mémoire dauphine

31/08/2010
Internationalization as a learning process: the role of distance |
Laetitia EM
UNIVERSITE
PARIS
DAUPHINE
DISENTANGLING THE DIFFERENT CONCEPTS OF
DISTANCE: A LEXICOGRAPHIC EXPLORATION OF
THE PAST 20 YEARS OF THE JOURNAL OF
INTERNATIONAL BUSINESS STUDIES

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Internationalization as a learning process: the role of distance
Disentangling the different concepts of distance:
A lexicographic exploration of the past 20 years of
the Journal of International Business Studies
General introduction
I am interested in the rationale underlying firms‘ international expansion. A brief literature
review enlightens that many explanations have been provided, such as the product life cycle,
whether competitors are present on the market or not, the level of tariff protection, the political
situation (Vernon, 1966), the size of the considered market (Walker & Etzel, 1973), transaction
costs (Hennart, 1982), the degree of entrepreneurship (Buckley & Casson, 1991), the flexibility of
the host government (Buckley & Casson, 1998), practical aspects of decision making
(information gathering, procrastination, commitment) (Buckley, Casson & Gulamhussen, 2002)
to name a few. Yet currently prevailing theories fail to explain patterns observed in practice. A
first set of explanations which have traditionally been provided is based on the attractiveness of
the market. By attractiveness I refer to the commercial, legal, and fiscal characteristics of markets
(La Porta, Lopez-de-Silanes, Shleifer, & Vishny, 1998; Roy & Oliver, 2009).
This family of explanations looks only at the characteristics of the market and disregards
the characteristics of the firms. So doing, it fails to explain why all firms do not target the same
areas; as we will see Zara and Mango should find the same markets attractive, yet they do not
have the same pattern of international expansion. Therefore, I assume that elements other than
the attractiveness of the market should be taken into account, more specifically that the
attractiveness of an area depends also on firms‘ characteristics.
This is precisely what the model developed by scholars from Uppsala claims by introducing
the notion of distance between a firm and a targeted market. This internationalization process
model relies on learning to explain international expansion patterns: a firm would start with
locations which require apparently little learning and which seem less uncertain, that is, in similar
(often neighboring) countries, avoiding countries considered distant (Johanson & Vahlne, 1977;
Johanson & Wiedersheim-Paul, 1972; Welch & Luostarinen, 1988). Now observed patterns of

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expansion do not systematically fit with what this theory predicts. For instance, consider patterns
of expansion of Zara and Mango: their first international move was Portugal, which is consistent
with the internationalization process model, yet their second one was the United States for the
former and Mexico for the latter, which contradicts the U-model, and Zara‘s third move was
France. What explains such conflicting observations and departure from the Scandinavian school
model? Is there any logic behind this apparently erratic pattern? Is this an operational or a
theoretical issue? The research question I am interested in is the following: Why do managers
choose to invest in markets which seem distant to them, given that distance is associated
with uncertainty?
I consider at least three approaches can be taken:
1) What seems distant is actually closer than we think. This approach calls for a new
operationalization of distance, which is detailed in the example of written work attached to this
application.
2) A long-jump search provides more learning opportunities than a similar market. This approach
draws on the concept of ambidexterity from the literature on exploration and exploitation (He &
Wong, 2004).
3) It depends on where the competitors are. A neoinstitutionalist approach will predict that a firm
will expand its international activities to the same area than its competitors, having a mimetic
behavior (Dimaggio & Powell, 1983). Conversely, a game theoretic approach will predict that a
firm will expand its international activities to a different area than its competitors.
I reckon that there is a need to go beyond market attractiveness. It is not enough, on its
own, to explain internationalization patterns. As seen in the case of the expansion of Zara and
Mango, it is not just the attractiveness which drives expansion: it is a complex mix between
distance and attractiveness. If it was attractiveness alone, all the firms would be present in the
same markets. But the thing is, not all the managers consider the same markets to be attractive: it
depends on personal preference and experience. Besides, some markets may seem attractive but
are not accessible (for example, targeting China as a first market). It is possible that an attractive
market is where you are likely to succeed, not necessarily where there are a lot of customers (the
two may not overlap). Thus, attractiveness is an important determinant of market selection, but it
needs to be complemented with distance to account for firms‘ internationalization patterns.
Distance matters (Verbeke, 2010). Several key issues organizations face depend on it, like
the ease to establish legitimacy in the host country (Kostova & Zaheer, 1999; Xu & Shenkar,

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2002). Ignoring it, underestimating it, or relying on stereotypes is likely to cause failure (O'Grady
& Lane, 1996; Pedersen & Petersen, 2004; Sirota & Greenwood, 1971; Walker & Etzel, 1973).
Distance is a determinant of the level of uncertainty, which in turn influences the decision to
enter a market and its associated level of resource commitment (Hosseini, 2008).
In a first step, I will limit my study to the interactions between the firms and the areas they
target. Here competitors are not under investigation.
Before anything else, it is important to note that this work has on several underlying
assumptions. First, some are related to decision-making considerations:
1) Following organizational theorists (Daft & Weick, 1984), I assume that organizations do
not make decisions; managers do (Walker & Etzel, 1973);
2) Managers learn from experience (Cohen, March, & Olsen, 1972);
3) Experience is necessary to access tacit knowledge;
4) Merely gathering information is not enough: the ability to understand, process, and use
them matters (O'Grady & Lane, 1996)1
.
Second, others are related to measurement considerations:
1) I consider that distance can be translated into ratio scales (as did Kogut & Singh, 1988);
2) And that cultures are commensurable, i.e. they can be compared along the same traits (as
did Hofstede, 1980).
It seemed important to make these assumptions explicit.
Disentangling the concepts of cultural, psychic, institutional, cognitive,
and geographic distance
The very first step to be undertaken is to have a thorough understanding of what these
types of distance refer to and how they potentially overlap. This is the rationale of this part.
Many different types of distance exist throughout the literature: cultural, psychic, cognitive,
institutional, and geographic. What is unclear, however, is what these concepts refer to. For
example, (Kogut & Singh, 1988) and (Shoham & Albaum, 1995) consider that psychic distance
and cultural distance are synonyms, whereas others consider that cultural distance is a
1 ―Managers must not simply accumulate information, but must learn to interpret it correctly in order to generate an
understanding of the market and adapt to it‖

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determinant of psychic distance (Håkanson & Ambos, 2008). A clear definition of each distance
concept needs to be provided soon, as it is necessary to move further to know which one(s)
should be preferably used to account for internationalization patterns.
Many papers have studied distance but it does not mean that it was correctly defined,
operationalized or that it was applied to the internationalization of firms. Distance is an
important variable when it comes to market selection (Tihanyi et al., 2005).
As stated in the general introduction, distance matters. It is thus important to measure it
correctly, and for this a new operationalization is required: it should have a better explanatory
power than the Kogut & Singh (1988) index based on Hofstede (1980), as Hofstede‘s study was
not meant to calculate distances but simply to account for cultural differences (and suffers itself
from shortcomings, such as single-company, static data). This index is currently the dominant
indicator, more than Hofstede's dimensions themselves. But a new indicator is necessary. Their
index is only based on four dimensions (masculinity/feminity, power distance, uncertainty
avoidance, individualism/collectivism), whereas a fifth was added (long term orientation, also
called Confucian dynamism, (Hofstede & Bond, 1988)). In their index, all dimensions have the
same weight, which is an assumption which can be rejected as some dimensions may matter to a
greater extent than others when it comes to internationalization (Yan & Zeng, 1999). Finally, an
index is convenient but may not be the most appropriate tool to measure distances.
Distance is a multidimensional construct, which can be either aggregated in an index or
taken separately (Edwards, 2001). Which one is the best, the parsimonious index or the analytic
disaggregation, remains an empirical question. Which type(s) of distance and how to operationalize
are questions under investigation.
A new operationalization of distance is necessary for two reasons. First, as previously
mentioned, the notion of distance is poorly defined in the literature, as various types of distance
(cultural, psychic, institutional, cognitive, geographic) are often mixed up. Second, the dominant
operationalization of cultural distance (Kogut & Singh, 1988 based on Hofstede, 1980) suffers
several limitations. It is not exhaustive, since it does not comprise the fifth dimension, long term
orientation (Hofstede & Bond, 1988) and does not recognize the possibility to include cultural
dimensions from other scholars (Sethi, Trompenaars & Hampden-Turner, Triandis, for example).
Besides, Hofstede‘s study has been criticized for it relies on single-company data (Schwartz &
Bilsky, 1990) as a proxy for national culture; and is considered essentially static (Inglehart &
Baker, 2000). Studies using it have a weak explanatory power (Xu & Shenkar, 2002). A new
measure aims at overcoming such shortcomings.

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The implicit assumptions of their model are flawed and must be reassessed. As previously
seen, the level of analysis should be reconsidered (manager to market, and not country A to
country B); distances are not symmetrical; national cultures are not uniform; distances are not
static; the relationship between distance and performance is not linear. Thus, to validate the
learning perspective, a new operationalization is necessary.
As far as disentangling the various concepts of distance, for now I consider the following:
To have a more precise view of what is meant by the terms cultural, psychic, institutional,
cognitive, and geographic distance, a lexicographic analysis can prove useful.

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CONTENT ANALYSIS
Introduction
According to Wikipedia, a content analysis refers to ―a methodology in the social sciences for
studying the content of communication. Earl Babbie defines it as ‗the study of recorded human communications,
such as books, websites, paintings and laws.‘ [2004, 10th
edition] It is most commonly used by researchers in the
social sciences to analyze recorded transcripts of interviews with participants.‖ (source:
http://en.wikipedia.org/wiki/Content_analysis). In this part a lexicographic analysis will be
conducted on the last twenty years of publications of the Journal of International Business Studies.
This constitutes a corpus of 1148 documents. It makes sense to use this publication since it is the
most influential in international business. To determine this, I calculated the eigen factor and
article influence of six leading international business journals, identified by Griffith, Cavusgil, &
Xu (2008): Journal of International Business Studies; Management International Review; Journal of World
Business; International Marketing Review; Journal of International Marketing; International Business Review.
The eigen factor analysis is commonly used to evaluate the impact of a journal in its related field
(Eden, 2010). The results were run for the year 2008 and are summarized here:
The scores are expressed in percentile.
Eigenfactor™ Score(EF): A measure of the overall value provided by all of the articles published in a given journal in a year.
Article Influence™ Score(AI): a measure of a journal's prestige based on per article citations and comparable to Impact Factor.
(source: http://www.eigenfactor.org/)
It is intriguing to note that an impact factor is unavailable (not included in the database of
the website, though it comprises 82 academic journals for management only) for two out of the
six supposedly-leading reviews in the field of international business. We can thus infer that these
missing reviews (Management of International Business Studies and International Business Studies) have
little influence. Besides this, it is clear from the table that the Journal of International Business Studies
is the most influential of the IB journals. It gathers what is considered relevant in IB thanks to
the literature review process. Therefore most of the topics under study in this field can be found
Eigen factor Article influence
Journal of International Business Studies 74,09 89,7
Management International Review n.a. n.a.
Journal of World Business 37,03 52,43
International Marketing Review 24,74 31,74
Journal of International Marketing 26,65 50,41
International Business Review n.a. n.a.

