The impact of country risk and cultural distance on entry mode choice

Abstract

Abstract Purpose – Different theoretical approaches can be used to justify a positive or negative influence of country risk and cultural distance on the resources commitment level assumed in each decision to entering a new country. Before the disparity of results obtained in prior research, this study seeks to provide new empirical evidence about the influence that those two dimensions linked with the target country may exert on entry mode choice. Design/methodology/approach – Based on contingency approach, transaction cost economics, resource dependency perspective, bargaining power theory and organisational capabilities perspective, various alternative hypotheses are developed and tested using a sample of 471 entries performed by Spanish enterprises between 1999 and 2004. Findings – The findings indicate that both dimensions go in the same direction, as both greater target country risk and greater cultural distance reduce the likelihood of using higher‐commitment entry strategies. Originality/value – The conflicting arguments are discussed which allow are to forecast that, in conditions of country risk or great cultural distance, both low‐ and high‐commitment entry modes can be appropriate.