What is the CAGE Distance Framework?

The CAGE Distance Framework is a Tool that helps Companies adapt their Corporate Strategy or Business Model to other Regions.

 

When a Company goes Global, it must be aware that, what works in one country may not work in another.

 

This Framework studies the factors that characterize countries to maximize the possibilities for Companies to go Global.

  • These Factors are called “Distances”, referring to what separates two different countries.

 

Its name in an acronym for the 4 Distances it focuses on to do so:

  • Cultural.
  • Administrative.
  • Geographic.
  • Economic.

The Four Distances of the CAGE Framework

Cultural: What characterizes the Culture of the Country.

  • For example:
    • Language.
    • Religion.
    • Values.

 

Administrative: How the Administration of the Country works.

  • For example:
    • Bureaucracy levels.
    • If it is a Centralized or a De-centralized Country.
    • What Requirements must be met to operate.

 

Geographical: What characterizes the Geography of the Country.

  • For example:
    • The Size of the Country.
    • Its Orography.
    • The Weather.

 

Economic: How is the Economy of the Country.

  • For example:
    • Its Economic Model.
    • The Growth Rate.
    • Its GDP per capita.

CAGE Distance Framework

 

Since we know this all seems obvious, let’s look at a real example that shows how important this framework can be:

CAGE Framework example

 

The all-powerful Starbucks failed miserably to expand its business in Australia.

 

How is it possible?

The company assumed that since the US and Australia have similar culture and history, Starbucks could operate in the same way.

 

They tried to grow fast and failed.

 

Let’s use the CAGE Framework to find out what Starbucks should have considered in its Business Model:

 

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.

 

Administrative Dimension

Maybe, 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).

  • On the US, credit is much more accesible.

This is probably the reason why the Australian Starbucks had to be financed from the US.

 

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.

 

Economic Dimension

Starbucks coffee was too expensive for Australians.

  • In comparison, they charged much more than local cafes.

 

We obtained this information from a small CNBC Documentary:

This Framework, can be used both to adapt Corporate Strategies and Business Models.

  • In the previous example, we have used it for analyzing the Business Model.

 

However, there are a few things you need to know if you want to use it properly:

How to use the CAGE framework

Focus on the biggest Differences.

  • It is the different what will cause you problems.

 

Don’t spend a lot of time on the similarities.

  • All countries have things in common, that doesn’t make their Markets equivalent.

 

Don’t be soft when analyzing a Country.

  • If a country has corrupt institutions, highlight it. Otherwise, you’ll have problems.

 

Don’t underestimate Values and Beliefs.

  • Some countries take their traditions very seriously. Much more than their job.

 

Hire or Partner with locals, and listen to them.

  • If your only source of knowledge about a country is Hollywood movies, you’ll fail.

As we always say, the best way to understand the CAGE Framework and how you can use it is by sharing some examples with you:

CAGE Framework examples

As you already know, we are a team made up entirely of Europeans.

 

However, we have done business with many different countries throughout our professional career.

 

Here, we will highlight some of the most interesting things you should take into account when doing Business in:

  • America (US).
  • Europe (We’re aware that Europe is very diverse).
  • China.

We have made this list based on our own professional experience so, don’t expect 100% accuracy.

 

Let’s begin:

Doing Business in the US - CAGE Framework example

 

Culture

  • Americans believe in God much more than Europeans.
  • Generally, they don’t live as close to their family as Europeans (due to the high internal mobility).
  • They give great importance to money. Much more than Europeans.
  • Americans consider failure as part of the success.
  • Americans are very Enterprising and Hard-working people.
  • They prefer to Do-then-Analyze rather than to Analyze-then-Do.

 

Administration

  • The Administration is proactive in encouraging Businesses.
  • In general, there are few Regulations.
  • Regulations are Transparent and Business-friendly.
  • Being a Federal Republic, there are important differences between States.

 

Geography

  • The United States is a very large country, much larger than it seems.
  • Its weather is tropical in the south and cold in the north.
  • The population is concentrated (with the exception of Illinois and Texas) on the Coasts.
  • A 3 hour trip is not considered long.

 

Economy

  • It is the biggest and most important economy in the world (don’t underestimate this).
  • Credit is very accesible.
  • People spend a lot and save little money.
  • They are extremely good at creating and growing businesses. The best in the world, in fact.

Doing Business in Europe - CAGE Framework example

 

Culture

  • Europeans don’t believe much in God (in general terms) but maintain many religious traditions.
  • They live relatively close to their families (as there is not much internal mobility).
  • There are lots of different languages. English is used as the common language.
  • Europeans prefer to Analyze-then-Do rather than Do-then-Analyze.
  • Europeans don’t attach much importance to wealth (as long as they can live in good conditions).
  • Europeans regard work as a way for living better.

 

Administration

  • There are lots of regulations in Europe.
  • Every country has different regions and every region has different provinces.
  • Regulations can vary even between provinces in the same region.
  • The Administration tends to distrust Companies much more than in the United States.

 

Geography

  • Europe is not very big, although its internal orography makes it difficult to move between countries.
  • In certain regions, it is easier to get around by boat than by car.
  • Population is scattered all around Europe, but specially in central Europe.
  • A 3 hour trip is considered long.

 

Economy

  • Its Economy is huge; but not homogeneous (the United States is a single country).
  • It is more difficult to access credit than in the US.
  • People spend less and save more money than in the US (when they can, of course).
  • Europeans don’t “love” risk in Business as much as Americans.

Doing Business in China - CAGE Framework example

 

Culture

  • Chinese are not very religious people (of course, in average).
  • They are very hard-working and disciplined people.
  • In Business, they give special importance to personal relationships.
  • Originality is not valued as much as it is in Europe.
  • Virtually no one speaks English (ordering in a restaurant can be a challenge).
  • The interior and the coast are very different regarding Culture and Values.

 

Administration

  • If you want to do business in China, you need a Chinese partner.
  • Regulations are neither transparent nor agile.
  • Chinese administrations do not cooperate much with non-Chinese entities.
  • There are certain incentives for companies in the interior (unpopulated interior regions of China).

 

Geography

  • China is extremely large and diverse.
  • There are deserts in the north and tropical coast in the south.
  • They have many disputed territories (Taiwan, Kashmir, Senkaku islands, etc).
  • Hong Kong has a special Status; it is almost other different country.

 

Economy

  • Although their Economy is huge, China has many poor and isolated regions.
  • Inequality is huge (although it is expected to decrease in the coming years).
  • Although officially a communist country, they allow a “supervised form of capitalism”.
  • You need Government approval for almost everything.

Summarizing

The CAGE Distance Framework is a Tool that helps Companies adapt their Corporate Strategy or Business Model to other Regions.

 

This Framework studies the factors that characterize countries to maximize the possibilities for Companies to go Global.

 

These factors, called Distances, are:

  • Culture: What characterizes the Culture of the Country.
  • Administration: How the Administration of the Country works.
  • Geography: What characterizes the Geography of the Country.
  • Economy: How is the Economy of the Country.

 

Tips on how to use the CAGE Framework effectively:

  • Focus on the biggest Differences.
  • Don’t spend a lot of time on the similarities.
  • Don’t be soft when analyzing a Country.
  • Don’t underestimate Values and Beliefs.
  • Hire or Partner with locals, and listen to them.

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