Hofstede, Schwartz, or Managerial Perceptions? : A comparative analysis of the effects of various cultural distance measures on an MNE's establishment mode choice

Previous research on foreign entry mode choices by multinational enterprises (MNEs) has relied almost exclusively on the Kogut and Singh (1988) index, which is based on Hofstede’s (1980) dimensions of national culture. In recent years, scholars have become increasingly critical of Hofstede’s work and have questioned the validity of the Kogut and Singh (1988) index as an accurate measure of cultural distance. This paper therefore examines and compares the effects of five cultural distance measures on an MNE’s establishment mode choice, i.e. that between expanding abroad through greenfield or acquisition. Two of the five measures we test are based on the work of Hofstede (1980), two on that of Schwartz (1994, 1999), and one on managerial perceptions. Analyzing a sample of foreign expansions by Dutch MNEs and controlling for other factors, we find that the Hofstede-based and Schwartz-based measures of cultural distance explain the establishment mode choices of these MNEs equally well, and that the explanatory power of the perceptual measure, in spite of its statistical significance, is somewhat lower. Conclusions and suggestions for future research are offered.