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Frameworks of CAGE and Triple AAA ...

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Expansion of MADE International Business Management

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Introduction: 387 / 350

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Part 1: 1194 / 1250

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Part 2: 718 / 1000

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Part 3: 238 / 250

Total: 2537 / 2500

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Expansion of MADE

Table of Contents Introduction to the CAGE Framework .............................................................................. 2 Part 1. CAGE Framework .................................................................................................. 3 1.1 Cultural Differences ..................................................................................................... 3 1.2 Administrative Differences .......................................................................................... 4 1.3 Geographic Differences .............................................................................................. 5 1.4 Economic Differences ................................................................................................. 6 1.5 CAGE Framework Conclusion .................................................................................... 6 Part 2. Triple AAA Framework .......................................................................................... 7 2.1 Adaptation .................................................................................................................. 7 2.2 Aggregation ................................................................................................................ 8 2.3 Arbitrage ..................................................................................................................... 8 2.4 Triple AAA Framework Conclusion ............................................................................. 9 Part 3. Key Challenges .................................................................................................... 10 3.1 Cage Challenge ........................................................................................................ 10 3.2 Triple AAA Challenge ............................................................................................... 10 List of References ............................................................................................................ 11 Appendix .......................................................................................................................... 17

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Introduction to the CAGE Framework The CAGE Framework was created by Ghemawat and highlights the differences and the sensitivity of the Cultural, Administrative, Geographic and Economic factors among countries (Ghemawat, 2007). In this report, Brazil, India and Japan will be strategically analysed and compared with England to indicate the best nation for the British company MADE to expand. For the CAGE differences, the factors are analysed in a country level with bilateral and unilateral measures. The cultural characteristics are essential attributes when the firm decides to export its furniture. The topics of current language and type of furniture used in each nation will be a matter of discussion in this part of the framework. (Ghemawat, 2007). Regarding the administrative skills of a country and according to Ghemawat (2007), factors such as common policies, colonial ties and common currency might influence the trading links of the partners, as similarities or differences detected will affect the choice of the company. Ghemawat (2007) also states the influence of the geographic distance in business, which is very relevant once as distance increases, investments tend to decrease as this will raise the transport costs. Lastly, the economic sector aims to study the GDP of each country and the average income of the population as this will indicate the economic activity of each nation (Ghemawat, 2007). According to the creator of this framework, similar economic characteristics increase the possibility of collaboration, and higher GDP reveals more attractive economic activity for MADE. On the other hand, the CAGE Framework can be analysed at an industrial level where the sensitivity of each factor will have an impact on the global analysis. For the cultural sensitivity, factors such as local preferences, traditions and identities might be points to take in consideration when exporting, as the locals may not appreciate if MADE disrespects their preferences (Ghemawat, 2007). As stated by Ghemawat (2007), the administrative characteristics include the involvement of the government on funding and on regulation which will affect the stability of the country in terms of aspects such as mass transportation products and healthcare. Concerning the geographic conditions, the differences in transportation and the importance of connectivity might tend to favour the FDI (Ghemawat, 2007). Lastly, according to Ghemawat (2007), the high intensity of labour, the incomerelated difference in demand and the need for variety are part of the economic sensitivity.

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Part 1. CAGE Framework 1.1 Cultural Differences Concerning the official language of each country in the study, the one nearest to England is India with Hindi and English considered both idioms of the state and approximately 100 million of the population being English native speakers (BBC, 2019; Ghemawat, 2007). Unlike India, Japanese people prefer to talk Japanese; nevertheless, the language used when it comes up to business is the English (Exporting is Great, 2019). In Brazil, the established business language remains the mother tongue that is Portuguese, which may be a hindrance when foreign entrepreneurs choose to go there (Exporting is Great, 2019; BBC, 2019).

Regarding the characteristics of the furniture, they usually vary in each country and several factors determine which style will follow the customs of the citizens. The Japanese favours the convenience of what wooden furniture brings to everyday life, having four basic requirements: to sleep, to sit, to pray and to eat (Japanese Furniture: History & Style, 2017). Based on Indian Furniture: History & Styles (2018) for Indian people tables, dressers and chairs were not common since they slept and ate on the floor. However, current Indian furniture reflects Eastern and Western styles with the influence of Portuguese and Dutch culture, which represents a plus for MADE with its timeless and versatile design (Indian Furniture: History & Styles, 2018; Made, 2019). Finally, in Brazil, traditional furniture is characterized by the combination of ecological, technical and human requirements not neglecting human comfort, place, and environment. (Modern Resale, 2018; Brazilian Design Week, 2018).

