Pankaj Ghemawat, a renowned international strategist, established the CAGE-framework that serves to offer businesses a method of evaluating countries regarding the distance between them. According to Pankaj, distance transcends the physical geographic distance to include administrative, cultural as well as economic differences between the countries. Broadly, the CAGE framework offers a broader view of distance by providing an alternative way of thinking regarding location as well as the opportunities and the resultant risks that come with global arbitrage. Overall, this synthesis gives a critique of the CAGE framework to enable readers to understand the entire concept of the approach.
The CAGE Framework has various advantages in that it identifies a location that provides low costs of materials, access to markets among other primary decision criteria. For instance, if a business has an interest in markets that offer strong consumer buying power, the business would use per capita income as the initial sorting criterion ( Hasan & Uddin, 2016). The company will end up with some ranking. Using the fast food industry example, where the CAGE framework indicates the classification basing on the per capita income, countries such as Japan and Germany provide the best markets for the possible expansion of the North American fast-food industry. Overall, the CAGE method offers comprehensive and detailed information that guides a business on all the potential risks and opportunities of venturing into a new foreign market.
Delegate your assignment to our experts and they will do the rest.
Equally important to note is the fact the CAGE-framework serves to address the question of how (regarding the means of entry and where (which arena) a business can use to expand internationally. For instance, Dell aspired to compete in China effectively. The approach that the company used to penetrate the Chinese market was as important as its strategy. The CAGE-framework revealed comparatively little distance in the entire dimension given that many components of the personal computers have traditionally been sourced from China ( Herrera, 2017). Notably, for the consumer category, the distance was somewhat great, especially on the dimension of administration, economics, and culture. The Chinese do not purchase items online, a joint selling method that Dell uses in the US. Dell, therefore, opted to make a strategic alliance with all the distributors who had sufficient knowledge base as well as capabilities that allowed Dell to connect the CAGE-framework distances. In general, the CAGE-framework stands out in that it provides more than just the dimensional analysis.
Many multinational corporations have always grappled with the dilemma of cultural integration in foreign markets. Businesses have failed to pick up while in foreign markets due to cultural insensitivity of the organization in the foreign country. The CAGE-framework provides information regarding the social norms, religious practices, and language that provides useful guidance to businesses wishing to trade in a particular international market ( Miloloža, 2015). Initially, other models failed to provide the right cultural expectation of foreign markets resulting in substantial losses for companies. The cultural information enables businesses to conform in a manner that allows the locals to feel comfortable and even engage with the industry further. Training of employees in terms of language and other dimension makes it easy for businesses to adapt to the new environment without much friction. Altogether, the CAGE-framework stand out in the manner in which it provides a detailed cultural background of the different foreign markets.
Most importantly, the CAGE-framework captures the political dimension, which stands as one of the most important determining factors that one ought to consider before venturing into a particular foreign market. The inclusion of the political aspect as one of the dimensions of the framework explains why the methods transcend all others. Assessing factors such as political hostilities and government policies of the target country enable businesses to make informed decisions before venturing into the markets ( Miloloža, 2015). Besides, the CAGE-framework not only lists the political aspects that might affect the company but also gives a detailed analysis including examples.
Broadly, the political dimension lists countries with the least political hostilities favorable for conducting business while also providing strategies on how to survive running a business in the countries listed as politically hostile. Government policies all over the world may inhibit or promote a business ( Miloloža, 2015). The CAGE-framework ranks countries with the most flexible government policies suitable for business while at the same provides strategies for conducting business in countries with stringent government policies regarding the regulation of foreign businesses.
However, the CAGE-framework also has some weaknesses; for instance, it fails to provide information regarding the environmental conditions of the various countries that one might want to take his or her business venture. Climatic factors have a lot of influence to businesses, which explains why its exclusion from the four dimensions of the CAGE-framework weakens the method ( Miloloža, 2015). Climatic factors determine the availability of raw materials and the preferences for the locals among other factors. For instance, the cold climatic conditions in Norway may inform why a clothing line with thick-warm-wool interior lining will flourish. The business also needs climatic information regarding the target nation to prepare its staff accordingly on how to cope with the same. Overall, the CAGE-framework does not come out as comprehensive as many would have expected for lack of capturing environmental information, which weakens it all together.
Noteworthy, there has been a common misconception regarding the CAGE-system that a business only needed to restrict itself within the four dimensions listed as cultural, administrative, geographical, and economic. Ideally, companies need to delve more in-depth than the four dimensions and incorporate factors such as the capital of the business and its capacity to adapt in the foreign market. The CAGE-framework focuses much on the external variables in the international market and forgets to include internal variables within the company that might hamper the business. Broadly, a business might do well on all the four dimensions provided by the CAGE-framework but still fail to thrive due to internal factors such as capital, labor, and organizational leadership ( Reis, 2015). In general, factors that might affect a business transcend the four dimensions listed on the CAGE -framework and, therefore, sticking to the four might mislead a business only to land it in difficulties upon venturing into the new market.
Importantly, the CAGE-framework fails to capture the changes that occur on a timely basis, which might affect the business. For instance, the political stability of a given country can change so rapidly to render the analysis provided by the framework irrelevant. Equally, economic factors also tend to fluctuate often, and dynamism in the business world makes the analysis provided by the CAGE-framework unreliable ( Miloloža, 2015). The method ought to find a way of capturing the real-time information and offer an approach businesses can use to ensure they remain updated on the very latest occurrences in the countries of interest. In general, the business world is so dynamic, and the CAGE-framework might not provide updated information that may inform an investment decision for any business.
In conclusion, the CAGE-framework provides substantial information regarding the cultural, administrative, geographic, and economic information regarding a particular country. The information helps one to make an informed decision before investing. However, the framework has some limitations in the sense that it does not capture ecological factors that also impact on business. Moreover, the CAGE-framework overlooks the significance of internal business factors that might affect the operations of a particular company.
References
Hasan, M. M., Ibrahim, Y., & Uddin, M. M. (2016). Institutional distance factors influencing firm performance: A hypothetical framework from cross-border mergers and acquisitions. The Journal of Developing Areas , 50 (6), 377-386.
Herrera, M. E. F. (2017). Contrasting the strategic role of firms in the economic development of Ecuador with that of South Korea using Ghemawat CAGE distance framework.
Miloloža, H. (2015). Differences between Croatia and EU candidate countries: the CAGE distance framework. Business Systems Research Journal , 6 (2), 52-62.
Reis, N. R. (2015). WORLD 3.0: GLOBAL PROSPERITY AND HOW TO ACHIEVE IT Pankaj Ghemawat (2011), Boston (MA): Harvard Business Review Press, 386 p. Revista Ibero Americana de Estratégia , 14 (2), 137-139.
