Expanding abroad allows domestic businesses to get out of a saturated market. It gives an organization 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. The Expansion through Internationalization is the strategy followed by an organization when it aims to expand beyond the national border.  

Companies habitually overestimate the attractiveness of foreign markets; they get dazzled by the sheer size of untapped markets, they lose sight of the difficulties while pioneering new, often very different territories. The problem is rooted in the analytic tools the most prominent being country portfolio analysis that managers use to judge international investments. By focusing on national wealth, consumer income, and people’s propensity to consume, managers emphasize potential sales, ignoring the costs and risks of doing business in a new market. Most of these costs and risks result from the barriers created by distance. Here “distance,” however, does not refer only to geography.

Pankaj Ghemawat is an international strategy guru who developed the CAGE framework to offer businesses a way to evaluate countries in terms of the “distance” between them. Pankaj Ghemawat’s “Distance Still Matters,” article in Harvard Business Review became world-famous. He explains distance is not only the physical geographic distance between countries but also the cultural, administrative, geographic and economic dissimilarities between them. The CAGE framework offers a broader view of distance and provides another way of thinking about location and the opportunities and affiliated risks associated with global arbitrage (taking advantage of price in two or more markets). 

Ghemawat provides an example of a North American fast-food company. In which he explains that on the basis for fast-food company to grow is per capita income. Countries like Germany and Japan would be the most attractive markets for the expansion for the North American fast-food company. However, when he plots the CAGE analysis using the CAGE framework, he shows that Mexico ranks as the second most attractive market for international expansion for the fast-food company, far ahead of Germany and Japan.

Another example provided by Ghemwat is 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: Cultural, Administration, Geographical, Economical parameters. The fact that many personal computer components have been sourced from China by the mega computer manufacturing companies; however, for the consumer segment, the distance was rather great. For example, Chinese consumers don’t’ regularly buy over the Internet, which is the primary way Dell sells its products in the United States. 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 in Chinese market

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. It is an excellent analytical tool for the various companies and organizations that develop international strategies with an intention of the global expansion of their businesses.

One most important parameter in CAGE framework explains that when looking to expand business into a foreign market, the cultural differences between the two countries are hard to change whereas differences due to the legal and economic structures can be changed easily.

Cultural Distance

It 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 misunderstandings increases. Even if you’re bilingual, slang, jokes and figures of speech can cause problems. Try speaking slowly and clearly in these circumstances. If you’re giving an oral presentation, a clear hand out in simple language helps avoid misunderstandings. 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

Meaning traditions and mannerisms in ethnic groups.  For example, in Japan and the U.K. people tend to avoid the outward show of feelings, while the United States, 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 colors are essential to make the best impression.

The advice is, when new to a culture, observe what others wear for business. Start out with conservative outfits in neutral colors until you learn what’s respectful and appropriate,

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 China, you can show respect by taking a Chinese name. In Brazil, business acquaintances stand close to build trust, so backing away may be construed 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 – don’t give a clock or a gift with blue, white or black wrapping paper. Keep offering your gift, because Chinese recipients usually refuse three times before accepting.

If you comply with a request for a bribe in any country, corruption charges are a likely complication. It’s illegal for US nationals to bribe foreign officials, although sometimes gifts legal in the host country are allowed.

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 you’re drinking accordingly. To maintain the respect of Asian contacts, avoid etiquette mistakes that cause you to lose face.

Religion

Religious observance is widespread and continues to influence managerial behaviour in many parts of the world. However, its role in international business negotiations has not received much scholarly attention. Lot of research proves that some of the key ways in which religious belief shapes negotiation behaviour.

Administrative Distance

It includes political environment, money (Currency value) political relationship (either friendly or hostile relation) government policies and institutional weaknesses.

Political Environment 

The political environment can be studied in terms of the central government, the citizens of a country, rules, and regulations or international relations. Examples of political factors related to the central government of a country are levels of bureaucracy, corruption, and government stability.

Political risk in international business results from various factors that can negatively affect a company’s income or complicate its business strategy. These factors include macroeconomic issues such as high interest rates and social issues such as civil unrest. Since the past year Lebanon is protesting also known locally as the October Revolution, for a series of civil protests taking place in Lebanon. Trade between India and Lebanon during Jan-June 2019 stands at $ 181.00 million, with Indian exports to Lebanon being $ 171.00 million and Indian imports from Lebanon amounting to $ 10.00 million which is now hampered because of Pandemic and unrest in Lebanon.

Currency Value

The balance of trade is the value of a country’s exports minus its imports. It’s the biggest component of the balance of payments that measures all international transactions. It’s easy to measure since all goods and many services pass through the customs office. India imports goods from China priced in Yuan and imports goods from U.S priced in Dollars. Both currency price changes less frequently.

