The CAGE Distance Framework

Views:
 
Category: Education
     
 

Presentation Description

No description available.

Comments

Presentation Transcript

PowerPoint Presentation:

THE CAGE DISTANCE FRAMEWORK Sameer Mathur, Ph.D.

PowerPoint Presentation:

Sameer Mathur smathur.com Asst. Professor (Marketing) 2009 – 2013 Ph.D. and M.S. (Marketing) 2003 – 2009

PowerPoint Presentation:

Agenda

PowerPoint Presentation:

CAGE

PowerPoint Presentation:

The world is semi-globalized (not globalized). Frontiers still matter a great deal in international trade. The Idea Behind the Concept

PowerPoint Presentation:

Tool to measure the closeness of countries among themselves along 4 dimensions. Applicable at the Country and Industry level. Not for Cross-industry Analysis because influenced by industry characteristics. CAGE Distance Framework

PowerPoint Presentation:

C (cultural distance) A (administrative distance) G (geographic distance) E (economic distance ) The 4 Dimensions

PowerPoint Presentation:

Attributes of a society sustained by interactions among people (Not the State) Greater Cultural Differences Leads to lower Amount of International Trade. Cultural Dimension

PowerPoint Presentation:

Long lasting economic interactions Leads to weakening effect of cultural differences. More malleable over the long-run than differences in language, ethnicity and religion. Cultural Dimension

PowerPoint Presentation:

Different languages Different ethnicities Lack of connective ethnic or social networks. Different religions Different Values, norms and dispositions Examples of CAGE - Culture

PowerPoint Presentation:

Note: In this QWERTZ keyboard, ALT GR + Q will give you the @ symbol. QWERTY vs. QWERTZ Keyboards

PowerPoint Presentation:

Refers to: Laws Policies Government run institutions International organizations Treaties the country either support or has created. Administrative Dimension

PowerPoint Presentation:

Factors Impacting FDI Quality of Political Infrastructures Country’s Political Stability. Tariffs Non-Tariff Barrier Quotas Administrative Dimension

PowerPoint Presentation:

C olonial ties Shared regional trading bloc Common currency Political hostility Examples of CAGE - Administration

PowerPoint Presentation:

Closed economy Extent of home bias Lack of membership in international organizations Weak institutions corruption Examples of CAGE - Administration

PowerPoint Presentation:

As distance increase, chances of a profitable economic relationship decrease. Communication and Transportation Infrastructures can either be interpret as geographic or economic attributes. Geographical Dimension

PowerPoint Presentation:

As distance Increase, Transportation costs increase Businesses tend to opt for FDI. However, the greater the distance, the less likely countries are to invest overseas since communication costs increase as well. Geographical Dimension

PowerPoint Presentation:

Physical distance Differences in climates and disease environments Differences in time zones Lack of land border Examples of CAGE - Geography

PowerPoint Presentation:

Landlocked geography Lack of internal navigability Geographic size, remoteness Weak transportation/ communication links Examples of CAGE - Geography

PowerPoint Presentation:

Economic mechanisms that affect international trade. H igh per capita income Leads to high labour costs Economic Dimension

PowerPoint Presentation:

Rich-poor differences Natural resources, financial resources, human resources, infrastructure, information or knowledge Economic size Low per-capita income Examples of CAGE - Economy

:

More success in similar countries than in very different ones. M ost profitable international markets: Canada, U.K., Mexico and Puerto Rico Wal-Mart

PowerPoint Presentation:

U.K. and Canada Common language Colony-colonizer ties Canada and Mexico NAFTA members Canada and Mexico Share a common land border with the U.S. Profitable Countries

PowerPoint Presentation:

CAGE

PowerPoint Presentation:

Trade is directly related to economic sizes And inversely related to physical distance 1% size of the economy Leads to 0.7-0.8% in Trade 1% in distance Leads to 1% in Trade Gravity Models

PowerPoint Presentation:

Unilateral attributes Only look at one particular country and ignores its link with other ones Examples: Finance Technology Labour Management Institutions Frameworks for Country Analysis

PowerPoint Presentation:

Multilateral attributes Takes into account the differences between the home and foreign country. Examples: Openness Tariffs Hidden import barriers Frameworks for Country Analysis

PowerPoint Presentation:

CAGE

PowerPoint Presentation:

Cultural dimension: English language Between 100M and 300M people Westernized elites Administrative dimension: Common colonizers Common law Political friendship India & the United States

PowerPoint Presentation:

Economic Dimension: Specialized labour Profitability Firm strategy and upgrading Soft infrastructure India & the United States

PowerPoint Presentation:

