Welcome to this lesson on using cage analysis in selecting international  markets. Pankaj Ghemawat is an international strategy guru who developed the  cage framework to offer businesses a way to evaluate countries in terms of the  distance between them. In this case, distance is defined broadly to include not  only the physical geographic distance between countries, but also the cultural,  administrative and economic differences between them. The Cage cultural,  administrative, geographic and economic distance framework offers a broader  view of distance and provides another way of thinking about location and the  opportunities and concomitant risks associated with global investment. This  table illustrates the overall framework and the main decision criteria. You will find this table in more detail in your learning manual. This table illustrates how  industries or products are affected by distance in the making of international  expansion decisions. We will look now in a bit more detail at each of these,  some considerations in rip sector, cultural distance may include products that  have high linguistic content, such as TV, products that affect cultural or national  identity of consumers, such as foodstuffs. Additionally, product features may  vary in terms of size, for example, cars standards, for example, with electrical  appliances or packaging. And finally, products may carry country specific quality  associations, such as wines from France, in considering administrative distance, government involvement is high in industries that are producers of staple goods, such as electricity, producers of other entitlements, such as drugs. Consider the  vaccine challenges during the global pandemic of 2020 large employers, such  as in farming, large suppliers to government, for example, in mass  transportation industries, which are national champions, such as with aerospace inductors, which are vital to national security, such as telecommunications and  exploiters of natural resources, as in oil mining and other natural resources and  industries that are subject to high sunk costs, such as with infrastructure, when  considering geographic distance, factors to consider include products that have  a low value of weight or bulk ratio, such as cement, products that are fragile or  perishable, such as glass or fruit, where communications and connectivity are  important, such as with the financial services industries and products and  services where local supervision and operational requirements are high. And  finally, when considering economic distance, the nature of demand varies with  income level. With luxury cars, for example, a second factors is where  economies of standardization or scale are important, or where labor and other  factor cost differences are salient, such as with garments. Another factor is  where distribution or business systems are different because with insurance,  and finally, where companies need to be responsive and agile, such as with  home appliances, to apply the cage framework identify locations that offer low or material costs access to markets or consumers or other key decision criteria,  you might, for instance, determine that you're interested in markets with strong  consumer buying power. So you would use per capita income as your first 

sorting criterion. As a result, you would likely end up with some type of ranking.  Ghemawat provides an example for the fast food industry where he shows that,  on the basis of per capita income, countries like Germany and Japan would be  

the most attractive markets for the expansion of a North American fast food  company. However, when he adjusts this analysis for distance using the cage  framework, he shows that Mexico ranks as the second most attractive market  for international expansion, far ahead of Germany and Japan. Zara is a Spanish  clothing retailer based in Galicia, Spain, founded by Amancio Ortega in 1975 it is the flagship chain store of the indictex group, the world's largest apparel retailer.  This cage analysis was used to compare the relative attractiveness of different  markets, using the cage distance criteria to understand the usefulness of the  cage framework, consider Dell and its efforts to compete effectively in China.  The vehicles it used to enter China were just as important in its strategy as its  choice of geographic arena for Dell's corporate clients in China, the cage  framework would likely have revealed relatively little distance on all four  dimensions, even geographic given the fact that many personal computer  components have been sourced from China. However, for the consumer  segment, the distance was rather great, particularly on the dimensions of  culture, administration and economics for example, Chinese consumers didn't  buy over the Internet, which is the primary way Dell sells its products in the  United States. One possible outcome could have been for Dell to avoid the  Chinese consumer market altogether. However, Dell opted to choose a strategic alliance with distributors whose knowledge base and capabilities allowed Dell to  better bridge the cage framework distances. Thus the cage framework can be  used to address the question of where, which arena and how, by which entry  vehicle to expand internationally, while you can apply cage to consider some  first order distances, for example, com, a physical distance between a  company's home market and the new foreign market, or cultural differences. For example, comma the differences between home market and foreign market  customer preferences. You can also apply it to identify institutional differences.  Institutional differences include differences in political systems and in financial  markets. The greater the distance, the harder it will be to operate in that country. Emerging markets in particular can have greater differences because these  countries lack many of the specialized intermediaries that make institutions like  financial markets work. If an institution lacks these specialized intermediaries,  there is an institutional void. An institutional void refers to the absence of key  specialized intermediaries found in the markets of finance, managerial talent  and products which otherwise reduce transaction costs. When a firm detects an  institutional void, it has three choices for how to proceed in regard to the  potential target market, adapt its business model, change the institutional  context, or stay away. This diagram adds to this discussion by illustrating  possible ways of bypassing such voids. For example, when McDonald's tried to 

enter the Russian market, it found an institutional void, a lack of local suppliers  to provide the food products it needs. Rather than abandoning market entry,  McDonald's decided to adapt its business model. Instead of outsourcing supply  chain operations like it does in the United States, McDonald's worked with a joint venture partner to fill the voids. It imported cattle from Holland and russet  potatoes from the United States. Brought in agricultural specialists from Canada  and Europe to improve Russian farmers management practices and lend money to farmers so that they could invest in better seeds and equipment as a result of  establishing its own supply chain and management systems. McDonald's  controlled 80% of the Russian fast food market by 2010 the process, however,  took 15 years and $250 million in investments. Finally, the firm can choose the  strategy of staying away from a market with institutional voids. For example, the  Home Depot's value proposition that is low prices, great service and good  quality requires institutions like reliable transportation networks to minimize  inventory costs and the practice of employee stock ownership, which motivates  workers to provide great service, the Home Depot has decided to avoid  countries with weak logistics systems and poorly developed capital markets,  because the company would not be able to attain The low cost, great service  combination that is its hallmark. Nestle's Nespresso division makes a single cup  espresso machine along with single serving capsules of coffees from around the world. Nestle is headquartered in Switzerland, but the coffee it needs to buy is  primarily grown in rural Africa and Latin America. Nespresso set up local  facilities in these regions that measure the quality of the coffee. Nespresso also  helps local farmers improve the quality of their coffee, and then it pays more for  coffee beans that are of higher quality. Nespresso has gone even further by  advising farmers on farming practices that improve the yield of beans farmers  get per hectare, the results have proven beneficial to all parties. Farmers earn  more money. Nespresso gets greater quality beans, and the negative  environmental impact of the farms has diminished. Cage analysis asks you to  compare a possible target market to a company's home market on the  dimensions of culture, administration, geography and economy. Cage analysis  yields insights in the key differences between home and target markets and  allows companies to assess the desirability of that market. Cage analysis can  help you identify institutional voids which might otherwise frustrate  internationalization efforts. Institutional differences are important to the extent  that the absence of specialized intermediaries can raise transaction costs just as their presence can reduce them. Subscribe now and join us in your career  journey. Want to learn more, click on one of our websites to view our range of  online business and management courses.



آخر تعديل: الاثنين، 14 يوليو 2025، 2:47 م