Distance Still Matters:
Pankaj Ghemawat
The hard reality of global expansion.
Does distance represent risks and costs? And how can
companies overcome these risks or limit them?
Topic: Theoretical perspective
Tajudeen Ogunsola
Case study – Target Corporation
MOMN009H7: International Business Strategy (MSc. Module)
Case studies

1
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. Does distance represent risks and costs? And how can companies overcome these
risks or limit them?
2. “Distance” as a concept.
3. Impact on a firm’s business vs. Risks and costs associated with distance.
4. Addressing the questions.
5. Measuring the impact of distance.
6. The idea in brief.
7. Case study: Target Canada Market Entry.
8. Conclusion

Does distance represents risks and costs? And how can
companies overcome these risks or limit them?
Case study: Canada Market Entry
2 MOMN009H7: INTERNATIONAL BUSINESS STRATEGY

“DISTANCE” as a Concept”
Pioneering
new territories
Is technology and geo-economics
reshaping our lives?
Should we prepare ourselves for
this flat world?
“The world is
flat”
Thomas L. Friedman, April
3, 2005
“The world
is round”
Christopher Columbus,
1492
3
Presented by: Tajudeen Ogunsola
MOMN009H7: INTERNATIONAL BUSINESS STRATEGY

Does distance represent risks and additional cost? YES!
RISKS AND COSTS ASSOCIATED WITH
IMPACT ON A FIRM’S BUSINESS.
Unplanned costs
Unanticipated legal
liabilities/political RED
tape
Unforeseen regulatory
nightmares
Cultural complexities
Language barriers
Social issues
1 Ghemawat, et la, 2001
2 Shenkar, et la, 2012
6 Zaheer, Schomaker and Nahum., et la 2012
Chuck Leddy, 2013
4
Shenkar 2 states, "the pivotal to
representing market challenges [is] risks and
additional costs are within this context".
Telefónica's 20-Year Gamble
Pays Off
MOMN009H7: INTERNATIONAL BUSINESS STRATEGY
Impact On A Firm’s Business vs. Risks And Costs Associated With

Does distance present risks
and costs?
5 MOMN009H7: INTERNATIONAL BUSINESS STRATEGY
1
01 Yes, but no difference to
home market
Many do not know whether to invest in
other countries, but there are similar risks
if they stay at home
02
New market requires new
resources
Structure: requires time, resources and
people who understand the landscape and
ongoing monitoring of operations
03
Expose of host country assets
to elasticity risk
If you invest in another country, you
expose your other host country's assets
immediately to the elasticity of the risk in
the other country.
04 Costs is overcome if firms prof
Additional costs are ultimately overcome
if a company becomes profitable in
another country. Costs are overcome via
investment agreements; investment
acquisitions; government trade levies and
taxes.
05
Staying locally =
“industry cluster”
Staying locally ensures you remain part of
your “industry cluster”
Example
Technology companies like Google,
Facebook, or Apple have a headquarters in
London (where the UK government is
trying to drive innovation in this sector).
And how can companies
overcome these or limit them?

Measuring the Impact of distance
6 MOMN009H7: INTERNATIONAL BUSINESS STRATEGY

 Cultural, administrative
(political), geographical and
economic factors can measure
distance
 .Companies MUST conduct
extensive research before
entering the market to assess
the risks and costs.
 Managers MUST align the
distance of the country to the
company market (product /
services) and determine if the
company can create added
value there.
Achievement
The idea in Brief: lesson learned from market entry failures that supports Ghemawat ideas.
 "DISTANCE" affects a
company negatively
or positively.
 For example, there is
a positive
relationship
between economic
size, trade or a
negative relationship
between distance
and trade1.
Distance Impact Trade
Trade flow
theory of
gravity
The outcome of distance
7
“…distance’ strongly
represents risks and
costs" and how much
certain distance
variables will affect
trade10.
Source: Jeffrey Frankel and Andrew Rose15
Thomas L. Friedman10
Pankaj Ghemawat 11
Measuring the impact of distance
In summary;
MOMN009H7: INTERNATIONAL BUSINESS STRATEGY

Case study 1: Target Corporation
Objective
8
1). Acquire 124 former Zellers stores across Canada in 2011.
2). Convert stores to Target and enter market in a blitzkrieg of expansion
to deliver profitability in 2013.
Est. 1902–61 as the Dayton Company
Founder: George Dayton
Brand: Target Group
Origin: USA
Market objective: Canada market entry
Niche: Low-cost fashion retailer
Goal: Launch over 130 stores within four years
Global position: Second largest discount retailing store behind Walmart in
America.
Headquarters: Minneapolis, Minnesota, USA
Chief Executive Officer: Brian Cornell (12 Aug 2014)
Revenue: $69.5 billion USD (2016)
Number of locations: 1,828
Subsidiaries: Shipt, DermStore, Target Sourcing Services
Target Corporation – Canadian Market Entry
Limit or avoid risks and costs before expanding
Lesson Learned – Choose new markets wisely
Challenge: 1. Poor pricing alignment
2. Slow to launch Market implementation
3. Purchased Canadian stores in low foot-traffic location.
Lost revenue: $4 billion
The CAGE Distance Framework
Theoretical perspective: stores locations are not within shopping distance.
Geographically perspective: inconvenience to far
Cultural perspective: too cold and snowy during the Canadian winter
Economic perspective: Invested too much in the renovation, resulting
in increased financial pressures for early success.
Social perspective: customers were unsatisfied with the store layout,
its aesthetic appearance and distance to the stores.
Conclusion: ‘distance still matters’ “…as financial implication can be
devastating’11.
Dissatisfied with the long distance to stores, customers avoided
shopping at Target, hence the decline in Canada. But Target should
have analysed why Zeller's stores were for sale.
MOMN009H7: INTERNATIONAL BUSINESS STRATEGY

Conclusion: Target Corporation
9 MOMN009H7: INTERNATIONAL BUSINESS STRATEGY
It is impossible to avoid all types of risks or limit
financial losses. Ghemawat suggests that
companies go beyond the "norm" of traditional
market analysis to make more informed and precise
decisions for market expansion.
Risk & costs are
inevitable for
market expansion
Target Corporation's case study exemplifies that
distance still matters when companies enter
markets. Challenges faced by the company, which
demonstrated distance (America from Canada), did
not fit into Canadian consumer culture. Target lost
$4 billion in revenue due to "geographic" distance
and the impact of distance on market expansion.
Distance
represents risks
& costs

References
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10
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Reference for Figure/tables
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– 221
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[24] Sema Sakarya, Molly Eckman, Karen H. Hyllegard, (2007) "Market selection for international expansion: Assessing
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https://doi.org/10.1108/02651330710741820
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the Middle Maket, 2018)
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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