AN ALTERNATIVE OPERATIONALISATION OF CULTURAL DISTANCE

AN ALTERNATIVE OPERATIONALISATION OF CULTURAL DISTANCE
Jody Evans
Manchester Metropolitan University Business School
Felix Mavondo
Monash University
Abstract
We develop a measure of cultural distance on the basis of Hofstede’s dimensions of national
culture with appropriate modifications in wording to reflect the organisational study settings. The
method of calculating cultural distance suggested by Kogut and Singh (1988) results in an index
relative to the USA. We believe that most respondents do not benchmark cultural distance on the
USA but on their specific countries. Moreover, the Kogut and Singh (1988) index results in an
objective measure of cultural distance, which is based on work-related values. The index is not
intuitively meaningful and rather difficult to interpret. To overcome these limitations, we develop
a measure that is based on subjective perceptions of differences in general national cultural values
between foreign countries and a respondent’s home country. This measure is easy to interpret and
compute. We test it against the Kogut and Singh (1988) measure and find the correlation to be
.957. It is concluded that this measure is reliable, robust and has acceptable psychometric
properties.
Introduction
Cultural distance has received a great deal of attention in the international business literature
(Barkema et al., 1996; Kogut and Singh, 1988; Li and Guisinger, 1991; Morosini, 1994; O'Grady
and Lane, 1996). It has been identified as a key factor in explaining foreign market attractiveness,
expansion patterns, the degree of adaptation of marketing and retailing strategies, modes of entry
and organisational performance (Evans, 2000). Most of this research is based on Hofstede’s
(1983; 1991) dimensions of national culture and has adopted Kogut and Singh’s (1988) index of
cultural distance. It is argued in this paper that Hofstede’s measures and Kogut and Singh’s
(1988) index are somewhat limited and, as such, an alternative operationalisation of cultural
distance is suggested.
Theoretical Foundation
Hofstede’s (1980; 1983; 1991) study remains the most eminent piece of cross-cultural research.
Despite the fact that a number of other researchers have also investigated the phenomenon,
Hofstede is the most widely cited author in the field (Sondergaard, 1994; Yoo and Donthu, 1998).
Hofstede’s (1980; 1983; 1991) empirical framework of national culture is based on a survey of
117,000 IBM employees across 50 countries and 3 multi-country regions. The data was collected
using a self-completed questionnaire at two points in time between 1968 and 1972. The
questionnaire focused on work-related values using 32 items to measure the importance of

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various work goals. Using ecological factor analysis; that is, factor analysis of country mean
scores, three factors were identified which explained 49 percent of the total variance. However,
one dimension that incorporated power distance and individualism was separated into two distinct
factors on theoretical grounds. While this initial factor analysis was based on 40 countries only,
the addition of ten more countries and three regions did not significantly change the dimensions
(Hofstede, 1983).
Definitions of Hofstede’s (1991) cultural dimensions
Power distance: “the extent to which the less powerful members of institutions and
organizations within a country expect and accept that power is distributed unequally” (p.28).
Uncertainty avoidance: “the extent to which the members of a culture feel threatened by
uncertain or unknown situations” (p.113)
Individualism versus collectivism : ranges from “societies in which the ties between
individuals are loose” to “societies in which people from birth onwards are integrated into strong,
cohesive in-groups” (p.51).
Masculinity versus femininity: ranges from “societies in which social gender roles are
clearly distinct” to “societies in which social gender roles overlap” (p.82).
Confucian dynamism: ranges from long-term orientation to short-term orientation (p166).
Critique of Hofstede’s framework
The empirical validity of Hofstede’s framework has been extensively critiqued in the cross-
cultural literature (Shackleton and Ali, 1990; Sondergaard, 1994; Triandis, 1982; Yoo and
Donthu, 1998). The generalisability of the research findings has been questioned because the
sample is drawn from one large multinational company alone (Triandis, 1982; Yoo and Donthu,
1998). It has been argued that country differences may be confounded by the homogenising
influence of a dominant corporate culture that traverses national boundaries (Shackleton and Ali,
1990; Schwartz, 1994b). In addition, it has been suggested that the dimensions of national culture
identified by Hofstede may be a product of the period of the study (Yoo and Donthu, 1998).
Despite these concerns, Hofstede’s model is generally accepted as the most comprehensive
framework of national cultural values (Kogut and Singh, 1988; Sondergaard, 1994; Yoo and
Donthu, 1998). It has high external validity and has significant correlations with economic, social
and geographic indicators (Kogut and Singh, 1988). Furthermore, Hofstede’s dimensions of
national culture have been found to be valid, reliable and stable over time (Bond, 1988; Chinese
Culture Connection, 1987; Kogut and Singh, 1988; Yoo and Donthu, 1998).
Cultural distance
Kogut and Singh (1988) developed a composite index of cultural distance based on the deviation
along the first four dimensions of Hofstede’s (1980) framework. The index is represented
algebraically as:
4
CD =
{(I
∑
− I )2 /V }/ 4
j
ij
iu
i
I 1
−

