Core Topic 2 - Building a Global Business - The CAGE Framework PDF

Core Topic 2 The CAGE Distance Framework Dr. Aamir Anees Munshi @prof.munshijee Introduction...

Core Topic 2 The CAGE Distance Framework Dr. Aamir Anees Munshi @prof.munshijee Introduction CAGE Analysis is an excellent tool for associations and businesses looking to develop international strategies. CAGE Analysis identifies the middle ground between the one-size-fits-all and the mass-customization extremes that typify most global market strategies and product development efforts. Dr. Aamir Anees Munshi @prof.munshijee This presentation is prepared by Dr. Aamir Anees Munshi and is solely to be used by TYBBA students of the ATLAS ISME School of Management and Entrepreneurship in the subject of International Business and Global Perceptions for the Academic Year 2024 - 2025.  What is the idea behind the CAGE Framework? The CAGE framework propagates that would-be internationalizers should go first to countries that presented the least psychic distance that is, the least "distance between the home market and a foreign market resulting from the perception and understanding of cultural and business differences." Dr. Aamir Anees Munshi @prof.munshijee Points to consider The trade between two countries will be directly related to their economic sizes (a unilateral attribute of each) and inversely related to the physical distance between them (a bilateral attribute). In other words, bigger economies are predicted, as one would expect, to generate more trade in absolute terms, and greater distances between them should inhibit that trade. Ex: The trade relationship between the United States and Canada. Dr. Aamir Anees Munshi @prof.munshijee This presentation is prepared by Dr. Aamir Anees Munshi and is solely to be used by TYBBA students of the ATLAS ISME School of Management and Entrepreneurship in the subject of International Business and Global Perceptions for the Academic Year 2024 - 2025.  The CAGE Framework as described by Pankaj Ghemawat Video link: https://www.youtube.com/watch?v=7FpUJaG7uMk Dr. Aamir Anees Munshi @prof.munshijee Walmart in the U.S. vs. Canada vs. Mexico vs. the U.K. Specific The United The United CAGE Factor Canada Mexico Factor States Kingdom Spanish Cultural Language English English English English Economic Regional FTA - NAFTA NA Comparatively Geographic Capital City Arkansas Geographically close by dispersed Geographic Land Border - Common Land Border Dr. Aamir Anees Munshi @prof.munshijee This presentation is prepared by Dr. Aamir Anees Munshi and is solely to be used by TYBBA students of the ATLAS ISME School of Management and Entrepreneurship in the subject of International Business and Global Perceptions for the Academic Year 2024 - 2025.  Cultural Distance Culture as used here refers to the attributes of a society that are sustained mainly by interactions among people. Cultural differences between countries generally tend to reduce economic interactions between them. Languages' effects in this regard are perhaps the most obvious. Dr. Aamir Anees Munshi @prof.munshijee Examples of Cultural Dimensions 1. Different languages 2. Different ethnicity 3. Different religions 4. Different values, norms and dispositions 5. Variations in egalitarianism (defined as social tolerance for abuses of market and political power) 6. Different preferences for colors Dr. Aamir Anees Munshi @prof.munshijee This presentation is prepared by Dr. Aamir Anees Munshi and is solely to be used by TYBBA students of the ATLAS ISME School of Management and Entrepreneurship in the subject of International Business and Global Perceptions for the Academic Year 2024 - 2025.  Important correlations to take note of when thinking of the cultural dimension 1. Greater cultural differences lead to lower amounts of cultural trade. Nations with cultures that are insular or even traditional will tend to be relatively closed to international trade and investment, that is, more isolated than others. 2. Long lasting economic interactions leads to weakening the effect of cultural differences. Prolonged contact between countries is likely to blunt at least some of the effects of cultural differences between them. Such contact increases mutual familiarity, "seeds" the institutions and organizations required to support cross-border economic activity and eases cultural adjustments. 3. More malleable over the long run than differences in language, ethnicity or religion. Dr. Aamir Anees Munshi @prof.munshijee Administrative Distance Administrative attributes encompass laws, policies, and institutions that typically emerge from a political process and are mandated or enforced by governments. International relationships between countries, including treaties and international organizations, are included as well, on the grounds that these relationships are sustained by the countries that create or support them. Dr. Aamir Anees Munshi @prof.munshijee This presentation is prepared by Dr. Aamir Anees Munshi and is solely to be used by TYBBA students of the ATLAS ISME School of Management and Entrepreneurship in the subject of International Business and Global Perceptions for the Academic Year 2024 - 2025.  