University of Twente Student Theses


Espansion strategies for international trade and investment - National culture and foreign market entry A theory testing approach

Frank, Paula (2012) Espansion strategies for international trade and investment - National culture and foreign market entry A theory testing approach.

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Abstract:This thesis is about market entry strategies for international trade and investment and to what extent the choices for certain strategies are influenced by national culture. The significance of this topic has led to numerous studies in the field of international business. Nevertheless, this does not mean that empirical studies have retrieved homogeneous outcomes. Rather, the results do not present consensus, even after decades of research. Although most of the research papers use the same measurement, Kogut and Singh’s aggregate measure of cultural distance, the studies reveal different results. The measure which is a simple formula calculated on the basis of Hofstede’s (1980) five cultural dimensions does not provide for equivalent results. Furthermore, most of the papers do not provide an a posteriori analysis of their quantitative results. This means that quantitative results are often not falsified in, for example, case studies with business organizations in order to see how individual actors conceive the relationship between culture and entry modes. In this thesis, it was tested quantitatively if there is a significant relationship between the five cultural dimensions developed by Hofstede and the choice between equity and non-equity market entry modes. The relationship between these variables was clarified by placing them in the context of transaction cost economics. The aggregate measurement of Kogut and Singh was disaggregated in the five original dimensions. Data from forty-eight worldwide operating companies on their cultural dimension scores and the number of equity and non-equity modes per company were tested with the help of inferential statistics. Afterwards, the quantitative results were reflected with the help of a case study. Two countries were selected from the sample of the quantitative analysis, the Netherlands and Canada. Actors from the shale gas industry were chosen as sample for the interviews, because foreign market potential in this industry is seen for Dutch and Canadian companies. However, the interviews were not used to test the theory again. Rather, the case study was used to clarify the relationship between cultural dimensions and foreign market strategies. It is an illustration of the falsification of Hofstede’s theory and a reflection on the quantitative results. More than 20 years have passed since the first publication of Hofstede’s Culture’s Consequences and many research papers have yielded an impressive amount of research in the area of cultural dimensions and foreign investment strategies; however questions about the real influences of cultural dimensions on foreign market entry strategies remain. Even moving beyond the disaggregate measurement by studying the five variables separately does not seem to add to the fragmented research findings. The results of the quantitative analysis and the case study are in alignment with what was known beforehand; Hofstede’s dimensions do not seem to show a significant influence on the choice between equity and non-equity market entry modes. The quantitative results show only one significant relationship between the variables. The dimension of uncertainty avoidance was found to have a significant correlation with market entry strategies. It was found that companies from countries that score low on uncertainty avoidance are more likely to enter foreign markets by equity modes. All interview partners seemed to agree with this finding. Nevertheless, the case study showed that there is more to entry decision making than just rational choice models, such as transaction cost economics. From this insight, the question remains if transaction cost economics alone is enough to explain why business organizations with different cultural backgrounds choose for certain entry modes. In order to be able to overcome the fragmented results in the research field of culture and international investment strategies, the following is recommended:  Move Beyond Hofstede – Shift in paradigms on culture and investment strategies A new paradigm should be developed to study the influence of cultural backgrounds on the international investment strategies. This does not mean that cultural dimensions should be neglected all together, it is the question if these dimensions can be added by individual attributes of managers (years of experience for example) in order to make them more suitable for business organization research. It is suggested that the fragmented research findings can be overcome by improving Hofstede’s framework with additional variables that are relevant in making strategic decisions.  International Investment as Multilevel Phenomenon- Develop an overall theoretical market entry model It is suggested that an overall framework or model should be developed which presents variables to managers they can choose from and that are retrieved from different theoretical backgrounds. One could think about including network theories and corporate culture theories.  Deepening of TCE theory - Including Strategic Decision Making This research, as well as previous studies, have relied mostly on rational choice models such as transaction cost economics. Yet although entry mode choice is a strategic decision, many papers have seemed to ignore research on strategic decision making (SDM) in their theoretical reviews. It is suggested to include how a managers knowledge and attitudes influence entry decisions because previously made experiences can have an impact on the experiences that are made abroad. Neither Hofstede nor TCE consider manager’s experiences in the past and their influence on entry mode choice. All in all, the results show that the choice for certain international investment strategies should be rooted in a multiple theoretical framework. The complex decision making mechanisms behind entry mode choices can neither be explained by Hofstede’s dimensions nor by transaction cost economics alone. The previously made postulation that many business studies are tremendously based on the assumptions of the five dimensions and transaction costs is verified in this study to be a constraining factor in successfully explain the relationships between these variables. It is time to consider alternative theoretical explanations and move beyond Hofstede because it is obvious that cultural differences have little direct effect on entry mode choices.
Item Type:Essay (Master)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Business Administration MSc (60644)
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