Evaluating Emerging Markets : Swedish MNCs and their Evaluation Behavior

Abstract: Country portfolio analysis, a commonly used tool among companies when evaluating potential target markets, only focus on potential sales instead of including cost and risk into the equation. However, some researchers today have become aware of the importance of taking these costs and risks into account. One of these researchers is Pankaj Ghemawat, who has developed a framework called CAGE which is supposed to be a complementary tool to the country portfolio analysis model. In this thesis we study if Swedish MNCs consider the factors suggested in the CAGE-framework when evaluating emerging markets. Furthermore, we suggest some adjustments to the evaluation process. Data have been collected through a web-based questionnaire. The respondents were all headquarter managers in Swedish multinational corporations (MNCs). Our results show that the two most overlooked distances of the CAGE-framework are the cultural and the geographic distances. Hence, the two most considered were the economic and administrative distances. This is in partial accordance with Ghemawat’s theory, in which he states that the cultural distance is one of the two most overlooked distances. However, he presents administrative distance as the second most overlooked distance, which means that our thesis shows a somewhat different result than Ghemawat’s findings. A company evaluating an entry into an emerging market needs to consider the CPA-model, but this is not enough. They also need to take other factors into account. These are previous as well as future growth of the market, predicted growth for the specific product or service in the market in question, and the competitive situation in the emerging market. A consideration of these factors gives the company a complete picture of a market regarding profit potential. Thereafter, this potential needs to be adjusted for the distances in the CAGE-framework.