How Cultural Distance Affects The Formation Of Strategic Alliance

Strategic alliances are a series of contractual arrangements between organizations for voluntary pursuit of common goals(Gulati & Gargiulo,1999);and a governance model to external disadvantages and numerous uncertainties when companies are internationalizing their operations.The cultural differences between multinational corporations and host countries will exacerbate this uncertainty and thus influence the formulation of their strategic decisions.Although previous studies have proved that cultural distance is an important factor in the decision-making of international business operations,there are still some divergence on how cultural distance affects the formation of strategic alliances.One type of research focuses on the lack of knowlege about institution,markets,and cultural in the host country,emphasizing the urgent need for companies to reduce the liability of foreignness and uncertainty,resulting in the higher demand for build strategic alliances in host country.Such as Kogut & Singh(1988);the results show that the greater the cultural distance,the more likely enterprises are to form strategic alliances;the core idea of such research is that cultural distance will stimulate the demand of strategic alliances.Another type of research emphasizes that cultural distance is a potential obstacle,making communication coordination between potential cooperative enterprises more difficult,and leading to increased mistrust between the two parties,thus hindering the formation of strategic alliances,for example(Dai &Nahata,2015;Liu & Maula,2016);the results show that the greater the cultural distance,the less likely it is for companies to form strategic alliances;the core idea of such research is that cultural distances will increase the difficulty of forming strategic alliances.Reduce the feasibility of strategic alliances.Although Kogut & Singh's(1988)study first implies a dual mechanism of cultural distance for alliance formation.However,its research emphasizes in essence that cultural distance leads to an increase in the demand for strategic alliances.Liu & Maula(2016)also noted the demand and feasibility mechanisms formed by the alliance,whose research focused on the impact of uncertainty on the viability of corporate alliances.Therefore,although previous studies have noted the different mechanisms of cultural distance for alliance formation,existing research has not yet established a complete integration framework to explore how cultural distance affects corporate strategic alliance decision-making.Therefore,in order to further clarify how cultural distance affects the formation of corporate strategic alliance,this paper studies the influence of cultural distance on the formation of strategic alliances of multinational enterprises in China based on the transaction cost theory and the perspective of the feasibility and demand of strategic alliances.Some contingency factors were examined.First,we explored the cultural diversity of the home country or region of the enterprise and the impact of China's regional marketization level on the two mechanisms.Second,we identified the social embedding of companies in the host country as another important contingency factor.Furthermore,we examined the impact of corporate social reputation.Through detailed theoretical deductions,relevant assumptions are proposed.In order to test the relevant hypotheses proposed in this paper,this study uses Chinese venture capital investment as an empirical research context.Through detailed data analysis,the paper draws the following conclusions:First of all,our research finds that there is an inverted U-shaped relationship between cultural distance and strategic alliance formation.Cultural distance will affect the formation of strategic alliance through the opposite mechanism of feasibility and demand.In essence,when the cultural distance is at an intermediate level,it is most likely that companies will form strategic alliances.On this basis,further indicating this inverted U-shaped relationship has some boundary conditions.Further,we examined the contingency factors such as the cultural diversity of the home country,the level of regional marketization,the social embedding of the host country,and the reputation of the company,thus deepening the understanding of the internal mechanism between cultural distance and alliance formation.The greater the cultural diversity of the home country of the enterprise,the greater the risk of these uncertainties,which will increase the demand for strategic alliances and reduce the feasibility.Market openness is the direct manifestation of the level of institutional development,the higher the degree of openness;the more transparent information acquisition;thus reducing the demand for strategic alliances caused by uncertainty and weakening the feasibility of strategic alliances caused by uncertainty.The study of cultural distance in international business generally regards cultural distance as the main source of risk and uncertainty of international business,and raises the liabilities of foreigners;however,when the social embedding and social reputation of the company in the host country is high,The attributes of the outsiders will give the company an advantage;it will also help attract existing companies in the host country to cooperate with them.The more central the enterprise is in the network,the better the information about investment opportunities(Sorenson & Stuart,2008).Interactions between individuals lead to cooperation between individuals.Interactions deepen mutual understanding,trust,and commitment between individuals.In addition to direct contact,corporate social reputation can also increase the likelihood of cooperation and unleash a signal of trustworthiness.However,the insignificant data indicates that the impact of corporate social reputation on alliance formation needs further exploration.In summary,our research provides an intrinsic mechanism for the study of cultural distance influence alliance decisions.The inverted U-curve relationship proves the existence of both feasibility and demand mechanism.Overall,this study reveals the dual mechanisms of cultural distance in understanding corporate strategic decisions.Its research conclusions enrich our understanding of cultural distance and alliance formation,and at the same time contribute to the international management of enterprises.Based on the above research conclusions,the research in this paper has important management significance for enterprises in emerging economies in the future when they conduct international operations.Moreover,this paper also discusses the contingency factors affecting the formation of strategic alliances,which can be of great guiding significance for enterprises that go to the international market to obtain better alliance performance.