PD7 - Research Paper. Rozen-Bakher, Z. FDI’s Unresolved Risk of Cultural Distance - Alternatives Measuring to National Cultural Values: Language Distance, Religion Distance, and Cultural Openness
Rozen-Bakher, Z. FDI’s Unresolved Risk of Cultural Distance - Alternatives Measuring to National Cultural Values: Language Distance, Religion Distance, and Cultural Openness. Research Paper, PD7. https://www.rozen-bakher.com/research-papers/pd7
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Rozen-Bakher, Z.
FDI’s Unresolved Risk of Cultural Distance - Alternatives Measuring to National Cultural Values: Language Distance, Religion Distance, and Cultural Openness
Abstract
Due to FDI’s unresolved risk of national cultural differences, this study raises the question of whether the distance measure that is based on the attitude degree to national cultural values (e.g. Hofstede and Globe) may explain the mixed results in previous studies. Thereby, this study explores three alternative measures namely, language distance, religion distance, and cultural openness versus ethnocentrism. The study suggests that the language distance could provide a limited alternative, yet using two layers of the native language alongside the secondary languages in a country, may give a better understanding of the impact on FDI. The study also indicates that the religion distance could provide a reasonable alternative because religion has an important role in shaping the cultural identity, still, it should be examined via two layers of the dominant religion alongside the sub-religion groups of each religion, which may accurate the impact direction of the religion distance on FDI. However, the study concludes that the most promising alternative is the measure of cultural openness vs. ethnocentrism. The measure of distance in cultural values focuses on comparing the attitude degree towards social issues, while the measure of cultural openness versus ethnocentrism focuses on comparing the loyalty degree to the national culture. Still, paradoxically, the study reveals that loyalty to national culture reflects high ethnocentrism that discourages FDI, while disloyalty to national culture reflects cultural openness that encourages FDI. The study suggests that universal indicators should be used for comparing cultural openness vs. ethnocentrism among different societies.
Keywords: Foreign Direct Investment (FDI), Cultural Location Factors, Risk of FDI, National Cultural Values, National Culture Differences, Language Distance, Religion Distance, Cultural Openness versus Ethnocentrism
1. FDI’s Unresolved Risk of National Cultural Differences
The literature highlights the importance of investigating the national cultural differences between the home country and the host country to reduce the risk for Foreign Direct Investment (FDI) due to cultural location factors (Dunning & Lundan, 2008). From the Multinational Enterprises (MNEs) perspective, the national cultural distance increases the uncertainty and risk of FDI inward in host countries (Alipour, 2019; Chang, 1995; Li & Guisinger, 1992; Loree & Guisinger,1995; Luo & Peng, 1999; Palich & Gomez-Mejia, 1999; Rozen-Bakher, 2018), because it impacts the MNEs’ activities in various ways, such as in relation to international production, types of products, marketing methods, managing networking between MNEs and local organizations.
The research literature includes countless studies that explore the differences in national culture between the home country and the host country and its implications for the MNEs' activities (e.g. Angwin & Savill, 1997; Bailey & Li, 2015; Bauer et al., 2016; Boateng et al., 2019; Brock, 2005; Brouthers & Brouthers, 2001; Huang et al., 2016; Kayalvizhi & Thenmozhi, 2018; Gomez-Mejia & Palich, 1997; Nes et al., 2007; Rozen-Bakher, 2018; Sarala, 2010; Slangen, 2006; Stahl & Voigt, 2008; Tang, 2012; Tung & Verbeke, 2010; Vaara et al., 2014; Weber et al., 1996), yet the existing literature doesn't provide a solid ground to make a generalisation regarding the influence of the national cultural distance on MNEs’ activities, namely whether the national cultural distance impacts negatively or positively or non-significantly the MNEs’ activities. In other words, previous studies showed mixed results in relation to the impact of the national cultural distance on MNEs' activities namely, some studies showed that the national cultural distance significantly and positively affects MNEs' activities, while other studies showed significantly and negatively results, still, other studies showed insignificant results (e.g. Bailey & Li, 2015; Bauer et al., 2016; Bauer & Matzler, 2014; Boateng et al., 2019; Brock, 2005; Huang et al., 2016; Kayalvizhi & Thenmozhi, 2018; Lim et al., 2016; Slangen, 2006; Stahl & Voigt, 2008; Tang, 2012; Tung & Verbeke, 2010; Vaara et al., 2014). Nevertheless, most of the previous studies used the same distance measure based on comparing the attitude degree to national cultural values, such as Hofstede (e.g. Brock, 2005; Brouthers & Brouthers, 2001; Rozen-Bakher, 2018; Sent & Kroese, 2020; Stahl & Voigt, 2008; Zhou & Kwon, 2020) and Globe (e.g. House et al., 2002; House et al., 2004; Tang, 2012; Waldman et al., 2006) frameworks, or even by using both frameworks (e.g. Alipour, 2019; Chhokar et al., 2007; Shi & Wang, 2011; Tung & Verbeke, 2010; Xiumei & Jinying, 2011). Hence, using the same measure in previous studies, mainly via Hofstede framework, raises concern that the mixed results may occur due to the measure per se namely, measuring the gap between the attitude degree to national cultural values between the home country and host country, rather than to measure the level of openness to a foreign culture. In other words, the national cultural values refer to the attitude degree that exists in a certain society towards important social issues (e.g. hierarchy-PDI, Individualism-IDV, feminism-MAS, and trust-UAI), while the openness level to foreign culture refers to the ability of a society to be open to cultural values and products of another society that differ from its cultural values and products. Thus, cultural values distance focuses on comparing the attitude degree towards social issues, while openness to foreign focuses on comparing the loyalty degree to the national culture, or vice versa, the openness level to foreign cultures. Given that, the same gap in the attitude degree to a certain cultural value could lead to a different level of openness.
