High Cultural Distance Research Articles

Ownership share in cross-border acquisitions: does high-tech status of the target matter?

PurposeThe purpose of this study is to investigate the influence of the target firm’s high-tech status on the share of ownership decision in cross-border acquisitions (CBAs), which is an under-explored topic in cross-border M&A literature.Design/methodology/approachThe authors used Tobit regression and tested the hypotheses using a sample of 7,011 CBA transactions between 1999 and 2014. Inverse Mills ratio was used to address selection bias, and various robustness tests were performed.FindingsThe authors found that acquirers seek greater ownership share when acquiring high-tech firms, and that this relationship is moderated by various firm and national level factors. Specifically, the positive relationship between the high-tech status of a target firm and ownership share acquired is stronger when the firms’ primary operations are highly related or there is high formal institutional distance between the firms’ home countries, but it is weaker when acquirers have more prior M&A experience or there is high cultural and geographic distance between the firms’ home countries.Originality/valueWhile the topic of ownership strategy in CBAs is advancing, it is still limited, especially when examining acquisitions of high-tech target firms. The authors contribute to the research on CBAs and ownership strategy by focusing on the high-tech status of the target firm, and using a sample of both private and public target firms from 116 countries.

What do tourists look like to destination residents? Development of a tourist image scale from a high cultural distance perspective

Destination image has long been an important topic in tourism marketing research. However, tourist image has been largely ignored. The purpose of this study was to develop a scale to measure tourist image in contexts of high cultural distance, taking Chinese tourists and UK residents as an example. Following initial item production, scale refinement, exploratory factor analysis, confirmatory factor analysis, and a criterion variable test, a 12-item scale in 4 dimensions (Respect, Friendliness, Appearance, Negative impression) was validated. This study innovatively extends the measurement of tourist image from contexts of low cultural distance to high cultural distance and shows the gradual nature of tourists' image perception from limited, increasing and highest level. The findings provide insights relevant to the civic education and the public diplomacy strategies of tourist source countries and sustainable development of destination tourism supported by both tourists and local residents.

Cultural distance, foreign ownership, and corporate innovation in China

ABSTRACT This study examines the impact of heterogeneous foreign institutional investors on innovation in Chinese listed firms from 2009 to 2020. Empirical results indicate that foreign institutional investors from regions with high cultural distance are associated with a significant increase in corporate innovation of Chinese firms. Moreover, the results remain robust to alternative cultural distance measures and methods that address endogeneity. This research provides novel evidence regarding the role of foreign institutional investors in China.

The double-edged sword effect of adaptation strategy on performance: The mediation of legitimacy and synergy

This study aims to advance theoretical development regarding the double-edged sword effect of adaptation strategy on performance from the institutional theory and organizational learning theory perspectives. In particular, we examine the intermediate role of legitimacy and synergy to explain the different paths from marketing adaptation strategy to performance contingent on the environmental conditions of cultural distance. Data from a survey of 202 Chinese multinational corporations located in 24 different host countries are analyzed, and the results reveal that the effect of adaptation strategy on performance is positively mediated by legitimacy but negatively mediated by synergy. Meanwhile, the indirect effect of adaptation strategy on performance via legitimacy and synergy is also moderated by cultural distance such that both indirect effects are stronger in host countries with a high cultural distance. This study provides theoretical and managerial implications for adaptation strategy research.

Chief executive officer power and initial public offering underpricing: Examining the influence of demand‐side cultural power distance

AbstractResearch SummaryInitial public offering (IPO) underpricing reflects the inability of early investors to capture the full value of an entrepreneurial firm. IPO firms can potentially limit underpricing by signaling wealth protection through lower chief executive officer (CEO) power. Such signaling is particularly challenging for many IPO firms, though, because for those doing business in high‐power‐distance cultures, CEO power can also signal wealth creation, making CEO power a mixed signal for IPO investors. Drawing on signaling theory, we argue that CEO power is positively associated with IPO underpricing, but this relationship weakens for IPO firms doing business in countries with high cultural power distance because the information signaled becomes less clear. The signaling impact of both CEO power and demand‐side cultural power distance weakens, however, when underwriter reputation offers a substitute signal.Managerial SummaryThis research offers new knowledge for IPO corporate governance practitioners, such as entrepreneurs, venture capitalists, underwriters, and regulators. Specifically, our research demonstrates that the power dynamic in the upper echelons has implications for demand‐side legitimacy or making U.S.‐listed firms more legitimate with international customers. As a result, stockholders and securities analysts who balk at the consolidation of CEO power should consider the potential benefits that such consolidation of power might grant the firm when competing in different cultural environments associated with foreign markets.

