DISTANCE STILL MATTERS –

THE HARD REALITY OF

GLOBAL EXPANSION CASE STUDY
BY GROUP 6
DEVANSH JALAN 2024PGDM069
DIVYANSHI GUPTA 2024PGDM175
.
ISHIKA RATNAM 2024PGDM076
RANDHIR SINGH THAKUR 2024PGDM091
SHIVANI PORWAL 2024PGDM103
 INTRODUCTION
 Companies often exaggerate the attractiveness of foreign markets and that can
lead to expensive mistakes.

 When making a global expansion, they often loose sight of the difficulties of
pioneering new, often very different territories.

 US Media giant Star TV looses $500 million trying to deliver TV programming

to Asia.

 Star TV decided to use readily available and fairly cheap English language
programming rather than having to invest heavily in creating new local
programs.

 The managers rely on making judgements about international investments,

tools that consistently underestimate the cost of doing business internationally.
 COUNTRY PORTFOLIO ANALYSIS
(CPA)
 CPA is a widely used technique for
deciding where a company should
compete.

 CPA emphasizes potential sales.

 CPA ignores the costs and risks of doing

business in a new market that result from
the barriers created by distance.

 Distance=NOT only geographical one

 THE CAGE DISTANCE FRAMEWORK
• CAGE stands for cultural, administrative,
geographic and economic distance.

• The CAGE framework helps manager

identify and assess the impact of
distance on various industries.

• The upper half lists the key attributes

underlying the four dimensions of
distance.

• The lower half shows how it affects

different products and industries.
 THE CAGE DISTANCE FRAMEWORK
1. CULTURAL DISTANCE 2. ADMINISTRATIVE DISTANCE

 A company’s cultural attributes determine how people  Administrative distance defines: absence of colonial

interact with one another. ties, absence of shared monetary or political

associations, political hostility, government policies

 Cultural Distance defines: different languages, different
and institutional weakness.
social norms, different religions, different ethnicities.
 Common barriers like tariffs, trade quotas, preferences
 Distance affects products with high linguistic content,
for domestic competitors to restrict for competitors.
products affect cultural or national identity of consumers.
 Star TV faced administrative barrier by Chinese
 Star TV was insensitive to culture preferring local TV
government like market access restrictions, high taxes,
programming.
and custom duties etc.
 THE CAGE DISTANCE FRAMEWORK
3. GEOGRAPHICAL DISTANCE 4. ECONOMIC DISTANCE
 Geographical distance defines: physical size of the  Economic distance defines: income of the customers, cost
country, access to waterways and the ocean, and quality of financial resources, cost and quality of
average within-country distance to borders,
human resources.
topography, country‘s transportation,
communications and infrastructure.  Influences of economic distance is:

 Cross-border • Rich countries engage in relatively more cross-border

equity flows between two countries fall
off significantly as the geographic distance between economic activity relative to their economic size than do the
them rises. poor countries.

 Products with low value-to-weight (steel and cement) • Companies that rely on economies of experience, scale, and
--> incur high costs as geographic distance increases. standardization should focus more on countries that have

 Fragile or perishable products --> significant costs similar economic profiles.

 CASE STUDY: TRICON RESTAURANTS
INTERNATIONAL (TRI)
 Operates KEY OBESRVATIONS:
pizza hut, taco bell and KFC fast food
chains.  Mexico leads from 20th to 2nd place in terms of market
opportunity.
 TRI was spun off from pepsico in 1997.

 Geographic proximity to TRI’s headquarters, Dallas.

 Initially operated in 27 countries.
 Common land border and membership in trade
 Profitability of its market varied, two third of the
agreement between US and Mexico.
revenues came from just seven markets.
 If TRI neglected distance, they may have abandoned a
 Focusing it’s equity investments in a limited core market.
number of markets.
 Mexico is top two or three priorities as far as doing
business globally is concerned for TRI.
 SUMMARY
• CPA underestimates the costs and risks.

• It neglects cultural, administrative, geographical and economic distances.

• Unreliable prediction of the attractiveness of foreign markets will be a

cause for massive financial losses.

• Include the tool of CAGE distance factors when using CPA.