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Explaining the National Cultural Distance ParadoxAuthor(s): Keith D. Brouthers and Lance Eliot BrouthersSource: Journal of International Business Studies, Vol. 32, No. 1 (1st Qtr., 2001), pp. 177-189Published by: Palgrave Macmillan JournalsStable URL: http://www.jstor.org/stable/3069516 .

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Explaining t h e Nat iona l C u l t u r a lDistance Paradox

Keith D. Brouthers*UNIVERSITY OF EAST LONDON

LanceEliotBrouthers**UNIVERSITY OF TEXAS AT SAN ANTONIO

Past studies of the relationship be-tween national cultural distanceand entry mode choice have pro-duced conflicting results. Somescholarsfind cultural distance asso-ciated with choosing wholly ownedmodes; othersfind cultural distanceW hat impactdoes nationalculturehave on corporations' interna-tional entry mode selection? Beginningwith Kogut and Singh's [1988] seminalwork, entry mode researchers have ex-amined national cultural distance' andmode selection in a variety of industrialand geographic settings [Anand and De-lios, 1997; Erramilli, Agarwal and Kim,1997; Padmanabhan and Cho, 1996;Shane, 1994; Agarwal, 1994; Erramilliand Rao, 1993; Kim and Hwang, 1992;Erramilli, 1991; Gatignon and Anderson,1988].From these efforts a paradox hasemerged; previous scholarship linkingnational cultural distance and entrymode selection presents contradictory

linked to a preferencefor joint ven-tures. In this paper we provide boththeoretical and empirical evidenceto explain the discrepant findingsand thus, help to resolve the na-tional cultural distance paradox.

empirical evidence. Forinstance, Anandand Delios [1997]and PadmanabhanandCho [1996] found that high levels of cul-tural distance were associated with highcontrol (wholly owned) entry modes. Incontrast,Kogutand Singh [1988] and Er-ramilli and Rao [1993] found culturaldistance to be related to the use ofshared-control (joint venture) modes ofentry.Erramilli [1996] and Gatignon andAnderson [1988] (for Latin Americanand Germaniccultures) found no signif-icant relationship between cultural dis-tance and mode choice. Gatignon andAnderson [1988] did find thathigh levelsof culturaldistance were connected withwholly owned modes for U.S. firms en-

*Keith D. Brouthers is a Reader in the Strategic and International Management Department,University of East London, U.K. His research focuses on international strategy and strategicdecision-making.**Lance Eliot Brouthers is Associate Professor in the Division of Management and Marketing,University of Texas-San Antonio. His research focuses on international strategy issues.Both authors contributed equally to this paperJOURNAL OF INTERNATIONALBUSINESSSTUDIES,32, 1 (FIRSTQUARTER 001): 177-189 177


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tering into Latin European cultures, butthey were also connected with sharedownership when entering other cultures.Thus, we can see that previous effortshave linked national cultural distance towholly owned modes, joint venturesand/or nothing.In an effort to reconcile these conflict-ing, often contradictory results, wepresent a contingency perspective whichattempts to account for the discrepantresults found in previous efforts. Morespecifically we hypothesize that invest-ment risk in the target market moderatesthe impact of cultural distance on modeselection. Managers select more cooper-ative modes of entry in low investmentrisk markets, but select wholly ownedmodes of entry in high investment riskmarkets. Our hypotheses are tested witha sample of western firms entering cen-tral and eastern European markets.

THEORETICAL RGUMENTSAn apparent paradox exists with re-

spect to the relationship between cul-tural distance and entry mode choice.Some scholars link cultural distancewith the need for cooperative arrange-ments [Kogut and Singh, 1988; Erramilliand Rao, 1993; Gatignon and Anderson,1988] and the use of consensual manage-ment styles [Lachman, Nedd and Hin-ings, 1994]. Others [Shane, 1994; Erra-milli, Agarwal and Kim, 1997; Padma-nabhan and Cho, 1996] submit thatcultural distance problems can best beaddressed with strong hierarchial con-trol. In the following sections we suggesthow this apparent paradox can be recon-ciled by controlling for the level of in-vestment risk.

