Amsterdam Business School
The Role of Culture in Foreign Market Entry Modes: Investigating the
Relationship between Cultural Distance and Entry Mode Choices for Dutch
MNEs.
By: Sean Hickman
Student Number: 6077277
Submission Date: 11-08-2014
MSc. in Business Studies – International Management Track
First supervisor: Stephan von Delft
Second Supervisor: Ilir Haxhi Abstract
This study investigated entry mode decisions by Dutch firms engaging in foreign direct investment (FDI). In particular, it studied a potential inverted U-shaped relationship between entry mode choice and cultural distance, as opposed to the traditional linear relationship in which these variables are thought to interact. The major rationale behind the study was the so far inconsistent results on the matter. Building on a previous study that found this type of non- linear association between the variables for Japanese firms, this study failed to replicate those findings. The results do show a significant interaction between entry mode and cultural distance, but this interaction appears to be linear for Dutch firms. Furthermore, other factors such as firm performance, industry, and host country development did not significantly influence entry mode choice, but firm size did have a significant effect.
1 Table of Contents
1. Introduction……………………………………………………………...…………………4
2. Theoretical Framework………………………………………………………….....…….10
2.1 Internationalization Process…………………………………………………………….10
2.1.1. Transaction Cost Approach…………………………………………………....…..11
2.1.2. Uppsala Internationalization Model……………………………………………….12
2.1.3. Eclectic Paradigm…………………………………………………………………13
2.1.4. Organizational Capability Perspective………………………………………….…14
2.2 Entry Mode Choices………………………………………………………………….…15
2.3 Entry Modes’ Impact on Performance………………………………………………….16
2.4 Culture & Cultural Distance……………………………………………………………17
2.5 Effect of Cultural Distance on Entry Mode Choice…………………………………….18
3. Methodology & Hypothesis Formulation……………………………………………….22
3.1 Sample…………………………………………………………………………………..22
3.2 Hypothesis Formulation………………………………………………………………...23
3.3. Measures……………………………………………………………………………….25
3.3.1. Control Variables………………………………………………………………….25
3.4 Analytical Approach……………………………………………………………………28
4. Results…………………………………………………………...………………………...30
4.1 Descriptive Statistics for Main Hypothesis……………………………………………..30
4.2 Regression Analysis…………………………………………………………………….34
4.3 Descriptive Statistics and Analysis for 2nd Hypothesis…………………………………36
4.4 Descriptive Statistics and Analysis for 3rd Hypothesis…………………………………38
4.5 Descriptive Statistics and Analysis for 4th Hypothesis…………………………………39
2 4.6 Descriptive Statistics and Analysis for 5th Hypothesis………………………………...40
5. Discussion……………………………………………………………………………….…41
6. Limitations……...…………………………………………………………………….…...45
6.1 Sample…………………………….……………………………………………….……45
6.2 Measures………………………………………………………………………….…….45
6.3 Analysis………………………………………………………………………………...46
7. Future Research…………………………………..………………………………………47
8. Conclusion…………………………………………………………………………………48
9. Bibliography………………………………………...…………………………………….51
10. Appendices……………………………………………………………………………….56
10.1 Appendix A……………………………………………………………………………56
10.2 Appendix B……………………………………………………………………………60
3 1. Introduction
In an era of growing globalization many companies are increasing their international business activities, but while this was traditionally done through the means of imports and exports, there is an increasing trend of directly investing abroad, as foreign direct investment (FDI) rates have increased drastically throughout the world in recent decades (Bende-Nabende, 2002). However, the way in which investment abroad takes place varies significantly per company and country, as a range of factors contribute to companies’ entry modes into foreign markets differing from case to case. Pan & Tse (2000) distinguish equity-based from non-equity-based foreign market entry modes. Non-equity-based entry modes are those traditional ones such as exports and contractual agreements, while equity-based entry modes are examples of more contemporary means of international business activities in the form of foreign direct investment. Pan & Tse
(2000) also identify four main and general forms of FDI activities, namely greenfield investments, acquisitions, joint ventures, and the acquiring of shares. Investment abroad by means of greenfields and acquisitions lead to wholly owned subsidiaries (WOS) of a company that have no association with or dependence on any other firm, while collaborating with local firms lead to equity joint ventures in which two or more firms have a stake in the newly established subsidiary.
The choice of entry mode has been extensively studied in international business research, with its effect on performance being regarded as one of the foremost reasons why. Brouthers (2002) shows that the choice of entry mode indeed has implications for firm performance, which makes it essential for companies to carefully make a choice as to what entry mode will be used when entering foreign markets, as firms will evidently want to choose the entry mode which will yield the highest performance.
4 There are a number of factors which likely play a role in the choice of entry mode, yet the extensive empirical research on the topic has yet to provide us with concrete information as to which factors are of greatest influence in determining entry mode choice. According to Kogut
& Singh (1988), firms will likely face cultural challenges resulting from entering less known markets when determining FDI decisions and entry mode choices, and as such culture is considered a major factor that will influence companies’ entry mode decisions. International business research on entry modes has therefore also emphasized culture as a potential influencer, yet results on this show no clear consensus (Wang & Schaan, 2008; Morschett,
2010). This lack of consensus amongst researchers on the topic is highly problematic, as internationalizing companies and their managers are unaware of the consequences of their entry mode choices, which will likely prevent them from yielding the greatest potential performance from their international business activities. The cost of doing business abroad is undoubtedly affected by the culture of those where the foreign business is taking place, as international business activities inherently involves interactions with local populations, and these interactions are likely to be affected by their culture.
Without properly assessing the cultural implications of doing business in certain countries, even successful firms with proven track records in one country might miserably fail in another country, which further emphasizes the need to establish the extent to which cultural factors have an effect on international business performance. A noteworthy and recent example of where a successful firm turned out to be much less successful in a foreign market is the case of Home
Depot in China (Gao, 2013). Since its foundation in the United States in the late 70s, the company grew out to be the leader in the US home improvement and DIY market. The business model which proved to be so successful in the American market turned out to be a failure in the
Chinese market, which is mostly attributed to the cultural differences that Home Depot failed to foresee, which in this particular case generally came down to the differences in the Chinese
5 home improvement market and the lack of experience with the DIY concept. As such, after years of losses, Home Depot decided to shut down all its remaining stores in China by 2012 and fully exited the market (Gao, 2013). The company’s unsuccessful venture in China was not unique however, with Mattel Inc. and Best Buy, two major American retail companies, having faced similar problems in the past, which had resulted in both companies withdrawing from the
Chinese market. These cases prove that a replication of a successful strategy in a home country will not necessarily lead to that strategy being as successful in other host countries. Firm characteristics will undoubtedly have an effect on performance, with companies such as Home
Depot having initially become so successful due to their unique business models, yet it is a common and erroneous assumption that these successful models can be replicated in other countries. External factors clearly also play a role in the extent to which a company’s performance is successful, and when entering foreign markets culture is likely to be one of the most influential external factors.
It is therefore of interest to both companies and their managers to carefully assess and analyze the different modes of entering foreign markets, so that the eventual chosen entry mode best reflects the interest of the firm whilst simultaneously addressing the cultural difference with the country/market they are entering. This research on culture is most commonly focused on the concept of cultural distance, developed by Geert Hofstede (1980). He found that people from different countries have different cultures by measuring four distinct attributes or values, later adding a fifth, which are work-related and therefore have an influence on business. These attributes, or dimensions, include power distance, individuality versus collectivism, masculinity versus femininity, uncertainty avoidance, and long term versus short term orientation.
According to Hofstede, these attributes differ per country, and the differences between these dimensions give rise to the concept of cultural distance. Depending on its characteristics and norms and values of its population, countries score on a scale of 1 to 120 for each dimension.
6 The differences between each dimension for two given countries together make up an average cultural distance between the two. Since this concept was developed by Hofstede, it has been widely used in international business research to study cultural differences in general, but has also most frequently been used to investigate the effect of culture on performance and entry modes (Barkema, 1996; Cho & Padmanabhan, 2005; Wang & Schaan, 2008; Morschett, 2010;
Chang et al., 2012).
High cultural distance will likely result in major differences in the way business activities are run which will in turn have implications for firm performance. In order to deal with cultural differences, the choice of entry mode in relation to cultural distance has frequently been studied by international business research, with some noteworthy early research providing evidence for cultural distance affecting the entry mode choice (Kogut, 1988; Agarwal and Ramaswani, 1992)
Therefore, it is not only important for MNEs to carefully decide where to locate their FDI activity, but it is also crucial to determine which entry mode to choose as different modes might be more or less successful depending on the cultural distance between the home and host country.
Because previous studies have shown a positive association between entry mode and performance (e.g. Brouthers, 2002; Chen, 2003), further emphasizing the need for companies to be cautious when selecting entry modes for their investments abroad, firms will want to know what entry modes yield the highest performance in countries with a high cultural distance when compared to countries with a low cultural distance. Different entry modes lead to different ways in which the subsidiary is managed, while foreign management is likely perceived more positively or negatively depending on the culture of the country. Some countries have stronger institutional regulations which will likely also affect the decision of entry mode. A recurring assumption is that the management of WOS will be more costly in a culturally distant country, and companies will be more geared towards opting for joint ventures (Canabal, 2008).
7 However, numerous studies on the topic have also questioned the relationship between cultural distance and entry modes, showing no direct association (Harzing, 2003, Tihanyi and Russell,
2005; Morschett et al., 2010; Slangen and van Tulder, 2009; Chang, 2012). This has ultimately lead to international business research on this popular topic being contradictory and therefore inconclusive.
More recently, Wang & Schaan (2008) attributed this inconsistency to the recurring notion of there being a linear association between cultural distance and entry mode choice, and their study revealed a U-shaped relationship between the two variables instead. It is therefore of interest to
MNEs to know whether this is indeed the case, as this will likely solve the cultural distance paradox and help them choose an appropriate entry mode.
Because the choice of entry mode is considered an integral part of the internationalization process, and because at least part of the existing literature suggest the choice of entry mode will have an impact on performance, this report will delve deeper into the topic of how cultural distance may affect firm’s choices of entry modes. The report will build upon Wang & Schaan’s work (2008) which points towards the possibility of a U-shaped relationship between cultural distance and the choice of WOS when entering foreign markets, as was shown by their Japanese examples. With no other studies having further investigated this association, this assumption still lacks considerable evidence and because of the importance of the issue at stake this notion should be further investigated. Showing an association between the two variables for countries other than Japan would further help support this claim. Whether their findings can be replicated using a different home country is of particular value to firms and their managers all around the world, as it well help depict a more general trend of the association between cultural distance and entry mode, and help them chose most appropriately. As an industrialized and developed
European country with a significant amount of outward FDI flows, the Netherlands represents
8 an interesting example to investigate how the foreign activities by MNEs from this country are affected by cultural distance when determining foreign entry modes.
Following Wang & Schaan’s (2008) study, the report will also focus on WOS and joint ventures as they are the most recurring forms of equity-based entry modes and FDI. This leads to the following research question for this study:
Is there a U-shaped relationship between cultural distance and the choice of wholly owned subsidiary for Dutch MNEs?
9 2. Theoretical Framework
A vast amount of literature in international business research has been dedicated to the internationalization process, the different types of FDI activities, motives behind FDI and entry mode decisions for foreign markets, and external factors such as culture and performance. The different studies vary widely both in terms of entry choices being investigated and in terms of possible determinants thereof, making it difficult to draw overall conclusions. This section will highlight the main theoretical background and terminology of the study by firstly discussing the internationalization process and the role entry mode decisions plays in it. Secondly, several theories attempting to explain the choice of entry mode will be elaborated on, such as the transaction-cost theory and eclectic paradigm. Consequently, the impact of entry modes on firm performance will be addressed, which will in turn be followed by a discussion on the concept of culture and its perceived effect on FDI decisions and entry mode choices. The discussion on culture will lead to a definition of cultural distance concept, and a review on the literature which have addressed the relationship between this cultural distance and entry mode choice.
