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Netflix Incorporation

  1. Distance Still Matters: Pankaj Ghemawat The hard reality of global expansion. 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) Case studies
  2. Agenda Pankaj Ghemawat Professor of Global Strategy, Harvard Business Review Journal Article Titled ‘Distance Still Matters’ (2001 ) MOMN009H7: INTERNATIONAL BUSINESS STRATEGY Addressing: ’Distance Still Matters:TheHardRealityofGlobalExpansion’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 1
  3. How can companies overcome or ‘limit these risks and additional costs or limit them? Case study: French Market Entry MOMN009H7: INTERNATIONAL BUSINESS STRATEGY 2
  4. How can companies overcome ‘risk and additional cost’ or limit them? DISTANCE STILL MATTERS Ghemawat, says there’s two key issues with how we;. 1 Ghemawat, et la, 2001 11 Ghemawat, et la, 2001 12 Ghemawat, et la, 2008 Analyse Assess International investment for market expansion.  & MOMN009H7: INTERNATIONAL BUSINESS STRATEGY 5
  5. TYPE LEVER Align firms market needs with consumer wants. Consumer need , McDonald’s offering “shrimp” in seafood-loving Hong Kong. Customisation & Localisation A single entity (firm), in a joint venture or partnership for the mode of entry strategy - (e.g., Shell & NNPC Nigeria partnership). 1). Language and cultural differences 2). Inadequate infrastructure (roads, ports, etc.) 3). Transportation and Logistics costs (e.g., some BRIC or MINT country issues. Full comprehension of the market's legal, and regulatory structure, against the firm's operation. Mode of entry Limitation on capital outflow (e.g., China), foreign exchange fluctuation (e.g., Nigeria) limit financial complication. Barriers of entry Legal/Regulatory Structures Exchange Rate & Country Risk Can we change our offering? Can we change the financial value? Can we change how the customer uses our offering? AVOID UNNECESSARY RISK AND COST 27 Adapted from Chuck Leddy, 2013 12 Ghemawat, et la, 2008 Factors to consider: 6 MOMN009H7: INTERNATIONAL BUSINESS STRATEGY
  6. Overcome or Limit Obstacles for Market Expansion + = IT’S IMPLICATIONS WHAT TO DO “…the use of tools that consistently underestimate and routinely exaggerate the attractiveness of foreign markets that can lead to expensive mistakes1”. “…[with]…CPA analysis to identify or give a moral rational approach to evaluating global opportunities1” GO ABOVE AND BEYOND – STOP = IDENTIFY “…the impact of distance in all its dimension and don’t loose sight of the difficulties of pioneering new, often different territories3” 1 Ghemawat, et la, 2001 11 Ghemawat, et la, 2001 12 Ghemawat, et la, 2008 7 MOMN009H7: INTERNATIONAL BUSINESS STRATEGY
  7. Beyond a “flat” world 17 Dow, et la, 2006 23 House et la, 2004 11 Ghemawat, et la, 2008 8 THE CAGE FRAMEWORK INDICATES FIRMS MUST GO BEYOND MOMN009H7: INTERNATIONAL BUSINESS STRATEGY 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.
  8. In practice Businesses MUST consider alternative valuation methods for market expansion;  The alignment of companies with the wishes of consumers is essential.  A complete understanding of the legal, cultural and regulatory structure against the operation of the company (accepted capital outflows, currency fluctuations, etc.) is essential.  Analysis & assessment strategies; I. Ghemawat’s CAGE Distance Framework II. Hofstede’s Globe Framework - Cultural Dimensions and Culture Cluster III. Bartlett &Ghoshal’s Responsiveness Framework IV. Porter's Generic strategy for competitive advantage V. Ghemawat’s Regional Strategy defining a firm’s regions. Achievement • Assessment and analysis of distance in all its dimensions before entering the market.12 • Acquire more accurate, specific, and detailed knowledge to reduce wayward or exaggerated data, to overcome exaggerated information and market optimism.12 How “flat world” argument Lesson learnt 9 MOMN009H7: INTERNATIONAL BUSINESS STRATEGY The idea in Brief: lesson learned from market entry on Ghemawat argument and framework.