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in this journal, in marketing and in strategy, including the ones I am interested in in this study
(disentangling the different types of distance and their impact on internationalization). This
justifies the use of the Journal of International Business Study in this study.
Academic articles are a legitimate source of data. According to Glaser & Strauss (1967)
―Every book, every magazine article, represents at least one person who is equivalent to the anthropologist
informant or the sociologist interviewee‖ (p.163). Academic articles correspond to this description. It is
thus legitimate to analyze them, as much as it is to analyze interview transcripts. Besides, they
offer an undeniable advantage – being secondary data – that is, I did not influence the
information which is provided. One of the most common biases in qualitative studies is the
contamination of the sources. Two scholars interviewing the same person with the same grid and
in the same conditions may not obtain the same interview transcript. In the same vein, when
interviewing the same person, with the same grid and with the same conditions, one researcher
may not be get two identical interview transcripts. At two points in time, both the researcher and
the interviewee will be influenced by a set of factors which differ between the two interviews.
This entails the problem of the validity of the replication. The data considered in this study
remains the same at different points in time for every researcher willing to analyze it. Thus a
replication of this study is possible. A subjectivity bias may arise when working on the transcripts
(here, the publications), since two researchers may not see the same connections between themes
when analyzing the same source (source: Isabelle Huault‘s class on Qualitative Methods, Université Paris
Dauphine, Fall semester 2009). It may be seen as a limitation of this study. Being aware of this
potential subjectivity bias, I tried to control it at various steps of the process, as will be further
explained in the methodology part.
One can wonder why I did not save myself the trouble of analyzing whole publications,
and not only the abstracts of the articles. First, a study of the abstracts would have limited the
analysis to the articles published in the Journal of International Business Studies, whereas many other
publications can be of interest (book reviews, editorials, to name a few; a list is available in the
descriptive statistics section). Then, the abstracts are by definition very short. They indicate the
main findings of the study, but they do not include the logical arguments underlying the
reasoning. In addition, many relations which appear in the article are not present in the abstract.
In this study I wished to investigate five different types of distance (cultural, psychic, cognitive,
institutional, and geographic) along four points of interest: how they are defined; what they are
applied to; how they are operationalized; how they are related to one another. The abstracts of

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the articles do not provide rich enough verbatims to address as thoroughly as possible these
questions. Therefore the analyses were not limited to the abstracts, but were run on the whole of
the Journal of International Business Studies publications.
The software used here offers the possibility to run analyses at different levels: sentence,
paragraph, case. The first one, sentence, is too short to see comparisons of different types of
distance. Conversely, the case (i.e., the document, that is in most cases the whole article) is not
focused enough, and contains many parts irrelevant to the question under investigation. The
paragraph is a good compromise. Since it is made up of several sentences, comparisons,
oppositions, and descriptions can be seen.
In this study I hope to contribute to the management literature in three ways:
methodologically, theoretically, managerially.
First, methodologically. The use of lexicography is still in its infancy in management
research, since all the softwares necessary are very recent and entry costs are imperative to run
them and fully understand what they can do. I do not pretend I now master all the subtleties of
such methodology. Yet it can be used for a variety of corpuses and provide interesting results
which go beyond mere word counts. This enabled me to isolate relevant paragraphs out of a
corpus of 1148 documents, and to calculate to what extent one type of distance was close to the
other ones thanks to similarity indices.
Then, theoretically. A clear distinction between the five types of distance most commonly
referred to is made. These concepts are most of the time poorly defined, misunderstood and
mixed up. The notion of distance has interested scholars since the 1970s, and yet no consensus
appears. It is often taken as an independent variable on a variety of phenomena, ranging from
modes of entry (Hennart & Larimo, 1998) to trust (Verbeke & Greidanus, 2009), and as such
should be more fully understood. This is where this study contributes.
Finally, managerially. For now, the main managerial contribution of this study is to account
for the fact that the experience of the managers is what determines their perception of a distance
towards a market. The distance towards a market can be reduced thanks to learning and
experience. This helps select which managers to put in charge for internationalization matters,

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and to evaluate their chances of success. Besides, it is important for the managers to know which
type of distance matter the most when it comes to internationalization matters. Hopefully this
study lays ground for such contribution. It also aims at providing them with a tool apt at
measuring distances between them and the market they wish to expand in.
Methodology
The initial focus of this work was to consider internationalization as a learning process. As
such, I started to write a research proposal stating the relevance and importance of this topic. I
was mostly interested in studying the different types of distance, which according to me are not
properly distinguished and defined in the literature.
The aforementioned project is too vast to be done right away; essential first steps are
required, and the study I propose here is one of them. It can be compared to an extensive
literature review, but I reckon there is more to it. Thereafter I outline the different steps
necessary to analyze the corpus properly.
Step 1: Retrieve articles
The first step of this work was to collect all that was published in the last 20 years in the
Journal of International Business Studies (aka, JIBS), including not only articles, but also book reviews,
research notes, perspectives, retrospectives, introductions, etc. This represents 1148 pdf
documents. The years 1990 to 2006 were retrieved from JSTOR, the years 2007-2009 from
EBSCO, and 2010 from the JIBS website.
Step 2: Rename the pdf files
Once the documents retrieved and classified by year of publication, the files had to be
renamed in order to facilitate their interpretation in a subsequent software. All the files were
added to Mendeley (http://www.mendeley.com/), a reference management application
developed by scholars from Cambridge and Johns Hopkins University which looks like this:

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As seen in the image, several fields were filled in: title, authors, review, year, etc. so that
they could be cited and retrieved easily, and that the pdf files could be renamed properly.
The pdf documents were thus renamed (year, journal, title, everything hyphen-separated)
in a convenient fashion.

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Step 3: Convert the pdfs into Word documents
The content analysis software which will be mainly used for this project does not accept
the PDF format. Therefore, all the 1148 files had to be transformed into Word documents. The
OmniPage software (version 17) (http://www.nuance.fr/imaging/omnipage/omnipage-
professional.asp) was used for this transformation. It is an optical character recognition
application to obtain documents compatible with computer applications. Even though it has a
99% rate of character recognition success, several mistakes were made, which had to be corrected
in the next step.
Step 4: Correcting the page layout and unknown words
The .doc documents were added to QDA Miner
(http://www.provalisresearch.com/QDAMiner/QDAMinerDesc.html), a qualitative data
analysis software. There, all the 1148 files had to be treated one by one, on the one hand to code
variables (year of publication, and type of publication), and on the other hand to correct the page
layout.
Indeed, on the top of every page of JIBS is written the page number, the title, and the
authors. On several occasions, changing a page means a cut in a paragraph. Additionally, a table
or a graph are also likely to cut a paragraph in two. For the documents to be analyzed thoroughly,
the paragraphs must not be broken. Therefore, I corrected manually the page layout, removing
the tables, the graphs, and the top of JIBS' pages, so as to reform the broken paragraphs.
Meanwhile, I coded the different parts of the document. For example, I selected the title and
coded it under "title". I did the same for the authors, their affiliations, the abstract, the core of
the text, and the references. All these transformations and coding took approximately 5 minutes
per document.
As far as the unknown words are concerned, they were identified via WordStat
(http://www.provalisresearch.com/wordstat/Wordstat.html). This software is an add-on of
QDA Miner, and can be accessed from it via the ―AnalyzeContent analysis‖ command. In the
―FrequenciesUnknown words‖ command were shown all the words which had been badly
replicated in step 3 (for example, "yenture" instead of "venture") and all the broken ones (for

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example, "-vation" because the word "innovation" was cut in the middle). Several days were
necessary to identify and correct all these words. Due to time constraints, not all of them were
corrected, only the ones which occurrence was superior to 20 in the whole corpus.
All these steps may seem burdensome and futile at the same time, that is, much effort for
not-so-much result. However, the unit of analysis of the texts being the paragraph, it is of the
highest importance that they be as good as possible. This implies spending a significant amount
of time on reforming them and correcting the words which form them. The quality of the
analysis and reading parts which will follow depend on this.
Step 5: Building a dictionary
The previous steps were to collect data and transform it in a usable format. Now the text
is clean, but it is simply a mass of texts at this point. I need to extract some sense out of it. This is
what a dictionary is for. This step aims at creating a categorization dictionary to scan the text
according to questions I am interested in. In a preliminary step, I identified 5 questions:
1. How is the concept of learning used in IB research?
2. How to disentangle all the types of distance listed in the literature? (i.e., cultural, psychic,
institutional, cognitive, geographic)
3. How was the notion of distance used to explain modes of entry and location choice?
4. How were Hofstede's dimensions used in the IB literature? How about the dimensions identified
by other scholars (Trompenaars & Hampden-Turner, Schwartz, Triandis, to name a few)?
5. What are the determinants of decision-making in IB?
A categorization dictionary consists of various categories (for example, Europe) and
subcategories (for example, the Netherlands), which include words (for example, Tilburg
University, Rotterdam School of Management, etc.). The main problem with building a dictionary
is that it is highly subjective. One can argue why I choose this list of words and these categories
and not others. To reduce this subjectivity bias, WordStat suggests synonyms of the words listed
thanks to thesauri.

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Use of the categorization dictionary
After several attempts to obtain a comprehensive categorization dictionary, I decided to
start with a very basic one, which aims at addressing the second of the five questions of the list. It
looked like this:
I used it to identify paragraphs in the corpus in which the keywords appear. They were
easily retrieved thanks to the autocoding function of WordStat (―FrequenciesApply QDA Miner
codes‖ to text segments using all content categories). For the purpose of this study, based on an
attempt to define and disentangle different concepts, I considered that this very crude dictionary
would provide relevant enough portions of the corpus. I am aware that this may be considered as
a limitation, however.

