How cultural distance influences entry mode choice: The contingent role of host country's governance quality

When entering a culturally distant host country, whether MNEs prefer JVs or WOSs has long been a paradox. The current study aims to explain the paradox by examining the effect of the host country's governance quality. This study hypothesizes that governance quality plays a contingent role. When MNEs enter a culturally distant country with poor governance quality, the risks of collaborating with local partners soar. MNEs thus prefer WOSs. However, if governance quality is satisfactory, the local partners' opportunistic behavior will be restricted, and MNEs thus prefer JVs. An analysis of 2451 entries by Taiwanese MNEs into 13 countries supports the hypotheses.

► Considers both the influence of formal and informal aspects of the institutional environment on entry mode choice. ► Explains the cultural distance paradox by examining the contingent effect of the host country's governance quality. ► Uses data of 2451 entries by Taiwanese MNEs into 9 countries. ► Results show that the host country's governance quality plays a contingent role on the influence of cultural distance.