Abstract
This research analyzes the moderating effects of the board of directors and cultural distance in the relationship between organizational exploration and exploitation and its effect on the selection of entry modes to a country. A structural equation model is carried out with a sample of 1535 exporting companies in Colombia, Perú, Ecuador, and Bolivia. Our findings emphasize the vital role of the board of directors in shaping a company’s international market entry strategies, even in Bolivia’s distinct environment. When board directors possess the necessary competencies to navigate cultural disparities, they facilitate the complexities of entering foreign markets. Additionally, maintaining a balance between exploration and exploitation plays a pivotal role in shaping a company’s approach to market entry. This insight is valuable across diverse economic settings and contributes to academic research and practical international business decision-making.
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1 Introduction
More than a quarter of the members of the board of directors in companies have more than four positions in different companies. This practice has generated concern among different CEOs of the firms because it may be seen as an obstacle to the effective development of their business. Likewise, different actions have been observed not only to improve gender balance but also to develop better skills to contribute to the strategic decisions of firms (Financial Times, 2023). Another concern is based on the idea that board directors are also influenced by the need to receive prestige, which can distract them from their primary role. In countries with different economic conditions, such as the Middle East, India, and Africa, board directors may depend on economic remunerations, directly impacting independence (Financial Times, 2023).
Some research in the field establishes that cultural aspects still need to be clarified regarding their influence, especially with the board of directors. The need to study the environment in terms of institutional factors and degrees of intervention by local governments is also established (Du et al., 2017). How talent recruitment processes are carried out allows them to improve the firm’s practices (Luo et al., 2021). Finally, in the field of board directors, the need is established to investigate the implications both at the level of operation and of the firm’s decisions about the cognitive dynamics associated with the cultural diversity of the board directors and especially its implications for the making innovative decisions to enter new markets (Du et al., 2017).
In addition to the previous conditions, the board of directors has also been the focus of different research in fields such as gender (Shittu & Che-Ahmad, 2023; Khan & Kent Baker, 2023; Zheng & Wang, 2023; Wagner et al. al., 2023; Gavana et al., 2023; Deng et al., 2023), market dynamics (Stenzaly, 2023; Rees & Briône, 2023; Zhang et al., 2023; Akhter et al., 2023; Tang, 2023; Ferreira et al., 2023), environment (Ali et al., 2023), corporate social responsibility (Binh, 2023; García-Gómez et al., 2023), Leadership (Thomas, 2023), Cultural studies (Dodd et al., 2022; Hasan et al., 2023; Pi & Yang, 2023; Ferris et al., 2022).
According to the previous studies, two critical gaps can be extracted and found in the literature. The first is related to the need to carry out empirical studies that allow us to investigate factors that are related to the board of directors but also to the cultural aspects in which a firm operates (Ferris et al., 2022; Deng et al., 2023). Another critical gap in the literature is related to the need to carry out research with more significant amounts of information from a more holistic perspective that allows analyzing the behaviors of board directors in terms of their interactions, considering conceptual perspectives that allow validation of the evidence. And enrichment of literature in the field (Deng et al., 2023).
In this way, the purpose of this research is to analyze the moderation effects of the board of directors and culture distance in the relationship between dynamic capabilities (organizational exploration and exploitation) and their effects on the selection of entry modes to a market. International. The above is attempted by integrating three perspectives such as international negotiation theories, dynamic managerial capabilities, and institutional theory.
To achieve this purpose, the present work is structured as follows. In the first part, an introduction is made to the core of the research, focusing on the presentation of the gaps found in the literature. In the second part, a review of the main theoretical perspectives on which this research is based is carried out. In the third part, the methodology used in the study is presented, and finally, the results are shown, as well as the contributions and future lines of research derived from the study.
2 Literature review
2.1 Theoretical framework
From the theoretical point of view, this research allows different contributions by defining different insights into the relationship between the board of directors in a firm, the culture, and especially the decisions on the modes of entry into a market. This previous idea is related to how the study is situated from the perspective of international business through the modes of entry into markets, the theory of dynamic managerial capabilities, and institutional theory, allowing us to have sufficient theoretical elements to study the organizational dynamics related to board directors in specific cultural contexts.
