Cultural Distance of Nations and Localization Strategy of MNEs in China

This study explores the relationship between cultural distance of nations and the localization of MNEs in China. The empirical setting for this study was drawn from a multiyear sample of MNEs in the Chinese market. The data for the degree of localization of MNEs was drawn from an annual index provided by the China Entrepreneur magazine from 2010 to 2012. Hofstede's six cultural dimensions were employed to measure the cultural distance between the home and the host countries. The research question presented in this study was tested using a multiple regression model that used the localization of the MNEs as the dependent variable. The results indicate that the difference in the power distance between the home country and the host country has a positive relationship with the localization of the MNEs in the Chinese market. On the other hand, the other five dimensions of national culture do not present any significant relationships with the localization of the MNEs. The results are in agreement with arguments made in previous studies by indicating that the effects of national culture on the localization of MNEs are not the same under all circumstances but rather vary according to the different countries and to different chronological changes. Therefore, the MNEs should consider the cultural distance between the home country and the host country whenever deciding their strategy for internationalization, particularly in terms of the degree of localization for each target country.