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
became a level playing field. This meant
that a company in China could compete in the U.S. on an equal footing with an
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.

PankajGhemawat, 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. So, while a market may be big in
size (for example, India’s 1.1 billion population or China’s 1.3 billion), it
may not be attractive to a U.S. company because of significant
CAGEdifferences. 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 go first, which 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 2 other countries (assigned to you) and make recommendations
about those 2 markets for your client.

SUGGESTED REPORT
OUTLINE

Your report should be organized in terms of the following
sections:

·
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 1 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 3 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 2 pages. Make sure all 3 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:

.msu.edu/resourcedesk/statistical-data-sources/”>http://globaledge.msu.edu/resourcedesk/statistical-data-sources/

Figure 1: Country Attractiveness Portfolio (CAP) Graph

Figure 2: CAGE-Adjusted CAP Graph

Additional reading for students:

1.
.excellence-leadership.com/mediapack-articles/CIM009_the_globalisation_challenge.pdf”>http://www.excellence-leadership.com/mediapack-articles/CIM009_the_globalisation_challenge.pdf

2.
“Distance Still Matters: The Hard Reality of
Global Expansion,” by PankajGhemawat, Harvard Business Review, September 2001,
pages 137-147. (Available in electronic
form in MSU’s Sprague Library Website)

COUNTRY PAIRS

1.
Canada and Brazil

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)

3.
Wine

4.
Hybrid cars

5.
Fashion Merchandizing