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External uncertainty and entry mode choice: Cultural distance, political risk and language diversity

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  • López-Duarte, Cristina
  • Vidal-Suárez, Marta M.
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    Abstract

    This paper aims at analyzing the effect of external uncertainty on the entry mode choice when investing abroad. We consider the effect of uncertainty coming from the formal host country's environment (political risk) and from the informal one (cultural distance). The potential existence of an interaction effect between both of them is also analyzed. In particular, we analyze how language diversity between the home and host countries may condition the influence of this interaction effect on the entry mode choice. In order to empirically test our predictions, a database of foreign direct investments made by Spanish firms is used.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0969593110000351
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    Bibliographic Info

    Article provided by Elsevier in its journal International Business Review.

    Volume (Year): 19 (2010)
    Issue (Month): 6 (December)
    Pages: 575-588

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    Handle: RePEc:eee:iburev:v:19:y:2010:i:6:p:575-588

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    Related research

    Keywords: Cultural distance Entry mode Foreign direct investment Joint venture Language Language barriers Language diversity Political risk Wholly owned subsidiary;

    References

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    1. Chen, Haiyang & Hu, Michael Y., 2002. "An analysis of determinants of entry mode and its impact on performance," International Business Review, Elsevier, vol. 11(2), pages 193-210, April.
    2. Yadong Luo & Oded Shenkar, 2006. "The multinational corporation as a multilingual community: Language and organization in a global context," Journal of International Business Studies, Palgrave Macmillan, vol. 37(3), pages 321-339, May.
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    15. Youngok Kim & Sidney Gray, 2009. "An assessment of alternative empirical measures of cultural distance: Evidence from the Republic of Korea," Asia Pacific Journal of Management, Springer, vol. 26(1), pages 55-74, March.
    16. W Chan Kim & Peter Hwang, 1992. "Global Strategy and Multinationals' Entry Mode Choice," Journal of International Business Studies, Palgrave Macmillan, vol. 23(1), pages 29-53, March.
    17. Gatignon, Hubert & Anderson, Erin, 1988. "The Multinational Corporation's Degree of Control over Foreign Subsidiaries: An Empirical Test of a Transaction Cost Explanation," Journal of Law, Economics and Organization, Oxford University Press, vol. 4(2), pages 305-36, Fall.
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    19. Quer, Diego & Claver, Enrique & Andreu, Rosario, 2007. "Foreign market entry mode in the hotel industry: The impact of country- and firm-specific factors," International Business Review, Elsevier, vol. 16(3), pages 362-376, June.
    20. Klaus E Meyer, 2001. "Institutions, Transaction Costs, and Entry Mode Choice in Eastern Europe," Journal of International Business Studies, Palgrave Macmillan, vol. 32(2), pages 357-367, June.
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    Cited by:
    1. Lee, Joong-Woo & Abosag, Ibrahim & Kwak, Jooyoung, 2012. "The role of networking and commitment in foreign market entry process: Multinational corporations in the Chinese automobile industry," International Business Review, Elsevier, vol. 21(1), pages 27-39.
    2. Lauring, Jakob & Selmer, Jan, 2012. "International language management and diversity climate in multicultural organizations," International Business Review, Elsevier, vol. 21(2), pages 156-166.

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