The Impact of Culture on the Strategy of Multinational Enterprises: Does National Origin Affect Ownership Decisions? (original) (raw)
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Journal of Management
This paper presents the most comprehensive review and meta-analysis of the literature on cultural distance and firm internationalization to date. We analyze the effects of cultural distance on key strategic decisions throughout the entire process of internationalization. For the preinvestment stage, we examine the decisions on where to invest (location choice), how much to invest (degree of ownership), and how to organize the foreign expansion (entry and establishment mode). For the postinvestment stage, we examine the decisions of how to integrate the foreign subsidiary into the organization (transfer of practices) as well as the performance effects of cultural distance at both the subsidiary and the firm level. We find that firms are less likely to expand to culturally distant locations but if they do, they prefer greenfield investments and integrate subsidiaries more through transfer of management practices. Cultural distance does not seem to affect how much capital firms invest ...
Prior research into the effects of cultural differences between MNE home and host countries on expatriate staffing decisions in foreign subsidiaries has produced a large number of conflicting findings. We address some of these conflicting findings and aim to advance theory in two ways. First, we draw on transaction cost economics to explain why and how the effects of cultural distance on the proportion of expatriate parent-country nationals form a curvilinear instead of a linear relationship, as commonly proposed. Second, we integrate the values-based cultural distance concept with the norms-based tightness–looseness concept. This allows us to simultaneously account for cultural differences between countries and location-bound normative cultural effects within countries, which cannot be overcome solely through expatriate learning and adaptation. Using a large global dataset of Japanese MNEs, we find support for a convex relationship between cultural distance and the proportion of expatriate parent-country nationals. We also find a moderating (steepening) effect of tightness– looseness on this relationship. The results reconcile some of the tensions between the subjectivists' values-based approach, which positions culture in the shared cognitions realm, and the structuralists' approach, which places culture in a normative situational environment.
International Journal of Financial Studies
Cultural distance (CD) is an important driver of foreign expansion strategy at the firm level. However, its effects can be more or less significant depending on the contextual characteristics of the host country, such as the quality of formal institutions and the openness to international trade. Therefore, it is argued that strong formal institutions in the host country can effectively reduce the adverse impact of CD. Additionally, due to the more frequent interactions with foreign cultures, countries open to foreign trade can positively accommodate the effects of CD. The study tests these assumptions using data from the Orbis database and the World Bank and finds a reduction in the adverse impact of CD on the financial performance of foreign subsidiary firms with robust formal institutions in the host country. Moreover, the negative effects of CD increase with higher degrees of trade openness. Thus, the results indicate that foreign subsidiary firms operating in host countries that...
Cultural Influences on Foreign Direct Investment
Internext
The current business competitive environment has influenced companies to cross national borders to explore foreign markets. The decision about in which country the company should invest isn't easy. Many factors can influence this decision, and culture is one of factors that international business scholars have incorporated in their researches. This article deals with the influence of cultural distances on Foreign Direct Investment, specifically it aims to examine whether cultural values affects bilateral Foreign Direct Investment, that is, Foreign Direct Investment Stock. Data that include bilateral Multiple Regression Quadratic Assignment Procedure technique between 45 countries in 2007 were used, representing almost 95% of the Foreign Direct Investment Stock worldwide. The Multiple Regression Quadratic Assignment Procedure technique was used. It was found that the similarities in Power Distance between two countries positively affects the Foreign Direct Investment stock between them (it means that companies prefer countries similar from their home country) and the presence of high Uncertainty Avoidance in one or in both countries of a dyad negatively affects the Foreign Direct Investment stock between them (it means that companies avoid countries that are different from their home country). Contributions: (1) uses an innovative approach Multiple Regression Quadratic Assignment Procedure technique to analyze how individual cultural dimensions influence Foreign Direct Investment; (2) responds to the critique by Shenkar, by applying separate rather than aggregate cultural distance; (3) unveils how some cultural dimensions work in influencing FDI.
We investigate how formal institutional distance (FID) moderates the relationship between cul-tural distance (CD) and the financial performance of foreign subsidiaries firms. Following recent research, we estimate the asymmetric effects of CD by considering its size and direction towards host countries on the opposite poles of each cultural dimension` scale. We propose that a limited understanding of the formal institutions in the host country, as measured by the magnitude and direction of the FID, can have a positive moderating effect, increasing the impact of CD on finan-cial performance. This is mainly because foreign subsidiary firms may be more reliant on their ca-pacity to navigate the less formal (and more implicit) aspects of the host country's institutional environment, such as their ability to cope with the CD. We use foreign subsidiary data from the Orbis database including 22 developed and 22 developing home countries and over 1400 foreign subsidiaries during a perio...