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Distance Still Matters

This document discusses how considering different dimensions of distance can help companies select profitable foreign markets for expansion. It outlines four dimensions of distance to analyze - cultural, administrative, geographic, and economic. Certain types of distance, like different languages or lack of shared institutions, can increase business risks in a foreign market. However, similarities across distance dimensions suggest good potential. The document provides an example of a company that improved its foreign market selection analysis by incorporating distance dimensions, identifying a new top market opportunity. Analyzing how distance may impact an industry can help identify promising global investment locations.

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253 views

Distance Still Matters

This document discusses how considering different dimensions of distance can help companies select profitable foreign markets for expansion. It outlines four dimensions of distance to analyze - cultural, administrative, geographic, and economic. Certain types of distance, like different languages or lack of shared institutions, can increase business risks in a foreign market. However, similarities across distance dimensions suggest good potential. The document provides an example of a company that improved its foreign market selection analysis by incorporating distance dimensions, identifying a new top market opportunity. Analyzing how distance may impact an industry can help identify promising global investment locations.

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gauravinflames
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© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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CAGE FRAMEWORK FOR FOREIGN MARKET

SELECTION

Distance Still Matters


Why did U.S. media giant Star TV lose $500 million
trying to deliver TV programming to Asia?
Like many companies, it was so dazzled by the
foreign market's immensity that it ignored the
difficulties of pioneering new territories. For
example, it assumedwronglythat Asian viewers
wanted English-language programming.
How to avoid this fateand select the right targets
for your firm's global expansion? Look beyond a
country's sales potential (as expressed by national
wealth or propensity to consume)and analyze the
probable impact of distance.

Distance Still Matters


But don't focus only on distance's geographical dimension.
Consider three other dimensions as well:
cultural factors (religion, race, social norms, language);
administrative factors (colony-colonizer links, currencies, trading
arrangements); and
economic factors (income, distribution-channel quality).

The more two countries differ across these dimensions, the riskier
the target foreign market. By contrast, similarities along these
dimensions suggest great potential.
Common currency, for example, boosts trade more than 300%. Also, types of
distance affect industries differently.
Religious differences, for instance, shape people's food preferences but not
their choices of cement or other industrial materials.

By analyzing the possible impact of distancein all its dimensions


you sweeten the odds of investing in profitable foreign markets.

Distance Still Matters


How to decide whether to expand into a particular foreign country? Consider distance's four di
mensions and ask how they might affect your industry.
Administrative
and Political
Distance

Cultural Distance
Distance
between
two
countries
increases
with. . .

Different

languages,
ethnicities,
religions, social
norms

Lack of connec
tive ethnic or
social networks

Absence of
shared mon etary or political
association

Geographic
Distance

Political
hostilities
Weak legal and
financial institu tions

Economic
Distance

Different con

sumer incomes

Lack of com mon border,


waterway ac cess, adequate
transportation
or communica tion links

Different costs
and quality of
natural, financial,
and human
resources

Different

Physical
remoteness

information or
knowledge

Different
climates
Distance
most
afects in dustries or
products. . .

With high lin guistic content


(TV)

Related to
national identity
(foods)

Carrying
country - specific
quality associa tions (wines)

That a foreign
government
views as staples
(electricity), as
building nation al reputations
(aerospace),
or as vital to
national security
(telecommuni cations)

With low value


to - weight ratio
(cement)
That are fragile
or perishable
(glass, fruit)
In which com munications are
vital (financial
services)

For which de mand varies by


income (cars)

In which labor
and other cost
diferences mat
ter (garments)

Distance Still Matters


By considering the potential impact of distance on your industry, you may
identify promising global-investment opportunities.
Example:
Suffering limited cash flow and high debt- service obligations, Tricon
Restaurants International (TRI) had to select its global-expansion
investments carefully. An analysis of per-capita income and fast-food
consumption suggested Japan, Canada, and Germany as the most
promising countries in which to investwith Mexico ranking 16th among 20
possibilities. But when TRI included the four dimensions of distance in its
analysis, Mexico leapt to 2 nd place.
Mexico's geographic proximity to TRI's headquarters, the common land
border, and membership in a trade agreement with the U.S. reduced
geographic and administrative distance between the two countries.
If TRI hadn't considered these dimensions of distance, it might have
neglected this core market.

Country Portfolio Analysis without Distance


Adjustment

Country Portfolio Analysis without Distance


Adjustment

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