Unravelling cultural distance afresh: Fundamental host country effects on entry mode of Indian firms

Abstract

‘Cultural distance’ as an aggregate, unidimensional construct to capture the complex phenomenon of culture has received much criticism in the entry mode literature. Disentangling the effects of the individual dimensions of Hofstede’s (2001) dimensions of national culture has been attempted, but has focussed on either home country effects or home-host differences, rarely isolating host country effects. This study argues how host country national cultural dimensions can matter for the mode of entry adopted in cross-border mergers and acquisitions. It is proposed that each of the five dimensions of Hofstede’s national culture can be treated as causing parametric shifts in the informal institutional environment of the comparative economic organization framework provided by Williamson (1991), thus impacting governance costs, and observably, entry mode. Pegging home country of analysis at India, the results of analysing 830 deals between 1980 to 2009 show that host country values for individualism, adjusted for percapita national income, and long-term-orientation, proxied by the country’s ‘marginal propensity to save’, are positively associated with the adoption of hierarchical over hybrid modes.