Considering the outlined above, this study explores three alternative measures for national culture differences namely, language distance, religion distance, and cultural openness versus ethnocentrism. The alternatives of the language distance and religion distance focus on two important cultural aspects in society, while the alternative of the cultural openness is based on the distinction between cultural values and cultural openness. The exploration of these three alternatives is done both at the theoretical level and methodological level.
2. Measuring Distance in National Cultural Values: Mixed Results
The national cultural values reflect the widespread basic concepts and attitudes in a certain society, which guide individuals in the society in relation to various fields of their daily life (Hofstede, 1980a, 1983b, 1993, 2001; House et al., 2002; House et al., 2004). Hence, the national cultural values affect the MNEs' activities in relation to various topics, such as in related to the following topics (Alipour, 2019; Ajzen & Fishbein, 1980; Copeland & Griggs, 1986; Daniels & Radebauge, 2002; Frijns et al., 2013; Hofstede, 1980a, 1983b, 1991, 1993, 1998, 2001; Hofstede & Hofstede, 2005; Hofstede et al., 2010; House et al., 2002; House et al., 2004; Jalalkamali et al., 2016; Kyriacou, 2016; Merkin, 2004; Oyserman et al., 2002; Probst & Lawler, 2006; Triandis, 1994; Venaik et al., 2013):
· Attitude to Discipline and Cooperation. The working values in a society, and in particular, discipline and cooperation, affect labour productivity alongside the production’s quality and services characteristics, as well as the ability to work as a team versus independent work.
· Attitude to Motivation. Motivation affects the achievements and competitiveness at work, especially the willingness of workers to work hard, as well as the benefits for work, such as flat wage versus incentive wage.
· Attitude to Time. The attitude to time affects the duration of various processes at work and the commitment to timetables, such as the commitment to delivery dates, duration of decision-making, and length of meetings.
· Attitude to Trust. The level of trust in a society affects the nature of agreements, as well as the normal level of monitoring and supervision of employees at work. It also influences the nature of relationships with suppliers, workers, and customers in terms of formal or informal relations and arrangements.
· Attitude to Individualism. The social structure in a society affects the perception regarding individualism versus collectivism in terms of the freedom that the society gives to individuals to act upon their wish, or vice versa, upon the expectation of the collective. That affects the nature of products and services that are in use in society, as well as the packaging and marketing in terms of products and packaging that fit individuals versus families.
· Attitude to Materialism. The attitude to materialism in a society affects the nature and the level of consumption in a society, which determines the level of capitalism in the society, and in particular, the nature and scope of FDI’s market-seeking.
· Attitude to leisure. The attitude to leisure in a society affects the balancing between leisure and work, which influences the willingness of workers to work hard, or vice versa, to take often long vacations.
· Attitude to Fate. The belief in fate affects the attitude to success or failure, so no personal responsibility is taken for failure at work in case of belief in fate. The belief in fate also affects the perception regarding insurance and risks, so less caution and readiness for disasters are expected in a ‘fate society’.
· Attitude to Formality. The attitude to formality affects the common rules of the formal and informal behaviour in a society, which impact the expected customary code and etiquette in a certain society, such as in relation to customary gifts, the normative way of a handshake, and the way of exchange business card, as well as in relation to the way of negotiation and interaction at work.
