Academic journal article Multinational Business Review

The Cultural Sensitivity of the Eclectic Paradigm

Academic journal article Multinational Business Review

The Cultural Sensitivity of the Eclectic Paradigm

Article excerpt

This paper explores the extent to which the variables of the eclectic paradigm (Dunning, 1995) are affected by home and host country cultures. It is postulated, for example, that asset based ownership advantages (Oa) are created by cultures that are individualistic; governance based ownership advantages (Ot) are more likely to be the strength of integrated, moral and high trust (Casson, 1992) cultures. Modal choices are also a function of Hofstede's (1980) uncertainty avoidance, power distance and masculinity measures; for example, high trust cultures which are also high in terms of power distance (Shane, 1994 and 1995) show a lower tendency to internalize. Location choices are determined by the cultural distance between the home and host countries perceived by the investing firms, as well as their attitudes to risk and uncertainty. An example of how the culture of the home country may affect the industrial structure of fdi is given by reference to Japanese and US MNE activity in Europe.


It is sometimes remarked that `the Cold War is over and Japan won' . The renaissance of the market based economy is apparent but, within the capitalist ideology, there are differences in the economic systems and institutions of `the West and the Rest', the Rest being Japan, South Korea, Hong Kong, Singapore, Taiwan and Malaysia, and also the emerging economies one or more steps behind in the development chain, such as China, Indonesia, Thailand and India. A realignment of superpowers along different ideological, political and sociological vectors coupled with the exponential increase in all kinds of international transactions is compelling scholars to give more attention to the role of culture in determining the ownership and locational patterns of business activity. This is underscored by the fact that much of the world's growth over the next decade is expected to be accounted for by East Asian and Indian countries.

Globalization, as a process of internationalization, has reached new heights and dimensions as both enterprises and governments, from different countries, become increasingly affected by each other's behavior and strategies. Some international scholars perceive the actions taken by these two actors as `culture-free'; and their decisions to be guided by pure rationality and self interest. Others see these actions as being governed by a sort of "bounded rationality", where decisions are made under informational constraints, and where culture is sometimes used as a heuristic for these decisions (Schneider and DeMeyer, 1991). Some commentators even see a "clash of civilizations" in the coming years - where the fundamental source of conflict between nations will not be primarily ideological or economic, but cultural (Huntington, 1993). As Monsen commented more than thirty years ago:

Ideologies of competitive interests are in a very real sense weapons used against each other in national or international groups. While battles are not necessarily won by the most popular ideology - strength being not only a matter of numbers - wars eventually are influenced or won by the ideologies which win most fervently the hearts and minds of men. Thus ideas become weapons. (Monsen, 1963)

The ideological differences between the developed Western nations and the newly developed and developing nations of the East are manifested in a variety of ways. The role of entrepreneurship, business customs, work practices, consumer expectations, organizational structures, attitudes to foreign investment, business/government relations, and the time horizon of decision taking, are just a few of the culturally related factors which affect the competitiveness of a nation. While these factors are not new in the world economy, what is, perhaps, new is the extent to which, and the form in which, different cultures are interacting with each other.

This new awareness is the direct result of the denser integration of the world economy, brought about by the growing mobility of intangible assets and people; and of global product mandates. …

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