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DESCRIPTIVE STATISTICS – CORPUS DESCRIPTION
I retrieved the last twenty years of publication of the Journal of International Business Studies
using a variety of sources described in Step 1. Here is the descriptive table of the documents I
downloaded. I did not limit my study to the articles; a variety of types of document is found in
this journal, and I thought it would be a waste not to include it in the analysis. However, since
articles is the most represented type of document (844 out of 1148, representing 73.5%), they are
the main source of the paragraphs analyzed thereafter.
LEXICAL ANALYSIS
Some interesting results appeared as of the fifth stage of the process. For example, it was
possible to visualize which authors were the most related to which concept of distance thanks to
a proximity plot:
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 TOTAL
Article 28 33 31 36 29 35 40 31 39 41 41 45 42 36 24 33 45 58 66 71 40 844
Editorial 4 3 3 1 3 1 3 1 4 6 5 3 3 9 10 6 65
Book review 1 11 12 9 5 5 3 9 3 1 4 4 6 5 8 2 2 2 1 93
Perspective 1 6 3 1 1 5 2 1 20
Research note 1 2 1 1 1 1 1 3 5 16
Commentary 1 2 2 2 1 7 6 3 1 2 27
Decade award winning 1 1 1 1 1 1 1 7
Retrospective 3 1 1 1 1 1 8
Introduction 1 1 2 1 3 2 2 1 1 2 16
Obituary 1 1
Executive's note 1 1 2
International business letter 1 1
Conference report 1 1 2
Essay 1 1
Listing of dissertations 4 4 4 3 4 19
Reply 1 2 1 4
Dissertation abstracts 4 4 2 4 4 4 22
TOTAL 29 34 51 55 48 48 55 41 56 52 46 57 53 51 43 52 63 75 89 91 59 1148

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It is important to note that it does not mean that all the authors have contributed to all
the types of distance. It just shows that their names are most often associated with these types of
distance. It also shows that cultural distance is the most present type of distance in the literature.
This is corroborated by this:
This distribution per year of publication clearly shows an ascending slope for the
occurrence of the notion of distance in all its forms (cultural, psychic, institutional, cognitive, and
geographic). It is also shown on the heatmap of the publications:

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The more red (as in 2002 for psychic distance, for example), the more this type of
distance was present in this year‘s edition of the Journal of International Business Studies. Two
dendograms show which concepts are closer and also which years are most similar in their
publications. It is important to note that it is normal that cognitive distance seems absent; only
one article, in 2009 (Verbeke & Greidanus, 2009). The notion of institutional distance also
appeared lately in JIBS. The first article was in 2004. This is illustrated by this:
The bigger the bubble, the higher the number of publications related to this subject in
this year‘s edition of the Journal of International Business Studies.
The last column, the TF-IDF (meaning term frequency – inverse document frequency),
represents the keyword frequency balanced by inverse document frequency. The underlying
assumption is the following: the more often a term appears in a document, the more it is a good
representation of its content; however, the more documents the considered expression appears
in, the less discriminating. In other words, the frequency of a term is adjusted so as to take into
account the number of documents containing it. This index represents the capacity of an
FREQUENCY % SHOWN % PROCESSED % TOTAL NO. CASES % CASES TF • IDF
COGNITIVE_DISTANCE 5 0,2% 0,0% 0,0% 1 0,1% 15,3
CULTURAL_DISTANCE 1803 68,0% 0,1% 0,0% 209 18,2% 1333,9
GEOGRAPHIC_DISTANCE 87 3,3% 0,0% 0,0% 44 3,8% 123,2
INSTITUTIONAL_DISTANCE 105 4,0% 0,0% 0,0% 29 2,5% 167,7
PSYCHIC_DISTANCE 650 24,5% 0,0% 0,0% 63 5,5% 819,4

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expression to differentiate documents. It determines to what extent a word is important in a
corpus. The more frequently a word is present in the corpus, the higher the TF-IDF score; but
because it also is less discriminating, this score is balanced by the frequency of the word in the
corpus of documents. In brief, the higher the frequency, the higher the score; the fewer the
number of documents the term appears in, the higher the score. Therefore, the fact that the
occurrences ―cultural distance‖ and ―psychic distance‖ have high TF-IDF scores (1333,9 and
819,4 respectively) means that they appear frequently in quite a few number of documents.
The 2D multidimensional scaling representation offers a nice way to represent what has
been suggested above:
It is to be noted that the first two notions which were linked are the cultural distance and
the psychic distance, meaning they were the most similar. It is certainly because they are often
considered as synonyms in the literature, and therefore appear often in the same paragraph,
which is the unit of analysis I chose for this analysis. It does not mean that they are equivalent;
just that they are often cited together. Then it was psychic distance and geographic distance. They
are often related because they are both used for internationalization purposes, which include
location choice. The attractiveness of the location depending partly on low transportation costs
and perceived ease to do business there, these types of distance are often cited together.
Then it was institutional and geographic distance; then cultural distance and geographic
distance; then cultural distance and institutional distance; and finally institutional distance and
psychic distance. Only afterwards is cognitive distance related to the other types of distance, first

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geographic and then cultural. This last result is to be taken cautiously, since the expression
―cognitive distance‖ only appears in one document in the last twenty years of publication of the
Journal of International Business Studies.
CONTENT ANALYSIS
A more fine-grained analysis was required, because these graphs cannot show what sort
of link there is between the concepts of distance: are they opposed, compared, considered as
synonyms? Therefore the next step was to isolate the paragraphs in the 1148 documents relevant
to each type of distance.
Paragraphs including the keywords were then retrieved via the Keyword retrieval function
(right click on the keyword in the ―Crosstab‖ panel on ―Keyword retrieval…‖).
The intuition I had while reading the literature in a preliminary phase (not limited to JIBS,
cf. bibliography) that the different types of distance (cultural, psychic, institutional, cognitive,
geographic) were rarely well defined and distinguished one from the other (the most obvious
example coming to my mind is in Kogut & Singh (1988), where the authors considered cultural
distance and psychic distance to be synonyms). This intuition had to be confirmed, and the
lexicography I performed helped me doing so.
I now have five Word documents (one for each type of distance) in which all the
paragraphs related to one of the types of distance I chose to investigate are present. They can be
seen in the appendix. They provide me with a comprehensive overview of the concept of distance in
general, and help me understand more fully the differences and applications of the five types of
distance (cultural, psychic, institutional, cognitive, geographic).
Carefully reading the paragraphs took approximately ten days. It represents: 2 pages
(Word format) for paragraphs related to cognitive distance; 297 pages for cultural distance; 22 for
geographic distance; 25 for institutional distance; and 91 for psychic distance; which represents a
total of 437 pages in Word format. Meanwhile I coded them in the NVivo software
(http://www.qsrinternational.com/products_nvivo.aspx). This allowed me to classify the extracts

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in four nodes for each type of distance: what the concept is applied to; its definition; its links to
other types of distance; its operationalization. The following screenshot illustrates this:
COGNITIVE DISTANCE
Consider the following extracts:
―The cultural and spatial separation between head office and subsidiaries may also contribute to the
COGNITIVE DISTANCE between head office and subsidiary managers, thereby increasing the likelihood
of a reordering of preferences after an original commitment is made.‖ (Verbeke & Greidanus, 2009)
―Thus expatriates can serve as a bounded reliability economizing mechanism by bridging the COGNITIVE
DISTANCE between the head office and geographically distant affiliates.‖ (Verbeke & Greidanus, 2009)
The case of cognitive distance is very peculiar. In twenty years of publication in the Journal
of International Business Studies, it is only mentioned in one article (The end of opportunism vs trust debate:
Bounded reliability as a new envelope concept in research on MNE governance, by Verbeke and Greidanus, in
2009).
The concept is not defined. Contrary to other types of distance, here the concept of
cognitive distance is not applied to internationalization-related issues, that is location choice and

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modes of entry. It is used to express the differences there may be between headquarters and
subsidiaries located overseas, and signals the role expatriates may play at reducing this gap.
Verbeke and Greidanus suggest that cultural distance and geographic distance are positively
correlated with cognitive distance.
To have a better understanding of this concept, it is necessary to access articles not
contained in the database used to run the lexicographic analysis, i.e. in the last twenty years of
publications of the Journal of International Business Studies. The seminal article by Nooteboom (2000,
p.73) (Nooteboom, 2000) provides the following definition: cognitive distance is ―a difference in
cognitive function. This can be a difference in domain, range, or mapping.‖ This means that the more
individuals have different ―mental maps‖, the more important the cognitive distance between
them. It is worth noting that, contrary to the other types of knowledge (cultural, psychic,
institutional, geographic) the unit of analysis here is the individual. The concept of cognitive
distance is used to describe to what extent they are different in what they know, what they
perceive, how they interpret exterior stimuli, i.e., in their modes of thinking and reasoning. It thus
has implications for problem solving as well as for decision-making. Experience partly determines
this ―mental mapping‖ of the individuals (Capron & Mitchell, 2009), which in turn has an impact
on how the individuals ―attend to, encode, and make inferences about new information‖ that is, has an
influence on the speed of problem solving since new information is evaluated through the lens of
former experiences (i.e., knowing that this action led to this outcome) which constitutes a basis to
evaluate this new information (Walsh, 1995).
This type of distance is of particular relevance to the topic I wish to investigate. First, the
concept of cognitive distance has not been applied to internationalization issues so far, so it
would make a theoretical contribution. Second, it is especially relevant since I am interested in
how the experience of the managers has an impact on the location choice decisions they take for
the firm they work for.

