Case studies Distance Still Matters:

The hard reality of global expansion.

Pankaj Ghemawat

How can companies overcome “risk and additional cost”

or limit them?
Topic: Theoretical perspective

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

Addressing: ’Distance Still Matters: The Hard Reality of Global Expansion’ Debate

1. How can companies overcome ‘risk and additional cost’ or limit them?
2. Factors to Consider
3. Overcome or Limit Obstacles for Market Expansion.
4. Beyond a flat world
5. The idea in Brief: lesson learned from market entry on Ghemawat argument and
framework.
6. Case study: Netflix Inc.
7. Conclusion

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Case study: French Market Entry

How can companies overcome or ‘limit these risks and

additional costs or limit them?

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How can companies overcome ‘risk and additional cost’ or limit them?

DISTANCE STILL MATTERS

Ghemawat, Analyse
says there’s two key
→
& International investment for market expansion.
issues with how we;. Assess

1 Ghemawat, et la, 2001

11 Ghemawat, et la, 2001
12 Ghemawat, et la, 2008

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Factors to consider:
TYPE LEVER AVOID UNNECESSARY RISK AND COST

Consumer need Align firms market needs with consumer wants.

Can we change
our offering?
Customisation & Localisation , McDonald’s offering “shrimp” in seafood-loving Hong Kong.

Mode of entry A single entity (firm), in a joint venture or partnership for the mode of
Can we entry strategy - (e.g., Shell & NNPC Nigeria partnership).
change the
financial Barriers of entry 1). Language and cultural differences 2). Inadequate infrastructure (roads, ports,
value? etc.) 3). Transportation and Logistics costs (e.g., some BRIC or MINT country issues.

Can we change Legal/Regulatory Structures Full comprehension of the market's legal, and regulatory structure, against the
how the firm's operation.
customer uses
our offering? Exchange Rate & Country Risk
Limitation on capital outflow (e.g., China), foreign exchange fluctuation
(e.g., Nigeria) limit financial complication.
27 Adapted from Chuck Leddy, 2013
12 Ghemawat, et la, 2008

MOMN009H7: INTERNATIONAL BUSINESS STRATEGY 6

Overcome or Limit Obstacles for Market Expansion

WHAT TO DO IT’S IMPLICATIONS

“…the use of tools that consistently underestimate and

STOP– routinely exaggerate the attractiveness of foreign markets
that can lead to expensive mistakes1”.
+

= “…the impact of distance in all its dimension and don’t loose

IDENTIFY sight of the difficulties of pioneering new, often different
territories3”
=

GO ABOVE AND BEYOND

“…[with]…CPA analysis to identify or give a moral rational
approach to evaluating global opportunities1”

1 Ghemawat, et la, 2001

11 Ghemawat, et la, 2001
12 Ghemawat, et la, 2008

MOMN009H7: INTERNATIONAL BUSINESS STRATEGY 7

Beyond a “flat” world

THE CAGE FRAMEWORK INDICATES FIRMS MUST GO BEYOND

01 Knowledge & Synergy

Expand the knowledge base of the company and
develop synergies with other companies.

02 Opportunities & Scale

Creating economies of scale - especially in the
context of globalisation, an opportunity to reduce
certain risk and cost factors.

03 Experience & Shared Communication

Communication with existing companies that operate
in the market is becoming much easier to share
knowledge and experience to overcome or limit
international expansion risks and costs.

17 Dow, et la, 2006

23 House et la, 2004
11 Ghemawat, et la, 2008

MOMN009H7: INTERNATIONAL BUSINESS STRATEGY 8

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

How In practice
• Assessment and analysis Businesses MUST consider
of distance in all its alternative valuation methods for
market expansion;
dimensions before
▪ The alignment of companies with
entering the market.12 the wishes of consumers is
essential.
• Acquire more accurate,
specific, and detailed ▪ A complete understanding of the
knowledge to reduce legal, cultural and regulatory
wayward or exaggerated structure against the operation of
data, to overcome the company (accepted capital
exaggerated information outflows, currency fluctuations,
etc.) is essential. Achievement
Lesson learnt
and market optimism. 12
▪ Analysis & assessment strategies;
I. Ghemawat’s CAGE Distance
Framework
“flat world”
II. Hofstede’s Globe Framework -
Cultural Dimensions and Culture
Cluster
argument
III. Bartlett &Ghoshal’s
Responsiveness Framework
IV. Porter's Generic strategy for
competitive advantage
V. Ghemawat’s Regional
Strategy defining a firm’s
regions.

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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 great, 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 strong market oppression
Research Group Investors, Vanguard Group Inc., and BlackRock Inc.3 Cultural perspective: protest is common a 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 the requirement of 20% content creation. The entry of Netflix Inc. is
Market position: “connecting people with stories”8 regarded as a threat because cable and telecommunications partners are
Market penetration: 2014 —52%; 2015 — 43%; 2016 — 31%; 2017 — unwilling to exploit synergies. Moreover, the "right time" may have played
26%; 2018.9 a role, and the market could warm up for the brand in five years.

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Conclusion: Netflix Incorporated

The Netflix Inc. case alludes to the fact that we do not

Limit risk expect political and administrative bureaucracy before
& cost entering the market. Risk is inevitable, Netflix Inc.,
ASAP reduced additional risk with a quick market exit to limit
costs.

We learned from Netflix Inc that administrative, political

Consider and legal factors have serious implications if companies
alternatives fail to assess the market appeal in France. Therefore,
to overcome consider countries that have a specific policy and legal
challenges framework that provides more certainty for businesses to
overcome or limit further impacts.

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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