trade between them. For instance Colony and colonizer ties between countries boost the trade relations by 900%. Preferential trading arrangements, common currency and political union can increase trade by more than 300% each.

Policies made by governments sometimes hinder competition across the border. More commonly though, it is the target country’s government that raises barriers to foreign competition through impositions of tariffs, trade quotas, restriction on foreign direct preferences and investments for domestic competitors in terms of favoritism and subsidies in procurement and regulation. These actions are taken to protect domestic industries. These policies are likely to be implemented if the domestic industry meets the following conditions: it is a national employer, it is a national champion, it is vital to national security, it produces staple, it produces an entitlement good or service, it exploits natural resources, and it involves high sunk-costs commitments. (Gardner, 1904)

A target country’s weak institutional infrastructure can dampen cross- border activity. Companies shy away from doing business in countries known for corruption and social conflict. These conditions may tend to depress the trade and investment far more than instability. A country whose institutional framework is strong will attract outsiders.

GEOGRAPHICAL DISTANCE ATTRIBUTES:

In general, the farther you are from a country; the harder is it for you to conduct business in that country. Geographical distance may not necessarily include the distance in miles or kilometers, rather attributes such as physical sixe of the country, average within country distance to borders, access to water- ways and ocean and topography. Man- made geographical attributes must also be taken into consideration.

Geographical attributes affect the cost of transportation. Bulky goods incur high costs as geographical distances increases. Likewise the transportation of fragile or perishable goods across the border becomes significant across large distances.

Geographical distance has a dampening effect on investment flows as well as on trade flows. It is important to keep in mind both information networks and transportation infrastructure in mind when assessing the geographical influences on cross- border economic activity. (Reunert, 1893)

ECONOMIC DISTANCE ATTRIBUTE:

The wealth or the consumers’ income is the crucial economic trait that keeps countries wide a part and it further affects the trade levels and the type of partners a country trades with. Rich countries will trade more with their counterparts or countries relative to their economic size. (Janine, 2003)

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