The Concept of Distance in International Business Research: A Review and Research Agenda

• DOI: http://doi.org/10.1111/ijmr.12065
• Author: Ingo Kleindienst,Sandra Lange,Thomas Hutzschenreuter
• Published date: 01 April 2016
• Date: 01 April 2016

International Journal of Management Reviews, Vol. 18, 160–179 (2016)

DOI: 10.1111/ijmr.12065

The Concept of Distance in International

Business Research: A Review and

Research Agenda

Thomas Hutzschenreuter, Ingo Kleindienst1and Sandra Lange

WHU – Otto Beisheim School of Management, Burgplatz 2, 56179 Vallendar,Ger many, and 1Aarhus University,

Department of Business Administration, Strategy & Organizational Behaviour, Bartholins All´

e 10, 8000

Aarhus C, Denmark

Corresponding author email: th@whu.edu

This paper reviews the literature on the effects of distance arising fromcountry differ-

ences on outcomes at the firm and subsidiary level. It providessome clarity on what has

been learned so far about distance by answering fourquestions: Which distance? Why

does distance matter? What outcomes are affected by distance? and What aggravates

or alleviates the effects of distance? Based on the reviewof the literature, a set of future

research suggestions are developed, intended to direct attention to research questions

that the authors believe areamong the most pressing questions in distance research and

that may havethe potential to advance the field substantially.

Introduction

Have researchers conducting distance-related re-

search lost direction? There is no doubt that distance-

related research is one of the most important streams

within international business (IB) (Zaheer et al.

2012). As such, the concept of distance is certainly

among those that dictate the priorities and concerns,

and the theoretical advancement of the field. How-

ever, some scholars have argued that we are on the

wrong track (Shenkar 2012; Zaheer et al. 2012).

In the IB context, distance typically refers to the

extent of differences between country pairs. The un-

derlying assumption of distance-related research is

that these differences prevent or disturb the flows of

information between the firm and the market (Johan-

son and Wiedersheim-Paul 1975, p. 308). As such,

distance introduces friction (Shenkar et al. 2008)

The authors would like to thank IJMR Co-Editor-in-Chief

Caroline Gatrell as well as IJMR Associate Editor Dr.

Thomas Baker for their extremely valuable and constructive

comments as well as for their excellent guidance throughout

this article’s review process. The authors are also grateful

for very useful comments and suggestions received from the

three anonymous reviewers.

and complexity (Vermeulen and Barkema 2002) to

cross-border activities, increasing the challenges of

achieving and sustaining successful cross-border ac-

tivities. Indeed, the IB literature has investigated and

uncovered distinct effects of distance on a variety

of IB-related issues such as firms’ market selection,

firms’ entry mode choice decisions, international per-

formance, headquarter–subsidiary relations, or intra-

organizational knowledge exchange (Kirkman et al.

2006; Tihanyi et al. 2005).

Given that the concept of distance is of paramount

importance in IB, and in light of concern over the

state of distance-related research, it is striking that

there is no in-depth survey of that body of research.

We address this shortcoming with a review of the

work that has been done. While reviews dedicated

to a single dimension of distance, such as cultural

distance, or meta-analysis focusing on a limited set

of much researched relationships do exist (e.g. Kirk-

man et al. 2006; Tihanyi et al. 2005), the intended

contribution of this review is the holistic approach

to distance, which pursues two main goals: First, to

present a systematic evaluation of literature of var-

ious dimensions of distance and, second, to provide

an agenda for future research that is based on that

broader understanding of distance.

C2015 British Academy of Management and John Wiley & Sons Ltd. Publishedby John Wiley & Sons Ltd, 9600 Garsington

Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA

Review of Distance 161

The remainder of the paper is organized as follows.

In the next section, we define the domain of this re-

view and describe the approach we take to identify

the relevant literature. In the following sections, we

review past distance-related research by addressing

four crucial questions, namely: (1) Which distance?

