The CAGE and AAA Models as the Drivers of Globalization - Essay Example

International Business Essay Plan Globalisation, in the business sector, is widening. More and more companies, in the recent days, have either gone global or are contemplating on doing so (Brown 3). The reason as to why a company needs globalise its dealings is still unclear to most, but they believe that more the company spreads it branches internationally the better. Globalisation comes with its challenges though. Being an international business entails a myriad of issues. It is in this connection that various frameworks and models have been formulated to give insight on what is required successfully to establish an international business (Brown 6). Drivers of globalisation, the CAGE and AAA models, are some of the frameworks that will be used to give in-depth knowledge and rare glimpses relating to globalisation and international business. This essay will discuss the above frameworks adequately. Nokia, BOEING, Renault, FedEx, Virgin Group and Vodafone are perfect examples of successful international companies. Nokia for instance is a handset manufacturing company, whose products are sold in over 150 countries. The company earns an estimated annual income of 38 billion sterling pounds. In India, Nokia is the largest multinational company, yet the company is located in Finland. Nokia employed a cost leadership technique in India, to look for various ways of cutting cost and making their products readily available (Brown 23). These involved setting up manufacturing stations for handsets, creating financial options for mobile phones and together with network providers to reduce airtime cost. Nokia also created distribution network that attracted over 25000 dealers, this was three times the size of Samsung and six times the six that of Sony Ericsson (Brown 45). Moreover, Nokia considered working with distributors of fast moving consumer goods and consumer durables. This enabled their products to be readily available to consumers on the market, thus explaining their dominance in India. Nokia operates in the telephone and communications industry. Globalisation has a played a notable role in this type of industry. Companies are monopolising their dealing, and this has substantially led to globalization (Brown 47). Large telecommunication companies have taken over this industry and hence denying the smaller companies a chance to develop. The local companies are faced with stiff competition from these multinationals making them pull out of business. According to the CAGE and AAA frameworks, this kills local entrepreneurial spirits and increases dependence on the advanced nations. However, globalisation has led to improved services in the telecommunication sector. Large organizations have sufficient capital, hence, investing in expensive networks that are of highly rated (Brown 52). The networks provide faster transfer of quality sound and videos, which are convenient to subscribers. The success of any multinational company depends on the strategies they decide to adopt. A proper framework gives the business guidelines, which could enable it to attain multinationalism. Some of the most popular frameworks include the CAGE distance framework, AAA model, Adding Value and Drivers of Globalization. CAGE distance framework considers the cultural, administrative, geographical, as well as economic differences, and factors when selecting the countries a company should address when crafting international strategies. This framework was formulated by Pankaj Ghemawat, a business professor, in Spain, at the IESE Business School. The framework links interactions between countries to their national incomes divided by some composite measure of distance (Brown 74). Cultural distance, in this case, refers to the difference in languages, ethnicities, religion, values, norms and dispositions of a particular nation. Companies should use the CAGE distance framework as it includes both bilateral and unilateral factors. It is also more practicable than other frameworks due to some of its aspects. It advantageous since it makes the differences and distances visible to the managers (Brown 75). The managers are able to foresee the shortcomings or challenges of setting the business in a particular country, hence, plan for it. The technique can also give the managers a glimpse on the relative positions of the multinationals from different countries. For instance, it can explain the strength of Asian firms in European nations. Ghemawat asserts that different types of distances are relevant to different extents depending on the industry (Brown 77). That is to say, geographical hindrance affects the cost of transportation more in companies dealing with bulky or heavy products than those involved in light consumer goods. This framework has been praised for its practicality and the relevance it portrays. Most business managers admit to having a special preference to this framework technique. The Adding value scorecard framework is also a formulation of Pankaj Ghemawat. It provides concrete and straight forward guidelines on how to internationalise a business (Brown 122). The Adding Value scorecard framework is based on proponents adding volume, decreasing cost, differentiating, improving industries bargaining power, optimisation of risk and generating knowledge. Adding volume and growth entails looking at the true economic profitability of the increased volume. A company, therefore, ought to look at the profitability that comes with increasing volume before considering expansion to other countries. Decreasing cost refers to unbundling price and cost effects (Brown 123). A multinational company should look at the labor cost as a motivator to establish in other countries. The labor cost should be favorable to both the employees in the sub-branch company and the management. This ensures maximum profitability for the multinational company. Differentiating or the willingness to pay involves focusing on the payment rather the amount paid (Brown 123). The managers should of how globality affects willingness to pay. However, this framework technique works best with the CAGE framework. The Drivers of globalisation consist of five main keys such as cost, market, price, government and technology drivers. In the cost driver, the company analyses the lifestyle of the country before agreeing, on the services and goods, to be offered and their prices (Brown 144). The market drive is informed by the need to find a suitable market to invest and yield maximum profits. Technology drive involves increasing and improving the technology systems and advancing in the world trade system. This inspires the company to invest in order to achieve technological advancements. Governmental driver aim at reducing interference from political policies and maintain low tariff costs. Competition driver is motivated by the need to shift to an open market system (Brown 145). At times, a company might in invest an open market system in a command driven economy. The need of improving technology was one of the main grounds why Nokia has chosen to invest in some nations such as India. India being a large population country, there was a need to advance its technology to create efficiency in the economy. Cost drive also played a leading role in the setting of the company, in India, (Brown 145). They analyzed the lifestyle of the population and determined facts on general economic behavior of the consumers since most people had low purchasing power they opted to utilize the strength in their numbers. This, on the other hand, maximized the profits, which led to the establishment of the company. In conclusion, the frameworks form an essential role in globalisation. Some of these frameworks play a concrete role in determining the success of a multinational company. Frameworks such as CAGE and Adding value scorecard should be embraced accurately to assert proper location of multinationals. Work Cited Brown, Robert. A Short Course in International Business Plans: Charting a Strategy for Success in Global Commerce. New York: World Trade Press, 2009. Print. Read More