How a Firm's Domestic Footprint and Domestic Environmental Uncertainties Jointly Shape Added Cultural Distances: The Roles of Resource Dependence and Headquarters Attention

• Author: Arjen H. L. Slangen,Pursey P. M. A. R. Heugens,Guus Hendriks
• Published date: 01 September 2018
• DOI: http://doi.org/10.1111/joms.12314
• Date: 01 September 2018

How a Firm’s Domestic Footprint and Domestic

Environmental Uncertainties Jointly Shape Added

Cultural Distances: The Roles of Resource

Dependence and Headquarters Attention

Guus Hendriks, Arjen H. L. Slangen and

Pursey P. M. A. R. Heugens

Erasmus University Rotterdam; KU Leuven; Erasmus University Rotterdam

ABSTRACT Even though many firms conduct most of their business domestically, international

management research has remained remarkably silent on the role of a firm’s domestic

footprint in its internationalization strategy. We shed light on that role by exploring how the

size of a firm’s domestic footprint influences the cultural distance that the firm adds to its

country portfolio when expanding internationally. Integrating resource dependence theory and

the attention-based view, we hypothesize that a firm’s domestic footprint has a negative

relationship with added cultural distance (ACD), and that domestic policy uncertainty

strengthens this relationship whereas domestic demand uncertainty weakens it. We find robust

support for our hypotheses in a sample of the world’s largest retailers covering the period

2000–07, indicating that a firm’s domestic footprint and domestic environmental uncertainties

jointly shape cross-cultural expansion strategies. Our findings suggest that ACDs reflect

headquarters executives’ desire to avoid ineffective foreign expansions, hinting at possible

biases in studies of the performance effects of distance.

Keywords: added cultural distance, attention-based view, domestic footprint, domestic

uncertainty, foreign expansion, resource dependence theory

INTRODUCTION

Despite ever growing levels of international trade and foreign direct investment, most

firms, including many of the world’s largest ones, still perform the bulk of their activities

in their home country and can therefore be said to have a large domestic footprint

(Asmussen, 2009; Carpenter and Fredrickson, 2001; Hejazi, 2007). In the most compre-

hensive firm-level analysis of geographic footprints to date, Oh and Rugman (2014)

Address for reprints: Guus Hendriks, Department of Strategic Management and Entrepreneurship, Erasmus

University Rotterdam, PO Box 1738, 3000 DR Rotterdam, The Netherlands (hendriks@rsm.nl).

V

C2017 John Wiley & Sons Ltd and Society for the Advancement of Management Studies

doi: 10.1111/joms.12314

Journal of Management Studies 55:6 September 2018

found that the 804 firms that appeared on Fortune’s Global 500 list over the period

1999–2008 on average realized 54 per cent of their sales domestically, a percentage

comparable to that reported for the largest British firms (Rugman and Verbeke, 2007).

Like other scholars (Carpenter and Fredrickson, 2001; Yip et al., 2006), Oh and

Rugman also found substantial variation across their sample firms, with more than a

quarter of them even realizing all of their sales domestically.

Even though the domestic footprint of many firms has been shown to be sizeable, this

footprint has been largely omitted as an explanatory factor from the substantial body of

research that has aimed to explain firms’ behaviour outside their home market (for a

review, see Dunning and Lundan, 2008). This is unfortunate because the observed vari-

ation in domestic footprints around their sizeable mean provides an excellent opportu-

nity to explore their role in firms’ international strategies. One of the few extant studies

of this role found that the domestic footprint of exporters from Wisconsin and Illinois

was negatively associated with the amount of resources they committed to their existing

foreign markets (Cavusgil, 1984). Whether a firm’s domestic footprint also influences its

decisions regarding expansion into new foreign markets is still unclear, however.

We aim to start filling this lacuna by exploring the ef fect of a firm’s domestic footprint on

the so-called ‘added cultural distance’ (ACD), defined as the total cultural distance that an

internationalizing firm adds to its country portfolio in a given time period (Hutzschenreuter

and Voll, 2008; Hutzschenreuter et al., 2011). While intern ational management (IM) research

on cultural distance has traditionally focused on the cultural distance to individual countries

(e.g., Kogut and Singh, 1988; Vaara et al., 2012), ACD accounts for the fact that firms may

enter multiple countries in the same time period. This more comprehensive approach is war-

ranted because firms may implement expansion projects for different countries around the

same time and because an individual project, such as the acquisition of a multinational com-

petitor, may involve multiple countries. Furthermore, whereas the cultural distance to a coun-

try entered has traditionally been calculated relative to a firm’s home country, in ACD studies

that distance is calculated relative to the culturally closest country in the firm’s extant country

portfolio, which is seldom the firm’s home country. The reasoning be hind this approach is

that the culturally closest operating location is generally the main source of cultural knowledge

for a new foreign entry (Barkema et al., 1996) an d therefore the most appropriate reference

point (Hutzschenreuter and Voll, 2008; Hutzschenreuter et al., 2011). Of the four main forms

of distance (Ghemawat, 2001), cultural distance is the hardest to interpret and cope with (see

Kostova and Zaheer, 1999, p. 70), suggesting that decisions on ACD may have particularly

large consequences and therefore need to be made carefully. Indeed, ACD has been shown to

strongly hinder further international expansion (Hutzschenreuter et al., 2011).

Integrating resource dependence theory (RDT) (e.g., Campling and Michelson, 1998;

Drees and Heugens, 2013; Pfeffer and Salancik, 1978) and the attention-based view

(ABV) (e.g., Bouquet et al., 2009; Ocasio, 1997; Yu et al., 2005), we argue that firms

with a larger domestic footprint are generally more dependent on domestic resources,

causing the senior management of such firms to focus more of their attention on strate-

gizing for the domestic market. As a result, these executives can devote less attention to

strategy formation for international expansions and will therefore likely resort to formu-

lating expansion strategies characterized by lower ACD. We therefore hypothesize a

negative relationship between a firm’s domestic footprint and ACD.

2 G. Hendriks et al.

V

C2017 John Wiley & Sons Ltd and Society for the Advancement of Management Studies

884