By the World Bank Group (2016), in the 1998-2014 period, as the economies of developed countries entered into the stage of maturity and showed lower negative growth rates, countries or emerging economies had a high potential for growth than economic development did. Wilson and Purushothaman (2003) estimate that by 2035, the gross national product of developing countries permanently will exceed all the developed and advanced countries.
Sheth (2011) stated that there are several factors which are responsible for the growth of emerging markets. First, economic reforms in Brazil, Russia, India, and China have unlocked their markets protected by ideology and socialism. Second, the developed countries are aging rapidly, which implies in stagnation of its markets or slow growth.
Third, the global liberalization of trade and investment, bilateral trade agreements, economic and regional integration as ASEAN, Mercosur and the European Union have resulted in global competition and global unprecedented product and services offerings, especially in emerging markets. And finally, the birth of a new middle class, especially in large markets such as China, India, and Brazil for the first time, creates a large-scale market for various products and services.
Thus, while developed countries show low growth rates (Lamy, 2006), firms looking to expand are turning to the emerging markets in order to make profits (O’Reilly 1988; Peak 1992; Goetzmann and Jorion 1999). Prahalad and Hart (2002) argue that markets with the greatest potential stand on the billions of poor people who are entering the Market consumption for the first time, a view that goes together with Merrilees (2014) for whom 80 percent of the world population lives in what is called or emerging markets countries.
But markets with greater potential for big returns have high risks (Amin, Sanusi, Kusairi, and Abdallah, 2014), and emerging markets are no exception. The problems with these markets are important to be considered by companies in developed markets which intend to entering to the emerging ones. Some of these problems are communications infrastructure (Khanna and Palepu, 1997), financial markets relatively underdeveloped, economic volatility, difficulty in finding business partners (Hitt, Tina, Dancin, Levitas, Arreggle, and Borza, 2000) and corruption (Khanna, Palepu and Singh, 2005).
Johnson and Tellis (2008) argue that these problems create distances between emerging and developed markets, with which companies must adapt to themselves. Ghemawat (2001), Miller (1992), Luostarinen (1979) and Dow and Karunaratna (2006) emphasize that costs and risks related to the various distances of non-business between these markets need to be recognized.
Ghemawat (2001) proposes to consider the distances (C) Cultural (A) Administrative (G) Geographicand (E), CAGE model for the analysis of the distances between markets that will be the theoretical basis for this research.
Thus, the research problem was: What factors influence the process of entering of a higher education institution in Brazil? The phenomenon under investigation is the process of internationalization, and the case is the Laureate (Schwandt, 1994/2006), and the overall objective is to verify the importance of the distances asCulture, Administration, Geographic and Economic – at the entrance of the Laureate International Network in Brazil.
2. Literature Review
Harris and Wheeler (2005) define internationalization as a process in which the company sells its products or services outside their local Market or source, thus focusing their involvement so in external markets. According to Welch and Luostarinen (1988), internationalization is the process where the company increases involvement in the cross-border operations. It is a process through which the company operates outside its home Market, and thus the internationalization can be understood from different ways of acting abroad, ranging from indirect export, joint ventures, licensing and acquisitions up to foreign direct investment (Root, 1994).
According to Cavusgil (2010), companies seek internationalization for some reasons and often these reasons are not isolated, some of them are strategic in nature and other reactives. In the case of internationalization of higher education, we can mention some of them:
– Looking for growth opportunities through diversification due to a significant potential market outside of the country of origin;
– getting higher profit margins, whereas foreign markets may be underserved;
– Acquiring new ideas about services and forms of trading, giving the company’s exposure to new ideas about processes and methods in outdoors environments;
– Developing economies of scale in this case in marketing and R and D due to a reduction in unit costs resulting from added volumes;
– Facing international competition effectively or frustrate the growth of competition in the domestic market, improving the competitive position to face international competition;
– Investing in a potentially advantageous relationship with a foreign partner, this can lead to the development of new products and services (Moja, 2004).