  9. Case study 2: Netflix Inc. 10 1). Penetrate the most heavily regulated media markets. 2). Reached a third of all French homes in five years. Limit or avoid risks and costs before expanding Lesson Learned – Choose new markets wisely Challenge: 1. Burdensome tax (19.6%) regime & heavily regulated market. 2. Stiff competition from several French filmmakers & rivals. 3. Cultural business clash, Netflix Inc is a threat. Lost revenue: Undisclosed but significantly great, to warrant market exit. The CAGE Distance Framework Theoretical perspective: it miscalculated operations in the French market. Geographically perspective: miscalculated the strong market oppression Cultural perspective: protest is common a ground in French culture Economical perspective: pressure to invest specifically in France, forced early market exit, within two years. Social perspective: the market is already saturation and rivals successful met customer needs. Conclusion: “Distance still matters,” the political and administrative bureaucracy, were not anticipated. France has created a hostile business environment for Netflix Inc to operate successfully, with its strict regulatory policies, heavy tax burdens and the requirement of 20% content creation. The entry of Netflix Inc. is regarded as a threat because cable and telecommunications partners are unwilling to exploit synergies. Moreover, the "right time" may have played a role, and the market could warm up for the brand in five years. MOMN009H7: INTERNATIONAL BUSINESS STRATEGY Est. 29 August 1997, Scotts Valley, California, United States.1 Founder: Reed Hastings and Marc Randolph 2 Top shareholders: Leslie J. Kilgore, David Hyman, Greg Peters, Capital Research Group Investors, Vanguard Group Inc., and BlackRock Inc.3 Brand: Netflix Inc. Origin: American Market objective: France market entry.4,5,6 Niche: “three core niches” 1. Content marketing 2. Word of Mouth Advertising 3. Bringing Fictional Characters To Life Goal: Become the best global entertainment distribution service. Licensing entertainment content around the world. Creating markets that are accessible to filmmakers.7 Product: Provide a non-binding subscription allowing access to TV shows and movies without non-supporting ad content on any internet- connected device, download content - on/offline and on any iOS apps. Total Subscription member: roughly 750,000 Market position: “connecting people with stories”8 Market penetration: 2014 —52%; 2015 — 43%; 2016 — 31%; 2017 — 26%; 2018.9 Netflix Inc – French Market Entry Objective 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
  10. Conclusion: Netflix Incorporated 11 MOMN009H7: INTERNATIONAL BUSINESS STRATEGY We learned from Netflix Inc that administrative, political and legal factors have serious implications if companies fail to assess the market appeal in France. Therefore, consider countries that have a specific policy and legal framework that provides more certainty for businesses to overcome or limit further impacts. Consider alternatives to overcome challenges The Netflix Inc. case alludes to the fact that we do not expect political and administrative bureaucracy before entering the market. Risk is inevitable, Netflix Inc., reduced additional risk with a quick market exit to limit costs. Limit risk & cost ASAP
  11. References [1]P. Ghemawat, "The Cross-Border Integration of Markets and International Business", SSRN Electronic Journal, 2001. [2]O. Shenkar, "Beyond cultural distance: Switching to a friction lens in the study of cultural differences", Journal of International Business Studies, vol. 43, no. 1, pp. 12-17, 2012. [3]"Business Opportunities and Risks: Plan Before You Expand Overseas", National Center for the Middle Market, 2018. [Online]. Available: plan-before-you-expand-overseas. [Accessed: 16- Jan- 2018]. [4]M. Alexander, "When you shouldn't go global (companies' ill-fated globalization strategies)", Strategic Direction, vol. 25, no. 5, 2009. [5]J. Dunning, "Location and the multinational enterprise: A neglected factor?", Journal of International Business Studies, vol. 40, no. 1, pp. 5-19, 2009. [6]S. Zaheer, M. Schomaker and L. Nachum, "Distance without direction: Restoring credibility to a much-loved construct", Journal of International Business Studies, vol. 43, no. 1, pp. 18-27, 