The performance effects of “added cultural distance” in multinational expansion paths: generalizable and contextual determinants

What is it about?

When multinational enterprises (MNEs) expand into culturally distant markets, they face challenges in adapting to new environments and managing internal complexities. This study revisits the concept of ‘added cultural distance’ and its impact on firm performance, using data from Indian multinationals. We find that adding moderate cultural distance per period can enhance firm-level profitability during the subsequent period, but only up to a threshold. Adding cultural distance beyond this threshold overburdens managerial capabilities, which leads to a decline in firm performance. Our findings highlight that multinationals must match international expansion opportunities with adequate managerial resources. For senior executives, careful planning of internationalization steps and attention to the cumulative distance added in each period is crucial to avoid negative performance effects of over-expansion.

Featured Image