2.1 Internationalization Process
The concept of internationalization suffers from a considerable lack of consensus as to how it is defined, but generally speaking it is considered to be the outward movement in a firm’s international operations (Turnbull, 1987). Anderson (1997) labels internationalization as a strategy process of “adapting exchange transaction modality to international markets”, which differs from other types of strategy processes on two main dimensions. Firstly, it deals with the question of which international markets to invest in, and secondly it deals with what strategy should be used for entering these markets. There are several different theories and approaches dealing with the internationalization process, all of which attempt to explain the motives and ways in which firms increase their involvement in foreign markets. Because so many different
10 theories exist, it would be extremely challenging to discuss all these different approaches. Yet some of these are rather significant and recurring theories on the topic of entry mode choices, and will therefore be elaborated on, as well as linking them to the concept of culture. These include the transaction cost approach, the Uppsala model, and the ownership, location and internalization (OLI) framework.
2.1.1 Transaction-cost Approach
Economic theory of FDI activities has been mostly centered on industry- and firm-level variables instead of country-level variables (Kogut & Singh, 1988). The most commonly used theory in explaining the motives behind certain entry modes in the literature is the transaction- cost theory, centered on the firm as the unit of analysis, as the traditional theory for entry mode studies (Anderson, 1997; Makino & Neupert, 2000; Chen, 2003; Canabal, 2008; Morschett,
2010). According to this theory, firms need to create competencies that will minimize costs and inefficiencies related to entering and operating in foreign markets (Williamson, 1979). This comes down to specific assets, the frequency of economic exchange and uncertainty surrounding the exchange of resources between buyer and seller characterizing the transactions between them (Anderson, 1997). Examples of assets typically include the likes of firm proprietary knowledge, products, processes, brand name, product differentiation and marketing skills (Chen, 2002). Following this theory, companies entering foreign markets are expected to choose entry modes which will reduce the transaction costs the most, and one which will provide the best return on investment. Although this approach greatly revolves around firm assets and competencies, culture will likely also have an influence within it. The actual process of entering foreign markets will bring about transaction costs, which will ultimately depend on when, where and how they enter these markets. Culturally different countries will arguably provide higher transaction costs and a lower return on investment, which will likely lead to
11 firms sticking to culturally similar countries instead of culturally different countries once they start internationalizing.
2.1.2 The Uppsala Internationalization Model
The internationalization process of firms is often associated with the work of Johanson &
Wiedersheim-Paul (1975) and Johanson & Vahlne (1975). In their model the entering of foreign markets is a gradual process connected to time and experience. The internationalization process is divided into four successive stages, each representing a higher degree of international involvement. These stages consist of the following (Anderson, 1993):
1) No regular export activities
2) Exports through independent representatives or agents
3) Establishment of an overseas subsidiary
4) Establishment of overseas production/manufacturing units
This approach is also known as the entry mode as a chain of establishment, with increased market knowledge linked to increased market commitment and vice versa (Anderson, 1997).
The underlying idea is that firms first gain experience in their home market before moving abroad, and when they do they enter markets which are either culturally or geographically similar, before moving to more distant countries. Culture therefore has at least a partial significance in this approach, with the overarching idea that culturally similar markets are entered at an earlier stage of the internationalization process and culturally different ones at a later stage. In this model, the outcome of the events of each stage is the input for the next stage and internationalizing firms strictly stick to these steps in the model in order to ensure successful ventures in foreign markets.
Although being a crucial and recurring theory in entry mode studies, the chain of establishment theory fails to include cooperative modes of entry choices in its model, presenting a significant
12 weakness as it therefore does not help to explain the motives behind choosing a joint venture over a wholly owned subsidiary. Moreover, the idea of a gradual and step-by-step process of internationalization is arguably an outdated concept, with numerous factors such as globalization and increases in technology playing a role in undermining this notion, as it is nowadays conceivable for firms to be international from the outset without the experience or market knowledge that this theory suggests it should have.
2.1.3 The Eclectic Paradigm (OLI Model)
Meanwhile, the Ownership, Location and Internalization (OLI) framework is also frequently used to assess entry mode choices (Agarwal and Ramaswani, 1992; Canabal, 2008). This theory, also known as the eclectic paradigm, asserts that entry mode choices are dependent on three factors: ownership advantages (firm-specific assets such as size and multinational experience and skills such as the ability to develop differentiated products), location advantages
(the attractiveness of a specific country in terms of its market potential, investment risks, and institutional attributes) and internalization advantages (related to the transaction-cost approach)
(Dunning, 1993; Anderson, 1997). Ownership advantages are influenced by control, costs, and benefits of inter-firm relationships; location advantages are about resource commitment, costs, and availability; while internalization advantages concern the reduction of transaction and coordination costs (Canabal, 2008). This approach is therefore a multi-theoretical framework as it comprises theories based on trade, resources, and transaction-costs. According to the OLI framework all these factors will have an influence on entry mode decisions, with all three categories of advantages being present when firms embark on FDI missions, as opposed to for example licensing or exporting which would only provide one and two of the categories of advantages respectively (Dunning, 1993). Agarwal and Ramaswani (1992) find that there are significant interactions between the three variables and thereby influence entry mode choice, with large and multinational firms more likely to opt for sole or joint ventures than smaller and
13 less multinational firms. Of the advantage categories location is arguably the most relevant in terms of cultural differences, with culturally similar countries providing location advantages and culturally distant countries providing location disadvantages. However, the location category of the OLI framework is the only one of the three which deals with external factors such as culture, with the other two categories focusing much more on internal and firm-level factors. But although these other two categories will likely be insufficient in explaining which foreign markets firms should invest in, firm-level factors and competencies will arguably have an influence on what the best mode is for entering these markets.
2.1.4 The Organizational Capability Perspective
A less well-known but nevertheless important perspective explaining entry mode choices is the organizational capability perspective, which can either be seen as an alternative to or complementary to the transaction-cost approach, and is based on the concept of bounded rationality (Anderson, 1997). According to this approach, the firm is a bundle of static and transferable resources which are transformed into capabilities through firm-specific processes
(Madhok, 1997). Intangible resources such as skills and competencies are seen to be either specific and embedded or generic and nonembedded, with a high embedded-to-generic knowhow ratio tending to lead to a preference for internalization and collaboration. This perspective clearly takes a firm-level approach without taking into account external factors such as culture to determine when and where to internationalize, but as is the case with the eclectic paradigm model, it is possible that this perspective will help explain how particular firms internationalize.
Besides these major approaches and perspectives of the internationalization process, other factors such as market attractiveness, the competitive situation, control, risks, and institutional theories have also all been used to a certain degree to explain the nature behind internationalizing firms (Brouthers, 2002; Chen, 2003; Canabal, 2008; Morschett, 2010). 14 2.2 Entry Mode Choices
With the internationalization process dealing not only with what foreign markets to enter, but also with the different manners in which these markets can be entered, it is apparent that entry mode decisions are crucial for internationalizing companies and inherently linked to their internationalizing strategies. The choice of what entry mode to choose is widely regarded as one of the most critical decisions in the internationalization process (e.g. Kogut & Singh, 1988;
Anderson, 1997; Morschett, 2010) and has therefore been extensively studied in international business research. An entry mode is defined by Sharma & Erramilli (2004) as “a structural agreement that allows a firm to implement its product market strategy in a host country either by carrying out only the marketing operations, or both production and marketing operations there by itself or in partnership with others”.
In the most general sense, entry modes can be divided into equity-based modes of entry and non-equity-based modes of entry. Within the latter we can distinguish between contractual agreements and within the former distinguish wholly owned operations from equity joint ventures (Pan & Tse, 2000). In this particular study we are only concerned with equity-based modes of entry as these, unlike the non-equity-based modes, reflect direct investments in foreign markets and will therefore be more likely to be affected by factors such as cultural differences, as they arguably carry more risks with them . Pan & Tse (2000) also assert that when moving from non-equity-based modes to equity-based modes of entry, there is a continuum along which resource commitment, risk exposure, control and profit potential increase in levels. As we move along this continuum, cultural differences will arguably become more important, as a larger commitment and presence will more susceptible to cultural challenges than a lower commitment or presence.
Centered around the equity-based forms of FDI, Kogut & Singh (1988) identify three main kinds of foreign market entry modes: acquisitions, joint ventures, and greenfield investments. 15 The first refers to the purchase of sufficient stock in already existing companies that will amount to at least some form of control. Meanwhile, a joint venture is considered the pooling of assets in a common or separate organization by two or more firms who share joint ownership and control over the use of these assets (Kogut & Singh, 1988). Finally, a greenfield investment is a start-up in new facilities, and can be either wholly owned or a joint venture. For simplification purposes, and following the example of Kogut & Singh, this report will classify start-up investments which are wholly-owned under greenfields, and those involving shared ownership under joint ventures.
2.3 Entry Modes’ Impact on Performance
The importance of entry mode decisions is partially due to the idea that entry modes have a considerable impact on firm performance (Brouthers, 2002; Chen, 2003; Canabal, 2008).
Although much literature on the topic is also contradictory or failed to show a noteworthy association between the two variables, there is growing evidence that there is indeed a relationship between the two, which ultimately explains why studies on entry mode decisions are so recurring. Brouthers (2002) found that firms using entry modes predicted by transaction cost theory significantly performed better, both in financial and non-financial terms, than firms whose entry mode choice were not predicted by the theory. Using the example of Chinese firms,
Chen (2003) also found evidence for the transaction cost explanation of entry mode decisions significantly predicts future performance. This furthermore suggests that the choice of entry mode is one which has to be taken with utmost care, as it will have major implications for the future of the firm. Performance could also be affected more indirectly by entry mode choice, as for example, there will likely be managerial implications for these decisions, as different cultures are likely to adopt different managerial styles, which will undoubtedly play a role in determining what form of entry mode will lead to a greater success. Taking into account the main models which try to explain entry mode decisions, it is clear that the relation between
16 entry mode choice and performance is a complex one which affected by internal factors such as firm competencies, knowledge and experience, and external factors such as market size, industry type, and culture.
2.4 Culture & Cultural Distance
One of the most recurring topics in explaining entry modes is that of culture, cultural difference and/or cultural distance between countries (Barkema, 1996; Harzing, 2003; López-Duarte,
2010). In general the distinction is made between culturally similar countries and culturally different countries, each of which would be associated with a different entry mode decision.
But the effect of culture in the international business world is much more wide-ranging than solely on entry mode decisions, and has been studied in a variety of contexts. Zeng et al. (2013) find that MNE learning abilities are eroded by cultural differences, leading to incorrect inferences and learning. As such, the authors find that a low level of experience in dissimilar countries is more likely to lead to subsidiary mortality. This correlation is apparently weaker when the firm has a prior presence across different cultures, stronger if its international expansions was at a fast pace, and negative once the firm has accumulated a lot of experience in the particular host culture. Shane (1994) also points to the differences in national perceptions of transaction costs, which ultimately imply that cultural variables have at least some explanatory power in FDI motivations. Meanwhile, cultural differences are also thought to be influential in affecting individual and employee perceptions of ethical issues, with these perceptions altering significantly per culture (Armstrong & Sweeney, 1994).
Within studies of culture in international business studies, cultural distance remains an important recurring concept. It is generally regarded as uncertainty arising from informal host environments, as opposed to those arising from formal host environment such as political risk
(Slangen & van Tulder, 2009; López-Duarte, 2010; Samiee, 2013). As such the concept of cultural distance is more subjective than formal risks, and therefore less easy to measure. This 17 could help explain the somewhat contradictory evidence as to whether cultural distance indeed has or has no effect on entry mode choice. Although often considered a separate explanation or theory, it arguably both influences and is influenced by factors such as transactions costs and ownership, location and internalization advantages.
