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

• Minimize interaction with foreign country because it is risky

Decrease investments

change to low level of commitment to distant country

No cooperation with local partner

• Maximize interaction because the local knowledge is required and cooperating with distant country is the complementary resource needed

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

• The cultural dimension score of country A minus the cultural dimension score of B
• Square the difference
• Divide the squared difference by the variance of the score of the dimension
• Sum up the results for all four dimensions
• Divide the sum of all dimensions by 4

= 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

• Illusion of symmetry

It might be easier for country A to invest in country B then it is the other way around

• Illusion of stability

The measurement is of one certain point in time, however CD does not have to be constant because culture is dynamic, very changeable

• Illusion of linearity

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. 

• Illusion of causality

Cultural distance should not be measured separately but in relation to the other forms of distance; geographic, institutional and administrative

• Illusion of discordance

Not all dimensions of cultural distance are equally relevant to every firm. Might depend on the environment the firm operates in

• Assumption of corporate homogeneity

The cultural differences might differ on corporate levels. The CD measured in the horeca might be different from the CD outcome in a HQ

• Assumption of spatial homogeneity

The CD outcomes might also be different in different geographic areas within a country. For instance, rural and urban zones