CAGE framework

Geographic Distance

Affect cost of transportation and communications, particularly important to those dealing with heavy or bulky products, whose operations require high degree of coordination among highly dispersed people or activities. As distance increases, costs goes up. Attributes of countries that can affect cross border economic activity. Companies that find this barrier to trade, often switch to direct investment in local plant and equipment as alternative way to access target markets. Attributes considered at country level - Physical remoteness (google had to set up offices in russia to improve local knowledge and responsiveness) -lack of common border and lack of sea/river access -size of country - weak transportation or communication links -differences in climates Attributes at industry level (sensitivity that affect products) -products that have a low value to weight or bulk ratio (cements) -products that are fragile and prone to hazards or perishable (e.g. fast foods) -products that present significant local presence requirements

Administrative Distance

Distance can emerge from policies of individual governments, pose common barriers to cross-border competition. Governments can raise barriers to foreign competition by: tariffs, trade quotas, restrictions on FDI. (Country Level attributes) -Absence of colonial ties, links between countries can boost trade, e.g. Britain's ties with commonwealth. -Absence of political or shared monetary association. Political associations can greatly affect trade between countries. With preferential trading arrangements, such as common currency and political union, boost in trade can result as well -Political hostility (long standing political hostility between Pakistan and India) -Government Policies (Subsidies and favoritism in regulation and procurement -Institutional Weakness (can impede cross country economic activity, example companies can shy away from doing business in countries known for corruption, social conflict and unreliable legal systems. When institution is strong, integration is more higher in regard to a firm internationalizing) (Industry Level: Administrative sensitivity, barriers emerge if following criteria) -It produces staples:Governments likely to interfere in local markets for goods that are perceived to be essential to their citizen's everyday lives. Example, electricity, food staples and fuel -it produces and 'entitlement' good or service: health care center produce goods or services to which people believed they are entitled as a basic human right. Often intervene to set quality standards and control pricing as well. -Large employer: represent large voting blocs often receive state support in the form of subsidies and import protection. Farmers and textile and garment workers are cases in point. -large supplier to government: If governments are major buyers, e.g. for mass transit equipment, that obviously widens the scope for governmental intervention as well.

CAGE Framework

The (CAGE) distance framework helps managers identify and assess the impact of distance on various industries. Distance between two countries can manifest itself along four dimensions; cultural, administrative, geographic and economic. Managers must always be conscious of distance- in all its dimensions. CAGE framework is intended to help managers meet that challenge. Each component present different challenges and opportunities. Provides useful way of grouping unilateral influences on cross border interactions, specific to particular countries, plus those specific to particular country pairs, for e.g. US and India. Thus, framework highlights that would-be-internationalizers should first go to countries with least psychic distance (least distance between home market and foreign market from result of understanding cultural and business differences

Economic Distance

Wealth and income of consumers is important attribute that creates distance between countries, has effect on levels of trade and types of partners a country trades with. Rich countries engage in more cross border economic activity, relative to economic size, than their smaller counterparts. Attributes at Country Level -Differences in consumer incomes -differences in costs and quality of (natural, financial, human and infrastructure resources, intermediate inputs and info/knowledge) Attributes at Industry Level -Nature of demands varies with income levels (cars) -Economies of standardization or scale are important (mobile phones) -labour and other factor cost differences are salient (garments) -distribution or business systems are different (insurance) -companies need to be responsive and agile (home appliances)

Cultural distance (Country and Industry Level)

refers to attributes in society sustained mainly by interactions among people, rather than by the state. Attributes that create distance, determine how people interact with one another and with companies and institutions. A culture difference tend to reduce economic interactions between two countries. Cultural distance can affect consumers' product preferences. A crucial consideration for any consumer goods or media company. For example, in consumer durable industries, sensitive to differences in consumer taste. Consumers in Japan, prefer automobiles and household appliances to be small, reflecting social norm, where space is highly valued. (Country Level attributes) -Language effects the most obvious -Different ethnicities; lack of connective ethnic or social networks -Different Social Norms and Religions (Industry level: culture sensitivity affects products) -Products have high linguistic content, E.g. Star TV, failure of English programming, customers preferred local stuff from back home. -Product can associate with consumer identity, for example hindu's do not eat beef, as its expressly forbidden due to religion, meat preparations as well -Products can carry country specific quality associations (French Wine, use local cachet to build up a local business) - industries less sensitive to cultural distance; metal working and road vehicles