Political Relationship

India’s closest friends in world include the Russian Federation, Israel, Afghanistan, France, Bhutan, Bangladesh, and the United States. India is labelled globally for many things; a regional power, a nuclear power, a nascent global power, and a potential superpower, among others. With a growing international influence, by playing influential roles in various global matters, India has always held its head high when it comes to maintaining peaceful bilateral relationships with various countries, excepting its neighbouring countries in the subcontinent. Given the current scenario of the country’s relationships, it can be imagined that the farther away a country is, the more likely it is to have a strong relationship with India.

Geographical Distance

It includes parameters such as physical remoteness, lack of common border, lack of sea or river access, size of country, time zone, weak transportation reach or communication reach, differences in climate.

Physical Remoteness

All the great empires in the world have been based around trade routes, and these are almost always maritime transports (near the sea). There are notable exceptions; the medieval Mongol empire led by Genghis Khan was based on the Silk Road from China to the west. Many of the world’s poorest countries are severely hindered because they are landlocked; they are situated either in high mountain ranges; or lack passable rivers, long coastlines, or good natural harbours.

Climate

One of the most important factors in development is geography, where the country is in the world, and climate. It’s no coincidence that the poorest countries are in the tropics, where it is hot, the land is less fertile, and water is scarcer, where diseases flourish. Conversely, Europe and North America profit from huge tracts of very fertile land, a temperate climate, and good rainfall. In extremes of climate, either hot or cold, too much energy goes into the simple business of survival for there to be much waste of energy for development.

Lack of common borders

China has three of the world’s busiest ports, and so does the US. With ports you can raise money through tolls and shipping services. If you have no access to the coast, not only do you miss out on these services, you have to transport everything by land, which is much more expensive. And what if your neighbours don’t like you? Ice-bound on its northern coastlines, Russians have quarrelled for centuries over access to a warm water port, the Crimean War being the most serious one. Countries like Afghanistan, Rwanda, Malawi, or Bolivia are all hindered by access to ports. Other countries, like Ethiopia or Lesotho, are not only landlocked, but mountainous as well, making trade even more expensive.

Economic Distance

It consists of parameters such as consumer income, natural resources, financial resources, human resources, infrastructure, intermediate inputs, information or knowledge.    

Consumer Income  

Money per capita can refer to income per capita, money supply per capita, gross domestic product (GDP) per capita, or even net worth per capita. Countries like USA, Luxembourg, Switzerland, Germany, and Australia are always an attraction in International Business. There is plentiful evidence that tradable goods are more expensive in countries with high per capita incomes.

Natural Resources

Natural resources have made countries richer. It takes infrastructure to capitalise on these, but some places have a distinct advantage over others. Oil is the most obvious. Nobody is any doubt about how Saudi Arabia or UAE make their money. Among other advantages, gold and diamonds have helped South Africa build the most successful economy on the continent. These are all non-renewable resources; once they’re gone, they’re gone, but while stocks last there is wealth to be made.

Besides these there are renewable resources; forests, fish, stocks that, if correctly managed, will refresh themselves. Much South American development has been based on the Amazon rainforest in natural rubber and then timber.

Finally, there is what is sometimes called ‘flow resources’. These are renewables that need no management, wind, tide and solar resources. The Earth Policy Institute describes the American Great Plains as ‘the Saudi Arabia of wind energy’, while sunshine-rich places like California, Sicily and Portugal are able to invest in solar power. No natural resource is a license to print money, and there are plenty of poor countries who are rich in resources, but then the fact is that have not been able to manage it.

I want to illustrate my point here with one of relevant examples how corporate invest for growing in new markets, found on Internet: when McDonald’s tried to enter the Russian market, it found an institutional void: a lack of local suppliers to provide the food products it needs. Rather than abandoning market entry, McDonald’s decided to adapt its business model. Instead of outsourcing supply-chain operations like it does in the United States, McDonald’s worked with a joint-venture partner to fill the voids. It imported cattle from Holland and russet potatoes from the United States, brought in agricultural specialists from Canada and Europe to improve Russian farmers’ management practices, and lent money to farmers so that they could invest in better seeds and equipment. As a result of establishing its own supply-chain and management systems, McDonald’s controlled 80% of the Russian fast-food market by 2010. The process, however, took fifteen years and $250 million in developing its Russian market.

Human Resources

Globalization forces companies to go international and enter new markets. All the corporate values and strategies change after internationalization. Human resource management (HRM), as a part of key business functional dimensions, faces a high level of development as well. Globalization has had far-reaching effects in business but also in strategic HRM planning. The signing of trade agreements, growth of new markets such as with India and Malaysia is because of young, trained and English speaking labour.

