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Published: February 26, 2008

 
 

Pankaj Ghemawat: The Thought Leader Interview

One powerful example of this bias is StarTV, which was acquired by Rupert Murdoch’s News Corporation in the early 1990s. The advent of satellite television had destroyed geographic distance as a boundary factor. A broadcaster no longer needed a TV tower on the ground; instead, a satellite source, about 23,000 miles above the earth’s surface, could cover a hemisphere. StarTV went ahead with pan-Asian, English-language programming, aiming at Asia’s wealthiest 5 percent as its audience. But it ran into problems on all the other kinds of distance.

Culturally, people prefer to watch TV programs in their own language; this was already established in research (and in common sense), and that barrier didn’t suddenly evaporate. Nor did the barrier of administrative distance. When Murdoch gave a speech in 1993 about satellite TV being “an un­ambiguous threat to totalitarian regimes everywhere,” the Chinese government reacted by banning the ownership of satellite dishes — which effectively choked StarTV’s business in that key country.

How could Murdoch make such a miscalculation? Well, one of his insiders told me, “Our operating experience was in the U.S., the U.K., and Australia. In none of these climates is it considered a big deal to rail against authoritarian regimes. We weren’t thinking. We just figured that this was a harmless little bit of filler.” The company has been trying ever since to climb out of the hole it dug with inattention to administrative differences.

The final barrier in the CAGE framework has been economic distance, the lack of developed infrastructure in these countries. In the U.S., there are already methods for measuring audiences, which is a necessity of advertising. Elsewhere, a satellite TV company must wait for Nielsen to install people meters.

All this explains why the net present cost of StarTV to News Corp. has been a couple of billion dollars. Yes, geographic distance doesn’t matter anymore. But the other kinds of distance continue to be critical. StarTV has had to provide programming in diverse languages. They’ve had to pay attention to local political sensitivities, particularly in China. And they’ve had to apply different business models, depending on the level of development of infrastructure in various Asian countries.

S+B: Are the same kinds of differences important for other industries and sectors?
GHEMAWAT:
Every company faces its own issues. Let’s compare StarTV with Cemex, the Mexican cement company. Cement is the ultimate commodity. Culturally, it is not a high-touch industry; administratively, it’s certainly not as politically sensitive as media. But geographic distance is critical. It doesn’t involve just the physical number of miles between two countries, but also the ease and openness of transportation. Cemex earns a 20 percent premium, on average, over prices charged by other cement companies, and one reason is the deliberate way Cemex expands into countries where it has shipping access — and often where it controls the marine terminals through which cement is shipped.

The contrast between satellite TV and cement suggests that to make any global strategy actionable, you have to go down to the industry level and think about what kinds of distances matter the most and about your strategies for addressing those distances.

Note how different this is from a more typical approach of keeping the analysis purely at a country level. For example, “Are our prospects better for India or China right now?” Country-level, cross-industry analysis is generally not an adequate way to formulate actual strategy.

Provincial Sensibility

S+B: But why wouldn’t a company considering expansion into emerging markets want to compare the prospects of India and China?
GHEMAWAT:
First, the comparison depends on where you are looking from. China will generally look closer to a company headquartered in Taiwan or South Korea, and India will look closer to a company from the Middle East.

 
 
 
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