(2) Why does distance matter? (3) What outcomes

are affected by distance? and (4) What aggravates or

alleviates the effect of distance? Finally, we provide

an agenda for future research based on what we be-

lieve to be the most pressing issues in distance-related

research.

Domain of the review and methodology

The domain of this review is research exploring the

effects of distance arising from country differences

on outcomes at firm and subsidiary level. We limited

this review to articles published in 23 top-tier peer-

reviewed academic journals (Podsakoff et al. 2005;

Tahai and Meyer 1999), as the work that appears in

them represents validated knowledgeand has the most

impact. Table 1 lists the journals and indicates the

respective number of articles in the final sample.

Our computerized keyword search in article ab-

stracts and titles using the Business Source Com-

plete Database encompassed the period between 1977

and December 2014. We chose 1977 as Johnson and

Vahlne’s (1977) seminal article published that year

essentially broke ground for distance-related IB re-

search (Child et al. 2009).

This search yielded 996 potentially relevant arti-

cles. In the first round, we read the abstracts and

eliminated 661 articles that did not fall within the

above-defined domain. These were articles that deal,

for instance, with distance between individuals or

within a group of individuals. In the second round,

we examined the theory and method sections of the

remaining 335 articles to make sure that these articles

fall into the domain of this review. This inspection led

us to eliminate another 119 articles. The final sample

consists of 216 articles, made up of 160 large-scale

quantitative studies, 25 qualitative ones, and 31 that

advance theory. We provide more detailed informa-

tion on the sample in the Supporting Information.

Which distance?

Given four decades of distance-related research one

would expect a consensus on the conceptualiza-

tion of distance would have been reached. And yet,

there is still ambiguity (Ambos and H˚

akanson 2014;

H˚

akanson and Ambos 2010; Sousa and Bradley

2008). In fact, there is especially a lack of clarity

with regard to a) the dimensions of distance and b)

the measurement of distance.

Dimensions of distance

Building on the work of Johanson and Vahlne (1977),

Ghemawat (2001) reasoned that distance may origi-

nate from differences along cultural, administrative,

geographic and economic dimensions. Others have

taken a less holistic perspective, focusing on only

one specific dimension, most commonly on culture

(Hutzschenreuter and Voll 2008). However, persua-

sive critique by Shenkar (2001) and the lack of con-

sensus concerning the use of intrinsic characteristics

to proxy specific cultural distance dimensions (Hofst-

ede 2006, 2010; Tung and Verbeke 2010) undermine

the exclusive focus on cultural distance.

We reviewed the literature using Ghemawat’s

(2001) framework to get a more holistic view on how

the concept of distance was used in prior studies.

However, it is important to note at this point that

prior studies are not easily put into these four cate-

gories. While the majority of articles focus on cultural

distance, the bulk of the remaining articles analyzes

several dimensions of distance, mostly under the um-

brella term psychic distance. Thus, in the following

we group the articles along the following six distance

dimension, namely cultural, institutional, geographic,

economic, psychic and other distances.

Cultural distance. The four cultural attributes pro-

posed by Hofstede (1980) are used predominantly

in the literature (Sivakumar and Nakata 2001; Tung

and Verbeke2010), although different conceptualiza-

tions of culture are available (e.g. House et al. 2004;

Schwartz 1994) and some, such as the GLOBE project

provide a current, thus arguably a more accurate or

refined approach to proxy culture (e.g. Hofstede and

Bond 1988; Tang and Koveos 2008).

Notwithstanding the critique by Shenkar (2001),

most authors employ the Kogut and Singh (KS)

(1988) index to transform Hofstede’s four cultural

values into cultural scores and to determine cultural

distance. Zaheer et al. (2012, p. 19) even point to an

increasing number of citations of the KS article and

see that as an indication of the continued application

of the KS index. They speculate that ‘while this evi-

dence may simply indicate that the warning has gone

C2015 British Academy of Management and John Wiley & Sons Ltd.