Cooperative VenturesResearchers have suggested that firmsutilize cooperative modes of entry when

entering culturally distant markets dueto cost and uncertainty constraints. Kogutand Singh [1988] and others [ErramilliandRao, 1993; Gatignon and Anderson, 1988;Anderson and Coughlan, 1987] suggest"that differences in cultures among coun-tries influence the perception of managersregarding the costs and uncertainty ofalternative modes of entry" [Kogut andSingh, 1988, pp. 413-414]. Greater cul-tural differences commonly lead tohigher organizational and administrativecost perceptions as well as additionalcosts associated with managing more di-verse employee expectations. Coopera-tive ventures assign the tasks of coordi-nation and control to local partners, whoare familiar with the foreign market cul-ture. This reduces management/admin-istrative costs by shifting many of themto the local partner.Kim and Hwang [1992] suggest thatdue to the uncertainty inherent in cul-turally distant markets, firms attempt tominimize their resource commitmentsby utilizing joint ventures, instead of us-ing more costly wholly owned subsid-iaries. Similarly, Anand and Delios[1997, pp. 591] suggest that "subsidiariesestablished in culturally distant coun-tries encounter larger knowledge barri-ers". Involving a local partner through ajoint venture may reduce these barriers.Gatignon and Anderson [1988, pp. 307]state that "joint ventures may be seen asa way of bridging cultural gaps" and"joint ventures with local investorspromise to reduce political complica-tions while diversifying against expro-priation risks." These scholars suggestthat, in culturally distant markets, in-vesting firms prefer to cooperate with anindigenous firm in order to speed theorganizational learning process, increaselocal knowledge, and reduce uncer-tainty. Cooperative ventures increaseJOURNALOF INTERNATIONALUSINESS STUDIES78


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firm flexibility and reduce potentiallosses due to market exit or adverse po-litical/social activities.Several studies provide empirical sup-port for the above perspectives. Ander-son and Coughlan [1987] found that,when U.S. manufacturers set up their

foreign distribution subsidiaries, theypreferred joint ventures over integratedmodes of distribution in the more cultur-ally distant markets of Japan and South-east-Asia. For firms entering the U.S.market, Kogut and Singh [1988] foundthat as cultural distance increased, sodid their use of joint ventures. Examin-ing a sample of U.S. service firms, Erra-milli [1991] found that the use of coop-erative modes of entry increased as cul-tural distance increased. Chu andAnderson [1992] found that joint ven-tures were more likely than whollyowned subsidiaries when U.S. manufac-turing firms entered Latin European andGermanic countries. Kim and Hwang[1992] examined foreign investmentactivities of a sample of U.S. manufac-turing firms and found that as culturaldistance (unfamiliarity) increased sodid the use of joint ventures. Erramilliand Rao [1993, pp. 32] examined theforeign entry activity of a sample ofU.S. service firms and found that ascultural distance increased, servicefirms preferred "shared-control modesover full-control options."

Thus, previous research (examiningmostly U.S. firms investing abroad or en-try of foreign firms into the U.S. market)indicates that joint venture modes of en-try are preferred as cultural distance in-creases. For this reason we hypothesizethat:

Hypothesis 1: As the cultural distancebetween home and host countries in-

creases, managers tend to select jointventure modes of entry.

Wholly Owned VenturesTransaction cost economics (TCE)helps to explain why, in high culturaldistance countries, firms prefer whollyowned modes of entry. TCE suggests thatwholly owned modes of entry are pre-ferred when the costs of finding, negoti-ating and enforcing a cooperative agree-ment are greater than the costs of directcontrol [Erramilli and Rao, 1993; Hen-nart, 1989; Bowen and Jones, 1986].

