Journal of International Business Studies

, Volume 39, Issue 1, pp 53–70 | Cite as

Performance effects of “added cultural distance” in the path of international expansion: the case of German multinational enterprises

  • Thomas HutzschenreuterEmail author
  • Johannes C Voll


This paper contributes to the debate on the performance impact of “added cultural distance” in the multinational enterprise's (MNE's) expansion path. Our research focuses on the ability of MNEs to handle complexity associated with added cultural distance in international expansion, and on the effect this may have on profitability. We hypothesise that firms that make expansion moves involving a high level of added cultural distance per unit of time, and those that expand in culturally distant countries in an irregular fashion, that is, with a higher variability, will be less profitable. We test these hypothesised relationships using detailed data on 2404 expansion moves undertaken by our panel of 91 German MNEs, whose expansion paths we tracked during periods ranging between 5 and 20 years.


international expansion multinational enterprise performance path cultural distance 



The authors are grateful for valuable comments and suggestions received from the three anonymous JIBS reviewers, JIBS Departmental Editor Alain Verbeke and JIBS Editor-in-Chief Arie Y. Lewin, which have significantly improved this article.


  1. Adler, N. J. 2002. International dimensions of organizational behaviour (4th ed.). Cincinnati, OH: South-Western.Google Scholar
  2. Aiken, L. S., West, S. G., & Reno, R. R. 1991. Multiple regression: testing and interpreting interactions. Newbury Park, CA: Sage Publications.Google Scholar
  3. Barkema, H. G., Bell, J. H. J., & Pennings, J. M. 1996. Foreign entry, cultural barriers, and learning. Strategic Management Journal, 17 (2): 151–166.CrossRefGoogle Scholar
  4. Barkema, H. G., Shenkar, O., Vermeulen, F., & Bell, J. H. J. 1997. Working abroad, working with others: How firms learn to operate international joint ventures. Academy of Management Journal, 40 (2): 426–442.CrossRefGoogle Scholar
  5. Barkema, H. G., & Vermeulen, F. 1998. International expansion through start-up or acquisition: A learning perspective. Academy of Management Journal, 41 (1): 7–26.CrossRefGoogle Scholar
  6. Barney, J. 1991. Firm resources and sustained competitive advantage. Journal of Management, 17 (1): 99–120.CrossRefGoogle Scholar
  7. Bartlett, C. A., & Ghoshal, S. 1986. Tap your subsidiaries for global reach. Harvard Business Review, 64 (6): 87–94.Google Scholar
  8. Birkinshaw, J. M., & Morrison, A. J. 1995. Configurations of strategy and structure in subsidiaries of multinational corporations. Journal of International Business Studies, 26 (4): 729–753.CrossRefGoogle Scholar
  9. Buckley, P. J., & Casson, M. 1976. The future of the multinational enterprise. London: Macmillan.CrossRefGoogle Scholar
  10. Calori, R., Lubatkin, M., & Very, P. 1994. Control mechanisms in cross-border acquisitions: An international comparison. Organization Studies, 15 (3): 361–379.CrossRefGoogle Scholar
  11. Carpenter, M. A., & Fredrickson, J. W. 2001. Top management teams, global strategic posture, and the moderating role of uncertainty. Academy of Management Journal, 44 (3): 533–545.CrossRefGoogle Scholar
  12. Chang, S. J. 1995. International expansion strategy of Japanese firms: Capability building through sequential entry. Academy of Management Journal, 38 (2): 383–407.CrossRefGoogle Scholar
  13. Chang, S.-J., & Rosenzweig, P.M. 2001. The choice of entry mode in sequential foreign direct investment. Strategic Management Journal, 22 (8): 747–776.CrossRefGoogle Scholar
  14. Chatterjee, S., & Wernerfelt, B. 1991. The link between resources and type of diversification: Theory and evidence. Strategic Management Journal, 12 (1): 33–48.CrossRefGoogle Scholar