According to Hostede (1984), culture refers to the “collective programming of the mind which distinguishes the members of one category of people from those of another”. The category used by Hofstede is national culture, implying the existence of cultural differences between different countries. As such, cultural distance is the difference between two national cultures, which in entry mode studies comes down to the difference between home and host country.
In studying this concept of cultural distance, Hofstede’s cultural dimensions are widely regarded as the traditional tool in assessing this distance (e.g. Kogut, 1988; Samiee, 2013).
Hofstede’s dimensions include power distance, individuality versus collectivism, masculinity versus femininity, uncertainty avoidance, and long term versus short term orientation
(Hofstede, 1994). These dimensions together help make up a quantifiable assessment of the cultural distance between two countries, and is therefore the point of reference in almost all the literature dealing with cultural distance.
2.5 Effect of Cultural Distance on Entry Mode Choice
The effects of cultural distance on the choice of entry mode is a recurring topic, with the general idea that larger cultural distance will lead to greater transaction costs and less likelihood of success, yet the empirical evidence suggests there is little agreement on an existing a link between the two concepts, as parts of the literature suggest there is indeed a positive association between the two (Kogut & Singh, 1988; Agarwal and Ramaswani, 1992; Chen, 2003) while other studies refute this by either showing negative association or no association at all (Harzing,
2003, Tihanyi and Russell, 2005; Morschett et al., 2010: Slangen and van Tulder, 2009; Chang,
18 2012). Meanwhile, some studies such as that of Cho & Padmanabhan (2005) claim there is an association when taking into account moderating effects, in this case decision-specific experience, while Hennart & Larimo (1998) claim that although cultural characteristics of home countries do not influence entry mode choices, cultural distance between countries does.
The correlation between the two principles is more complex than cultural distance simply predicting the choice of entry mode, with this choice likely having an effect on the way the country and its culture is perceived. As such, if lower levels of equity are associated with more dissimilar cultures, firms opting for joint ventures over solely owned ventures will be perceived as having their FDI activity taking place in culturally distant countries. The interaction between cultural distance and entry mode was most famously researched by Kogut and Singh (1988), where they found strong empirical evidence for entry mode selection being influenced by cultural factors, with for example the management of multinational corporations likely being influenced by a dominant country culture, which would have further implications for the choice of foreign market to invest in and with what entry mode.
The studies that have shown an association mostly suggest that the likelihood of using cooperative entry modes such as joint ventures seems to increase with higher cultural distance
(e.g. Kogut, 1988; Chen, 2003), which would in turn suggest that the chance of starting a wholly owned subsidiary (WOS) would increase with lower cultural distance. Slangen and van Tulder
(2009) also point towards the notion that in uncertain external environments, cooperative entry modes such as joint ventures are more likely to occur than WOS. Samiee (2013) supports this notion by also showing how cultural distance plays a role in deciding whether to opt for a partnership or a sole ownership when entering a foreign market. However, Chang et al. (2012) suggest the complete opposite, claiming that joint ventures with firms in countries with higher cultural distance will dramatically increase the risks of MNEs, and therefore WOS are more likely to be set up.
19 Nevertheless, the before mentioned studies which provided empirical evidence for a link between cultural distance and entry mode choice, suggesting important implications for MNEs when they wish to enter foreign markets, remain noteworthy and cannot be ignored.
Other studies on the effect of cultural distance include that of Barkema & Bell (1996) in which they discuss how cultural distance between countries may affect the learning process of the firm, which in turn will have an effect on their choice of entry modes when deciding to enter foreign markets in the future. Meanwhile, Tihanyi & Russell (2005) explore the effects of cultural distance on international diversification and conclude that there is no strong association between the two, while Slangen and van Tulder (2009) find that neither informal risks such as cultural distance, nor formal ones such as political risks have an impact on entry mode.
Moreover, Harzing (2003) and Chang (2012) openly criticize the existing studies on the effect of cultural distance on entry modes, questioning whether there is indeed an association and calling for deeper research into the subject, which could help solve the apparent paradox of the contradictory results on this topic. The inconsistent results of the association between cultural distance and entry modes is arguably partly due to the conceptual and methodological inadequacies of the cultural distance construct (Shenkar, 2001).
In an attempt to resolve this paradox, Wang & Schaan (2008) studied potential non-linear relationships between both cultural distance and entry modes on the one hand and cultural distance and performance on the other, both suggesting non-linear U-shaped relationships. The use of JV is said to increase as cultural distance increases when cultural distance is low, yet the use of WOS increases when cultural distance is high (Wang & Schaan, 2008). Because these are rather new and unforeseen findings, the authors recommend future studies should replicate this study using FDIs from other host countries, as this would shed light on whether there is a more general trend for non-linear relationships, or whether this is exclusively an attribute of
Japanese FDI, which was in their study.
20 The existing literature clearly pays a great deal of attention to the role of cultural distance in entry mode choice, but because there is an apparent lack of real consensus as to whether there is an actual association between the two, with existing studies presenting these rather inconclusive and mixed results, this study will use these inconsistent finding as the main rationale behind the research. The recent findings by Wang & Schaan (2008), suggesting a U- shaped relationship between the two variables but without any other studies supporting this claim, will provide further motivation for the study.
21 3. Methodology & Hypothesis Formulation
3.1 Sample
Data on cultural distance and modes of entry were gathered through secondary data found in relevant databases, most of which were found through the Bureau van Dijk (BvD), which provides a range of company information and business intelligence, many of which are co- published with renowned information providers. As such, the Zephyr database for international mergers and acquisitions was used to gather data on the number of acquisitions and joint ventures taken place by Dutch companies to determine how often each of the entry modes are chosen and the countries in which they take place. The Zephyr database is one of the most comprehensive of its kind in deal information and is regularly updated, making it a very reliable source. It not only contains information about mergers and acquisitions, but also on private equity and venture capital deals. It also contains information about targeted and rumored mergers and acquisitions. In order to increase the validity of the study, targeted and rumored deals were left out of the sample, as only concluded deals will be used in the study. A sample of 299 cases was chosen, representing 150 acquisitions and 149 joint ventures taken place in 65 different countries and across 20 different industries. The majority of the cases in the sample were firms who originate from the Netherlands, and a small number of them are firms currently listed in the Netherlands but with their origins in another country. All the cases in the sample were from the years 2005 to 2014. By using this latest and recent data, the reliability of the study should also improve, as it looks at deals from a time period in which the world has already become significantly interconnected and one in which cultural differences have arguably come smaller do to this global and interconnected nature of the world. The cultural distance between certain countries will have likely become less profound in recent years, making it more obvious to only select recent cases of entry mode decisions.
22 Data on cultural distance between the Netherlands and foreign countries whose markets are entered by Dutch companies were gathered from the Hofstede Centre, which aims to provide high quality information in terms of the association between culture and management. The
Centre includes a number of tools to find information on this link, with the most important of these, the country comparison tool. This tool gives information about each of the different dimensions of business cultures as asserted by Hofstede, and compares each of these dimensions to those of a different country. A composite index was formed based on the deviations along each of the four cultural dimensions used in Kogut and Singh’s study (1988), and complemented by a fifth and sixth dimension now also available at the Hofstede Centre, namely pragmatism and indulgence. For a number of countries used in the study, data was missing on these extra dimensions, with some of them lacking data on either pragmatism or indulgence, and some lacking information on both. In this case the composite index for that country excluded the dimensions for which data was missing. The deviations along each of the six dimensions were corrected for differences in variance and then averaged to obtain a sole index for cultural distance for each country. The final cultural distance scores ranged from 0,35
(very similar culture) between the Netherlands and Sweden to 4,98 (very dissimilar culture) between the Netherlands and Slovakia.
3.2 Hypotheses Formulation
The first hypothesis will explicitly look into the relationship between entry mode choice and cultural distance, and following the study of Wang & Schaan (2008), it will investigate the possibility of a non-linear relationship between the two variables, H1: There is a non-linear
(inverted U-shape) relationship between entry mode choice and cultural distance.
Because the choice of entry mode might be affected by other factors and because the link between entry mode and cultural distance might also be moderated by such factors, the study will also look into some of these factors more concretely. Therefore, the other hypotheses will 23 look into the effect of other variables on entry mode choice. The control variables will be elaborated on further on, but will be explicitly mentioned in the next section as these control variables will function as independent variables for the remaining hypotheses. Because the choice of entry mode might differ from industry to industry, the second hypothesis will look into the relationship between entry mode decisions and type of industry. Previous studies suggest there might be a relationship between the type of industry and entry mode choice
(Tihanyi et al., 2005; Zhao et al., 2004; Brouthers & Brouthers, 2003). Because the services sector is arguably harder to enter independently, the choice of joint ventures is seen as a more logical step when entering foreign markets, leading to the following hypothesis, H2: There is a significant relationship between the choice of entry mode and industry.
The next hypothesis will look into the frequently studied relationship between entry mode and performance (Brouthers, 2002; Chen, 2003; Canabal, 2008). Previous studies have focused mostly on the effect of entry mode on performance, but in this case the vice-versa effect, that of performance on entry mode choice, will be investigated. The rationale behind this association is that a wholly owned subsidiary arguably presents more risks than a joint venture when entering a foreign market, with higher performing firms being able to withstand greater risks.
This leads to the following hypothesis, H3: There is a significant relationship between the choice of entry mode and firm performance.
Meanwhile, with larger firms generally believed to favor wholly owned subsidiaries over joint ventures (Agarwal & Ramaswami, 1992; Zaheer & Zaheer, 1997), the fourth hypothesis will look into the relationship between firm size and entry mode choice, H4: There is a significant relationship between the choice of entry mode and firm size.
Finally, following the idea that country development and therefore country risk will influence
FDI decisions (Brouthers & Brouthers, 2001), the last hypothesis will look into this relationship
24 and assume that acquisitions are more prevalent in more developed countries, H5: There is a significant relationship between the choice of entry mode and country development.
3.3 Measures
The study will include a similar design as one of the most academically relevant articles on this topic, namely that of Kogut and Singh (1988). To identify the relationship between the two variables, cultural distance will act as the independent variable, as this is what is thought to predict and affect the dependent variable, which in this case is entry mode choice. Because of the lack of data on greenfield investments, the study will focus solely on acquisitions as wholly owned subsidiary. Therefore the study will simply investigate the choice of acquisitions over joint ventures and how these are related to either high or low cultural distance. Following Wang
& Schaan’s (2008) distinction between wholly owned subsidiaries and joint ventures, a joint venture is defined as a subsidiary in which 2 or more partners each hold between 5 and 95 percent of its equity, while subsidiaries are considered wholly owned subsidiaries when one partner holds at least 95 percent of equity.
The independent variable cultural distance, as previously mentioned, will be calculated through the Kogut & Singh formula (1988), and like Wang & Schaan’s (2008) study it will exclude the original fifth dimension (long term orientation) as data on this is mostly missing. It will however include another fifth and sixth dimension (pragmatism and indulgence) on which data is available for most countries.
3.3.1. Control Variables
Because there are a number of factors which could also contribute to one entry mode decision over another, a few control variables will be used in this study, including two different firm- level variables, one host country variable and one industry variable.
