Establishment mode strategy of multinational enterprises in the emerging economies: influences of and the moderating interrelationship between cultural distance and economic freedom

Abstract

This book chapter analyzes the impacts of both cultural distance and economic freedom in the host country on establishment mode choice of multinational enterprises (MNEs). The current book chapter advances extant IB literature by being is one of the first studies to theoretically hypothesize as well as empirically analyze the moderating influences of level of economic freedom on the cultural distance's impacts on FDI establishment mode choice. The empirical analysis based a sample of 301 FDIs in in Asia and Latin America by the 87 Finnish MNEs revealed that high cultural distance leads to preference of greenfield investments by the Finnish MNEs while high level of economic freedom in the host country results in preference of acquisitions. Finally, empirical results also revealed statistical support for moderating relationship between economic freedom and cultural distance in relation to cultural distance’s impacts on FDI establishment mode choice of MNEs.