  15. Cho, K. R., & Lee, L. 2004. Firm characteristics and MNC's intra-network knowledge sharing. Management International Review (MIR), 44 (4): 435–455.Google Scholar
  16. Cohen, W. M., & Levinthal, D. A. 1990. Absorptive capacity: A new perspective on learning and innovation. Administrative Science Quarterly, 35 (1): 128–152.CrossRefGoogle Scholar
  17. Contractor, F. J., Kundu, S. K., & Hsu, C. -C. 2003. A three-stage theory of international expansion: The link between multinationality and performance in the service sector. Journal of International Business Studies, 34 (1): 5–18.CrossRefGoogle Scholar
  18. Cyert, R. M., & March, J. G. 1963. A behavioural theory of the firm. Englewood Cliffs, NJ: Prentice-Hall.Google Scholar
  19. Daft, R. L. 1992. Organization theory and design. St Paul, MN: West Publishing.Google Scholar
  20. Deutsche Börse Group 2006. Historical index composition of the equity- and strategy indices of Deutsche Börse, Version 2.0, June 2006, Frankfurt: Deutsche Börse Group.Google Scholar
  21. Dierickx, I., & Cool, K. 1989. Asset stock accumulation and sustainability of competitive advantage. Management Science, 35 (12): 1504–1524.CrossRefGoogle Scholar
  22. Dow, D., & Karunaratna, A. 2006. Developing a multidimensional instrument to measure psychic distance stimuli. Journal of International Business Studies, 37 (5): 578–602.CrossRefGoogle Scholar
  23. Drukker, D. M. 2003. Testing for serial correlation in linear panel-data models. The Stata Journal, 3 (2): 1–10.Google Scholar
  24. Eisenhardt, K. M., & Martin, J. A. 2000. Dynamic capabilities: What are they? Strategic Management Journal, 21 (10/11): 1105–1121.CrossRefGoogle Scholar
  25. Eisenhardt, K. M., & Schoonhoven, C. B. 1990. Organizational growth: Linking founding team, strategy, environment, and growth among US semiconductor ventures, 1978–1988. Administrative Science Quarterly, 35 (3): 504–529.CrossRefGoogle Scholar
  26. Forsgren, M. 2002. The concept of learning in the Uppsala internationalization process model: A critical review. International Business Review, 11 (3): 257–277.CrossRefGoogle Scholar
  27. Franke, R. H., Hofstede, G., & Bond, M. H. 1991. Cultural roots of economic performance: A research note. Strategic Management Journal, 12 (4): 165–173.CrossRefGoogle Scholar
  28. Ghemawat, P. 2001. Distance still matters. Harvard Business Review, 79 (8): 137–147.Google Scholar
  29. Gómez-Mejia, L. R., & Palich, L. E. 1997. Cultural diversity and the performance of multinational firms. Journal of International Business Studies, 28 (2): 309–335.CrossRefGoogle Scholar
  30. Grant, R. M., Jammine, A. P., & Thomas, H. 1988. Diversity, diversification, and profitability among British manufacturing companies 1972–84. Academy of Management Journal, 31 (4): 771–801.CrossRefGoogle Scholar
  31. Greene, W. H. 2000. Econometric analysis (4th ed.). Upper Saddle River, NJ: Prentice-Hall.Google Scholar
  32. Haleblian, J., & Finkelstein, S. 1999. The influence of organizational acquisition experience on acquisition performance: A behavioral learning perspective. Administrative Science Quarterly, 44 (1): 29–56.CrossRefGoogle Scholar
  33. Hannan, M. T., & Freeman, J. 1984. Structural inertia and organizational change. American Sociological Review, 49 (2): 149–164.CrossRefGoogle Scholar
  34. Hayward, M. L. A. 2002. When do firms learn from their acquisition experience? Evidence from 1990 to 1995. Strategic Management Journal, 23 (1): 21–39.CrossRefGoogle Scholar
  35. Hennart, J. -F. 2005. Some critical observations on the theory and methodology of the multinationality/performance literature. Paper discussed at the AIB Annual Meeting 2005, Quebec City.Google Scholar
  36. Hofstede, G. 1980. Culture's consequences: International differences in work-related values. Beverly Hills, CA: Sage Publications.Google Scholar
  37. Hofstede, G. 2001. Culture's consequences: International differences in work-related values. Newbury Park: Sage Publications.Google Scholar