High cultural distance may increasethe costs of direct control; costs associ-ated with cooperative agreements maybe even higher, due to several factors.First, volatility in the host country envi-ronment may make it impossible forfirms to anticipate all contingencies. Un-der such conditions, transaction costs in-crease [Sutcliffe and Zaheer, 1998; Klein,Frazier and Roth, 1990; Hennart, 1989].Host market volatility also may hinderthe firm's ability to enforce cooperativeagreements, again increasing transactioncosts [Sutcliffe and Zaheer, 1998; KleinFrazier and Roth, 1990; Hennart, 1989].Third, there may be few potential part-ners. Investing firms have fewer choiceswhich increases the chances of oppor-tunism and adds to transaction costs [Er-ramilli and Rao, 1993; Hennart, 1989;Anderson and Coughlan, 1987]. Finally,internal uncertainty may make it diffi-cult to assess the performance of partnerfirms. Under such conditions, firms maymore easily monitor the activities of em-ployees by using wholly owned modes[Erramilli, 1991; Hennart, 1989; Ander-son and Coughlan, 1987; Bowen andJones, 1986].Because of these transaction cost influ-ences, investing firms commonly selectwholly owned modes of entry. This al-

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lows them to absorb the external uncer-tainties through centralization of deci-sion making [Klein, Frazier and Roth,1990; John and Weitz, 1988], provides areduction in communication costs[Klein, Frazier and Roth, 1990; John andWeitz, 1988], and protects the firm fromopportunistic behavior [Sutcliffe and Za-heer, 1998].

Agarwal [1994] and Sutcliffe and Za-heer [1998] provide additional reasonsfor using wholly owned modes of entryin high cultural distance markets. Sut-cliffe and Zaheer [1998] suggest that un-certainty (defined as multiple host coun-try risk measures) moderates the impactof transaction cost evaluation, makingwholly owned modes of entry morelikely in high risk locations. Further,Agarwal [1994, pp. 64] states that "cer-tain country specific factors such as mar-ket potential or high country risk mightmove a firm away from choosing sharedcontrol" modes of entry toward full con-trol modes.

Several studies have found evidencethat, at least in certain situations, firmsmay select wholly owned modes of entrywhen cultural distance is large. For ex-ample, Padmanabhan and Cho [1996] ex-amined the foreign entry mode activityof Japanese manufacturing firms. Theyfound Japanese firms more likely to uti-lize wholly owned subsidiaries in cul-turally distant countries. Erramilli, Agar-wal, and Kim [1997] examined the FDIactivities of Korean firms and found thathigh cultural distance was significantlyrelated to higher-equity modes of entry.Anand and Delios [1997, pp. 594] exam-ined entry modes for a sample of Japa-nese firms and found that "JVstended tobe formed in more culturally proximatecountries." They also found that Japa-nese firms were more likely to usewholly owned modes of entry in North

American and Western European mar-kets than in Asian markets. Shane [1994]found that U.S. manufacturing firms in-vesting abroad tended to prefer high con-trol (over 50% equity) modes of entryover licensing when cultural distancewas large.

Investment Risk/CulturalDistance InteractionsAgarwal [1994] attempted to investi-

gate the potential moderating impact ofrisk on the cultural distance, entry modechoice relationship. He examined thecultural distance/country risk interac-tion but failed to find significant results.There are two possible reasons whyAgarwal may not have obtained signifi-cant results for his cultural distance/country risk interaction variable. First,his sample was heavily skewed; only 2%of his sample could be classified as highrisk. Second, Agarwal examines only theaggregate cultural distance impact. Morerecent literature suggests that Hofstede's[1980] individual cultural attributes -power distance, individualism, mascu-linity and uncertainty avoidance - mayeach influence mode choice indepen-dently and thus should be examined sep-arately [Barkema, Shenkar, Vermeulenand Bell, 1997; Tse, Pan and Au, 1997;Erramilli, 1996; Shane, 1994; Hofstede,1989]. Hence, sampling problems andover aggregation may have underminedAgarwal's efforts, rather than poor the-ory.Previous efforts using mostly non-U.S.data suggest that wholly owned modes ofentry are preferred when cultural dis-tance is large and investment risk ishigh. Based on the above discussion wehypothesize that:

