Applying the
CAGE Framework
Internationalization
Strategy
Dr. Jorge Alcaraz
[Link]@[Link] 2021
CAGE Model
Distance Still Matters. The Hard Reality of Global Expansion (Ghemawat, 2001).
Companies routinely exaggerate the attractiveness of foreign markets, and that can
lead to expensive mistakes. Here’s a more rational approach to evaluating global
opportunities.
Dr. Jorge Alcaraz
Industry Global Strategy and Distance
• Traditional • CAGE
• Analyzes sales potential using country • Analyzes probable impact of distance
profile analyses • Cultural
• National GDP • Administrative (Political)
• Consumer wealth • Geographic
• Propensity to consume • Economic
• Focuses on immensity of market • Used to evaluate odds of profitability in
• Ignores costs & risks of a new market foreign markets
Dr. Jorge Alcaraz
Industry Global Strategy and Distance
• Analyzes the impact of various
factors on a country’s trade
flows.
• Traditional economic factors do
matter but are limited. Other
factors (such as those included
in the table) must be taken into
consideration.
• For example, trade between
two countries 5000 miles apart
is only 20% of the trade that
occurs between two countries
only 1000 miles apart
(Ghemawat, 2001).
Dr. Jorge Alcaraz
The four dimensions of distance: CAGE model
Distance between two countries can manifest itself along four basic dimensions:
cultural, administrative, geographic, and economic.
Dr. Jorge Alcaraz
Clic para
What editar título
Information Is Important in Scanning?
Dr. Jorge Alcaraz
The four dimensions of distance: CAGE model
More Sensitivie Less Sensitivie
Dr. Jorge Alcaraz
Industry, Global Strategy and Distance
Distance Still Matters. The Hard Reality of Global Expansion (Ghemawat, 2001).
Dr. Jorge Alcaraz
The four dimensions of distance: CAGE model
Dr. Jorge Alcaraz
The four dimensions of distance: CAGE model
Culture
In France, top-loading machines accounted for about 70 percent of the market: front-
loading machines typically sold at a small discount to top-loaders, despite the fact that
the production costs were comparable.
West German consumers preferred front-loaders with high spin-speeds of 800 rpm or
more.
Italian consumers preferred 600–800 rpm, front-loading machines.
The British prefer 800 rpm front-loaders, but with a hot and cold water fill rather than
cold-water-only supply.
Dr. Jorge Alcaraz
The four dimensions of distance: CAGE model
Culture
National cuisines have a significant impact on demand in a number of appliance
categories.
• Germans want more space for meat;
• Italians prefer special compartments for vegetables
• Indian families, with a mix of vegetarians and nonvegetarians, require internal seals to stop food
smells from mingling.
• To hold Christmas turkeys, ovens are larger in England than in Germany, where geese are cooked.
• Germans also don’t need self-cleaning ovens, since they bake at lower temperatures than the
French do.
• Indian households generally don’t need ovens at all.
Dr. Jorge Alcaraz
The four dimensions of distance: CAGE model
Administratively
Requisite variety in home appliances is increased by variation in electric standards:
• Thirteen major types of plugs and wall outlets
• Different voltages and frequencies
• Other kinds of regulations, particularly environmental ones
• Protectionism, high transport costs
These factors constrain to make identical varieties produced in different locations
(intra-industry trade -one way of increasing the varieties on offer without necessarily
increasing the number produced per location-).
Dr. Jorge Alcaraz
The four dimensions of distance: CAGE model
Geographic
Other relevant factors include the climate.
• Thus, air conditioners aren’t needed where (or when) it isn’t hot
• Clothes dryers have proven less successful in the Mediterranean sun.
Dr. Jorge Alcaraz
The four dimensions of distance: CAGE model
Economic
Probably the single most important driver of cross-country variation is the local income
level.
• Refrigerator penetration limited in India, despite the heat, and the varieties sold there are much
smaller, simpler, and cheaper than those in the United States.
Other economic factors that matter greatly are:
• Variations in the availability and prices of substitutes or complements such as space and
electricity.
• U.S. buyers generally have the most living space and, therefore, tend to buy larger varieties
and tolerate higher noise levels.
• Electricity costs, focusing more attention on energy efficiency.
• Unreliable electricity supply - electronic controls that reset automatically after power
failures.
Dr. Jorge Alcaraz
The four dimensions of distance: CAGE model
Economic
All this cross-border variation affluence domestic differences:
Color, material, size, energy efficiency, noisiness, other aspects of environmental
friendliness, basic layout, the design of the door, the configuration of shelves, the
position of the freezer, inclusion of a defroster, and controls.
This compounds the challenges of dealing with variety and complexity.
Dr. Jorge Alcaraz
The four dimensions of distance: CAGE model
Dr. Jorge Alcaraz
CAGE Distance Framework Template
Country A Country B
List the cultural norms, values and social beliefs, also known as the
unwritten rules, that shape the behavior of individuals and • •
organizations. Various societies also differ in their attitudes toward
C Cultural
Distance
globalization and market power that have important consequences •
in terms of both formalized trade regulations and general attitudes
toward how businesses are run.
•
• •
List the differences in history and politics among countries,
especially those which do not share colonial ties. Also, a lack of • •
shared currency, political hostilities, and government corruption
A Administrative
Distance
contribute to Administrative distance. • •
• •
Geographic distance refers not only to the physical distance
between two countries, but also a country’s physical size, whether it • •
shares borders with hostile or non-hostile neighbors, and access to
G Geographic
Distance
trade routes such as the ocean and other topographical features.
List these attributes.
• •
• •
Two of the biggest determinants of economic distance are the Cost
of Labor and level of Consumer wealth between countries. It is more • •
difficult for a company from a wealthy country to enter a poorer
E Economic
Distance
country and be successful there, but not impossible. List these
determinants.
• •
• •
Want more tools and templates? Visit [Link]
The four dimensions of distance: CAGE model
Cultural differences Different languages 5
Different religions 5
Differences in national work systems 4
Different values and norms 3
Administrative Lack of shared regional trading 2
Lack of common currency 5
Different legal system 3
Geographic Physical distance 5
Differences in climates 1
Economic Differences in consumer incomes 2
Natural resource 4
Human resources 5
Infrastructure 2
Information and knowledge 2
Dr. Jorge Alcaraz
The four dimensions of distance: CAGE model
Dr. Jorge Alcaraz
The four dimensions of distance: CAGE model
CAGE Analysis:
Cultural Distance: Administrative Distance:
- Religion - Political linkages
- Ethics and values - Trade agreements
- Different national work systems - Political hostility
- Design differences - Government policies
- Home bias
- Food preferences
Geographic Distance: Economic Distance:
- Distribution network - Differences in consumer income
- Transportation or communication links - Differences in costs and quality of resources
- Size of country - Difference in cost of factor endowments
- Sea access
- Common border
Dr. Jorge Alcaraz
The four dimensions of distance: CAGE model
Dr. Jorge Alcaraz
The four dimensions of distance: CAGE model
Dr. Jorge Alcaraz
The four dimensions of distance: CAGE model
Dr. Jorge Alcaraz
The four dimensions of distance: CAGE model
Dr. Jorge Alcaraz
Applying the
CAGE Framework
Internationalization
Strategy
Dr. Jorge Alcaraz
[Link]@[Link] 2021
