Entry Mode Choice of Chinese Enterprises:The Impacts of Cultural Distance and Governance Quality

Abstract

Researches on the relationship between home-host country cultural distance and choice of foreign market entry mode have been giving mixed empirical findings. Some scholars reported that cultural distance was positively associated with control, while others found that great cultural distance resulted in low control entry modes. Recent empirical research also reported no significant bonds. Until now, many entry mode studies have only focused on the cultural distance (informal institutional environment), ignoring the formal institutional environment, which can be measured through governance quality. This research tries to explain the culture paradox by considering the formal and informal aspects of institutional environment simultaneously. It hypothesized that governance quality plays a moderating role concerning the relationship between cultural distance and entry mode choice. When investing in poor-governance-quality countries, MNEs may have a preference for WOSs entry mode. On the other side, satisfactory governance quality will greatly regulate local partners' opportunistic behavior, thus motivating MNEs to choose JVs. An analysis of 463 entries by Chinese MNEs into 46 countries verifies the hypothesis. The results revealed that when entering culturally distant countries where governance quality is poor, MNEs tend to choose WOSs as their entry mode. But when entering culturally distant countries where governance quality is good, MNEs do not tend to choose JVs as their entry mode.