STRATEGY ALLIANCES AND

GLOBALISATION
CAGE FRAMEWORK

Presented byGroup 2

CAGE Distance Framework

Pankaj Megawatt Ghemawat is an international strategy

guru who developed the CAGE framework to offer

businesses a way to evaluate countries in terms of the
distance between them.
In this case, distance is defined broadly to include not only
the physical geographic distance between countries but also
the cultural, administrative (currencies, trade agreements),
and economic differences between them.
The more two countries differ across these dimensions, the
riskier the target foreign market. By contrast, similarities
along these dimensions suggest great potential.

How it Helps
Easily assess the potential size, risks and

barriers to different international markets;

Eliminate the guesswork of choosing which
countries to enter in which order;
Identify current products most easily
transportable at minimum cost;
Develop new products unique to global
ventures.

The Four Dimensions

C (cultural distance)
A (administrative distance)
G (geographic distance)
E (economic distance)

CULTURAL DISTANCE
Attributes creating distance1. Different languages
2. Different ethnicities- lack of connective

ethnic or social network

3. Different religions
4. Different social norms

ADMINISTRATIVE DISTANCE
Attributes creating distance1. Absence of colonial ties
2. Absence of shared monetary or political

association
3. Political hostility
4. Government policies
5. Institutional weakness

This dimension of CAGE examines whether there are historical or

current political factors that might favor or impede a business

relationship between a company and a new country market.
NAFTA (North American Free Trade Agreement), for instance,
decreased the administrative distance between U.S. firms and
Mexico and Canada.
Similarly, historical political hostilities between the United States
and Cuba make it virtually impossible (and illegal) for most U.S.
firms to do business there.
Trade practices between countries can be significantly affected
by laws and regulations enacted at the national or international
level.

GEOGRAPHIC DISTANCE
Attributes creating distance1. Lack of a common border
2. Lack of sea or river access
3. Size of country
4. Weak transportation or communication

links
5. Differences in climates

ECONOMIC DISTANCE
Attributes creating distance1. Differences in consumer incomes
2. Differences in costs and quality of the following:
Natural Resources
Financial Resources
Human Resources
Infrastructure
Intermediate inputs
Information or knowledge

Economic distance has been one of the biggest

barriers, for instance, in the way of U.S. firms`

success selling products in emerging markets.
In global terms, nearly half the worlds population
survive on less than $2 per day.
The phrase bottom of the pyramid is used in par
ticular by people developing new models of doing
business that deliberately target that market,
typically using new technology.
Example- Unilever marketing shampoo sachets to
capture that market.

CAGE at Industry Level

Cultural Distance
Cultural difference matter most when:1. Products have high-linguistic content (TV)
2. Products affect cultural or national identity of consumers

(foods)
3. Product features vary in terms of size (cars), standards
(electrical appliances), or packaging
4. Products carry country-specific quality associations
(wines)

Administrative Distance
Government involvement is high in industries that are1. producers of staple goods (electricity),
2. producers of other entitlements (drugs),
3. large employers (farming),
4. large suppliers to government (mass transportation),
5. national champions (aerospace),
6. vital to national security (telecommunications),
7. exploiters of natural resources (oil, mining), and
8. subject to high-sunk costs (infrastructure)

Geographic Distance
Geography plays a more important role

when1. Products have a low value-of-weight or bulk

ratio (cement)
2. Products are fragile or perishable (glass or
fruit)
3. Communications and connectivity are
important (financial services)

Economic Distance
Economic distances have the biggest impact when1. Nature of demand varies with income level (cars)
2. Economies of standardization or scale are important

(mobile phones)
3. Labor and other factor cost differences are salient
(garments)
4. Distribution or business systems are different (insurance)
5. Companies need to be responsive and agile (home
appliances)

CAGE Comparator
163 home countries
65 industries
Country Comparison
CAGE Distance Analysis: Economy wide
CAGE Distance Analysis: Industry Specific

CAGE Factor Impacts:

Indonesia, All Industry Aggregate

sia:
All
Ind
ustr
y
Agg
reg
ate

CAGE Factor Impacts:

Indonesia, Iron and Steel

Ind
on
esi
a:
Iro
n
an
d
St
eel

CAGE Factor Impacts:

Indonesia, Office Supplies

In
do
ne
si
a:
O
ffi
ce
Su
pp
lie
s

Indon
esia
Austr
alia
Cultu
ral
Facto
rs

Ad
mini
stra
tive
Fact
ors

Geo
gra
phic
al
Fact
ors

Ec
on
o
mi
c
Fa
ct
ors

Using CAGE to change

strategy
For Dell to enter China, CAGE would need to

have low difference on all four dimensions.

Cultural distance : High
People did not buy online

Geographical distance : Low

Components sourced from China

Dell adjusted business model.

Tie-ups with local distributors

IKEA
Difficulties in reaching the California Hispanic market.
Economical : High
Culture : High
Larger families
Different color preference

Designers customized product and pricing strategy

More seats added to dining tables and sofa.
Showroom color was warmedto avoid the subdued

Scandinavian palette

McDonalds in Russia
Institutional Differences: High
Lack of local suppliers to provide the food products it needs

Stopped outsourcing supply chain activities like in US

Worked with a joint-venture partner
Cattle from Holland ; russet potatoes from the United States,
brought in agricultural specialists from Canada and Europe
to improve Russian farmers management practices,
Lent money to farmers so that they could invest in better
seeds and equipment.