Cultural differences and strong experience influence the choice of entry mode. However, because these relations did not test for other variables in the statistical studies of Dubin and Davidson, the explaining patterns for countries could be based on two false relations. The first is the connection between the historically stronger international involvement of countries and the influence of strong experiences in choosing entry. The second is the connection between different industrial composition between countries, differences in marketing intensity and research expenditure in industries and the effect of companies ‘ desire to monitor the international extension of marketing or research – intensive assets. The Effect of National Culture on the Choice of Entry Mode (1988), The cultural distance differs from those of another country because of its characteristics between the cultural norms of a country. In this context it has a major influence on the choice of entry mode. (Kogut, n.d.)
In international business, cultural distance plays an important part; previous theories analyze the influence of cultural distance. It outlines the impacts of the culture of a society on its members ‘ values as well as how these values relate to behavior, by means of a factor analysis structure. This is the focus of many studies on cultural distance in his book Cultures and Organization: Software of the mind (1980), one of the major theories on cultural distance and their influence in international business was further developed, ‘he analyzed the cultural influence of organizations which acquire companies on foreign markets.’ (Hofstede, Geert; Hofstede, n.d.)
The cultural distance within the market gives us unique and difficult to replicate technologies, skills and abilities within other companies, which we distinguish differently, and which give us advantage over others. The use of managers ‘ management practices, such as job rotation, communication, incentive mechanisms, systems for internal reports and the overall coordination function, will help to learn and transfer valuable organizational routines that are integrated into national objectives ‘ cultures. Involving people who share a strong corporate culture from different national cultures.(Morosini, Shane, & Singh, 1998)
Cultures change with time, on the other hand. By presenting a new set of national cultural rankings, we reinforce that extremely useful database, which we are arguing is more accurate than that provided by Hofstede or by other transcultural research. Our dataset is based on the meta-analysis of hundreds of previous studies. This approach gives a larger and more representative dataset than any study can offer. In addition, the meta-analytical approach enables cultural change to be addressed by providing separate sets of indications during different periods.(Taras, Steel, & Kirkman, 2012)
In this section, we will describe in a short and summarized way how we could obtain the necessary data for our research. A sample of European Union (EU) companies was selected to test the hypotheses described above. A selection of the biggest EU companies has been made with the help of a website database. The database contains information concerning EU enterprises, private and public, production and servicing, both firmly and financially. By examining annual sales, the most newly reported financial year, the largest EU businesses have been determined for the 12-member nations. A hundred and 21 of the entries were for manufacturing companies, 57 for service companies. One hundred and nine of the entries were wholly owned, 47 were joint ventures, 10 were by licensing agreement, and twelve were export companies. Investments were made in 27 countries, with just two countries receiving more than 10% of the investment. As our theory contains several measures of target country characteristics, for each target country we did not include separate controls.(Brouthers, 2002)
Distances are four dimensions: cultural, administrative, geographical and economic, the Four Dimensions can express themselves in four fundamental respects: Distance types affect various companies in various ways. In contrast, cultural distance affects the product preferences of consumers. (Pankaj Ghemawat, n.d.)
Economic Distance: consumer wealth or income is the most important economic feature that distinguishes between countries and has a significant effect on trade levels and the types of partners with which a country trade. Rich countries are engaged in relatively more cross-border economic activity than their poorer cousins, research suggests. Most of this business has a positive correlation between GDP per capita and trade flows with other rich countries. But poor countries trade with the rich more than other poor countries.
Geographic Distance: The more remote you are from a country, the more difficult it will be in that country to conduct business. But geographical distance isn’t just about how far the country is in kilometers. The physical size of the country, the average distances to borders within the country, access to the waterways and to the ocean and topography should also be considerate. Man-made geographical attributes must also be considered–especially the transport and communication infrastructures of a country.
Administrative or Political Distance: The trade between countries is greatly affected by historical and political associations shared by countries. For example, the links between Colony-Colonizers between countries boost trade by 900 pp, which may not be very striking given the continued links between England and its former Commonwealth Colonies, France and the West African Franc Zone, and Spain and Latin America. Also, preferential trade arrangements, the common currency and the political union can raise trade by over 300% each. European Union integration is probably a prime example of deliberate attempts to reduce the distance between business partners in administrative and policy terms.
Cultural Distance: The cultural characteristics of a country determine how people interact and with firms and institutions. Differences in religious beliefs, race, social norms and language can all distinguish two countries. It can have enormous effects on trade: trade between countries that have a language sharing will be equal to all other things, for instance, three times higher than between countries with no common language.
To clarify the results of my control variables, the variables will be linked to the results. This would involve diversifying joint ventures, strategic joint venture alliances and the economic growth of emerging economies.
This study investigated the performance effects of using an international entry-mode extended transaction cost model. Other relations with this same set of variables may be examined by future research. This method would help in the identification of moderating effects that are not explored in this study and thus improve our understanding of mode choices and performance.
Second, the question of the influence of entry mode choose on company performance can begin to be answered. In terms of financial and non-financial modes, companies whose entry mode choice could not be predicted by an extended cultural distance reported significantly better modal performance than those whose entry mode choices were unpredictable. These differences between financial and non-financial models may be due to timing differences, as the performance of financial modes for relatively new international investments can be difficult to measure.
Does a firm’s entry method affect the performance of the company in a foreign market? This important issue is still unanswered. Although many entrance mode studies are being conducted, most only investigate variables related to transaction costs. The few studies which attempted to investigate corporate performance and method choices suffered from a problem of endogenous nature. Each of these limitations has been addressed and our knowledge of the choice and performance of entry methods is expanded. Through this study, scholars who suggested that the explanatory power of modal choice entry mode could be improved, including cultural distance, receive additional support.