Cho, Kang Rae and Padmanabhan, Prasad
International Business Review, June 2005, Vol. 14 Issue 3, pp. 307-324.
This study investigates potential moderating effects of firm’s experience levels in the relationship between cultural distance and foreign ownership mode choice. Using the well established Japanese FDI data base, it is found that higher levels of experience, particularly decision-specific experience (prior experience with a particular ownership structure mode), mitigates potential impacts of uncertainty and costs caused by the high level of cultural distance, thus uncovering one possible answer to the national cultural distance paradox reported in the literature. These findings reinforce similar findings of interaction effects between key variables and cultural distance in studies involving other important strategic decisions of the MNC. The decision-specific experience-moderated cultural distance variable, and not the absolute cultural distance variable, is found to be an important determinant of a firm’s foreign ownership mode choice. Furthermore, this variable dominates the other experience-moderated cultural distance variables (international business experience and host county experience-moderated cultural distance variables) in the ability to discriminate between full ownership and shared ownership modes. Based on this moderated cultural distance measure, we find strong evidence that cultural distance is positively associated with full ownership of Japanese foreign manufacturing entities.