The effect of culturally-determined entry mode on firm performance in the global retail industry

• Published in: Nankai business review international 2013-11, Vol.4 (4), p.290-308
• Main Authors: Roh, Taewoo, Cho, Dong-Sung, Moon, Hwy-Chang, Lee, Yun-Cheol
• Format: Article
• Language: English
• Subjects: Costs; Cultural differences; Culture; Host country; Hypotheses; International business; Joint ventures; Manufacturing; Multinational corporations; Retailing industry; Service industries; Statistical analysis; Strategy; Studies; Subsidiaries; Volatility
• ISSN: 2040-8749; 2040-8757
• DOI: 10.1108/NBRI-08-2013-0028

Purpose – The aim of this study is to examine the entry mode that retail firms correctly choose when culture is simultaneously considered has a positive effect on firm performance. Design/methodology/approach – This study relies on the two-step analysis originally derived from Heckman and applied into multinational enterprises (MNEs) entry mode by Shaver. To figure out the probability of entry mode in the first step, the paper uses the logit regression that independent variable is four culture dimensions and dependent variable is the entry mode (joint venture vs wholly owned subsidiary). Since the selection bias is relatively reduced by adding lambda calculated in the first step to the second step that verifies the degree of fit, the safety for interpretation of subsequent models is secured. Findings – This study collected 96 entries of top global retail firms and found out the relationship between culturally determined entry mode and firm performance is positively significant. While existing literatures dealing with manufacturing firms' international entries showed that wholly owned subsidiary is favored over joint venture when the cultural distance is high, this study focusing on retail firms in the service sector indicates that those firms are more likely to enter the global market with joint venture. Finally, firms that appropriately understand cultural distance demonstrated higher performance in the target country. Originality/value – This study focuses on the relationship between culturally determined entry mode and firm performance in the service sector, whereas extant literatures heavily depend on the one in the manufacturing sector. Moreover, the two-step analysis is exquisitely adopted to confirm the hypotheses.