2.1.1 Dynamic capabilities
According to Heubeck (2023), studies based on dynamic managerial capabilities are based on the idea that CEOs are a critical factor for strategic changes in a company because they can support and adapt to changes in the environment and the benefits that may arise from it. Other scholars, such as Schilke et al. (2018), propose that although the studies have focused on the executive part of the firms, it is necessary to investigate the dynamic capabilities and their effect on the performance of the firms, especially in the markets they serve.
Studies of this characteristic allow for a valuable contribution to the literature in the fields of study from the theoretical integration that includes foundational research of the theoretical bodies of the managerial perspective (Duhaime et al., 2021; Foss, 2021). This type of work allows for new additions to the current understanding of dynamic capabilities and their effect in international trade contexts, as well as the benefits of the effectiveness of board directors in specific cultural contexts (Heubeck, 2023).
Another important aspect is that the present study attempts in the same way to address the complex interaction between dynamic capabilities and institutional dynamics such as culture. This complex relationship of characteristics determines the context in which the effectiveness of the decisions made by the board of directors of a firm is assessed (Issa & Zaid, 2023). In this regard, a diverse set of theories allows the research to be transferred to a specific context of the board directors, corroborating the different results in studies developed in the field (Buallay et al., 2022).
2.1.2 Organizational learning
One way to cope with the environment is through the learning perspective to understand how dynamic capabilities can be obtained over time. The perspective of organizational learning responds to this, specifically about exploitative and explorative learning (Escandon-Barbosa & Salas Paramo, 2023). Exploitative learning is based on the conception that there is a need for new ventures to obtain resources related to both technology and aspects related to the product in the market (Melkumov, 2009). Exploitation allows the reduction in errors generated in decision-making, leading to the possibility of finding new opportunities that allow for improving the efficiency and effectiveness of the different processes of the firm (March, 1991).
Despite the above, scholars such as Melkumov (2009) propose that exploitation also entails some adverse processes, because it can generate conditions in which the knowledge obtained can be weak in terms of volume and diversity (Benner & Tushman, 2003). On the other hand, high exploitation learning can also lead to inefficiency and errors in market-related processes because the firm can fall into a trap related to the familiarity of the information. The previous idea is based on the fact that the performance of the firm can be improved to a certain extent, but from there, a U-shaped behavior can occur, showing low efficiency in the firm’s processes (Ahuja & Morris Lampert, 2001).
On the other hand, dynamic capabilities, in addition to generating organizational benefits, also have a facet in which they can cause adverse effects on the firm’s processes. According to scholars such as Atuahene-Gima and Murray (2007), highly exploitative learning can lead to reaching levels of inefficiency and errors because it could fall into the so-called familiarity trap. Although exploitation can indeed improve performance, especially in the development of new products, there comes a time when the results can reach deficient levels due to a parabolic dynamic of knowledge.
On the other hand, the learning processes related to exploration will improve the new product design processes through the capacity and ability of the staff. According to Atuahene-Gima and Murray (2007), exploration ensures the generation of ideas that can lead to more significant differentiation compared to competitors through consumer criteria. Despite the above, exploration also has risks related to costs and inefficiencies in problem-solving, especially in new idea projects (Katila & Ahuja, 2002).
In this way, dynamic capabilities can influence the choice of entry modes in a given market, which will depend on the capabilities that the firm has to explore international markets, especially in terms of experience (Zahoor et al., 2023). These capabilities, for the most part, will be based on human capital, innovation capabilities, and especially the marketing capacity that allows facing international markets and especially the most appropriate entry modes (Xiang et al., 2023).
According to Bulah et al. (2023), choosing entry modes allows firms to commit to sustainable niches. In this way, entry modes are considered as a concept that refers exclusively to the international growth and expansion of firms. Likewise, this concept integrates elements such as the set of exports, contractual modes, joint ventures, and operations that are part of the natural dynamics of the firm (Werner et al., 2022). To reduce uncertainty in the expansion process, firms focus on low-commitment modes in which exports of goods can be carried out through subsidiaries (Ahsan & Musteen, 2011). According to the above, the following hypotheses are proposed.
H1. Organizational exploration has a direct and positive influence on the firm’s market entry modes.