Conquerors or Saviors? Parent Country Nationals in Foreign Subsidiaries

How multinational corporations (MNCs) control their subsidiaries—through either ownership (partial/whole equity; greenfield/acquisition) or operational (levels of parent country national staffing) controls—is theorized to impact ensuing subsidiary performance. Moreover, the impacts of these controls may be more or less effective when moderated by differences in cultural distance. Using an unbalanced panel sample of 2,692 Korean MNCs’ foreign subsidiaries (9,147 subsidiary-year observations across 47 countries from 2006 to 2013), we find that foreign subsidiaries perform better overall in low cultural distance countries. The impact of staffing levels, though, is highly dependent on ownership control level and cultural distance. In particular, high staffing levels are only effective at improving performance if the subsidiary is under shared equity ownership; it is not effective (low cultural distance) or even hurts performance (high cultural distance) when it is used in a wholly owned subsidiary. The establishment mode of greenfield versus acquisition status did not affect performance. In a period of increasing nationalism in investment priorities, understanding that high parent country national (PCN) levels can be welcomed or resisted offers valuable implications for knowledge management and international investment, and suggests further research on the mechanisms that affect the reception of PCNs.

Human capital, cultural distance and staffing localization

PurposeThis study aims to explore how a change in the staffing configuration of foreign subsidiaries affects subsidiary performance by focusing on staffing localization.Design/methodology/approachThe relationship between localization and subsidiary performance is analyzed from the perspective of human capital. Hypotheses are tested using a panel data set of foreign direct investment by Japanese multinational enterprises.FindingsThe analysis demonstrates that localization has a positive effect on subsidiary performance when subsidiaries can access a pool of competent local managers in the host country. It also shows that when competent local managers are highly available, localization has a positive effect on subsidiary performance under high cultural distance. In comparison, when the availability of competent local managers is limited and cultural distance is high, localization has a negative effect on subsidiary performance.Originality/valueUsing human capital theory, this study theorizes how localization, which is a change in the configuration of human capital toward a reliance on local-specific human capital, enhances subsidiary-specific advantages. It introduces the effects of changes in the configuration of human capital over time, into studies on subsidiary staffing. In addition, from a different viewpoint than previous studies, this study proposes one possible path where human capital leads to organizational performance. Specifically, it shows that a change in the configuration of human capital affects subsidiary-specific advantages, which eventually impacts subsidiary performance.

Foreign Investors and Governance Quality in Extreme Institutional Environments

We draw on practice transfer theory to advance the corporate governance mobility literature by developing a framework that uncovers how foreign institutional investors (FIIs) transfer and improve on corporate governance practices of firms in challenging institutional environments. Using hand-collected data for 85 listed Nigerian firms covering 2011-2016 period, we show that FIIs bypass information disadvantage, weak governance enforcement institutions in extreme institutional environments by transferring good governance standards to firms in the host country of investment. More so, we show that the severity of FIIs transfer and enhancement of corporate governance quality of firms in challenging institutional environments is positively moderated by their legal origin. Specifically, FIIs from common law countries significantly enhance the ability of these investors to transfer and improve on the CG practices of firms in challenging emerging economies. On the other hand, high cultural distance between FIIs country of origin and the investment country negatively moderate this relationship. Our results are robust to the choice of estimation method, sample selection, and control for other factors that influence corporate governance practices. We also highlight theoretical and practical implications of the study.

Internationalization in the Digital Age: The Role of Cultural Distance and Industry Dynamism

This study examines the impact of information and communication technologies (ICT) on the degree of internationalization by focusing on multinational enterprises (MNEs). We argue that ICT helps MNEs to reduce internally as well as externally transaction costs in an international context, resulting in a higher degree of internationalization. We further argue that the positive impact becomes more pronounced under the the condition of high cultural distance and a high level of industry dynamism. Our empirical results are strongly congruent with our hypotheses. We used a panel dataset from four major European countries, consisting of 567 firm year observations from 2011-2017. Overall, our study contributes to the emerging research stream about internationalization in the digital age. It shows that ICT acts as a filter for uncertainty ex-post and ex-ante in the internationalization process.

