What cultural differences really matter for managers? Towards a new model of cultural distance

Cultural differences play a central role in International Business research. Despite receiving a great deal of attention from scholars, the effect of cultural differences is still not completely understood. While the importance of cultural differences in conducting business abroad is widely accepted, extant research provides mixed results on their impact. We argue that one of the reasons why cultural differences’ impact is not fully understood are the shortages in the national cultural distance construct (Kogut & Singh, 1988), especially in the globalized and fast-changing contemporary world. Specifically, we identify three shortcomings in the current national cultural distance construct: (1) cultural differences are becoming increasingly less relevant among managers working in internationally oriented firms; (2) organizational cultural differences may prove more relevant than national cultural distance, especially since many firms have global operations; (3) the cultures’ reputation is not symmetric, i.e., the perceptions of the cultural differences are not taken into account. Thus, we present a conceptual model which addresses these shortcomings and we arguably contribute to a better understanding of the impact of national cultural distance. We discuss our proposed model and we put forward some avenues for future research.