Question

What can we learn from the CAGE model about internationalisation and the challenges of entering new foreign markets?

Answer 1

CAGE framework helps to determine the distances between two different countries and their cultures, administration, geographic and economic situations. This is an important analysis to do, to be able to determine whether or not the company that’s planning to expand or the product you’re trying to sell is suitable for the planned market. Sometimes companies tend to overestimate the appeal of the potential market and with the help of this tool companies can avoid the overestimation and get a real distance of the market.

The CAGE Framework can help managers considering international strategies:
It makes distance visible for managers.
It helps to pinpoint the differences across countries that might handicap multinational companies relative to local competitors.
It can shed light on the relative position of multinationals from different countries. For example, it can help explain the strength of Spanish firms in many industries across Latin America.
It can be used to compare markets from the perspective of a particular company. One method to conduct quantitative analysis of this type is to discount (specifically, divide) raw measures of market size or potential with measures of distance, broadly defined.

According to CAGE MODEL different types of distance matter to different extents depending on the industry. Because geographic distance, for instance, affects the costs of transportation, it is of particular importance to companies dealing in heavy or bulky products. Cultural distance, on the other hand, affects consumers’ product preferences. It should be a crucial consideration for a consumer goods or media company, but it is much less important for a cement or steel business.

challenges to be faced by the companies entering new foreign markets:
1.cultural diffrences is a major challenge for the companies in foreign markets;
2. good connection in the local market of the country; and understanding the needs of local consumers;
3.When entering a new market, companies also need to think critically about how their products and services will be different from what competitors are already offering in the market so that the new offering provides customers value.
4. Common mistakes that firms make when entering a new market includes: not doing thorough research prior to entry, not understanding the competition, and not offering a truly targeted value proposition for buyers in the new market whereas doing all of these is itself a challenge.