Differences Between Cultures

Geert Hofstede defines culture as "the collective programming of the mind which distinguishes the members of one group or category of people from another" (Geert Hofstede, 1997, p. 5). Culture helps us to understand how society manages changes and transformations by presenting a characteristic profile about norms, values, and institutions (Tihanyi et al., 2005). Whether in theory or in practice, cultures always vary distinctively from each other. Cultural distance, defined as the differences between countries in national culture systems (Hofstede, 1980), has been an important aspect in the study of MNE strategies and organizational performance (Barkema, Bell, & Pennings, 1996; Brouthers & Brouthers, 2001). The distance can be measured between

Though cultural profiles are shaped by many factors, similarities between developed countries and emerging countries can be found. That notwithstanding, the differences between developed countries and emerging countries are stark, especially in the categories of power distance and individualism. For example, the highest 10 countries in the individualism list are all developed countries while the lowest 10 are all emerging countries. China finds itself amongst the most collectivist countries with a low score of 20. Conversely, emerging countries rank high in power distance (Malaysia is the most power distant emerging country) and developed countries rank among the lowest. Many scholars have argued that the behaviors and strategies of MNEs are significantly influenced by a firm's nationality as they often inherit country specific characteristics (Hennart & Larimo, 1998; Hofstede, 1993;Kogut & Singh, 1988). Thus, during EMNEs’ expansions into developed countries, cultural distance is inevitable and usually

The cultural distance will influence MNEs’ behavior in two ways. First, it will increase the degree of diversity and complexity in the exogenous elements. Second, the MNE’s endogenous ability to cope with such complexity and operate effectively in the host markets will decrease (Gomez-Mejia & Palich, 1997; Hennart & Larimo, 1998). According to Barkema and Vermeulen (1998), greater similarities between cultures will help the firms to gain access to new customers at a lower cost and to successfully establish and manage manufacturing operations. Moreover, the firms can also benefit from the competition against groups of local firms of a relatively homogeneous kind when entering foreign markets. However, with the increasing cultural distance and wider range of host countries, the abovementioned advantages will be weakened or neutralized. At the same time there will be higher levels of complexity and uncertainty for transaction cost, managerial decision-making regarding MNE strategies and organizational choices (Shane et al., 1995), the management of an MNE's portfolio of foreign subsidiaries from a culturally diverse country base (Tihanyi et al., 2005), and human resource management (Schuler, Dowling, & Cieri, 1993). Generally, such increased operational difficulties