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1.2 Administrative Differences

Of the three countries analysed India is the only that has colonial ties with England, which is a major asset to exportation due to common laws that have remained, enabling easier interactions and trades between these nations (Ghemawat, 2007; Exporting is Great, 2019). According to Exporting after Brexit (2019) and Exporting is Great (2019), none of the nations have trade agreements with England; nevertheless, if the UK leaves the European Union with a deal, there are great chances of an agreement with Japan which would facilitate the exportations. Topics such as corruption and bribery are also important when discussing the administration of a country. As stated by Overseas Business Risk (2017), those issues are not tolerated by British people, which can be a complication for countries such as Brazil and India where corruption is entrenched. Nevertheless, efforts are being done from both nations since commercial trades are often delayed concerning this hindrance (Overseas Business Risk, 2019). Unlike Brazil, Japan does not have huge deficiencies in corruption being classed in the 73rd position, only 7 positions under the United Kingdom (Global Edge, 2018). This subject is further analysed in the appendix (Graphic 1), where it is possible to conclude that Japan and the UK have the best control of corruption from the countries in this study (World Bank, 2018). As indicated in the appendix (Table 2 and Graphic 2), the safest country to do business in is Japan, due to its economic and political stability as well as a lower country risk compared to the other countries (Global Edge, 2019; World Bank 2019). On the same table, it is still possible to analyse the three nations with England and conclude that Japan is still the best option in terms of ease of doing business, which reflects an advantageous environment for Britain if they are prepared to adapt to the Japanese business culture (Global Edge, 2018; Exporting is Great, 2019).

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1.3 Geographic Differences For better understanding and evaluation of geographic factors, the author has made a table with information from DSF World Wide (2019), InfraCompass (2017) and The Global Economy (2019).

Physical distance

Duration of Transport

Infrastructure Ranking (out of 7) Quality of Railroad infrastructure (2019) Quality of Port infrastructure (2019)

United

Brazil

India

Japan

5,936 miles

4,168 miles

5,938 miles

Sea: 31 to 33

Sea: 20 to 35

Sea: 16 to 18

days

days

days

Air: 5 to 7

Air: 2 to 4

Air: 4 to 6

days

days

days

4.0

4.0

6.3

6.0

2.5

4.4

6.8

4.3

3.2

4.5

5.8

5.2

4.4

4.9

6.2

5.3

3.0

4.5

6.1

4.9

Kingdom

Quality of Air Transport infrastructure (2019) Quality of Roads (2019)

Table 1 - Geographic Factors; Sources: DSF World Wide (2019), InfraCompass ( 2017) and The Global Economy (2019)

After analysing the table, it is possible to indicate India as the nearest country to England and the quickest to export by air transport. However, the recurrence of earthquakes and cyclones among a medium score in infrastructure can represent a disadvantage for MADE as it is not suitable for furniture transport (Foreign Travel Advice, 2019). The second country closer to the UK is Brazil, nevertheless, it is the worst destination to export when it comes up to the time of transport and rating infrastructure. Lastly, there is Japan with the best score in infrastructure and the quickest country to export by sea, even if with frequent tremors and being the farthest of the three (Overseas Business Risk, 2019). W19029127

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1.4 Economic Differences

As is well known, Brazil and India are developing nations, which can be a disadvantage for MADE. For understanding the economic factors from the countries in the study, the Table-3 was done and placed in the appendix with data from World Bank (2018), Global Edge (2019) and Statista (2019). Through deep analysis, Japan is the best country for MADE to export. Reasons such high GDP (both current and per capita) might explain why it is a developed country, and therefore how the adjusted net national income per capita is so high as the one from the United Kingdom. However, it is noticed that Japanese GDP growth is the lowest of all the four countries with only 0.8%, followed by the UK with 1.4% and losing to India with the highest growth of 7%. In terms of the inflation rate, the purchasing power of the population is directly impacted by the price. As mentioned in Table-3, the best score for 2018 is from Japan with only 0.98% compared to 2.48% of England and it remains to be the lowest until 2020 even with a growing expectation reaching 1.3% that year. This represents a great opportunity for MADE, as the purchasing power is the best of all the other countries in the study. As shown in the appendix (Graphic 3), since 2008 that Japan and the UK have the lowest levels of inflation when compared to Brazil and India where they were both the highest. However, it is expected for all countries that these levels will stagnate until 2024, with the highest rating from India with 3.97% and the lowest from Japan with 1.28%.

1.5 CAGE Framework Conclusion Despite the physical distance and low percentages in terms of English speakers and economic growth, the author believes that Japan is the most attractive and advantageous country to receive MADE. Holding the third-largest economy, the closest GDP per capita to the United Kingdom and high incomes, Japan is the most suitable nation for this exportation as the low inflation rate enables a higher purchasing power. Another advantage for this country is the possible trade agreement with England, which will facilitate the prosperity of the company MADE. W19029127

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Part 2. Triple AAA Framework 2.1 Adaptation Adapt a product to the new market is hard and costly for the enterprise. For that purpose, Ghemawat has created the three AAA Framework which enhances the company to have better strategies when exporting (Ghemawat, 2007). The business approach analysed in this report concerns the online furniture retailer MADE exporting to the Japanese market, specifically to the Tokyo city. The author considers that in the short-run, the exportation for one region of the country is more beneficial as it will be cheaper for the enterprise when integrating this new market.

