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The effect of cultural distance on entry mode choice, international diversification, and MNE performance: a meta-analysis

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Abstract

Although a growing literature indicates that cultural distance – that is, differences between national cultures – is an important determinant of organizational actions and performance, both empirical and theoretical concerns abound. In this study, the relationships of cultural distance with entry mode choice, international diversification, and MNE performance are examined by meta-analyzing data from 66 independent samples, with cumulative sample sizes ranging from 2,255 to 24,152. Regression results failed to provide statistical evidence of significant relationships between cultural distance and entry mode choice, international diversification, and MNE performance. The examination of moderator effects, however, yielded important results. We found a strong negative association between cultural distance and entry mode choice for US-based MNEs. The cultural distance–international diversification relationship was negative for high-technology industries, while it was positive for other industries. Cultural distance also had a strong positive effect on MNE performance for developed country investments. A similar, strong positive relationship was found between cultural distance and international diversification in studies with more recent samples. Results of this study indicate that substantial additional research is needed before the role of cultural distance is fully understood.

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Notes

  1. Studies examining the effects of cultural distance on international strategies and MNE performance tend to focus on the differences in national value systems. Consistent with prior studies in this area, we rely on a value-based conceptualization of culture. National differences can be studied along other characteristics, such as religion, wealth, or membership in language families (e.g., Triandis, 1994).

  2. This measure is calculated as:

    where CD j stands for the cultural distance between the jth country and the home country (US), I ij is the index of the ith cultural dimension (e.g., individuality, power distance, masculinity–femininity, and uncertainty avoidance), I ih is the cultural dimension index for the multinational firm's home country (US), and V i is the variance of the index in the ith dimension.

  3. To gain further insights into this issue, we conducted supplemental analysis employing the risk propensity of the MNE's home country, following the study by Brouthers and Brouthers (2003). We coded our studies as using samples of MNEs from high or low uncertainty avoidance cultures by employing the quartiles of Hofstede's (1980) uncertainty avoidance index. Results did not indicate a statistically significant association between cultural distance and entry mode choice for MNEs emanating from high uncertainty avoidance cultures (r̄=–0.0299), such as Japan and Korea. However, we found a strong negative relationship between cultural distance and entry mode choice for MNEs from low uncertainty avoidance cultures (r̄=–0.2353), such as Sweden, the UK, and the US.

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Acknowledgements

We thank Keith Brouthers, David Ralston, and participants of the International Management Division at the Academy of Management 2003 Annual Conference for their helpful comments on earlier drafts of this paper. We also thank Departmental Editor Anand Swaminathan and the JIBS anonymous reviewers for their insights and suggestions.

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  1. Michael F Price College of Business, University of Oklahoma, Norman, USA

    Laszlo Tihanyi & Craig J Russell

  2. The Eli Broad Graduate School of Management, Michigan State University, East Lansing, USA

    David A Griffith

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  1. Laszlo Tihanyi
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  2. David A Griffith
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Correspondence to Laszlo Tihanyi.

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References marked with * indicate those studies included in the meta-analysis.

Accepted by Anand Swaminathan, Departmental Editor, 29 September 2004. This paper has been with the author for two revisions.

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Tihanyi, L., Griffith, D. & Russell, C. The effect of cultural distance on entry mode choice, international diversification, and MNE performance: a meta-analysis. J Int Bus Stud 36, 270–283 (2005). https://doi.org/10.1057/palgrave.jibs.8400136

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