Cultural Dimension: Linguistic and ethnic homogeneity Diaspora Geographical Dimension: Closer to U.S. West Coast Superior ports and other infrastructure East Asian production network China & the United States

PowerPoint Presentation:

Administrative Dimension: Ease of doing business Economic Dimension: Larger markets Labour inputs and productivity Capital availability Supply chains Foreign companies as export bridges China & the United States

PowerPoint Presentation:

In general terms, China is more attractive to American investors on both geographic and economic grounds while India tends to win over investors valuing cultural and administrative ones. Conclusions

PowerPoint Presentation:

CAGE

PowerPoint Presentation:

Different product are sensitive to different dimensions. Industry characteristics need to be taken into consideration. CAGE at the Industry Level

PowerPoint Presentation:

Cultural difference matter most when: Products have high linguistic content (TV programs) Products matter to cultural/national identity (Food) Product features vary in terms of size and/or standards (cars) Products carry country-specific quality associations (wine) Cultural Sensitivity

PowerPoint Presentation:

Government involvement is high in industries that: Produce staple goods Produce “entitlements,” Exploit natural resources Are large employers or large gov’t suppliers Are national champions Vital to national security Subject to high sunk costs Administrative Sensitivity

PowerPoint Presentation:

Geography plays a more important role when: Products have a low value-to weight or value-to-bulk ratio (cement) Products are fragile/perishable Local supervision and operational requirements are high Geographic Sensitivity

PowerPoint Presentation:

Economic differences have the biggest impact when: N ature of demand varies with income level Economics of standardization or scale are limited (cement) Labour and other factor cost differences are salient (garments) Companies need to be responsive and agile Economic Sensitivity

PowerPoint Presentation:

CAGE

PowerPoint Presentation:

Making Differences Visible Understanding the Liability of Foreignness Assessing Natural Owners and Comparing Foreign Competitors Comparing Markets Discounting by Distance Applications of the CAGE Framework

PowerPoint Presentation:

Visible differences reduce the risk of bad decisions Need to consider all 4 dimensions of distance As the Star TV Case: Failing to consider all dimensions can lead to erroneous decisions. Making Differences Visible

PowerPoint Presentation:

People tend to believe that MNCs always triumph over local companies. The CAGE framework suggests that MNCs are often disadvantaged over local firms. Understanding the Liability of Foreignness

PowerPoint Presentation:

Idiosyncratic tastes Different designs Different standards Entrenched taste for local products Local biases in demand (“buy local”) Lack of social connectivity or networks Cultural Disadvantages of MNCs

PowerPoint Presentation:

High government involvement, domestic resistance to displacement National patrimony effects Constraints by home government, multiple regulatory requirements Administrative Disadvantages of MNCs

PowerPoint Presentation:

High transport costs Lack of required infrastructures Communications Transportation Intense local supervision requirements Local performance requirements Geographical Disadvantages of MNCs

PowerPoint Presentation:

Cost disadvantages (e.g. labour) Disadvantages in agility/responsiveness Susceptibility to global pricing squeezed, dilution of profitability Late-mover disadvantages Less perceived commitment to particular market Economical Disadvantages of MNCs

PowerPoint Presentation:

The CAGE framework can be used to compare the chances of success of different countries in a given foreign market. For example, US companies would likely win over European ones should Cuba open up its border to FDI. Comparing Foreign Competitors

PowerPoint Presentation:

Companies can use the CAGE framework to choose where to invest. (e.g. Should they invest in China or India) The answer varies across industries. Comparing Markets

PowerPoint Presentation:

Intuitively, China may look more attractive to US investor than Mexico. However, its closeness to the United States along the CAGE dimensions suggests favouring Mexico over China. Discounting by Distance

PowerPoint Presentation:

In a semi-globalized world, differences and similarities between countries must be accounted for. Effects of differences and similarities on cross-border economic activity are enormous. Distance suggests a good set of metrics for capturing the degree of difference vs. similarity between countries. Global Generalizations

PowerPoint Presentation:

4. Distance should be thought of as a multidimensional construct with four types components (CAGE framework). 5. CAGE framework is typically most fruitfully applied at industry level. 6. Applications include making differences visible, understanding the liability of foreignness, comparing competitors, comparing markets, and discounting markets by size. Global Generalizations

PowerPoint Presentation:

Summary

PowerPoint Presentation:

Recommended Reading

PowerPoint Presentation:

Over 500,000 views from more than 95 countries http://www.slideshare.net/ProfessorMathur/ Sameer Mathur smathur.com http://www.facebook.com/ProfessorSameerMathur/

authorStream Live Help