On the Impacts of Cultural Differences on International Direct Investments

Since the mid-1980s, the scale of international direct investments has been growing. The international direct investment gradually overtaking international trade has become the major carrier of international economic relations. Meanwhile, it has become the leading structure of foreign investments of developing countries instead of the international bank lending. In the research area of international investments, it is believed that cultural differences have great influence on the entry modes of international direct investments and the performance of foreign subsidiaries. Nowadays, cultural differences between countries and their potentially harmful consequences have received a lot of attention in the FDI literature. This paper will attempt to develop a comprehensive study of the relationship between cultural distance, entry mode choice, and subsidiary performance. Thus enabling a more precise assessment of the impact of cultural differences on foreign entry mode choice and subsequent subsidiary performance.