Explore the Archive Executive Summary Companies routinely overestimate the attractiveness of foreign markets. Dazzled by the sheer size of untapped markets, they lose sight of the difficulties of pioneering new, often very different territories. The problem is rooted in the analytic tools the most prominent being country portfolio analysis, or CPA that managers use to judge international investments. Most of these costs and risks result from the barriers created by distance. This framework can help to identify the ways in which potential markets may be distant from existing ones.
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Explore the Archive Executive Summary Companies routinely overestimate the attractiveness of foreign markets. Dazzled by the sheer size of untapped markets, they lose sight of the difficulties of pioneering new, often very different territories. The problem is rooted in the analytic tools the most prominent being country portfolio analysis, or CPA that managers use to judge international investments.
Most of these costs and risks result from the barriers created by distance. This framework can help to identify the ways in which potential markets may be distant from existing ones. The Idea in Brief Why did U. For example, it assumed—wrongly—that Asian viewers wanted English-language programming. Consider three other dimensions as well: cultural factors religion, race, social norms, language ; administrative factors colony-colonizer links, currencies, trading arrangements ; and economic factors income, distribution-channel quality.
The more two countries differ across these dimensions, the riskier the target foreign market. By contrast, similarities along these dimensions suggest great potential. Also, types of distance affect industries differently. By analyzing the possible impact of distance—in all its dimensions—you sweeten the odds of investing in profitable foreign markets.
The Idea in Practice How to decide whether to expand into a particular foreign country? The table provides examples. By considering the potential impact of distance on your industry, you may identify highly promising global-investment opportunities. Example: Suffering limited cash flow and high debt-service obligations, Dallas-based Tricon Restaurants International TRI had to select its global-expansion investments carefully.
An analysis of per-capita income and fast-food consumption suggested Japan, Canada, and Germany as the most promising countries in which to invest—with Mexico ranking 16th among 20 possibilities.
But when TRI included the four dimensions of distance in its analysis, Mexico leapt to 2nd place. When it was launched in , Star TV looked like a surefire winner. The plan was straightforward: The company would deliver television programming to a media-starved Asian audience. Since English was the second language for most of the target consumers, Star would be able to use readily available and fairly cheap English-language programming rather than having to invest heavily in creating new local programs.
A version of this article appeared in the September issue of Harvard Business Review.
At the time, Brazil had a fledgling audit services market. When the four firms set up branches in Brazil, they raised financial reporting and auditing standards across the country, thus bringing a dramatic improvement to the local market. Tarun Khanna, Krishna G. Finally, the firm can choose the strategy of staying away from a market with institutional voids.
CAGE Distance Framework
Menu CAGE Distance Framework When crafting international strategies businesses need to evaluate the affected countries in terms of their distances, or in other words their differences. Pankaj Ghemawat identified this issue and has in turn proposed the CAGE Distance Framework which assesses the cultural, administrative, geographic and economic differences between the countries within an international strategy. These four factors are explained in more detail below: Cultural Distance The first element of the Cage framework is the Cultural distance and looks into the values and behaviors of the people within those countries. The primary dimensions examined are: Power distance: Illustrates whether individuals accept the inequalities of power between superiors and subordinates within a society. Uncertainty avoidance: Looks into how individuals view the uncertainty of the future. Individualism: Examines the social values of individualistic vs collective societal views.
CAGE Distance Framework
While globalization is continuously expanding, it is less relevant than we really think. However, what they soon found out was quite peculiar, the locals had thought they were selling baby food. Not food for babies. Naturally, their sales reflected this interesting mistake. An extremely weird mistake, but it does highlight an important point: There are significant differences between cultures that must be acknowledged.