Cultural distance and income divergence over time

Instead of featuring a long-awaited convergence process, the second half of the twentieth century witnessed a dramatic income divergence across countries. We propose cultural distance between countries as a determinant of this economic divergence. Cultural similarity makes it easier for societies to interact, learn and adopt from one another. Consequently, cultural differences may lead to economic divergence over time as they slow down the adoption of technological and institutional innovations from the frontier countries. We show that the overall economic divergence observed in the world since the 1950s is driven by countries with high relative cultural distance to the technological frontier. In contrast, the income gap among countries with low relative cultural distance remained unchanged over time. Further analysis reveals that a one-unit rise in relative cultural distance to the frontier is associated with an increased income divergence of almost seven units.

Integration in Mergers and Acquisitions: Bringing Together Type of Diversification, Synergy Potential and Cultural Distance

The literature on mergers and acquisitions reveal mixed findings with respect to synergy potential and cultural distance. While some researchers suggest that high cultural distance would lead to better performance, others suggest that low cultural distance would lead to better synergy and performance. I propose that the degree of relatedness between the two firms and the integration approach adopted by the management could be potential moderators in this relationship. The aim of this article is to explore which integration approach (absorption, preservation and symbiosis) would lead to maximum synergy in mergers and acquisitions of firms from related and unrelated industries. A review of literature and case studies on mergers and acquisitions was done to develop a framework for the same. Limitations and directions for future research have been discussed.

Exotic or Home? Tourists’ Perception of Guest Houses, Guest Houses Loyalty, and Destination Loyalty in Remote Tourist Destinations

Guest houses offer an environmentally sustainable way to travel. The guest house serves not only to accommodate but also attract tourists to experience local culture when they visit remote destinations. This study was designed to explore how tourists’ multiple perceptions of guest houses in remote destinations affect their behavioral intention toward guest houses and destinations. Results demonstrated that both tourists’ perception of exotic local culture and sense of home had a significant positive effect on tourists’ loyalty to guest houses in remote destinations. In addition, tourists with high cultural distance staying in guest houses perceived a higher level of exotic local culture but lower level of sense of home compared with those with lower cultural distance. Managerial implications, limitations, and recommendations for future studies are also provided.

Project performance in emerging market: The influence of cultural distance and business group affiliation

Although foreign multinational enterprises (MNEs) often collaborate with firms in emerging markets to help execute capacity expansion projects, the current literature does not adequately explain what factors influence execution performance of such projects. Drawing on the cultural difference- and partner selection literature we investigate in this paper how cultural distance (CD) between MNE’s home and host nation, and business-group (BG)-affiliation of host country partner influence duration and completion-likelihood of capacity expansion projects. Our analysis reveals that high CD is associated with lower project-duration and greater likelihood of project-completion. Results further suggest that BG-affiliation is associated with greater likelihood of project-completion. In addition, we find that BG-affiliation negatively moderates the relationship between CD and project-duration. These findings are new to the literature and enhances our theoretical and practical understanding of project execution in emerging markets.

Multiculturalism and Attitudes Toward Immigrants: The Impact of Perceived Cultural Distance

Multiculturalism can be construed in different ways with different effects on majority members’ attitudes toward immigrant-origin groups. Thinking about why the broad goals of multiculturalism are important for society might reduce feelings of outgroup threat and less prejudicial attitudes. In contrast, thinking about how exactly these goals can be accomplished might evoke feelings of threat that lead to prejudice. The aim of this experimental research conducted in France and the Netherlands was to examine the effect of these two construals of multiculturalism of attitudes toward immigrants and whether these effects depend on perceived cultural distance. The findings show that a focus on why multiculturalism is important for society is more beneficial for attitudes toward immigrant-origin groups for people perceiving relatively high cultural distance. In contrast, a focus on how the goals of multiculturalism can be accomplished has a more detrimental effect on attitudes for people perceiving relatively low cultural distance.

International work experience: Is it really accelerating the way to the management board of MNCs?

International work experience is often claimed to be a prerequisite for managers in an MNC. This paper investigates how international work experience affects those managers who reach upper echelons. Drawing on both human capital theory and elite theory, we argue that stays abroad not only have beneficial, but also adverse effects on managers’ ascent to the top. By analysing the careers of 212 management board members from Germany, we find that once a certain threshold of international work experience is exceeded, being away from home impedes managers’ long-term career advancement. However, it is not only longer stays abroad that show a negative time effect; we are also able to reveal that being in countries with high geographic and cultural distance to the home country significantly decelerates managers’ speed of being appointed to the management board. Our findings demonstrate that conflicting interests exist between MNCs and high potentials who consider an international career. We stress that these conflicts call for being solved in managerial practice.

Do Chinese MNEs Always Improve Their Innovation Performance from Internationalization?

