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

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

How can companies overcome or ‘limit these risks and
additional costs or limit them?
Case study: French Market Entry
MOMN009H7: INTERNATIONAL BUSINESS STRATEGY
2

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

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
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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

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.

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.

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

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

References
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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

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