Cultural Distance in International Ventures

In this book, we investigate the concept of “distance”, in particular the concepts of “cultural distance” and “psychic distance” in international business contexts. We particularly focus on the green tech industry and Sino-European FDI. We analyze managers’ perceived distance (measured on twelve dimensions such as culture, language, political system, and business practices) between the firm’s home country and the firm’s host country (Child et al. 2009). After introducing the concept of psychic distance and the context of our research, we present in the second chapter a systematic literature review on psychic distance as a factor for FDI motivation and location decisions. Chapter 3 follows up on the relevance of culture and cultural differences in international business and illustrates how insights from the field of social psychology may help to overcome cultural pitfalls in international business and how to manage cultural conflicts. The fourth chapter explores managers’ perceptions of psychic distances in the context of European green tech FDI to China by applying a multiple-case study research design. Our analyses show that managers’ perceptions of psychic distances vary over time, i.e., between the points in time before managers enter a market and after they have entered the market. In Chap. 5, we examine the relevance of Chinese managers’ perceived distance for their FDI decisions and the changes of their perceptions after entering a foreign market and after gaining experiences in operating in the host country. Here, we particularly focus on Chinese FDI flows in the green tech sector to Europe, with a country focus on Germany, by presenting six case studies. This analysis shows that managers, with and without experiences in foreign markets, should not depend their FDI decision on their perceptions of differences between countries. This book ends with concluding remarks and a summary of the research findings. The presented research is part of an EU Marie Curie project on Partnering Opportunities between Europe and China in the Renewable Energy and Environmental iNdustry (POREEN ¹ ).

This chapter seeks to investigate whether and to what extent Psychic Distance (PD) is considered by scholars as a specific determinant of inbound and outbound foreign direct investments (FDIs) in China. The key finding of the study is that psychic distance as a determinant influencing FDI seems to be under-investigated. This chapter also aims to systematize the limited and fragmented literature about non-tangible perceptions of “distance” between home and host economies and contributes to raising awareness on the concept of psychic distance. It provides useful insights and practical implications for various interest groups such as international business scholars (a more comprehensive review and systematization of the concept of psychic distance), managers (awareness raising on psychic distance, opportunities and challenges in the IB scenario, and setting up and strengthening long-term cooperation between Europe and China), and policy makers (investment flows between Europe and China and key barriers which affect companies and require action politically and institutionally to ensure that opportunities are fully exploited by companies).

Building on social psychology and international business literature, this chapter aims at raising managers’ awareness on the opportunity to capitalize on cultural differences in cross-cultural business contexts. This work is based on survey data and interviews to European managers investing in China through FDI in the environmental industry. First, this work investigates managers’ perceptions of culture within the multidimensional concept of psychic distance, which is a 12 dimension-based construct. Second, it explores what culture stands for our managers following our findings, which show the relevance of the cultural dimension over the others. Third, we propose and illustrate the sociocognitive value of an intercultural laboratory as a potential “structured business practice” addressed to those early-stage managers who are about to approach the firms’ host country. The failing ethnocentric view is a common perspective adopted by managers in cross-cultural business settings. Therefore, the idea behind this chapter is to help international managers overcome this view and leverage on an inter-individual and collective construction of knowledge, stimulated by the intercultural laboratory activities based on group work. The focus is on “opportunities”—rather than “distances”—generated by cultural diversities. Next to this, enhancing the “dialogue” between different cultures as well as different research areas is a key approach in cross-cultural business settings, not only for managers having different cultural backgrounds but also for scholars belonging to different discipline areas of research.

This chapter investigates to what extent and how perceptions of culture affect European investment decisions to China. First, it analyzes managers’ perceptions of “culture.” Secondly, it examines whether European managers’ perceptions are based on a European culture or on national cultures, and whether intra-China cultural differences are considered. We adopt a multiple case study research design composed of a panel of six European companies investing in China in the green tech industry. We use quantitative and qualitative analyses and a three-step data collection process. Results show that: (1) managers’ perceptions vary over time, between the pre- and post-market entry operation; (2) the cultural aspect is not considered by European managers before approaching China; (3) only after entering the Chinese market, European managers realize the relevance of culture; (4) they perceive China as a single entity rather than intra-China cultural differences; (5) when approaching China, European managers’ perceptions are based on a national culture (intra-Europe) rather than a common European culture; (6) the cultural dimension goes along with language, which, in specific cases, is perceived as a higher hurdle than culture.

Countries are different on various dimensions such as culture, language, business practices, policy-making, and regulation. Research shows that distances on these dimensions between countries impact foreign direct investments (FDIs) flows. The higher the distances, the higher the difficulties for businesses. In this chapter, we analyze the perception of distances between China and Germany, by surveying Chinese managers who invested in Germany in the renewable energy (RE) sector. Our analysis refers to Child et al.’s measure of psychic distance (PD), which consists of 12 dimensions. The RE sector is young and highly dynamic. Regulations, policy-making, and business practices—all dimensions of the PD concept—are under permanent change, and this may lead to wrong perceptions, therefore to failures in FDI decisions. We use a five-company multiple case study and analyze if managers perceive distances on various dimensions, in particular regulation based, and if Chinese managers have correct perceptions or “misperceptions.” Further, we investigate if their perceptions change over time. Findings lead to recommendations for policy-making in the RE sector, for practitioners in the field of FDI to cope with issues of distances, and for international business (IB) scholars by showing that psychic distance should be complemented by a dynamic dimension.

This book aimed to analyze the concept of psychic distance in international ventures. The construct was explored in its definition and operationalized in the context of Sino-European FDI. More specifically, the analysis was conducted on an industry level with a focus on the green tech sector.

For the purpose of this book, two questionnaires were submitted to our managers. The first one was addressed to the European managers representing their companies investing in China. The second one was addressed to Chinese managers investing in Europe.