CAGE Distance Framework
Distance Still Matters analyses several factors that impact both success and failure in global expansion strategies. The challenges discussed are dimensions of distance. The four dimensions of distance discussed are cultural, administrative, geographic and economic. Cultural distance is essentially the differences in communication, interaction, religion, race and social norms. Administrative or Political distance refers to the absence of colonial ties, shared political association and institutional weaknesses. Examples of political barriers are tariffs, trade quotas and restrictions on foreign investment.
Political associations between countries, typically that exist in a colony/colonizer relationship facilitates international trade due to similarities in administrative dynamics. Geographic distance is created due to remoteness or the lack of access due to transportation, communication limitations or differences in size and climate. Economic distance is created by a discrepancy in resources such as financial, intellectual, human and natural.
Star TV’s attempt to expand into the global media television market was given as an example of a failed initiative due to the lack of focus on dimensions of distance between foreign markets.
Star TV was founded in 1991 with a mission to deliver television programming to Asian audiences. Their motivation was that they perceived the Asian audience as being starved for diverse media choices. Star projected that English language programming would transition into the Asian culture, especially with the socio-economic elite (top 5%). The strategy to gain a competitive advantage over broadcaster was to use satellite technology to transmit programming.
Star’s expansion attempt failed, recording losses of $141 million in 1999 and $500 million between 1996 and 1999. Without extensive Asian market research this initiative was unrealistic. An assumption was made that cultural distance did not exist between Asia and the United States. The Asian media market was not as interested in English speaking programming as Star’s management projected. Additionally, Asian governments imposed barriers to politically driven programming which created even more political distance that initially existed. Star TV’s mistake was the lack of market research and a “go/no go” decision making process. Too many assumption were made that the international media television market was immune to dimensions of distance such and cultural and political.
Identify a sample market and run a pilot test with several typical English-speaking programming options.
The CPA approach or the Country Portfolio Analysis looks at how the actual and potential markets measuring per capita income and per capita industry consumption. The two indicators plotted on a grid creating bubbles that represent the size of each country’s market Tricon Restaurants International (TRI)
Tricon spun off from Pepsico in 1997. The company’s core business is managing fast food chains such as Pizza Hut, Taco Bell and KFC both domestically and internationally in 27 countries. In 1998 the company began evaluating the possibility of consolidating operations within high performing markets. Two thirds of TRI’s revenues and even a higher proportion of profits came from 7 of the 27 markets. Based solely on market size, TRI’s initially plan was to dispose of its investment in Mexico. Mexico fast food market ranked 16th of 20, with a total fast food consumption of $700 million. Using the CPA approach, TRI identified Mexico as a top 3 priority based on geographic distance from Dallas, TX (TRI’s Headquaters), common land borders and favorable trade agreements with the United States. (Beamish, 2011)
Beamish W. Paul and Bartlett Christopher, Transnational Management: Text, Cases, and Readings in Cross-Border Mangement, pg. 95-105