Foreign Market Entry Strategies in the North-Adriatic Area: The Role of Cultural Distance

Foreign Market Entry Strategies in the North-Adriatic Area: The Role of Cultural Distance

Rubens Pauluzzo (Department of Economic and Statistical Sciences, University of Udine, Udine, Italy)
Copyright: © 2013 |Pages: 20
DOI: 10.4018/jissc.2013010101
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Abstract

The consolidation of economic and political relations in the North-Adriatic area and their formalization encouraged by the new institutional structures of Euro-regions are phenomena of central relevance to the actual European economic environment. These conditions have a significant influence on the strategic choices of local firms. In spite of the geographical proximity between Italy, Austria, Slovenia, and Croatia, cultural differences still act as important determinants in leading foreign investment strategies. The current study aims at analyzing the role played by cultural distance between the examined countries in affecting entry mode strategies followed by companies of the Italian region of Friuli-Venezia Giulia. In particular, the analysis suggests that a larger cultural distance, together with specific market characteristics, may force companies to choose entry forms with a lower degree of control, while specific firm characteristics may have an opposite impact on the internationalization strategies.
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Culture Matters

Companies around the world are part of an increasingly complex and competitive environment. New pressures have gradually transformed the global competitive landscape, requiring changes in the international strategic approaches. Each company has to manage the opportunities and challenges of international markets under the pressure of regionalization and globalization processes. Nonetheless, only few players have achieved significant results, thriving in the international competitive arena. Most of them have been merely surviving, struggling to adapt to a complex and contradictory demand (Bartlett & Ghoshal, 1998).

The globalization process has failed to comply with the convictions of those who see in this socio-economic phenomenon the basis of setting up a cultural “melting pot” (Keisei Tanahashi, 2010). Even if the Westernized approach has spread worldwide and the globalized metropolis seem to be similar for architecture and ways of living, cultural differences remain beyond this façade. The echoes of these issues have quickly reached the economic environment, exacerbating the difficulties of the operators in managing intercultural relations and forcing them to integrate their strategies with cultural sensitivity and competence (Routamaa, Hautala, & Tsutzuki, 2010; Almutairi, 2008). However, culture should not be considered as a mere shortcut to address these issues. It is a fundamental determinant able to promote the awareness and knowledge needed to pursue the path of international success.

The significance of cultural aspects and their influence on the strategic choices of firms also affect the countries and regions of the North-Adriatic basin (Zagorsek, Jaklic, & Stough, 2004; Tavakoli, Keenan, & Cranjak-Karanovic 2003; Morosini, Shane, & Singh, 1998). In spite of the geographical proximity between Italy, Austria, Slovenia and Croatia and their gradual economic integration, cultural differences still have an impact on investment decisions. The knowledge of the main cultural factors is a precondition to support international businesses towards development paths based on a better comprehension of the motivations that drive local consumers and human capital as well as the characteristics of the relations with the stakeholders (Froese & Peltokorpi, 2011; Lopez-Duarte & Vidal-Suarez, 2010).

Nonetheless, most part of previous analysis has not investigated the impact of cultural distance in influencing foreign market entry strategies with reference to the North-Adriatic area. The study aims at providing an additional perspective to the existing body of knowledge, by testing the relevance of cultural elements in affecting entry mode choices in the examined area. In addition, the study suggests an interpretation of the cultural distance construct based on the contextualization of the analysis. Several scholars (Gatignon & Anderson, 1988; Kogut & Singh, 1988; Hennart & Larimo, 1998; Brouthers, 2002) stressed that a greater level of cultural distance can be associated to a lower degree of control over foreign activities, forcing companies to choose co-operative entry modes rather than direct control ones in order to better manage the uncertainties of the internationalization process. Other scholars (Liu & Wang, 2010; Shenkar, 2001) suggested, at least to some extent, that a greater level of cultural distance can be associated to entry strategies characterized by a higher level of control, in order to better monitor foreign activities through a centralized decision-making process and to reduce communication costs and opportunistic behaviors. By testing the role of cultural distance in a specific context, the study argues that the cultural distance construct is characterized by a strong degree of contextualization. As stated by Brouthers and Brouthers (2001), previous scholarship linking cultural distance and entry strategies provides contradictory results related to important cultural factors that may influence strategic decisions from home country, host country and cultural distance perspectives. Therefore, it is believed that cultural distance may have different meanings and influences depending on the countries, markets and cultures involved.

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