Administrative Distance in Business

One of the four important dimensions of ‘distance’ viewed from business sense happens to be the administrative and political distance existing in the two countries. If any two countries have historical and political associations, such associations would help in decreasing differences in administrative environments of the two countries. To cite examples, it is easy for Britain to establish trade ties with its former colonies in Asia, for France with West Africa and for Spain with Latin America because of the colony- colonizer relations between those countries. Such historic ties lead to preferential trading arrangements between those countries resulting in less regimented business climate. In modern times, concepts like common currency emerged to be the instruments for reducing the differences in administrative environments between the countries. The establishment of European Union (EU) and the launching of Euro as common currency for European countries is an example in this regard, which vindicate the impact of such measures on decreasing the differences in administrative environments between countries and increasing the trade.

Administrative distance between countries is also influenced greatly by the policies of the governments of the host country as well as native country of an organization. In a few cases, administrative distance arises due to restrictions in the native country itself. An example is United States of America, which prohibits bribery from its organisations either inside or outside USA and various other regulations relating to health, environment and safety. These restrictions deter US companies from indulging in any action aimed at decreasing the difference in administrative environments like bribing officials or politicians, which is the norm while doing business in some countries.

Administrative distance arises mainly due to actions of the target country’s government. Restriction on foreign direct investment, trade quotas, taxes, preferences and incentives to domestic companies by way of subsidies and liberal treatment in regulation are some of the ways in which the target countries create trade barriers. There measures are usually intended to protect domestic industries in particular.

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