Ghemawat offers some advice on how the CAGE Framework can help managers considering international strategies: It makes distance visible for managers. It helps to pinpoint the differences across countries that might handicap multinational companies relative to local competitors. It can shed light on the relative position of multinationals from different countries. For example, it can help explain the strength of Spanish firms in many industries across Latin America. It can be used to compare markets from the perspective of a particular company.
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While globalization is continuously expanding, it is less relevant than we really think. However, what they soon found out was quite peculiar, the locals had thought they were selling baby food.
Not food for babies. Naturally, their sales reflected this interesting mistake. An extremely weird mistake, but it does highlight an important point: There are significant differences between cultures that must be acknowledged. Most foreign ventures are created with high hopes, lured by the promise of an untapped market, high profits and low financial costs.
What many businesses fail to realize is the realities of global business. Just like Gerber above, they fail to perform their due diligence, distributing a standardized product or method for highly localized area.
This framework analyzes the differences a company might face. CAGE stands for: Cultural Distance — Differences between culture, such as language, religion, values, and social groups. Administrative Distance — Differences between the countries institutional system, such as legal framework, political systems, and even trade agreements. Geographic Distance — The physical differences between countries mountains, climate, etc. This can even be infrastructure related, such as roads and supply chain networks.
If you are a transportation agency, administrative and geographic differences are foreseeably going to play a larger role than cultural ones. This framework focuses mostly on macro-level distances, in doing so we can often times forget the micro-level things, like miniscule language differences and greetings that can embarrass you if you are not adequately prepared. As Ghemawat proposes on his article, Cases about Redefining Global Strategy, here are some uses for managers: Visualizes distance for decision-makers Explores the strengths of multinationals in different countries Explores the differences between countries, identifying weaknesses that may come across Compares the distances of markets in the same industry However, there is more that you can do using this framework.
For example, you can use this framework to identify institutional voids in a market. This is important because when expanding to a new market with institutional voids like lack of intellectual property protection, it is almost next to impossible for a company to protect its product from knock-offs, knick-knacks, and blatant piracy. At that point, what do you do? Instead of playing a losing game, just quit.
Instead of using trains in a rail-less country, use trucks? Or maybe perhaps in the case of extremely powerful multinationals, you can fill those voids yourself. If the issue is unskilled labour markets, powerful firms may elect to train and educate the local population themselves! So, scratch those brownie points. The online CAGE Comparator can be found here: From just using the free test for country comparisons, it seems like a lot of the data is around a decade old, and sourced from the CIA World Factbook, so I recommend just comparing the countries manually.
When detailing your prospective entry mode, one should aim to eliminate the differences between their home vs. But there can be more problems for every solution. Often times, firms are able to reduce these distances through the use of inter-company mergers and alliances. However, this is still a potential pitfall that must be considered. Our mentor proposed to us that all we needed to do was find a company and propose that as an acquisition target and problem solved. Thinking through this more thoroughly, it might still be a bigger issue than on the surface.
Although an acquisition solves some considerable distance, it still does not mean you can manage a foreign company. Can you now speak their language? Can you navigate through foreign legal waterways? Are you able to capture true value in your coordinated approach? Keep going down deeper to make sure you do not become trapped into a foreseeable pitfall! External Resources.
Menu CAGE Distance Framework When crafting international strategies businesses need to evaluate the affected countries in terms of their distances, or in other words their differences. Pankaj Ghemawat identified this issue and has in turn proposed the CAGE Distance Framework which assesses the cultural, administrative, geographic and economic differences between the countries within an international strategy. These four factors are explained in more detail below: Cultural Distance The first element of the Cage framework is the Cultural distance and looks into the values and behaviors of the people within those countries. The primary dimensions examined are: Power distance: Illustrates whether individuals accept the inequalities of power between superiors and subordinates within a society. Uncertainty avoidance: Looks into how individuals view the uncertainty of the future. Individualism: Examines the social values of individualistic vs collective societal views. Short term vs Long term orientation:Focuses on how people view future rewards as well as the present stability.
CAGE Distance Framework
Jujind How to choose foreign countries. If you are in a Business school, invariably you will get references to Porter and theories on Business Strategies…. Lack of colonial ties Lack of shared regional trading bloc Lack of common currency Political hostility. This has been one of the biggest barriers, for instance, in the way of U. For example, it can help explain the strength of Spanish firms in many industries across Latin America. How far apart are trading partners in physical terms: Always a good reference….