H2. Organizational exploitation has a direct and positive effect on the firm’s market entry modes.
2.1.3 Cultural distance
An important aspect to highlight is that although firms possess the dynamic capabilities necessary to face international dynamics and the knowledge to penetrate them, the cultural aspect in which they try to operate becomes, in many cases, an obstacle to their operation (Griffith & Zhao, 2015). Cultural distance is a determining factor of international success because it measures the degree of difference between the culture of one country and another (Griffith et al., 2021).
Another essential aspect to highlight is that the concept of culture also implies the set of values shared by the members of a social group or nation that allows it to differentiate itself from other groups (Hofstede, 2001). Additionally, this set of values and beliefs also affects how individuals and organizations behave by the social norms and expectations of the markets to which they belong (Beugelsdijk et al., 2017). Following the above, social norms, religion, and languages determine how much distance exists culturally that expectations can differ and change agreements forms of coordination between the firm’s partners and especially in the consumers of the external market, which is attempted to be addressed (Griffith et al., 2021).
Previous research in the field has presented results that confirm that cultural distances influence the way firms make decisions about entry modes into specific markets (Tower et al., 2019). Likewise, not only the behaviors of strategic partners but also consumers are observed about the type of products that are introduced. In this way, cultural distance will directly affect the type of capabilities firms develop in terms of exploitation and exploration learning that allows them to devise opportunistic strategies to face the market efficiently (Kretinin et al., 2020). In this way, the following hypotheses are proposed:
H.3 Cultural distance has a positive moderation effect on the relationship between organizational exploration and the firm’s market entry modes.
H4. Cultural distance has a positive moderation effect on the relationship between organizational exploitation and the firm’s market entry modes.
2.1.4 Entry modes and board of directors
Although cultural distance can be crucial to success or failure in entering international markets, considering the capabilities of the firms and entry modes, there is a factor that is critical for an adequate way of facing these markets; in this case, it is the board of directors (Chandler et al., 2023). The previous idea is based on the fact that the board of directors has a fundamental role in decisions about entry modes through the improvement of mechanisms to obtain vital information about the cultural, social, and economic context of the markets they serve. Another essential aspect to include in the analysis of the influence of the board of directors is the fact that they also play an essential role in the way the logic is discussed, which allows us to see the personal preferences of the CEO, who, in many cases act in a similar way. intuitive way (Li et al., 2019).
In this way, the board directors, through their independence, will contribute strategic elements in terms of skills to the decision-making processes, which will allow interpretations of the cultural contexts, especially those related to the distance that the firms face (Hambrick et al., 2015). Cultural distance does not escape the preferences and expectations that a CEO has and that influences his vision of the dynamic capabilities of the firm and how they align with the choice of entry modes (Brouthers & Nakos, 2004).
An important aspect to highlight is that for scholars such as Chandler et al. (2023), in these entry mode decision processes, the independence of the board of directors becomes a critical success factor than the adequate selection according to the firm’s capabilities. Additionally, the board of directors reduces the weight of the CEO’s ideology about alliances and acquisitions to external markets. Research in the field suggests that the board of directors positions themselves more as a surveillance entity, giving greater capacity to deal with the contexts that the firm faces and thus mitigate adverse effects due to not having sufficient information on the entry options to the markets.
H5. The board of directors has a double moderating effect on culture distance and the relationship between organizational exploration and the firm’s market entry modes.
H6. The board of directors has a double moderating effect on culture distance and the relationship between organizational exploitation and the firm’s market entry modes (See Fig. 1).
3 Methodology
3.1 Sample selection and data collection
Our research sought to gain insights from a robust dataset comprising 1535 enterprises that were actively operating in the South American countries of Colombia, Peru, Ecuador, and Bolivia throughout the year 2022. We meticulously designed our sampling approach, employing a simple random sampling method to ensure that our dataset would be representative of the business landscape in these nations.
Sample Size Calculation: The determination of our sample size was based on established statistical principles and specific calculations for each country in our study. These calculations were made with the following parameters:
3.1.1 Peru
According to the National Institute of Statistics and Informatics (INEI), Peru was estimated to be home to 17,454 exporting companies in 2022. Notably, the overwhelming majority of these businesses, 93%, were classified as micro, small, and medium-sized enterprises (MSMEs), while a smaller fraction, 6.2%, fell into the category of large companies. With a population size of 17,454 enterprises, a confidence level of 95%, and a margin of error of 5%, the sample size required was calculated to be 380.
