The Digital Trap: Why Going Global Online is Harder Than You Think
- Prof George Batsakis
- 10 hours ago
- 6 min read
For years, managers have been sold an attractive idea: Digitalization makes international expansion easy. No stores. No warehouses. No heavy investments. Just a website, an e-commerce partner, a logistics partner, and a few clicks, and suddenly, your firm is global. It sounds efficient. It sounds easy. It sounds scalable. At the same time, it sounds quite wrong, too. Because in reality, many firms that go digital abroad do not see immediate success. In fact, they often experience the opposite: declining performance, rising costs, and unexpected complexity. So, what is going on? In my recent co-authored research paper (Batsakis et al., 2026) published in Long Range Planning, my coauthors and I offer a compelling answer. The problem is not digitalization itself, but the assumption that digital can replace the physical. In reality, it cannot.
The Hidden “Valley of Death”
The common expectation is simple: more digital expansion leads to improved performance. But the evidence from the world's largest international retailers tells a very different story. When firms expand internationally through digital channels, performance follows a U-shaped curve, which means that at first, performance declines and only later does it recover and improve. In other words, digital international expansion comes with a built-in “valley of death”. Why? Because firms underestimate the complexity of operating digitally across borders. Each new market introduces different customer behaviors, diverse regulatory systems and new to the firm logistics realities. And digital does not eliminate these differences, it basically exposes them. At low levels of international digital activity, firms face high adaptation costs (local responsiveness) and high coordination costs (global integration). This tension has long been recognized in international business research as the integration–responsiveness trade-off (Bartlett & Ghoshal, 2002). Firms are simply trying to do too many things at once, without the scale to justify the effort. The result is more friction than value.
When Digital Finally Works
The turning point comes later, and oftentimes much later. As firms expand further they manage to accumulate market knowledge and learn how to standardize processes. As a result, they become more efficient in building scalable digital infrastructure while learning how to manage complexity more effectively. At that stage, the logic flips. Costs start stabilizing, and benefits start accelerating, ultimately improving performance. This is when digital internationalization starts to deliver on its promise, not because it is inherently efficient, but because firms have earned the ability (and right) to scale. This is consistent with broader research showing that digital capabilities only translate into performance advantages when firms reach sufficient scale and organizational maturity (Reinartz et al., 2019). Essentially, digital internationalization does not fail, it just takes time to work. Figure 1 taken from the Batsakis et al. (2026) study visualizes this relationship clearly. Performance initially declines as firms begin digital expansion abroad, before recovering sharply once a certain scale is reached. In practical terms, this means that the first steps into international e-commerce are often the most painful. A retailer moving from 0% to roughly 20% foreign digital sales is likely to see declining profitability. Systems are fragmented, logistics are inefficient, and learning is still underway. But once firms move beyond that threshold, when digital operations become a meaningful part of total sales, the curve turns. Each additional percentage point of digital internationalization starts generating disproportionate returns.
Digital Success Abroad Depends on Physical Capabilities
Our research shows that firms with a strong international physical presence, that is stores, logistics networks, infrastructure, experience a more intense version of the U-shaped curve. This practically means that worse outcomes early on lead to stronger performance at a later stage. At first glance, this seems paradoxical, and one could question why physical presence would hurt performance? This is because in the early stages, physical presence makes everything harder. Firms must concurrently coordinate online and offline channels, inventory across locations, pricing and promotions, and customer data across systems. Without a sufficient digital scale, this can be the cause of operational chaos. But once scale is achieved, the same physical assets become powerful advantages. Why? Stores turn into fulfillment hubs, return points, customer experience centers, and logistics networks become integrated systems that support both online and offline operations. The role of physical presence becomes even clearer when looking at Figure 2 below. The figure shows that firms with greater international store networks experience a steeper version of the same U-shaped curve. This means two things: In the early stages, firms with many stores abroad suffer more. Why? Because they must coordinate digital and physical operations across countries, aligning inventory, pricing, fulfillment, and customer data, without yet having the digital scale to support it. But at higher levels of digital internationalization, these same firms outperform others. Their stores become logistics hubs, their networks become integrated systems, and their omnichannel capabilities start generating real value. Think of it as a leverage effect. Physical presence deepens the initial pain—but dramatically amplifies the long-term payoff. This explains why firms like Zara or Walmart struggle in early digital transitions, but dominate once they scale. Their physical footprint is not a constraint; it is a multiplier.
When Infrastructure Works Against You
The story becomes even more interesting when we consider geography. Not all countries are created equal. Firms from countries with advanced infrastructure, think the US, Germany, the UK, or the Nordics, often assume that their digital capabilities will transfer easily abroad. They are wrong. When entering markets with weaker logistics systems, they face delivery inefficiencies, higher costs, frustrated customers, and, ironically, the very capabilities that make them strong at home become liabilities abroad. At least initially. Because over time, these firms learn. They adapt. They recalibrate their systems. And eventually, their advanced capabilities become a source of competitive advantage. Once again, we see the same pattern, that is an early disadvantage turning into a long-term advantage. Figure 3 adds another layer to the story by showing how differences in infrastructure between countries shape this dynamic. Firms coming from countries with strong logistics systems experience an even deeper initial drop in performance when expanding digitally into weaker infrastructure environments, but also a stronger recovery later on. In practical terms, early on, these firms struggle because their systems are designed for high-efficiency environments. When they enter markets with weaker logistics, delivery delays, last-mile issues, and operational mismatches quickly erode performance. Over time, however, these same firms learn to adapt and redeploy their advanced capabilities. Once they do, they gain a significant advantage over local competitors. This is why some of the most successful global retailers initially underperform in emerging markets before eventually dominating them.
The Strategic Mistake Most Firms Make and What Managers Should Do Differently
The biggest mistake firms make is not going digital. It is expecting digital to be easy. Digital internationalization is not a shortcut. It is a commitment. It requires investment before returns materialize, learning before scaling occurs, and adaptation before standardization can take effect. Firms that underestimate this process often exit markets just before reaching the turning point. This research points to a more disciplined approach to digital globalization.
1. Plan for the Dip: Performance will likely decline before it improves. This is not failure, it is part of the learning process. The real risk is abandoning the strategy too soon.
2. Treat Physical Assets as Strategic, Not Obsolete: Stores, warehouses, and logistics networks are not relics of the past. They are the backbone of effective digital internationalization.
3. Localize More Than You Think: Digital platforms may be global, but execution is local. Firms must adapt to infrastructure constraints, consumer expectations, and market-specific realities. Ignoring these differences is costly.
4. Scale with Purpose: Digital expansion only pays off at scale. The goal is not just to enter markets, but to build the capabilities that allow the firm to operate efficiently across them.
Rethinking Digital Globalization
The broader lesson is simple, but often overlooked: Digital does not remove the need for physical presence, it changes how it is used. For decades, globalization was about moving physical assets across borders. Today, it is about integrating digital and physical capabilities across markets. Firms that understand this will build sustainable global advantages. Those that do not will fall into the digital trap, mistaking access for success.
References
Bartlett, C. A., & Ghoshal, S. (2002). Managing across borders: The transnational solution. Harvard Business Press.
Batsakis, G., Theoharakis, V., Li, C., & Konara, P. (2026). How International Physical Presence and Infrastructure Differences Moderate the Link Between Digital Internationalization and MNE Performance. Long Range Planning, 102619.
Reinartz, W., Wiegand, N., & Imschloss, M. (2019). The impact of digital transformation on the retailing value chain. International journal of research in marketing, 36(3), 350-366.
