Cultural Distance Dimensions: Artifacts of the past or useful components for understanding cultural distance?

Ronni Kjærhede

Student thesis: Master thesis

Abstract

Cultural distance dimensions from Hofstede and GLOBE have long been heavily criticized. A large part of this criticism is due to the method in which they are being applied, as simplified cultural indexes fail to provide explanatory power. This thesis sets out to test whether the GLOBE cultural distance dimensions on the values and practices scales can aid in the explanation of export and FDI flows from Denmark to other countries. In doing so, it will shed new light on the issue, as the values aspect of the GLOBE dimensions has been largely ignored. Four main approaches to cultural distance are identified in cultural distance measures, cultural clustering, psychic distance, and measuring cultural distance while using objective measures. Cultural distance measures mostly take the form of Kogut and Singh indices, but they are oversimplified, overused, and offer little explanatory power. Quantitative methods are employed to test the impact of differences in the cultural distance dimensions between Denmark and the host country. For the purpose of this study a stepwise backwards regression analysis is chosen, as this allows to test the impact of individual cultural distance dimensions without resulting in a poor statistical model. The results show several statistically significant relationships between cultural distance dimensions and the export and FDI from Denmark to the host countries. When comparing practices to practices, In-Group Collectivism and Assertiveness are statistically significant, and when comparing values to values, Uncertainty Avoidance is statistically significant. Thus the second group dimensions should not be ignored. The thesis further shows that while cultural distance dimensions add explanatory power, this is significantly worse for culturally similar countries. The exclusion of Sweden from the data almost doubled the explanatory power of the models. Thus the thesis can suggest that cultures which are within the same cluster should employ a psychic distance approach rather than a cultural distance approach. Similarly, cultural distance dimensions are useful when comparing culturally distant countries, as they are simpler to employ than competing models for practitioners and academics alike.

EducationsMSc in Business, Language and Culture, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2015
Number of pages87