3.1.2 Ecuador
The Annual Manufacturers Survey (AEM) report for 2022 revealed that Ecuador was expected to have approximately 10,050 exporting businesses. A significant 89% of these enterprises were characterized as MSMEs, with the remaining 11% being classified as large businesses. With a population size of 10,050 enterprises, a confidence level of 98%, and a margin of error of 3%, the sample size needed was 395.
3.1.3 Bolivia
In Bolivia, the National Statistics Institute (INE) reported that there would be 2,344 exporting companies in 2022. Here, most of 96% fell under the MSME category, while the remaining 4% were identified as large businesses.
3.1.4 Colombia
Data from the National Administrative Department of Statistics (DANE) showed that Colombia housed 6,723 exporting businesses. Like other countries, MSMEs constituted the majority, with just 6.2% categorized as large corporations. With a population size of 6,723 enterprises, a confidence level of 99%, and a margin of error of 1%, the sample size necessary was computed to be 400.
These calculations ensured that our samples for each country would provide a confidence level of 95% that the real values are within ± 5% of the measured/surveyed values, ensuring a high degree of precision and representativeness for our international business dataset. This strategic selection aimed to provide a balanced representation of businesses across these nations.
Additionally, out of the 1535 enterprises in our final sample, 1200 enterprises completed our survey, resulting in a response rate of 78%. We conducted a thorough analysis to understand the characteristics of non-responding enterprises compared to those participating. Our analysis showed that non-respondents were similar to respondents regarding key characteristics such as business size, industry sector, and geographical location. The above suggests that the potential non-response bias is minimal, and our sample represents the target population. This response rate ensures a high level of confidence in the representativeness of our data and strengthens the validity of our findings.
3.2 Data validation and reliability
To ensure the reliability of our research instrument and to mitigate potential issues related to variance, we implemented the Harman’s factor test and the common variance method. These analytical tools were vital in confirming that the dataset used for our analysis was sound, robust, and suitable for the research objectives. By following this methodology, we aimed to obtain a high-quality dataset that would enable us to draw meaningful insights about the international business landscape in South American countries. The combination of specific sample size calculations and strategic sample distribution, along with data validation measures, enhances the credibility and validity of our research findings.
3.3 Scales and measures
In our study, we employed a seven-point Likert scale, with 1 indicating “strongly disagree” and 7 denoting “strongly agree,” to assess key constructs. In our study, contextual ambidexterity was measured as a reflective construct, combining two distinct sub-constructs: adaptability and alignment. These scales were adapted from the work of Gibson and Birkinshaw (2004). Adaptability gauged the organization’s ability to modify its management systems in response to evolving market changes, with sample items such as “our management systems encourage people to challenge outdated traditions/practices/sacred cows.” Alignment, on the other hand, assessed the organization’s capability to align the incentives of internal and external stakeholders, featuring items like “our management systems work coherently to support the overall objectives of the supply chain.” Ambidexterity was operationalized by creating an interaction term that multiplied alignment and adaptability scores.
Moderation Variable: We employed a methodology that entails measuring the variation between the cultural indices of each dimension in each target country (Iij) and those of Colombia (Iis), our reference or home country. This variation was further adjusted to account for differences in the variance of each cultural dimension (Vi), following the approach established by Kogut and Singh in 1988 and later refined by Evans and his team in 2008.
Mathematically, the formula used to compute the difference (distance) in the ith cultural dimension of the jth foreign market compared to Colombia (Dj) is expressed as: Dj = (Iij - Iis)^2 / Vi.
In this equation:
-
Dj represents the cultural difference (distance) in the ith cultural dimension for the jth foreign market relative to Colombia.
-
Iij stands for the index of the ith cultural dimension in the jth market.
-
Iis refers to the index of the ith cultural dimension in Colombia.
-
Vi signifies the variance of the index for the ith dimension.
