Acquisition versus greenfield in Colombia: Reviewing the effect of cultural distance and vicarious experience

Abstract

The relation between the cultural distance and the firm’s entry modes to foreign countries has received considerable research attention, and studies have shown the role of experience in this relation. However, previous research has only studied direct experience and neglected the study of vicarious experience. Using a sample of 355 foreign companies that entered Colombia (2007–2017), this research reviews the effect of cultural distance on entry mode choice (e.g., Acquisition vs. Greenfield) and examines the moderating role of vicarious experience in this relationship. The study concludes that the cultural distance positively affects the entry probability by acquisition, and the vicarious experience negatively affects this relationship in four cultural dimensions. If firms have vicarious experience, the effect of cultural distance on the acquisition probability is less and positively influences the entry probability by Greenfield when the cultural distance is in power distance, uncertainty avoidance, individualism, and long-term orientation. Nevertheless, vicarious experience has the opposite effect when considering the masculinity dimension. Consequently, we highlight the importance of considering vicarious experience as a different variable of direct experience and the individual effects of cultural distance dimensions for cross-cultural studies in management.