Case study Distance Still Matters:

The hard reality of global expansion.

Pankaj Ghemawat

Companies often overestimate the attractiveness

of foreign market, and the extent of globalisation
has been vastly exaggerated. Do you agree?
Topic: Theoretical perspective

Tajudeen Ogunsola
Case study – Star TV Private Limited
MOMN009H7: International Business Strategy (MSc. Module)
Agenda
Pankaj Ghemawat
Professor of Global Strategy, Harvard Business Review Journal Article Titled ‘Distance Still Matters’ (2001 )

1. Companies often overestimate the attractiveness of foreign market, and

the extent of globalisation has been vastly exaggerated. Do you agree?
2. Benefiting from high distance market ?
3. The Idea in practice: The CAGE Distance Framework
4. Adaptation of the CAGE Distance Framework
5. Do you agree?
6. The idea in Brief: lesson learned from market entry on Ghemawat argument
and framework.
7. Case study: Star TV Private Limited
8. Conclusion

2 MOMN009H7: INTERNATIONAL BUSINESS STRATEGY

Case study: China Market Entry

Companies often overestimate the attractiveness of

foreign market, and the extent of globalisation has been
vastly exaggerated. Do you agree?

4 MOMN009H7: INTERNATIONAL BUSINESS STRATEGY

Overestimate the attractiveness of foreign market, and the extent of
globalisation has been vastly exaggerated. Do you agree?
Political/Administrative Economic Operations
Globalisation Exaggerated.
No has not been MINT
Economies GDP Trends
ASIAN TIGER
Economy

More countries Geographic

01 Globalisation is a Process are meeting Geographic distances

the minimal are shortening
Globalisation is not exaggerated but consider the level of critical through Technology Total
mass to attract & Coat addressable
number of trade agreements between nations. global
market
e.g., BRICS, MINT, NAFTA, or ASIAN TIGER attention (i.e.
Economic
Economic
Walmart,
economies. Starbucks,

02 Untapped Markets Dominos Pizza)– National Pride

Airlines, Commodity
Due to the sheer size of an untapped market, 1
(Oranges, Coffee)
– National Security
companies tend to lose sight of the difficulties of (Telco's)
America and
new territories rather than benefit from – National Defence Growing middle-
(Software, Arms) Cuba’s conflict
international expansion. Governments will protect these class Sephora entry
industries and restrict trade, into Japan
especially for “distant” sellers Ikea fight

03 Four Dimensions of Distance

Companies can take into account the four dimensions
of distance in order to dramatically change the
Geographicdistances
are shortening
through Technology
& Coat
Russian
corruption
Target’s exit
from Canada

company's assessment of the relative attractiveness

of foreign markets

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 Benefiting from high distance markets?
Industry and product offered by distance

Cultural differences Geographic Political/Administrative

05
Cultural differences
Market Alignment
Colonial examples
account for 900%
Adapt assets to industry characteristics for better
Spain/
increase market opportunities.1
Latin America Travel to and within
Technological distance
(modern/ traditional )
Trade costs (Shipping
costs) Time zones
06 Defend Market
Defend the company's new market by analysing and
evaluating home advantage to explore new growth
France/Canada &
French francophone
markets.12
African
countries Cultural/
Different
Social norms
Perhaps the best
known/understood
07 Extend Market Advantage
Extending the company's local advantages abroad
through Ghemawat's administrative / political
1

Logistical limitations distance to create or enter a new markets.13

USA/ Britain
Anglophone Africa
Americas &
the Caribbean/
Parts of Asia &
08 Grow Profits to Build Brand Equity
Contenders at global level can increase a company's
profit and build brand equity..11
"Down Under

Source: Dawar and Frost, “Competing with Giants: Survival Strategies for Local Companies in Emerging Markets”., 1999

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The Idea in practice: The CAGE Distance Framework

Source: Pankaj Ghemawat , “Distance still matters: The hard reality of global expansion” Harvard Business Review, 2001

7 MOMN009H7: INTERNATIONAL BUSINESS STRATEGY

 Adaptation of the CAGE Distance Framework

Industry and product offered by distance IMPACT OF DISTANCE Attributes creating distance

FIRST IN-BETWEEN SECOND

Cultural differences Geographic Political / Administrative Economic Operations
Colonial examples
account for 900% Spain/ Starbucks Polish
increase disaster
Latin America GDP Trends
– National Pride
Geographic Airlines, Commodity
(Oranges, Coffee)
Geographic distances – National Security
are shortening (Telco's)
France/Canada & through Technology
French francophone – National Defence Total
& Coat (Software, Arms)
African addressable
countries Cultural/ Governments will protect these
industries and restrict trade,
market
Different Travel to and within especially for “distant” sellers Economic
Social norms Technological distance
(modern/ traditional )
Trade costs (Shipping costs) America and Cuba’s conflict
Time zones Sephora entry into Japan
Ikea fight Russian corruption
Siemen Nigeria issue USA/ Britain Target’s exit from Canada
Anglophone Africa
Perhaps the best
Americas & More countries are meeting the
the Caribbean/ known/understood Growing middle-
Logistical limitations
minimal level of critical mass to
Parts of Asia &
attract global attention (i.e. Walmart, class
"Down Under
Starbucks, Dominos Pizza)