An example of dealing with an institutional void and changing the institutional context is by the “Big Four” audit firms (i.e., Ernst & Young, KPMG, Deloitte Touché Tohmatsu, and PricewaterhouseCoopers) when they entered Brazil. At the time, Brazil had a untried audit services market. When the four firms set up branches in Brazil, they raised financial reporting and auditing standards across the country, thus bringing a dramatic improvement to the local market. The Big Four invested in training and development the accountants in Brazil.   

Labour law

The legal system in labour law practiced in a country has a great effect on the types of compensation; union issues, how people are hired, fired, and laid off and safety issues. Rules on discrimination, for example, are set by the country. In China, for example, it is acceptable to ask someone their age, marital status, and other questions that would be considered illegal in the United States. In another legal example, in Costa Rica, known as a thirteenth month salary is required to be paid in December. In Costa Rica, All rank-and-file employees who have worked for at least one (1) month during the calendar year, are entitled to receive 13th month pay regardless of the nature of their employment and irrespective of the methods by which their wages are paid. This perilous labour law distracts many firms from starting business in Costa Rica.

Infrastructure

Infrastructure matters to trade mainly because it decreases the cost of trade and ensure the ease of doing business in host economies. Lower trade costs raise the potential for increased export markets. Firms can choose the strategy of staying away from a market with infrastructural voids. For example, Home Depot Inc. the largest home improvement retailer in the United States, supplying tools, construction products, and services requires institutions like reliable transportation networks to minimize inventory costs and the practice of employee stock ownership which motivates workers to provide great service. The Home Depot has decided to avoid countries with weak logistics systems and poorly developed capital markets because the company would not be able to attain the low cost–great service combination that is its hallmark.

In its 2005 “Year of Ideas” issue, The New York Times Magazinelisted nation branding among the year’s most notable ideas. The way a country is perceived can make a significant difference to the success of its trade, business, tourism efforts, as well as its diplomatic and cultural relations with other nations. Simon Anholt coined the term ‘nation branding’ in 1996 and since then he has been working with governments to help them plan the policies, strategies, investments and advance which lead their country towards an improved profile and reputation. America has become the largest and most powerful brand in the globe; it virtually shapes the world in almost all dimensions such as national governance, policies, exports, people, tourism, economic and social status etc. In the fast growing global village nation’s branding is considered as big as federal mega-projects. Steve Silver and Sam Hill, both marketing experts define nation branding as most complex (brand) positioning problem; how can we brand a nation? A nation is as big as a Meta brand inclusive of numerous mega brands. There are so many mega activities of in a nation such as political governance, commerce, education, human resource development, environment, foreign affairs, infrastructure, environment, tourism, culture and heritage etc.

Few years back marketing Guru Philip Kotler launched the World Marketing Summit (WMS), an annual gathering of professionals, in Dhaka to find solutions to global challenges such as climate change, healthcare and skill development. The purpose of the summit was building strategies for creating a better world.   When somebody asked a question to Philip Kotler how emerging economies like India and China should build brands?  He answered the question plausibly stating that emerging countries need to understand importance of marketing strategies. Imagine importance of marketing for building brands as big as nations.

In the emerging economies like China, India, Russia and Brazil many businesses are in the first stages of life cycles, most of these are product driven companies. In India lot of companies are just focused on market share, instant profits, and very little focus on marketing values. In some developing countries marketers have now recognized the importance of lasting impact of branding exercise, reputation and importance of being customer-driven.

Mr. Kotler’s advice to the business world is to become a brand that has distinct meaning. He says it is not enough for companies to be known for what they are producing or manufacturing; for instance it is not enough for people to know that Nike makes athletic shoes. Nike means much more…… It’s a lot of work!

Nation Branding: Role of Government

Coming back to nation branding; the role of governments is to appreciate the best companies around and to assist them in becoming more excellent in the country, and then in the region and then in the world. The government should make it easier for companies to be export-driven, to put in quality control policies, to raise adequate funds as and when required. The government needs to have business friendly approach.

Any nation in the world cannot take its position for granted. The economic scenario changes swiftly. According to leading economists in the world, there are approximately 28 emerging economies which are marching ahead. Countries like Brazil, China and India are regarded as the largest in the world today though the G8 has not included them. There are countries like Greece and Italy who are losing their foothold from the stable nations in the world. Greece is already in major breach of euro zone rules on deficit management and with the financial markets betting the country will default on its debts, this reflects badly on the credibility of the euro. There are also fears that financial doubts will infect other nations at the low end of Europe’s economic scale, with Portugal and the Republic of Ireland coming under scrutiny. If Europe needs to resort to rescue packages involving bodies such as the International Monetary Fund, this would further damage the euro’s reputation and could lead to a substantial fall against other key currencies.