25 The firm-level control variables are firm size and performance. Firm size is measured by the number of employees the parent firm had in the year the acquisition or joint venture took place, and is an important control variable as it is generally thought that larger firms will be more prone to choosing wholly owned subsidiaries over joint ventures (Agarwal & Ramaswami,
1992; Zaheer & Zaheer, 1997). Information on firm size will be gathered from the Orbis database, accessed through the Bureau van Dijk (DvB) database. The data of number of employees ranged from 2 to over 100,000, making it too large of a range for significant statistical analysis. Therefore, firm size will be divided into five different groups each representing a different category of firm size. These categories will be 1) very small (up to 100 employees), 2) small (between 101 and 1,000 employees), 3) medium (between 1,001 and
10,000 employees), 4) large (between 10,001 and 50,000 employees), and 5) very large (more than 50,000 employees). Meanwhile, overall firm performance is likely also to have an influence on what entry modes are chosen, with better performing firms arguably more inclined to choose higher levels of equity and therefore wholly owned subsidiaries over joint ventures.
Because the manner in which performance should be measured is often contested (Chen, 2002;
Madhok, 1997; Tihanyi et al., 2005), the study will look at what is generally considered the most important performance indicator, namely profitability of a firm in the year of the acquisition or joint venture, to see how performance might moderate the interaction between entry mode and cultural distance. In this case profitability is measured by the net income of the firm in that particular year. This data is also collected from the Orbis database, and is measured in US dollars, and corrected for the exchange rate of the particular year. Because the performance range is also so high, these figures will also be recoded into separate groups, five of which represent negative numbers and 5 of which will be positive. As such, net incomes below -$10 million will be assigned a -5 and those above $10 million will be assigned a 5.
Negative and positive incomes between $1 million and $10 million will become -4 and 4
26 respectively. Negative and positive incomes between $100,000 and $1 million will become -3 and 3 respectively. Negative and positive incomes between $10,000 and $100,000 million are assigned -2 and 2 respectively, while negative and positive incomes between 0 and $10,000 will be assigned -1 and 1 respectively.
Moreover, the country-level control variable that will be used is the level of development of a country. Wang & Schaan (2008) note that there is a significant correlation between country development and country risk, which in turn will likely affect firm’s FDI decisions and subsidiary operations (Brouthers & Brouthers, 2001). This variable will be measured using the latest Human Development Index as established by the United Nations, and will split countries into four separate groups (very high development, high development, medium development, and low development)
Finally, the last control variable will be industry, and will be measured by separating all the companies in the sample into twenty distinct industry categories, namely Automotive,
Chemicals, Consultancy/Recruitment, Energy, Electronics, Financial Services, Food/Drinks,
IT, Machinery, Media, Metals, Pharmaceuticals, Plastics, Real Estate/Property Development,
Shipping/Port Operations, (Tele)communications, Textiles, Transport, Other Manufacturers and Other Services, each of which will be divided into two separate groups (manufacturers and service). The type of industry is important as their characteristics could have a moderating effect in the relationship between entry mode choice and cultural distance. Tihanyi et al. (2005) and
Brouthers & Brouthers (2003) assert that some industries, particularly the distinction between service and manufacturing, are like to choose different entry modes.
For each of the different hypotheses will deal with distinct control variables. As such, for the second hypothesis dealing with industry, the control variables will be cultural distance, HDI, size, and performance. For the third hypothesis looking at the effect of performance on entry mode, the control variables will be cultural distance, industry type, HDI, and size. 27 3.4 Analytical Approach
To identify the relationship between the independent variable, cultural distance, and the dependent variable, entry mode choice, a binary logistic regression analysis will be used. A logistic regression is especially useful for a study of this kind as it has been broadly used in many different fields in the past (Wang & Schaan, 2008). Also, a mix of continuous, discrete, and dichotomous variables can be used in such an analysis, while not making assumptions about distributions of independent variables (Tabachnick & Fidell, 2007). This is particularly helpful when looking at the effect of a number of different types of independent variables, such as industry which will be dichotomous and HDI and size which will be ordinal variables.
The binary regression will be especially helpful due to the fact that cultural distance is measured quantitatively as a real value, while entry mode choice is measured qualitatively and categorically distributed into two categories (acquisition and joint ventures). The choice of entry mode was therefore coded by assigning the value 0 to acquisitions and assigning the value
1 to joint ventures.
Once the values of cultural distance and entry mode choices are identified, the binomial logistic regression should help determine whether there is a causal relationship between the two variables. In order to identify the possibility of a non-linear relationship, the approach taken will be similar to other studies looking into U-shaped relationships, namely by adding the quadratic function of cultural distance to the regression analysis. A significant negative coefficient of the quadratic function would imply an inverted U-shaped relationship. This approach has been widely used in non-linear regression studies (Wang & Schaan, 2008; Baruch et al., 2014). The relationship between both variables will be tested controlling for firm, country and industry variables, as these could also play a role in the choice of entry mode.
28 The binary logistic regression will also be used for the remaining hypotheses, as these also deal with independent variables which are thought to predict the dichotomous outcome of either an acquisition or a joint venture. Because industry is a categorical value with 20 possible outcomes, a simple binary logistic regression is not plausible. Instead, sectorial dummies are used to divide the industries in two main groups, mainly services on the one hand, and the extractive and manufacturing industries on the other. These dummies are required to gain a better picture on whether there are entry mode patterns in the different industries, which could potentially moderate the effect of cultural distance. The industries are therefore recoded into binary values of 0 and 1, in which 0 made up the manufacturing and extraction services (including the
Automotive, Chemicals, Energy, Electronics, Food/Drinks, Machinery, Metals,
Pharmaceuticals, Plastics, Textiles and Other Manufacturers industries), and 1 made up the services industries (Consultancy/Recruitment, Financial Services, IT, Media, Real
Estate/Property Development, Shipping/Port Operations, (Tele)communications, Transport and
Other Services industries). This is due to the fact that it is not possible to include a categorical variable of more than two outcomes in the binary regression, therefore making it essential to divide the 20 different industries in just 2 separate ones which can be included in the analysis.
29 4. Results
4.1 Descriptive statistics for main hypothesis
Before showing the results of the regression analysis, some descriptive statistics will be presented. First of all, a missing values analysis was conducted to identify how many cases in the sample have missing values and will therefore be omitted from the analysis. The following table shows the data on missing values:
Variable Summary
Missing
N Percent Valid N Mean Std. Deviation
Cultural Distance 22 7,4% 277 2,0195 ,95933
Recoded Performance 7 2,3% 292 1,9212 2,53443
Size 5 1,7% 294 3,04 1,417
The table shows that of the sample of 299 cases, 22 cases are missing values for cultural distance, 7 are missing values for performance and 5 are missing values for size. The 22 missing values for the cultural distance variable were missing because data on these countries were not available through the Hofstede Center. As such, the cases which involved either acquisitions or joint ventures in the Ukraine, Kazakhstan, Gabon, Cyprus, Oman, Bahrain, Uzbekistan, Tunisia and Georgia were left out of the analysis as a cultural distance index could not be formed between these countries and the Netherlands.
Meanwhile, information on performance and size, gathered through the Orbis database, were missing for 7 and 5 cases respectively. To make sure that all control variables and independent variables of the remaining hypotheses had data, cases with missing values on these were also left out of the analysis. 30 The following tables shows the descriptive statistics on the frequency of each entry mode:
Entry Mode
Cumulative
Frequency Percent Valid Percent Percent
Valid Acquisition 150 50,2 50,2 50,2
Joint Venture 149 49,8 49,8 100,0
Total 299 100,0 100,0
This shows that entry modes of all the cases in the sample are roughly equally divided between acquisitions (150 cases) and joint ventures (149 cases). The next table shows the statistics on the cultural distance index for each of the entry modes (acquisitions and joint ventures):
Descriptive Statistics
N Minimum Maximum Mean Std. Deviation
Cultural Distance 277 ,35 4,98 2,0195 ,95933
Acquisitions 144 ,35 4,98 1,6874 ,81641
Joint Ventures 133 ,35 3,83 2,3791 ,97550
The table shows that of the 277 remaining cases for which data was available, 144 were acquisitions and 133 were joint ventures, which essentially means that more of the missing cases for which cultural dimension scores were missing were joint ventures and less were acquisitions. The table shows that the cultural distance index ranged from 0,35 to 4,98 for all countries used in the study, with a mean cultural distance of 2,01. The cultural distance index range for acquisitions was the same, but the mean was considerably lower at 1,68. Meanwhile,
31 the cultural distance range of joint ventures was smaller, with a lower maximum index of 3,83.
However, this did not prevent the mean from ending up being higher than the overall mean, at
2,38. These initial figures would suggest that the use of joint ventures seems to be more prevalent at higher indexes of cultural distance.
In order to show how many acquisitions and joint ventures took place in countries with different levels of cultural distance, these values on cultural distance were grouped into separate clusters each representing half a point of cultural distance (0 to 0,5, 0,5 to 1, 1 to 1,5, etc.). This lead to the following frequency table for acquisitions:
Acquisitions
Cumulative
Frequency Percent Valid Percent Percent
Cultural 0-0,50 5 1,7 3,5 3,5
Distance 0,50-1,00 11 3,7 7,6 11,1
1,00-1,50 61 20,4 42,4 53,5
1,50-2,00 42 14,0 29,2 82,6
2,00-2,50 4 1,3 2,8 85,4
2,50-3,00 5 1,7 3,5 88,9
3,00-3,50 6 2,0 4,2 93,1
3,50-4,00 8 2,7 5,6 98,6
4,00-4,50 1 ,3 ,7 99,3
4,50-5,00 1 ,3 ,7 100,0
Total 144 96,0 100,0
Missing System 6 4,0
Total 150 100,0
32 The table shows that most acquisitions take place in countries with lower cultural distance, with a 119 of them taking place in countries with cultural distance indexes of up to 2,00 (representing almost 40% of the cases), with a cultural distance range of 1 to 1,5 being the cluster where most acquisitions took place (61 cases, i.e. 20,4% of the sample).
This can be compared to the frequency of joint ventures per cultural distance cluster group, through the following table:
Joint Ventures
Cumulative
Frequency Percent Valid Percent Percent
Cultural 0-0,50 3 1,0 2,3 2,3
Distance 0,50-1,00 2 ,7 1,5 3,8
1,00-1,50 26 8,7 19,5 23,3
1,50-2,00 24 8,0 18,0 41,4
2,00-2,50 22 7,4 16,5 57,9
2,50-3,00 9 3,0 6,8 64,7
3,00-3,50 17 5,7 12,8 77,4
3,50-4,00 30 10,0 22,6 100,0
Total 133 89,3 100,0
Missing System 16 10,7
Total 149 100,0
This table in general shows that the use of joint ventures seems to be more spread out across different cultural distance index clusters. What also stands out is that the cultural distance only runs till 4,00, suggesting no joint ventures took place in countries where the cultural distance
33 between the Netherlands and the country where the FDI was taking place was greater than 4.
However, it is clear that less joint ventures took place in culturally similar countries, with only
18,4% of joint ventures taking place in countries with cultural distances of up to 2, as compared to the almost 40% of acquisitions for the same level of cultural distance. Moreover, the cluster that was most prevalent for joint ventures was the one representing cultural distance indexes between 3 and 3,5, which could imply that firms value joint ventures over acquisitions wherever there is high cultural distance.
4.2 Regression Analysis
After combining the data on missing values, the binary logistic regression with the choice of entry mode as a dependent variable, and with cultural distance, industry (sectorial dummies thereof), firm size, firm performance, and HDI of the country whose foreign market is being entered, as independent variables, provided the following case processing summary.
Case Processing Summary
Unweighted Casesa N Percent
Selected Cases Included in 272 91,0 Analysis
Missing Cases 27 9,0
Total 299 100,0
Unselected Cases 0 ,0
Total 299 100,0
The sample therefore had 27 (9,0%) missing cases, which represented the missing values for cultural distance, firm size and firm performance. This left a total of 272 cases (91,0% of the sample) in which data for all variables was available and these remaining cases were therefore
34 all included in the analysis. Without the missing cases the sample size remains large enough for the analysis to be reliable.
