The CAGE Distance Framework -denoting cultural, administrative, geographic, and economic differences among countries- is a tool that helps businesses adjust their strategies to new markets/locations.
Main Benefits of the CAGE Distance Framework
Making it possible to examine the practical aspects of entering a new market, CAGE Distance Framework helps you:
- Determine which elements* of the current strategy/operating model should be applied similarly to the new market,
- Identify which elements of the current strategy/operating model should be modified based on the “distances” with the new market.
* Those elements may be anything (from product portfolio to communication, from distribution channels to staffing) that is relevant to the distances.
Explanation of the CAGE Distance Framework
A business planning to expand geographically is mostly interested in the differences and similarities among countries along different dimensions. The CAGE Distance Framework is designed to portray these dimensions and to compare the new market to reference market based on them.
How to Apply the CAGE Distance Framework?
- Identify similarities and differences between the reference country (the country that you are operating in) and the new market (the country that you consider entering).
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- For Cultural Distances, examine relevant elements of the cultures such as languages, ethnicities, religions, values, norms, traditions, etc.
- For Administrative Distances, examine major elements such as critical/relevant institutions, currency, political situation, governance model, trade agreements and policies, etc.
- For Geographic Distances, examine the physical distance between the two countries, borders, time zones, climates, disease maps, size, transportation, etc.
- For Economic Distances, examine resources, country wealth, economic stability, GDP growth rate, number of potential customers, etc.
- Consider the extent to which your industry and products/services are affected by the differences you listed in the previous step.
- Make necessary adjustments in the strategy/operating model that will yield a positive role.
Additional Tips and Readings
- Complementing the CAGE Distance Framework with Porter’s Five Forces would enhance your understanding of the target market.
- Ansoff Matrix is another complementary tool that helps you assess the risk of your expansion strategy.
- You may want to conduct Break-Even Analysis to decide whether to make the required investments while entering the new market.
- To penetrate fast in the new market, you can segment your customers using the Diffusion of Innovation Theory.
- You can use PESTEL Analysis if you want to deepen your understanding of opportunities and threats in the candidate market.
Contact us to adjust your home market strategies to your candidate market.