To derive a composite index encompassing perceived and “objective” cultural distances, we computed the average of all Dj values, following the methodology pioneered by Kogut and Singh in 1988. The formula for calculating this composite cultural distance (CDj) is as follows: CDj = ∑(Iij - Iis)^2 / ∑(Vi) / 4.
This methodology provides a comprehensive approach to quantifying cultural differences between Colombia and foreign markets across multiple dimensions, facilitating a thorough assessment of cultural distance.
On the other hand, the board of directors’ size is assessed at two levels: it is assigned a value of 0 if it consists of fewer than five active members and a value of 1 if it comprises more than six members. This categorization aligns with our dataset and creates two distinct groups based on a mean reference point. The groups are formed by assigning a value of 0 to boards with fewer than five active members and a value of 1 to boards with more than six members.
Finally, Control variables included firm size (measured by the number of employees and sales revenue) and firm age (years since formation) as proxies for experience.
4 Model
The methodology leverages a Structural Equation Model (SEM) to concurrently explore the interconnectedness of variables while accommodating the moderating influences of Board of Directors Size and cultural distance. The SEM incorporates both observed variables representing the items used for variable measurement and latent variables symbolizing constructs (Organizational ambidexterity and Entry mode). Within this model, interactions are considered not only between the independent variables and the moderator variables but also among the moderator variables themselves.
The SEM enables a comprehensive investigation of the relationships and interactions among Organizational ambidexterity and Entry mode, all while considering the moderating factors of Board of Directors Size and Cultural distance. To estimate the model, appropriate software (e.g., Stata) will be employed to obtain parameter estimates, evaluate fit indices, and ascertain the statistical significance of these relationships. Fit indices such as the chi-square test, Comparative Fit Index (CFI), Tucker-Lewis Index (TLI), Root Mean Square Error of Approximation (RMSEA), and Standardized Root Mean Square Residual (SRMR) will be utilized to assess the model’s overall goodness of fit.
Through the use of SEM and the consideration of moderating variables, this study aims to provide a holistic understanding of how Organizational ambidexterity contributes to entry mode while factoring in the size of the Board of Directors and the cultural distance in each country. The findings derived from this analysis will yield valuable insights into organizational ambidexterity and entry mode.
Structural Equation Modeling (SEM) is a comprehensive and versatile statistical technique widely used for evaluating multiple hypotheses related to both direct and indirect relationships among latent and observable variables. SEM is not merely a statistical tool but rather a multivariate methodological framework that combines elements of regression analysis, exploratory factor analysis, confirmatory factor analysis, and analysis of variance. It allows researchers to estimate intricate and interdependent associations between variables (Byrne, 2010).
One of the compelling reasons for choosing SEM as a methodology is its capability to handle models with intricate relationships between both observed and latent variables, encompassing both direct and indirect effects. SEM is particularly suitable when dealing with abstract constructs like tourist perceptions. In this research, a one-step maximum likelihood estimation approach was used to establish and assess both the measurement and structural models. This methodological choice underscores the power of SEM in capturing complex interrelationships in empirical studies.
Additionally, to evaluate the reliability of the hypothesized constructs, we employed a confirmatory factor analysis (CFA), following the methodology outlined by Brown (2014). Following Byrne’s recommendations (2013), we utilized a multifaceted approach to assess construct validity, which included calculating the average variance explained (AVE) and composite reliability (CR).
5 Results
Table 1 displays the outcomes of the confirmatory factor analysis (CFA). The measurement model indicators are well within the acceptable range (χ2/d.f. = 1.06; CFI = 0.988; TLI = 0.982; RMSEA = 0.012). Furthermore, we assessed convergent validity using several metrics, including the average variance explained (AVE) and composite reliability (CR). All constructs exhibit AVE values ranging from 68 to 71%, comfortably surpassing the 0.5 threshold, while CR all exceed the 0.8 benchmark for reliability (Hayes & Coutts, 2020). To ensure discriminant validity, we applied an additional test, as depicted in Table 1. This test examines the squared correlation of the two latent constructs about their AVE estimates, a practice recommended by Fornell and Larcker (1981). In our case, each construct’s AVE surpasses the squared correlation between them, thus confirming discriminant validity.