At the methodology level, Hofstede framework is considered as the prominent framework in the literature that measures distance in national cultural values. Hofstede (1980b, 1983a, 2001, 2011; Hofstede & Hofstede, 2005; Hofstede et al., 2010) developed its cultural framework to determine the national culture in a country, and consequently, to measure the differences in cultural values among different societies. The Hofstede framework includes five main dimensions (Frijns et al., 2013; Hofstede, 1980, 1983b, 1991, 1998, 2001, 2011; Hofstede & Hofstede, 2005; Hofstede et al., 2010; Khatri, 2009; Kyriacou, 2016; Oyserman et al., 2002; Probst & Lawler, 2006; Rapp et al., 2010; Triandis, 1995; Venaik et al., 2013), as follows:
· The Power Distance Index (PDI). The PDI dimension refers to the degree of inequality that exists in society alongside how the inequality is accepted by both the leaders and individuals, such as the attitudes in a society in relation to centralisation, consultation, obedience, discipline, and hierarchy.
· Individualism vs. Collectivism Index (IDV). The IDV dimension refers to the degree of freedom and independence that society gives to individuals, or vice versa, to the degree of the expectation that individuals will act according to the collective norms, such as in relation to personal freedom, privacy, and self-motivated at work.
· Masculinity vs. Femininity Index (MAS). The MAS dimension refers to the degree of the gender gap and discrimination that exist in society between men and women, such as the women's share in the labour force or the wage gap between men and women.
· Uncertainty Avoidance Index (UAI). The UAI dimension refers to the degree of uncertainty that exists in society due to trust issues, such as the degree of strict rules, rigid policy, and the level of formal agreements.
· Long-Term Orientation Index (LTO). The LTO dimension refers to the degree of the long-term concept in society, as well as to the importance of the past versus the future, such as the attitude in a society in relation to traditions versus adaption to new trends or the focus in a society in relation to past products (e.g. preserving traditional art and products) versus future products as saving and insurance products (e.g. life insurance).
3. Alternatives Measuring for National Culture Differences: Language Distance, Religion Distance, and Cultural Openness versus Ethnocentrism
3.1 Language Distance
The national language is one of the basic factors of the cultural arena in a country (Daniels & Radebauge, 2002). Thus, from the standpoint of MNEs, knowledge of the local language in a host country is essential to the MNEs' ability to operate successfully in the host country (Bloch, 1995; Feng et al., 2018; Kim et al., 2015; Konara & Wei, 2014; Ly et al., 2018). Knowledge of the local language in a host country enables MNEs to maintain a direct channel of communication with the MNE's employees, suppliers and customers in the host country (Konara & Wei, 2014). It also contributes to the MNEs’ ability to monitor and analyse news, publications, press release, governmental updates, and trade information that is heard and written via local media channels and websites in the host country, which is highly important for the MNEs' business intelligence and tactical management in the host country, particularly in relation to local political players and local competitors. Moreover, from the MNEs’ perspective, it’s also important to be familiar not only with the formal language but also with the spoken language (slang). Thus, knowing the slang allows understanding of the common meanings of the local language, which is particularly important in business negotiations with local authorities and organisations, as well as in the case that MNEs manage a local workforce in the host country. Although, the international negotiation literature suggests using a professional business language, rather than a local slang (Hurn, 2007), yet breaking the ’ice’ can usually be done via informal tactics. Besides, understanding the non-verbal language (body language) can also help with business communication, such as knowing and respecting the widespread interpersonal space (Sorokowska et al., 2017) and body language in the host country (Hall & Hall, 1990).
Considering the outlined above, a language distance refers to the gap between the language in the home country and the language in the host country in terms of the formal language, informal language (slang), and non-verbal language (body language and interpersonal space. Thereby, a language distance between the home country and the host country discourages FDI and even increases the risk for FDI (Kim et al., 2015; Selmier & Oh, 2012) because of the lack of knowledge of the local language in a host country by the MNE’s staff (Konara & Wei, 2014). Given that, the existence of language distance may even affect the MNEs' decision to enter a new host country for conducting FDI inward (Konara & Wei, 2014). However, the risk for FDI is higher if an MNE is already operated in a host country when a significant language distance exists, because it may lead to negative implications in various topics, resulting in negatively influence on MNEs' performance and even to uncertainty about the survival of the operation in the host country. Notwithstanding, a language barrier is less hinder the MNEs' activities in the case that the English language is more common in use in the host country because the English language is considered as an international business language (Bloch, 1995). Therefore, if the business community in a host country use the English language in daily communications, then it lowest the risk for FDI even if the MNEs don’t familiar with the local language because it allows direct communication between the MNEs' managers and the local employees and suppliers in the host country. Nevertheless, knowledge of the English language does not fully resolve the language barriers in case that don’t exist proper local media in English in the host country, because of the need of MNEs to follow the local news and to conduct business intelligence. Even lack of knowledge of slang, body language, and interpersonal space may lead to competitive disadvantages in negotiations, such as using a strong pat on the back with an English business gentleman or with a Japanese businessman in the Middle East where a strong pat on the back is in common.
