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Distance Still Matters

Pankaj Ghemawat's article discusses how companies overestimate profit potential when expanding into foreign markets by underestimating "distance". Distance is defined across four dimensions: cultural, administrative, geographic, and economic (CAGE). The failure of Star TV to break into Asian markets, losing €500 million, showed the importance of cultural differences in programming preferences. To accurately assess global opportunities, the article argues that models used to evaluate foreign markets must explicitly account for CAGE distances rather than just focusing on GDP or consumption levels. Neglecting distance can lead companies to miss opportunities, as demonstrated by Mexico's rise in potential when borders and trade agreements reduced distances to the US.

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Hamza Butt
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337 views

Distance Still Matters

Pankaj Ghemawat's article discusses how companies overestimate profit potential when expanding into foreign markets by underestimating "distance". Distance is defined across four dimensions: cultural, administrative, geographic, and economic (CAGE). The failure of Star TV to break into Asian markets, losing €500 million, showed the importance of cultural differences in programming preferences. To accurately assess global opportunities, the article argues that models used to evaluate foreign markets must explicitly account for CAGE distances rather than just focusing on GDP or consumption levels. Neglecting distance can lead companies to miss opportunities, as demonstrated by Mexico's rise in potential when borders and trade agreements reduced distances to the US.

Uploaded by

Hamza Butt
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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“Distance Still Matters: The Hard Reality of Global Expansion”

Pankaj Ghemawat’s article, “Distance Still Matters: The Hard Reality of Global Expansion”
discusses the how company over estimate profit potential in foreign markets. On one hand, it is
true that all companies want to expand their network globally because nowadays expansions in
foreign markets have become an important part but on the other hand many companies are facing
failure. In this article, author said that the focus of many companies are on the financial side for
example the GDP of country, levels of consumer wealth and people’s tendency to consume.
Pankaj Ghemawat said that reason behind the failure of the companies that they underestimate
the “distance”. He defines distance in terms of four important dimensions (that are mentioned in
this article) like cultural distance, administrative distance (absence of colonial ties, government
policies and institutional weakness), geographic distance (country distances to borders, access to
waterways and the ocean) and economic distance (difference in consumer incomes, cost and
quality of different resources)(CAGE). The article gives a more rational approach to evaluating
Global opportunities. The failure of the big U.S media giant star TV lose €500 million trying to
deliver TV programming to Asia, for example star TV assumed that the Asian viewers wanted
English language programming but in reality the viewership inclined more towards the programs
telecasted in their own local language, company thought that rapid growth of technology brings
everyone close. But distance still matters and companies must explicitly and thoroughly account
for it when make decisions about global expansion. Due to this example we can see that how
cultural dimension plays vital role because star TV was insensitive to culture preferring local TV
programming. For expansion companies use CPA model in this size of bubble represents the total
size of the market in terms of GDP or the absolute consumption of offering. The bubbles provide
a rough estimate of how large the relative revenue opportunities are. TRI has used this model
according to the CPA approach they got Korea, Japan, Taiwan and Malaysia at top 4 in the list of
20 countries. But taking distance into account dramatically changes estimates of market
opportunities; Mexico leaps from 20th to 2nd place in terms of market opportunity because
common land border and membership in trade agreement between USA and Mexico. If TRI
neglected distance they may have abandoned a core market. According to the article, it important
to include tool of CAGE distance factors when using CPA because CPA underestimates the costs
and risks, neglect cultural, administrative, geographical and economic distances.

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