What are some of the Key Factors in International Expansion?

Carpenter and Sanders (2008) provide four key factors that contribute to competitive advantage in international expansion. The four factors include economies of scale and scope, location, multipoint competition, and learning.

When a firm decides to expand internationally, it must have a solid foundation in place and incorporate scale and scope within the new region or regions being entered. A firm’s economic logic must also change in order to meet international market needs and competition (Carpenter & Sanders, 2008). Efficiencies around operating costs must be implemented. “Attempts to gain scale advantages must be focused on resources and activities that are scale sensitive, and it means that these resources and activities must be concentrated in just a few locations.” (Carpenter & Sanders, 2008, p. 208). Economies of scope also allow a firm to gain competitive advantage in the international market by sharing resources across different regions. This allows the firm to utilize resources and capabilities to its full capacity and aims to lowering costs for the business (Carpenter & Sanders, 2008).

Location also is a key factor when a firm decides to expand internationally. Location can have barriers to entry, new entrants in the locations where market are highly competitive, existing competitors, and substitutes. Carpenter and Sanders (2008) state that a firm can use the five-force model to analyze the various elements that make up a particular location to better prepare the firm for the various elements and rivals that could impact the success of the business. An important element of location is the opportunity for arbitrage, which is buying a product in one market, and selling it in another for a higher price (Carpenter & Sanders, 2008). Arbitrage can impact how a firm sells their good or service in an international market. Companies should utilize value-chain activities to improve performance, helping lower certain costs, which can add to the firm’s advantage (Carpenter & Sanders, 2008). The CAGE framework also allows a firm to identify arbitrary opportunities to better compete in international markets.

Multipoint competition is also a key factor a firm should utilize in international expansion. This includes the stronghold assault approach, which includes actions a firm takes when trying to enter another firm’s key markets (Carpenter & Sanders, 2008). “In the case of international strategy, stronghold assault refers to attacks on the geographic markets that are most important to a competitors profitability and cash flow.” (Carpenter & Sanders, 2008, p. 211). An example of this would be my company expanding a facility in China, a region that holds lots of competition, and was challenging for us to reach in terms of service, customers, and competitors. The opening of our facility in China allowed us to compete and generate sales and provide better customer service, giving us better market positioning in a highly competitive region.

Learning and knowledge sharing is the last key factor to international expansion. Learning and innovation allows firm to expand and try new products in new markets, better compete with new products in existing markets, and overall provide a product to customers and eat away at some of the market share in the international regions (Carpenter & Sanders, 2008). By innovating a firm is also able to transfer knowledge from one region to another, adding to the firm’s competitive advantage and a more dynamic market position (Carpenter & Sanders, 2008).

How does the CAGE Distance Framework assist in identifying attractive locations?

The CAGE framework provides a firm a way of assessing the various risks and arbitrage associated with entering international markets. The CAGE distance framework stands for culture, administrative, geographic, and economic – ultimately allowing the first to assess the dimensions that distance creates when entering international markets (Carpenter & Sanders, 2008). “Application of the CAGE framework requires managers to identify attractive locations based on raw material costs, access to markets or consumers, or other key decision criteria.” (Carpenter & Sanders, 2008, p. 2011).

Culture incorporates language barriers, national security issues, or varying religious views within the international region (Carpenter & Sanders, 2008). Administrative covers government policy, political policy, institutional weaknesses, and monetary policy (Carpenter & Sanders, 2008). Geographic is the physical remoteness of the international region being expanded upon, in addition to the various elements that make up that region such as population, landscape, climates, and size (Carpenter & Sanders, 2008). And lastly economic, which covers income, costs of resources, infrastructure, and information sharing and knowledge (Carpenter & Sanders, 2008). The CAGE analysis should help a firm assess how and where to expand internationally, while assessing the risks associated with a region (Carpenter & Sanders, 2008). “It can also help you map out the staging and pacing of your strategic international expansion moves so as to maximize the strategy’s anchoring in the firm’s VRINE-based resources and capabilities.” (Carpenter & Sanders, 2008, p. 211).

According to Ghemawat (2012) society perceives that we are more globalized than ever before, where borders seem to be less and less impactful on how businesses compete internationally. Our perceptions of how technology is bringing together business and relationships are skewing the reality on society (Ghemawat, 2012). In reality, technology is bridging the gap, but not as much as one would think. “Globalony can be very harmful to your health, recognizing that only 10-20% of the work is globalized.” (Ghemawat, 2012). The altered perception of globalization is skewing the perception of how the world operates economically. It’s important to be more accurate so people can start contributing more to globalization and taking actions that will better impact how the world operates business wise and economically. The key from Ghemawat’s (2012) video is that society needs to bring about more accurate data and perceptions about globalization so activities can be taken to improve global operations.

Carpenter, M.A. & Sanders, Wm., G. (2008). Strategic management: A dynamic perspective. Upper Saddle River, NJ: Pearson Prentice Hall.

Ghemawat, P. (2012). Actually, the world isn’t flat [Video]. Retrieved from https://www.ted.com/talks/pankaj_ghemawat_actually…