In order to test the non-linearity of the relationship between cultural distance and entry mode choice, two separate models were constructed, one with simply cultural distance as an independent variable to test the extent of the linear relationship, and another model which included the quadratic form of cultural distance to test non-linearity and how this compares to the linear model.
The following table shows the results of the binary logistic regression for the first model, used to test the effect of cultural distance, while controlling for industry, country HDI, firm size and firm performance on the choice of entry mode.
B S.E. Wald df Sig. Exp(B)
Step 1a Cultural Distance ,745 ,179 17,294 1 ,000 2,106
Recoded Industry -,368 ,270 1,853 1 ,173 ,692
HDI -,509 ,279 3,331 1 ,068 ,601
Size -,325 ,107 9,271 1 ,002 ,722
Recoded Performance ,007 ,056 ,014 1 ,906 1,007
Constant 1,438 1,300 1,224 1 ,268 4,213
The table shows that increasing indexes of cultural distance are associated with a 0,745 more likelihood of choosing joint ventures over acquisitions, with a significance of 0,0. This suggests that cultural distance is indeed a significant predictor of entry mode choice, and its predictive capacity is highly significant. This initial regression analysis suggest a potential linear relationship between the two variables.
35 In order to test whether the non-linear model is stronger than the linear model, a second regression analysis was made including the quadratic function of cultural distance. The following table shows the results thereof:
B S.E. Wald df Sig. Exp(B) Step 1a Cultural Distance 1,894 ,845 5,027 1 ,025 6,645 Recoded Industry -,347 ,271 1,634 1 ,201 ,707
HDI -,453 ,279 2,639 1 ,104 ,636
Size -,327 ,107 9,288 1 ,002 ,721
Recoded Performance ,008 ,056 ,021 1 ,884 1,008
CD squared -,236 ,167 1,997 1 ,158 ,790
Constant ,067 1,636 ,002 1 ,967 1,070
This table shows that the beta coefficient for cultural distance squared is negative, compared to the positive beta coefficient of cultural distance. This could potentially suggest that there is indeed an inverted U-shaped relationship between the two variables, but with a significance of just 0,158 it does not prove to be statistically significant. With the quadratic form of cultural distance included in the second model, the linear association between entry mode choice and cultural distance also decreases in significance somewhat, yet is still highly significant at a value of 0,25.
These results essentially mean that the linear model of the association of both variables is a better predictor than the non-linear quadratic model, which means the first hypothesis is not supported. There does not seem to be a significant U-shaped relationship between the choice of entry mode and cultural distance. However, the results do point towards a linear relationship between these variables.
4.3 Descriptive statistics and analysis for 2nd hypothesis
36 Related to the second hypothesis, the following table shows the frequencies of acquisitions and joint ventures for each industry:
Entry Mode Joint Acquisition Venture Total Industry: Automotive 5 3 8 Media 6 5 11 Metals 1 2 3 Pharmaceuticals/Medical Equipment 10 1 11 Plastics 2 3 5 Real Estate/Property Development 4 14 18 Shipping/Port Operations 3 14 17 (Tele)communication 6 2 8 Textile 1 3 4 Transport 4 5 9 Other Manufacturers 11 7 18 Chemicals 11 7 18 Other Services 7 11 18 Consultancy/Recruitment 7 6 13 Energy (petroleum/gas) 4 14 18 Electronics 16 10 26 Financial Services 18 16 34 Food/Drinks 22 16 38 IT 8 5 13 Machinery 4 5 9 Total 150 149 299
There does not seem to be anything out of the ordinary in the data in this table, except for some noteworthy differences in the number of each entry mode in the Energy, Real Estate/Property
Development and Shipping/Port Operations industries in favor of joint ventures and the
Pharmaceuticals industry in favor of acquisitions. The next table shows the frequencies of each entry mode after they were recoded into either manufacturers or service.
37 Entry Mode
Acquisition Joint Venture Total Manufacturers 0 87 71 158 Service 1 63 78 141 Total 150 149 299
The table shows that out of the sample of 299 cases, 158 were in the manufacturers industry while 141 of the cases were in the service industry. The difference in the number of each entry mode does not seem to differ too much per industry. Firms in the manufacturers industry chose more acquisitions than joint ventures, while firms in the service industry chose more joint ventures, but these differences do not appear to be significant.
Furthermore, the results in the regression analysis do not point towards a significant relationship between entry mode choice and industry, while controlling for the other variables. Therefore,
H2 is not supported.
4.4 Descriptive statistics and analysis for 3rd hypothesis
With firm performance measured in net income and divided into groups ranged from -5 to +5, the following table shows the frequencies of acquisitions and joint ventures for each cluster of firm performance:
38 Entry Mode Joint Acquisition Venture Total Performance -5,00 5 1 6 -4,00 3 6 9 -3,00 9 6 15 -2,00 5 8 13 -1,00 5 5 10 ,00 1 0 1 1,00 8 22 30 2,00 28 25 53 3,00 47 36 83 4,00 22 15 37 5,00 16 19 35 Total 149 143 292
The table does not show anything remarkable, but there generally seem to be more entries for better performing firms. Meanwhile, the regression analysis also failed to show a significant relationship between entry mode and performance, which means H3 is not supported.
4.5 Descriptive statistics and analysis for 4th hypothesis
The following table shows the frequencies of each entry mode in relation to firm size:
Entry Mode Acquisition Joint Venture Total Size 1 29 34 63 2 10 28 38 3 42 35 77 4 35 20 55 5 33 28 61 Total 149 145 294
At first sight the descriptive statistics don’t seem to point towards anything significant, but the regression analysis shows that the relationship between both variables, when controlled for the
39 remaining variables, is statistically significant. As such, larger firms are -,325 as likely to choose joint ventures over acquisitions, with a significance of 0,02. This means, as was expected, that larger firms are more likely to favor acquisitions. H4 is therefore supported.
4.6 Descriptive statistics and analysis for 5th hypothesis
The following table shows the frequencies of acquisitions and entry mode choice for each of the four categories of HDI
Entry Mode Acquisition Joint Venture Total HDI Low Development 3 1 4 Medium Development 3 11 14 High Development 19 63 82 Very High Development 125 74 199 Total 150 149 299
The general pattern of this data suggests that FDI activities by Dutch companies are more likely to take place in higher developed countries, with only 18 of the 299 cases taking place in low or medium developed countries. Two thirds of cases in the sample were FDI by Dutch firms in very highly developed countries, and these investments are considerably more in the form of acquisitions than joint ventures, which have 125 and 74 of the entries respectively. Meanwhile, the regression analysis suggest the relationship between HDI and entry mode is close to being significant at 0,68, suggesting that in higher developed countries firms less likely to opt for joint ventures. This would be in line with was is generally conceived about the relationship between entry mode choice and host country development. However, although being close, the relationship is not statistically significant, therefore H5 is not supported.
40 5. Discussion
While previous studies on the relationship between cultural distance and entry mode decisions have generally provided inconclusive and inconsistent results, it is often still believed that cultural distance will indeed have an effect on the choice of entry mode. Wang & Schaan (2008) blamed these inconsistencies on the fixation of studying this relationship in a linear fashion, and their study showed that there was an inverted U-shaped relationship between the two variables for Japanese firms entering foreign market. The regression analysis in this study doesn’t however provide evidence that there is also a U-shaped relationship between these variables for Dutch firms. The binary logistic regression analysis with entry mode as the dependent variable and cultural distance as the independent variable, whilst controlling for industry, firm size, firm performance, and host country development, did show a significant relationship between the two variables. In order for this association to have an inverted U- shaped pattern, the quadratic function of cultural distance in the regression analysis had to have a negative beta coefficient that was statistically significant. Although the coefficient was indeed negative, it failed to be statistically significant. With the linear model being stronger than the non-linear model, the results of the study point towards an actual linear relationship between cultural distance and entry mode choice, with more joint ventures taking place in culturally dissimilar countries.
These findings would go hand in hand with much of the previous studies that have found a positive relationship between these variables, such as those by Kogut and Singh (1988),
Agarwal and Ramaswani (1992) and Chen (2003). Contradictive results on this matter and the fact that Wang & Schaan (2008) had found a non-linear relationship between the variables for
Japanese firms was sufficient rationale to look into the topic more in depth. The findings of
Wang & Schaan could not be replicated with a similar study for Dutch FDI decisions, and it
41 therefore remains unclear whether this inverted U-shape relationship between entry mode choice and cultural distance is part of a global patter or whether it simply fits the Japanese model. In any case, this study does show that there is at least a significant linear relationship between these variables for Dutch firms, thereby providing more arguments in favor of such a relationship in international business research.
Meanwhile, with previous studies (Tihanyi et al., 2005; Zhao et al., 2004; Brouthers &
Brouthers, 2003) asserting that the type of industry might have a moderating effect on the interaction between entry mode choice and cultural distance, it was also noteworthy to look into what exact role industry played and how it might have a primary effect on entry mode decisions.
At first sight there seemed to be a number of industries such as Energy, Real Estate/Property
Development and Shipping/Port Operations, which were considerably more engaged in joint ventures than in acquisitions, while firms in the pharmaceutical industries seem to be more engaged in acquisitions. This could imply that these industries tend to prefer one type of entry mode over the other. When grouping the different industry categories into either manufacturers or service, the former included a higher number of acquisitions while the latter included higher number of joint ventures. These differences did not appear to be too significant, and the results of the regression analysis also fail to provide substantial evidence that the type of industry might influence entry mode choice. While industry will likely remain an important variable in future entry mode studies, its significance might be weighed down to simply being a moderating factor in the interactions between other variables, instead of being an outright primary predicator of entry mode choice.
In terms of the relationship between entry mode decisions and firm performance, this study failed to find an association which was statistically significant. In general it seems clear though that better performing firms with a greater net income are more likely to embark on FDI activities than poorer performing firms. However, there is no evidence to believe that higher
42 performing firms are more likely to favor one entry mode over the other, as the use of acquisitions and joint ventures appears to be equally prevalent in the FDI decisions of high performing firms. Moreover, there does not appear to be a pattern amongst lower performing firms either, with both entry mode options noticeably present in their FDI decisions. The regression analysis furthermore proves that for this study, the entry mode options of Dutch firms in foreign market do not appear to be associated with the firm’s performance in a statistically significant fashion. The link between the two variables might simply be limited to entry mode affecting performance, as was asserted in a number of studies (Brouthers, 2002;
Chen, 2003; Canabal, 2008), rather than performance influencing entry mode, as was investigated in this study. Like industry, performance might therefore not be a primary predicator of entry mode decisions, but it could still be an important moderator in the relationship between entry mode and cultural distance.
However, the study does show a significant association between entry mode and firm size, which is consistent with previous findings on the topic (Agarwal & Ramaswami, 1992; Zaheer
& Zaheer, 1997). Therefore, larger firms seem to engage more in acquisitions than in joint ventures. This is arguably due to the fact that larger firms tend to be more experienced and are less risk averse, thereby not worrying about additional risks that acquisitions may entail. For smaller firms which are more at risk of being negatively affected by internationalizing strategies, there might be a more logical tendency of opting for joint ventures instead, as this will significantly lower the risks.
