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 16th of 20fast 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