What is the CAGE Distance Framework?
The CAGE Distance Framework is a Tool that helps Companies adapt their Corporate Strategy or Business Model to other Regions.
When a Company goes Global, it must be aware that, what works in one country may not work in another.
This Framework studies the factors that characterize countries to maximize the possibilities for Companies to go Global.
- These Factors are called “Distances”, referring to what separates two different countries.
Its name in an acronym for the 4 Distances it focuses on to do so:
(Video) Cage Distance Framework Explained
- Cultural.
- Administrative.
- Geographic.
- Economic.
The Four Distances of the CAGE Framework
Cultural: What characterizes the Culture of the Country.
- For example:
- Language.
- Religion.
- Values.
Administrative: How the Administration of the Country works.
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- For example:
- Bureaucracy levels.
- If it is a Centralized or a De-centralized Country.
- What Requirements must be met to operate.
Geographical: What characterizes the Geography of the Country.
- For example:
- The Size of the Country.
- Its Orography.
- The Weather.
Economic: How is the Economy of the Country.
- For example:
- Its Economic Model.
- The Growth Rate.
- Its GDP per capita.
CAGE Distance Framework
Since we know this all seems obvious, let’s look at a real example that shows how important this framework can be:
CAGE Framework example
The all-powerful Starbucks failed miserably to expand its business in Australia.
(Video) What is: The CAGE Distance Framework? | Internationalization Strategy Course
How is it possible?
The company assumed that since the US and Australia have similar culture and history, Starbucks could operate in the same way.
They tried to grow fast and failed.
Let’s use the CAGE Framework to find out what Starbucks should have considered in its Business Model:
Cultural Dimension
Australians don’t like the same kind of coffee as Americans.
- American coffee is too sweet for them.
Australians are used to the coffee introduced by Greeks and Italians in the mid-1990s.
Administrative Dimension
Maybe, the Australian administration and specially the banks (if we consider them part of the Administration) are not used to doing Business in the red (losing money).
- On the US, credit is much more accesible.
This is probably the reason why the Australian Starbucks had to be financed from the US.
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Geographic Dimension
This is also an hypothesis, but perhaps Australia’s size and its disperse population contributed to a lack of momentum in its popularity.
- Australia has most of its population scattered in a few large cities.
Economic Dimension
Starbucks coffee was too expensive for Australians.
- In comparison, they charged much more than local cafes.
We obtained this information from a small CNBC Documentary:
- Check it out here: Why Starbucks failed in Australia.
This Framework, can be used both to adapt Corporate Strategies and Business Models.
- In the previous example, we have used it for analyzing the Business Model.
However, there are a few things you need to know if you want to use it properly:
How to use the CAGE framework
Focus on the biggest Differences.
- It is the different what will cause you problems.
Don’t spend a lot of time on the similarities.
- All countries have things in common, that doesn’t make their Markets equivalent.
Don’t be soft when analyzing a Country.
- If a country has corrupt institutions, highlight it. Otherwise, you’ll have problems.
Don’t underestimate Values and Beliefs.
- Some countries take their traditions very seriously. Much more than their job.
Hire or Partner with locals, and listen to them.
- If your only source of knowledge about a country is Hollywood movies, you’ll fail.
(Video) How "distance" makes global corporate scope hard (CAGE distance framework)
As we always say, the best way to understand the CAGE Framework and how you can use it is by sharing some examples with you:
CAGE Framework examples
As you already know, we are a team made up entirely of Europeans.
However, we have done business with many different countries throughout our professional career.
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Here, we will highlight some of the most interesting things you should take into account when doing Business in:
- America (US).
- Europe (We’re aware that Europe is very diverse).
- China.
We have made this list based on our own professional experience so, don’t expect 100% accuracy.
Let’s begin:
Doing Business in the US - CAGE Framework example
Culture
- Americans believe in God much more than Europeans.
- Generally, they don’t live as close to their family as Europeans (due to the high internal mobility).
- They give great importance to money. Much more than Europeans.
- Americans consider failure as part of the success.
- Americans are very Enterprising and Hard-working people.
- They prefer to Do-then-Analyze rather than to Analyze-then-Do.
