The performance effects of ‘added cultural distance’ in multinational expansion paths: generalizable and contextual determinants

Hutzschenreuter and Voll (2008) introduced the “added distance” concept in international business strategy. They showed the negative impact on German multinational enterprise (MNE) performance of multiple investment steps with a high added distance in aggregate. We explore the generalizability of this finding, using a Penrosean perspective and quasi-replicating their methodology. Empirically, we focus on the context of Indian firms’ post-economic liberalization (1991), where a much wider spectrum of magnitudes of added distance could be observed than in the German case. We use data of 109 Indian firms with expansion paths we tracked during periods ranging from 6 to 31 years. We show that moderate added distance enhances performance in the subsequent period, but only up to a threshold. The underlying reason for this outcome is a meta-bounded-rationality challenge: senior managers underestimate how the aggregate of multiple international investment steps with ACD, each supposedly beneficial to the firm, leads to unmet demands for managerial capacity and reduces corporate coherence.