  38. Hofstede, G. 2006. What did GLOBE really measure? Researchers’ minds versus respondents’ minds. Journal of International Business Studies, 37 (6): 882–896.CrossRefGoogle Scholar
  39. House, R. J. (2004). Culture, leadership, and organizations: The GLOBE study of 62 societies. Thousand Oaks, CA: Sage Publications.Google Scholar
  40. Javidan, M., House, R. J., Dorfman, P. W., Hanges, P. J., & de Luque, M. S. 2006. Conceptualizing and measuring cultures and their consequences: A comparative review of GLOBE's and Hofstede's approaches. Journal of International Business Studies, 37 (6): 897–914.CrossRefGoogle Scholar
  41. Jensen, R., & Szulanski, G. 2004. Stickiness and the adaptation of organizational practices in cross-border knowledge transfers. Journal of International Business Studies, 35 (6): 508–523.CrossRefGoogle Scholar
  42. Johanson, J., & Vahlne, J. -E. 1977. The internationalization of the firm: A model of knowledge development and increasing foreign market commitments. Journal of International Business Studies, 8 (1): 23–32.CrossRefGoogle Scholar
  43. Kim, W. C., Hwang, P., & Burgers, W. P. 1989. Global diversification strategy and corporate profit performance. Strategic Management Journal, 10 (1): 45–57.CrossRefGoogle Scholar
  44. Kirkman, B. L., Lowe, K. B., & Gibson, C. B. 2006. A quarter century of Culture's Consequences: A review of empirical research incorporating Hofstede's cultural values framework. Journal of International Business Studies, 37 (3): 285–320.CrossRefGoogle Scholar
  45. Kogut, B. 1985. Designing global strategies: Profiting from operational flexibility. Sloan Management Review, 27 (1): 27–38.Google Scholar
  46. Kogut, B., & Singh, H. 1988. The effect of national culture on the choice of entry mode. Journal of International Business Studies, 19 (3): 411–432.CrossRefGoogle Scholar
  47. Kogut, B., & Zander, U. 1992. Knowledge of the firm, combinative capabilities, and the replication of technology. Organization Science, 3 (3): 383–397.CrossRefGoogle Scholar
  48. Kogut, B., & Zander, U. 1993. Knowledge of the firm and the evolutionary theory of the multinational corporation. Journal of International Business Studies, 24 (4): 625–645.CrossRefGoogle Scholar
  49. Kwok, L., Bhagat, R. S., Buchan, N. R., Erez, M., & Gibson, C. B. 2005. Culture and international business: Recent advances and their implications for future research. Journal of International Business Studies, 36 (4): 357–378.CrossRefGoogle Scholar
  50. Lane, P. J., Salk, J. E., & Lyles, M. A. 2001. Absorptive capacity, learning, and performance in international joint ventures. Strategic Management Journal, 22 (12): 1139–1161.CrossRefGoogle Scholar
  51. Lu, J. W., & Beamish, P. W. 2004. International diversification and firm performance: The S-curve hypothesis. Academy of Management Journal, 47 (4): 598–609.CrossRefGoogle Scholar
  52. Luo, Y., & Peng, M. W. 1999. Learning to compete in a transition economy: Experience, environment, and performance. Journal of International Business Studies, 30 (2): 269–296.CrossRefGoogle Scholar
  53. Lyles, M. A., & Salk, J. E. 1996. Knowledge acquisition from foreign parents in international joint ventures: An empirical examination in the Hungarian context. Journal of International Business Studies, 27 (5): 877–903.CrossRefGoogle Scholar
  54. Maitland, E., Rose, E. L., & Nicholas, S. 2005. How firms grow: Clustering as a dynamic model of internationalization. Journal of International Business Studies, 36 (4): 435–451.CrossRefGoogle Scholar
  55. Nelson, R. R., & Winter, S. G. 1982. An evolutionary theory of economic change. Cambridge, MA: Belknap Press of Harvard University Press.Google Scholar
  56. Neter, J., Wasserman, W., & Kutner, M. H. 1990. Applied linear statistical models: Regression, analysis of variance, and experimental designs (3rd ed.). Homewood, IL: Irwin.Google Scholar
