Essay 1 – CAGE Framework
In the text Redefining Global Strategy, Pankaj Ghemawat discusses a method of indentifying the various differences that can exist between two countries, and that must be addressed when considering cross-border operations. This method is called the CAGE Framework. CAGE is an acronym used to describe the cultural, administrative, geographic, and economic distances that can exist between multiple countries. While methods of measuring physical and psychic distance have been already been incorporated over the last three decades, “… the CAGE framework takes a much broader view of distance, and has a much more solid empirical base.” (Ghemawat, 41) By exploring these four dimensions, a company can better plan their strategy when considering international expansion.
A study and comparison of the cultural distance between two countries may reveal barriers that had not yet been considered. As stated by Ghemawat, “Cultural differences between countries generally tend to reduce economic interactions between them.” (42) Cultural constituents such as language, ethnicity, religion, willingness to trust, and social and family norms/values all must be considered when measuring the cultural distance between two borders. Nations that share similar qualities and opinions concerning the above constituents tend to be more likely to institute cross border operations successfully. The more contact established between these countries, the more mutual familiarity and rapport exists between them, increasing the likelihood of successful economic activity. Nations with different, or even conflicting, viewpoints (and little to no contact) are less likely to establish these relationships.
Next in the framework is the measurement of administrative distance. Administrative factors include, but are not limited to, laws, policies, and government mandated/controlled institutions. This dimension of the framework explains how the lack of colonial ties, lack of shared regional trading blocs, lack of a common currency, political hostility, and more affect the establishment of cross border economic activity. “A company is likely to trade ten times as much with a country that is a former colony, for instance, than with a country to which it has no such ties. A common currency increases trade by 340%.” (Ghemawat) It would benefit a company to search for countries that not only meet their business needs, but also share commonalities in these areas to increase the likelihood of successful bonding. However, within administrative distance, one might find great opportunity as a difference in law or policy could be a great benefit to the company looking to globalize.
The third dimension of the CAGE framework is geographic distance. While this does encompass physical distance, it includes many other attributes that must be taken into consideration. Constituents of this dimension to be explored include, but are not limited to, physical distance, lack of...