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CULTURAL DISTANCE
How the concept of cultural distance is defined:
Ccomplexity may result from "CULTURAL DISTANCE," between countries on dimensions such as those identified by Hofstede
[1980] (i.e., power distance, uncertainty avoidance, masculinity/femininity, and individualism). (Vachani, 1991) (Case 39)
the degree of difference or novelty between the host culture and the home culture [Black 1988; Black & Stephens 1989] or what
Hofstede [1980] called CULTURAL DISTANCE (Black & Mendenhall, 1991) (Case 61)
Based on examination of work-related goals and value patterns in fifty countries, Hofstede identified four dimensions characterizing
national differences or cultures. These were: (1) Power Distance, or acceptance of inequality in power in society, (2) Individualism, or
emphasis on self-interest and the immediate family as opposed to collective goals, (3) Uncertainty Avoidance, or a society's tendency to cope
with unstructured situations by adopting strict codes of behavior, and (4) Masculinity/Femininity, or the extent to which a society values
traditional "masculine" vs. "feminine" goals. These four dimensions are postulated to constitute fundamental value orientations that
underlie national differences in managerial practices, organizational patterns and decision-making. They are viewed as key elements
driving patterns of development, and are widely acknowledged as key indicators of national organizational cultures (Craig, Douglas, &
Grein, 1992) (Case 105)
The "CULTURAL DISTANCE" variable, namely the differences between the national cultures of the parent companies (Shenkar
& Zeira, 1992) (Case 107)
"CULTURAL DISTANCE" from the home country, as measured by differences in language, values, political systems, etc. (Benito
& Gripsrud, 1992) (Case 109)
Luostarinen [1980] defines CULTURAL DISTANCE as "the sum of factors creating, on the one hand, a need for knowledge, and
on the other hand, barriers to the knowledge flow and hence also for other flows between the home and target country" (Benito &
Gripsrud, 1992) (Case 109)
different cultures, tastes, living habits, and industrial needs (Li & Guisinger, 1992) (Case 110)
larger knowledge barriers regarding local political, cultural and societal norms. (Anand & Delios, 1997) (Case 349)
CULTURAL DISTANCE refers to the extent to which a culture is seen as different from one's own. (Rao & Schmidt, 1998)
(Case 362)
In the context of a cross-border acquisition, national CULTURAL DISTANCE represents distance in the norms, routines and
repertoires for organizational design, new product development, and other aspects of management that are found in the acquirer's and the
target's countries of origin (Kogut and Singh, 1988). (Morosini, Shane, & Singh, 1998) (Case 399)
National CULTURAL DISTANCE is defined as the degree to which the cultural norms in one country are different from those in
another country (Kogut and Singh, 1988). (…) National CULTURAL DISTANCE between countries has also been associated
with significant differences in their legal systems, incentive routines, administrative practices and working styles (Hofstede, 1980; Shane,
1992; Ouchi, 1980). (Morosini, Shane, & Singh, 1998) (Case 399)
Cultural or psychic distance [Johanson and Vahlne 1977] can be defined as the resulting vector of culture-based factors that impede
the flow of information between the firm and its partner or environment. (Simonin, 1999) (Case 468)
the CULTURAL DISTANCE (i.e., the separation between two or more partners and/or countries along a specific set of cultural
dimensions) (Griffith & Harvey, 2001) (Case 519)
Factors such as language (Buckley and Casson, 1976, 1979) political instability (Thunnell, 1977), level of development, market size
and sophistication (Davidson and McFetridge, 1985) all play a role in establishing "distance" (Shenkar, 2001) (Case 531)

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As Barkema, Shenkar, Vermeulen and Bell [1997, pp. 427-428] state, national CULTURAL DISTANCE represents "the
sum of factors creating, on the one hand, a need for knowledge, and on the other hand, barriers to knowledge flow and hence also for other
flows between the home and the target countries (Luostarinen, 1980; 131-132)." (Shenkar, 2001) (Case 539)
CULTURAL DISTANCE is defined as "…international marketer's perceived socio-CULTURAL DISTANCE between the
home and target country in terms of language, business practices, legal and political systems and marketing infrastructure" (Lee, 1998,
pp.9). (Evans & Mavondo, 2002) (Case 613)
CULTURAL DISTANCE has been conceptualized and measured through scores on the dimensions of culture identified by Hofstede
(1980) including individualism/collectivism, power distance, masculinity/femininity and uncertainty avoidance (Kogut and Singh, 1988),
as well as distinctions among cultures according to their relative emphasis on rational-legal authority vs traditional authority and scarcity
values vs postmodern values (Inglehart, 1995). (Giacobbe-Miller, Miller, Zhang, & Victorov, 2003) (Case 637)
CULTURAL DISTANCE aims to capture the overall difference in national culture between the home country and affiliates overseas
(Johnson, Lenartowicz, & Apud, 2006)(Case 789)
There exist many definitions of what cultural distance is throughout the literature.
The first one is related to Hofstede (1980), who determined four cultural dimensions
(uncertainty avoidance, power distance, masculinity/feminity, individualism/collectivism) in a
famous survey study of IBM employees (Culture‘s consequences). These scores associated with each
dimension approximate the differences in between national cultures. Some studies (Black &
Mendenhall, 1991; Craig, Douglas, & Grein, 1992; Griffith & Harvey, 2001; Hennart & Larimo,
1998; Johnson, Lenartowicz, & Apud, 2006; Li & Guisinger, 1991; Li & Guisinger, 1992;
Vachani, 1991) consider that this is a proxy for cultural distance, i.e. differences in national
cultures between the host country and the home country.
Another definition is related to the differences in which norms and values are more
dominant in certain cultures than in others (Anand & Delios, 1997; Benito & Gripsrud, 1992;
Giacobbe-Miller, Miller, Zhang, & Victorov, 2003; Morosini, Shane, & Singh, 1998; Puck,
Holtbrügge, & Mohr, 2009; Reus & Lamont, 2009; Zhang, Cavusgil, & Roath, 2003). A norm can
be defined as behaviors and practices in compliance with dominant values. It draws from the
definition provided by Kogut & Singh (cited in Morosini, Shane & Singh, 1998) in their 1988
article: ―the degree to which the cultural norms in one country differ from those in another country.‖
Definitions also state that much more down-to-earth differences exist between cultures,
such as language, political system (Benito & Gripsrud, 1992), tastes, living habits (Li & Guisinger,
1992), religion, history (Mariotti & Piscitello, 1995), routines, legal systems, business practices
(Morosini, Shane & Singh, 1998). The more different they are from the home country, the larger
the cultural distance (Shenkar, 2001). Such differences constitute a barrier to knowledge transfer
(Anand & Delios, 1997) and the flow of information (Simonin, 1999). The definition by
Luostarinen (1980) cited in Shenkar (2001) acknowledges that cultural distance represents a need
for more knowledge and at the same time constitutes barriers to knowledge flow.

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A last set of definitions links cultural distance to psychic distance, i.e. the perceived distance
towards a geographic ensemble. Simonin (1999) considers that these two types of distance are
equivalent, and merged them. Rao & Schmidt (1998) defines cultural distance as the extent to
which a culture is seen as different (without stating from which point of view they are seen as
such), and Evans & Mavondo (2002) refers to the perceived differences in terms of language,
business practices, legal and political system, and market infrastructures.
To summarize, I suggest the following definition of the concept of cultural distance: the
extent to which the home differs from the host along cultural dimensions (Hofstede, 1980;
Hofstede & Bond, 1988; Inglehart, 1995; etc.), business practices, and history-related factors
(language, religion, colonial ties).
What the concept of cultural distance is applied to:
The CULTURAL DISTANCE of Japan from Western industrial countries has been identified as a negative factor in its
participation in foreign direct investment [Yoshino 1976; Ozawa 1979]. (Li & Guisinger, 1991) (Case 35)
Previous studies have suggested that the ability of foreign firms to manage the local operations of subsidiaries may be influenced by two
considerations. One concerns the relative CULTURAL DISTANCE between home and host countries. The second concerns the
absolute cultural attitudes toward uncertainty avoidance. (Li & Guisinger, 1991) (Case 35)
Cultural proximity: Multinationals that operate in a cluster of countries with similar cultures and a common language may enjoy
efficiencies because of reduced complexity of managing operations [Ronen and Shenkar 1985; Grant 1987]. (Vachani, 1991)
(Case 39)
the probability of a service firm choosing a full-control entry mode decreases when production takes place in the foreign country relative to
home country and with increasing host-country CULTURAL DISTANCE (Erramilli, 1991) (Case 58)
The less attention paid to the modeled behaviors, the less likely the individual is to accurately retain and reproduce new behaviors
appropriate for the host culture, and the more likely the individual is to exhibit inappropriate behaviors. The more the individual exhibits
inappropriate behaviors and experiences negative feedback and consequences, the greater will be his anxiety, frustration, and overall culture
shock (Black & Mendenhall, 1991) (Case 61)
Cultural toughness describes the difficulty that a western expatriate would have adapting to certain cultures. For example, Torbiorn
[1982] noted that western expatriates experienced higher levels of dissatisfaction with assignments in India, the Middle East, North
Africa, East Africa, and Liberia. Thus, some cultures are very different from western cultures and are also very difficult to adjust to.
(Naumann, 1992) (Case 65)
CULTURAL DISTANCE implies that the environments from which role senders' messages are sent are more diverse, and messages
are therefore more likely to contradict or be misunderstood by the recipients, giving them several possibilities of actions or making them
perplexed. (Shenkar & Zeira, 1992) (Case 107)
Our findings suggest that certain cultural differences may be regarded as complementary rather than conflicting assets (see also Schaan and
Beamish [1988]). In other words, it may be easier to manage an IJV where one parent is, say, aggressive and the other is not, than to
manage one with two aggressive parents which struggle to outdo each other (this is in turn related to Killing's [1980] dominant parent
argument) (Shenkar & Zeira, 1992) (Case 107).

