Invest in Your Company's International Growth and Longevity With the Cage Distance Framework

The CAGE Distance Framework is a business analysis tool that leaders and organizations can use to support international growth. The CAGE Distance framework can help companies to develop an international strategy, to decide whether or not to enter a new industry or geographic market, and to highlight which of their competitive factors must be adapted in order to succeed in this new market. Pankaj Ghemawat, a renowned Economist, Professor, and Author, created the CAGE Distance Framework and its four components:

1. Cultural differences: including how your country is viewed by other countries, language, history, beliefs, traditions, values, or ethnicities.
2. Administrative differences: including industry regulations, politics, legal requirements and restrictions, or trade relations.
3. Geographic differences: including time zone, the size of or distance from a new market, country borders, transportation, or climate.
4. Economic differences: including cost of living, the wealth and available resources of a new market, or infrastructure.

The CAGE Distance Framework is an investment in your company’s longevity and international growth. By conducting a CAGE Distance analysis, adequately researching a potential market, and doing the preliminary work to develop an effective international strategy, you will be better set up for success in your next geographic location or industry. The CAGE Distance Framework is a practical and comprehensive tool that is relevant to most markets; it helps you to evaluate your competitive advantages or potential for success in a new market and allows you to adjust your business model for differences (before they become obstacles). To reap the benefits of this framework, give your team time to research and prepare this assessment; you can even involve an expert of this new market.

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CAGE Distance Template

A CAGE Distance Framework is often presented in a simple table with the four differences (cultural, administrative, geographic, and economic) listed as the heading of each column. You will then see two rows presented in this table: unilateral and bilateral. Unilateral factors are differences in the market you want to enter (that your business has no impact on, such as the climate of a country). Bilateral factors are differences related to your business, such as a difference in currency or infrastructure.

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How to Complete a CAGE Distance Framework

Select a new market to enter. Some preliminary work is required before you can kickoff the CAGE Distance Framework. Assess your external environment and decide on a potential country or industry to enter. With a new market in mind, you can analyze the four differences (or distances) as outlined in this framework.

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Fill out the table of your CAGE Distance Analysis

Cultural Differences

List the bilateral and cultural differences. Consider these questions:

• What cultural differences exist between our country and this new market?
• What views does this new market have of our country or of brands that originate from our country?
• If any of our competitors have entered this new market, what did they do well? What obstacles did they face?

List the unilateral and cultural differences. Consider these questions:

• What cultural differences exist in this new market that we cannot impact?
• How open is this market to ideas or businesses from other countries?
• What impact will the beliefs, traditions, values, and languages of this new market have on our ability to grow brand awareness and loyalty?

Administrative Differences

List the bilateral and administrative differences. Consider these questions:

• What administrative differences exist between our country and this new market?
• What administrative differences could prevent customers from using our product or service?
• What political, trade, or legal events could impede our ability to run and grow a business?

List the unilateral and administrative differences. Consider these questions:

• What administrative differences exist in this new market that we cannot impact?
• What impact would this new market's policies, institutions, or trade relations have on our business operations?
• What role does the politics of this new market play?
• Does the difference in currency benefit or impede us?

Geographic Differences

List the bilateral and geographic differences. Consider these questions:

• What geographic differences exist between our country and this new market?
• What geographic differences could prevent customers from using our product or service?
• What changes or additions could we make to our strategy to overcome these differences?

List the unilateral and geographic differences. Consider these questions:

• What geographic differences exist in this new market that we cannot impact?
• How do the borders and access to transportation impact us?
• How does the difference in climate, size, location, or time zone affect our potential for growth?
• What role does the size of or distance from this new market play?

Economic Differences

List the bilateral and economic differences. Consider these questions:

• What economic differences exist between our country and this new market?
• How available are financial, human, and natural resources in this new market?
• What data or infrastructure is required to operate our business? Is it available in this new market?

List the unilateral and economic differences. Consider these questions:

• What economic differences exist in this new market that we cannot impact?
• How does the economy size, cost of living, or average income of this new market affect our potential for growth?
• Does this new market offer the resources or infrastructure required? If not, what changes must we make to our strategy?

Use the CAGE Distance Framework to identify what components or competitive factors of your business model must change for you to enter this new market, or use this framework to determine if this new market will be viable and profitable. Incorporate these findings in your international strategy to maximize on business opportunities or to prepare for potential obstacles based on the four differences.