Unravelling cultural distance afresh: Fundamental host country effects on entry mode of Indian firms
Description
“Cultural distance” as an aggregate, unidimensional construct used to capture the complex phenomenon of culture has received considerable criticism in the entry mode literature. While attempts have been made to disentangle the effects of individual dimensions of Hofstede’s (2001) framework of national culture, these efforts have largely focused either on home-country effects or on home–host differences, with limited attention to isolating host-country effects. This study argues that host-country cultural dimensions play an important role in determining the entry mode adopted in cross-border mergers and acquisitions. It proposes that each of Hofstede’s five dimensions of national culture can be interpreted as inducing parametric shifts in the informal institutional environment within the comparative economic organization framework proposed by Williamson (1991), thereby affecting governance costs and, consequently, entry mode choices. Using India as the home country of analysis, the study examines 830 cross-border deals conducted between 1980 and 2009. The results indicate that host-country levels of individualism—adjusted for per capita national income—and long-term orientation, proxied by the country’s marginal propensity to save, are positively associated with the preference for hierarchical over hybrid modes of entry.
Copyright Date
January 2010
Publication Date
1-1-2010
Keywords
Entry mode, Cultural distance, National culture, Comparative economic organization, Transaction cost economics
Conference
Strategic Management Society Research Workshop, 10-12 December, 2010, IIM Bangalore
