Cultural distance and subsidiary performance in understudied countries

Abstract

Since the last decades, multinational enterprises are increasingly opening up subsidiaries in regions outside of the Western world. These countries are different from the well-studied Western countries. The questions rises whether cultural difference affect the firm and the subsidiary in the same way in these countries. Starting from the theory of New Organizational Institutionalism, the aim of this thesis is to research whether cultural difference in these lesser studied countries has the same effect on the performance of subsidiaries as for the Western countries. By combining data on subsidiaries form Indian MNEs with the Hofstede-index, I analyzed the relationship. No significant relationship was found between the cultural difference and the subsidiary performance. Institutional quality was significant as a mediator. Having prior experience in the region did not serve as a mediator for cultural distance.