Juan Manuel Alvarez

Christian Hageboeck
Ana Sofia Lamo
Natalia Morante

CAGE Analysis

1. Relation of Distance to the CAGE Framework

The CAGE framework relates to distance in four different ways. Cultural, administrative,
geographic and economic distance, these distances are used to identify and prioritize
the difference between countries that companies have to use in order to develop
cross-border strategies.
Cultural distance relates to beliefs, values, and social norms that shape the behavior of
individuals in a company or organization. The distance is given by the difference in these
types of beliefs, languages, norms and values. Business and market wise, people
differentiate by their attitude towards globalization and the market.
Administrative distance refers to the difference in everything that has to do in a business
transaction. This means the difference in free-trade agreements, colonial links, generally
all the political associations that have to do with companies between countries. It is
important to know the administrative distances in order to make a decision of making
cross-country strategies in companies.
Geographic distance involves the literal distance of how far it is between two countries
from each other. Other aspects that are taken into account when we relate to geographic
distance is a country’s physical size, distances to borders, access to the ocean,
topography and its time zone.
Economic distance can refer to the consumer wealth, income labor, difference in
availability, lack of resources, inputs, infrastructure and complement, and organizational
capabilities. These economic factors are what define a country's actual composition and
thus, helping companies determine positive and negative aspects that can lead to the
planning of cross-border strategies, in order to become international.
The CAGE Framework not only helps to identify the cultural, administrative, geographic
and economic differences between the various countries that companies should address
and take care while working on crafting international strategies. But it’s also used to
understand the patterns of capital, trade, flow of people, and information that work as
crucial factors for the organization. The impact of the distances and differences figured
out by the CAGE Framework between countries have demonstrated in a quantitative
manner via gravity models, it is an excellent analytical tool for all the many companies
and organizations that develop international strategies with an intention of the global
expansion of their businesses. CAGE Framework helps companies to identify the middle
ground between companies and the mass customization of extremes that are applied to
international strategies towards product development. It actually as a whole helps
determine how similar market functions in a distinguished manner in different countries.
2. Key elements in the CAGE analysis
The distance among countries can be analyzed through four different elements. These
elements are cultural distance, administrative distance, geographic distance and
economic distance. Each of these distances have key factors or attributes relat
● Cultural distance: ​the cultural attributes are crucial to understand how people of a
specific country deal with other people and with companies. Differences in
language, religious beliefs, social and racial norms can determine how distant a
country is from another. The greater the differences, the harder they can affect
trade between the two countries. Some of these differences are pretty obvious
and can be identified right away, for example language. But others are more
“hidden” and cannot be as clear as the others, like for example social norms that
are typical to a certain country, and that even those in that country sometimes do
not identify them. For example, social norms are those specific principles to a
country and they are just there and determine people’s behavior. Cultural aspects
can determine the preferences of consumers in a country and they can also
offend them, if not taken into account properly. For example, religious beliefs are
really important in certain countries, and if ignored, they can lead to big mistakes
among consumers.
● Administrative or political distance: ​historical and political associations shared
between countries can boost trading among them. Preferential trading
agreements, common currency and political union are also key to promote
businesses between the two countries. However, political distances can create
barriers among countries and they are probably the most difficult barriers for
trade. Governments can set these barriers to protect industries that represent an
important industry for jobs in the country, if they are important for the nation in
terms of patriotism or security, if they produce essential goods for the country, if
they manufacture goods that are high quality, if the industry exploits natural
resources or if those industries involve high-cost investments in order to operate.
On the other hand, political aspects of a specific country can determine whether
international companies want to invest in that country or not. If a country has a
really unstable political system, chances are, firms will not invest there because
of the uncertainty that the political environment provides.
● Geographic distance: ​physical distance between countries can affect business
between them. But geography does not only involve distance between countries,
it also involves the geography of countries. This means, the distance between
borders, access to waterways and oceans, and the topography. Man-made
geographic attributes also influence in this aspect. Geography affects the cost of
transportation of goods in a country, and they can make it more expensive if they
are hard to deal with. But they also affect intangible goods as well (services).
Countries with deficient man-made geographic attribute might make it harder to
commercialize services in a country. It is also shown that this attribute affect
direct investment in that country, so it should be taken into account pretty
carefully.
 ● Economic distance: ​the income distribution of a country affects the distance
between countries in terms of economy. High income countries mean wealthy
consumers that are able to afford goods. Wealthy countries engage in
international trade more easily than those of low income. But it is also shown that
low income countries tend to negotiate more with high income countries than with
low income countries. These distances affect the quality of production factors,
such as labor, but they can also generate an advantage. For example, a
company that needs high qualified labor might set its facility in a country with high
income, where people are educated. But companies that need to reduce costs
might look for a low income countries, where wages are lower.

3. Example using the CAGE model

Based on the experience that a logistics manager of Colombina told us about that firm,
which some years ago established a factory in Guatemala. He told us that Colombina
had some problems when they started to operate there, even though they worked hard
and were able to solve that problems, they could have been more prepared for that
country or maybe choose another central american country with less distance or
differences.

CULTURAL ADMINISTRATIVE GEOGRAPHIC ECONOMIC

DISTANCE DISTANCE DISTANCE DISTANCE

● Colombina ● In the case ● Colombina ● Even

had of Central didn´t think though that
products America about the in both
with better and South weather countries a
quality than America it is conditions in lot of people
Guatemalan well known Guatemala are poor in
s were used that and when Guatemala
to eat like corruption they sent people are
the and delays the poorer.
marshmallo on marshmallo ● Infrastructur
w but, even administrati ws they e in
though it ve arrived with Guatemala
had better procedures different was even
quality, are textures and worse that
People from common, the flavor in Colombia.
Guatemala but they changed. ●
prefered kept in mind ● Due to the
their owns. that fact that the
● In the town exporting plant is
they from located far
 established Guatemala away from
the factory, to USA the city the
the people would costs of
of that area reduce the transportatio
haven't tariffs n were
worked almost to higher and
before in a 0%. employees
factory like ● Protectionis tended to
that so they m is also arrive late to
had to present in work.
spend a lot Central ● Decisions
of money in American were harder
training countries to make
them. that is why because the
● Because of Colombina plant was
the lack of had to far away
experience associate from the
of the with a main
people, Guatemalan operations
there was company to in Colombia,
lack of share the so they had
confidence. plant and to send
also get the executives
permission from all
to operate areas to
there and maintain
contribute to operations
their FDI. at good
quality.