Toward a more in-depth measurement of cultural distance: A re-evaluation of the underlying assumptions

Abstract

Some 20 years ago, Shenkar (2001) criticized several of the underlying assumptions of the cultural distance (CD) construct. Despite this, researchers continue to use the same metric which fails to address many of the underlying problems. As a result, CD studies seem to generate results which are often contradictory. Rather than rejecting the distance metaphor, the main objective of this study is to provide a more in-depth measure of CD that addresses the assumptions of linearity, symmetry, equivalence, and discordance. We propose that, while the size of the cultural distance between home and host countries may be relevant for some dimensions, it is incomplete, as it does not account for the distinct characteristics of the cultural dimensions, the direction toward countries with different profiles and the contextual settings of the study. We test our hypotheses on a sample from the Orbis database consisting of foreign subsidiary firms from Latin America, other emerging markets from outside the region, and from developed countries operating in 10 of the largest economies in Latin America. Our dataset includes 4226 firm-year observations and a combination of 168 home and host countries. Latin America provides a suitable context for this study, not only because of the diversity of firms from different contexts operating in the region, but also because the region allows us to investigate the influence of home country history and tradition on firms’ ability to conduct business in different cultural contexts. Our assessment of CD shows in a precise manner that size together with direction might be adequate for describing the effects of some dimensions of CD on firm performance, while for other dimensions, it is clearly a matter of country profile. By combining our metric with different national culture frameworks, future studies would be able to complement and strengthen our findings and conclusions.

Host country cultural profile and the performance of foreign subsidiaries in Latin America

“…In their study, these authors identified similar impacts on the financial performance of different groups of foreign subsidiary firms associated with CD towards host countries with specific profiles. Correa da Cunha et al (2022) found that regardless of the different sizes of CD in each group of foreign subsidiary firms, the results revealed the same positive or negative impacts for CD towards host countries with specific cultural profiles. This evidence indicates that although cultures cannot be compared as better or worse, adjusting to certain cultural profiles in the host country might be easier for some foreign subsidiary firms than others.…”

“…More recently, studies have shown that the effects of CD on host countries with specific profiles tend to affect the financial performance of different groups of firms in similar ways depending more on the direction than the distance size (Correa da Cunha et al, 2022). This suggests that although cultures may not be compared in terms of better or worse, the effects of certain cultural profiles in the host country might be easier for foreign subsidiary firms to adjust to, while other cultural traits can create additional challenges and conflicts, making it more difficult for foreign subsidiaries to adjust.…”

CEO international experience and firm performance revisited: What’s culture got to do with it?

“…Correa de Cunha et al (2022) challenge not only the assumptions of symmetry but also of equivalence, finding that not all cultural dimensions have similar impacts on outcomes (Hofstede, 1989; Maseland et al , 2018; Shenkar et al , 2022), suggesting that dimensions comprising a country's cultural profile be considered as constructs in their own right. As such, we have a priori reasons to expect that the distances on the Performance Orientation (PO), Gender Egalitarianism (GE), and Assertiveness (AS) dimensions will be asymmetrically related to firm performance, as moderated by direction.…”

“…According to Zaheer et al (2012), without considering the institutional context of the respective locations, research merely addresses how much two cultures differ but does not address how they differ. This notion was first advanced by Shenkar (2001), who called the assumption of identical distances in both directions an “illusion”, now referred to as the fallacy of symmetry assumption (Correa de Cunha et al ., 2022; Fu et al , 2022).…”

“…With its approach toward conceptualizing cultural distance, this study builds upon a growing list of CD measures, as synthesized by Correa da Cunha et al (2022) and Shenkar et al (2022) in the international business literature. In addition, in arguing that greater distances will enhance performance, we adopt the human capital perspective on competitive advantage and therefore intersect with the strategy domain.…”