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THE CAGE PROJECT BACKGROUND In a highly popular 2005 book, Thomas Friedman declared that the “world is flat.” What he meant was that because of communication technology (i.e., the Internet), increased travel, labor migration (going to a different country to work), etc. the people of the world were converging on common tastes, preferences, etc. By “flat,” Friedman argued that differences among people and markets no longer mattered and that competitively he world had become a level playing field. This meant that a company in China could compete in the U.S. on an equal footing with a U.S. company because customer tastes and expectations were the same in both markets (“What works in Shanghai, China works in Savannah, Georgia”). For example, Friedman would argue that Lenovo (the Chinese company that bought IBM’s PC business) can compete successfully in the U.S. market with Hewlett-Packard and Dell as would Dell in China because of similar market characteristics. In short, Friedman’s idea supports globalization. Pankaj Ghemawat, a Harvard professor, opposes Friedman’s idea – in fact, he derisively calls it “globaloney” (even professors, like NBA hoopsters, do trash talking!). His point is that there are significant differences in Cultural, Administrative (i.e., management styles), Geographic, and Economic (CAGE) areas that companies should pay attention to. He calls these differences “distance,” such as cultural distance, administrative difference, etc. In other words, he would argue that Dell could face (and in fact, Dell did and continues to face) considerable problems succeeding in China because of vast CAGE differences. What works for Dell in the U.S. would not necessarily work for them in China. Ghemawat suggests looking at the attractiveness of foreign markets from a CAGE perspective – the more CAGE difference between (say) the U.S. and a particular country, the less attractive is that market because of the difficulty of doing business profitably in...
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THE CAGE PROJECT
BACKGROUND
In a highly popular 2005 book, Thomas Friedman declared that
the “world is flat.” What he meant was
that because of communication technology (i.e., the Internet), increased
travel, labor migration (going to a different country to work), etc. the people
of the world were converging on common tastes, preferences, etc. By “flat,” Friedman argued that differences
among people and markets no longer mattered and that competitively the world had
become a level playing field. This meant
that a company in China could compete in the U.S. on an equal footing with a
U.S. company because customer tastes and expectations were the same in both
markets (“What works in Shanghai, China works in Savannah, Georgia”). For example, Friedman would argue that Lenovo
(the Chinese company that bought IBM’s PC business) can compete successfully in
the U.S. market with Hewlett-Packard and Dell as would Dell in China because of
similar market characteristics. In short,
Friedman’s idea supports globalization.
Pankaj Ghemawat, a Harvard professor, opposes Friedman’s
idea – in fact, he derisively calls it “globaloney” (even professors, like NBA
hoopsters, do trash talking!). His point is that there are significant
differences in Cultural, Administrative (i.e., management
styles), Geographic, and Economic (CAGE) areas that
companies should pay attention to. He
calls these differences “distance,” such as cultural distance, administrative
difference, etc. In other words, he
would argue that Dell could face (and in fact, Dell did and continues to face)
considerable problems succeeding in China because of vast CAGE
differences. What works for Dell in the
U.S. would not necessarily work for them in China. Ghemawat suggests looking at
the attractiveness of foreign markets from a CAGE perspective – the more CAGE
difference between (say) the U.S. and a particular country, the less attractive
is that market because of the difficulty of doing business profitably in that
market. In other words, a market may be
big in size (for example, India’s 1.1 billion population or China’s 1.3
billion) and yet unattractive to a U.S. company because of significant CAGE differences. You have to understand, though, that CAGE
differences can be specific to a particular product – for example, the CAGE
difference between the U.S. and the U.K. may be small when it comes to cell
phones but big when it comes to (say) over-the-counter pharmaceuticals.
YOUR TASK
You have been hired by a New Jersey-based company that has,
until now, competed only in the U.S. market.
Due to increased competition in the U.S. market, they now desire to go
overseas. But they don’t know which
country (ies) to enter first, which to enter next, etc. This is where you come
in. Your task is to do research on the
selected countries (keeping in mind the product assigned to you) and prepare a
report examining the CAGE difference between the U.S. and two other countries
(assigned to you) and make recommendations about those two markets for your
client.
Your report should be organized as follows:
·
Brief description (including the graph – one
graph showing both countries) of the Country Attractiveness Portfolio (CAP). Here, you should describe briefly the process
that you used to collect the data, justification for the factor used for one of
the axis in the graph – one axis (population) is common to all students while
the second depends on the product, and conclusions about the attractiveness of
the two countries. The narrative part of
this section should not be more than one page.
