¹WHU Otto Beisheim School of Management, Vallendar, Germany

Correspondence: T Hutzschenreuter, Chair for Corporate Strategy and Electronic Media Management endowed by Dietmar Hopp Foundation, WHU Otto Beisheim School of Management, Burgplatz 2, Vallendar 56179, Germany. Tel: +49 261 6509 200; Fax: +49 261 6509 209; E-mail: th@whu.edu

Received 23 January 2006; Revised 24 April 2007; Accepted 6 June 2007; Published online 30 August 2007.

Abstract

This paper contributes to the debate on the performance impact of "added cultural distance" in the multinational enterprise's (MNE's) expansion path. Our research focuses on the ability of MNEs to handle complexity associated with added cultural distance in international expansion, and on the effect this may have on profitability. We hypothesise that firms that make expansion moves involving a high level of added cultural distance per unit of time, and those that expand in culturally distant countries in an irregular fashion, that is, with a higher variability, will be less profitable. We test these hypothesised relationships using detailed data on 2404 expansion moves undertaken by our panel of 91 German MNEs, whose expansion paths we tracked during periods ranging between 5 and 20 years.