Examples of Administrative Dimension 1. Laws 9. Country's political stability 2. Policies 10. Tariffs 3. Governmental run institutions 11. Non-tariff barriers 4. International Organizations 12. Quotas 5. Colonial ties 6. Membership in the same regional trading bloc 7. Common currency 8. Treaties the country either support or created Dr. Aamir Anees Munshi @prof.munshijee Important correlations to take note of when thinking of the administration dimension 1. Colonizer colony links can multiply trade nearly threefold, even if they have lapsed a long time ago (for reasons that range from cultural familiarity to similarity in legal systems). FDI from Spain in Latin America 2. Preferential trading arrangements and a common currency can also increase trade substantially The European Union 3. Bad relationships between nations can increase administrative distance. India and Pakistan Dr. Aamir Anees Munshi @prof.munshijee This presentation is prepared by Dr. Aamir Anees Munshi and is solely to be used by TYBBA students of the ATLAS ISME School of Management and Entrepreneurship in the subject of International Business and Global Perceptions for the Academic Year 2024 - 2025.  Important correlations to take note of when thinking of the administration dimension 4. The policies of individual governments pose some of the most common barriers to cross-border trade. In some cases, the difficulties arise in a company's home country. OECD countries must deal with domestic prohibitions on bribery and conform to relatively stringent health, safety, and environmental standards. 5. A weak institutional infrastructure in a target country can also impede cross-border economic activity. For example, many companies shy away from doing business in countries known for corruption, unreliable legal systems, or social confit. Dr. Aamir Anees Munshi @prof.munshijee Geographical Distance Dr. Aamir Anees Munshi @prof.munshijee This presentation is prepared by Dr. Aamir Anees Munshi and is solely to be used by TYBBA students of the ATLAS ISME School of Management and Entrepreneurship in the subject of International Business and Global Perceptions for the Academic Year 2024 - 2025.  Examples of Geographic Dimension 1. Presence or absence of a common land border 2. Differences in time zones 3. Differences in climates 4. Access to the ocean 5. Topography 6. Within-country distances to borders 7. Man-made "geographic" attributes, such as a country's transportation and communication infrastructures Dr. Aamir Anees Munshi @prof.munshijee Important correlations to take note of when thinking of the geographic dimension 1. The farther away a country is, the harder it will be to conduct business there. 2. Longer physical distances will raise the costs of physical transportation. 3. Physical distance raises communication costs as well as transportation costs. Dr. Aamir Anees Munshi @prof.munshijee This presentation is prepared by Dr. Aamir Anees Munshi and is solely to be used by TYBBA students of the ATLAS ISME School of Management and Entrepreneurship in the subject of International Business and Global Perceptions for the Academic Year 2024 - 2025.  Economic Distance and its Examples Economic distance refers to differences that affect cross-border economic activity through economic mechanisms distinct from the cultural, administrative, or geographic ones already considered. 1. Economic size. 2. Difference in consumer income (per capita income) - rich and poor differences. 3. Differences in cost and quantity of resources - human, financial, Natural. 4. Differences in infrastructure, information or knowledge. Dr. Aamir Anees Munshi @prof.munshijee Important correlations to take note of when thinking of the economic dimension 1. Rich countries engage in more cross-border economic activity (relative to their economic size) than do their poorer cousins. 2. High per-capita income goes hand in hand with higher labor costs. Dr. Aamir Anees Munshi @prof.munshijee This presentation is prepared by Dr. Aamir Anees Munshi and is solely to be used by TYBBA students of the ATLAS ISME School of Management and Entrepreneurship in the subject of International Business and Global Perceptions for the Academic Year 2024 - 2025.  The CAGE Framework at the Industry Level Dr. Aamir Anees Munshi @prof.munshijee The CAGE Dimensions at the Industry Level 1. Cultural Sensitivity What kinds of products or services are most sensitive to cultural differences? 2. Administrative Sensitivity Administrative distance most often grows out of the desire to protect or regulate domestic industries: local governments may intervene to shield industries from outside competition and erect barriers of one kind or another (e.g., tariffs, regulatory complications, local-content laws). Dr. Aamir Anees Munshi @prof.munshijee This presentation is prepared by Dr. Aamir Anees Munshi and is solely to be used by TYBBA students of the ATLAS ISME School of Management and Entrepreneurship in the subject of International Business and Global Perceptions for the Academic Year 2024 - 2025.  