Case studies Distance Still Matters:

The hard reality of global expansion.

Pankaj Ghemawat

Target Corporation, Canada Market Entry

Netflix Incorporation, French Market Entry
Star TV Private Limited, China Market Entry
McDonald's Corporation, Jamaica Market Entry

Based on specific questions about the argumentation theory

of distance for market entry.

Tajudeen Ogunsola
Case study – practical examples
MOMN009H7: International Business Strategy (MSc. Module)
2018-03-21
Agenda
Pankaj Ghemawat
Professor of Global Strategy, Harvard Business Review Journal Article Titled ‘Distance Still Matters’ (2001 )

1. Pankaj Ghemawat’ Article

2. The CAGE Distance Framework

3. Target Corporation, Canada Market Entry

4. Netflix Incorporation, French Market Entry

5. Star TV Private Limited, China Market Entry

6. McDonald's Corporation, Jamaica Market Entry

1 MOMN009H7: INTERNATIONAL BUSINESS STRATEGY

Pankaj Ghemawat
Professor of Global Strategy Harvard Business Review Journal Article on ‘Distance Still Matters’ (2001 )

The four case studies presented relate to the questions

listed on the next slide regarding Professor Pankaj
Ghemawat's article in the Harvard Business Review journal
(2001) on "Distance Still Matters." In addition, a theoretical
argument is included separately in another presentation,
which addresses each question based on "distance" for
companies entering new markets as a case study with four
global brands.

Tajudeen Ogunsola
Case study 1 – 4
MOMN009H7: International Business Strategy
2018-03-21

2
 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)

Monitor and analyse to make better market entry decisions: like “invest” or “divest”.
Adapted by author based on the CAGE Distance Framework developed by Pankaj Ghemawat Source: P. Ghemawat, 2001

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Case study 1: Target Corporation

Objective Lesson Learned – Choose new markets wisely

1). Acquire 124 former Zellers stores across Canada in 2011. Challenge: 1. Poor pricing alignment
2. Slow to launch market implementation
2). Convert stores to Target and enter market in a blitzkrieg of expansion 3. Purchased Canadian stores in low foot-traffic locations.
to deliver profitability in 2013.
Lost revenue: $4 billion
Target Corporation – Canadian Market Entry The CAGE Distance Framework
Theoretical perspective: stores locations are not within shopping distance.
Est. 1902–61 as the Dayton Company Geographically perspective: inconvenience and to far
Founder: George Dayton Cultural perspective: too cold and snowy during the Canadian winter
Brand: Target Group Economic perspective: Invested too much in the renovation, resulting in
Origin: USA increased financial pressures for early success.
Market objective: Canada market entry Social perspective: customers were unsatisfied with the store layout,
Niche: Low-cost fashion retailer aesthetic appearance and distance to the stores.
Goal: Launch over 130 stores within four years Conclusion: ‘distance still matters’ “…as financial implication can be
Global position: Second largest discount retailing store behind Walmart in devastating’ 11.
America.
Headquarters: Minneapolis, Minnesota, USA Limit or avoid risks and costs before expanding
Chief Executive Officer: Brian Cornell (12 Aug 2014)
Revenue: $69.5 billion USD (2016) Dissatisfied with the long distance to stores, customers avoided shopping at
Number of locations: 1,828 Target, hence the decline in Canada. Nevertheless, Target should have
Subsidiaries: Shipt, DermStore, Target Sourcing Services analysed why Zeller's stores were for sale.

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Case study 2: Netflix Inc.
Headquarters: 100 Winchester Circle Los Gatos, California 95032
Chief Executive Officer: Reed Hastings
Revenue: $15,7 billion
Number of locations: 18 office locations across 14 countries.
Subsidiaries: 10
Objective Lesson Learned – Choose new markets wisely
1). Penetrate the most heavily regulated media markets.
Challenge: 1. Burdensome tax (19.6%) regime & heavily regulated market.
2). Reached a third of all French homes in five years. 2. Stiff competition from several French filmmakers & rivals.
3. Cultural business clash, Netflix Inc is a threat.
Netflix Inc – French Market Entry
Lost revenue: Undisclosed but significantly, to warrant market exit.
Est. 29 August 1997, Scotts Valley, California, United States.1 The CAGE Distance Framework

