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In IB we’re interested in factors that complicate the process of going abroad
One of these factors is dealing with differences
CAGE Distance Framework
Its parsimonious in term of simplicity
Its comprehensive; covers most differences
Availability of HR: not sufficient engineers for example
Trade agreements: how will this be influenced by the Brexit
Amount of FDI and office hours overlap has strong negative relation (time zone)
In context of the framework
Left triangle arrow through ... fsa to host country
Big boundary condition is that the entire model is country level model but not firm-level
Compose macro model on micro level
This means that the CAGE model compares the differences between the dimensions of whole countries. The distance between country A and country B may be larger than the difference between a person from country A and a person from country B.
For instance, if the person from country A has a lot of experience in country B.
Cultural intelligence ; how to deal with cultural differences
If the distance is larger, the arrow in verbekes model is longer
If triangle on the right is smaller, it is less profitable because if distance is larger so harder to transfer fsa’s
The core of the model is not only about transferring right part of left triangle to the host country, that is, the transferable FSAs. More important is to embed these transferable FSAs in the LB FSAs of the host country. (second figure) This is also more difficult as the distance is larger.
Limitations:
1. Macro level distance distance for a firm is not necessarily distance for all firms
2. A firm can develop an FSA that consists of bridging differences, it will better at dealing with differences
3. The impact of distance can be different for each part of the global value chain; firms have to deal with a set of distances. Since all the components are from somewhere else, the HQ has to deal with the differences with all of these locations
4. FSAs are not always developed in the home country and then transferred, some firms develop FSAs in the host country itself. In this case the dimensions of difference are already considered.
5. Distance can be reduced by cooperative entry models as joint ventures or strategic alliances
Differences between countries comes from differences in cultural background:
values and norms
A big Cultural Distance increases complexity
Decrease investments
change to low level of commitment to distant country
No cooperation with local partner
àhigher investment requirements needed in LB FSAs
Countries tend group together in terms of Hofstede’s dimensions.
Looking for countries with similar norms and values; smaller distances
Share similar sets of values and norms
Don’t need to know dimensions
Outcome of cultural distance measure (?!)
Calculate CD
The cultural distance between country A and country B is
= cultural difference
Mean is the average of the collected outcomes
Variance demonstrates to which degree the measurements deviate from the mean
High variance means the measurements in this dimension deviate more from the mean
Can’t interpret them in absolute way, only relative to other country
Conflicting cultural arguments, need a test, need data, measure culture
Is it true that as cd increases the likelihood of going to that country decreases?
Critique (need to know for exam
It might be easier for country A to invest in country B then it is the other way around
The measurement is of one certain point in time, however CD does not have to be constant because culture is dynamic, very changeable
The influence of cultural difference is not necessarily the same in every stage of an organisation’s existence. For instance, in the first stages of the organisation’s ‘life’, it is more likely to invest in countries with which it has a low cultural difference. This is because the risk seems significantly lower. In a later life-stage, the organisation might take the step to invest in a country with a large CD. From this we can see that the cultural difference is different for each life stage of the organisation.
Cultural distance should not be measured separately but in relation to the other forms of distance; geographic, institutional and administrative
Not all dimensions of cultural distance are equally relevant to every firm. Might depend on the environment the firm operates in
The cultural differences might differ on corporate levels. The CD measured in the horeca might be different from the CD outcome in a HQ
The CD outcomes might also be different in different geographic areas within a country. For instance, rural and urban zones
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