Considering the outlined above, a labour force with foreign language skills improves the competitive advantages of MNEs and their ability to engage in international business (Bloch, 1995). Hence, acquiring foreign language skills could be done at the country level and at the firm level, such as integrating the learning of foreign languages in the formal education of a country, especially if a country defines by law a foreign language as a secondary official language in the country (Bloch, 1995) as done by many countries regarding the English language (CIA-Official language, 2019; SIL International-Ethnologue, 2019, 2019a). That’s based on the argument that knowledge of the English language is sufficient for the international business arena (Bloch, 1995), especially in the internet era because the internet platform and social and professional networking are used in the English language. Although, knowledge of other languages that are used by big countries (e.g. Standard Mandarin (China), Japanese, and German) or by large population worldwide (e.g. Spanish and French), may contribute to the MNEs' when they operate in host countries with these spoken languages (Rösler, 1994). Therefore, previous studies show that knowledge of a local language in a host country encourages FDI inward (Ly et al., 2018; Selmier & Oh, 2012) due to the ability of MNEs to maximise the activity in the host country alongside reducing the operating costs and risks (Kim et al., 2015; Selmier & Oh, 2012). Importantly, conducting FDI inward in a host country that speaks the same official language as the home country may maximise the FDI (Feng et al., 2018) in terms of efficiency, profitability, and market share, such as the relocation of call centres from the USA to India due to the availability of English-speaking workers in India.
At the methodology level, the language distance could be examined by two layers: the first layer is the native language in a country yet adding a second layer of the secondary statutory official languages in a country (CIA-Official language, 2019; SIL International-Ethnologue, 2019) may give a better understanding about the language distance between the home country and host country.
3.2 Religion Distance
Religion reflects a set of beliefs in the mighty power of a single god (monotheism) or several gods (monolatrism) that are responsible for the universe (Wach, 2016; Woodhead et al., 2016). A person who believes in a certain religion is required to follow the rules of the religion and to practice the religion in its worships. Thus, religion has a huge impact on the values, attitudes, lifestyle, and consumption habits of its believers (Shyan Fam et al., 2004; Wach, 2016; Woodhead et al., 2016), so religion distance between the home country and host country is supposed to significantly impact the scope and the nature of FDI, as well as the level of risk of FDI in case of a significant religion distance between the home country and the host country.
The theoretical background for the religion distance is based on the distinguished in the literature between the various religions in relation to economic development. In other words, each religion has a different approach to economic development in terms of materialism, consumption, motivation, competitiveness, achievement, and more, which lead to differences between religions in relation to investments, business creation, and how a business should run. Hence, the literature gives emphasis to the relationship between the values of the dominant religion and its influence on the economic development and economic ideology in a country (Dunning & Lundan, 2008). Accordingly, Protestant Christianity puts emphasis on hard work, diligence, saving, education and individualism, which encourage capitalism in Protestant countries (Fanfani, 2002; Weber, 1958). However, Islam offers a more unique model in relation to economic development in a way that it is based on a rigid system of laws with the expectation of avoiding waste, but at the same time, it encourages entrepreneurship and profit-making, yet with generosity, avoiding individual exploitation. and flexible attitude to time, still, with the expectation that individuals will abide by the authorities (Czinkota et al., 2002). Confucianism has also a unique perspective related to academic development. Confucianism puts emphasis on cooperation, loyalty to a group and a high work ethic, which contribute to economic prosperity in countries where Confucianism is widespread, such as Japan, Singapore, and South Korea (Dunning & Lundan, 2008; Hofstede, 2001). However, Hinduism in India puts emphasis on spiritual achievements, rather than on materialism, while Buddhism encourages asceticism and suppression of life passion through strict rules (Czinkota et al., 2002), so both Hinduism and Buddhism may hinder capitalism.