The globalization poses challenges for regional and national systems of higher education in the world of internationalization (Moja, 2004) that must be solved through business strategies. Hayhoe (1989), believes that international cooperation agreements, academic mobility, international scholarships, technical and economic development, international curriculum studies, cultural, historical and political context are the most important reasons for the internationalization of higher education.
2.1 Cage Framework – Measuring Distance Between Countries
One way to assess the internationalization process is the CAGE model. Ghemawat (2001), developed the CAGE model, in order to take into account, the cultural, administrative, geographic and economic distances between focal nation and another or more. Often, the managers prioritize only cost aspects and risk when they decide to internationalize a particular country. In addition to these aspects, the sales potential should also be part of this analysis and the sum of these factors, come from four aspects of distance between the countries, called by Ghemawat (2008) cultural, administrative, geographic and economics.
2.1.1. Cultural Distance
Cultural distance has its roots in the work of Hofstede (1980) which analyzed IBM’s operations in 40 countries in the period 1967-1973 by identifying the dimensions ‘distance power’, ‘risk aversion’, ‘individualism’ and ‘masculinity’ (Drogendijk and Slangenm, 2006).
Among many authors who criticized the results of Hofstede, there is Schwartz (1994) for those who have not examined the cultures of countries but IBM employees who do not necessarily represent countries. Also, there was a sample of countries covering the entire spectrum of national cultures; and the findings may be obsolete since culture is dynamic and may have changed from the time of the survey to the present day.
About the application of culture in international business there is the concept of the Cultural Distance considered complex, intangible, subtle and difficult to be respected and of have scales (Boyacigiller, Kleinberg, Philips, and Sackmann, 1996).
Kogut and Singh (1988) created a simple and standardized measurement for cultural distance – a tangible and convenient tool to deal with the complexities of this construct. For Shenkar (2001) the Cultural constructor is illusory due to the conceptualizing problems and measure, ranging from hidden assumptions to questionable methodologies undermining, thus the validity challenging their theoretical and application role.
Shenkar (2001) asserts that although Cultural distance has the criticism above cited, its application in research of foreign investment over the past 50 years has been broad with strong emphasis on the work of Kogut and Singh (1988), Hofstede (1980), Drogendijk and Slangenm (2006), and Schwartz (1994).
About the importance of Cultural distance, De Mooij (2004) asserts that the dimensions of culture exert greater influence in consumption patterns rather than the economic laws. Culture defined as values and meanings shared by members of a society affects both the consumption pattern and the implementation and execution of strategies (Kogut and Singh, 1988) implying its importance in entry strategies. This vision is shared by Håkanson and Ambos (2010), for whom the cultural distance between countries is defined as the distance between the source and the target market is determined by the perception of differences in religious beliefs, races, social norms, and languages. This research work tries to adopt these differences.
2.1.2. Administrative Distance
The administrative distance (A) involves aspects of being a member of the same union of countries, e.g., Commonwealth Countries, or part of a block of free trade as North AmericaFree Trade Area (NAFTA), European Union (EU) and MERCOSUR. It can be argued that this factor is a facilitator between the international list of countries, as this is an aspect of great impact in the process of the destination country (Andersson and Lundströn, 2007). This distance can be increased with trade barriers such as high import taxes, or rigid standards of quality and product safety. Countries with high levels of corruption and social conflicts suffer a negative impact on economic development (Ghemawat, 2008).
It is included in the results of Administrative Distance from Kostova and Roth (2008) and Xu and Shenkar (2002) for anyone considering the institutional distance between countries as an important factor. It is defined that Institutional distance as the difference in the aspects of regulation, cognition, and standards between the country and the destination of origin. Berry, Guillén, and Zhou (2010) complement this distance with bureaucracy, colonial ties, legal systems and political stability. And, Campbell, Eden, and Miller (2012) complement with formality, political systems (democracy vs. dictatorship) and the influence of the government in the business environment.