The problem of cultural distance in international business

: cultural distance's influence in Zippy's entry mode process

Abstract

Since the 70's, cross-cultural interactions has become a topic of growing interest within management and sociological literature, especially after the release of Hofstede's (1980) book "Culture's Consequences" and Kogut and Singh's (1988) cultural distance index, which derived from the aforementioned study. However, according to our literature review, the influence that cultural distance tends to have on the firm's entry mode choices is not a consensual topic among academics. In an attempt to clarify and unveil this issue we concentrated on previous studies from authors such as Barkema et al. (1997), Barkema and Vermeulen (1997) and Kogut and Singh (1988). As for the empirical part of this study, we have decided to focus our attention on a Portuguese Multinational Enterprise's (MNE) internationalization process. Through the use of the case study methodology, we could observe and analyze Zippy's entry mode choices, as well as establish a relationship between the aforementioned process (i.e. MNE's internationalization path) and our research model. We were also able to confirm our proposition (i.e. when entering in high culturally distant countries, firms tend to choose less complex entry modes like Exports or Contracts, instead of FDI) and provide an answer to our research question: Does cultural distance influence the firm's entry mode choice? Furthermore, after studying the entry modes chosen by Zippy to expand its business to Egypt, Malta and Kuwait (countries culturally not very distant from Portugal); we concluded that the firm's entry mode choice also seems to be influenced by the perceived target market's political risk. Therefore, we argue that cultural distance has direct impact on the company's internationalization process, but when there is a high political risk involved, managers tend to add this variable into the equation as well.

Date of Award	23 Jul 2014
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Susana Silva (Supervisor)