Strategizing for NASA, Part 6: Walmart in China and CAGE Distance

With saturation in the United States market achieved in the 1990’s, Walmart began an aggressive international expansion, targeting China as one of its top priorities to fuel continued growth in the company. Due to its past success, Walmart brought its same Every Day Low Prices strategy to the Chinese market. Yet Walmart has discovered the hard way that its EDLP strategy does not align with the typical Chinese consumer – the flaw was in thinking that the Chinese consumer would be similar to an American consumer in the pursuit of low prices and larger bulk items1. After opening only about 400 stores in China over 20 years, Walmart continues to struggle with its China strategy today2.

Because a future strategy for human spaceflight likely will entail some degree of international cooperation, there is a lesson to be learned from Walmart’s struggles in China. The key lesson is that in any successful strategy involving international partnerships, the strategy must address the following four CAGE dimensions and the degree of difference (“distance”) in the partner pair3:

  • Cultural – Differences in languages, ethnicities, religions, and social norms
  • Administrative – Absence of colonial ties and shared monetary or political associations; political hostility; and differences in government policies
  • Geographic – Physical remoteness; lack of a common border; size of country; differences in transportation and communication networks; differences in climate
  • Economic – Differences in consumer incomes, and differences in cost and quality of resources, infrastructure, and information

Understanding the existence of CAGE distance leads to the insight as to why Walmart is struggling in China. It also leads to the insight as to why most of the United States’ partnerships in space have gravitated towards Canada and European countries – the CAGE distance is small due to common languages, similar government policies, common sizes, close proximity, and similar qualities of resources and economic outcomes. It doesn’t mean that one should only target those countries that are “most like us” for partnerships.  It does mean that strategy must take CAGE distance into account, or else the strategy will end up facing a dire situation similar to Walmart in China.

It is noteworthy to talk about Russia separately. In many respects, Russia is quite far from the United States from a CAGE standpoint – different languages, no colonial ties or shared monetary associations, political associations ranging from hostility to lukewarm, physical remoteness, and large differences in consumer incomes. Clearly, CAGE distance posed a challenge when Russia joined the International Space Station Program in the 1990’s.

To help close the cultural and geographic distance, NASA pursued various techniques. For example, NASA personnel learned the Russian language and spent extended periods of time in Russia, permitting the building of personal relationships that help to close the cultural gap – both of which continue today.  (Similarly, English is pretty universal with the younger generation on the Russian side.)  NASA invested in infrastructure in Moscow for its personnel – toll-free calling lines and dedicated high-speed internet lines – which help to close the geographic distance gap, both by putting NASA personnel in proximity with their Russian counterparts, as well as to keep the ties to home quite close. (And vice versa – Russia has a presence in the control centers here.)  These techniques have helped to reduce the distance in two of the four CAGE dimensions.

As for the other two dimensions, the results are more of a mixed bag. Economic advancement in Russia over the last 20 years has made some improvement in the economic gap, but not enough to achieve parity. Russia is today where the United States was in 1950 from a GDP per capita standpoint4. Mounting tensions in Ukraine are driving a further wedge in administrative distance, as the two countries posture around politically motivated sanctions. Administrative and economic distance remain the biggest hurdles to overcome in the current United States-Russian partnership in human spaceflight.

An ambitious future human spaceflight strategy that seeks to expand international partnerships even further, such as with China, needs to be carefully formulated and adjusted with the four drivers of distance – cultural, administrative, geographic, and economic – for it to be successful. Although there are some successful examples to follow from the United States and Russia experience, any other potential partnership must take into account the unique differences inherent in each partner pair. To fail to heed those differences in formulating strategy will be to repeat the mistakes of Walmart in China, perhaps with much more dire results to the future of human spaceflight.

Next time: Apple and counteracting the forces of technological obsolescence.

 

Previous entries in this series:
Part 1: The United States Postal Service and the Porter Five Forces
Part 2: Disney and the Resources Based View
Part 3: DARPA, Kodak, and Wiring Innovation
Part 4: The FBI and Transformational Change
Part 5: Veridian and the Role of Reputation and Culture

 


1Farhoomand, A. (2006). Walmart Stores: “Every Day Low Prices” in China.  Reprint 06/297. Hong Kong: The Asia Case Research Centre, The University of Hong Kong.

2Trefis Team. (April 2, 2014). Challenges Wal-Mart Faces In Mexico And China. Forbes. Retrieved from http://www.forbes.com/sites/greatspeculations/2014/04/02/challenges-wal-mart-faces-in-mexico-and-china/

3Ghemawat, P. (September 2001). Distance Still Matters: The Hard Reality of Global Expansion. Reprint ROIO8K. Boston, MA: Harvard Business School.

4Adomanis, M. (April 26, 2013). Economically, Russia Is Roughly Where the United States Was In The 1950’s. Forbes. Retrieved from http://www.forbes.com/sites/markadomanis/2013/04/26/economically-russia-is-roughly-where-the-united-states-was-in-the-1950s/

 

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Strategizing for NASA, Part 6: Walmart in China and CAGE Distance