International Management

The impact of culture on entry mode decisions

How does culture influence the decision of an MNE to opt for an acquisition or greenfield investment?

Name: Marloes van Apeldoorn

Student number: 10822208

Date: 27/09/2014

Word Count:

Abstract (42 words): This paper explores the relationship between the entry mode strategies acquisition and greenfield entry and the cultural influence of the host country on this decision. In order to do so, the Hofstede cultural framework is used to distinguish between various cultural differences.

Keywords: international business, Hofstede, culture, MNEs, entry mode strategy, greenfield, acquisition.

Introduction

When a business decides to extend their organization in another country by means of a wholly owned subsidiary, the question is raised which entry mode will be most successful. Does the company want to take matters into their own hands and start fresh, or acquire an existing company? Much of international business theory has focused on the foreign market entry and development decisions of multinationals (Buckley & Casson, 2009). Non-equity modes do not require the establishment of an independent organization in a host country, whereas equity modes require a major resource commitment in the host country. The firms will be present in the host country on an on-going basis, which makes close and intimate contact with local firms inevitable and vital to corporate success (Pan & Tse, 2000). This is where culture comes in, seen as how cross-border business involves interaction with different societal values and norms (Tihanyi, Griffith & Russell, 2005).

Therefore, when considering entering a new host country, firms need to assess the investment risk, desired level of commitment, degree of control and the profit potential of the host market to ensure the success of their operation (Pan & Tse, 2000). Different entry strategies are applicable to various host country situations that will render the most...