Expanding a business internationally presents numerous challenges, regardless of the product, solution, or service being offered. In previous blogs, we focused extensively on the human and cultural differences between countries. This blog, however, will address the final two components of the CAGE framework— Global Expansion Geography and Economy. By comparing and measuring these attributes in relation to the home market.
This segment of the CAGE analysis is more data-driven, with much of the information readily accessible. Some data points remain constant (e.g., the distance between countries), while others fluctuate (e.g., unemployment rates).
When conducting this part of the analysis, you’ll find that geographical attributes remain quite stable and typically do not require frequent updates. In contrast, economic data will change, though often at a slower pace. Among the four CAGE components, the economic aspect is the one that will need the most periodic reassessment over time.
The distance to a market remains constant over time, whereas the unemployment rate may fluctuate.
In the context of global expansion geography and economy, the attributes are equally important and will be discussed separately. However, these aspects tend to be less complex compared to the cultural and administrative dimensions.
Representation of Geography attributes:
- Location and proximity: The geographical closeness of countries can influence trade relationships, transportation costs, and logistics efficiency. Certain countries serve as strategic hubs. Due to their geographical positions, facilitating access to broader regions or important trade routes (e.g., Singapore in Southeast Asia, Rotterdam in Europe, Dubai in the Middle East).
- Climate: The climate of a country (region) affects product demand, and even packaging requirements. Seasonal variations, such as monsoon seasons in Southeast Asia or winter in Northern Europe, can impact product launches, and inventory management.
- Topography: Regions with challenging topography may require specialized logistics solutions. Product may fail when it needs to act on high-altitude.
- Customer distribution: The concentration of customers in urban or rural areas affects market potential and the approach to distribution and promotion. Urban areas may offer higher market density, while rural regions might require different product offerings and distribution methods.
- Time-zones: Operating across multiple time zones will impact communication and coordination with partners, customers and local employees.
- Infrastructure: The quality and extent of transportation infrastructure, including roads, ports, and airports, affect the efficiency of product distribution and market access.
- Digital Infrastructure: The availability and penetration of digital infrastructure, such as internet connectivity and mobile networks, influence the effectiveness of market entry
- Environmental conditions: Countries approach to sustainability will impact preferences for eco-friendly products and needs to comply with the local regulatory requirements.
Representation of Economy Attributes:
- Exchange rate and currency stability: Fluctuations in currency values can impact profitability, particularly if revenues are in local currency while costs are in another currency. Markets with stable currencies reduce the risk of sudden financial losses.
- Inflation rate: High inflation can erode purchasing power and increase costs, making it difficult to maintain profitability.
- Purchasing Power (Parity): Sometimes called disposable income, is the amount of money consumers have left after paying taxes and necessities. It directly impacts the ability to spend on non-essential goods and services.
- Economic Stability: Stable economies with low levels of volatility are generally safer for long-term investments.
- Fiscal and Monetary Policies: Government policies on spending, taxation, and interest rates can significantly impact economic stability and growth.
- Labor Costs: Wages, benefits, and productivity of the workforce are crucial for determining profitability. Lower labor costs can provide a competitive advantage, but must be balanced with the skill level and availability of labor.
- (Import) Taxation and Regulatory Costs: Understanding the tax environment, including corporate taxes, import/export duties, and compliance costs, is essential for financial planning.
- Availability of Financing: The ease of accessing capital in a new market can influence expansion decisions. This includes the availability of local financing options and the terms of international borrowing.
- Interest Rates: Local interest rates affect the cost of borrowing and overall investment returns.
In both cases, the list could be extended significantly; however, doing so would not necessarily enhance effectiveness, and it would likely result in minimal differentiation in the outcome. As previously mentioned, the selection of attributes should primarily depend on the company’s situation rather than the local context. This comparison is always made relative to the home market.
Challenges should always be viewed from both positive and negative perspectives. What may be a drawback in one country could be an advantage in another.