DISTANCE STILL MATTERS

By,
GROUP 3

questions
What was the main reason for the failure
of Star TV in China until 2002 ?
What are all the things taken into
consideration while constructing CPA
adjusted for distance ?
What happens when a company does not
consider CAGE Distance Framework ?
What is your own idea to reduce
distance barrier ?

What was the main reason for the failure

of Star TV in China until 2002 ?

Ignored cultural distance

We can say that Chinese consumers
are home biased
Local people foreign language skills
are limited
Ignored administrative and political
sensitivity

What are all the things taken into consideration

while constructing CPA adjusted for distance ?

Sensitivity to the culture

Studying economic, geographic and
administrative
Sharing a border and trade
agreements

What happens when a company does not

consider CAGE Distance Framework?

Firm may not be able to find the

market with buying power
Managers tend to face
administrative difficulties after
entering into the companies

Our ideas
In addition to CPA, we prefer using Self
Organizing Map-(SOP) to segment
customers in the global arena
Demographic data socio economic
and lifestyle measures
Product specific features customer
brand attitudes and brand preferences
The purchasing power of the customer
found from data

 The data mining process is done

Using SOP(algorithm), customer
segmentation is done
This is more visual approach

Introduction
In 1991, Star TV was launched in order to
deliver TV programming in the media
starving Asian markets.
Launched in English Language (cheaper)
rather to invest heavily in local programs.
Through 1996 1999 it reportedly lost
$500million and in 1999 it lost $141 million
on revenues of $111 million.
It didnt had a positive operating profit until
2002.

 It has been a great disaster for Star.

Like Star, many companies overestimate
the attractiveness of foreign markets, but
lose sight on the difficulties.
The most prominent Analytic tool that
Managers rely on is CPA (Country Portfolio
Analysis).
It focuses on GDP, Consumer wealth, and
people potential to consume. But, it ignores
costs and risks.

 These costs and risks are created by distance.

Its not geographic separation, but cultural , administrative,
political and economic separations.
In a recent study, its stated that, 1% percent increase in
GDP, increases .7% to .8% in trade.
Trade between two countries which are separated by 5000
miles is just 20% compared to countries which 1000 miles
apart.
Common currency increases trade by 340%
Common membership in regional trading increases trade by
330%.
Its said that, IT and Global com. have shrunk the world, but
its not in case of Business, here DISTANCE STILL MATTERS.

Four Dimensions of Distance

They are CULTURAL,
ADMINISTRATIVE, GEOGRAPHIC AND
ECONOMIC.
Each has different implications.
Geographic cost of transportation.
Cultural Consumer products.

Cultural distance
A countrys cultural attributes
determine how people interact with
one another and other companies.
3 times greater trade between
countries having common language.
Social norms are unspoken
principles.
Cultural attributes create distance by
influencing the choice of consumers.

 Color taste : red Beautiful in Russia.

Sometimes products can touch a
deeper nerve related to the identity.

Administrative or Political distance

Historical and political association shared by
countries greatly affect trade between them.
The integration of the European union is probably the
leading example to deliberate efforts to diminish
administrative and political distance among trade
partners.
Some measures are expressly intended to protect
domestic industries:

It is a large employer.
It is seen as a national champion.
It is vital to national security.
It produces staples.
It produces an entitlement goods or
services.
It exploits natural resources.
It involves high sunk-cost
commitments.

 Companies typically shy away from

doing business in countries known
for corruption or social conflict.
If it has well-functioning legal
systems it is much more attractive to
the outsiders.

Geographic distance
The farther you are from a country, harder it will
be to conduct business in that country
What are the attributes other than distance that
should be considered in case of geographic
distance ?

Physical size of the country,average

within-outside country distances to
borders,access to waterways,ocean and
topography

 The information networks and

transportation infrastructures is also
important when assessing the
geographic influences on crossborder economic activity .

Economic Distance
The income of consumers is most
important economic attribute that
creates distance between countries
Rich countries do trade with rich
countries
Poor countries also trade more with
rich countries than with other poor
countries.

Case in distance
Tricon Restaurants Internationals(TRI)
managers pizza hut, Taco Bell and
KFC fast food chain-spun off from
PepsiCo
Operated in 27 countries, profitability
varied
Competed with McDonald's
Decided to concentrate on limited
number of markets

Contd..
Country Portfolio Analysis is done
Flawed and distance adjusted
In flawed approach, Mexico ranked 16 th of
20-fast food consumption is 700$ million
In distance adjusted approach, Mexico
leaped to sixth place
Fine tuning considering land border,
trade agreement with USA, - pushed
Mexico to third place

 Companies with cosmopolitan

managers less affected by cultural
differences
Consideration of company specific
features made Mexico more
attractive
The company has got 38 % share of
the local market, well ahead of
McDonald's

conclusion
Managers conscious distance
Country Market Portfolio studied
Technology world smaller- not to
eliminate cost of distance