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CULTURAL DISTANCE is identified as an obstacle to an IJV. CULTURAL DISTANCE may also be an obstacle to
merger (Buckley & Casson, 1996) (Case 268)
Ueno and Sekaran [1992] employ the indices to explain differences in budget control practices in the USA and Japan. (Erramilli,
1996) (Case 305)
as CULTURAL DISTANCE increases, headquarters becomes more dependent on the subsidiary for information that is either not
directly available to headquarters or extremely costly for headquarters to acquire. This information asymmetry arising from
CULTURAL DISTANCE increases the agency problem in the headquarters-subsidiary relationship. Roth and O'Donnell [1996:
680] (Gomez-mejia & Palich, 1997) (Case 334)
There appears to be a consensus in the literature on this topic, namely, that a greater CULTURAL DISTANCE between the firm
and the foreign nation it is operating in will lead to less equity ownership, and a greater incidence of cooperative modes, ceteris
paribus,(Kogut and Singh, 1988; Gatignon and Anderson, 1988; Erramilli and Rao, 1993; Kim and Hwang, 1992). (Contractor
& Kundu, 1998) (Case 395)
For example, CULTURAL DISTANCE between partners significantly affects IJV conflict and failure (Tung, 1984) (Kashlak,
Chandran, & Di Benedetto, 1998) (Case 404)
we find that CULTURAL DISTANCE between the home base of the investor and the target country (or perhaps political risk)
exerts a powerful influence on ownership of subsidiaries, but cultural characteristics of the home base do not. (Hennart & Larimo,
1998) (Case 410)
differences in uncertainty avoidance and long-term orientation have a significant negative impact on IJV survival, while differences in power
distance, individualism, and masculinity did not affect IJV survival. (Yan & Zeng, 1999) (Case 442)
cultural barriers impede an increase in international expansion performance (Luo & Peng, 1999) (Case 450)
At the collaborative level, CULTURAL DISTANCE matters with regard to learning for two reasons. First, CULTURAL
DISTANCE raises barriers for understanding partners and the nature of their competitive advantage. In this respect, the lack of fluency
in a partner's native language may constitute the single greatest obstacle since even well codified knowledge remains inaccessible. Second,
CULTURAL DISTANCE creates difficulties for identifying market opportunities and understanding market mechanisms.
(Simonin, 1999) (Case 468)
as the degree of CULTURAL DISTANCE increases, the firm's acquisition of local knowledge through local experience becomes more
difficult and costly. (Makino & Neupert, 2000) (Case 494)
CULTURAL DISTANCE negatively moderates the otherwise positive relationship between the MNEs' regional business experience
and sales growth (Uhlenbruck, 2004) (Case 688)
CULTURAL DISTANCE may also lead to higher levels of complexity and uncertainty for managerial decision-making regarding
MNE strategies and organizational choices (Shane et al., 1995). (Tihanyi, Griffith, & Russell, 2005) (Case 763)
High CULTURAL DISTANCE can limit MNE performance owing to increased training, monitoring, and control costs, as well as
differences in managerial cognition of environmental and organizational issues (Egelhoff, 1982; Schneider and DeMeyer, 1991).
(Tihanyi, Griffith, & Russell, 2005) (Case 763)
The concept of cultural distance has been applied to a variety of dependent variables,
ranging from the traditional internationalization-related issues (location choice, modes of entry,
performance) to differences in budget control practices (Erramilli, 1996) or expatriates‘ well-
being (Black & Mendenhall, 1991, found a positive correlation between cultural distance and
anxiety and frustration, and 65 between cultural distance and the level of dissatisfaction).
Cultural distance seems to have an impact on the mode of entry firms choose when
expanding overseas (Gomez-Mejia & Palich, 1997). It is detrimental to FDI according to Li &
Guisinger (1991) (and is negatively correlated with expansion performance, Luo &Peng, 1999),

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but studies opposed mixed and inconclusive results (Benito & Gripsrud, 1992). It also acts as a
negative moderator on the relationship between MNE‘s experience and sales growth, which is
otherwise positive (Uhlenbruck, 2004). It has been found that the further away the market, the
less firms prefer full control ownership (Erramilli, 1991) or international joint ventures (Buckley
& Casson, 1996).
The rationale behind this is that a distant market constitutes a more unfamiliar and
uncertain environment than neighboring ones (Hofstede, 1980; Barkema & Drogendijk, 2007)
which are supposed to share similar cultural traits. Cultural distance increases complexity and
uncertainty, as well as costs related to training, monitoring, control (Tihanyi, Griffith, & Russell,
2005), and communication (Vachani, 1991). Therefore, the management of local operations of
overseas subsidiaries is more complex. The quality of information flow is impaired (Shenkar &
Zeira, 1992), and information asymmetry is likely to arise (Gomez-Mejia & Palich, 1997). The
cost of acquiring local knowledge thus increases (Makino & Neupert, 2000). Firms being risk
averse, they will choose the least risky option when settling in a culturally distant country,
therefore favoring exports and licensing over mergers, joint ventures, or wholly-owned
subsidiaries (Contractor & Kundu, 1998; Hennart & Larimo, 1998; Kogut & Singh, 1988). It is
more difficult to understand business partners and to identify market opportunities (Simonin,
1999). As a matter of fact, Kashlak, Chandran & DiBenedetto‘s (1998) article suggests that
cultural distance is positively associated with conflict within and failure of international joint
ventures.
As we will see in the operationalization section on cultural distance, the index which
currently dominates IB research has been provided by Kogut & Singh in their 1988 piece. They
based their index on Geert Hofstede‘s (1980) dimensions, namely uncertainty avoidance, power
distance, masculinity/feminity, individualism/collectivism. A fifth dimension (long-term
orientation, or Confucian dynamism) was added following a collaboration with Michael Harris
Bond (Hofstede & Bond, 1988). Of these five dimensions, Yan & Zeng (1999) evaluated that
uncertainty avoidance and long-term orientation are the most determinant ones when it comes to
international joint venture‘s success. This is in favor of a disaggregated measure of cultural
distance over a parsimonious yet less accurate index.
However, cultural distance does not have only drawbacks (increasing the costs,
complexity and uncertainty while decreasing performance), otherwise firms would not expand in
distant countries (and yet they do: e.g. Louis Vuitton stores in Tokyo). A distant culture will
provide different and possibly complementary capabilities (Shenkar & Zeira, 1992) which
combination is a potential source of competitive advantage (Hamel, 1991). Because of the

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cultural shock it provokes, dealing with a distant culture sparks off innovation and creativity
(Tihanyi, Griffith, & Russell, 2005). That is, great and original advantages are to be gained for
who is able to overcome the obstacles associated with cultural distance (Reus & Lamont, 2009).
How the concept of cultural distance is operationalized:
Using Hofstede's indices and following the methodology by Kogut and Singh [1988], a composite index was formed based on the deviation
along each of four cultural dimensions to measure the CULTURAL DISTANCE of each country from the United States.' (Li &
Guisinger, 1991) (Case 35)
CULTURAL DISTANCE: calculated as sum of the score differences between each pair of parents on Hofstede's [1980] four
cultural dimensions.
While CULTURAL DISTANCE (as an aggregate of the four culture dimensions) had no significant relationship with role
ambiguity, a very different result appeared when we examined the four dimensions of CULTURAL DISTANCE separately
(Shenkar & Zeira, 1992) (Case 107)
CULTURAL DISTANCE is measured by an index developed by Kogut and Singh [1988]. (Benito & Gripsrud, 1992) (Case
109)
The "CULTURAL DISTANCE" approach represents an oversimplistic perception of culture as a unitary coherent construct while
in reality culture is a multidimensional variable. (Tallman & Shenkar, 1994) (Case 171)
The CULTURAL DISTANCE between the USA and the target country is measured using the four cultural measures from
Hofstede [1980] (Markides & Ittner, 1994) (Case 204)
Previous studies on the influence of CULTURAL DISTANCE often used an aggregate measure based on the four dimensions in
Hofstede [1980]: power distance, uncertainty avoidance, individualism, and masculinity (see Kogut and Singh [1988]). Hofstede's more
recently developed fifth dimension, long-term orientation (or Confucian dynamism) [Hofstede and Bond 1988], has received less
attention, perhaps because scores were available for only twenty-three countries [Hofstede 1991]. The present study builds on Hofstede's
five dimensions, including long-term orientation.(Barkema & Vermeulen, 1997) (Case 361)
CULTURAL DISTANCE is a self-reported construct whereby each respondent estimated the CULTURAL DISTANCE to
China from the foreign country on a five-point Likert-type scale. (Luo, Shenkar, & Nyaw, 2001) (Case 516)
CULTURAL DISTANCE was measured by asking the respondents to assess this distance between their foreign and Chinese
parental firms on a five-point scale. (Luo, 2002) (Case 615)
We also attempted to measure CULTURAL DISTANCE using a dummy variable that equals 1 if the recipient country has
English as an official language (Globerman & Shapiro, 2003) (Case 646)
the first to utilize Trompenaars' (1994) data on national culture to generate the CULTURAL DISTANCE measure.
(Uhlenbruck, 2004) (Case 688)
we strongly encourage researchers to avoid further use of the overall CULTURAL DISTANCE index. (Kirkman, Lowe, &
Gibson, 2006) (Case 773)
we choose to implement this construct via a simple, intuitive measure – whether or not two countries share a common linguistic heritage.
(Fan & Phan, 2007) (Case 869)
Our primary measure, the Hofstede measure, is obtained from Hofstede (1980, 2001). The distances are calculated from the numerical
values of the four orthogonal Hofstede dimensions: individualism (IDV), uncertainty avoidance index (UAI), power distance index

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(PDI) and Log(Hofstede Dist) is the natural logarithm of the CULTURAL DISTANCE between the acquirer and the target
nation, as measured by the Cartesian distance between the different cultural dimensions for the two nations. (…) As alternative measures
of CULTURAL DISTANCE, we use three other simple proxies for culture: language, religion and legal origin (Chakrabarti,
Gupta-Mukherjee, & Jayaraman, 2009) (Case 1056)
CULTURAL DISTANCE. Measurement of CULTURAL DISTANCE was done through an adaptation of Kogut &
Singh‘s (1988) CULTURAL DISTANCE index. Rather than using Hofstede‘s (2001) dimensions and country culture scores, we
used more current data from the GLOBE project (House et al., 2004). (Reus & Lamont, 2009) (Case 1074)
It is striking to note to what extent the Kogut & Singh (1988) index dominates among the
proxies available for cultural distance. Out of the 74 articles using cultural distance as one of their
variable (independent or control), 48 (i.e., 65%) rely on it as a measure of cultural distance. The
calculation of this aggregated index is based on Hofstede‘s (1980) dimensions (uncertainty
avoidance, power distance, masculinity/feminity, collectivism/individualism). Only on rare
(e.g.,Luo, 2005; Luo, 2006) occasions has it been updated to include the fifth dimension of long-
term orientation (Hofstede & Bond, 1988). This is all the more surprising than studies have
overtly criticized it for its implicit and oversimplistic assumptions and the fact that it is based on
data collected in 1968 and 1972 (Kirkman, Lowe, & Gibson, 2006; Shenkar, 2001). One study
(Shenkar & Zeira, 1992) found out that the explanatory power of the Hofstede dimensions was
much higher when they were analyzed separately as opposed to aggregated in an index (Edwards,
2001). Indeed, depending on the dependent variable considered, some dimensions may matter to
a greater extent than others (Yan & Zeng, 1999). As such, nine studies (Brouthers & Brouthers,
2001; Chakrabarti, Gupta-Mukherjee, & Jayaraman, 2009; Chari & Chang, 2009; Contractor &
Kundu, 1998; Grosse & Treviño, 1996; Markides & Ittner, 1994; Newburry, 2001; Sethi,
Guisinger, Phelan, & Berg, 2003; Shenkar & Zeira, 1992) analyzed the effect of the Hofstede
dimensions separately.
The underlying assumptions of the Kogut & Singh (1988) index are logically flawed. It
assumes that distances between countries are symmetrical, that is the distance between Japan and
Germany is the same as between Germany and Japan. This may not be the case. Besides, they
consider that the appropriate level of analysis is the country, whereas it is not two countries doing
business together; it is a group of managers in relation with a market. They do not target the
whole country at once. Most of the time (the only exception I think of are TV shows and movies)
they only target a more reduced geographic area. Finally, cultural distances are not static. They
can be reduced via economic shifts (an industrial society becomes a postindustrial one; Inglehart
& Baker, 2000) and repeated interaction with other cultures. Therefore they need to be reassessed
on a regular basis, which is not the case with the Kogut & Singh (1988) index.
In a few studies, more original measures of cultural distance were considered. Hofstede‘s
(1980) dimensions are the best known ones, but other scholars (Trompenaars & Hampden-

