The Aspects of Culture and Its Effect on Entry Mode Decisions

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Bachelor Thesis 2010

Name: G.M.J. Smit
ANR: 619284
Supervisor: S. Xu
Date: 11th of June 2010
Word count: 7904
Organization & Strategy

Management Summary
What cultural factors influence the decision of ownership of subsidiaries from the conventional perspective or asymmetric perspective? This problem statement is the main area of research in this study. To be able to answer the problem statement several research questions have been studied

The decision for a mode of entry can depend on many different aspects. This research has been focusing on the cultural side of the entry mode decisions. The conventional point states that cultural differences are symmetric and measures these differences between countries with the cultural distance. Also a different view on cultural differences is given which comes from the side of the asymmetric perspective. This perspective states that cultural differences are not symmetric between countries. They see the measurement of institutional distance as a complementary measurement for cultural distance but a replacement for cultural distance has not been found yet. These two perspectives are the major force driving this research.

It is important to know what kind of influence these two different perspectives have on the entry mode decisions. From the conventional point of view it shows that when firms are faced with high cultural distance from their host country export, franchise and wholly owned subsidiary are avoided and a joint venture is preferred. The asymmetric point of view, taken with the institutional distance shows the same outcomes. Firms which have low institutional distance with the host country are more likely to choose export and franchise and wholly owned subsidiaries when equity is involved.

In this report you will find the results of a study on the effects of culture on the entry mode decision. The goal of the research is to give strategist insight in the different cultural perspectives and their influence on the entry mode decisions and to make them able to choose an appropriate entry mode.

This research has been conducted in accordance with the faculty of Business and Economics at Tilburg University in Tilburg, The Netherlands. The title of this research is: “The aspects of culture and its effect on entry mode decisions”

I would like to thank Mr. S. Xu for his support while writing this thesis

Tilburg, June 11, 2010

G.M.J. Smit

Table of Content

Management Summary2
Chapter 1 Introduction5
1.1 Problem indication5
1.2 Problem statement and research questions5
1.3 Research methods6
1.4 Academic and managerial relevance7
1.5 Structure of the thesis7
Chapter 2 Modes of entry9
Chapter 3 The conventional view12
3.1 Perspectives on the conventional point of view12
3.2 Symmetric Measurement15
3.3 Advantages16
3.4 Disadvantages16
3.5 Summary17
Chapter 4 The asymmetric perspective18
4.1 Asymmetric perspective18
4.2 Asymmetric measurement18
4.3 Advantages20
4.4 Disadvantages20
4.5 Summary20
Chapter 5 Cultural influence on the Entry mode21
5.1 Conventional point of view21
5.2 Asymmetric perspective22
5.3 Summary23
Chapter 6 Conclusion and Recommendations24
6.1 Conclusion24
6.2 Recommendations and Limitations25

Chapter 1 Introduction
This chapter gives an introduction to the research that has been conducted on cultural effects and entry modes. 1.1 Problem indication
The decision of managers of multinational enterprises (MNE)on which entry mode to use is influenced by cultural factors (Kogut & Singh, 1988).A growing number of literatures indicates that national culture is an important determinant for the decision on entry modes used by organizations. However other studies indicate that culture does not has an influence on the entry mode (Luo & Peng, 1999;...
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