The concept of branding is viewed as ‘cultural diplomacy’ of nations. It is a somewhat new way of looking at a nation, but every nation is already a brand. Every nation is perceived in the minds of people differently living elsewhere in the world. Some countries are known for good things, some for bad, and others have mixed perceptions. Based on these perceptions, other nations in the world interact and do business with other nations, either contributing to its development or hindering it. For example Africa is associated with civil war, Iraq with suicide bombings and Cuba with Fidel Castro’s dictatorship. On the other hand countries such as the US, Canada or France, are perceived positively for decades for their sound political and economic development. Nation branding is based on the underlying assumption that every nation is a brand good or bad depending on its efforts. The important thing to realize about branding a nation is that one of its ingredients is the intensification of something that is found already within that nation.

Singapore – Rise from third world to first world

Singapore’s stunning rise from third world to first world in a matter of 30 years was spearheaded by an intensive and rigorous closely-coordinated programme of nation branding. Today, brand Singapore attracts the investments, business, trade, tourism and talented human resources from all over the world which is helping it further to become more flourishing nation. This state is internationally known as a vibrant, safe, corruption-free place to do business. Name any of the great businesses of the world; everybody wants to be in Singapore! The vibrancy and liveliness of the nation in its culture and the fine art attracts more and more tourists. In global surveys of quality of life, Singapore regularly tops the charts.

Singapore’s exit from Malaysia was a unique historical situation. It is hard to think of another example in history when a state was expelled from a larger country. Singapore’s problems for its fight of independence were not distinctively glamorized.  High levels of unemployment, lack of sanitation, scarcity of potable water, and ethnic conflict were some conditions that marred Singapore then and still typify many third world countries today. It was common scene then on the streets of the country Chinese and Malays often fought street battles that ended in bloodshed.

The unusual effectiveness of the Singapore government has won worldwide acclaim over the years. The Institute of Management Development’s World Competitiveness Yearbook 1997, ranked Singapore as the country which has adopted most effective and fastest strategies and implementations in government policy. Berlin based Transparency International placed Singapore in fourth place worldwide in 2003 for absence of corruption. To explain Singapore’s economic success, it is important to understand the predominant themes that have distinguished its governance from less successful third world countries. At the heart of the Singapore model is the social contract that was articulated between the ruling PAP (People’s Action Party) run government and the people of Singapore. In essence, it said that while the people were willing to accept more government control they also gave up some individual rights. People worked hard while the government created the environment which delivered prosperity and a better quality of life.

The World Bank ranks nations on various parameters on the basis of ease of doing business, from 1 to 183. A high ranking on the ease of doing business index means the regulatory environment is more conducive to the starting and operation of a local firm. This index shows the best countries the world which allows businesses to prosper.  As of today, Canada ranks number one in this list.

Environmental scanning of a nation for brand building

Environmental scanning of a nation helps in the brand building exercise of a nation. It is the study and interpretation of the political, economic, social and technological events and trends which influences businesses to establish in a nation.  The following parameters involve in environmental scanning:  

Economic Environment

It is very complex and dynamic in nature that keeps on changing with the change in policies or political situations. It consists of three elements: (i) Economic Conditions of Public (ii) Economic Policies of the country (iii) Economic System and other Economic Factors such as infrastructural facilities, banking, Insurance companies, money markets, capital markets etc.

Political environment

The government policies affect the businesses extensively. Political beliefs of Government, political strength of the country, relation with other countries, defense and military policies, centre state relationship in the country, thinking of opposition parties towards business Units attract or distract FDI in a country. 

Socio-cultural environment

Influence exercised by social and cultural factors, not within the control of business, is known as Socio-Cultural Environment. These factors include: attitude of people to work, family system, caste system, religion, education, marriage etc.

Technological environment

A systematic application of scientific knowledge to practical task is known as technology. Everyday there has been vast changes in products, services, lifestyles and living conditions, these changes must be analyzed by every business unit and should adapt these changes.

Natural environment

It includes natural resources, weather, climatic conditions, port facilities, topographical factors such as soil, sea, rivers, rainfall etc. Every business unit must look for these factors before choosing the location for their business.

Demographic environment

It is a study of perspective of population i.e. its size, standard of living, growth rate, age-sex composition, family size, income level (upper level, middle level and lower level), education level etc. Every business unit must see these features of population and recognize their various needs and produce accordingly.

We Indians should take some lessons to brand ourselves in the globe.