The Comparative Effect of Subnational and Nationwide Cultural Variation on Subsidiary Ownership Choices: The Role of Spatial Coordination Challenges and Penrosean Growth Constraints

Arjen H. L. Slangen

Economic Geography, 2016, vol. 92, issue 2, 145-171

Abstract: To shed more light on the spatial determinants of foreign entry mode decisions, I examine the comparative effect of cultural variation inside target countries and target subnational regions on firms’ choices between joint ventures (JVs) and wholly owned subsidiaries. Based on the notions of spatial coordination challenges and Penrosean growth constraints, I argue that foreign entries tend to have a subnational scope, causing ownership mode choices to be more sensitive to target-region cultural variation than to target-country cultural variation. Accordingly, I hypothesize that target-region cultural varation has a more positive effect on the chance of JV selection than target-country cultural variation. I also hypothesize that this will be especially so for initially relatively large subsidiaries and subsidiaries established through acquisitions. An analysis of 170 entries by Dutch firms into 90 regions in 35 countries lends support to my hypotheses and indicates that the dominant effect of subnational cultural variation is not absolute but is confined to subsidiaries with specific establishment characteristics.

Date: 2016
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DOI: 10.1080/00130095.2015.1096196

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