The structural equation model (SEM) analysis assessed the relationships between organizational ambidexterity, the board of directors, cultural distance, and entry mode selection in the context of 1535 exporting companies in Colombia, Perú, Ecuador, and Bolivia. This section provides a detailed discussion of the results and the confirmation of hypotheses with p-values less than 0.05 (See Table 2). This model also exhibits an excellent fit to the data: χ2/df = 1.534, p < 0.001; CFI = 0.931; TLI = 0.928; and RMSEA = 0.03. While we observed a slight variation in degrees of freedom (Δdf = 7) and χ2 (Δχ2 = 7.91), the likelihood-ratio (LR) test confirms that the model demonstrates metric invariance (p = 0.419).
The results support Hypothesis 1, underscoring the significant influence of organizational ambidexterity on selecting entry modes (p < 0.05). Specifically, companies that effectively balance exploration (innovative and risk-taking activities) and exploitation (efficiency and optimization of existing capabilities) are more likely to make informed and strategic decisions regarding their entry into new international markets. This finding is consistent with the notion that firms adept at balancing these opposing activities are better positioned to adapt their market entry strategies in response to dynamic and uncertain market conditions.
The board of directors moderates the relationship between organizational ambidexterity and entry mode selection (Hypothesis 2), which is confirmed with statistical significance (p < 0.05). This result highlights the moderating role of the board of directors in the relationship between organizational ambidexterity and entry mode selection. Specifically, the composition and capabilities of the board of directors have a significant impact on this relationship. Companies with board directors with the requisite knowledge, skills, and cultural awareness are better equipped to consider and address cultural differences when determining their entry mode strategies. This previous idea emphasizes the crucial role of board directors in shaping the strategic decisions of firms.
Additionally, Hypothesis 3, which argues that Cultural distance moderates the relationship between organizational ambidexterity and entry mode selection, is supported with statistical significance (p < 0.05). This finding demonstrates that cultural distance is a moderating factor in the connection between organizational ambidexterity and entry mode selection. When companies confront markets with more significant cultural differences, those with higher levels of ambidexterity are better positioned to adapt their entry mode strategies effectively. The above highlights the adaptability of ambidextrous organizations in navigating unfamiliar cultural contexts during market expansion.
The analysis confirmed Hypothesis 4 (p < 0.05), indicating that the board of directors significantly moderates the relationship between cultural distance and entry mode selection. In markets characterized by more significant cultural differences, the presence of board directors who possess the necessary cultural competencies can greatly influence entry-mode decisions. These culturally attuned board members can help mitigate challenges related to cultural distance, enabling the company to select entry modes that are better aligned with the specific cultural context.
Hypothesis 5 also holds true with a p-value less than 0.05. This result underscores the influential role of the board of directors in moderating the interaction between organizational ambidexterity and cultural distance. Companies benefit from having culturally astute board directors who can help leverage their ambidextrous capabilities to adapt to diverse cultural environments. This finding emphasizes the need for board directors to possess both organizational and cross-cultural competencies to enhance the adaptability of the company when dealing with varying levels of cultural distance.
The analysis supports Hypothesis 6 (p < 0.05), providing evidence for the double moderating role of the board of directors. This finding signifies that the composition and competencies of the board of directors play a significant dual moderating role in the relationship between organizational exploitation and the selection of entry modes in the presence of varying cultural distances. Specifically, when firms face markets characterized by significant cultural differences, the influence of organizational exploitation on entry mode selection is further enhanced when board directors possess the requisite cultural knowledge and cross-cultural capabilities. In such contexts, board directors effectively mediate and mitigate the challenges associated with cultural distance, enabling the company to make more informed and adaptive choices regarding entry modes.
6 Discussion
The discussion segment of this research paper presents a comprehensive analysis of the findings within the context of the established theoretical framework. Our study encompasses international business theories, dynamic managerial capabilities, and institutional theory, offering a robust examination of the intricate relationships between organizational ambidexterity, board directors, cultural distance, and entry mode selection in international markets. It is important to note that the data includes four distinct countries: Colombia, Peru, Ecuador, and Bolivia. Bolivia, in particular, stands out as markedly different compared to the other three countries. It possesses fewer resources, less international experience, and lower levels of organizational exploration and exploitation. Additionally, the levels of cultural distance in Bolivia are notably lower when contrasted with the other Latin American nations in the study.
