Case questions, first read the case then answer the questions
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CAGEDistanceFramework.pptxCAGE Distance Framework
Redefining global strategy: Crossing borders in a world where differences still matter by Pankaj Ghemawat (Chapter 2)
Introduction
CAGE Framework developed by economics Professor Pankaj Ghemawat
Evaluate markets and countries based on home country
Identify differences between countries for international strategy
Measure distance between countries through four dimensions
Risk and target foreign market
E.g. common currency
What is the key contribution of this framework?
A bilateral measure of distance
How do we measure distance?
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The CAGE Framework at the Country Level
First Dimension: Cultural Distance
What is cultural distance?
Define
Examples
Unilateral
looking internally
Bilateral
looking at your country vs another
Is language bilateral or unilateral?
Is religion bilateral or unilateral?
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The CAGE Framework at the Country Level
Second Dimension: Administrative Distance
What is administrative distance?
Define
laws, policies, and institutions that typically emerge from a political process and are mandated or enforced by governments
Examples
Unilateral vs Bilateral
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The CAGE Framework at the Country Level
Third Dimension: Geographic Distance
What is geographic distance?
Define
Besides physical distance, what does this measure include?
Examples
Unilateral vs Bilateral
Climate
Time zone
Sharing a boarder
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The CAGE Framework at the Country Level
Fourth Dimension: Economic Distance
What is economic distance?
Define
Examples
Unilateral vs Bilateral
Natural resources cost
Labor costs
Knowledge and information costs
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Practical Example: US wants to do business in India or China
Main Question: how do India and China compare, from the perspective of U.S. companies, in terms of cultural distance?
Cultural Distance
India
+ English Language
+ Westernized subset of the population
China
+ Dysphoria
+ linguistic and ethnic homogeneity
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Cultural Distance
India vs China
Administrative Distance
India vs China
Economic Distance
India vs China
Geographic Distance
India vs China
Advantages?
Disadvantages?
Advantages?
Disadvantages?
Advantages?
Disadvantages?
Advantages?
Disadvantages?
Practical Example: US wants to do business in India or China
Main Question: how do India and China compare, from the perspective of U.S. companies, in terms of administrative distance?
Administrative Distance
India
+ Who was India colonized by? How is this an advantage for US firms?
China
+ Ease of doing business
- Political tensions
- Civil law – German
- Establishing law & protecting private property
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Cultural Distance
India vs China
Administrative Distance
India vs China
Economic Distance
India vs China
Geographic Distance
India vs China
Advantages?
Disadvantages?
Advantages?
Disadvantages?
Advantages?
Disadvantages?
Advantages?
Disadvantages?
Practical Example: US wants to do business in India or China
Main Question: how do India and China compare, from the perspective of U.S. companies, in terms of geographic distance?
Geographic Distance
India
- 60 percent farther away from Long Beach, California, the busiest U.S. container port, than is Shanghai
- Logistical problems - ports are inefficient and slow - 6-12 weeks, versus 2-3 weeks from China
China
+ Closer to U.S. West Coast
+ It has better infrastructure and more efficient ports
+ Part of an East Asian production network
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Cultural Distance
India vs China
Administrative Distance
India vs China
Economic Distance
India vs China
Geographic Distance
India vs China
Advantages?
Disadvantages?
Advantages?
Disadvantages?
Advantages?
Disadvantages?
Advantages?
Disadvantages?
Practical Example: US wants to do business in India or China
Main Question: how do India and China compare, from the perspective of U.S. companies, in terms of economic distance?
Economic Distance
India
+ Specialized labor
+ Soft infrastructure
+ Indian companies show consistent profitability
China
+ China’s economy is more than twice as large as India’s
+ China’s labor productivity is also higher
+ Workers are better educated & have higher incomes
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Cultural Distance
India vs China
Administrative Distance
India vs China
Economic Distance
India vs China
Geographic Distance
India vs China
Advantages?
Disadvantages?
Advantages?
Disadvantages?
Advantages?
Disadvantages?
Advantages?
Disadvantages?
Conclusion
Important Takeaways
1. Distance should be thought of as a multidimensional construct with different types of components
2. CAGE analysis provides awareness on the key differences between home and host markets and allows companies to evaluate the desirability of that market
3. Applications of the CAGE framework make differences visible, for understanding the liability of foreignness, comparing foreign competitors, and comparing markets
In a semi-globalized world, both the differences and the similarities between countries must be taken into account. Where a company has come from influences where it goes.
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