Finally, in terms of the interaction between entry mode choice and country development, it is apparent that Dutch firms, when entering foreign markets, seem to be much more engaged in higher developed countries than in lower developed countries. Only a handful of the Dutch entries took place in low developed countries on the latest HDI scale. This too would be in line with the notion of wanting to reduce risk, with country development and country risk being
43 intrinsically linked to one another (Wang & Schaan, 2008). As such, the less developed a country is, the higher the risks of establishing a subsidiary there, and therefore the lower the chance that (Dutch) firms will enter those markets. However, the choice of acquisition over joint venture does not seem to be more profound for entry modes in either higher or lower developed countries. The large number of entries in highly developed countries are fairly evenly split between both entry modes, and so are the small number of entries in lower developed countries. This notion is supported by the regression analysis, which does not find HDI to be a statistically significant predicator of entry mode choice, but its significance is close to being so, thereby showing to a certain degree that country development might have an influence on FDI decisions.
All in all, when looking back at the different potential predicators of entry mode used in this study, it becomes clear why the factor of cultural distance remains an often recurring theme in other studies focusing on entry mode decisions. While firm size has also been proved to be a significant predictor of these decisions, cultural distance appears to be the most statistically relevant factor influencing the choice of acquisitions over joint ventures. While Wang & Schaan
(2008) found a non-linear relationship between these variables for Japanese firms, these findings could not be replicated in this study. But although the regression analysis with the quadratic function of cultural distance failed to show this inverted U-shaped relationship, the results to point towards a proper linear association between the variables, which at least partly explains why this association has been so frequently studies in the past, and why it will likely remain so in the future.
44 6. Limitations
There are a number of factors which could have reduced the reliability of the study. These will be elaborated on next in terms of their relation to the sample, the measures, and the analytical approach.
6.1 Sample
Firstly, the sample size could have been larger in order to make the study even more reliable.
If entry modes of more firms would have been included it would have made the results more trustworthy. The sample could have also included cases prior to 2005, but these cases were not available through the Zephyr database. The limits of the database were also the reason why no more joint ventures were included in the study, as all the relevant ones between 2005 and the present were included in the study. In terms of acquisitions there were many more available through the database, but including these in the sample would have skewed the sample towards more of these acquisitions, and the idea was to keep both entry modes equally present.
Therefore, in order for the sample to be increased, more information on joint ventures would have been needed. Also, due to missing data the study focused only on acquisitions and joint ventures, without including greenfield investments in the study. This would have likely made the study more reliable, but would have implied a multinomial regression analysis be used instead of a binomial one.
6.2 Measures
There are a number of limitations of the study in terms of the measures used. While cultural distance was carefully measured using the traditional Kogut & Singh (1988) formula, the other variables were not necessarily measured in a conventional way. Because the 20 different categories could not be entered as independent variables in the regression analysis, they were split into 2 groups of either manufacturers or service. This recoding of industry did not provide
45 any information as to how specific industries might deal differently with entry mode decisions than the generic group of industry they were recoded into. Meanwhile, HDI was split into four ordinal categories based on the latest report, but results of the study might have been more significant if the HDI was calculated along the traditional lines of being numbered between 0 and 1. Firm size and firm performance also had too large ranges to be included in the analysis with their full numbers, and instead were also grouped into separate categories of size and performance. Because the size of these groups was chosen somewhat arbitrarily, it might have had a limiting effect on the results. Meanwhile, additional control variables such as the firm’s international experience, the firm’s local experience, and competition might have made the study more reliable, but do to unavailability of these figures they were left out of the analysis.
6.3 Analysis
Although the quadratic function has been widely accepted as the best tool to study non-linear, and therefore U-shaped relationships, a study by Lind & Mehlum (2007), argues that such an approach is not always effective, especially when the variable at question has a low range, which was the case for cultural distance. Although the quadratic function remains a legitimate model to study potential non-linear interactions between variables, alternative ways of finding such a non-linear association should be considered to draw more complete conclusions.
46 7. Future Research
This study has built on the previous work of Wang & Schaan (2008), in which an inverted U- shaped relationship was found between cultural distance and entry mode choice for Japanese firms. With these findings not being able to be replicated for Dutch firms, future research should look into this possible relationship amongst internationalizing firms from other countries. With only the Japanese cases fitting their non-linear model, it is of essence to test such a relationship for firms in other countries to see whether there is indeed a global pattern, or whether it only applies to Japanese firms.
Future studies could also include greenfield investments in their analysis, with the lack thereof representing a major limitation in this study. Subsequent research might also benefit from using a larger sample size and using additional control variables such as firm experience and competition which could act as moderators.
Finally, future research could also try using alternative methods of testing non-linear relationships, because although the quadratic function of the variable being tested is widely regarded as a legitimate method, this notion is starting to become contested.
47 8. Conclusion
With the growing interconnectedness of the world and augmented interdependencies amongst countries, firms are increasingly investing abroad through FDI. The manner in which these investments take place, and the factors they are influenced by, have received much attention in international business studies, yet these have not always provided consistent results.
Its impact on performance has often been regarded as a reason for the importance of entry mode choice, and these decisions have frequently been attributed to a wide range of factors. One of the most recurring of these is the influence of cultural distance, an index between countries that separates them on the lines of masculinity, individuality, power distance, uncertainty avoidance, and more recently also pragmatism and indulgence. The overarching idea was that the higher the cultural distance, the more likely firms were to favor joint ventures over acquisitions, yet empirical studies on this association have so far been contradictory and inconclusive. Wang &
Schaan (2008) attributed these inconsistencies to fact that the interaction between these variables were always thought to be linear, and non-linear models were never considered. In their study of Japanese firms, they in fact found an inverted U-shaped relationship between these variables, thereby calling on future studies to try to replicate their findings for other home countries.
This study therefore looked into the possibility of a non-linear relationship between cultural distance and entry mode choice for another home country, namely the Netherlands. Through the Zephyr database of mergers and acquisitions, information on FDI activity of Dutch companies between 2005 to 2014 was gathered. A sample of 299 cases was used, for which 272 had data on cultural distance available for them, as well as data for the selected control variables industry, firm performance, firm size and host country development. These control variables were subsequently also tested as primary predicators of entry mode choice, to compare how
48 strong these interactions are as compared to the association between cultural distance and entry mode.
The data shows that the mean of the cultural distance with countries where acquisitions were taken place was substantially lower than the overall mean, while the cultural distance mean where joint ventures were taken place was substantially higher than the overall mean, suggesting Dutch companies prefer the use of joint ventures as cultural distance increases. The binary logistic regression results suggest that cultural distance is significant predictor of entry mode choice, but this association appears to be a linear one instead of the hypothesized inverted
U-shaped model. The study could therefore not replicate the findings of Wang & Schaan (2008) who found this type of non-linear association between the variables for Japanese firms. It therefore remains unclear to what extent the results of their studies could apply more generally.
This study does however build on previous works which have found significant linear interactions between the variables, such as those by Kogut & Singh (1988), Agarwal &
Ramaswani (1992), and Chen (2003).
Furthermore, other factors such as firm performance, type of industry, and the level of development of the host country, do not appear to significantly influence entry mode choice.
Firm size, however, did show a statistically significant interaction with entry mode, with larger firms more likely to opt for acquisitions than joint ventures, in line with findings by previous studies such as those of Agarwal & Ramaswami (1992) and Zaheer & Zaheer (1997).
Major limitations to the study were not including greenfield investments as a third type of entry mode in the sample, the missing values for a number of variables, and the binary logistic regression not being able to include categorical variables of more than two values or numerical values with large ranges. Future studies are encouraged to replicate the study including greenfield investments, and test the potential non-linear association between entry mode choice and cultural distance in other countries. That way it might become clearer in the future whether 49 the inverted U-shaped relationship between the variables applies on a general level or whether it is simply a Japanese model.
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55 10. Appendices
Appendix A – List of Acquisitions
