APPLICATION OF
CAGE DISTANCE
FRAMEWORK - AN
ANALYSIS OF KENYA
AND RUSSIA

SUBMITTED BY: YULIA BEREZINA

SUBMITTED TO PROF. DANIELE CERRATO

MATHIAS KOSKE
DAVIDE NICHETTI
VANESSA ZERRATE

11TH FEB. 2015

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Foreign investment can be particularly challenging. In order get it right, the use of tools and evaluations is critical. In this document, based on the CAGE framework, we analyze distances between Russia and Kenya, and assess how they impact business establishment and operations in the latter.
One of the most important things to take into account is the culture. We noticed that the two countries have very distinct and diverse cultural dimensions. They do not have a common language i.e. Russia has
Russian as it official language while Kenya has English and Swahili, or have any shared ethnicity despite
Russia having 185 and Kenya 42 ethnic groups. Religious disparities are also evident in these two economies. The Russians are largely unbelievers with the Russian Orthodox being the dominant religion whereas Kenyans are largely Christians. Despite these differences, the Muslim population in both countries is significantly represented but their marginalization makes them insignificant on an investment front.
Finally, the social norms and values in both countries are quite similar, with the similar concepts of family, societal upbringing and gender roles.
When evaluating both countries at the administrative level we encounter that they do not share a common trading bloc, but they separately participate in distinct blocks like EAC, COMESA and AGOA (Kenya) and
Eurasian Federation (Russia). The currency in both countries is different (Kenyan Shilling and the ruble for
Russia) and they do not share any common colonial link (Russia was never colonized as Kenya under the
UK) and no common legal origin. In addition, both countries do suffer from a high level of corruption
(Russia occupies the 136 rank worldwide and Kenya holds the 145 position amongst 175) according to the
Transparency International Corruption Perception Index
At the geographical level the countries are located 6,345 kilometers apart, therefore they do not share any common borders. Russia’s climate is humid continental with subarctic patterns in some areas while Kenya is largely tropical. In evaluating the time-zone difference, Russia has nine time zones due to its expansive territory and share zone GMT +3 with Kenya
Finally on the economic dimension we observed that they have a great difference in income per capita and
GDP. Russia has an income per capita of $18,100 and GDP of $2.553 trillion while, Kenya has an income per capita of $1,800 and GDP of $80 billion. Looking at the overall macro-economic environment based on the
WEF competitiveness index, Russia ranks better than Kenya with an overall rank of 31 compared to Kenya’s
126 in 144 economies. In terms of infrastructure Kenya ranks 96 in the same index marked by poor quality of infrastructure and its distribution, whereas Russia enjoys a good position 39 based on its expansive and quality infrastructure. The lower the rank the higher the cost of logistics.
To conclude we can observe this factors make it highly unfavorable for a Russian company to open subsidiaries in Kenya and more so vice versa. Cultural barriers, administrative and legal challenges, geographical remoteness and economic differences in these countries add to the intricacies of doing business in either country.
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On an industrial level we analyzed the extractive industry i.e. Oil and Petroleum. The Industry is less sensitive to cultural distances in factors such as language, norms and values as well as ethnicity. Oil and petroleum products are more of an utility that cuts across all cultures.
On the contrary, the industry is highly sensitive to administrative factors such as government policies and legal system and corruption. Both countries have less in common with very hard-line policies in protecting natural resources exploitation. Through taxes, ownership and equity controls, and regulated profit appropriations, the countries seek to hold a nationalistic stand in such. Kenya, for instance, has in the recent years passed various laws such as the Mining Act, Foreign Investment Protection Act, land Control
Acts and a new constitution to solidify its control over its resources. The country however gives a lot of incentives to export based tertiary industry. Its business law is based on the British conventions, laws that differ from the Russian legal system.
On a geographic context, there is a high sensitivity, due to its capital intensive nature and reliance on logistics. Oil and Petroleum requires highly advanced plants, machinery, and equipment (PME) as well as experienced technical labor that is not available in Kenya. The remoteness of these two countries restricts the transportation of PME. Limited infrastructure in Kenya also hinders inland logistics leading to an overall rise in cost of exploration and investment in general. Time-zone and climate may prove challenging to the technical staff because of the time-span of oil exploration activities, raising the cost of human capital due to rotation, virtual or commuter programs and other reward schemes to motivate them.
The economic dimension is highly related to the geographical. Russia is a developed nation with quality infrastructure that is well distributed and suited for such an industry. Kenya on the other hand is a developing country that has just discovered its abundance amidst poor infrastructure and suited technology. This industry is highly sensitive to the economic aspect because despite the low cost of labor there is cost of training and expatriation as well as transportation and logistics. A successful exploration would mean great success for the company due to ripple effects and revenue streams associated with such exploration. It is very unlikely that a Kenyan company will seek to invest in Russians exploration industry due to foreign exchange rates and other liabilities of foreignness that is associated with companies from developing nations.

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Bibliography
Distance still matters – The hard reality of global expansion. Retrieved from: http://mbi.dirkjanswagerman.nl/static/files/MBI/Module%2021/Distance%20still%20matters.pdf Index Mundi: Kenya Vs Russia. Retrieved from: http://www.indexmundi.com/factbook/compare/kenya.russia/geography The Global competitiveness report 2014-201. Retrieved from: http://www.weforum.org/reports/global-competitiveness-report-2014-2015 Russia. Retrieved from: http://en.wikipedia.org/wiki/Russia
Kenya. Retrieved from: http://en.wikipedia.org/wiki/Kenya

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