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Summary Theories of International Management articles week 3
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WEEK 3The Concept of Distance in International Business Research: A
Review and Research Agenda (2015)
Thomas Hutzschenreuter, Ingo Kleindienst & Sandra Lange
In the IB context, distance typically refers to the extent of differences
between country pairs. The underlying assumption of distance-related
research is that these differences prevent or disturb the flows of
information between the firm and the market. Indeed, the IB literature has
investigated effects of distance on a variety of IB-related issues such as
firms’ market selection, firms’ entry mode choice decisions, international
performance, headquarter–subsidiary relations, or intra- organizational
knowledge exchange. It is striking that there is no in-depth survey of that
body of research. We address this shortcoming with a review of the work
that has been done. The intended contribution of this review is the holistic
approach to distance, which pursues two main goals: First, to present a
systematic evaluation of literature of various dimensions of distance and,
second, to provide an agenda for future research.
The domain of this review is research exploring the effects of distance
arising from country differences on outcomes at firm and subsidiary level.
We limited this review to articles published in 23 top-tier peer- reviewed
academic journals.
1. Which distance?
Cultural Distance
The four cultural attributes proposed by Hofstede (1980) are
used predominantly in the literature: power distance (PDI),
individualism (IDV), uncertainty avoidance (UAI) and masculinity
(MAS).
Institutional Distance
The core argument here is that cultural distance does not entirely
capture the complexity associated with cross-border activities.
Institutional distance encompasses differences in the regulatory,
normative and cognitive pillars of institutions. The cultural dimension
is captured to some extent within the normative and cognitive
pillars, or what some researchers see as informal and formal
institutions, with the informal part usually captured by culture.
Geographic Distance
Our analysis shows that the one approach to measure this
distance based on a great circle distance formula between capitals
or major cities has become the most prominent one.
Economic Distance
When economic distance is used, it is usually captured as
differences in per capita GDP, however many times other measures
are used (ex. FDI).
Physic Distance
Johanson and Wiedersheim-Paul originally defined it as
‘factors preventing or disturbing the flow of information between
firms and the market. Examples of such are differences in language,
, culture, political system, level of education, level of industrial
development, etc.
Ghemawat (2001)’s CAGE model
Cultural/institutional/geographic/economic/physic –distance dimensions
of distance. And then we have measurement of distance:
Level of Analysis:
The majority argues that distance should be captured at the country level,
based on objective differences in country characteristics, but some
researchers argue that distance should be captured on an individual level
as perceptions of differences in country characteristics (as individuals are
ultimately responsible for key decisions, their perceptions of distance have
greater explanatory power than objective country differences). However,
conceptualization and measurement of perceived distance must be
captured from the ‘right’ managers, i.e. the ones directly involved in a
given IB-related decision, and also at the ‘right’ point in time: for in-
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