The role of culture in CAGE model

Following local customs builds better relationships at business meetings

Vidya Hattangadi
Expanding abroad allows domestic businesses to get out of a saturated market. It gives an organisation access to new customers and in a market where its competitors do not operate. One of the reasons why businesses expand globally is to be able to provide a reliable service to their international clients. Expansion through internationalisation is the strategy followed by an organisation when it aims to expand beyond the national borders. Companies habitually overestimate the attractiveness of foreign markets; they get dazzled by the sheer size of untapped markets, they lose sight of the difficulties.

Pankaj Ghemawat is an international business strategy guru who developed the CAGE framework to offer businesses a way to evaluate countries in terms of the ‘distance’ between them. His ‘Distance Still Matters’ article in the Harvard Business Review became world famous. He explains distance not only as the physical geographic distance between the countries, but also the cultural, administrative, geographic and economic differences between them. The CAGE acronym stands for parameters Cultural, Administration, Geographical and Economical. The CAGE framework offers another way of looking at a country and the opportunities and affiliated risks associated with global arbitrage.
This article explains the cultural framework.

People’s routine in life matters. Ghemawat gives an example of Dell computers and its efforts to compete effectively in China. The vehicles it used to enter China were just as important in its strategy as its choice of geographic arena. For Dell’s corporate clients in China, the CAGE framework would likely have revealed relatively little distance on all four dimensions.

While many personal computer components have been sourced from China by the mega computer manufacturing companies, for the consumer segment the distance was rather great. For example, Chinese consumers didn’t buy over the Internet, which is the primary way Dell sells its products in the US. One possible outcome could have been for Dell to avoid the Chinese consumer market altogether. However, Dell opted to choose a strategic alliance with distributors whose knowledge base and capabilities allowed Dell to bridge the CAGE gap.

The impacts of the distances and differences figured out by the CAGE framework between the countries have been demonstrated in a quantitative manner via gravity models. The most important parameter in the CAGE framework is that when looking to expand business into a foreign market, the cultural differences between the two countries are hard to alter than differences due to the legal and economic structures.

Cultural distance includes languages, different ethnicities, different religions, and different social norms.

Language: International business activities are always accompanied by language-related barriers as companies are confronted with multiple local languages and a multinational workforce. To increase the efficiency of corporate communication, documentation and cross-national teamwork, an increasing number of companies have implemented common language policies in both their headquarters and their foreign subsidiaries, and made English their official corporate language.

Language differences present a common stumbling block in international business communication. It has been observed that whenever one party is using a second language or a translator, the potential for misunderstanding increases. Even if you’re bilingual, slang, jokes and figures of speech can cause problems. It’s better to try speaking slowly and clearly in these circumstances. For example, BMW is easy to pronounce in English but say it like the Germans do: ‘bey-em-vey’. The ‘w’ is pronounced as ‘v’.

Ethnicities & customs: Meaning traditions and mannerisms in ethnic groups varies. For example, in Japan and the UK, people tend to avoid the outward show of feelings, while the US, France and Italy accept a stronger show of emotions, even in business.

Some cultures have strict dress codes for business. For example, in Muslim countries, women must avoid sleeveless tops, short skirts and low necklines. In Japan, conservative business suits in dark colours are essential to make the best impression.

You can unknowingly cause offence when meeting foreign clients one-on-one. In Japan, you should bow rather than shake hands unless the other party offers a hand first. The exchange of business cards is a requirement in many cultures. In Arab countries, you should accept the card with your right hand, while in China and Japan you should use both hands. In Brazil, business acquaintances stand close to build trust, so backing away may be interpreted as a rebuff.

Gift-giving etiquette is a complex subject that can be difficult to master. In China, gifts are the norm and expected, while in other countries the wrong gifts are insulting. Avoid bringing bad luck in China, especially, don’t give a clock. It’s a big ‘no’ to gift with blue, white or black wrapping paper. Keep offering your gift, because Chinese recipients usually refuse three times before accepting.

Following local customs builds better relationships at business meetings. For example, Canadians are clock-watchers and expect everyone to arrive on time. In Japanese meetings, often only the most senior person for each side talks, while others typically remain silent. In China, business dinners often include many toasts, so pace your drinking accordingly.

Religion: Religious observance is widespread and continues to influence managerial behaviour in most organisations all over the world. However, its role in international business negotiations has not received much scholarly attention. Religious belief may influence trade in two ways: First, a shared religious belief may enhance trust and, therefore, reduce transaction costs between trading partners. This effect should be particularly important for goods that are sensitive to trust. Generally speaking, the more conservative or observant a community is, the more their buying patterns will be impacted by their religion.

The author is a management thinker and blogger