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Turner, Schwartz, Triandis, to name a few) identified other dimensions. The content analysis
performed on the last twenty years of publications in the Journal of International Business Studies
revealed that Trompenaars (1994) and Schwartz (1994) dimensions were also considered. In his
work with Hampden-Turner, Trompenaars identified seven dimensions along which cultures
differ: universalism vs particularism (whether the priority should be set on rule or on relationships);
individualism vs collectivism (similar to Hofstede‘s); neutral vs emotional (do people tend to display
emotions or not); specific vs diffuse (whether the public and the private life are separate or not);
achievement vs ascription (whether the status one enjoys is earned or received); sequential vs synchronic
(whether several things are done at once or not); internal vs external control (whether people control
the environment or are controlled by it). Schwartz‘s (1994) work also includes seven dimensions,
namely: conservation (associated with the notions of security, conformity, tradition, status quo,
propriety, social order, obedience, and self-discipline); hierarchy (associated with the notions of
social power, authority, humility, and wealth); intellectual autonomy (associated with the qualities of
being curious, open minded, and creative); competency (its associated concepts are ambition, risk,
success); affective autonomy (associated with pleasure, exciting, varied life); harmony (unity with
nature, protection of the environment, a world of beauty); and egalitarian compromise (related to
notions of equality, social justice, responsibility, help).
One study (Reus & Lamong, 2009) calculated an index inspired of the dominant one
based on the GLOBE data. It has the advantage of being more recent than Hofstede‘s data, and
therefore addresses one of the critiques held against the Kogut & Singh (1988) index. However it
still shares most of the underlying assumptions we previously noted.
Finally, self-reported measures were considered to assess cultural distance. Respondents
were asked to estimate cultural distance to China on a five-point Likert scale (Luo, 2002; Luo,
Shenkar, & Nyaw, 2001). This operationalization would be much more appropriate to proxy
psychic distance, as it refers to the distance perceived by individuals towards an overseas location.
The level of analysis for cultural distance is the country (differences between the home and the
host country), whereas the appropriate level of analysis for psychic distance should be the
decision-maker, since it is a perceived distance.
If the Kogut & Singh (1988) index is still used in the majority of articles studying cultural
distance, some scholars (Shenkar, for example) have criticized it for its implicit assumptions and
called for new measures of cultural distance to avoid resorting to this index (Kirkman, Lowe, &
Gibson, 2006).

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How the concept of cultural distance is related to other types of distance:
Buckley and Casson [1979] and Hamilton and Linge [1979] introduced the idea of psychical distance, while other authors have
developed the similar concept of CULTURAL DISTANCE [Hofstede 1980; Kogut and Singh 1988; Ronen and Shenkar 1985].
(Mariotti & Piscitello, 1995) (Case 242)
Recent reexaminations of the psychic distance concept have suggested that the concept includes significant aspects of managerial decision-
making and business difficulty as well as CULTURAL DISTANCE [Nordström & Vahlne 1992]. (Ramaswamy, Kroeck, &
Renforth, 1996) (Case 303)
Nordström and Vahlne [1992:10] suggested that CULTURAL DISTANCE and psychic distance captured "different but
overlapping phenomena," and that psychic distance included a component of business difficulty, as well as CULTURAL DISTANCE
(O'Grady & Lane, 1996) (Case 314)
Papadopoulos and Denis (1988), in their exhaustive review of locational choice studies, observe that "in an overwhelming number of cases
(initial locational choices) are still based on ..criteria as psychic distance,...'CULTURAL DISTANCE'....and 'geographic distance'..
(p. 44). (Gomes & Ramaswamy, 1999) (Case 422)
Cultural or psychic distance [Johanson and Vahlne 1977] (Simonin, 1999) (Case 468)
in part CULTURAL DISTANCE can be proxied by geographic distance and common language. (Arora & Fosfuri, 2000) (Case
515)
our conceptualization of psychic distance as comprising CULTURAL DISTANCE and business distance. (Evans & Mavondo,
2002) (Case 613)
the choice of country has generally been described in terms of psychic and economic distance (Johanson and Wiedersheim-Paul, 1975;
Luostarinen, 1980), geographic distance (Carlson, 1974) and CULTURAL DISTANCE from the internationalizing firm (Kogut
and Singh, 1988; Benito and Gripsrud, 1992). (Jones & Coviello, 2005) (Case 744)
psychic distance, or the closely associated concept CULTURAL DISTANCE (…)At a theoretical level, we would argument that
CULTURAL DISTANCE is a component of psychic distance, but only one aspect. At the empirical level this seems to be confirmed.
(Dow & Karunaratna, 2006a) (Case 791)
Yet comparative country rankings, such as those performed by Nordström and Vahlne (1994), suggest that cultural and psychic distance
assessments are measuring different things. (P. Ellis, 2008) (Case 931)
Based upon some opinions expressed by a group of 63 German, Polish and UK managers, it would appear that CULTURAL
DISTANCE is both closely related to geographic distance and is more content specific than was originally thought (Chapman et al.,
2008). (Dunning, 2009) (Case 1053)
While differences in informal institutions play a central role in our argument, we might note that institutional distance does not simply
equate to CULTURAL DISTANCE. (Cantwell, Dunning, & Lundan, 2010) (Case 1094)
The concept of cultural distance is quite often seen in relation with other types of
distance. Along with psychic distance, economic distance, and geographic distance it exerts a
strong influence on the location choice of foreign activities (Jones & Coviello, 2005). The
formulation suggests that these types of distance neither coincide nor overlap: they are

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considered here to be all independent yet related constructs. Other studies have considered that
geographic distance, for instance, is just a component of cultural distance (Arora & Fosfuri,
2000). These two types of distance seem to be correlated (Cantwell, Dunning & Lundan, 2010):
the more distant geographically, the more distance culturally. It is verified as long as former
colonial ties are not taken into consideration (Dow & Karunaratna, 2006; Håkanson & Ambos,
2008), since Spain can be considered culturally closer to Latin America than to Poland. However,
it is more likely that cultural distance encompasses other types of distance, namely institutional
distance (Cantwell, Dunning & Lundan, 2010) and geographic distance (Arora & Fosfuri, 2000).
Cognitive distance does not appear in the verbatims, meaning that it was not linked to the notion
of cultural distance in the last twenty years of publications of the Journal of International Business
Studies. However, I consider with Verbeke & Greidanus (2009) that cognitive distance impacts
positively geographic distance. Hence, since geographic distance and cultural distance seem to be
at least partially correlated (when former colonial ties are not part of the equation), it follows that
cognitive distance is positively related to cultural distance.
However, the concept of cultural distance is most of the times associated to the
considered-similar one of psychic distance (Dow & Karunaratna, 2006; Mariotti & Piscitello,
1995) to such an extent that many studies consider they are interchangeable concepts (Dunning,
Fujita, & Yakova, 2007; Gomes & Ramaswamy, 1999; Sethi, Guisinger, Phelan, & Berg, 2003;
Simonin, 1999; Yeniyurt, Townsend, Cavusgil, & Ghauri, 2009) . The inappropriate use of the
Kogut & Singh‘s index is partially responsible for such misunderstanding. It relies on Hofstede‘s
(1980) cultural dimensions and has been used interchangeably to measure both cultural and
psychic distance. In fact, these two concepts of distance are not synonyms. Their unit of analysis
is not the same: if it usually is the country for cultural distance calculations, an individual level is
more appropriate for psychic distance measurements (Harzing, 2003).
They are related concepts: it is likely that the more culturally distant, the more psychically
distant as well. That is, a distant culture will seem less familiar than a neighboring one and more
difficult to understand (Hofstede, 1980; Kogut & Singh, 1988). In fact, it is more accurate to
consider, in line with Dow & Karunaratna (2006), Ellis (2008), Evans & Mavondo (2002),
Katsikeas, Skarmeas, & Bello (2009), O'Grady & Lane (1996), Ramaswamy, Kroeck, & Renforth
(1996), that cultural distance is a component of psychic distance, along with aspects of managerial
decision-making, business difficulties and differences in language (Arora & Fosfuri, 2000;
O'Grady & Lane, 1996; Ramaswamy, Kroeck, & Renforth, 1996).
To summarize, it appears that cultural distance comprises other types of distance (namely,
cognitive, geographic, and institutional), and is itself comprised in the psychic distance concept.

P a g e | 32
GEOGRAPHIC DISTANCE
How the concept of geographic distance is defined:
Interestingly, this concept is not defined. This is undoubtedly because it seems very
straightforward: it refers to the physical distance between two points in a space.
What the concept of geographical distance is applied to:
As their firms encompassed increasingly broader geographic markets, the costs associated with geographic dispersion began escalating,
sometimes quite rapidly, thus eroding profit margins" (1989, p. 117) (Gomes & Ramaswamy, 1999) (Case 422)
The obstacle of GEOGRAPHIC DISTANCE should decline in importance over time as an individual firm acquires experience in
a particular market. (Grosse & Treviño, 1996) (Case 291)
GEOGRAPHIC DISTANCE and market, linguistic and cultural differences have the strongest influences on a firm's international
expansion process.(Delios & Henisz, 2003) (Case 661)
We can identify three types of barrier to knowledge combination. One is that due to GEOGRAPHIC DISTANCE and time
differences, which create practical obstacles to communication. Distance also has the more subtle effect of lowering levels of mutual
awareness so that groups that are 'out of sight' can also remain 'out of mind'.(Buckley & Carter, 2004) (Case 677)
From the perspective of a practising manager, the implications of this research fall in a different area. Despite all the rhetoric about
declining transportation costs and the global economy, the research presented here confirms that GEOGRAPHIC DISTANCE is
still the single most influential 'trade inhibitor'. GEOGRAPHIC DISTANCE accounts for almost twice as much total variance
explained as all the other psychic distance stimuli combined; and this is for a set of industries (Conlon, 1985) explicitly identified as
having low transportation costs! This is consistent with Learner and Storper (2001) findings that the importance of GEOGRAPHIC
DISTANCE has not declined substantially. Nevertheless, the psychic distance stimuli do still play a significant role. (Dow &
Karunaratna, 2006a) (Case 791)
Knowledge is not always codifiable in a way that enables easy transmission in the form of blueprints. Instead, it is often ‗tacit‘, making
diffusion of knowledge across large distances difficult (Polanyi, 1967; Nelson and Winter, 1982). Not surprisingly, empirical research
has also found knowledge diffusion to be constrained by GEOGRAPHIC DISTANCE (Jaffe et al., 1993; Audretsch and
Feldman, 1996; Branstetter, 2001; Keller, 2002). (Singh, 2007) (Case 839)
Geographic environment: proximity. Developing-country MNEs may have an edge in LDCs thanks to the geographic proximity between
home and host country. GEOGRAPHIC DISTANCE, or proximity, alters the attractiveness of host countries and affects the ease

