You don’t need to do a marketing program to introduce Armenian brandy to the Russian buyer

“Lessons” by Satik Seyranyan of the program the guest՝ Vardan Aramyan, international expert in public finance management, former Minister of Finance of the Republic of Armenia, Master of the University of Illinois, USA, introduced the capabilities of a new export distance measurement tool:

«The physical distance between Armenia and Russia is 2081 km. When we factor in cultural, geographic, administrative and economic factors, the distance shrinks to 1,598 km. This means that the Russian market is simplified for us. This is without considering the existence of our Diaspora, which helps our businessmen. Armenian buyers in Russia prefer Armenian apricots to Uzbek apricots, which are cheaper. You don’t need to make a marketing program to introduce the Russian buyer to Armenian cognac, because we are people of the same USSR territory,” said Vardan Aramyan.

According to his measurements: on the contrary, the distance from Armenia to Germany in a straight line is 2934 km. If we consider those 4 factors above, the distance becomes 3550 km. This means that under equal conditions, Armenian businessmen have to spend more in order to enter the German market in order to overcome the mentioned 4 barriers. 

“Netherlands’ 3264 km becomes 3871 km, Ukraine’s 1327 becomes 1335 km. the series can be continued: And in the case of EAEU countries, not only in the case of Russia, but also in the case of all countries, the distance is decreasing: This means that it is more profitable for an Armenian businessman to export to Russia and all other EAEU countries, including former USSR countries,” said the former finance minister.

What is that distance measuring tool?

The CAGE Distance Framework is a tool created by Pankaj Ghemawat that helps companies and analysts assess the real distance and risks between countries before entering the international market. It shows that distance is not just kilometers. CAGE is an acronym that consists of 4 main dimensions:

1. C- Cultural Distance

Differences between countries’ social norms, values ​​and communication.

What increases the distance? Different languages, religions, ethnic differences and levels of social trust.

The influence. Influences consumer preferences (eg food, media products) and business negotiation style.

2. A- Administrative Distance

Differences or connections between governmental, legal, and political systems.

What shortens the distance? Common history (eg former colonial ties or shared Soviet past), use of the same currency, membership of trading blocs (eg EAEU, EU).

What increases? Political hostility, sanctions, bureaucracy, protectionist (protecting the local producer) policy.

3. G- Geographic Distance

Physical and spatial factors between countries.

What does it include? Physical distance (in kilometers), presence of land borders, landlocked, time zone difference, climate and quality of transport/logistics infrastructure.

The influence. It directly affects transportation costs, speed of supply chains and communication.

4. E-Economic Distance

The discrepancy between countries’ economic development, wealth and resources.

What does it include? Per capita income (GDP), cost and quality of labor, access to infrastructure, technology and natural resources.

The influence. Determines whether the local market has sufficient purchasing power, or whether it is profitable to establish production there (for example, at the expense of cheap labor).

The main goal of the CAGE framework is to prevent companies from falling into the “global illusion”. It makes you see the hidden barriers that can fail even international programs that seem perfect on paper.

Thus, when, for example, in the case of exports from Armenia to Germany, the 4 barriers are calculated, the effective distance increases (although it is not so far physically), and in the case of Russia and the EAEU, on the contrary, it “reduces” due to integration and historical-cultural factors, making the market more accessible and profitable for the local exporter.

Details in the video.

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