Acquiring Firm Target Firm Target Year Industry Country Basell BV Lyondell Chemical Company USA 2007 Chemicals Akzo Nobel NV Imperial Chemical Industries PLC UK 2008 Chemicals OCI NV Orascom Construction Industries Egypt 2014 Real Estate/Property Developing Heineken NV Femsa Cerveza Mexico 2010 Food/Drinks Generali PPF Holding BV Ceska Pojistovna AS Czech Republic 2007 Financial Services Heineken International BV APIPL & Non-Asia Pacific Breweries Singapore 2012 Food/Drinks Ltd ASML Holding NV Cymer Inc. USA 2013 Electronics Corporate Express NV Lyreco SAS France 2010 Other Manufacturers ING Groep NV Oyak Bank AS Turkey 2008 Financial Services Heineken International BV Asia Pacific Breweries Ltd Singapore 2013 Food/Drinks Koninklijke Numico NV EAC Nutrition Ltd Denmark 2006 Food/Drinks ABN AMRO Holding NV Banca Antoniana Popolare Veneta Italy 2006 Financial Services SPA Koninklijke DSM Martek Biosciences USA 2011 Chemicals Koninklijke Philips Electronics Avent Holdings LTD UK 2006 Food/Drinks NV Rabobank Nederland Mid-State Bancshares USA 2007 Financial Services Océ NV Imagistics International Inc. USA 2005 Electronics Koninklijke Philips Electronics Lifeline Systems Inc. USA 2006 Pharmaceuticals/Medical NV Equipment Koninklijke Philips Electronics Partners in Lighting International NV Belgium 2007 Electronics NV United Services Group NV Solvus Resource Group Belgium 2005 Consultancy/Recruitment Koninklijke Philips Electronics Color Kinetics Inc. USA 2007 Electronics NV ING Groep NV Citistreet LLC USA 2008 Financial Services Uniland International BV Giant Cement Holding Inc. USA 2010 Other Manufacturers Univar NV Chemcentral Corporation USA 2007 Chemicals Vion NV Grampian Country Food Group Ltd UK 2008 Food/Drinks Archstone BV DeWAG Deutsche WohnAnlage Germany 2006 Real Estate/Property GMBH Developing Yara Nederland BV Kemira GrowHow OYJ Finland 2008 Chemicals Koninklijke DSM NV Tortuga Companhia Zootécnica Brazil 2013 Chemicals Agrária LTDA Koninklijke DSM NV Ocean Nutrition Canada LTD Canada 2012 Chemicals ING Bank NV AFP Bansander SA Chile 2007 Financial Services Heineken NV Pivovarni Ivana Taranova OOO Russia 2007 Food/Drinks ING Direct NV Interhyp AG Germany 2008 Financial Services Koninklijke Numico NV Mellin SPA Italy 2005 Food/Drinks CSM NV Best Brands Corporation USA 2010 Financial Services Crucell NV Berna Biotech AG Switzerland 2006 Other Manufacturers ZBG Holdings NV Auxifina SA Belgium 2007 Financial Services Nutreco Holding NV Maple Leaf Animal Nutrition Canada 2007 Food/Drinks
56 Wolters Kluwer NV NDCHealth Corporation's USA 2006 Pharmaceuticals/Medical Pharmaceutical Information Equipment Management Business Rabobank Nederland Central Coast Bancorp USA 2006 Financial Services Koninklijke Philips Electronics Povos Appliance CO., Ltd China 2013 Electronics NV Spyker Cars NV Saab Automobile AB Sweden 2010 Automotive Rabobank International Holding Bank Gospodarki Zywhnosciowej SA Poland 2012 Financial Services BV Koninklijke DSM NV Kensey Nash Corporation USA 2012 Pharmaceuticals/Medical Equipment Imperial Mobility International Lehnkering Holding GMBH Germany 2012 Shipping/Port Operations BV NXP Semiconductors Silicon Laboratories Inc.'s Cellular USA 2007 (Tele)communication Communications Business The Nielsen Company BV NetRatings Inc. USA 2007 IT Wolters Kluwer Legal Addison Software Und Service Germany 2008 IT GMBH Imtech NV NVS Installation AB Sweden 2008 Electronics Aegon NV Clark Inc. USA 2007 Financial Services STMicroelectronics NV Genesis Microchip Inc. USA 2008 Electronics Heineken International BV Eichhof Getränke Holding AG Switzerland 2010 Food/Drinks Autodesk Development BV Delcam PLC UK 2014 IT Vimetco NV Everwide Industrial Ltd Hong Kong 2007 Machinery ASML Holding NV Brion Technologies Inc. USA 2007 Electronics Eriks Group NV WYKO Holdings Ltd UK 2006 Electronics Akzo Nobel NV Sico Inc. Canada 2006 Chemicals Koninklijke Philips Electronics SAECO International Group SPA Italy 2009 Electronics NV Telegraaf Media Groep NV Slay Radio Ltd UK 2008 Media Corio NV Príncipe Pío Gestión SA Spain 2009 Real Estate/Property Developing Smit Internationale NV Towage Holdings NV Belgium 2008 Shipping/Port Operations Smit Internationale NV URS Belgium 2008 Shipping/Port Operations ABN AMRO Holding NV Prime Commercial Bank Ltd Pakistan 2007 Financial Services Grontmij NV Carl Bro A/S Denmark 2006 Consultancy/Recruitment Arcadis NV Malcolm Pirnie Inc. USA 2009 Consultancy/Recruitment TNT NV Expresso Mercúrio SA Brazil 2007 (Tele)communication ABN AMRO Holding NV Taitung Business Bank Taiwan 2007 Financial Services The Nielsen Company BV IAG Research Inc. USA 2008 IT Delta Lloyd Group Swiss Life Belgium SA Belgium 2008 Financial Services Akzo Nobel NV Schramm Holding AG Germany 2011 Chemicals Locka Holding BV Hotel Lutetia France 2010 Other Services Refresco Holding BV Sun Beverages Company NV Belgium 2007 Food/Drinks Oranje-Nassau Energie BV Devon Energy Corporation's Gabon- Gabon 2008 Energy (petroleum/gas) Based Operations Unilever Group Inmarko OAO Russia 2008 Food/Drinks Heineken BV Kombinat Pivovaryonoi I Russia 2005 Food/Drinks Bezalkogolnoi Promyshlenos Imeni Stepana Razina ING Groep NV Oyak Emeklilik Turkey 2008 Financial Services Koninklijke Philips Electronics Witt Biomedical Corporation USA 2008 Pharmaceuticals/Medical NV Equipment Imtech NV NEA-Gruppen AB Sweden 2010 Electronics TNT NV Hoau Logistics Group China 2007 (Tele)communication
57 AZMT Holdings BV ICKM Real Estate SRO Czech Republic 2007 Real Estate/Property Developing Koninklijke Philips Electronics Health Watch Inc. USA 2009 Pharmaceuticals/Medical NV Equipment Aquamit BV Quadrant AG Switzerland 2009 Plastics Impress Group BV Amcor Ltd's Australasian Food Can Australia 2007 Metals and Aerosol Business NXP Semiconductors BV Conexant Systems Inc.'s Boradband USA 2008 Media Media Processing Business Mediq NV Assist GMBH Germany 2011 Pharmaceuticals/Medical Equipment Vistaprint NV Wens Inc. USA 2011 IT TKH Group NV CAE Groupe France 2007 (Tele)communication Nielson Holdings NV Harris Interactive Inc. USA 2014 IT OPG Groep NV Byram Healthcare Centers Inc. USA 2008 Pharmaceuticals/Medical Equipment Koninklijke DSM NV Cargill Inc.'s Cultures and Enzymes USA 2012 Chemicals Business Spyker Cars NV Midland F1 Racing Ltd UK 2006 Automotive Athlon Car Lease International Masterlease Italy Italy 2011 Automotive BV Koninklijke KPN NV Blau Mobilfunk GMBH Germany 2010 (Tele)communication Imtech NV Peek Traffic Holdings Ltd UK 2007 Tansport Reed Elsevier NV Mendeley Ltd UK 2013 Media Accell Group NV Raleigh Cycle Co., Ltd UK 2012 Transport Koninklijke Philips Electronics Raytel Cardiac Services Inc. USA 2009 Pharmaceuticals/Medical NV Equipment NXP Semiconductors BV Glonav Inc. USA 2008 Electronics BE Semiconductos Industries NV Datacom Technology AG Austria 2005 Electronics Koninklijke Vopak NV CanTerm Canadian Terminals Inc. Canada 2014 Energy (petroleum/gas) STMicroelectronics NV ST-NXP Wireless Switzerland 2009 Electronics Randstad Holding BV Team BS Betriebs-Service GMBH Germany 2007 Consultancy/Recruitment Gesellschaft Für Zeitarbeit Koninklijke Ten Cate NV Polyfelt Gesellschaft MBH Austria 2007 Textile Holland Coordinator & Services Sportitalia C/O EDB Media SRL Italy 2005 Media Co BV Homerica Investments BV NABI Eszak-Amerikai Jarmuipari Hungary 2006 Automotive KFT Aalberts Industries NV Pegler Holdings Ltd UK 2005 Other Manufacturers USG People NV Tempsys SA Belgium 2007 Consultancy/Recruitment Koninklijke KPN NV iBasis Inc. USA 2009 (Tele)communication Koninklijke Vendex KBB NV Leroy Merlin Participations SA's Belgium 2005 Other Manufacturers Belgian Operations Gamma Holding NV Uni-chains A/S Denmark 2009 Other Manufacturers Darthall BV Financiere Partouche SA's 8 Hotels France 2006 Other Services Stork Food Systems International Townsend Engineering Company USA 2006 Food/Drinks BV Pon Holdings BV SWTS PTE Ltd Singapore 2011 Machinery Heineken NV Bedele Brewery SC Ethiopia 2011 Food/Drinks STMicroelectronics NV Proton World International SA Belgium 2005 Electronics Venus Airport Investments BV Khalyqaralyq Almaty Auezhaiy AQ Kazakhstan 2011 Other Services Lauffer BV Kholdinh T i C ZAT Ukraine 2014 Food/Drinks Wavin NV Pilsa Plastik Sanayi AS Turkey 2008 Plastics Endemol NV Southern Star Group Ltd Australia 2011 Media Heineken NV Hardar Brewey SC Ethiopia 2011 Food/Drinks Pon Holdings BV Callidus Process Solutions PTY ltd Australia 2013 Machinery
58 Jerste BV Tveelinhen Ukrayina TOV Ukraine 2013 Food/Drinks Fugro NV Rovtech Ltd. UK 2006 Other Services Schlumberger Tyumenpromgeofizika OAO Russia 2007 Other Services CSM NV Kate's Cakes Group Ltd UK 2007 Food/Drinks Takeaway.com BV YD YourDelivery GMBH Germany 2014 Food/Drinks Dela Uitvaartverzorging Sophia Group NV Belgium 2005 Other Services ABN AMRO Holding NV Bank Corluy Effectenbankiers Belgium 2005 Financial Services Thermphos Trading Dequest USA 2007 Chemicals Irdeto Corporate BV Cloakware Corporation Canada 2007 IT Stork Technical Services Holding Turbo Service GMBH Germany 2007 Machinery BV CSM NV CGI Desserts Inc. USA 2008 Food/Drinks Hendrix Genetics BV Euribrid Belgium 2007 Food/Drinks Nutreco NV Shihai Co., Ltd China 2013 Other Manufacturers Holland Coordinator & Services Prima TV SPA Italy 2005 Media Co BV Crucell NV SBL Vaccin Sweden 2006 Other Manufacturers Precious Oil Products Kaspii Neft AO Kazakhstan 2012 Energy (petroleum/gas) Investments BV Grontmij NV Ginger SA France 2010 Consultancy/Recruitment Paper Excellence BV Papierfabriek Scheufelen GMBH & Germany 2013 Other Manufacturers Co. KG Koninklijke Philips Electronics Shenzhen Goldway Industrial Inc. China 2010 Pharmaceuticals/Medical NV Equipment OPG Groep NV Kirudan A/S Denmark 2007 Pharmaceuticals/Medical Equipment Nedrailways BV National Express Group's London Bus UK 2009 Transport Operations PDB BV Petronas Energy Philippines Inc. Philippines 2012 Energy (petroleum/gas) Raben Group BV Wincanton PLC's German Road Germany 2011 Transport Activities Exact Holding NV Longview Solutions Inc. Canada 2007 IT ING Groep NV VSP Tatry AS Slovakia 2005 Financial Services Koninklijke Ten Cate NV Roshield A/S Denmark 2009 Other Manufacturers Balsand BV Merefyanska Sklyana Kompaniya Ukraine 2011 Other Manufacturers TOV Nutreco Holding NV Copaga Coop's Feed and Meat Spain 2008 Food/Drinks Operations Arcadis NV AYH PLC UK 2005 Consultancy/Recruitment LeasePlan Corporation NV Daimler Chrysler Fleet Management France 2008 Automotive France Van der Valk Hotels & Golden Tulip Brussels Airport Belgium 2009 Other Services Restaurants UA
59 Appendix B – List of Joint Ventures
