As mentioned in last week’s blog, the concept of CPA-CAGE-PMA will be introduced and explained. The way the letters are connected suggests a clear three-stage process.
While stages 1 and 3 are commonly used when entering a new market, the middle stage, CAGE, provides the most value in determining market accessibility. This stage is often overlooked in market analysis. Yet, it offers crucial insights beyond just the products to be sold or the economic strength of the market. Ignoring this stage significantly increases the risk of market entry failure. The results from this analysis can often be surprising, delivering both positive and negative revelations.
From the perspective of the German home market, the Japanese market is much closer than initially anticipated.
For example, when a German vendor conducted a broader market analysis, the success of entering a seemingly distant market turned out to be greater than entering closer markets. This was because three of the four key CAGE building blocks were relatively similar to those of the home market.
Stages 1 and 3 will be explained after delving deeper into stage 2. Stage 1 focuses primarily on the total market size, independent of the specific market segment. Stage 1 serves as the foundation for progressing to stages 2 and 3. The order of these stages is essential. Stage 3 is closely related to the product portfolio and the market segment and fine-tunes the preceding stages.
Global Expansion = Global Marketing
Before diving into the model, it’s important to understand that it falls within the academic domain of “Global Marketing.” Global Marketing refers to the practice of planning, producing, positioning, and promoting products or services across multiple countries and regions.
This discipline involves developing marketing strategies that account for cultural, economic, and regulatory differences between international markets. While striving at the same time to maintain a consistent brand identity worldwide.
The outcome of effective Global Marketing often leads to the adaptation of products, messaging, and marketing campaigns. This to suit local tastes, cultural nuances, and legal requirements—a process commonly referred to as “Localization.” However, localization involves much more than simple translation; it encompasses the full customization of offerings to align with the unique characteristics of each market.
Cultural, Administrative, Geographical, and Economic
CAGE stands for “Cultural, Administrative, Geographical, and Economic”. It provides a framework for analyzing how a new market compares to the home market across these four dimensions.
- Cultural: This dimension examines business cultural commonalities between markets, such as corporate traditions, and related social norms. For example, shared business cultural affinities can ease market entry. This topic will be explored further in the next blog post.
- Administrative: This area focuses on regulatory and legal frameworks. Hence, assessing the degree of alignment between markets in terms of government policies, legal systems, and institutional structures.
- Geographical: Here, physical factors that may impact business operations are considered. For instance, a landlocked country could face logistical challenges in receiving equipment. This would require reliance on neighboring countries’ infrastructure, adding a layer of complexity and risk.
- Economic: This dimension evaluates the economic conditions of the target market. Including key indicators like GDP growth, unemployment rates, income levels, and purchasing power, which all influence market potential and consumer behavior.
As outlined, in the upcoming blog the cultural dimension will be the next topic of discussion, followed by a detailed exploration of the administrative dimension. After that, the geographical and economic dimensions will be covered together in a single blog post, offering a comprehensive view of their combined impact on market entry strategies.
After explaining the whole CPA-CAGE-PMA model, the specifics of how these metrics are calculated and applied will be explained in detail. For now, the focus is on understanding the attributes themselves rather than their numerical values.
By grasping the importance of each domain, you can begin to assess how they collectively influence the success of your market entry strategy. However, when already curious the “Rest-of-World Strategy” case study provides a practical example.