The Influence Of Culture Distance On Chinese Outward Direct Investment

For a long time,most of the research on outward foreign direct investment has generally focused on economic and political factors,and there are few studies on cultural influences.With the continuous development of China’s outward foreign direct investment,as of the end of 2020,the number of countries and regions covered by investment has reached 189,accounting for 81.1%of the total number of countries and regions in the world are distributed on six continents,and the scope is more and more extensive.The cultural differences of these countries are huge,which makes the investment risk caused by cultural distance more and more obvious.The further development of investment poses certain challenges.Based on Hofstede’s cultural dimensions theory and the KSI index model,this paper studies its linear and non-linear effects on China’s OFDI from the perspective of cultural distance and conducts in-depth research from the perspective of different cultural dimensions.In addition,samples are divided into developed country samples and developing country samples according to the economic development level of the host country to explore the heterogeneous effects of cultural distance.Firstly,this paper systematically introduces the concepts of culture and cultural distance,divides the research scope of this paper,and then elaborates the relevant theories that incorporate cultural distance into foreign direct investment research,this paper mainly discusses the negative impact of cultural distance on OFDI from the disadvantage theory of outsiders and the transaction cost theory,and then analyzes the positive impact of cultural distance on OFDI from the perspective of the advantage of outsiders,finally,discusses the superposition of the two and hypotheses about the results of this study.Secondly,this paper selects the data of China’s outward foreign direct investment flow to 93 countries from 2007 to 2019.The data source is the "Statistical Bulletin of China’s outward Foreign Direct Investment" published by the Ministry of Commerce,and adopts the Hofstede cultural dimensions theory,for the definition and measurement of six different cultural dimensions,the cultural distance index between China and the sample countries was able to be calculated based on the KSI model.In addition,considering the factors of cultural distance changing with time,this paper based on the experience of scholars,extended the KSI model,the reciprocal of the year when the sample countries established diplomatic relations with China was added as a time trend item,to calculate the cultural distance data that changes with time.Then,based on the gravitational model,this paper conducts regression analysis on panel data.The results are as follows:Cultural distance has a significant nonlinear correlation with China’s outward foreign direct investment.When the cultural distance is small,the cultural distance has a significant negative impact on China’s OFDI.When the cultural distance value crosses the inflexion point and reaches the second stage,it is greatly influenced by the advantages of outsiders,and the cultural distance has a significant positive impact on China’s OFDI.when the cultural distance is too large,the impact of cultural distance on China’s OFDI becomes negative.Among the six cultural dimensions,power distance,as well as distances on individualism/collectivism,masculinity/feminism,and uncertainty avoidance have significant negative effects on China’s OFDI.The larger the difference,the smaller the amount of Chinese outward foreign direct investment in the country.The difference between China and the host country in the dimension of longterm orientation/short-term orientation has no significant impact on Chinese OFDI.Cultural distance in the dimension of self-indulgence/self-restraint has a significant positive correlation with Chinese OFDI,which can promote Chinese direct investment in the country.In addition,in the sub-sample regression,it is found that,first of all,whether it is investing in developed countries or developing countries,cultural distance has a very significant impact on them.However,when China invests directly in developed countries,cultural distance is significantly related to OFDI.The relationship between cultural distance and OFDI is shown as a positive U-shaped curve relationship;while for direct investment in developing countries,the relationship between cultural distance and OFDI is a horizontal S-shaped curve relationship.The influence of cultural distance on China’s OFDI reflects the characteristics of differentiation.Finally,based on the above empirical analysis and summary,this paper puts forward policy suggestions on the different impacts of cultural distance on China’s OFDI from the perspectives of countries and enterprises,as well as prospects for China’s future development in this field.At the national level,we should pay attention to the dual effects of cultural distance,deepen exchanges and cooperation between cultures,and actively promote Chinese cultural industries to go overseas to expand the influence of Chinese culture.At the same time,we must also focus on cultivating crosscultural talents with an international perspective and strengthening friendly exchanges between governments and promoting bilateral cooperation in cultural,economic and other fields.At the enterprise level,Chinese enterprises should pay attention to strengthening the awareness of cultural distance risk prevention,accurately identify the risks brought about by cultural distance at different stages,and learn how to deal with them.In addition,enterprises should improve their international communication capabilities and expand the cultural influence of their brands overseas.