How Much Distance Do We Need? Revisiting the 'National Cultural Distance Paradox'

Zusammenfassung

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This study revisits the "national cultural distance paradox" based on a sample of Japanese foreign direct investment in 53 countries and regions over 30 years. Earlier studies on cultural distance assumed linear relationships and showed mixed results. The authors examine nonlinear relationships between cultural distance (CD) and entry mode and between CD and performance. Results suggest that there is a nonlinear (inverted U-shape) relationship between CD and the choice of a joint venture as the preferred market entry mode, and between CD and performance. They also found that the relationship between CD and performance is moderated by entry mode choice: the nonlinear relationship between CD and performance is stronger for joint ventures than for wholly owned subsidiaries.

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How Much Distance Do We Need? Revisiting the 'National Cultural Distance Paradox'

Introduction

When making foreign direct investment (FDI) decisions, firms often face the issue of adapting to and integrating different cultures. Culture is a kind of collective "programming of the mind that distinguishes the members of one human group from another" (Hofstede 1980, p. 13). Culture is usually shared by people from the same country. Thus a county becomes one boundary to differentiate humans' collective programming, which is national culture (hereafter we use the word "culture" to refer to national culture, following the international business literature). Covering 40 countries, Hofstede (1980) measured culture in a systematic and large-scale empirical manner. He found that people from different countries have different cultures, and these differences load on four factors, the so called cultural dimensions, namely individualism, power distance, uncertainty avoidance and masculinity. He later expanded the study to another ten countries and three multi-country regions and added a fifth cultural dimension, long term orientation (Hofstede 2001).

Cultural distance (CD) is the cumulative difference hi cultural norms between two countries (Kogut/Singh 1988). CD has the greatest impact in FDI research (Shenkar 2001) and has been associated with multinationals' entry mode decisions, diversification and performance (Kogut/Singh 1988, Palich/Gomez-M...

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