The literature includes a few studies that examined the influence of the religion distance between the home country and host country on international business activity (Helble, 2007; Li, 2008), yet most of these studies showed mixed results (Hergueux, 2011; Helble, 2007), still, it may arise due to a single layer of dominant religion that usually used in these studies. Hence, at the methodology level, religion distance could be examined via a single layer of the dominant religion (e.g. Christianity, Islam, and Judaism), but adding an additional layer that takes into account the sub-religion groups of each religion (e.g. Christianity Catholic vs. Christianity Protestant or Islam Sunni vs. Islam Shia or Conservative Judaism vs. Reform Judaism), may accurate the impact direction of the results, with the aim of getting a better understanding about the impact of the religion distance on FDI. That’s based on the idea that exists significant differences between the sub-religion groups of each religion, such as the big differences between Christianity Catholic and Christianity Protestant (Czinkota et al., 2002; Fanfani, 2002; Weber, 1958) or between Islam Sunni and Islam Shia (Behuria, 2004; Finnbogason et al., 2019; Moore, 2015; Rogerson, 2010; Wehrey, 2017). Even in the Jewish religion exists sub-religion groups – Orthodox, Conservative and Reform - with big differences between them. For example, in Israel, the Jewish population includes 6.9 million (DellaPergola, 2020), yet the main branch is Conservative Judaism, while in the USA, the Jewish population includes approximately the same, 6.7 million (Sheskin & Dashefsky, 2020), yet the main branch is Reform Judaism (Ausubel et al., 2021), so exists a significant religion distance between them, such as the attitude to non-kosher food. In the USA, around 70% of the Jewish population eats non-kosher food (Gross, 2018), while in Israel, there are rigid restrictions on non-kosher food (Barak-Erez, 2007; Ben-Dov et al., 2018; Heiman et al., 2019; Israeli Knesset, 2021; Rosen-Zvi, 2018; Times of Israel, 2019), such as the case of the Israeli soldier that makes Aliya to Israel from the USA, yet was sentenced to military jail of 11 days for eating a non-kosher sandwich (Newsweek, 2015), which highlights the religion distance between the sub-groups of Judaism, especially the religion distance between the Reform Judaism and Conservative Judaism, and the religion distance between the Jews in the USA and the Jews in Israel, in particular. Hence, adding the layer of the sub-religion groups is based on the rationale that exists significant differences between the sub-religion groups of a certain religion. Given that, greater differences between the sub-religion groups of a certain religion, especially if it refers to the dominant religion, should include the two layers of religion distance namely, the main religion and its sub-religion groups for more reliable results of the religion distance.
3.3 Cultural Openness versus Ethnocentrism
Cultural openness in a country reflects the experience, readiness, open-mindedness, and tolerance in the country for creating relationships with foreign cultures (Altintas & Tokol, 2007; Sharma et al., 1995). Thus, the existence of cultural openness in a host country reduces risks, uncertainty, and management complication due to cultural differences. In contrast, ethnocentrism refers to a lack of cultural openness (LeVine & Campbell, 1972) that reflects a low level of tolerance to foreign cultures (Shimp & Sharma, 1987). Ethnocentrism leads to conflicts with foreign cultures and intolerance to foreign persons, foreign companies (LeVine & Campbell, 1972) and foreign products (Altintas & Tokol, 2007; Balabanis & Diamantopoulos, 2004; He & Wang, 2015) that operate and market in the country. Ethnocentrism increases the risk of FDI in terms of the cost of entry into foreign markets, reducing the operation's profit, hindrances the daily operations, and hindering the ability to transfer management responsibilities from the MNEs' headquarter to the affiliations in host countries (Altintas & Tokol, 2007; Palich & Gomez-Mejia, 1999; Shimp & Sharma, 1987).
However, it’s important to distinguish between the measure of distance in national cultural values (e.g. Hofstede and Globe) and the measure of cultural openness versus ethnocentrism. The measure of distance in national cultural values refers to the attitude degree that exists in a certain society towards social issues (e.g. hierarchy-PDI, Individualism-IDV, feminism-MAS, and trust-UAI), while the measure of cultural openness versus ethnocentrism refers to the ability of a society to be open to cultural values and products of another society that differ from its cultural values and products. In other words, the focus in measuring distance in cultural values is on comparing the attitude degree towards social issues, while the focus in measuring cultural openness versus ethnocentrism is on comparing the loyalty degree to the national culture (ethnocentrism), or vice versa, the openness level of a certain society to foreign cultures.
