Funnelback’s North American business started with one person. He was a senior salesman in Australia with family in New York, and he spent time poking around the US market to work out how it operated. Later it grew into a Brit, an Aussie and a Swiss guy trying to figure out the country together. The shared language suggested far more would transfer than did. Customs, company structures and even payments worked differently. Government procurement in the US runs on its own logic, and higher education is organized differently too, spread across far more institutions than a team used to the Australian market expects.
I helped make that expansion happen, then took over global marketing and re-engaged Europe, where the company already had a presence. Funnelback was a Canberra-based enterprise search company with customers across Australia, New Zealand, the UK, Europe, the US and Canada, and moving between markets that look alike from a distance was a large share of the job.
The experience is common enough to have a name in the research. In 1996 Shawna O’Grady and Henry Lane studied 32 Canadian retailers that had expanded into the United States and found that only seven had succeeded (JIBS). They called the pattern the psychic distance paradox: managers who saw the US as an extension of home were less inclined to study it, and the closeness they assumed was the thing that hurt them. The same study surveyed Canadian CEOs and found the cultural gaps between the two countries were larger than executives expected.
The familiarity trap
Later research has mostly reinforced O’Grady and Lane’s finding. A 2002 study of international retailers by Evans and Mavondo found greater psychic distance associated with better performance (JIBS), which fits the idea that companies work harder in markets they know are foreign. A 2015 experiment with 200 Australian managers found that confirmation bias changed how distant a market seemed, which in turn changed how risky it looked and how they chose to enter it (JIBS). The mechanism is ordinary. When early meetings go smoothly and nobody needs an interpreter, a team reads the absence of friction as proof that the playbook transfers, and it stops looking for the places where it doesn’t.
Trade agencies say the same thing in plainer language. The UK’s Department for Business and Trade runs export sessions warning businesses that a common language hides real cultural differences (DBT). A former UK trade official in the US wrote that British firms arrive with a false sense of security, partly because American culture feels so familiar from film and television (FCDO).
Similarity does lower some costs, and it would be wrong to pretend otherwise. Pankaj Ghemawat’s work on distance shows that shared language and historical ties substantially increase trade between countries, and he treats them as genuine advantages (HBR). Canada’s export agency describes shared language and culture as part of what makes the US an accessible first market (EDC). The argument here is narrower. Similarity reduces the cost of entry while hiding the cost of adaptation, and companies tend to budget for the first and forget the second.
What the failures have in common
The best-documented failures between similar markets are in retail, because retail failures happen in public. Target planned its Canadian stores around assumptions drawn from its US business and closed them within two years (Retail Dive). Wesfarmers converted the UK’s Homebase into Bunnings at speed, dropped product lines Homebase customers relied on, and sold the business in 2018 after more than A$1 billion in write-downs. Its chair said afterward that the company had moved too quickly and left customers behind (CNBC). In both cases the company carried a home playbook into a market it assumed would accept it.
B2B expansion fails more quietly, which makes it harder to study and easier to repeat. The B2B version of the wrong product mix is positioning that signals credibility in one market and reads as overstated in another. The B2B version of the wrong supply chain is a sales process built around how buyers decided at home. KPMG interviewed Australian software companies expanding into the US. It found that Australian customers and investors carried little weight with American buyers, and that without US references the first sale was hard to land (KPMG). That kind of credibility gap rarely produces one dramatic loss. More often it shows up as a pipeline that moves a little slower than forecast, quarter after quarter, until someone asks why.
What tends to hold up
The companies that handle this well do the work they would do for a market they knew was foreign. Before they export their go-to-market, they take it apart and separate what carries the value from what was shaped by where they started. That means looking at which credentials buyers trust, how long decisions take, who sits in the room and what a confident claim sounds like. Most of it is invisible at home, because nobody there has reason to question it. I’ve written separately about how expansion tests go-to-market assumptions and why a local hire doesn’t solve it alone.
What makes this difficult is that success in the home market is evidence for the playbook and against examining it. The longer something has worked, the harder it is to see which parts worked because of the product and which worked because of the place. Similar markets are where that question gets tested first, usually before anyone has thought to ask it.