Cage Framework

CAGE Distance Framework

Meaning
CAGE stands for Cultural, Administrative, Geographic and economic distance. The
CAGE distance framework is a strategic tool used in international business to
evaluate and understand the differences between countries on the basis of
following dimensions:

1. Cultural distance: Refers to differences in languages, ethnicity, religion, social

norms, and values between countries. Cultural differences are important and
can be found in every country, even ones that seem alike. Even if two countries
speak the same language or have similar histories, they can still have lots of
different cultural traits that companies need to think about. Also the companies
can run marketing campaigns that would resonate with that particular culture.
2. Administrative Distance: Reflects variations in government policies, regulations,
and legal systems across different countries. It is very important as it reflects
the ease of doing business, tax rate system and compliance requirements of a
country. It reflects the regulatory environment of a country and plays a major
role in choosing upon a country to expand.
3. Geographic Distance: Represents physical proximity, time zones, transportation
costs, and other geographical factors that affect interaction and trade between
countries. Evaluating them is crucial as these help to identify trade and
logistics challenges and also the supply chain operations of the business.
Companies determine and choose the most cost-effective distribution strategy
that results in increased profitability.
4. Economic Distance: Includes variations in income levels, cost of labor,
infrastructure, and other economic factors that impact business operations. It
helps to understand the purchasing power of people and the economic stability
of that region. The companies keep their pricing strategies competitive to other
players in the market and also get to know about the revenue potential of a
particular region.
Studying these dimensions helps companies assess the challenges and

opportunities related with international expansion and help them be better
prepared by developing appropriate strategies to navigate effectively in foreign
country.
When to use CAGE Framework

1. Global expansion decision making
2. International mergers and acquisitions
3. STP in international markets
4. Risk assessment of foreign countries
Purpose and relevance of CAGE distance
Framework
The CAGE distance framework is relevant for several reasons like:
1. Market Selection: CAGE distance framework helps companies to compare the

markets of various countries and identify the country with similar norms as of
their own, allowing businesses to focus on the markets where they can leverage
their strengths and reduce potential risks.
2. Entry Mode Selection: Understanding the distances between countries helps

companies determine the most suitable entry mode, whether it's exporting,
licensing, joint ventures, or wholly-owned subsidiaries. Different levels of
distance may require different entry strategies.
3. Strategy development: This framework aids decision-makers in making

informed choices, such as determining where product localization may be
essential or which specific marketing strategies and services are required to
cater to the preferences of local consumers.
4. Resource allocation: This tool assists companies in optimising resources by
initially allocating them to countries with lower distances from their own
country, where barriers to expansion are fewer. Additionally, it helps identify
countries that are supportive of foreign companies engaging in trade within
their borders.
5. Risk assessment: It helps the companies to identify potential risks and

challenges of operating in foreign markets including cultural differences,
regulatory framework of the government, logistical challenges such as
shipment costs, factory setup costs etc. The framework helps the companies
to know these risks before entering those markets and helps to mitigate the
risks and minimize the potential initial losses.
6. Competitive Advantage: CAGE Distance Framework enables companies to

leverage their strengths and capabilities while mitigating potential weaknesses
and threats in international markets. This enhances their ability to gain a
competitive advantage and succeed in global expansion efforts.
Case Study of McDonald’s

1. Cultural Distance: McDonald's faced significant cultural differences when
entering the Indian market. India has a diverse culture with a strong emphasis
on vegetarianism due to religious and cultural beliefs, such as Hinduism and
Jainism. To address this, McDonald's introduced a menu tailored to Indian
preferences, offering items like the McAloo Tikki burger and the Veg Maharaja
Mac. Additionally, McDonald's adhered to cultural norms regarding food
preparation and consumption, including offering separate kitchen facilities for
vegetarian and non-vegetarian items.
2. Administrative Distance: McDonald's encountered administrative challenges

related to regulations and policies in India. For instance, foreign direct
investment (FDI) regulations required McDonald's to form a joint venture with
an Indian partner, leading to a partnership with Connaught Plaza Restaurants
Pvt Ltd. Additionally, McDonald's had to navigate complex bureaucratic
procedures for obtaining permits and licenses to operate its restaurants in
various states and cities across India.
3. Geographic Distance: Geographic factors influenced McDonald's supply chain

and distribution networks in India. India's vast size and diverse geography
presented logistical challenges in sourcing ingredients and distributing
products efficiently. McDonald's established regional supply chains and
distribution centres to ensure the availability of fresh ingredients and timely
delivery to its restaurants across India.
4. Economic Distance: Economic differences played a role in McDonald's pricing

strategies and market positioning in India. While India is a large market with a
growing middle class, per capita income levels vary significantly across regions.
McDonald's adopted a tiered pricing strategy, offering value meals and
affordable options to cater to price-sensitive consumers while also introducing
premium offerings for urban customers with higher purchasing power.
By addressing cultural, administrative, geographic, and economic differences through

localized menu offerings, strategic partnerships, efficient supply chain management,
and tailored pricing strategies, McDonald's successfully expanded its presence in
India and established itself as a leading fast-food brand in the country.

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CAGE Distance Framework

1. Cultural distance: Refers to differences in languages, ethnicity, religion, social

Studying these dimensions helps companies assess the challenges and

When to use CAGE Framework

The CAGE distance framework is relevant for several reasons like:

1. Market Selection: CAGE distance framework helps companies to compare the

2. Entry Mode Selection: Understanding the distances between countries helps

3. Strategy development: This framework aids decision-makers in making

5. Risk assessment: It helps the companies to identify potential risks and

6. Competitive Advantage: CAGE Distance Framework enables companies to

Case Study of McDonald’s

2. Administrative Distance: McDonald's encountered administrative challenges

3. Geographic Distance: Geographic factors influenced McDonald's supply chain

4. Economic Distance: Economic differences played a role in McDonald's pricing

By addressing cultural, administrative, geographic, and economic differences through

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