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where CDj is the cultural differences of the jth country from the United States, Iij represents the
index of the ith cultural dimension and the jth country, u stands for the United States and Vi is the
variance of the index of the ith dimension.
Many studies have subsequently used the Kogut and Singh (1988) formula, or an adapted version,
as a measure of cultural distance (Agarwal, 1994; Barkema et al., 1996; Benito and Gripsrud,
1992; Fletcher and Bohn, 1998; Gomez-Mejia and Palich, 1997; Kale, 1991; Morosini et al.,
1998; Padmanabhan and Cho, 1996). Morosini et al. (1988) identify two main advantages of
using the composite index. First, it is argued that by using the existing country scores the problem
of common method variance will be avoided. Second, the composite index overcomes the
problem of retrospective evaluation. It is evident, therefore, that the composite index is a useful
and effective indicator of cultural distance.
The index does, however, have a number of limitations. First, the studies that have used the index
assume that the scores obtained for each country in the period between 1968 and 1972 remain the
same today. While national culture is a relatively stable phenomena and Hofstede’s dimensions
have been found to be stable over time, nearly 30 years of socio-political change is likely to have
had some effect on the culture of many nations. It has been argued that factors such as the
homogenising influence of information technologies, international tourism, combined with better
educated and informed managers have all led to a gradual narrowing of perceived cultural
differences (see also Yoo and Donthu, 1998). Second, the method of calculating cultural distance
suggested by Kogut and Singh (1988) results in an index relative to the USA. We believe that
most people do not benchmark cultural distance on the USA and contend that a more accurate
measure of cultural distance would be based on differences between an individual’s home country
and a foreign country.
Third, the Kogut and Singh (1988) index results in an objective measure of cultural distance,
which is based on work-related values. It is more likely that differences between countries stem
from individuals’ perceptions of a foreign country’s general values and attitudes. This focus on
the individual’s perceptions is also seen as a key dimension of the psychic distance construct,
which is often treated as synonymous with cultural distance. Psychic distance is defined as “the
distance between the home market and a foreign market resulting from the perception and
understanding of cultural and business differences” (Evans et al., 2000, p.377). It is proposed that
it is not the simple presence of environmental factors, which determines the degree of distance
between two countries. Rather, it is the individual’s perception and understanding of the
differences between the individual’s country and a foreign country that forms the basis of cultural
distance (Evans et al., 2000; O’Grady and Lane, 1996; Vahlne and Wiedersheim-Paul, 1977).
Finally, the index is not intuitively meaningful since the lower and upper limits are not easy to
establish. These values not only depend on differences in indices but also on the variance of the
indices. To overcome these limitations we propose an alternative measure of cultural distance
based on individuals’ perceptions of differences between countries across Hofstede’s five
dimensions of national culture. Cultural distance is conceptualised and operationalised as a
multidimensional second-order construct (Edwards 2001).

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Methodology
Sample
The measures for cultural distance were developed as a part of a wider study of the relationship
between psychic distance and the performance of international retailing operations. The sampling
frame for the study was based on a database of randomly selected non-food retailers operating in
at least three foreign markets and based in the United States, United Kingdom, Western Europe or
the Asia Pacific region. The mail survey method was used to collect data from respondents
through a formal structured questionnaire. Using the key informant method questionnaires were
distributed to senior executives responsible for either business development or international
operations. A useable sample of 102 responses was obtained, yielding a 13% response rate. This
amounts to a sample of 204 international retailing operations, as respondents were asked to
answer all questions twice, once for a retail operation in a psychically close market and once for a
retail operation in a psychically distant market.
Development of Measures
Items for the five dimensions of national culture were developed based on Hofstede’s definitions
and descriptions of the dimensions, rather than the original items. This was done so that the items
captured general aspects of a country’s values and attitudes and did not focus specifically on
work-related values. Furthermore, the items were adapted to capture the perception of differences
between the respondent’s home country and a foreign country (see Table 1 for items).
Respondents were asked to indicate the degree to which the foreign country was similar or
different to the home country on a 7-point Likert scale, ranging from 1 (exactly the same) to 7
(totally different).
Research Findings
The results are presented in Table 1. The reliability of the scales was found to satisfactorily meet
Nunally’s (1978) recommendation, as the Cronbach α's exceeded 0.7 for all of the constructs.
Confirmatory factor analysis was performed and the results are presented in column 3 of Table 1.
All of the constructs had acceptable psychometric properties. The results for each of the
dimensions of national culture indicate that they meet the goodness-of-fit requirements for
acceptable fit and, therefore, demonstrate convergent validity. Because of the very high
correlations among the cultural dimensions, cultural distance was modelled as a second-order
variable (see Table 2) in a similar manner to market orientation (Narver and Slater, 1990). The
confirmatory model suggests the model fits the data rather well. The average variance extracted
across the cultural dimensions was .8536. These results provide evidence that cultural distance
can be modelled as a second-order factor. Because of the simplicity in calculation and
interpretation this measure might be more attractive than the index developed by Kogut and
Singh (1988). We found the correlation between the two to be .957. We checked the validity of
this measure and found it performed as predicted for convergent, discriminant and concurrent
validity.