Hypothesis 2a: If host country risk isperceived as high and cultural dis-

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tance increases, managers will selectwholly owned forms of entry.Hypothesis 2b: For each of the fourcultural attributes in this study, ifcountry risk is high and the culturaldistance increases, managers will se-lect wholly owned forms of entry.

METHODOLOGYFirms (in four home countries: The

Netherlands, Germany, Britain and theU.S.) doing business in five central andeastern European target countries (Hun-gary, Poland, The Czech Republic, Rus-sia, and Rumania) were surveyed2. Be-cause no reliable home country listingsof firms doing business in the targetcountries exists, data were collectedfrom the following sampling frames.German and British samples weretaken from the top 400 and 500 firmsrespectively (based on sales) as recordedin the AMADEUS cd-rom system. Fromthe REACH cd-rom data-base, a total of122 Dutch firms were identified as doingbusiness in central and eastern Europe(CEE). An additional 297 Dutch firmswhich participated in a seminar on do-ing business in CEE were added, provid-ing a total of 419 potential Dutch firms.U.S. data came from a random sample of500 firms taken from the Dun and Brad-street listing of the top 5000 U.S. firms.A total of 231 usable questionnaires(Dutch, German, British, U.S.) were ob-tained for this study3.

Data collectionData for this study were collected

through a questionnaire sent directly tothe manager/director of central and east-ern European operations at the home(corporate) office of the sample firms. Inthe questionnaire, managers were askedto provide information on firm size and

multinational experience. In addition,managerswere requested to provide de-tails (targetcountry and mode selection)on their firm's most recent central andeastern Europeanmarketentry.

Dependent variableThe dependent variable, mode of en-try, was obtained by having each man-ager identify the mode of entry for theirmost recent CEEmarketentry. Followingprevious research [Gatignonand Ander-son, 1988; Kogut and Singh, 1988], wechose to restrict our examination towholly owned (95% equity or more) orjoint venture modes of entry. Managerscould indicate separate modes of entryfor (1) production, (2) marketing,and (3)research &development activities.

Independent variablesThe independent variables, culturalattributes, were taken from previousstudies (see Table 1 for details on indi-vidual attributemeasures)4.Measures ofhome country cultural attributes weretaken from Hofstede and Bond [1988].Measures of target country attributeswere obtained from Hessels [1996]. Us-ing the model of cultural distance spec-ified in Morosini, Shane and Singh[1998] we calculate aggregate culturaldistance as the squareroot of the sum ofthe square of the distance of each of thefour cultural attributes. Similar toBarkema et al. [1997], individual at-tribute cultural distance was calculatedby taking the absolute value of the dif-ference between home country and tar-get country values for each of the fourcultural attributes.

Investment risk was measured withthree seven-point Likert-type questionstaken from Agarwal and Ramaswami[1992]. These three questions measuredthe perceived stability of the social, eco-VOL. 32, No. 1, FIRSTQUARTER, 001 181


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TABLE 1CULTURALATTRIBUTESBY COUNTRY

PowerUncertainty Individual MasculineCountry Distance collective feminine Avoidance

Netherlands 38 80 14 531Germany 35 67 66 651Britain 35 89 66 351U.S.A. 40 91 62 461Poland 50 60 70 552Czech Republic 35 60 45 602Hungary 19 55 79 832Russia 95 47 40 752Romania 90 20 40 952Sources:1Hofstede and Bond [1988]2 Hessels [1996]

nomic, and political environment in thetarget country as well as the investor'sperception of target country political at-titudes toward foreign firms (Cronbachalpha =.67).

