A Study on the Effects of Cultural Distance and Internal Capabilities on Foreign Market Entry Mode and Performance of Korean Firms: Focused on Interaction Effect of Cultural Distance and Internal Capabilities

This paper examines how cultural distance between Korea and a host country affects the choice of entry mode and firm performance for a sample of 141 manufacturing firms publicly listed in the Korean Stock Exchange. In addition, it focuses on the interaction effects of the cultural distance and a firm's internal capabilities which have not been considered in previous literature. We use a logistic regression analysis to test the effects on the entry mode choice and a moderated regression analysis to test the main and interaction effects on the firm performance. The results show the firms prefer the WOS mode when entering culturally distant country markets but any moderating role of R&D and marketing capabilities doesn't exist. Moreover, we find the greater cultural distance does not necessarily leads to the poorer performance and the R&D capability and firm size can become competitive advantages in themselves when operating in a foreign market.