Administration
- The Administration is proactive in encouraging Businesses.
- In general, there are few Regulations.
- Regulations are Transparent and Business-friendly.
- Being a Federal Republic, there are important differences between States.
Geography
- The United States is a very large country, much larger than it seems.
- Its weather is tropical in the south and cold in the north.
- The population is concentrated (with the exception of Illinois and Texas) on the Coasts.
- A 3 hour trip is not considered long.
Economy
- It is the biggest and most important economy in the world (don’t underestimate this).
- Credit is very accesible.
- People spend a lot and save little money.
- They are extremely good at creating and growing businesses. The best in the world, in fact.
(Video) CAGE Distance Framework
Doing Business in Europe - CAGE Framework example
Culture
- Europeans don’t believe much in God (in general terms) but maintain many religious traditions.
- They live relatively close to their families (as there is not much internal mobility).
- There are lots of different languages. English is used as the common language.
- Europeans prefer to Analyze-then-Do rather than Do-then-Analyze.
- Europeans don’t attach much importance to wealth (as long as they can live in good conditions).
- Europeans regard work as a way for living better.
Administration
- There are lots of regulations in Europe.
- Every country has different regions and every region has different provinces.
- Regulations can vary even between provinces in the same region.
- The Administration tends to distrust Companies much more than in the United States.
Geography
- Europe is not very big, although its internal orography makes it difficult to move between countries.
- In certain regions, it is easier to get around by boat than by car.
- Population is scattered all around Europe, but specially in central Europe.
- A 3 hour trip is considered long.
Economy
- Its Economy is huge; but not homogeneous (the United States is a single country).
- It is more difficult to access credit than in the US.
- People spend less and save more money than in the US (when they can, of course).
- Europeans don’t “love” risk in Business as much as Americans.
Doing Business in China - CAGE Framework example
Culture
- Chinese are not very religious people (of course, in average).
- They are very hard-working and disciplined people.
- In Business, they give special importance to personal relationships.
- Originality is not valued as much as it is in Europe.
- Virtually no one speaks English (ordering in a restaurant can be a challenge).
- The interior and the coast are very different regarding Culture and Values.
Administration
- If you want to do business in China, you need a Chinese partner.
- Regulations are neither transparent nor agile.
- Chinese administrations do not cooperate much with non-Chinese entities.
- There are certain incentives for companies in the interior (unpopulated interior regions of China).
Geography
- China is extremely large and diverse.
- There are deserts in the north and tropical coast in the south.
- They have many disputed territories (Taiwan, Kashmir, Senkaku islands, etc).
- Hong Kong has a special Status; it is almost other different country.
Economy
- Although their Economy is huge, China has many poor and isolated regions.
- Inequality is huge (although it is expected to decrease in the coming years).
- Although officially a communist country, they allow a “supervised form of capitalism”.
- You need Government approval for almost everything.
Summarizing
The CAGE Distance Framework is a Tool that helps Companies adapt their Corporate Strategy or Business Model to other Regions.
This Framework studies the factors that characterize countries to maximize the possibilities for Companies to go Global.
These factors, called Distances, are:
- Culture: What characterizes the Culture of the Country.
- Administration: How the Administration of the Country works.
- Geography: What characterizes the Geography of the Country.
- Economy: How is the Economy of the Country.
Tips on how to use the CAGE Framework effectively:
- Focus on the biggest Differences.
- Don’t spend a lot of time on the similarities.
- Don’t be soft when analyzing a Country.
- Don’t underestimate Values and Beliefs.
- Hire or Partner with locals, and listen to them.
FAQs
What is CAGE framework example? ›
A CAGE framework example of cultural difference is how the people of the new market will use and interpret the company's offer. For example, Fanta soft drink is peach flavored in Botswana, and the same product is adapted to appeal to the taste and cultural differences of the Japanese market to be more floral.
Read More ›
The CAGE Distance Framework identifies Cultural, Administrative, Geographic and Economic differences or distances between countries that companies should address when crafting international strategies. It may also be used to understand patterns of trade, capital, information, and people flows.