Control variablesPrevious strategy research has indi-cated a number of other variables, be-sides culture, may influence a firm'smode strategy. Agarwal and Ramaswami

[1992] showed that firm size influencesmode selection, with larger firms prefer-ring full-control entry modes. Erramilliand Rao [1993] suggest that larger firmscommonly prefer full-control entrymodes because larger firms typicallyhave more resources which can be ap-plied to new markets. In order to avoidthe problems commonly associated withcross-national research (such as differentaccounting methods and currencies)we followed Gatignon and Anderson's[1988] approach and measured firm sizeby the total number of employees world-wide.

Multinational experience has alsobeen shown to influence mode strategy.Companies with greater experience typ-ically prefer full-control entry modes[Agarwal and Ramaswami, 1992; Erra-milli, 1991]. It has been argued that ex-perience in international entry reducesthe risk and cost of entry [Erramilli,1991]. Firms achieve these reductions inrisk and cost by developing systems fordealing with new market entry. Becauseboth overall experience in internationalmarkets, and country or region specificexperience [Kogut and Singh, 1988] havebeen used in previous studies, we in-cluded both measures of multinationalexperience in this study. Following Er-ramilli [1991], international experiencewas based on the number of years ofexperience outside the home countrywhile region-specific experience wasbased on the number of years experiencein CEE.

All data needed to calculate the invest-ment risk, firm size, international expe-JOURNAL OF INTERNATIONAL BUSINESS STUDIES82


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TABLE 2CORRELATIONMATRIX

Variables Mean SD 1 2 3 4 5 6 7 81. Size 32513 625182. Int exp 45.0 31.7 .23*3. CEEexp 18.1 24.3 .41* .56*4. PDI-D 26.3 22.6 .13 .09 .075. IDV-D 24.6 13.0 .02 .09 -.08 .67* -6. MAS-D 27.2 17.9 .03 .12 -.02 -.05 .067. UAV-D 17.3 12.9 -.02 .11 -.07 .58* .77* -.168. Mode .6 .5 .20* .16 .23* -.11 -.07 -.05 -.08 -p < .01, n = 231, D-cultural distance

rience, and regional experience valueswere obtained in the questionnaires ofthe respondent companies.FINDINGS

Data in this study were analyzed usinglogistics regression analysis [Hennart,1997; Hair, Anderson, Tatham andBlack, 1995]. Prior to running the logis-tics regression test, a correlation analysiswas prepared (Table 2). As can be seenfrom Table 2 there are numerous signif-icant correlations between the variablesused in this study. However, none ofthese correlations appear to be highenough to warrant concern about multi-collinearity [Hair, et al., 1995].Five regression tests were run to exam-ine the impact of cultural distance forthe four Hofstede measures together andseparately. Table 3 (models 1-5) showthat when cultural differences are large(in terms of total cultural distance,power distance, individualism, uncer-tainty avoidance and masculinity, re-spectively), firms tend to select joint ven-ture modes of entry, providing supportfor Hypothesis 1. Model 1 in Table 3shows that when total cultural distanceis large, joint venture modes of entry are

preferred (p


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TABLE 3LOGISTICREGRESSIONRESULTS

1 2 3 4 5Difference in Cultural AttributeVariables CD PDI IDV UAV MASCD -4.8501bCD*IR 1.9297cPDI -3.4695bPDI*IR 1.1820IDV -4.9767bIDV*IR 3.9471bUAV -6.0736aUAV*IR 4.5182bMAS -2.0371CMAS*IR 1.7307cFirm size 4.2824b 4.6348b 4.2983b 4.2857b 3.6722bInternational experience 0.4681 0.2645 0.2851 0.5127 0.2076CEE experience 4.4382 5.3538b 4.6326b 4.3170b 4.3819bConstant 0.7296 0.3727 0.0001 0.0078 0.0925n 227 227 227 227 227Chi-square 25.202 26.084 24.797 26.167 21.798Correctly Classified 66.96 67.84 64.76 67.84 64.32Significance .0001 .0001 .0002 .0001 .0006a p < .01 b p < .05 Cp < .10 (one-tailed tests), joint venture = 0.CD-cultural distancePDI-power distanceIDV-individualismUAV-uncertainty avoidanceMAS-masculinityIR-investment risk

on the relationship between cultural dis- individualism, managers tend to in-tance and mode choice (p


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KEIrHD. BROUTHERS,ANCE LIOT ROUTHERS

mode choice, providing support for hy-potheses 2a and 2b.

