Distance Still Matters: The Hard

¶ … Distance Still Matters: The Hard Reality of Global Expansion" by Pankaj Ghemawat

In "Distance Still Matters: The Hard Reality of Global Expansion," Pankaj Ghemawat explores one of the myths of globalization, which is that distance is no longer a factor in business. Ghemawat disagrees with this notion and believes that distance still plays a critical role in global business, and that the failure to properly account for the impact of distance on expansion leads some companies to overestimate the feasibility and attractiveness of global expansion. Companies tend to focus on the number of potential clients in a new market without examining the downsides of expansion to that market, which may differ dramatically from the market in which a company first found success. Ghemawat is especially critical of the traditional reliance on tools like the country portfolio analysis, which give a profile of consumer spending ability and willingness to spend, but fails to truly examine whether there will be a demand for that product in the new market. The facts that consumers have money to spend and a willingness to spend it are irrelevant if the product being sold is not considered desirable.

Ghemawat believes that there are four basic dimensions to the concept of distance: cultural, administrative, geographic, and economic. The dimensions interact with one another and influence how likely a company's expansion into a new market is to be successful. Moreover, it is important to realize that the different dimensions of distance impact different businesses in different ways. For example, companies that market actual products may be more concerned about geographic distance because of shipping concerns, while companies marketing media or entertainment may be more concerned about cultural distance. By examining those four factors, a company can get a better sense of the attractiveness of expansion to a new market.

Article Summary: "The Forgotten Strategy" by Pankaj Ghemawat

In "The Forgotten Strategy," Pankaj Ghemawat examines globalization and why some companies have failed to find international success by embracing global or local business models. He begins by noting that many companies view globalization as little more than employing pre-existing business models in multiple locations. He believes that many companies, especially companies that have seen multi-national success in past endeavors, are very resistant to change. Therefore, they attempt to keep their existing business models and adapt them to the local environment. He gives the example of Coca Cola, which became a successful multi-national company by using a pre-existing business model, and then attempted to become more locally based, and then shifted marketing back to a central headquarters. Ghemawat believes that Coca Cola's struggles exemplify many of the problems in globalization: a desire to either replicate or focus on arbitrage.

Ghemawat believes that this strategy is wrong. Instead of attempting to import pre-existing business models into areas where a company is expanding, Ghemawat believes that companies need to embrace what he refers to as arbitrage, the ability to exploit differences rather than similarities. Ghemawat believes that there are four dimensions of difference: cultural, administrative, economic, and geographic. Furthermore, he suggests that arbitrage, alone is not a sufficient global strategy; he understands that replication will remain an important global strategy for companies seeking an international market. However, he suggests that companies must be able to find ways to combine replication with an emphasis on arbitrage, so that differences are not seen as obstacles to the replication process, and the need to replicate is not seen as undermining local practices.

Article Summary: "Managing Differences: The Central Challenge of Global Strategy" by Pankaj Ghemawat

In "Managing Differences: The Central Challenge of Global Strategy," Pankaj Ghemawat examines globalization and how companies can grow their businesses in foreign markets. Ghemawat's premise is that an international strategy has to be comprehensive and cannot be simply a generic approach to international strategy. By adapting generic strategies, companies often overlook differences between markets, or, worse, look at those differences as disadvantages rather than advantages. He believes this means that they are not exploiting some of their most valuable assets.