  57. Newman, K. L., & Nollen, S. D. 1996. Culture and congruence: The fit between management practices and national culture. Journal of International Business Studies, 27 (4): 753–779.CrossRefGoogle Scholar
  58. Palepu, K. 1985. Diversification strategy, profit performance and the entropy measure. Strategic Management Journal, 6 (3): 239–255.CrossRefGoogle Scholar
  59. Palich, L. E., Cardinal, L. B., & Miller, C. C. 2000. Curvilinearity in the diversification-performance linkage: An examination of over three decades of research. Strategic Management Journal, 21 (2): 155–174.CrossRefGoogle Scholar
  60. Penrose, E. T. 1959. The theory of the growth of the firm. New York: Wiley.Google Scholar
  61. Rugman, A. M. 1981. A test of internalization theory. Managerial and Decision Economics, 2 (4): 211–219.CrossRefGoogle Scholar
  62. Rugman, A. M., & Verbeke, A. 2004. A perspective on regional and global strategies of multinational enterprises. Journal of International Business Studies, 35 (1): 3–18.CrossRefGoogle Scholar
  63. Rugman, A. M., & Verbeke, A. 2007. Liabilities of regional foreignness and the use of firm-level versus country-level data: A response to Dunning et al. (2007). Journal of International Business Studies, 38 (1): 200–205.CrossRefGoogle Scholar
  64. Ruigrok, W., & Wagner, H. 2003. Internationalization and performance: An organizational learning perspective. Management International Review (MIR), 43 (1): 63–83.Google Scholar
  65. Scott, W. R. 1992. Organizations: Rational, natural and open systems (3rd ed.). Englewood Cliffs, NJ: Prentice-Hall.Google Scholar
  66. Shenkar, O. 2001. Cultural distance revisited: Towards a more rigorous conceptualization and measurement of cultural differences. Journal of International Business Studies, 32 (3): 519–535.CrossRefGoogle Scholar
  67. Smith, P. B. 2006. When elephants fight, the grass gets trampled: The GLOBE and Hofstede projects. Journal of International Business Studies, 37 (6): 915–921.CrossRefGoogle Scholar
  68. Tallman, S., & Li, J. 1996. Effects of international diversity and product diversity on the performance of multinational firms. Academy of Management Journal, 39 (1): 179–196.CrossRefGoogle Scholar
  69. Teece, D. J., Rumelt, R., Dosi, G., & Winter, S. 1994. Understanding corporate coherence. Journal of Economic Behavior and Organization, 23 (1): 1–30.CrossRefGoogle Scholar
  70. Van Den Bosch, F. A. J., Volberda, H. W., & De Boer, M. 1999. Coevolution of firm absorptive capacity and knowledge environment: Organizational forms and combinative capabilities. Organization Science, 10 (5): 551–568.CrossRefGoogle Scholar
  71. Verbeke, A., & Yuan, W. 2005. Subsidiary autonomous activities in multinational enterprises: A transaction cost perspective. Management International Review, 45 (Special Issue 2): 31–52.Google Scholar
  72. Vermeulen, F., & Barkema, H. G. 2002. Pace, rhythm, and scope: process dependence in building a profitable multinational corporation. Strategic Management Journal, 23 (7): 637–653.CrossRefGoogle Scholar
  73. Vernon, R. 1966. International investment and international trade in the product cycle. Quarterly Journal of Economics, 80 (2): 190–207.CrossRefGoogle Scholar
  74. Wagner, H. 2004. Internationalization speed and cost efficiency: Evidence from Germany. International Business Review, 13 (4): 447–463.CrossRefGoogle Scholar
  75. Wan, W. P., & Hoskisson, R. E. 2003. Home country environments, corporate diversification strategies, and firm performance. Academy of Management Journal, 46 (1): 27–45.CrossRefGoogle Scholar
  76. White, H. 1980. A heteroskedasticity-consistent covariance matrix estimator and a direct test for heteroskedasticity. Econometrica, 48 (4): 817–830.CrossRefGoogle Scholar
  77. Wooldridge, J. M. 2002. Econometric analysis of cross section and panel data. Cambridge, MA: MIT Press.Google Scholar

Copyright information

© Academy of International Business 2007

Authors and Affiliations

  1. 1.WHU Otto Beisheim School of ManagementVallendarGermany

Personalised recommendations