Established model

The CAGE distance framework

Pankaj Ghemawat · 2001

Distance between countries is cultural, administrative, geographic and economic, and each kind can make a large market less attractive than it looks.

Its place in the frameworkMarket Core›Market Opportunities

What it does

Ghemawat’s argument is that country analyses overrate market size and ignore how far away a market is in these four senses. A smaller market that shares a language, legal tradition or trade agreement can be worth more than a large one separated on every dimension, and different industries are sensitive to different kinds of distance.

Reach for it when: When international markets are being ranked by size or growth alone, and when a market that looked attractive on paper is proving much harder than expected.
Where it stops: It adjusts for distance but does not measure opportunity; it needs a separate view of demand and competition to be useful. Scoring the four kinds of distance is still a judgement.

Pankaj Ghemawat, “Distance Still Matters: The Hard Reality of Global Expansion”, Harvard Business Review, 2001.

Why it sits at Market Opportunities

Where demand exists that the organisation is not yet serving — sized honestly, judged on fit as well as attractiveness, and narrowed to a list short enough to act on.

A model is only useful when you reach for it at the right moment. This one answers a question that arises here — so it is filed here, and nowhere else. These are the working areas it serves:

SizingThe addressable-market distinction between total, serviceable and obtainable market, and bottom-up sizing as the check on top-down figures.
Growth and directionDiffusion-of-innovation work on adoption curves, and the industry-lifecycle literature on how attractiveness changes by stage.
Opportunity assessmentAnsoff’s product-market matrix for the fit question, and the market-attractiveness screens used in portfolio planning.
The shortlistStrategic-choice literature on the discipline of deciding what not to do as the substance of a strategy.
Entering new marketsJohanson & Vahlne, “The Internationalization Process of the Firm”, Journal of International Business Studies, 1977 (the Uppsala model); Ghemawat, “Distance Still Matters”, Harvard Business Review, 2001 (CAGE); Franklin R. Root, Entry Strategies for International Markets (1987), on entry modes.

All of Market Opportunities

What it touches elsewhere

Nothing in a business is decided on its own. A conclusion reached with this model at Market Opportunities lands in these other cores, whether or not anyone follows it there.

PartnersWhere a market is entered through a partnership, the partner is chosen and contracted there.
Business CoreAn opportunity requires a value proposition and the capacity to serve it, which is where fit is actually settled.
Goal CoreA pursued opportunity becomes a long term goal or it remains an observation.
CompetitorsAn unserved opportunity is unusual; establishing why nobody is serving it is part of the assessment.
Time CoreWhether the opportunity is available now is a separate question from whether it exists.

Filed at the same place

These answer questions that arise at Market Opportunities too. Where they disagree with this one, the disagreement is the useful part.

PESTEL analysisA checklist of the outside forces a business does not control: political, economic, social, technological, environmental, legal.
SWOT analysisInternal strengths and weaknesses set against external opportunities and threats.
TAM, SAM and SOMThe whole market, the part your model can serve, and the part you could realistically win.
The product life cycleProducts pass through introduction, growth, maturity and decline, and what to do about one depends entirely on where it is.
Hofstede’s cultural dimensionsNational cultures differ along a small number of measurable dimensions, and those differences shape how a market will receive you.
The Uppsala internationalisation modelCompanies tend to go abroad gradually, starting close to home and committing more as they learn.
Porter’s diamondSome places are better at some industries, because of their resources, demanding customers, related industries and local rivalry.

Elsewhere in Market Core

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