·
Adjusting the CAP for CAGE. This is the heart of the paper. Here, you should look at each CAGE element
(culture, etc.) and factors within each element and make a conclusion on this
element’s distance between the U.S. and the selected country. For example, you should say something like … “based
on the factors involved in examining the cultures of India and the U.S., our
conclusion is that the distance is large.”
Do the same for all the CAGE elements and make sure that you back up
your arguments by data (with citation of sources). At the end of this section, you are going to
create an adjusted CAP graph – that is, the previous CAP graph now adjusted for
CAGE difference. Your narrative is going
to conclude by addressing the difference in the countries’ positions in the two
graphs – the original CAP graph and the revised CAP/CAGE graph. This section is likely to be about three pages
plus the graph.
·
The final section is the recommendation
section. What can you tell your client
about the attractiveness or otherwise of the two countries? Can they do business profitably in that
country? This section should not be more
than two pages. Make sure all three
sections cite sources used.
PROCEDURE
Your first task is to think about your assigned product and
do some preliminary research on what factors determine market attractiveness
for that product. Here is an example:
Let’s say that your product is automobiles.
One important factor is purchasing power because people need to have
money to be able to buy cars. A good
proxy for purchasing power is per capita income. This means that for automobiles, you are
going to use population as one factor (this is common to all students) and per
capita income as the second. If you look
at Figure 1 attached to this note, you will notice that in the example number
of cell phones currently owned is used along with per capita income. Based on the two factors, plot your two
assigned countries on a graph and show the relative size of the market by the
size of the circle.
Next, you study each of the CAGE factors (the Ghemawat
article cited at the end and available electronically in our library gives all
the relevant questions that you have to ask for each CAGE factor) for both your
selected countries and collect data supporting the factors (you may not get
“hard” or numbers type data for all of them, but look for evidence of some
kind). Once you have collected data on all the CAGE factors, study them and
make an assessment of the distance between the U.S. (your base country) and
each of the selected countries. Your
summary should be something as follows:
Cultural Distance: large (key evidence); implications to
CAP?
Administrative Distance: moderate (key evidence);
implications to CAP?
Geographic Distance: large (key evidence such as miles);
implications to CAP?
Economic Difference: Small (evidence); implications to CAP?
The final step is to make recommendations based on your
analysis.
Possible Data
Sources
Here is a link to good data sources:
Figure 1: Country Attractiveness Portfolio (CAP) Graph
Figure 2: CAGE-Adjusted CAP Graph
Additional reading for students:
2.
“Distance Still Matters: The Hard Reality of Global
Expansion,” by Pankaj Ghemawat, Harvard Business Review, September 2001, pages
137-147. (Available in electronic form
in MSU’s Sprague Library Website)
COUNTRY PAIRS
1.
Canada and Brazil
a.
Prescription Drugs
2.
U.K. and Mexico
3.
Germany and China
4.
France and India
5.
Japan and Malaysia
6.
Australia and Russia
7. Spain and South Korea
Products
1.
Washing Machines and Dryers
2.
Health foods ( such as vitamins, nutrients,
energy foods, drinks, etc)
Hybrid
cars
5.
Fashion Merchandizing
Further Instructions
- Your CAP should have
population on X axis and per capita income on Y axis and the third
dimension bubble graph should be sales (in your case, number of cars or in
dollars) and not demographics.
2. Then you prepare for CAGE; You need to determine some of the variables in each of those four factors that influence sales. You can use a scale ranging from 1-5; since some of those variables are likely to have negative impact, you can assign (-) minus sign of the scale to those variables if you think that any of those variables have a negative or positive impact and based on the extent of it influence you can assign minus or plus sign of 1 though 5. More on This Topic......
3. Then you arrive at the total for each factor and multiply each of those numbers by the weight that you assigned for the CAGE factors; you may be better off assigning decimal weight .40 for 40, .20 for 20, etc as a fraction of 1 instead of assigning weights using percentages of 100;
4. After computing the weighted averages of each, add all the four averages and divide them by number four ((CAGE factors)
Now you have a weighted index for CAGE. Use this number to multiply the sales potential that you have in CAP. Now the CAGE adjusted graph might look different.
Canada and
Brazil - Prescription Drugs
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