According to Forbes (2019), the Japanese capital is the second most expensive city in the world with one of the highest prices per square foot. Therefore, houses are usually smaller to the ones from Europe, which can represent a disadvantage for MADE in terms of size of the furniture, leading to a possible need of adaptation on products such as sofas and tables. The furniture-making must consider this fundamental aspect without neglecting the practical side demanded by the habitants, as discussed previously in the Cultural Differences from CAGE Framework. Thus, MADE can segment its market by proposing a new range of furniture while offering its usual one, holding a profitable diversification.

An additional factor to consider is the change in the online website of this company. As MADE has done previously for each country they export, the language and the currency are changed, therefore, the same is expected to happen in Japan. It is also necessary to consider their means of payment, as according to eMarketer (2017), 76% of online purchasers use their credit card, a method that is also generally used in MADE.

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2.2 Aggregation The second A of this Framework is Aggregation, and as explained in Ghemawat (2007) the competitive advantage of globalization is to reach the economies of scale and scope through an international standardization by overcoming the differences. The use of the website is a crucial way to promote business in a country where people are used to technology, with 90% of the population being internet users (The Global Economy, 2017). However, MADE should install a showroom in Tokyo where people can enter and see how the furniture is, as it will be a way of doing marketing in such a bustling city. Therefore, access to the company’s products would target all potential buyers and result in higher profitability to the company.

2.3 Arbitrage In the last A from the triple AAA Framework, the company must exploit the differences in the new market, while reducing the cost and the risk (Ghemawat, 2007). According to The Global Economy (2017), Japan has higher taxes on goods and services per percentage of total revenue than England which can imply a disadvantage for this trade due to a possible increase in costs in the furniture. In case of this increase occurs, MADE should be aware of a possible low on the Japanese purchasing power, and consequently a failure in this market. Nevertheless, furniture is a growing sector in this country, which can turn out to be a great opportunity for the British firm with "Made in the UK" products recognised as high quality (Statista, 2019; McKinsey Quarterly, 2010). In the short-run, the reduction of the cost is advisable as it would have a direct impact on risk as people would be more likely to buy MADE furniture. However, once this company becomes popular amongst the citizens, prices should increase to improve the firms’ profitability.

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2.4 Triple AAA Framework Conclusion The most relevant aspect to take in consideration when MADE decides to operate in Japan is the adaptation, as the focus on the diversity of the product and its modulation according to the needs of the habitants is a must. As both countries belong to the G7, the design of each product should also comply with environmental standards. Therefore, the packaging is a process that should not be overlooked as it is crucial for the prosperity in the Japanese business. Lastly, the citizens want practical and adequate furniture, as the reduced dimensions of houses and communal spaces in apartments might be a struggle when transporting larger furniture such as sofas and closets. Adapting the firm into the Japanese market will be costly, however, the chances of growing increase immensely with a positive impact on sales and profits.

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Part 3. Key Challenges 3.1 CAGE Key Challenge According to the author of this report, the geographic differences are the most relevant factor to considerate before MADE starts the business operations in Japan. As mentioned previously, this country holds the larger physical distance when compared with the other countries in the study, which is a major importance in the delivery of furniture as the high distance between these countries can hinder the shipping of the product or even damage it.

Having the best scores in infrastructure is a plus for furniture transportation, however, there are many upstream risks. Road transport can pose risks for the product, as border tensions between some countries may block the order or even prevent it from being delivered. Natural disasters also pose risks for which MADE must protect itself by choosing the most suitable company and method of transportation.

3.2 Triple AAA Key Challenge

Regarding the triple AAA Framework, the main challenge is locating a furniture showroom in Tokyo. For that happens, MADE needs to adapt its furniture to the Japanese market, as it will provide the nationals with different types of furniture according to their needs and tastes. As only a small range of products are meant to be exported in this phase, MADE can start the shipment by now, as it owns smaller furniture models that can be used in the short run to the population become acquainted with this new brand entering their market.

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List of References BBC. (2019, 1 May). Japan country profile. Retrieved from https://www.bbc.co.uk/news/world-asia-pacific-14918801 BBC. (2019, 18 February). India country profile. Retrieved from https://www.bbc.co.uk/news/world-south-asia-12557384 BBC. (2019, 3 January). Brazil country profile. Retrieved from https://www.bbc.co.uk/news/world-latin-america-18909529 DSF Worldwide. (2019). UK/Brazil Shipping Rates 2019. Retrieved from https://www.dfsworldwide.com/Shipping-to-Brazil.html DSF Worldwide. (2019). UK/...