Research Handbooks in Business and Management series
Edited by Hemant Merchant
Chapter 9: Establishment mode strategy of multinational enterprises in the emerging economies: influences of and the moderating interrelationship between cultural distance and economic freedom
The world is witnessing increasing interdependence among the key economic players, which includes both nations and multinational enterprises (MNEs), due to the process of globalization (Bhagwati, 2004). This interdependence is visible in the rise in the flows of foreign direct investments (FDIs) made by the MNEs both in developed and in advanced economies (e.g. Dunning and Lundan, 2008; UNCTAD, 2009, 2010, 2012). International business (IB) literature has long established that when the MNEs enter new international markets via FDI, a key strategic consideration concerns their establishment mode strategy, that is, whether to start operations from scratch – referred to in the literature as ‘greenfield investments’ – or to buy already existing local firms, referred to as ‘acquisitions’ (e.g. Hennart and Park, 1993; Datta et al., 2002; Larimo, 2003; Dikova and van Witteloostuijn, 2007; Slangen and Hennart, 2007, 2008; Arslan and Larimo, 2011). It has also been discussed in previous studies that a major hurdle faced by the MNEs in their international market entry decisions, including establishment mode strategy, is due to the differences in cultures of home and host countries, referred to as the cultural distance (e.g. Hennart and Larimo, 1998; Tihanyi et al., 2005; Slangen and Hennart, 2008; Dikova and Sahib, 2013).
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