DISCUSSIONNDCONCLUSIONSWe began this study by asking howdifferences in national culture influencea firm's international entry mode selec-tion. Previous scholarship linking na-tional cultural distance and entry modeselection had offered contradictory em-pirical evidence with some scholarsfinding cultural distance associated withchoosing wholly owned modes [Shane,1994; Erramilli,Agarwaland Kim, 1997;Padmanabhanand Cho, 1996] while oth-ers [Kogut and Singh, 1988; Erramilliand Rao, 1993] found cultural distancelinked to a preference for joint ventures.In an effort to reconcile these contra-dictory, often paradoxicalresults, we hy-pothesized that investment risk in thetarget market moderates the impact ofcultural distance on mode selection.Managersselect more cooperativemodesof entry in low investment risk markets,but select wholly owned modes of entryin high investment risk markets.

ConclusionsExamining a sample of western firms

investing in central and eastern Europe,we found that cultural distance was re-lated to both cooperative ventures andwholly owned modes of entry, depend-ing on the level of investment risk in thetarget country. Firms entering culturallydistant markets low in investment risktended to prefer cooperative modes ofentry. Conversely, firms entering cultur-ally distant markets high in investmentrisk preferred wholly owned modes ofentry.Thus, we found empirical supportfor our hypothesized explanation for thecultural distance paradox; investmentrisk appearsto moderate the relationship

between cultural distance and entrymode selection.In general, we found that entry modedecisions appearto be influenced by cul-tural distance as well as target marketinvestment riskperceptions. Forthis rea-son, managers may wish to consider theculture/risk interaction when makingmode choice decisions.Suggestions for Future ResearchThis study raises a number of ques-tions. First,we examined only four west-ern European home countries. Futurestudies examining Asian, African orSouth American home countries mayprovide additional insights on cultureand mode selection. We examined onlyfive target countries, all of which werepreviously part of the former EasternBloc. Examining a wider range of hostcountries may confirm the veracity of

our findings.Second, our literature review suggeststhat differences based on home countryculture may also help to account for theparadox. Research showing that highcultural distance leads to an increaseduse of cooperativeventures tends to havea U.S. bias (U.S. firms'foreign activity oractivity of firms entering the U.S. mar-ket). Research supporting the oppositeview (cultural distance leads to an in-creased use of wholly owned modes ofentry)tends to be based on the activity ofnon-U.S. (Japanese and Korean) firms.Futureresearchusing a greatervariety ofhome country firm cultures than wereused in this study may help to determineif home country cultural attributes alsomoderate mode usage in culturally dis-tant markets and therefore offer an addi-tional explanation for the cultural dis-tance paradox.We used the concept of national cul-tural distance in this study in order to be



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consistent and comparable with past en-try mode studies. However, there hasbeen criticism of the national culturaldistance concept. These measures havebeen criticized for methodological weak-nesses and cultural biases [Harzing andHofstede, 1996]. For these reasons, fu-ture research efforts may wish to con-sider other measures of differences be-tween countries. Specifically, research-ers may wish to draw upon the psychicdistance literature. The psychic distanceresearch stream tends to go beyond ex-amining simple cultural differences be-tween countries and includes additionalfactors such as structural and languagedifferences [Stottinger and Schlegel-milch, 1998; O'Grady and Lane, 1996].