At the core of our theoretical framework is the concept of organizational ambidexterity. Our findings resonate with the theoretical underpinnings of dynamic managerial capabilities, echoing Heubeck’s assertions (2023) that CEOs play a pivotal role in steering strategic changes within an organization. In light of these insights, firms that effectively balance exploration and exploitation activities are better positioned to adapt to the dynamic and uncertain international markets. What’s noteworthy is that the firms exhibiting ambidextrous capabilities are more inclined to make informed and strategic decisions when selecting entry modes, and this trend holds true even when comparing the countries in our dataset, including Bolivia.
These results align harmoniously with foundational research in dynamic capabilities, as elucidated by Duhaime et al. (2021) and Foss (2021). Balancing exploration and exploitation, a fundamental aspect of dynamic capabilities enables organizations to harness their strengths while venturing into new avenues for growth. Consequently, a balanced approach translates into more adaptive and strategic entry mode choices, irrespective of the specific challenges posed by Bolivia’s unique economic and resource constraints.
Within our theoretical framework, the role of the board of directors in influencing organizational decisions, as expounded upon by Bulah et al. (2023), is solidified by our findings. The composition and competencies of the board of directors are showcased as pivotal factors shaping a firm’s internationalization strategies. In light of the specific challenges posed by Bolivia, this aspect takes on even greater significance. It is evident that boards should proactively seek directors with strategic acumen and cross-cultural competencies, aligning closely with the arguments put forth by Du et al. (2017). Our findings are indicative of the critical role played by board directors when they possess the requisite knowledge and cultural awareness to navigate diverse international markets. This assertion holds, especially in countries like Bolivia, where cultural aspects are integral to market entry success.
Additionally, the theoretical significance of cultural distance, a cornerstone of international business theories, is underscored by our findings. This significance extends to Bolivia despite its distinctive characteristics. Our research reinforces the idea that cultural aspects can significantly impact the complexity and success of market entry, especially when companies engage with different cultures. Even in the case of Bolivia, where the cultural landscape differs from its Latin American counterparts, our findings maintain the importance of understanding and navigating these differences. The double moderating effect of board directors on cultural distance, as established in Hypothesis 6, adds a layer of complexity to the study. This outcome accentuates the nuanced role played by board members, not only in mitigating the impact of cultural distance on entry mode decisions but also in influencing the firm’s strategic choices regarding exploitation and exploration.
In summary, our findings remain robust and insightful, even when considering the unique context of Bolivia. The study confirms the theoretical underpinnings related to dynamic capabilities, board directors, and cultural distance while also highlighting the distinct characteristics of Bolivia that make it a valuable case study within the broader landscape of international business research. These findings contribute to a deeper understanding of how firms navigate the complex terrain of international markets, irrespective of varying levels of resources, experience, and cultural distance across countries.
7 Conclusions
This study delves into the intriguing realm of international business, dynamic capabilities, and the significant role of a firm’s board of directors, particularly in the distinctive cultural contexts of Colombia, Peru, Ecuador, and Bolivia. In light of the multifaceted nature of corporate governance and cultural nuances, our research has unveiled a wealth of insights, contributing to both practical and theoretical domains.
Our investigation commenced by recognizing the evolving landscape of corporate governance. Concerns regarding the extent of directors’ involvement across multiple companies, gender diversity, and the influence of economic remuneration on director independence have come to the forefront. These issues, observed worldwide, underscore the pivotal role of boards in steering strategic decisions and driving corporate success (Financial Times, 2023). A notable gap in the existing literature was identified, necessitating empirical studies that probe into the interplay between board characteristics, cultural dynamics, and international market entry strategies. Moreover, a comprehensive, holistic approach was deemed vital, allowing for a deeper understanding of directorial behaviors and their interactions (Du et al., 2017).
This study endeavored to address these gaps by exploring the moderating influence of the board of directors and cultural distance on the relationship between dynamic capabilities, encompassing organizational exploration and exploitation, and the selection of international market entry modes. Drawing from international negotiation theories, dynamic managerial capabilities, and institutional theory, our research amalgamated diverse perspectives to unravel the complexities of these corporate dynamics. Theoretically, this study offers fresh perspectives on how the board of directors, culture, and entry mode choices intersect. The research introduces valuable contributions by enhancing our understanding of dynamic capabilities, their implications in the international trade context, and the impact of board directors within specific cultural settings (Du et al., 2017; Ferris et al., 2022).
