The Effect of National Culture on the Choice of Entry Mode
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Harbir Singh** Universityof Pennsylvania
Abstract.Characteristicsof nationalcultureshave frequentlybeen claimed to influence the selection of entry modes. This article investigatesthis claim by developinga theoreticalargumentfor why culture should influencethe choice of entry. Two hypotheses are derivedwhichrelatecultureto entrymodechoice,one focussing on the cultural distancebetween countries,the other on attitudes towards uncertaintyavoidance. Using a multinomiallogit model and controlling for other effects, the hypotheses are tested by analyzing data on 228 entries into the United States market by acquisition,whollyownedgreenfield,andjoint venture.Empirical supportfor the effect of nationalcultureon entry choice is found.
Foreign direct investment into the United States has grown dramaticallysince the early 1970s. Accompanying this increase has been a growth of academic work studying the phenomenon.1Whereas impressive informationconcerning foreign direct investmentin the United States in general is available, there has been surprisinglyfew statistical investigations concerning the choice of entry modes. The objective of this article is two-fold. First, original data regarding the choice of entry mode by foreign firms is described in terms of country and industrypatterns. Second, the factors that influence the choice between joint ventures,wholly owned greenfield(i.e., start-up)investments,and acquisitions are analyzed statistically. In particular, the statistical investigation seeks to
Businessat the *BruceKogutis a VisitingProfessorat the Instituteof International StockholmSchoolof Economicsandis on leave fromthe WhartonSchool. *"*Harbir at the WhartonSchoolof Singhis an AssociateProfessorof Management Business. His priorresearchis on corporateacquisitionsand on top management Jounal and the incentives,andhas been publishedin theAcademyof Management Strategic ManagementJournal. Of the manyhelpfulcontributions, the authorswouldlike to acknowledgeErinAnderson,Ned Bowman, MarkCasson,RichardCaves,WujinChu, HubertGatignon,JeanFrancoisHennart,JakeJacoby,Tom referees.TheauthorsthankDileepHurry,OmmerKhaw,Eirene Pugel,SteveYoung,andthe anonymous Chen,andCriagStevensfortheirresearchassistance.Fundingfortheprojectwasprovidedby theReginald H. JonesCenterof theWhartonSchoolundera grantfromAT&T. Received:April1986;Revised:September 1988. 1988;Accepted:February 1986,March1987& February 411
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BUSINESSSTUDIES,FALL1988 JOURNALOF INTERNATIONAL
explaina strikingdifferenceamongcountriesregardingtheirpropensitiesto in countrypropensities enterby acquisition versusothermodes.Thesedifferences towardsacquisitionsare examinedin a frameworkwhichrelatesaspectsof a regarding thegovernanceof foreignoperations.2 nation'scultureto preferences betweenculture Thisarticlerepresents the firststatisticaltestof the relationship and entrychoice as an explanationof countrypatternsof en
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