PowerPoint Presentation

Presented by- Group 2STRATEGY ALLIANCES AND GLOBALISATION

CAGE FRAMEWORKCAGE Distance FrameworkPankaj 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 HelpsEasily 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 DimensionsC (cultural distance)A (administrative distance)G (geographic distance)E (economic distance)CULTURAL DISTANCEAttributes creating distance-Different languagesDifferent ethnicities- lack of connective ethnic or social networkDifferent religionsDifferent social normsADMINISTRATIVE DISTANCEAttributes creating distance-Absence of colonial tiesAbsence of shared monetary or political associationPolitical hostilityGovernment policiesInstitutional weaknessThis 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 DISTANCEAttributes creating distance-Lack of a common borderLack of sea or river accessSize of countryWeak transportation or communication linksDifferences in climatesECONOMIC DISTANCEAttributes creating distance-Differences in consumer incomesDifferences 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 particular 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 LevelCultural Distance

Cultural difference matter most when:-Products have high-linguistic content (TV)Products affect cultural or national identity of consumers (foods)Product features vary in terms of size (cars), standards (electrical appliances), or packagingProducts carry country-specific quality associations (wines)Administrative Distance

Government involvement is high in industries that are-producers of staple goods (electricity),producers of other entitlements (drugs),large employers (farming),large suppliers to government (mass transportation),national champions (aerospace),vital to national security (telecommunications),exploiters of natural resources (oil, mining), andsubject to high-sunk costs (infrastructure)Geographic Distance

Geography plays a more important role when-Products have a low value-of-weight or bulk ratio (cement)Products are fragile or perishable (glass or fruit)Communications and connectivity are important (financial services)Local supervision and operational requirements are highEconomic Distance

Economic distances have the biggest impact when-Nature of demand varies with income level (cars)Economies of standardization or scale are important (mobile phones)Labor and other factor cost differences are salient (garments)Distribution or business systems are different (insurance)Companies need to be responsive and agile (home appliances)CAGE Comparator 163 home countries65 industriesCountry ComparisonCAGE Distance Analysis: Economy wideCAGE Distance Analysis: Industry SpecificCAGE Factor Impacts: Indonesia, All Industry Aggregate

Indonesia: All Industry Aggregate

CAGE Factor Impacts: Indonesia, Iron and Steel

Indonesia: Iron and Steel

CAGE Factor Impacts: Indonesia, Office Supplies

Indonesia: Office Supplies

Indonesia AustraliaCultural Factors

Administrative Factors

Geographical Factors

Economic Factors

Using CAGE to change strategyFor Dell to enter China, CAGE would need to have low difference on all four dimensions.Cultural distance : HighPeople did not buy onlineGeographical distance : LowComponents sourced from ChinaDell adjusted business model.Tie-ups with local distributors

IKEADifficulties in reaching the California Hispanic market.Economical : HighCulture : HighLarger familiesDifferent color preferenceDesigners customized product and pricing strategyMore seats added to dining tables and sofa.Showroom color was warmedto avoid the subdued Scandinavian palette

McDonalds in RussiaInstitutional Differences: HighLack of local suppliers to provide the food products it needs

Stopped outsourcing supply chain activities like in USWorked with a joint-venture partnerCattle 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.