We examine how the innovative performance of Chinese MNEs is affected by the way in which they configure their portfolio of subsidiaries. To this end, we acknowledge that innovation performance is not an one-dimensional construct, but can vary in terms of scale and quality. We rely on an empirical analysis based on 178Chinese MNEs operating in medium-high and high tech industries, tracking their subsidiaries portfolios and the relative foreign direct investments. . Our preliminary results show that the geographical breadth (i.e. the number of countries in which each MNE has at least one subsidiary) and the geographical depth (i.e. the average number of subsidiaries in each country) are negatively associated to firm’s innovation scale but positively associated to its innovation quality. Additionally, results show that the predominance of acquisitions as entry mode is positively associated to innovation quality. Finally, high average cultural distance is negatively associated to innovation quality; however, different effects arise when considering separately individual aspects of cultural distance (i.e. educational and religious distance).

Renewable energy industries in Europe: are they successful in the Chinese market?

ABSTRACTThis article analyses the number, type and presence of European companies – Italian, Spanish, French, German, Dutch, Rumanian, Bulgarian and English – operating in the renewable energies industry in international markets. Enterprises supplying energy from various sources and at different points of the supply chain have long faced the challenges that international and geographically distant markets such as China pose. Specifically, European enterprises appear to encounter difficulties in approaching the Chinese market, which is rapidly developing as a result of the latest five-year plan setting energy and climate change targets and policies. Indeed, the number of European firms investing in China is low due to their small size, high cultural distance and inadequate management strategies. Through the analysis of two business cases (Asja and Caleffi) that have established partnerships and a WFOE in China, the article identifies the main elements of their management strategies that led to successfully operating in China.

The Entitled Tourist: The Influence of Psychological Entitlement and Cultural Distance on Tourist Judgments in a Hotel Context

ABSTRACTThis research examines how a tourist’s degree of psychological entitlement (sense of deservingness) influences their responses to hotels that differ in cultural distance. Using a visit to China by Western tourists as a context, an experiment shows that entitled tourists respond more negatively to high cultural distance hotel environments compared with low cultural distance environments. Results are mediated by tourist irritation. Research contributions include demonstrating how entitlement moderates cultural distance effects, revealing tourist irritation as a mechanism that explains these effects, and showing how psychological entitlement influences how tourists react to hotel environments when visiting a foreign destination.

Balancing exploitation and exploration in FDI location choices

In this paper, I examine the location trajectory of foreign direct investments by emerging economy firms. I consider entries into countries with low cultural distance as exploitation, and entries into countries with high cultural distance as exploration in the internationalization process. Building on the organizational learning literature, I argue that the internationalization process is composed of a series of alternating exploitative and exploratory activities for a firm over time. Empirically, I propose to measure this process by the magnitude of the divergence in added cultural distance (i.e. the cultural distance that each new entry incurs relative to prior entries). In support of my argument, I find that the divergence in added cultural distance over time is far greater than what is predicted by the Uppsala internationalization process model and the springboard perspective. Moreover, I find that several firm- specific attributes can explain a sizable portion of the volatility of the internationalization process. Specifically, firm size, firm age, firm performance and organizational slack are significant antecedents of the fluctuations in the internationalization process.

Understanding establishment mode choice of foreign manufacturing firms in Ghana

Purpose – The purpose of this paper is to analyse the foreign direct investment (FDI) strategies of manufacturing firms in Ghana using the eclectic model in order to understand how ownership, location and internalization factors impact FDI to developing countries like Ghana. Design/methodology/approach – The authors use a quantitative methodology in order to statistically explore the relationships between dependent and independent variables. The data comes from a sample of 75 multinational enterprises that invested in the manufacturing sector between 1994 and 2008. Findings – The results reveal that large firm size, extensive international experience and large market size lead to the choice of acquisition mode of entry, while high cultural distance, high country risk, high proprietary assets and incentives lead to the choice of greenfield mode in the context of Ghana. Research limitations/implications – The results imply that the different economic, business and legal (locational) conditions of developing countries create different FDI strategies and paths of companies compared to developed markets. Practical implications – Policy makers in developing countries should make efforts to improve market size, the institutional and regulatory environment, as well as the availability of human capital in order to attract FDI. Originality/value – FDI studies have mainly analysed establishment mode strategies of firms in advanced markets. There is an increasing amount of research on FDI in emerging markets but very little on developing countries and African markets. Therefore, this study enables the authors to develop implications for existing theory and generate practical implications for firms and policy makers related to African and developing country markets.