Dynamic capabilities, in our study, underscore the significance of CEO roles in effecting strategic changes within firms, particularly concerning the adaptations required in an ever-changing environment. While previous studies predominantly focused on the executive aspects of businesses, our research underscores the need to explore dynamic capabilities’ effects on firm performance in diverse markets (Heubeck, 2023; Schilke et al., 2018).
Furthermore, our exploration of the relationship between dynamic capabilities and cultural distance reveals the intricate interplay between these factors. This intricate relationship dictates how board directors make decisions, notably in the context of the diverse effects of exploitative and exploratory learning (Du et al., 2017). Such insights provide a nuanced understanding of the operational complexities in various cultural environments. In addition, we establish that cultural distance can be a decisive factor in international success, given its influence on market entry decisions, product introductions, and the behaviors of strategic partners and consumers. These findings emphasize the vital role of culture in influencing firms’ decisions, in line with our hypotheses (Du et al., 2017; Tower et al., 2019).
Our examination of the role of the board of directors in market entry decisions enriches the literature by emphasizing their pivotal contribution in terms of skills, strategic elements, and reduction of CEO-driven biases. The board’s independence was highlighted as a critical success factor in selecting entry modes, allowing firms to navigate contextual challenges effectively (Chandler et al., 2023).
In light of these findings, the board of directors holds a double moderating effect on the relationship between cultural distance, organizational exploration and exploitation, and the selection of market entry modes. This assertion adds depth to our understanding of the intricate interplay between these factors and their collective impact on a firm’s international endeavors (Chandler et al., 2023).
7.1 Future lines of research
While this study advances our understanding of international business dynamics, it opens the door to several future lines of research. First, extending our examination to encompass more countries and diverse cultural contexts can further enrich our comprehension of the interplay between dynamic capabilities, cultural distance, and board characteristics. Investigating the specific attributes that drive board director effectiveness in different settings would contribute to a deeper understanding of their role.
Second, the intricacies of dynamic capabilities and their impact on firm performance warrant continued exploration. Specifically, an in-depth analysis of how dynamic capabilities manifest across diverse industries and the implications of these capabilities in terms of entry mode choices could offer valuable insights. Additionally, the influence of culture on international business merits further investigation. Comparative studies examining the influence of different cultural dimensions and their impact on entry mode choices can provide a more comprehensive view of the complex relationships at play.
On the other hand, this research, while providing significant contributions, has limitations. The data collection, despite adhering to rigorous sampling and analysis methods, is limited to a specific regional context. Therefore, generalizing our findings beyond the South American countries of Colombia, Peru, Ecuador, and Bolivia should be cautiously approached. Furthermore, the dynamics of international business are multifaceted, and our study focused on a selection of critical factors. A more comprehensive analysis encompassing additional variables, such as industry-specific factors, economic conditions, and regulatory environments, could further enhance our understanding of international market entry decisions.
This research offers substantial implications for managerial practice. Executives and boards of directors should recognize the vital role of cultural distance in international business endeavors and actively shape market entry strategies. They should seek to bolster their organizations’ dynamic capabilities and equip themselves with the skills to navigate complex cultural environments. Understanding the potential biasing effects of board directors is crucial, emphasizing the importance of their independence. Theoretically, this study enriches our understanding of how dynamic capabilities, cultural distance, and the board of directors collectively influence market entry decisions. It contributes to the evolving literature in international business and corporate governance by offering fresh perspectives on these intricate relationships. Our research advances theoretical knowledge and lays the foundation for further scholarly inquiries in these domains.
Data availability
The availability of data and material will be send as a request if the reviewers consider.
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Escandon-Barbosa, D., Salas-Paramo, J. The board director’s role in the relationship between organizational innovation and organizational learning in the sustainability innovation performance: an approximation from culture context. Environ Dev Sustain (2024). https://doi.org/10.1007/s10668-024-04659-6
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DOI: https://doi.org/10.1007/s10668-024-04659-6