How do managers’ deviant perceptions of “cultural distance” relate to the performance of international SMEs?

Our study explores the performance implications of deviations in managers’
perceptions of “cultural distance” – one of the most important concepts
in International Business research – when expanding into foreign markets.
Despite much research on “cultural distance,” few researchers have paid
attention to the effect of deviations in managers’ perceptions of cultural
distance on firm performance. This is important since managers formulate
strategies for responding to the environment based on their perceptions of
the firm’s environment. These perceptions, however, do not always coincide
with actual environmental characteristics. Therefore, formulating strategies
based on inaccurate data may result in erroneous forecasts, missed
opportunities and, ultimately, business failure. We explore this empirically
by comparing managers’ perceptions of cultural distance to export markets of Swedish SMEs to cultural distance measures based on secondary data
and relate deviations of perceptions to the performance of these SMEs.
Our results show that the larger the deviations of managers’ perceptions
of cultural differences from “actual differences” as expressed in Hofstede
scores on cultural dimensions, the lower the performance expressed in
firms’ sales. The implications of the study are discussed.