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

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.

Conceptualizing and measuring distance in international business research: Recurring questions and best practice guidelines

“…Following transaction costs logic, it is often argued that contextual distance between home and host country will discourage entry with high commitment modes (such as a wholly owned subsidiary) because distance makes access to information and its interpretation more difficult (Morschett, Schramm-Klein, & Swoboda, 2010). However, multinational firms often develop a portfolio of activities in different countries, and the distance between the home country (where the headquarters is located) and the host country of a new foreign entry may not be the most relevant distance with which the multinational firm has to cope (Hendriks, Slangen & Heugens, 2017). In this case, what matters may be the ''added distance'', i.e., the distance between the country of the new foreign entry and the closest country in which the firm is already active (Hutzschenreuter, Voll, & Verbeke, 2011).…”

Towards a Democratic New Normal? Investor Reactions to Interim‐Regime Dominance during Violent Events

“…We measured a firm’s foreign footprint at the time of a given spell of violence by the share of the firm’s foreign sales in its total sales in the last completed fiscal year prior to the spell (Hendriks et al, ). Firms with a higher such share realize a larger portion of their sales outside Egypt and thus have a larger foreign footprint.…”

“…While some firms realize most or all of their sales domestically, others realize a high share of their sales abroad and thus can be said to have a large foreign footprint (Hendriks et al, ). Investors will likely perceive a larger foreign footprint as a signal that a firm is more resilient to the adverse political developments that may result from high interim‐regime dominance.…”

“…Finally, our study contributes to management research on political uncertainty by focusing on a hitherto unexplored source of such uncertainty, namely the private nature of a regime’s political intentions. Most prior management studies of political uncertainty conceptualized such uncertainty as originating from a lack of checks and balances in a country’s political system (e.g., Hendriks et al, ; Henisz, ).…”

Choosing the right approach to green your supply chains

“…Due to the increasing external pressure and self-improvement driven, companies have sought ways to improve their environmental performance. However, corporate executives have been at a loss on how to truly reduce their environmental footprint (Hendriks et al, 2018). They lack certainty and confidence that programs they propose and implement can result in true environmental performance improvements (Anvar et al, 2018).…”