View Details ›
The CAGE framework (Mariadoss, 2017) helps a firm gauge the distance that the target country is from the firm's home country on four dimensions. The greater the distance or difference, the more risk exists and the less opportunity there is for success.
Learn More Now ›
To apply the CAGE framework, identify locations that offer low raw material costs, access to markets or consumers, or other key decision criteria. You might, for instance, determine that you're interested in markets with strong consumer buying power, so you would use per capita income as your first sorting criterion.
Read On ›
The CAGE Distance Framework divides the differences between how countries do business into four categories which help to simplify the analysis. They are Cultural, Administrative, Geographic and Economic and provides a broader view of “distance” among countries than just the obvious one.
Continue Reading ›
The CAGE Framework was developed by professor Pankaj Ghemawat, a renowned Professor of Global Strategy at IESE Business School in Barcelona, Spain. He was convinced that one should look beyond mere sales potential and analyse the impact of distance.
Learn More Now ›
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FAQs
What is an example of a CAGE Distance Framework? ›
A CAGE framework example of cultural difference is how the people of the new market will use and interpret the company's offer. For example, Fanta soft drink is peach flavored in Botswana, and the same product is adapted to appeal to the taste and cultural differences of the Japanese market to be more floral.
How does the CAGE Distance Framework helps a business expand globally? ›The CAGE Distance Framework helps companies because it can evaluate countries and determine the distance between them. This does not only involve physical geographical distance, but also figurative distances between various cultures, economies, and working methods.
What is the purpose of the CAGE Distance Framework? ›The CAGE framework (Mariadoss, 2017) helps a firm gauge the distance that the target country is from the firm's home country on four dimensions. The greater the distance or difference, the more risk exists and the less opportunity there is for success.
What are the 4 components of the CAGE analytical framework? ›The CAGE Distance Framework divides the differences between how countries do business into four categories which help to simplify the analysis. They are Cultural, Administrative, Geographic and Economic and provides a broader view of “distance” among countries than just the obvious one.
What are examples of cage questions? ›- Have you ever felt that you ought to C ut down on your drinking?
- Do you get A nnoyed by criticism of your drinking?
- Do you ever feel G uilty about your drinking?
To apply the CAGE framework, identify locations that offer low raw material costs, access to markets or consumers, or other key decision criteria. You might, for instance, determine that you're interested in markets with strong consumer buying power, so you would use per capita income as your first sorting criterion.
How does CAGE analysis help market growth? ›CAGE analysis asks you to compare a possible target market to a company's home market on the dimensions of culture, administration, geography, and economy. CAGE analysis yields insights in the key differences between home and target markets and allows companies to assess the desirability of that market.
What are the advantages of cage analysis? ›It enables discussion to take advantage of the differences. It's comprehensive in the categories. It works for all countries / markets. It provides a clear look at practicalities of entering a geographic market.
What are the 4 dimensions of distance? ›Distance is separated into four dimensions: Cultural, Administrative and Political, Geographic, and Economic.
What is the disadvantage of CAGE framework? ›Disadvantages. The major limitations are: It is only beneficial for determining the market size and focuses on your entry. It is not a quick structure to employ because it needs extensive market research.
What is an example of Economic distance? ›
People generally travel or transport goods considering the transport cost. For, examples, the 10 minutes or 2 km rickshaw ride may cost 30 rupees. One can change his/her dissension to travel that distance if 30 rupees is beyond their capacity. Here is the importance of 'Economic Distance'.
What is the CAGE framework comparison tool? ›The CAGE Comparator (direct link: www.ghemawat.com/cage) is an online tool to facilitate cross-country comparisons using the CAGE Framework. It covers 16 types of Cultural, Administrative, Geographic, and Economic (CAGE) differences and distances across 163 countries, with customized coverage of 65 industry groups.
Which of the four elements of the CAGE model should be considered most important for country selection decisions in international business? ›The CAGE framework examines four elements: Cultural, Administrative, Geographic, and Economic. While each element is important, in this response, I argue that the Economic element is the most critical when it comes to country selection decisions in international business.
