want to start expanding beyond their own borders. The CAGE Distance Framework makes clear that having acompetitive advantage in being productive and innovative by themselves are not sufficient ingredients to staycompetitive and to expand beyond one's home-market. Instead companies and countries need to take intoaccount (and reduce) cultural, administrative, economic and geographic bottlenecks.A good case-study of how both frameworks are at play has been outsourcing. The success of countries such asIndia and the Philippines in the Business Process Outsourcing sector cannot solely be explained by their initialrelative inexpensive operational and labor costs. The success of India's IT-sector, which in 2007 contributed alittle over 5% to India's GDP, can be explained from the two above mentioned frameworks which actuallyhave been reinforcing and stimulating each other. In line with Porter's advice, the Indian Governmentstimulated the growth of the IT-sector by providing tax holidays and invested in the infrastructure of certaindesignated areas. By doing so the Government enabled the mushrooming of geographic investment pockets(clusters) where foreign and local companies would congregate. Domestic rivalry went beyond the rivalry between companies but also between Indian States. The competition between states 'forced' different locationsto offer attractive packages (e.g. tax exemption).
The demand that spurred the growth of India's IT-sector was not as Porter had identified driven by home-market demand. Instead the demand came primarily from abroad starting in the early 1980s and fully kickingoff in the 1990s. The window of opportunity to expand the Indian IT-sector was further helped by hugeinvestments in the IT-sector late 1990s which significantly reduced the distance between countries, companiesand people. To further explain the growth of India's IT-sector since the late 1990s one has to look beyond theavailability of the labor, the infrastructure and the government's supportive measures.Ghemawat's CAGE framework here helps to shine a light on why it actually ended up working so well for western out-sourcing companies (reduced costs) and the Indian IT-sector. As mentioned above the presence of an abundance of skilled labor played an important role. Though technical expertise is the most importantcriteria to select IT vendors, other factors such as ability to build relationships played a significant role. Thestrengthening of these relationships has been building since India IT-firms started to export its trained programmes to these countries in the 1980s and 1990s. With a growing highly educated Indian Diaspora incountries such as the US, Canada and the UK the relationship and connections have been strengthened over the years.
Because of this, the cultural distance has been shrinking. The relative administrative (democracy, plural society, and use of common-law) also contributed to fostering the relationship between outsourcingcompanies and the Indian IT-Sector.
The competition between engineering schools and business schools were also contributing which 'forced' the suppliers of labor to compete with each other andthus continuously looked for ways of improving the quality of their end-product which functioned as the input for the IT-sector.
Ghemawat mentions that over a third of the work force in Silicon Valley is from Indian descent and according to the 2010 US Census Indians living in Americasignificantly higher educated (71% with BA or higher vs 28% of total US population) and better paid than the average American.