Hofstede, Schwartz, or Managerial Perceptions? : The effects of various cultural distance measures on establishment mode choices by MNEs

• In recent years, scholars have become increasingly critical of Kogut and Singh’s (1988) cultural distance index and of Hofstede’s (1980) underlying national culture framework. We therefore examine and compare the effects of five cultural distance measures on the choice by multinational enterprises (MNEs) between expanding abroad through greenfield or acquisition. Two of these measures are based on Hofstede (1980), another two on Schwartz (1994, 1999), and one on managerial perceptions. Analyzing a sample of foreign expansions by Dutch MNEs and controlling for other factors, we find that all cultural distance measures significantly increase the likelihood that MNEs choose greenfields, and that the explanatory power of the Hofstede and Schwartz-based measures is comparable, while that of the perceptual one is somewhat lower. We conclude that it may thus be premature to dismiss Hofstede’s work as outdated or as inaccurately reflecting national cultures, and to consider Schwartz’s framework to be superior.

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