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Conclusion
The excellent results for the psychometric tests suggest that there may be a reliable instrument for
measuring cultural distance as a second-order variable with the first-order factors being
constructs, which were adapted from Hofstede’s descriptions of the five dimensions of national
culture. The high reliability and CFA psychometric properties suggest that the measure is robust
and highly reproducible. Thus, this operationalisation of cultural distance may be an alternative to
the index measure developed by Kogut and Singh (1988). The critical issue, however, is to
measure cultural distance across Hofstede’s five dimensions of national culture in terms of
individuals’ perceptions of differences between the home country and a foreign country. This
measure is consistent with higher abstraction of constructs found in marketing, such as market
orientation and learning orientation. This is equivalent to what Edwards (2001) calls
superordinate constructs. Second-order modelling preserves the relationship between observed
variables and the first-order factors (Bagozzi and Edwards 1998). The proposed measure
overcomes the criticisms discussed above and is rooted in procedures that have come to be
commonplace in marketing literature. The scale has definite range depending on how one chooses
to compute it (i.e. 1-7 using the mean of the 5 dimensions or 5-35 if one chooses a summative
measure). There is room to compute a weighted scale given the factor loadings can be used as
weights in computing an index. At this stage the study has implications for researchers primarily,
but we also believe that managers will find this approach more parsimonious and intuitively more
meaningful.

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Table 1: Psychometric Properties of Cultural Distance
Measure
Alpha
CFA Results
Power Distance
.9407
χ2 (7) =
Degree of inequality among people
11.478, p
Salary range between the highest and lowest paid in
=.119
organisations
GFI = .981, AGFI =
Importance of social status symbols
.944
Importance of equality before the law
RMSEA
= .056
Basis for achieving positions of power and influence
Cmin/df
=
Usual method of political change (i.e. evolutions of rules or
1.640
revolution)
Individualism/Collectivism
.9448
χ2 (3) = 7.052, p =
Importance of loyalty to close groups (i.e. family and
.070
friends)
GFI = .986, AGFI =
Importance of interpersonal relationships*
.932
Recognition of a right to privacy
RMSEA = .082
Freedom of the press
Cmin/df
=
Respect for individual freedom
2.351
Importance of consensus in society
Masculinity/Femininity
.8727
χ2 (1) = 1.696, p =
Importance of caring for others
.193 GFI = .996,
Importance of material success
AGFI = .959
Encouragement by society of competition among
RMSEA = .059
colleagues*
Cmin/df
=
Degree to which women are expected to be assertive and
1.696
ambitious
Degree to which men are expected to be tender and caring*
Primary means of resolving interpersonal conflicts
(i.e. compromise or confrontation)
Uncertainty Avoidance
.9104
χ2 (3) = 5.331, p =
Openness to change and innovation
.149
Faith in young people
GFI = .990, AGFI =
Tolerance of differences (i.e. religious, political and
.949
ideological)
RMSEA = .062
Reliance on rules to govern behaviour
Cmin/df
=
Degree to which uncertainty is accepted as a normal feature
1.777
of life*
Acceptability of displaying emotions
Confucian Dynamism
.9272
χ2 (4) = 5.640, p =
Degree to which traditions are respected
.228 GFI = .989,
Degree to which social and status obligations are honoured*
AGFI = .958
Importance of thrift
RMSEA = .045
Importance of personal reputation and honour
Cmin/df
=
Importance of working hard for long-term success
1.410
Importance of virtue
* Items deleted from final analysis

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Table 2: Cultural Distance as a Second-Order Factor
Cultural Distance
Standard
CFA Results
(α =.9689)
Regressions
Power Distance
.916
χ2 (3) = 7.238, p = .07
Individualism/Collectivism
.940 (33.75)a
GFI = .986, AGFI = .932
Masculinity/Femininity
.943 (28.48)
NFI = .995, TLI = .990, CFI = .997
Uncertainty Avoidance
.954 (25.35)
RMSEA = .06,
Confucian Dynamism
.863 (18.97)
Cmin/df = 2.413
a = t-values for figures in brackets
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