Entry Mode Strategy and the Effect of National Culture on Foreign Subsidiary Performance:

Abstract: This study raises a new question regarding the link between cultural distance and entry mode performance. Previous studies have found a relationship between entry mode choice and performance. Others have shown a relationship between national culture and the choice of entry mode. Yet others have suggested a relationship between cultural distance and performance. In this paper we investigate whether cultural distance and entry mode choice have an effect on subsidiary performance. In addition to this we hypothesize that there might be an interaction effect between entry mode and cultural distance, i.e. it might be better for a firm from a culturally distant country to use one entry mode over another. We conduct our study on greenfield and acquisition entries in Sweden between 1996 and 1999 using objective performance data. As far as we know, this study is the first large sample study connecting the cultural distance of entries into one stable small open economy with entry mode and long term performance. We find that the entry mode and cultural distance have no significant impact on subsidiary performance. In addition, we cannot establish an impact of cultural distance on the performance of foreign subsidiaries depending on the mode of entry. The findings of this paper suggest that further research, including more variables and refined methodology, is needed to gain a deeper understanding of these complex relationships.