Additionally, past studies relating cul-tural distance to mode choice use aggre-gate national cultural distance measures,such as Hofstede's measures. However,Stottinger and Schlegelmilch [1998] sug-gest that individual perceptions of coun-try distance are quite likely to be differ-ent from aggregate national cultural dis-tances based on measures such asHofstede's scale. Future studies maywish to see if aggregate national culturaldistance measures and individually per-ceived cultural distance have similar/different impacts on mode choice.As suggested by Sutcliffe and Zaheer[1998], Werner, Brouthers and Brouthers[1996], and Miller [1992], taking a mul-tiple perspective view of risk may con-tribute to the success of the mode selec-tion decision. Finally, the concept of cul-tural distance has, in most empiricalstudies, been addressed with an aggre-gate single construct; explanations andexaminations of specific individual-levelcultural attributes and their interactionsare only in their infancy [Barkema, Shen-kar, Vermeulen and Bell, 1997]. We sug-gest that future research examine indi-

vidual attributes of culture [Kogut andSingh, 1988; Shane, 1994; Erramilli,1996]. This line of inquiry might help usbetter understand the relationship be-tween culture and mode choice as wellas highlight important components ofculture which may (from home country,host country, and/or cultural distanceperspectives) influence other importantstrategic decisions.

NOTES1. As Barkema, Shenkar, Vermeulenand Bell [1997, pp. 427-428] state, na-tional cultural distance represents "thesum of factors creating, on the one hand,a need for knowledge, and on the otherhand, barriers to knowledge flow andhence also for other flows between the

home and the target countries (Luostari-nen, 1980; 131-132)."2. We examined German, Dutch, Brit-ish and U.S. firm activities in severalcentral and eastern European countries.German, Dutch, British and U.S. firmsare the largest investors in CEE both interms of total dollars and in number offirms. Since entry into CEEhas occurredprimarily after 1990 and our data collec-tion took place between late 1995 andearly 1997, we are able to capture veryrecent entry mode decisions. Further-more, Poland, Czech Republic, Hungary,Russia and Rumania were selected as tar-get countries because they (1) have re-ceived most of western FDI since 1990,(2) represent a good cross section of tran-sitional development, and (3) provide alarge variance in both cultural measuresand risk measures.

3. We had responses from forty-sevenpercent of firms contacted. Of those re-sponses, the majority indicated that theydid not have operations in the targetmarkets chosen. A total of 382 entrieswere provided in 21 different CEE mar-JOURNALOF INTERNATIONALUSINESS STUDIES86


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kets (155 Dutch, 123 German, 61 British,and 43 U.S.). Of this total, 307 entries,or 80 percent, were in the five targetmarkets. Following previous research[Gatignon and Anderson, 1988; Kogutand Singh, 1988] we chose to restrict ourexamination to wholly owned (95% eq-uity or more) or joint venture modes ofentry. About 80 percent of the targetcountry entries used either whollyowned or joint venture modes. Thus, weused 231 of the responses representing91 Dutch, 59 German, 45 British, and 36U.S. firms.

4. The work of Hofstede and col-leagues [Hofstede, 1980; Hofstede andBond, 1988] is utilized as a basis for thecultural measures in this study. This re-search stream has identified five dimen-sions along which people appear to dif-fer across cultures - individualism,power distance, masculinity, uncer-tainty avoidance and confucian dyna-mism. Although these measures havebeen criticized for methodological weak-nesses and cultural biases [see Harzingand Hofstede, 1996, pp. 307-309], theHofstede measures: (1) are the mostwidely accepted measures available atthe present time [Erramilli, 1996]; (2)have been validated in previous studies[see Harzing and Hofstede, 1996]; and (3)are "regarded as the most extensive ex-amination of cross-national values in amanagerial context" [Nakata and Sivaku-mar, 1996, pp. 62]. Because measures ofconfucian dynamism were not availablefor the target countries used in thisstudy, we only used Hofstede's [1980]original four measures.

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Week 3 for WBC