Considering the outlined above, the same gap in the attitude degree to a certain cultural value could lead to a different level of openness, depending on the loyalty of the society to its culture (ethnocentrism). Hence, here are three examples to illustrate the difference between the measure of distance in national cultural values (e.g. Hofstede and Globe) versus the measure of cultural openness versus ethnocentrism, as follow:
The first example refers to how feminist cultures are opened to Masculinist cultures, such as how two feminist EU countries like Sweden and France are opened to Muslim cultures and to one of the most icons of Muslim women, the hijab, in particular. Thereby, according to the measure of distance in cultural values like MAS index of Hofstede, both countries Sweden and France have relatively low MAS compared to other countries with high MAS like Japan, while according to the measure of cultural openness versus ethnocentrism, both feminist countries Sweden and France (Low MAS) have a different level of openness to Muslim cultures (High MAS) due to different level of loyalty (ethnocentrism) to their culture. Given that, in Sweden, Muslim women could wear hijab (Bergman, 2020) and even Swedish MP in the Swedish Parliament, while France forbids it (Al Jazeera, 2021; Hamdan, 2007; Syed, 2013). This example also applies to other Feminist countries in which some of them allow wearing hijab, while others do not. However, it’s important to keep in mind that there is a difference between a ban on burka and a ban on hijab. The burka covers the whole face, while the hijab covers only the hair while the face is visible. Thus, a ban on Burka imposes in many countries due to security reasons (Saiya & Manchanda, 2020), while a ban on hijab is not related to security reasons because the hijab does not cover the face like the Jewish woman's head covering (Levine, 1995; Weiss, 2009), yet no country worldwide impose a ban on Jewish women head covering, perhaps due to the collective memory of the Holocaust that softer the stand toward Jews worldwide (Cesarani, 2013). Still, we may assume that if the Holocaust did not happen, then it likely that ethnocentric countries were also imposed a ban on Jewish women's head covering because women's head covering in general (Levine, 1995) reflects ‘far culture’ compared to ‘our culture’. Nevertheless, there is also a criticism regarding the burka ban on the ground that it reflects Islamophobia (Allen, 2016; Najib & Teeple Hopkins, 2020; Sayyid, 2014) over security reasons with negative implications to Muslim tourism in Europe, such as in Switzerland (Mingyu, 2019; Swissinfo.ch., 2013). Perhaps this criticism is based on the very low rate of terror acts that were carried out by terrorists with a burka, either men or women, especially in Europe, and despite it, many European countries impose a ban on burka, still, face recognition technology (Bowyer, 2004) may impact the decision about a ban on burka, rather Islamophobia.
The second example refers to the level of the cultural openness of Muslim countries like Saudi-Arabia and Iran to non-Muslim cultures within their countries, so in this example ‘we Muslims’ vs. ‘them non-Muslims’. Paradoxically, despite that Iran is an Islamic religious regime, while Saudi Arabia is an absolute monarchy (Wynbrandt, 2010), yet Saudi Arabia is a significantly more ethnocentric culture compared to Iran. In Saudi Arabia, there are unprecedented restrictions against non-Islam products and practising, such as the death penalty for smuggling and possessing of non-Islam bible books (Smith, 2014) or the forbidden of non-Islam worships including practising in them (USCIRF, 2017). However, In Iran, there are no limitations against non-Islam products and practising, and the Iranian government even reserves seats in the Iranian parliament for recognized religious minorities, such as Christianity, Judaism, and the Sunni branch (Brock & Levers, 2007). Besides, in Saudi Arabia, Christian foreign workers cannot apply for permanent residence permits nor for citizenship, while Iran has non-Muslim citizens (CIA, 2021). Hence, in Iran exists openness to non-Muslim cultures under the general framework of the regime, while in Saudi Arabia exists ‘we Muslims’ without any openness to ‘them non-Muslims’.
The third example refers to the level of the cultural openness of the Jewish State of Israel to non-Jewish cultures within Israel, so in this example ‘we Jewish’ vs. ‘them non-Jewish’, yet keep in mind that in the case of Israel, ‘them’ refers not only to foreign cultures but also to Israeli non-Jewish citizens, because Israel has 26% non-Jewish Israeli population (Times of Israel, 2020) (not include Palestine) that must live in general under the Jewish rules namely, ‘we Israeli Jewish citizens’ vs. ‘them Israeli non-Jewish citizens and non-Jewish foreign cultures’. Given that, in Israel exists a very low level of openness to Israeli non-Jewish citizens, non-Jewish foreign cultures and Reform Judaism that reflect in various severe restrictions. Firstly, exist rigid restrictions regarding non-kosher products, especially regarding pig products (Barak-Erez, 2007; Rosen-Zvi, 2018), such as the restriction of pig farming that allows pig farming only in the Christian region in the North of Israel alongside with additional single strict region in the South of Israel (Ben-Dov et al., 2018; Israeli Knesset, 2021). That’s regardless of the import ban de-facto on pig products because the new order that was signed by the Netanyahu administration allows import of pig products if they have a Kosher certificate, which makes the rule impossible and even ridicules because pig products can never get Kosher certificate (Times of Israel, 2019). Besides, pig products are not selling in regular chain supermarkets in Israel, because if a supermarket will sell non-kosher products like pig products, then it won’t get the Kosher certificate, so rare Israeli chain supermarkets operate without the Kosher certificate, resulting de-facto in a ban on selling pig products in Israeli supermarkets (Heiman et al., 2019). Secondly, exist significant restrictions on public transportation in Shabbat Jewish holidays that impact the country in general (Arutz Sheva, 2017), such as the lack of public transportation (e.g. train and buses) in Israeli airports during the Shabbat and Jewish holidays. Thirdly, in various areas in Israel, existing restrictions in operating stores and gas stations during the Shabbat (Lis, 2018; Times of Israel, 2018), as well as restrictions in driving near synagogues or entry to Jewish villages during the Shabbat. Nevertheless, paradoxically, in Israel, ‘them’ includes not only ‘non-Jewish’ but also the Reform Judaism (Cohen-Almagor, 2017; Helfand, 2019), so ‘we’ refer to Conservative Judaism and Orthodox Judaism vs. ‘them’ that refer to non-Jewish and Reform Judaism, such as the ongoing conflict in Israel with the Reform Judaism branch (Cohen-Almagor, 2017; Helfand, 2019), especially the conflict with ‘The women of the Wall’ about the way of praying in the ‘Western Wall’ in Jerusalem, which includes dozens of arrests and detains of praying women over the years even after the decision of the Israeli court that gives the right for pluralism in the ‘Western Wall’ (Women of the Wall, 2021). Considering the above, on the one hand, Israel is a modern capitalist country, but on the other, it functions de-facto as an ethnocentric culture towards non-Jewish cultures and even towards the Reform Judaism branch that mainly refers to the majority of the Jewish population in the USA (Ausubel et al., 2021).
