The Impact of Added Cultural Distance and Cultural Diversity on International Expansion Patterns: A Penrosean Perspective

Abstract

International strategy research has identified a variety of multinational enterprise (MNE) expansion patterns. Some MNEs appear to expand internationally at a stable rate, whereas others expand rapidly in one period and then tend to experience slower growth. The latter pattern suggests the occurrence of the Penrose effect. We identified two determinants of these diverging patterns. First, we propose that high levels of added cultural distance (reflecting expansion into new local contexts) during one period, may negatively affect further international expansion because of dynamic adjustment costs. Second, we suggest that managing a network of subsidiaries operating in a set of local contexts with high cultural diversity, increases environmental and internal governance complexity. Extant cultural diversity of the local contexts where the MNE is active in a first period may therefore discourage adding further cultural distance. We test the hypothesized relationships using a panel of 91 German companies.

Explaining the effect of rapid internationalization on horizontal foreign divestment in the retail sector: An extended Penrosean perspective

“…Overall, our arguments based on Penrose (1959) and the results of our empirical study contribute to the development of the Penrosean perspective and its application in the international business context (Hutzschenreuter, Voll, & Verbeke, 2011;Tan & Mahoney, 2005;Verbeke & Yuan, 2007). Specifically, we provide a first attempt at ''unpacking'' Penrosean managerial resources by theorizing about the variation in the geographical fungibility of different types of managerial resources.…”

“…Although most research applying Penrosean thinking in the context of international firm growth has (implicitly) treated Penrosean constraints as unbreachable or at least as unlikely to be breached by rational decision makers (Hutzschenreuter, Voll, & Verbeke, 2011;Verbeke & Yuan, 2007), some authors raise the possibility that firms might ignore these constraints and suffer negative effects (Slangen, 2016;Tan, 2003). A breach of Penrosean constraints may be attributable to the difficulties of correctly assessing the demands that rapid internationalization places on a firm's managerial resources and the level and nature of managerial resources available to satisfy those demands.…”

“…Despite the growing interest in the drivers of divestment of foreign subsidiaries (Barkema, Bell, & Pennings, 1996;Belderbos & Zou, 2006Benito, 1997;Berry, 2013;Dai, Eden, & Beamish, 2013;Li, 1995;Soule, Swaminathan, & Tihanyi, 2014;Tsang & Yip, 2007;Wan, Chen, & Yiu, 2015), theoretical explanations of foreign subsidiaries' divestment remain scarce compared with explanations of such subsidiaries' establishment. This is particularly the case for explanations of foreign divestment that account for the resource interdependencies within a firm's portfolio of international operations (e.g., Beamish & Lupton, 2016) and the path dependence of international expansion (Hutzschenreuter, Voll, & Verbeke, 2011).…”

“…Because expansion into similar markets puts less strain on managerial resources than expansion into dissimilar markets (Banalieva & Dhanaraj, 2013, Hutzschenreuter, Voll, & Verbeke, 2011, rapid expansion into similar markets is associated with less strain on firms' managerial resources. Greater dissimilarity of conditions outside a firm's home region also results in ''lower value attributed by consumers … to the MNE's proprietary -and internationally transferableknowledge'' and to greater difficulties in ''transferring this proprietary knowledge if it is tacit'' (Pitelis & Verbeke, 2007, p. 143).…”

Beyond categorization: New directions for theory development about entrepreneurial internationalization

“…While this is beneficial if subsequent opportunities are similar, it may be dysfunctional if the firm is unable to meet the environmental demands of substantially different markets. As the organizationenvironment fit decreases, one would expect higher adjustment costs (Hutzschenreuter, Voll, & Verbeke, 2011), higher transaction costs (Orr & Scott, 2008), and the liabilities of obsolescence (Sørensen & Stuart, 2000) to become relevant, hindering the firm's adaptiveness. While there has been some theoretical development in this area, there remain many process-related questions associated with the entanglement of practices and the pursuit of international opportunities.…”