In plain English
Going abroad multiplies the ways a good business can fail: different customers, different rules, different costs, different partners. The two decisions that matter are how much to standardise, and how deep a commitment to make on entry.
The advanced view
Ghemawat's CAGE framework treats distance as cultural, administrative, geographic and economic, and shows that trade and FDI flows fall roughly with distance in each dimension. The integration–responsiveness grid maps global (cost-driven standardisation), multidomestic (local adaptation), international (home-centred export) and transnational (both, via a differentiated network) postures. Entry mode is a joint choice over control, commitment and resource requirement, escalating from export to licensing to JV to greenfield or acquisition.
Frameworks
CAGE distance
Cultural, administrative, geographic, economic distance. Quantify the frictions before assuming the domestic model travels.
Integration–responsiveness grid
Global, multidomestic, international, transnational — chosen by cost pressure vs local-adaptation pressure.
Entry mode ladder
Export → licence → franchise → JV → greenfield/acquisition. Control and commitment rise together.
Location and configuration
Where each value-chain activity sits: factor cost, cluster effects, tariffs, proximity to demand.
Country risk in the discount rate
Cost of equity = Rf + β × ERP + country risk premium CRP ≈ sovereign spread × (σ equity / σ bond) Or: value cash flows in local currency at a local nominal rate Forward rate = spot × (1 + i_local) / (1 + i_base)
Worked example — entry mode economics
Step 1 of 8
- 1Market: 4m households, 20% target penetration ⇒ 800,000 customers
Common pitfalls
- ×Assuming home-market share and margins transfer to a new geography.
- ×Double-counting country risk in both the cash flows and the discount rate.
- ×Ignoring administrative distance — licences, local ownership rules, data residency.
- ×Choosing acquisition for speed without integration capacity in the region.
Must know cold
- ✓CAGE: cultural, administrative, geographic, economic distance.
- ✓Discount local-currency cash flows at a local-currency rate, or convert at forwards and use the home rate — never mix.
- ✓Control and commitment rise together along the entry-mode ladder.
Exercises
Try each one on paper before revealing the worked solution.
Exercise 1
Messy prompt: a Swedish industrial client asks whether to enter Brazil. Structure the answer in four minutes.
Finance connection
This phase is the strategic counterpart of the FX and international finance phase in the Finance track: parity conditions set the exchange-rate path, hedging sets the exposure, and the country risk premium sets the hurdle rate for the entry NPV.