Do We Need to Distance Ourselves from the Distance Concept? Why Home and Host Country Context Might Matter More Than (Cultural) Distance

Abstract

We scrutinize the explanatory power of one of the key concepts in International Business: the concept of (cultural) distance. Here we focus on its effect on entry mode choice, one of the most researched fields in international business strategy. Our findings might, however, be equally be relevant for the field of International Business as a whole. Our analysis is based on a review of 92 prior studies on entry mode choice, as well as an empirical investigation in over 800 subsidiaries of MNCs, covering nine host and fifteen home countries across the world. We conclude that the explanatory power of distance is highly limited once home and host country context are accounted for, and that any significant effects of cultural distance on entry mode choice might simply be caused by inadequate sampling. Entry mode studies in particular, and International Business research in general, would do well to reconsider its fascination with distance measures, and instead, focus first and foremost on differences in home and host country context. We argue that serious engagement with deep contextualization is necessary in International Business research to pose new and relevant questions and develop new and innovative theories that explain empirical phenomena.

An overview of Hofstede-inspired country-level culture research in international business since 2006

“…As Brouthers et al (2016) mathematically prove, two well-chosen home or host countries are sufficient to avoid the problem of confounding distance with level effects. Only in this way we can be sure that the estimated distance effect does not simply capture a generic countryspecific or supra-national effect (Harzing & Pudelko, 2016). Studies controlling for distance and level effects are superior to studies doing only one of these (KLG, 2006, p. 312).…”

Miners, politics and institutional caryatids: Accounting for the transfer of HRM practices in the Brazilian multinational enterprise

“…Our mode of theorization is that of 'contextualized explanation' (Welch, Piekkari, Plakoyiannaki & Paavilainen-Mäntymäki, 2011;Locke & Thelen, 1995), which we believe is ideally suited to explain phenomena in diverse national and institutional contexts. It is, as Harzing & Pudelko (2016) put it, by comparing contextual particularities across different locations that we are enabled to identify common phenomena.…”

Do cross-border mergers and acquisitions increase short-term market performance? The case of Chinese firms

“…However, existing studies tend to focus on the impact of geographic and cultural distance on cross-border M&As (Chakrabarti & Mitchell, 2013;Ragozzino, 2009) without explicitly taking political risk into account. A recent study by Harzing & Pudelko (2016) has shown that cultural distance is often used as a proxy for political risk and government restrictions in a host country, and calls for more studies that use more appropriate and accurate constructs to measure host country characteristics, such as political risk. In addition to political risk, we have a limited understanding of how the ownership status of Chinese acquiring firms affects investors' perception, and hence stock market reactions.…”

“…Likewise, using a sample of 425 cross-border acquisitions by Indian firms, Gubbi et al (2010) show that the Insert Table 1 near here Our review of the literature shows that existing studies have either focused on a direct link between M&A deals and stock market reactions without providing a theoretical underpinning for such reactions (Ben-Amar & Andre, 2006;Faccio, McConnell, & Stolin, 2006;Floreani & Rigamonti, 2001;Gubbi, et al, 2010), or adopted the resource-based view (Gubbi, et al, 2010;Ning, et al, 2014) and agency theory (Chen & Young, 2010) to examine the impact of internal factors on stock market performance. Although a few studies have considered the impact of geographic distance (Chakrabarti & Mitchell, 2013;Ragozzino, 2009) and cultural distance (Nicholson & Salaber, 2013) on cross-border M&As, which were used to proxy political risk in host countries (Harzing & Pudelko, 2016). This constrains our understanding of how stock markets react to the political risk associated with cross-border M&As.…”