What are the six analytical frameworks? ›To identify factors that have impacted media change in the two countries, this essay suggests moving systematically through the following six areas: (1) journalistic culture, (2) political system, (3) economic system, (4) citizens' media-related beliefs, (5) socio-economic development, and (6) external factors.
What is pestle vs CAGE framework? ›The goal of the PESTLE framework is to give a big picture for decision makers of individual countries. The CAGE framework is focusing on distances between the home and host country.
What are the limitations of the CAGE assessment? ›The CAGE does have limitations as a sole screening assessment of alcohol abuse and dependence. Without a lead in question, the CAGE does not distinguish between current and past drinking problems. The CAGE may have gender and ethnic biases (Steinbauer et al., 1998).
What is the CAGE assessment tool? ›A five-question tool used to screen for drug and alcohol use; answering yes to two or more questions indicates a complete assessment is advised.
What is the CAGE interview technique? ›Four clinical interview questions, the CAGE questions, have proved useful in helping to make a diagnosis of alcoholism. The questions focus on Cutting down, Annoyance by criticism, Guilty feeling, and Eye-openers. The acronym “CAGE” helps the physician to recall the questions.
How might CAGE analysis help you identify institutional voids? ›CAGE analysis can help you identify institutional voids by looking at the cultural, administrative, geographic, and economic differences between two areas. By understanding the differences between these areas, you can identify opportunities for new institutions or businesses.
How do you use strategic framework? ›- Vision statement. A vision statement is a short statement that includes one to two sentences. ...
- Mission statement. ...
- Time frame for completion. ...
- Business objectives. ...
- Strategies to achieve objectives. ...
- Action plan to provide detail into strategies.
What does CAGE stand for in business? ›
Yes, obtaining a CAGE Code is mandatory in order to do business with the federal government or receive federal grant funding. What is a CAGE Code? ( also known as SAMs) The CAGE Code is a five-character ID number used by the Federal Government to identify vendors. CAGE stands for “Commercial And Government Entity.”
How does market structure help us in daily life? ›Market structure is important in that it affects market outcomes through its impact on the motivations, opportunities and decisions of economic actors participating in the market.
How do you analyze market growth? ›- Research your industry. ...
- Investigate the competitive landscape. ...
- Identify market gaps. ...
- Define your target market. ...
- Identify barriers to entry. ...
- Create a sales forecast.
- Feed must be nutritionally complete and kept fresh.
- Low Dissolved Oxygen Syndrome (LODOS) is an ever present problem and may require mechanical aeration.
- Fouling of net cage.
- The incidence of disease can be high and diseases may spread rapidly.
- Vandalism or poaching is a potential problem.
Disadvantages include: The fish are crowded in cages, and there is a relatively high incidence of disease that can spread rapidly. There can be localized poor water quality, such as low dissolved oxygen, in and around cages. Caged fish do not have access to natural food, so a nutritionally complete diet is required.
What is the cage culture technique? ›In cage culture, fish are confined in cages constructed of wire or fiber netting suspended from a floating frame. Cages range in size from 1 to 2000 m3 or more. Cages are secured by anchors in streams, lakes, and reservoirs. Net pens are formed by securing netting to poles driven into the bottom of a water body.
What are the names of the four types of distance? ›Hall (1969) delineated four zones of interpersonal distance that characterize Western culture: intimate (up to 18 inches), personal (18–48 inches), social (48 inches to 12 feet), and public (greater than 12 feet).
What is an example of a 4D? ›A naturally-occurring example of a 4D structure is the pinecone. Pinecones are covered with woody scales. The underside of each scale is made up of long, parallel, thick-walled cells which get longer when they get wet, and shorten when dry.
What is the 4D theory? ›4D is also an important idea in physics, developed in the 20th century. In physics, it refers to the idea of time as a fourth dimension, added to the (3D) spatial dimensions. Albert Einstein developed the idea of spacetime by connecting space and time together.
What is the origin of the CAGE framework? ›Professor Pankaj Ghemawat developed the CAGE Distance Framework to help organizations explore how distance could affect plans for international expansion. He split distance into four key categories: Cultural distance. Administrative distance.