Firm Target Firm for JV Target Year Industry Country Aramco Overseas Co BV Exxon Mobil China & Fujian China 2009 Energy (petroleum/gas) Petochemical Co The Nolet Group Diageo PLC UK 2008 Food/Drinks JSW Steel Netherlands Minera Santa Fe Chile 2010 Metals TKH Group NV Shin-Etsu Chemical Co China 2012 Electronics Koninklijke DSM Sinochem Group China 2011 Chemicals Shell Energy Europe BV ERG Power & Gas SPA Italy 2007 Energy (petroleum/gas) STMicroelectronics Hynix Semiconductor Inc. Republic of 2005 Electronics Korea AEGON NV Banco Santander SA Spain 2013 Financial Services Financierings-Maatschappij Voor Vaue Partners Ltd (British Virgin Hong Kong 2007 Financial Services Ontwikkelinglanden NV Islands) STMicroelectronics NV Sharp Corporation (Japan) & Enel Italy 2010 Electronics Green Power SPA (Italy) AEGON NV Sony Life Insurance Co Ltd Japan 2009 Financial Services Stichting Bewaring Behringer Harvard USA 2009 Real Estate/Property Beleggingsfondsen PGGM Developing Bouwfonds Property Hansa Urbana SA Spain 2005 Real Estate/Property Development BV Developing GTC Real Estate NV DS Kulkarni Developers Ltd India 2009 Real Estate/Property Developing MR Peter van den Burg CIMC Tank Equipment Hong Kong 2008 Financial Services Investment Holdings Co., Ltd NV Ecodock Holding Swan Hunter Ltd UK 2007 Shipping/Port Operations Sobel NV Wuhan National Protein China 2007 Food/Drinks Corporation AEGON NV Taishin Financial Holding Co., Taiwan 2009 Financial Services Ltd Financierings-Maatschappij Voor Lanka Orix Leasing Company Sri Lanka 2008 Financial Services Ontwikkelinglanden NV PLC Rabobank Nederland Yes Bank Ltd India 2006 Financial Services Basell Holdings NV Tatneft Imeni VD Shashina OAO Russia 2009 Chemicals Koninklijke Friesland Foods Warrnambool Cheese and Butter Australia 2007 Food/Drinks Factory Company Holdings Ltd Smit International Overseas NV Towage & Marine Assistance Lithuania 2009 Shipping/Port Operations UAB Heineken NV Mr Boujbel Tunisia 2006 Food/Drinks Shell Exploration Company BV Jilin Province Bureau of Gelogical China 2006 Petroleum Surveys and Explorations ID&T Holding BV SFX Entertainment Inc. USA 2013 Other Services Damen Shipyards Group Aker Yards ASA (Norway) Ukraine 2006 Shipping/Port Operations Trafigura Beheer BV BP PLC (UK) & Emirates UAE 2006 Energy (petroleum/gas) General Petroleum Corporation (UAE) Sobel NV Wenzhou Sanheshang Gelatin Co. China 2008 Food/Drinks Ltd Koninklijke DSM Kemrock Industries & Exports India 2013 Chemicals Ltd Shell China Holdings BV Shanghai Automotive Industry China 2007 Automotive Sales Corporation Koninklijke Philips Electronics BenQ Corporation Taiwan 2005 Electronics NV Scheuten Solar Holding BV Ritek Corporation Taiwan 2010 Electronics Plaza Centers NV Bas Development Romania 2007 Real Estate/Property Developing JSW Steel Netherlands BV GEO Steel LLC Georgia 2010 Metals
60 TBIH Financial Services Group Aktsionerne Tovarystvo Ukraine 2007 Automotive NV Ukrayinska Avtomobilna Korporatsiya VAT Mas Trade Holding BV Peninsula International Ltda Brazil 2009 Chemicals (Brazil) & Noble Group Ltd (Bermuda) Shell Gas BV Mangalore Refinery and India 2010 Energy (petroleum/gas) Petrochemicals Bouwfonds Property Contrucciones Juan Bautista Spain 2007 Real Estate/Property Development BV Flores SA Developing Begemann Holding BV Professional Waste Technology Thailand 2009 Other Services (1999) PCL Alewijnse Holding BV China Changjiang National China 2008 Shipping/Port Operations Shipping (group) Corporation Heineken International BV Heineken International de Colombia 2005 Food/Drinks Colombia Royal Dutch/Shell Group Paris Oil Company Iran 2005 Energy (petroleum/gas) Stork Fokker AESP BV Aerostar SA Romania 2005 Machinery Royal Dutch/Shell Group China National Offshore Oil China 2005 Energy (petroleum/gas) Corporation Ltd & Guangdong Investment & Development Co Endemol Entertainment Holding Independent Media Holding BV Russia 2005 Media NV (Netherlands) Royal Dutch/Shell Group Mistubishi Corporation (Japan) & Vietnam 2005 Energy (petroleum/gas) Petroleos de Venezuela SA (Venezuela) Atracon Shareholders Kenya 2005 Other Services Akzo Nobel NV's Pulp & Paper EKA Chemicals AB's Dutch Brazil 2005 Chemicals Chemicals Unit Coatings, Chemical and Drug Company (Netherlands) Endemol Entertainment Holding GSMBOX SPA Italy 2006 (Tele)communication NV TIE Holding NV TRITON KFT Hungary 2006 IT Bouwfonds Property Finance BV Amber Holding NV Belgium 2006 Real Estate/Property Developing NV Holdingmaatschappij De Kiev Post Group Ukraine 2006 Media Telegraaf De Dongen Abhay Ocean India PVT Ltd India 2006 Shipping/Port Operations Thole Parkeersystemen JJ Land Development Co. Ltd Thailand 2006 Real Estate/Property Developing HITT NV Lloyd's Register - Fairplay Ltd UK 2006 Shipping/Port Operations Studio Dumbar BV Junction China 2006 Consultancy/Recruitment Hubert Stavoren BV Enviro Care Systems India 2006 Other Services ING Real Estate Development Ceske Drahy AS, Sudop Praha AS Czech 2006 Real Estate/Property International BV & Moravka Centrum AS Republic Developing Tebodin BV Shanghai Mechanical And China 2006 Consultancy/Recruitment Electrical Installation Company TNT Post Group NV National Postal Bureau China 2006 (Tele)communication STMicroelectronics NV Shanghai High Definition Digital China 2006 Media Innovation Ltd McGregor Fahion Group BV Doverie Obedinen Holding AD Bulgaria 2007 Textile VNU Business Media Europe Shanghai Media Group Inc. China 2007 IT BV ING Bank NV Bajaj Consultancy Services India 2007 Financial Services Heineken International BV Lanitis Brothers Ltd Cyprus 2005 Food/Drinks Tele Atlas NV Shanghai Chanxiang Ltd China 2007 IT Farm Frites Group Machiels Belgium 2007 Other Services AM Development BV CDS Holding SPA Italy 2007 Real Estate/Property Developing Bouwfonds Property Inbesos SA Spain 2007 Real Estate/Property Development BV Developing Shipping and Transport College Omani Government Oman 2005 Other Services Royal Dutch/Shell Group Shangai Automotive Industry China 2007 Automotive Corporation (Group)
61 Royal Joh Enschede Focus Equity SDN BHD Malaysia 2007 Other Services AEGON NV Caja de Ahorros Badajoz Spain 2007 Financial Services Shell Technology Ventures Fund Geodynamics Inc. (USA) & Orica USA 2005 Machinery 1 BV Mining Services (Australia) Breko Nieuwbouw BV Port Services Corporation Oman 2007 Shipping/Port Operations Verhoeven International TV-Trans Ltd Ukraine 2005 Transport Transport BV Basell BV Alfa SA DE CV Mexico 2005 Plastics Vedior NV Staff Service Holdings Co., Ltd Japan 2007 Consultancy/Recruitment Fugro NV Oceansatpeg SA Brazil 2005 Shipping/Port Operations ING Group NV National Bank of New Zealand New Zealand 2005 Financial Services Ltd Vedior NV Frontier Construction & Partners Japan 2005 Consultancy/Recruitment Co., Ltd TNT NV China Ocean Shipping (Group) China 2007 Transport Co., Ltd Reed Elsevier NV Science Press Co., Ltd China 2007 Media Kramp Groep P Grene A/S Denmark 2005 Machinery Bouwfonds Property Veidekke Bostad AB Sweden 2007 Real Estate/Property Development BV Developing InnoConcepts NV Schoeller Arca Systems Services Hong Kong 2008 Other Manufacturers (Netherlands) Campina Melkunie Borne BV Thai Dairy Industries Co., Ltd Thailand 2006 Food/Drinks Samas Office Seating Benelux Greenforrest SRL Romania 2008 Other Manufacturers BV Koninklijke Vopak NV Mitsui & Co. Inc USA 2008 Shipping/Port Operations Parcom Ventures BV Grouppe Bruxelles Lambert Belgium 2005 Financial Services Stork Prints BV Fong's Industries Co., Ltd China 2008 Textile (Bermuda) Accell Group Jalax AS Estonia 2008 Other Manufacturers NIBC NV Government of Singapore USA 2006 Other Services (Singapore) & Host Marriott Corporation (USA) Basell International Holdings BV Qazmunaigaz Ulttyq Kompaniasy Kazakhstan 2008 Energy (petroleum/gas) AQ & Sat & Company AQ Atradius Credit Insurance NV Tokio Marine & Nichido Fire Japan 2006 Financial Services Insurance Co., Ltd W&R Plastics BV VIBA SPA (Italy) Hungary 2006 Plastics AEGON NV Banca Transilvania SA Romania 2009 Financial Services APM Terminals International BV Aqaba Development Corporation Jordan 2008 Shipping/Port Operations Akzo Nobel NV Jiangsu Feixiang Chemicals Co., China 2008 Chemicals Ltd 2 Way Traffic NV Zebra Producciones SA Spain 2006 Media Tele Atlas NV Navindo Technologies, PT Indonesia 2006 IT APM Terminals International BV Yusuf Bin Ahmed Kanoo Bahrain 2008 Shipping/Port Operations Holdings WLL Van Oord NV Besix (Belgium) United Arab 2006 Shipping/Port Operations Emirates NXP Semiconducters Sony Corporation Japan 2007 Other Manufacturers Netherlands BV Scheuten Solar Holding BV Solarworld AG Germany 2006 Electronics Koninklijke Burger Groep BV ANL Singapore PTE Ltd Germany 2008 Shipping/Port Operations (Singapore) De Mandemakers Groep Holding Nobia AB (Sweden) Germany 2007 Other Manufacturers BV Landal Greenparks BV Swiss Holiday Park AG Switzerland 2006 Other Services Koopmans Logistics Group BV Skandi Terminals Latvia 2007 Other Services Raben Group BV Rohde & Liesenfeld International Poland 2006 Transport GMBH & Co KG (Germany) Barentz Europe BV Ernst Sander AG Switzerland 2009 Food/Drinks
62 Unilever NV Perdigao SA Comercio E Brazil 2009 Consultancy/Recruitment Industria Aegon NV Caja de Ahorros de Santander y Spain 2009 Financial Services Cantabria Wemmers Tanktransport BV Felix Troll Transport GMBH & Austria 2009 Transport CO KG Redevco Europe Services Euro Mediterranee Consulting & Romania 2009 Real Estate/Property Trading SRL Developing Koninklijke Lankhorst-Euronete Grupo Quintas & Quintas Portugal 2007 Other Manufacturers Group BV BIOeCON BV Khosla Ventures LLC USA 2007 Energy (petroleum/gas) Robeco Groep NV The Canara Bank Ltd India 2009 Financial Services Nemus Phaunos Timber Fund Ltd (UK) Brazil 2009 Other Services Heineken NV Efes Breweries International NV Uzbekistan 2008 Food/Drinks (Netherlands) Heineken NV Efes Breweries International NV Kazakhstan 2010 Food/Drinks (Netherlands) Heineken NV Efes Breweries International NV Serbia 2010 Food/Drinks (Netherlands) NXP Semiconducters STMicroelectronics NV Switzerland 2008 Electronics Netherlands BV Shell Technology Ventures Fund Xtreme Drilling and Coil Services Canada 2006 Energy (petroleum/gas) 1 BV Corporation Oltra Development BV Atis Corporation BHD Malaysia 2008 Electronics Vion NV Ramfood GK ZAO Russia 2010 Food/Drinks Campina International BV Thai Advanced Food Co., Ltd Thailand 2007 Food/Drinks Tele Atlas NV Mappointasia Co., Ltd Thailand 2007 IT Koninklijke Vopak NV N-Trans (Russia) Estonia 2008 Energy (petroleum/gas) STMicroelectronics NV Telefonaktiebolaget LM Ericsson Switzerland 2009 Electronics (Sweden) Equens SE Istituto Centrale delle Banche Italy 2008 Financial Services Popolari Italiane SPA Handel- en Fairplay Schleppdampfschiffs- Belgium 2008 Shipping/Port Operations Scheepvaartmaatschappij Reederei Richard Borchard Multraship BV GMBH (Germany) Pharmacell BV Tokuda Bolnitsa Sofiya MBAL Bulgaria 2010 Pharmaceuticals/Medical Equipment Plaza Centers NV Snegiri Development ZAO Russia 2008 Real Estate/Property Developing AMG Advanced Metallurgical Norsk Hydro SA Norway 2008 Chemicals Group NV Econcern BV Ampere Equity Fund BV Italy 2011 Energy (petroleum/gas) (Netherlands) NTS Group BV Shemer Israel 2008 Electronics Agrico-Holding BV Lantmännen Lantbruk Sweden 2009 Food/Drinks Tessenderlo NL Hoding BV Gulf Technologies Holding Bahrain 2009 Energy (petroleum/gas) Company WLL (UAE) Vencomatic BV Gura Automatizaciones Avícolas Spain 2009 Machinery SL Vimetco NV Interagro SA Romania 2008 Real Estate/Property Developing Euromate BV Kellett & Singleton United Arab 2008 Machinery Emirates Schoeller Arca Systems Services Time Technoplast Ltd India 2011 Plastics BV De Heus Voeders BV Gruppy Kompanii Mkorma Russia 2009 Food/Drinks Tebodin Consultants & Apic LLC Saudi Arabia 2011 Consultancy/Recruitment Engineers Ewals Cargo Care BV Schüchen International GMBH & Germany 2009 Transport Co. KG Maxperian NL BV Netgiant Ltd UK 2009 Other Manufacturers Koninklijke Ten Cate NV Union Textile Industries Public Thailand 2008 Textile Co. Ltd
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