Motive meets experience: Cultural distance, motive, related experience, and foreign subsidiary ownership structure

Abstract

Relationships between cultural distance (CD) and the use of majority-owned foreign subsidiary ownership structures may differ for manufacturing and non-manufacturing investments. Firms may use majority-owned ownership structures to reduce ‘internal’ uncertainty and cost associated with having culturally dissimilar partners in manufacturing investments. Alternatively, for non-manufacturing investments, firms may be less likely to use majority-owned structures, because local partners can help reduce uncertainty and costs at the interface between the subsidiary and the ‘external’ host market. This analysis extends these ideas by arguing that the moderating effect of related experience should also differ between manufacturing and non-manufacturing investments. In the context of foreign non-manufacturing subsidiaries of Japanese automobile firms, we find that related experience positively moderates a negative relationship between CD and majority-ownership foreign subsidiary structures. Alternatively, for manufacturing subsidiaries of Japanese automobile firms, we find that related experience negatively moderates a positive relationship between CD and majority-ownership structures.