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The Impact of Added Cultural Distance and Cultural Diversity on International Expansion Patterns: A Penrosean Perspective
Author(s) -
Hutzschenreuter Thomas,
Voll Johannes C.,
Verbeke Alain
Publication year - 2011
Publication title -
journal of management studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 4.398
H-Index - 184
eISSN - 1467-6486
pISSN - 0022-2380
DOI - 10.1111/j.1467-6486.2010.00966.x
Subject(s) - multinational corporation , subsidiary , extant taxon , economic geography , perspective (graphical) , diversity (politics) , affect (linguistics) , cultural diversity , corporate governance , german , variety (cybernetics) , panel data , business , geography , political science , sociology , economics , management , econometrics , evolutionary biology , biology , mathematics , statistics , geometry , communication , finance , archaeology , law
International strategy research has identified a variety of multinational enterprise (MNE) expansion patterns. Some MNEs appear to expand internationally at a stable rate, whereas others expand rapidly in one period and then tend to experience slower growth. The latter pattern suggests the occurrence of the Penrose effect. We identified two determinants of these diverging patterns. First, we propose that high levels of added cultural distance (reflecting expansion into new local contexts) during one period, may negatively affect further international expansion because of dynamic adjustment costs. Second, we suggest that managing a network of subsidiaries operating in a set of local contexts with high cultural diversity, increases environmental and internal governance complexity. Extant cultural diversity of the local contexts where the MNE is active in a first period may therefore discourage adding further cultural distance. We test the hypothesized relationships using a panel of 91 German companies.