2012. [7]B. O'Brien, "4 lessons learned from famous market entry failures - Trade Ready", Trade Ready, 2018. [Online]. Available: lessons-learned-famous-market-entry-failures/. [Accessed: 16- Jan- 2018]. [8]"Forbes Welcome",, 2018. [Online]. Available: can-be-managed/#7c0c3a543acb. [Accessed: 18- Jan- 2018]. [9]D. Chatterjee, "Morgan Stanley values STAR TV at $11.2 billion",, 2018. [Online]. Available: stanley-values-star-tv-at-11-2-billion-115082900813_1.html. [Accessed: 18- Jan- 2018]. [10]T. Friedman, "It's a Flat World, After All",, 2018. [Online]. Available: [Accessed: 18- Jan- 2018]. [11]P. Ghemawat, "Distance still matters. The hard reality of global expansion.", Harvard Business Review, no. 0, 2001. [12]P. Ghemawat, "The world is still round - like a soccer ball: redefining global strategy", Strategic Direction, vol. 24, no. 3, pp. 3-5, 2008. [13]R. Thakur, "Redefining Global Strategy: Crossing Borders in a World Where Differences Still Matter Pankaj Ghemawat", Paradigm, vol. 12, no. 1, pp. 106-108, 2008. [14]J. Frankel and A. Rose, "An Estimate of the Effect of Common Currencies on Trade and Income", SSRN Electronic Journal, 2001. [15]P. Ghemawat, "Competition and Business Strategy in Historical Perspective", Business History Review, vol. 76, no. 01, pp. 37-74, 2002. 12 [30] House R.J. et al. (eds.), Culture, Leadership, and Organizations: The GLOBE Study of 62 Societies. Thousand Oaks, CA: Sage, 2004. [16]O. Shenkar, "Cultural distance revisited: Towards a more rigorous conceptualization and measurement of cultural differences", Journal of International Business Studies, vol. 43, no. 1, pp. 1-11, 2012. [17]D. Dow and A. Karunaratna, "Developing a multidimensional instrument to measure psychic distance stimuli", Journal of International Business Studies, vol. 37, no. 5, pp. 578-602, 2006. [18]G. Hofstede and G. Fink, "Culture: organisations, personalities and nations. Gerhard Fink interviews Geert Hofstede", European J. of International Management, vol. 1, no. 12, p. 14, 2007. [19]S. Sakarya, M. Eckman and K. Hyllegard, "Market selection for international expansion", International Marketing Review, vol. 24, no. 2, pp. 208-238, 2007. [20]N. Dawar and J. Ramachandran, "Defending Turf: Marketing Strategies for Emerging Market Companies", SSRN Electronic Journal, 1998. [21]M. Hitt, M. Dacin, E. Levitas, J. Arregle and A. Borza, "PARTNER SELECTION IN EMERGING AND DEVELOPED MARKET CONTEXTS: RESOURCE-BASED AND ORGANIZATIONAL LEARNING PERSPECTIVES.", Academy of Management Journal, vol. 43, no. 3, pp. 449-467, 2000. Reference for Figure/tables [22]Lorraine Eden, , Stewart R Miller, (2004), DISTANCE MATTERS: LIABILITY OF FOREIGNNESS, INSTITUTIONAL DISTANCE AND OWNERSHIP STRATEGY, in Michael A. Hitt, Joseph L.C. Cheng (ed.) "Theories of the Multinational Enterprise: Diversity, Complexity and Relevance" (Advances in International Management, Volume 16) Emerald Group Publishing Limited, pp.187 – 221 [23] House, R. J., Hanges, P. J., Javidan, M., Dorfman, P. W., & Gupta, V. (2004). Culture, Leadership, and Organizations: The GLOBE Study of 62 Societies. Thousand Oaks, CA: Sage Publications. [24] Sema Sakarya, Molly Eckman, Karen H. Hyllegard, (2007) "Market selection for international expansion: Assessing opportunities in emerging markets", International Marketing Review, Vol. 24 Issue: 2, pp.208-238, [25]Porter, M.E. 1985. Competitive advantage: creating and sustaining superior performance: with a new introduction. New York: The Free Press [26] Porter, M.E. 1980. Competitive strategy: techniques for analyzing industries and competitors: with a new introduction. New York: The Free Press [27] Chuck Leddy, 2013, Business Opportunities And Risks: Plan Before You Expand Overseas Source: (National Center for the Middle Maket, 2018) [28] Dawar, N., Frost, T., ‘Competing with Giants: Survival Strategies for Local Companies in Emerging Markets’ MARCH–APRIL 1999 ISSUE [29] Brent Adamson, Matthew Dixon and Nicholas Toman (2013)Dismantling the Sales Machine FROM THE NOVEMBER 2013 ISSUE HTTPS://HBR.ORG/2013/11/DISMANTLING-THE-SALES- MACHINE MOMN009H7: INTERNATIONAL BUSINESS STRATEGY
  12. Case study – Pankaj Ghemawat article on Distance Still Matters: The hard reality of global expansion. MOMN009H7: International Business Strategy Thank you! Q&A Tajudeen Ogunsola