How much distance do we need? Revisiting the "national cultural distance paradox"

This study revisits the "national cultural distance paradox" based on a sample of Japanese foreign direct investment (FDI) in 53 countries and regions over 30 years. Earlier studies on cultural distance assumed linear relationships and showed mixed results. We examine nonlinear relationships between Cultural distance (CD) and entry mode and between CD and performance. Results suggest that there is a nonlinear (inverted U-shape) relationship between CD and the choice of a joint venture as the preferred market entry mode, and between CD and performance. We also found that the relationship between CD and performance is moderated by entry mode choice: the nonlinear relationship between CD and performance is stronger for joint ventures than for wholly owned subsidiaries.