The fourth example refers to the level of cultural openness to a foreign product that could be seen as an alternative to a ‘national product’ that is regularly used by the people in a country for a long time. Note, the ‘national product’ is not necessarily related to religion but to tradition or norms in a country. Given that, from the viewpoint of MNEs, the level of ethnocentrism in a country allows knowing if a host country has the ability to adopt a product that is perceived as a ‘foreign’ (Altintas & Tokol, 2007; Balabanis & Diamantopoulos, 2004). Thus, in this case, the National Product’ is perceived as ‘our product’ vs. ‘their product’. In other words, the level of ethnocentrism in a country allows predicting what is the prospect to successfully introduce a product that is perceived as a "foreign" in the host country (He & Wang, 2015), such as introducing the cornflakes-the traditional American breakfast (Burrows, 2018) as an alternative for breakfast in Europe (PRNewswire, 2020). However, the success of entry of the cornflakes/cereal as an alternative breakfast to the ‘National Breakfast’ in European countries (Moritz, 2011), depends on the level of loyalty (ethnocentrism) to the ‘National Breakfast’, such as the level of loyalty in France to French products in general, and to the French National Breakfast-the Croissant, in particular. Therefore, the level of ethnocentrism in a country will determine the success of entry of alternative products that are supposed to replace the national products.
Considering the outlined above, the measure of cultural openness vs. ethnocentrism reflects the gaps between the 'national' (we) and the 'foreign' (them) in relation to various aspects (Templer, 2010). Therefore, high ethnocentrism is associated with greater loyalty to the national culture in terms of the native language, national products, tradition, national values, and norms as in the case of France (Javalgi et al., 2005), resulting in discouraging FDI and international trade, while low ethnocentrism is associated with greater disloyalty to the national culture, resulting in encouraging FDI and international trade. Considering that, from the viewpoint of MNEs, ethnocentrism in a host country negatively affects the volume of FDI inward (Shankarmahesh, 2006; Wang et al., 2012) because it increases the firm costs, reduces profitability, and hinder the transferring of the MNE’s organisational culture to their affiliations in host countries (Altintas & Tokol, 2007; Palich & Gomez-Mejia, 1999; Shimp & Sharma, 1987). Firstly, an ethnocentric market is problematic for entry of 'foreign products' (Altintas & Tokol, 2007) because it is perceived in the host country as an act that damages the national economy and increases unemployment (Shimp & Sharma, 1987) while buying local products is perceived as a positive act (Balabanis & Diamantopoulos, 2004). Thus, paradoxically, loyalty to national products discourages FDI and international trade, while disloyalty to national products encourages FDI and international trade. Given that, from the viewpoint of governments, exists a trade-off in the case of disloyalty to a national culture that encourage FDI and international trade, because it negatively impacts the consumption of the national products. Therefore, some governments adopt a public policy that encourages buying local products over foreign products by giving priority to domestic companies in governmental tenders (Shankarmahesh, 2006), such as the latest move of the USA President Biden that put in place an executive order that instructs federal government agencies to buy only ‘Made America’ over foreign products (White House, 2021). Secondly, ethnocentrism may create conflicts between the headquarter in the home country and its branches in host countries, which may challenge the MNEs' management (Cooke, 2001; Dunning & Lundan, 2008; Luo & Peng, 1999), especially when the headquarter is usually relocated its managers to its affiliations in the host countries. Thirdly, ethnocentrism in a host country could lead to conflicts between MNEs and the local players in the host country, such as local governmental authorities, local firms, local suppliers, and the local workforce. Fourthly, ethnocentrism in a host country increases the MNEs' costs because of the need to make marketing adjustments to the desires of local consumers, as well as operation adjustments to the local culture. MNEs also need to invest considerable resources in transferring the home organisational culture to their sites in host countries.
