The CAGE Distance Framework And Its Importance For Foreign Direct Investment
The CAGE Distance Framework and Its Importance for Foreign Direct Investment
Tereza Dvořáková, V00837032
Due date: November 20, 2014
For: Erik Schindler
Course: Business English and Communication (COM 206b)
Executive Summary
When expanding to a foreign country, the company needs to analyze the business environment in the foreign country. One of the best tools, how to recognize differences between domestic and foreign country is the CAGE distance framework.
In the report, I firstly define foreign direct investment and briefly describe analyzing foreign country for FDI. I mention the CAGE framework as one of the important parts of this analysis. CAGE is an abbreviation for cultural, administrative, geographic and economic distances. These distances can often represent barriers for the company to successfully expand into the chosen foreign country; therefore it is important not to underestimate them.
In the second, practical part of report, I analyze the expansion of American company Toys R Us to Japan. This case is very representative, because Japanese retail market is very different from the American. By recognizing all the distances and barriers, Toys R Us found a way to exploit them and successfully entered Japanese toy market.
Table of Content
Introduction 5
1. Analyzing Countries for Foreign Direct Investment 6
1.1 What is Foreign Direct Investment 6
1.2 Analyzing Foreign Countries for FDI 6
2. The CAGE Distance Framework 7
2.1 Cultural Distance 7
2.2 Administrative Distance 8
2.3 Geographic distance 8
2.4 Economic distance 9
3. The Toys “R“ Us in Japan Case 10
3.1 About Toys “R” Us 10
3.2 Global Expansion 10
3.3 The Japanese Market for Toys 11
3.4 The CAGE Framework for Japan 12
3.5 Results 13
4. Conclusion 14
References 15
List of tables
Table 1: Cultural distances 11
Table 2: Administrative distances 11
Table 3: Geographic distances 11
Table 4: Economic distances 12
Tereza Dvořáková, V00837032
Due date: November 20, 2014
For: Erik Schindler
Course: Business English and Communication (COM 206b)
Executive Summary
When expanding to a foreign country, the company needs to analyze the business environment in the foreign country. One of the best tools, how to recognize differences between domestic and foreign country is the CAGE distance framework.
In the report, I firstly define foreign direct investment and briefly describe analyzing foreign country for FDI. I mention the CAGE framework as one of the important parts of this analysis. CAGE is an abbreviation for cultural, administrative, geographic and economic distances. These distances can often represent barriers for the company to successfully expand into the chosen foreign country; therefore it is important not to underestimate them.
In the second, practical part of report, I analyze the expansion of American company Toys R Us to Japan. This case is very representative, because Japanese retail market is very different from the American. By recognizing all the distances and barriers, Toys R Us found a way to exploit them and successfully entered Japanese toy market.
Table of Content
Introduction 5
1. Analyzing Countries for Foreign Direct Investment 6
1.1 What is Foreign Direct Investment 6
1.2 Analyzing Foreign Countries for FDI 6
2. The CAGE Distance Framework 7
2.1 Cultural Distance 7
2.2 Administrative Distance 8
2.3 Geographic distance 8
2.4 Economic distance 9
3. The Toys “R“ Us in Japan Case 10
3.1 About Toys “R” Us 10
3.2 Global Expansion 10
3.3 The Japanese Market for Toys 11
3.4 The CAGE Framework for Japan 12
3.5 Results 13
4. Conclusion 14
References 15
List of tables
Table 1: Cultural distances 11
Table 2: Administrative distances 11
Table 3: Geographic distances 11
Table 4: Economic distances 12
References: 15 List of tables Table 1: Cultural distances 11 Table 2: Administrative distances 11 Table 3: Geographic distances 11 Table 4: Economic distances 12