The CAGE Dimensions at the Industry Level 3. Geographic Sensitivity What kinds of industries are most sensitive to geographic distance? Products that have low value-to-weight/bulk ratios (e.g., cement), Products prone to hazards or high perishability in transport (e.g., fast foods), or Products that present significant local-presence requirements Dr. Aamir Anees Munshi @prof.munshijee The CAGE Dimensions at the Industry Level 4. Economic Sensitivity Decompose value into costs on the supply side and willingness to pay on the demand side. On the supply side, economic distance is dependent on labor-intensity and cost of capital On the demand side, large differences in willingness to pay create incentives to look beyond national borders. Industries that demand lots of variety, agility, or responsiveness are also likely to experience relatively low levels of cross-border international exchange because of the extra complexity costs. Dr. Aamir Anees Munshi @prof.munshijee This presentation is prepared by Dr. Aamir Anees Munshi and is solely to be used by TYBBA students of the ATLAS ISME School of Management and Entrepreneurship in the subject of International Business and Global Perceptions for the Academic Year 2024 - 2025.  How does the CAGE framework help International Business strategists? 1. Easily assesses the potential size, risks, and barriers to different international markets. 2. Eliminates the guesswork of choosing which countries to enter in which order. 3. Identifies current products most easily transportable at minimum cost. 4. Develops new products unique to global ventures. 5. Identifies the key differences in particular settings 6. Making differences visible 7. Understanding the liability of foreignness 8. Assessing natural owners and comparing foreign competitors 9. Comparing markets 10. Discounting by distance Dr. Aamir Anees Munshi @prof.munshijee Summarized: The CAGE Framework (1/2) Video link: https://www.youtube.com/watch?v=azai3kiwGeI Dr. Aamir Anees Munshi @prof.munshijee This presentation is prepared by Dr. Aamir Anees Munshi and is solely to be used by TYBBA students of the ATLAS ISME School of Management and Entrepreneurship in the subject of International Business and Global Perceptions for the Academic Year 2024 - 2025.  Summarized: The CAGE Framework (2/2) Dr. Aamir Anees Munshi @prof.munshijee Why Starbucks Failed In Australia Video link: https://www.youtube.com/watch?v=_FGUkxn5kZQ Dr. Aamir Anees Munshi @prof.munshijee This presentation is prepared by Dr. Aamir Anees Munshi and is solely to be used by TYBBA students of the ATLAS ISME School of Management and Entrepreneurship in the subject of International Business and Global Perceptions for the Academic Year 2024 - 2025.  Failure of Starbucks in Australia (1/3) The all-powerful Starbucks failed miserably to expand its business in Australia. How is it possible? The company assumed that since the U.S. and Australia have similar cultures and history, Starbucks could operate in the same way. They tried to grow fast and failed. Source: https://www.cnbc.com/2018/07/20/starbucks-australia-coffee- failure.html#:~:text=Starbucks%20didn't%20fit%20Australians,company%20to%20close%2061%20locations. Dr. Aamir Anees Munshi @prof.munshijee Failure of Starbucks in Australia (2/3) 1. 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. 2. Administrative Dimension: 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). In the U.S., credit is much more accessible. This is probably the reason why the Australian Starbucks had to be financed from the U.S. Dr. Aamir Anees Munshi @prof.munshijee This presentation is prepared by Dr. Aamir Anees Munshi and is solely to be used by TYBBA students of the ATLAS ISME School of Management and Entrepreneurship in the subject of International Business and Global Perceptions for the Academic Year 2024 - 2025.  Failure of Starbucks in Australia (3/3) 3. 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. 4. Economic Dimension: Starbucks coffee was too expensive for Australians. In comparison, they charged much more than local cafes. Dr. Aamir Anees Munshi @prof.munshijee Why Tim Hortons Struggles In The United States Video link: https://www.youtube.com/watch?v=y6uSqnxnjr4 Dr. Aamir Anees Munshi @prof.munshijee This presentation is prepared by Dr. Aamir Anees Munshi and is solely to be used by TYBBA students of the ATLAS ISME School of Management and Entrepreneurship in the subject of International Business and Global Perceptions for the Academic Year 2024 - 2025.  Why McDonald’s Failed in Iceland Video link: https://www.youtube.com/watch?v=AT-E_eMiwgk Dr. Aamir Anees Munshi @prof.munshijee Week 2 – Pop Quiz Dr. Aamir Anees Munshi @prof.munshijee This presentation is prepared by Dr. Aamir Anees Munshi and is solely to be used by TYBBA students of the ATLAS ISME School of Management and Entrepreneurship in the subject of International Business and Global Perceptions for the Academic Year 2024 - 2025.