A Conceptual Analysis of Effects of the Cage Framework Factors on Liabilities and Assets of Multinational Company

ABSTRACT (55 words)

Distance usually assumed to have a negative impact on doing business abroad; however, in some cases distance has positive effects on international business value creation. This paper suggests several propositions that should help to evaluate the impact of distance factors of CAGE-framework on the MNE’s liabilities and assets in the host country and multinational context.

Keywords: distance, liabilities of foreignness, assets of foreignness

INTRODUCTION

The CAGE-framework developed by Ghemawat (2001) might be used by multinational companies to evaluate the distance between home and host countries based on four dimensions (cultural, administrative, geographic and economic). However, this concept does not assess the impact of these particular factors on costs and benefits for a firm doing business abroad. This paper is aimed on evaluating the impact of different distance factors described in Ghemawat’s CAGE-framework theory on liabilities and assets of a multinational firm in the host country and multinational context. In order to do this, several propositions are introduced that will clarify the link between factors of distance, on the one hand, and costs and benefits of doing business abroad on the other hand. However, it should be noted that this paper researches only the impact of distance factors on the each quadrant of Sethi’s (2009) model (liabilities of foreignness, liabilities of multinationality, assets of foreignness, and assets of multinationality). It might be revealed more effects of distance factors on costs and benefits of a multinational company during some additional detailed research.

This paper starts with the Ghemawat’s CAGE-framework theory. The focus will be on identifying the primary distance factors that influence costs and benefits of doing business abroad. The next theory that will be discussed in the paper is developed by Deepak Sethi and William Judge (2009). This theory is about liabilities, costs and benefits that the MNE’s subsidiary faces in the host country and also in the multinational context. Finally, these two concepts will be integrated in order to develop several propositions that should help to evaluate what factors of the CAGE-framework effect particular liabilities and assets of the MNE in the host country’s and international business environment.

THEORETICAL FRAMEWORK

The two theories that are central in this paper are the CAGE-framework developed by Ghemawat (2001) and liabilities and assets of the MNE’s subsidiary proposed by Sethi and Judge (2009). The themes in which these theories were discussed are respectively ‘An Inter-national Business Perspective’ and ‘A Multi-national Business Perspective’.

The first theory that will