At the methodology level, the measure of cultural openness vs. ethnocentrism in a country can be examined through a variety of universal indicators that could compare different societies from around the globe. In other words, the focus here is not to compare a certain cultural value between different societies, such as the individualism (IDV) of Hofstede, but to compare a universal indicator that reflects cultural openness to other cultures, such as the English language, yet this indicator fits non-native English societies. More specifically, the English language has become an ‘International language’ because of the internet, social networking, and even academic journals that most of them are published research papers only in English. Hence, if a non-native English country defines the English language as a secondary official language in a country (CIA-Official language, 2019; SIL International-Ethnologue, 2019), then it may indicate that exists a cultural openness to foreign cultures because of the willingness to communicate with foreign cultures via ‘International Language’. In other words, in a country where the English language is not a native language, yet the government decides to adopt English as a secondary official language, then it may indicate that the country is open to foreign cultures (Rozen-Bakher, 2011). However, this indicator is not relevant for countries whose native language is English, such as USA and UK, still, it could be fit for EU countries in which none of them English is a native language.
4. Conclusions
The international business literature deals extensively with the impact of the national culture differences on MNEs' activities, mainly based on the distance in national cultural values (e.g Hofstede and Globe), yet without success to generalise if the national cultural distance positively influences FDI and its entry modes, or vice versa, if it leads to a negative impact or even without any significant effect. Hence, this study raises the question of whether the measure of the distance in national cultural values per se may lead to mixed results regarding the impact of the national culture differences on MNEs’ activities.
Considering the above, this study explores three alternative measures to distance in national cultural values namely, language distance, religion distance, and cultural openness versus ethnocentrism. The alternatives of the language distance and religion distance focus on two important cultural aspects in society, while the alternative of cultural openness is based on the distinction between cultural values and cultural openness. The study investigates these three alternatives both at the theoretical level and at the methodological level.
The analysis of the suggested alternatives - language distance, religion distance, and cultural openness versus ethnocentrism - bring to light the originality and novelty of this study. The study suggests that the language distance could provide a limited alternative for measuring national culture differences, yet using two layers of analysis namely, the native language and the secondary languages may give a better understanding of the impact of the language distance on FDI. In other words, the language distance could be examined by the statutory official languages in a country, still, taking into account the secondary official languages that exist in the country, may give a better interpretation for the measuring of the language distance between the home country and host country.
The study also indicates that the religion distance could provide a reasonable alternative for measuring national culture differences because religion has an important role in shaping the cultural identity of a society. Still, the study suggests that the religion distance should be examined via two layers of analysis namely, the layer of the dominant religion (e.g. Christianity, Islam and Judaism) alongside the layer of the sub-religion groups of each religion (e.g. Christianity Catholic vs. Christianity Protestant or Islam Sunni vs. Islam Shia or Conservative Judaism vs. Reform Judaism), which may accurate the impact direction of the religion distance, with the aim of getting a better understanding about the impact of the religion distance on FDI.
However, the study concludes that the most promising alternative to distance in national cultural values is the measure of cultural openness vs. ethnocentrism. The study indicates that there is a significant difference between measuring the distance in national cultural values (e.g. Hofstede and Globe) and measuring the cultural openness vs. ethnocentrism. The measure of distance in national cultural values refers to the attitude degree that exists in a certain society towards social issues (e.g. Individualism-IDV, feminism-MAS), while the measure of cultural openness versus ethnocentrism refers to the ability of a society to be open to a foreign culture that differs from its national culture. In other words, in the measure of distance in cultural values, the focus is on comparing the attitude degree towards social issues, while in the measure of the cultural openness versus ethnocentrism, the focus is on comparing the loyalty degree to the national culture (ethnocentrism). Thus, the same gap in the attitude degree to a certain cultural value could lead to a different level of openness, depending on the loyalty of the society to its culture (ethnocentrism). Although, at the methodology level, the study highlights the need of using universal indicators to compare the cultural openness vs. ethnocentrism among different societies from around the globe, such as using the indicator of a secondary English statutory language in non-native English countries because it signals the willingness to communicate with foreign cultures via ‘International language’. Even though, the study highlights the need to develop a framework that will include a set of universal indicators that will measure the cultural openness vs. ethnocentrism between the home country and host country in relation to FDI.
Finally, more future empirical studies are needed to clear the fog of the unresolved risk of FDI due to national cultural distance by using the alternatives suggested in this study, especially the measure of the religion distance, and the measure of cultural openness vs. ethnocentrism, in particular.
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