Founder: Reed Hastings and Marc Randolph 2 Theoretical perspective: it miscalculated operations in the French market.
Top shareholders: Leslie J. Kilgore, David Hyman, Greg Peters, Capital Geographically perspective: miscalculated the intense market oppression
Research Group Investors, Vanguard Group Inc., and BlackRock Inc.3 Cultural perspective: protest is common ground in French culture
Brand: Netflix Inc. Economical perspective: pressure to invest specifically in France forced
Origin: American early market exit within two years.
Market objective: France market entry.4,5,6 Social perspective: the market is already saturation and rivals successful
Niche: “three core niches” 1. Content marketing 2. Word of Mouth met customer needs.
Advertising 3. Bringing Fictional Characters To Life Conclusion: “Distance still matters,” the political and administrative
Goal: Become the best global entertainment distribution service. Licensing bureaucracy, were not anticipated.
entertainment content around the world. Creating markets that are
accessible to filmmakers.7 Limit or avoid risks and costs before expanding
Product: Provide a non-binding subscription allowing access to TV shows
and movies without non-supporting ad content on any internet-connected France has created a hostile business environment for Netflix Inc to
device, download content - on/offline and on any iOS apps. operate successfully, with its strict regulatory policies, heavy tax burdens,
Total Subscription member: roughly 750,000 and 20% content creation requirement. The entry of Netflix Inc. is regarded
Market position: “connecting people with stories”8 as a threat because cable and telecommunications partners are unwilling to
Market penetration: 2014 —52%; 2015 — 43%; 2016 — 31%; 2017 — exploit synergies. Moreover, the "right time" may have played a role, and
26%; 2018.9 the market could warm-up for the brand in five years.

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Case study 3: Star TV Private Limited

Lesson Learned – Choose new markets wisely

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

6 MOMN009H7: INTERNATIONAL BUSINESS STRATEGY

Case study 4: McDonalds Corporation

Lesson Learned – Choose new markets wisely

McDonalds – Jamaican Market Entry Challenge: Burgers are too small, with extensive licensing requirements and
exclusivity. Attractive franchise and real estate investments are required.
Moreover, the slow economy hampers local supply, essential for market
Est. May 15, 1940 Ray Kroc founded the McDonald's Corporation
penetration.
Founder: by Richard and Maurice McDonald
Brand: McDonalds Corporation Lost revenue: undisclosed but closed all of its 11 stores and operations
Origin: USA
The CAGE Distance Framework
Market objective: Jamaica market entry
Niche: Fast food restaurant Theoretical perspective: McDonald focused on distance’s
Goal: Launch 11 stores across the island in 1995 geographical dimension but failed to consider the dimensions of cultural
Exit: 10 years later factors (religion, race, social norms, language); administrative factors
Global position: McDonald's is the seventh-largest private employer in the (colony-coloniser links, currencies, trading arrangements); and economic
United States factors (income, distribution-channel quality).
Headquarters: Oak Brook , Illinois, U.S. (moving to Chicago in 2018)
Chief Executive Officer: Steve Easterbrook President/CEO Conclusion: McDonald's market entry in Jamaica encapsulates every aspect
Revenue: $24.622 billion USD (2016) of Ghemawat (P.G.) journal - 'distance still matters,' as it demonstrates the
Number of locations: 36,900 (December 31, 2016) unequivocal exaggeration firms predict and positively assess foreign market
Subsidiaries: domestic and 49 wholly-owned subsidiaries of the Company territories.

Limit or avoid risks and costs before expanding

Result
McDonald's has a sizable international presence; 65% of sales occur outside
As the Jamaican economy continued to slow, McDonald's struggled to attract the United States. For example, in developed markets like the U.K.,
new consumers or customers from rivals. Moreover, Jamaican consumers McDonald's operates in fast-growing emerging markets like China, India,
preferred larger burgers and noticed that McDonald's burgers did not compare Russia, and Eastern Europe. So why did the Company fail to adjust its
favourably to competitors. strategy in a volatile market like Jamaica?

7 MOMN009H7: INTERNATIONAL BUSINESS STRATEGY

Conclusion:

McDonald's has miscalculated Jamaica in administrative, economic and cultural terms.

McDonald's has also failed to adapt as the economy began to shrink. Star T.V., China,

Redefine. has taught us that distance markets have value and profitability opportunities and

Reinvent. Position distance markets are not avoidable. The company lost $4 billion in revenue due to
"geographic" distance and the impact of distance on the market expansion.
to Conquer
Ghemawat's articles best illustrate the economic impact of Target Corporation's
expansion into the Canadian market. We have also learned from Netflix Inc. that
administrative, political, and legal factors have severe consequences if companies fail to
assess the market's attractiveness.

The Ghemawat article makes some thought-provoking arguments about companies

Distance
operating in new markets. For example, managers need to rethink analysing or
matters evaluating foreign markets to determine market penetration.

8 MOMN009H7: INTERNATIONAL BUSINESS STRATEGY

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 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
2018-01-21