A Saudi company may achieve great success in its home market and decide to expand beyond the Kingdom, relying on the same product and operational expertise that made it successful. But it may discover that consumers in the new market do not respond to its products as expected, and that distribution and operating costs differ from what it is used to.

So why are some companies unable to replicate their success when they cross borders?

The answer is not always tied to product quality or the size of the investment, but to how well the company understands the differences between markets.

Distance Between Countries Is Not Just Geographic

One of the academic concepts covered in Professor @Stephen Rosenbaum's international business course at Al Yamamah University is the CAGE Framework, which helps companies assess the differences that affect their international expansion decisions.

Researcher Pankaj Ghemawat introduced this framework in a 2001 article published in Harvard Business Review, explaining that distance between markets extends beyond geographic borders to include four key dimensions.

These dimensions are cultural distance, such as differences in language, customs, and consumer preferences; administrative distance, which includes regulations, legislation, and trade relationships; geographic distance, including transport costs and infrastructure; and, finally, economic distance, related to differences in income levels, purchasing power, and resources.

The importance of these factors varies by business. Differences in tastes may pose a challenge for a food company, while transport costs may have a greater impact on a company that sells heavy products.

The Biggest Market Is Not Always the Best Opportunity

Suppose a Saudi food products company is considering expanding into two foreign markets. The first has a larger population, but requires extensive product modifications and the creation of a new distribution network. The second is smaller, but consumer preferences there are more similar to those in the Saudi market, and suitable distribution channels are available.

The first market may seem more attractive based on population size alone. But once adaptation and operating costs are taken into account, the second market may deliver better returns.

This is where the CAGE framework comes in: it does not tell a company which market to enter, but helps it identify costs and risks that broad economic indicators may conceal.

For Saudi companies aspiring to expand globally, domestic success is a starting point, but it does not guarantee they will replicate that success abroad. The decision is not just about the size of the new market, but about the company’s ability to understand and adapt to its differences without losing its competitive edge.

So the question to ask before expanding is not, “Where are the most consumers?” but, “In which market can we turn opportunity into commercial success?”

Theoretical reference:

Pankaj Ghemawat, “Distance Still Matters: The Hard Reality of Global Expansion,” Harvard Business Review, September 2001.

Harvard Business Review