P a g e | 33
of trading and operating across countries (Ghemawat, 2001; Johanson & Vahlne, 1977; Johanson & Wiedersheim-Paul, 1975). The
addition of foreign operations and their physical distance requires the firm to deal with additional transportation, communication, and
coordination (Hitt, Hoskisson, & Kim, 1997; Vernon, 1977). (Cuervo-Cazurra & Genc, 2008) (Case 995)
First, vertical contractual restraints are more difficult to design and enforce across borders, which then makes brand specificity costlier to
resolve in offshore outsourcing. The GEOGRAPHIC DISTANCE between two nations, for instance, increases the cost that retailers
must incur to monitor plant operations abroad (Min, LaTour, & Williams, 1994). (Chen, 2009) (Case 1000)
Although establishing relationships with foreign clients is more challenging because of social and GEOGRAPHIC DISTANCE,
several studies indicate that foreign networks are used more often for cross-border activities and trade, particularly among young
internationalizing firms (Cavusgil & Zou, 1994; Freeman, Edwards, & Schroder, 2006; Styles & Ambler, 1994). (Zhou, Barnes,
& Lu, 2010) (Case 1109)
It appears in the literature that geographic distance is the major inhibitor to international
expansion (Delios & Henisz, 2003). Doing business with a physically distant country increases
the costs drastically (Gomes & Ramaswamy, 1999), notably the ones related to control,
monitoring (Chen, 2009), communication (time differences being a natural obstacle to
communication, (Buckley & Carter, 2004)), transportation, and coordination (Cuervo-Cazurra &
Genc, 2008). Since costs are higher, performance is likely to be lower in physically distant
countries (Gomes & Ramaswamy, 1999).
This type of distance affects the ease to establish relationships with clients (Zhou, Barnes,
& Lu, 2010), knowledge diffusion, especially the tacit one (Singh, 2007), and the attractiveness of
host countries (Cuervo-Cazurra & Genc, 2008). Geographic distance is the type of distance
which most affects the development of international business (Dow & Karunaratna, 2006a), but
experience reduces its obstacles over time (Grosse & Treviño, 1996). Therefore, managers who
have benefited from extensive prior experience have much greater chances at succeeding in a
physically distant country than the other ones. It is not mentioned however what kind of
experience is necessary (e.g., former expatriate) nor if it has to be in a similar country or not.
How the concept of geographical distance is operationalized:
Geographic distance. (PROXIMITY) This variable takes the value of 1 when the project undertaken abroad is in a country that shares
borders with the home country or is located within a 100 mile range. It takes the value of 0 otherwise. (Arora & Fosfuri, 2000) (Case
515)
Geographic Distance is the logarithm of the distance between capital cities of the two countries in which the focal foreign subsidiary and the
headquarters unit were located. (Frost & Zhou, 2005) (Case 753)

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DISTANCE is the air distance between the capital city of the host country and Tokyo, in miles (sources: Fitzpatrick & Modlin, 1986;
International Air Transport Association and International Aeradio, 1994). (Rose & Ito, 2008) (Case 921)
GEOGRAPHIC DISTANCE from the United States: the number of miles from the home country's capital to the closest major
U.S. city among New York, San Francisco and Houston. Source: Atlas of the World. (Grosse & Treviño, 1996) (Case 291)
Log of GEOGRAPHIC DISTANCE between the home and the host countries was calculated from Hengeveld (1996). (Werner &
Brouthers, 2002) (Case 584)
GEOGRAPHIC DISTANCE from all other firms in its own industry is undertaken as an indication of the agglomeration
tendencies of firm i. GEOGRAPHIC DISTANCE is a commonly used indicator of the strength of firms' linkages with other firms
(e.g., Blau, 1977; Baum and Mezias, 1992; Chung, 2001). To construct this measure, we converted the location of each firm into
longitudes and latitudes. We then calculated Euclidean distance (Nachum & Wymbs, 2005) (Case 752)
At first glance, the measurement of time zone differences would appear simple, to the point of bordering on trivial. The complication comes
in the form of another highly correlated variable: GEOGRAPHIC DISTANCE, a common surrogate for transportation costs.
Without controlling for GEOGRAPHIC DISTANCE, it would be impossible to discern whether any observed correlation is due to
time zone effects or to the effects of transportation costs. As a result, we have created a new variable by regressing GEOGRAPHIC
DISTANCE onto time zone differences, and retaining the standardized residuals (Timeres,d). The residuals represent a component of
time zone differences that is independent of distance. Needless to say, as this variable is only one component of the total time zone
differential, it will understate the impact that time zone differences will have on trade. (Dow & Karunaratna, 2006b) (Case 791)
The base gravity model explains FDI based on indicators of the host country's size (GDP and population) and the GEOGRAPHIC
DISTANCE between home and host countries (Linneman, 1966). Therefore, we controlled for the country's economic size using
indicators of gross domestic product and population. Larger countries are more likely to attract FDI, because MNEs can achieve the
necessary economies of scale in the country (e.g., Linneman, 1966). We controlled for GEOGRAPHIC DISTANCE between
countries using an indicator of the great circle distance, which measures distance on the surface of the earth using longitude and latitude
coordinates.(Cuervo-Cazurra, 2006) (Case 834)
Therefore I use the following set of controls, which are common in gravity models (e.g., Frankel & Rose, 2002; Wei, 2000b) First, I
control for the size of the country using indicators of gross domestic product and of population. Larger countries are more likely to attract
FDI because MNEs can achieve economies of scale in the country. Second, I control for the GEOGRAPHIC DISTANCE between
the countries using an indicator of the great circle distance, which measures distance on the surface of the earth using longitude and latitude
coordinates. Distance indicates the existence of transportation costs that would discourage trade and favor FDI. (Cuervo-Cazurra, 2008)
(Case 981)
Geographic proximity was measured using a binary indicator of the existence of a common border between the home
country of a firm listed among the largest foreign affiliates, and the host LDC. (Cuervo-Cazurra & Genc, 2008)
(Case 995)
In order to measure geographic/cultural proximity, we use two alternative measures. Our first measure is a composite geographic and
cultural distance measure. Our GEOGRAPHIC DISTANCE measure is based on the haversine formula. (Aybar & Ficici,
2009) (Case 1010)
Control variables. As our data contain both developed and developing countries, we included the log of GDP per capita as a control
variable. In international economic research gravity models have demonstrated that spatial distances (especially proximity) are associated
with closer (higher level) trading and investment relationships (see Anderson (1979), for a review). Hence we include geographical distance
as a control. We operationalize this variable as the log of GEOGRAPHIC DISTANCE from the capital city of the home country
to that of the host country. (Doh, Bunyaratavej, & Hahn, 2009) (Case 1071)
Second, we included the GEOGRAPHIC DISTANCE between the US and each recipient nation as another control variable

P a g e | 35
(DIS). We obtained these data from Haveman (2006), who provides the physical distance data between capital cities in kilometers.
(Madhavan & Iriyama, 2009) (Case 1086)
The geographic distance concept, which has not been defined in the literature even
though its importance is considerable on international trade, has been operationalized in a variety
of ways. They can be broadly divided in three possibilities: untransformed measures; transformed
measures; other measures.
First, studies using untransformed measures relied on basic physical distance between
major cities (Rose & Ito, 2008), may it be the number of miles (Grosse & Treviño, 1996) or
kilometers (Madhavan & Iriyama, 2009). This is a very simple measure. Some sophistication can
be added to it by taking into account the rotundity of Earth. Nachum & Wymbs (2005) used
longitudes and latitudes to calculate Euclidean distances between an origin and a destination.
Other studies relied on the haversine formula (Aybar & Ficici, 2009), initially developed for
navigation purposes. It calculates the distance between two points on a sphere with longitudes
and latitudes coordinates (Cuervo-Cazurra, 2006; Cuervo-Cazurra, 2008). It is thus also called the
great-circle distance.
Then, other studies transformed this raw measure of physical distance using the
logarithm. As such, Frost & Zhou (2005) and Doh, Bunyaratavej, & Hahn (2009) used the
logarithm of the distance between capital cities, more specifically between the capital city of the
foreign subsidiary and the capital city of the headquarters. Werner & Brouthers (2002) used
another level of analysis since this time it is the logarithm of the geographic distance between the
home and the host country. Using a logarithm makes sense: following the Weber-Fechner law,
the sensitivity associated with distance decreases when distance increases.
Finally, others resorted to dummy variables taking the value of 1 if the country shares
border (Cuervo-Cazurra & Genc, 2008) or is within a 100-mile range (Arora & Fosfuri, 2000),
and 0 otherwise. If this is simple and parsimonious, it has the disadvantage of being done at the
country level. It is problematic since major economic players do not share many borders with
other countries, such as Australia and the United States. It is a useful measure if one considers
only road transportation of goods. However, a large part of the goods travels via ships, and even
a larger part of the economy is transferred virtually (e.g., IT services in Bangalore, India), in
which case kilometric distance does not matter. Dow & Karunaratna (2006b) used an original
measure since geographic distance is regressed onto time zone differences. This is a more fine-
grained approach than the former one. If physical distance does not impact much the delivery of
services, time differences do. Therefore the measure of geographic distance should be adapted
according to which type of goods or services are considered in the study.