Monitoring and analysis to make better market entry decisions: such as "invest" or "divest."
Adapted by author based on the CAGE Distance Framework developed by Pankaj Ghemawat Source: P. Ghemawat, 2001

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Do you agree?
DISTANCE NEW OPPORTUNITY
GDP New markets
GDP increases by 1% percent ‘Trade between two
and .7% to .8% in trade.18 countries which are
separated by 5000 miles is
just 20% compared to
countries 1000 miles apart.’13
9 MOMN009H7: INTERNATIONAL BUSINESS STRATEGY
No globalisation has not been exaggerated.
Per Zaheer – ‘globalization
will eventually bring the idea
of cultural differences down
as the world will become
flatter’.1
DECIDE OR CONQUER
Currency/
memberships
‘Common currency The number of trade
increases trade by deals is an example
340% and/or of this (think NAFTA,
common Trading Blocs like the
membership in EU etc.)
regional trading
increases trade by
330%.’12
 .

The idea in Brief: lesson learned from market entry on Ghemawat argument and framework.

Why did Star TV lose $500M? How could STAR TV have

• Dazzled by the immensity
of a foreign market.
• Ignored the difficulties
pioneering a new field.
• "Assumed" Asian viewers
wanted English-language
programming.
avoided this fate?
▪ Ghemawat; Look beyond a
country's sales potential (as
expressed in national wealth or
the tendency to consume) and
analyse the likely effects of
distance.
▪ Companies should not only focus
on the geographical dimension of
Achievement
Lesson learnt
distance.

• Product offerings did not ▪ Businesses need to consider three

align with market needs.

other dimensions Countries
▪ 1. Cultural (religion, race, social
norms, language) differ in
▪ 2. Administrative (colony-
colonizer links, currencies, trading market
arrangements)
▪ 3. Economic (income, dimensions.
distribution-channel quality).

Strategies refer to; Ghoshal (1987),

Levitt (1983), Levitt, Montegomery and
Porter (1991), Agnihotri and Santhanam
(2003), Ohmae, K. (1994)

10 MOMN009H7: INTERNATIONAL BUSINESS STRATEGY

Case study: Star TV Private Limited

Lesson Learned – Choose new markets wisely

Star TV Television – China Market Entry
Est. First air date 26 August 1991
Founder: Keith Rupert Murdoch
Owner: China Media Capital (CMC
Brand: Star TV (21st Century Fox)
Origin: Australian/British/American
Market objective: China market entry
Niche: "Nouveau riche" – (newly rich elite) who could not only afford the
services but who also represented an attractive advertising market.
Cable television network, Subsidiary of (CMC)
Goal: Deliver TV programming across the Asian markets.
Product: Twentieth Century Fox English based TV/movie content
Market position: For information-hungry residents to bypass state-controlled
television channels
Market penetration: the top 5% of Asia's social-economic pyramid
Headquarters: 13/F One Harbourfront 18 Tak Fung Street
Chief Executive Office: Richard Li
Revenue: valued at $11.2 billion (2015 Morgan Stanley )
Number of locations: Star India, Star Greater China & Fox International India
Parent organization: The Walt Disney Company India
Subsidiaries: Not listed
Result
Companies that are considering alternative options like the CAGE
Distance Framework to discover market opportunities and / or
consumer spending power.
Challenge: The attractiveness of the foreign market has been
overestimated. Culturally, a key part of the Four Dimensions of Distance was
ignored or dismissed. The economic distance - the income of consumers was
exaggerated for the purpose of globalisation.
Lost revenue: In 1996-1999, it lost $500 million, then $141 million in 1999,
with revenues of $111 million. By 2002, there were positive operating
profits and Star TV continues to grow.
The CAGE Distance Framework
Theoretical perspective: It focused on the geographical dimension of
distance and did not account for three other factors: cultural (religion, race,
social norms, language); administrative (colony-colonization links,
currencies, trading arrangements); and economic factors (income,
distribution, channel quality).
Conclusion: Chinese consumers are indigenous people with limited foreign
language skills. Star TV's ignorance of administrative and political
sensitivity led to programmes that served no purpose. Star TV has not
aligned its audience with the preferred "local content." Ghemawat's
"distance still matters" shows catastrophic consequences if companies do
not go beyond "flawed," adjusted, and CPA analyses to determine the
attractiveness of foreign markets.

11 MOMN009H7: INTERNATIONAL BUSINESS STRATEGY

Conclusion: Star TV Private Limited

Limit risk Star TV, China, has taught us that high-distance markets have
& cost as soon value and profitability opportunities, and high-distance markets
as possible. are not an avoidance market.

Analyse the effects of distance to improve the chances of

Consider
investing in profitable foreign markets "1. Both case studies
alternatives to
(Target Corporation & Star TV) show similarities that the types
overcome
of distance (USA or China) affect industries differently or
challenges
culturally.

12 MOMN009H7: INTERNATIONAL BUSINESS STRATEGY

References
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MOMN009H7: INTERNATIONAL BUSINESS STRATEGY
 Thank you!
Q&A

Case study – Pankaj Ghemawat article on Distance Still Matters: The hard reality of global expansion.
Tajudeen Ogunsola
MOMN009H7: International Business Strategy