Identifying Business Competitive Advantages : CAGE VS Diamond method

CAGE method

CAGE distance framework emphasize that distance is the critical element which influence economy and business competitiveness. The Framework could help users to identify the most important differences that affect such particular industry. The four components of CAGE are Cultural, Administrative/political, Geographic and Economic. Cultural distance would describe the possible differences in relation among individuals from different country to deal with certain value and behavior. Administrative Distance would help to identify current and historical political and legal associations between trading partners that might favor or impede business relationship. Geographic Distance would describe physical distance which separates the trading partners. Even though modern digital technology has shrunk the distance in terms of communication time, Company is still required to visit their partner in terms to better understand the partner operation model. Economic Distance would observe the fundamental differences which relate to income, distribution of wealth, and purchasing power in each particular demographic.

Diamond

Diamond is a method to identify competitive advantages that base on four critical factors. The four factors are Factor conditions, Demand condition, related and supporting industries, and Firm Strategy, structure, and rivalry. Factor Conditions emphasize that each particular country should create and upgrade their own factor of production advantages that local disadvantages factors would like trigger innovation. Demand Conditions emphasize that high demanding local market would like to establish national advantage. Related and Supporting industries emphasize that high competition among suppliers would like to create cost effective and innovative outputs. Firm Strategy, Structure, and Rivalry would discover that local conditions would affect firm’s strategy.  High local rivalry climate would push firm to innovate beyond the basic advantages production factors that they have. The diamond framework emphasize that all four factors have the similar weight that they support each others to generate new competitive advantages factors. Lack of one factor could harm the competitive advantages creation that the competitive advantages could create only if all four factors working well. Sophisticated collaboration between company and government is needed to establish strong national diamond.

CAGE VS Diamond

CAGE framework emphasize that distance is critical elements that affect the relationship among suppliers, company, and countries. However, Porter’s Diamond framework clearly state that competitive advantages are the most important element which need to achieves. Every country could maximize their own competitive advantages by balancing four elements in diamond framework. Diamond framework could utilize to build new advantages value. CAGE method could elaborate the distance impact to the relationship among different nations and companies. The users could identify which country that would match to collaborate with. However, Diamond framework work beyond that level. The framework could help country or industry to create new advantages point and adapt with new challenging situations. In other words, country which has many disadvantages factors to collaborate with could transform its disadvantages to advantages factors through continuous innovations. Diamond creates an environment that promotes clustered of competitive industries.

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