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How the concept of geographic distance is related to other types of distance:
GEOGRAPHIC DISTANCE is generally related to psychic distance (Johanson and Vahlne, 1977), but they need not coincide.
(Arora & Fosfuri, 2000) (Case 515)
in part cultural distance can be proxied by GEOGRAPHIC DISTANCE and common language. (Arora & Fosfuri, 2000)
(Case 515)
Turning to the place or country of transference as evidence of internationalization behavior, the choice of country has generally been
described in terms of psychic and economic distance (Johanson and Wiedersheim-Paul, 1975; Luostarinen, 1980), GEOGRAPHIC
DISTANCE (Carlson, 1974) and cultural distance from the internationalizing firm (Kogut and Singh, 1988; Benito and Gripsrud,
1992). Together, these measures reflect the notion of `country distance'. (Jones & Coviello, 2005) (Case 744)
In addition to the preceding seven hypotheses, one further 'exogenous factor' is occasionally cited as having a potential influence on psychic
distance: previous colonial links. Former colonial ties have been a common variable in numerous international trade flow studies
(Linnemann, 1966; Rauch, 1999). Johanson and Wiedersheim-Paul (1975) used the British Commonwealth (p. 308) as an example
of where GEOGRAPHIC DISTANCE and psychic distance diverge. (Dow & Karunaratna, 2006) (Case 791)
Psychic distance, proxied by GEOGRAPHIC DISTANCE (Coeurderoy & Murray, 2008) (Case 973)
Cultural and GEOGRAPHIC DISTANCE can also increase the cognitive distance between actors inside the MNE. (Verbeke &
Greidanus, 2009) (Case 1077)
It is important to know how each concept relates to the others to have a more accurate
picture than the one presented page 6.
The concept of geographic distance is related to the one of psychic distance in the
literature (Arora & Fosfuri, 2000) but they do not fully overlap. They can even diverge greatly, as
shown in the example of the Commonwealth in Dow & Karunaratna (2006). Psychic distance
can only partially be proxied by geographic distance and language differences (Arora & Fosfuri,
2000). Therefore one can cast doubt on the use of geographic distance to proxy psychic distance
in Coeurderoy & Murray (2008). Geographic distance is a concept which relies on objective,
physical data (e.g., number of kilometers) whereas psychic distance is a perception, which is
influenced by all the types of distance (geographical, cultural, cognitive, and institutional). Jones
& Coviello (2005) suggested that psychic distance, economic distance, geographic distance and
cultural distance altogether represent the concept of ―country distance‖. Geographic distance and
psychic distance represent two very different notions, and one should not be used to approximate

P a g e | 37
the other. In this vein, I consider with Verbeke & Greidanus (2009) that geographic and cultural
distance are positively correlated with cognitive distance.
INSTITUTIONAL DISTANCE
How the concept of institutional distance is defined:
Kostova (1999) has proposed the concept of 'INSTITUTIONAL DISTANCE' as a key variable in the transferability of practices
between national institutional domains. INSTITUTIONAL DISTANCE is the difference between the 'country institutional
profile' (CIP) of the country of origin and the country of operation, respectively (Ferner, Almond, & Colling, 2005) (Case 741)
INSTITUTIONAL DISTANCE – defined not from a survey of IBM employees in the 1960s but as misunderstandings
regarding specific rules, practices or norms that generate conflict – can be reduced over time. (Henisz & Swaminathan, 2008) (Case 948)
Our third measure, INSTITUTIONAL DISTANCE, captures the differences in normative, regulative, and cognitive constructs
between two economies. (Gubbi, Aulakh, Ray, Sarkar, & Chittoor, 2010) (Case 1106)
The concept of institutional distance refers to the extent to which two countries‘
institutional profiles differ (Ferner, Almond, & Colling, 2005). They do not specify what is meant
by ―institutional profile‖ but one can assume that it is related to administrative, governmental and
possibly legal purposes. A large sense of the word ―institution‖ could include the educational
system. Other definitions are more precise. Institutional distance comprises three constructs
(normative, regulative, and cognitive) reflecting the differences between two economies (Gubbi,
Aulakh, Ray, Sarkar, & Chittoor, 2010). For Henisz & Swaminathan (2008), it refers to
misunderstandings regarding rules, practices and norms (which can be encompassed in the
normative construct suggested above) likely to provoke conflicting situations. It is therefore
possible that institutional distance decreases with time.
To synthesize, I suggest the following definition: the concept of institutional distance
represents the extent to which normative, regulative, and cognitive aspects of an economy are
different and possibly conflicting.

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What the concept of institutional distance is applied to:
they suggest that legitimacy, both cognitive and normative, is directly related to INSTITUTIONAL DISTANCE, with such
distance reducing the legitimacy of a transferred asset (Kostova and Zaheer, 1999). (Jensen & Szulanski, 2004) (Case 716)
It follows, then, that as INSTITUTIONAL DISTANCE increases it also increases the potential benefit of adaptation (Kostova
and Zaheer, 1999). (Jensen & Szulanski, 2004) (Case 716)
Kostova (1999) has proposed the concept of 'INSTITUTIONAL DISTANCE' as a key variable in the transferability of practices
between national institutional domains. (Ferner, Almond, & Colling, 2005) (Case 741)
Alternatively, it is possible that firms seek similarly coordinated environments. Rugman and Verbeke (2004) have suggested that regional
firms are much more common than truly global firms. One possible explanation may be that firms, instinctively or consciously, seek out
what they perceive as congruent institutional contexts, and thus relatively close INSTITUTIONAL DISTANCE (Kostova, 1999;
Eden and Miller, 2004), to support their FDI strategies. (Witt & Lewin, 2007) (Case 889)
INSTITUTIONAL DISTANCE (regulatory, normative, and cultural) seems to have a dual impact on international acquisition
performance. Increased distance makes it difficult for foreign acquirers to establish legitimacy in the target‘s home country, but also has
beneficial effects on acquisition performance to the extent that it provides valuable opportunities for institutional arbitrage (Rottig, 2008).
(Zander & Zander, 2010) (Case 1135)
Neighboring countries are considered similar to the home country in terms of institutions
and culture, thus reducing the uncertainty of expanding in an unfamiliar environment, and
geographic distance being smaller, its negative effects on performance are lessened. Therefore,
because of the obstacle institutional distance may constitute, it appears that firms have a tendency
to expand regionally rather than globally (Witt & Lewin, 2007). Neighboring economies thus
have the reputation of being alike, which also affects the transferability of practices (Ferner,
Almond, & Colling, 2005).
Institutionally distant countries require more investment and carry more uncertainty. Its
legitimacy is more difficult to establish there (Jensen & Szulanski, 2004; Zander & Zander, 2010),
and adaptation may be required, which incurs costs and thus impairing performance. However,
institutional distance can have a positive effect for acquisitions since the more institutionally
different the host country, the more opportunities for institutional arbitrage the expanding firm
can benefit from (Zander & Zander, 2010).

P a g e | 39
How the concept of institutional distance is operationalized:
Countries that share the same currency and the same central bank (Fratianni & Oh, 2009) (Case 1019)
Our measure for the INSTITUTIONAL DISTANCE between source and receiver countries is the Kogut and Singh Cultural
Distance Index (Kogut and Singh, 1988). This index has been extensively used in the international business literature (e.g., Barkema et
al., 1996; Park and Ungson, 1997; Morosini et al., 1998; Luo, 2000), as well as in related fields such as international marketing
(e.g., Gielens and Dekimpe, 2001), and has been found to be robust. The index is derived from Hofstede's (1991) indices of cultural
dimensions: i.e., power distance, individualism, uncertainty avoidance, and masculinity/ femininity. The scores for each country on the four
dimensions were obtained from Hofstede (1991). (Jensen & Szulanski, 2004) (Case 716)
While the cultural literature is less concerned with concrete differences in how business is organized, the concept of ―distance‖ has also been
developed in institutional theory to study issues of cross-national diffusion and transplantation of practices. INSTITUTIONAL
DISTANCE has been measured in terms of broad country-level institutional profiles that capture the relative distance between countries,
and apply this to study issues such as cross-national transfer (Kostova, 1999; Kostova & Roth, 2002). Notably, this literature goes
beyond the emphasis on regulative aspects of institutions that affect transaction costs or resources, and integrates normative and cognitive
aspects of institutions. For example, Gaur, Delios, and Singh (2007) use the World Competitiveness Yearbook to obtain seven
indicators of regulative aspects (political transparency, antitrust regulation, intellectual property protection, judicial system efficiency, fiscal
policy, inflation, and market dominance in key industries) and seven indicators of normative aspects (responsiveness of the political system
to economic challenges, bureaucratic corruption, government‘s attitude towards economic realities, transparency towards citizens, political
risk, bureaucratic hindrance to economic development, and the independence of local authorities). This approach has thus greatly broadened
the range of dimensions and measures used to conceptualize institutions, and integrated these into composite notions of
INSTITUTIONAL DISTANCE or measured degree of similarity across a wide array of scored indices of institutional
development (Delios & Beamish, 1999; Gaur & Lu, 2007; Wan & Hoskisson, 2003). (Jackson & Deeg, 2008) (Case 920)
Our hypotheses relate to two categories of independent variables. The first, formal INSTITUTIONAL DISTANCE, is derived
from the PRS Group‘s International Country Risk Guide (http://www.prsgroup.com/)http://www.prsgroup.com/). This source was
used because it provided data that we could match both by country and by year to our data for all but a few years. Since the international
country risk guide (ICRG) data records start in 1984 and our data begin in 1981, we interpolated the values for 1984 to 1981 for the
11 acquisition attempts in our data dating prior to 1984. For the remainder, we were able to match values by year and country. (Dikova,
Sahib, & van Witteloostuijn, 2010) (Case 1105)
Our results show that both our informal INSTITUTIONAL DISTANCE measures (Power distance and Uncertainty
Avoidance) have a significant and negative effect on Acquisition completion (p<0.1). (Dikova, Sahib, & van Witteloostuijn, 2010)
(Case 1105)
Following Meyer et al. (2009), we proxy the strength of market-supporting institutions using relevant components (business freedom, trade
freedom, investment freedom, labor freedom, and proprietary rights) of the economic freedom index developed by the Heritage Foundation
to construct the measure of INSTITUTIONAL DISTANCE. The components of economic freedom provide a portrait of a
country‘s economic policies, and establish benchmarks by which to gauge strengths and weaknesses. Business freedom represents the
overall burden of regulation, as well as the efficiency of government in the regulatory process; trade freedom reflects the absence of tariff
and non tariff barriers that affect imports and exports of goods and services; investment freedom scrutinizes each country‘s policies
toward the free flow of investment capital (foreign investment as well as internal capital flows); property rights assess the ability of
individuals to accumulate private property, secured by clear laws that are fully enforced by the state; and labor freedom assesses the legal
and regulatory framework of a country‘s labor market (Heritage Foundation, 2009). For each target country in our sample, we divide the
value for the selected economic freedom index category for that year by the corresponding value for India, and take the mean across the five
ratios thus obtained as the final value. Values > 1 signify higher and those < 1 reflect lower levels of institutional development relative to
India. (Gubbi, Aulakh, Ray, Sarkar, & Chittoor, 2010) (Case 1106)

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