What are the disadvantages of enriched cage production? ›
Use of the enriched colony cage for the productive lifetime of commercial hens impedes the performance of locomotion, exploring, dust bathing, foraging, wing flapping and stretching, which can lead to “sham” behaviours and feather pecking.
What are the 5 examples of distance? ›- Examples of Distance.
- Trekking to a hill.
- Traveling to office.
- Jogging on a path.
- Hare and tortoise.
- Playing hide and seek.
- Moving of Camera roll.
- Monkey roaming around.
If a car travels 100 meters north and then turns right and travels another 300 meters east, then the total distance that the car traveled can be found simply by adding the two segments of length traveled together. In this example, the total distance the car traveled is 400 meters.
What is the best example of distance? ›The distance of an object can be defined as the complete path travelled by an object. For example. if a car travels east for 5 km and takes a turn to travel north for another 8 km, the total distance travelled by car shall be 13 km.
What are the four main factors that must be considered when doing business with another country? ›- 1) Operations. Decide how you will structure your business overseas. ...
- 2) Hiring. Determine how you will go about the hiring process. ...
- 3) Payroll. ...
- 4) Compliance.
Some of the factors include: cost; price elasticity of demand; competition; nature of products or industry; exchange rate fluctuations; distribution system; location of production facility; location and environment of the foreign market; and government regulations in the foreign market.
What are the four main factors of the international business environment? ›- geographic conditions.
- cultural and social factors.
- political and legal factors.
- and economic conditions.
- Familiarisation.
- Identifying a thematic framework.
- Indexing.
- Charting.
- Mapping and interpretation.
Analyzing the data
Descriptive analysis, which identifies what has already happened. Diagnostic analysis, which focuses on understanding why something has happened. Predictive analysis, which identifies future trends based on historical data. Prescriptive analysis, which allows you to make recommendations for the ...
- Descriptive analysis.
- Exploratory analysis.
- Inferential analysis.
- Predictive analysis.
- Causal analysis.
- Mechanistic analysis.
What is an example of CAGE framework in real life? ›
A CAGE framework example of cultural difference is how the people of the new market will use and interpret the company's offer. For example, Fanta soft drink is peach flavored in Botswana, and the same product is adapted to appeal to the taste and cultural differences of the Japanese market to be more floral.
What are the four elements of the CAGE framework explain? ›The CAGE Distance Framework divides the differences between how countries do business into four categories which help to simplify the analysis. They are Cultural, Administrative, Geographic and Economic and provides a broader view of “distance” among countries than just the obvious one.
Is PESTLE or SWOT analysis better? ›SWOT analysis is more focused on the internal factors that are within the control of the business, but can affect its strengths and weaknesses. PESTLE analysis can help businesses identify the trends and changes in the macro-environment that can create or reduce opportunities and threats for the business.
What is the CAGE framework? ›The CAGE Distance Framework identifies Cultural, Administrative, Geographic and Economic differences or distances between countries that companies should address when crafting international strategies. It may also be used to understand patterns of trade, capital, information, and people flows.
What is the CAGE Distance Framework Mexico? ›The CAGE framework developed by Ghemawat (2001) measures the distance between two countries according to Cultural, Administrative, Geographic and Economic criteria and was the main indicator for this research.
Which of the following dimensions are considered in the CAGE Distance Framework? ›Distance is separated into four dimensions: Cultural, Administrative and Political, Geographic, and Economic.
What are the elements of CAGE? ›As summarized in Table 8.2 "The CAGE Framework", the CAGE (cultural, administrative, geographic, and economic) framework offers a broader view of distance and provides another way of thinking about location and the opportunities and concomitant risks associated with global arbitrage.
Who created CAGE framework? ›Professor Pankaj Ghemawat developed the CAGE Distance Framework to help organizations explore how distance could affect plans for international expansion. He split distance into four key categories: Cultural distance.
What does cage stand for in business? ›Yes, obtaining a CAGE Code is mandatory in order to do business with the federal government or receive federal grant funding. What is a CAGE Code? ( also known as SAMs) The CAGE Code is a five-character ID number used by the Federal Government to identify vendors. CAGE stands for “Commercial And Government Entity.”