My Definition of Distance

May 12, 2011 — 1 Comment

As I have stated repeatedly, most members of the social gaming industry approach international markets in a tactical, if not knee jerk, manner. All whining aside, today I wanted to write about the first step in formulating strategies for specific regions. That step is to analyze each region using a distance framework (before anyone accuses me of plagiarism, I consider Pankaj Ghemawat the best international business strategist around and have adapted many of his methodologies).

If distance were only defined as the miles between my office and the target market, this would be a very short post. Instead, there are four key elements of “distance” that provide the foundation for determining the best way to approach (or not approach) a market. The four measures of distance that I use (as does Mr. Ghemawat) are cultural, administrative, geographic and economic (sometimes referred to as the CAGE framework).

Cultural distance refers to how similar the underlying culture is, and language often has a strong effect on this variable. Other key variables in the social gaming space are ethnicity (does the target market share the same ethnicity as your home market?), religion(s), values, norms and the target market’s overall insularity (openness to foreign entertainment products).

Administrative distance is primarily about political systems and how tied/similar they are to your home market. A common currency (do they use, either officially or unofficially, dollars or Euros) would also lessen administrative distance. Also, whether the target government takes an active or passive role in the social or gaming space would affect this variable.

Geographic distance is what it sounds like: How far is the target market from your home market? That is, if you are based in California, China is a lot farther away than is Canada (yes, I know, the value of a graduate degree). Other things than can affect geographic distance are difference in climate (e.g., inverted seasons between North and South America), transportation links, communication infrastructure, and differences in time zones (though many of these are tied to absolute distance).

Economic distance is last, but not least. This measure refers to how similar the economic system and metrics are between the home country and target market. That includes rich-poor differences, per capita GDP (not necessarily the same, as you could have a bifurcated economy with a similar GDP to a country with a more level income distribution), access to natural resources, etc.

A couple of quick examples can show, on a high level, how this framework can be used to analyze a market. Let’s use California as the “home territory” in this example. When analyzing Japan, the cultural distance is quite high: there’s a different history, language, religion and cultural norms (e.g., less individualistic). The administrative distance is actually quite small, as much of their system was created by the US after World War 2. The geographic distamce is medium: it’s about the same as Europe and obviously more than Canada. And the economic distance is also pretty low, as both countries have relatively free markets and comparable income levels and wealth distribution.

Now let’s look at Russia. The cultural distance is actually medium to low. Americans and Russians often share the same values and norms; both are Judeo-Christian cultures and Russia is actually very open to US games and movies. Administrative distance is medium; although both are considered free markets, each approach is slightly different. Geographic distance is medium: it’s not exactly a quick flight from the US. The economic distance is high. Russia is a much more stratified economy than the US and is more reliant on natural resources.

Although you might ask how many of these factors could affect the social gaming sector in a market, they often do in subtle ways that provide opportunities for you to optimize for the market by changing your approach. In the weeks and months ahead, I will discuss some of the strategic options for social game companies in tackling different markets and how these four key measures of distance help determine what strategy is appropriate for a particular market.

Lloyd Melnick

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  1. My Favorite Posts | The Business of Social Games - November 24, 2011

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