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Research in International Business and Finance 26 (2012) 196203

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Research in International Business


and Finance
j o ur na l h om ep ag e: w w w . e l s e v i e r . c o m / l o c a t e / r i b a f

Short communication

An improvement to Kogut and Singh measure of cultural


distance considering the relationship among different
dimensions of culture
Yener Kandogan
School of Management, University of Michigan-Flint, 303 E. Kearsley, Flint, MI 48503, United States

a r t i c l e

i n f o

Article history:
Received 8 July 2011
Received in revised form 24 October 2011
Accepted 4 November 2011
Available online 17 November 2011
Keywords:
Cross-cultural research/measurement
issues
Internationalization theories and foreign
market entry
Cultural distance

a b s t r a c t
National cultural distance construct has wide-spread use in the
international business literature, with many applications. Despite
its limitations as summarized by Shenkar (2001), the method
in Kogut and Singh (1988) is commonly adopted by researchers
to measure cultural distance. This article demonstrates that this
method is a special case of the distance measure in Mahalanobis
(1936) under the assumption of zero covariances between different dimensions of culture. Further, it demonstrates that this
assumption is not valid for several cultural dimensions of countries
measured by Hofstede (1980), and suggests a simple modication
to the method that corrects for this invalid assumption, and hence
produces more accurate measures of cultural distance. The article
concludes with a comparison of cultural distances as measured by
the original and the modied version of the method.
2011 Elsevier B.V. All rights reserved.

1. Introduction
Various international business activities and cross-border managerial decisions are affected by
differences in national cultures. These have been rst demonstrated by Hofstede (1980) and the subsequent work of others. Despite its limitations later demonstrated by several researchers, most of the
relevant work in the literature used a measure of cultural distance developed by Kogut and Singh
(1988).

Tel.: +1 810 2376675; fax: +1 810 237 6685.


E-mail address: yener@umich.edu
0275-5319/$ see front matter 2011 Elsevier B.V. All rights reserved.
doi:10.1016/j.ribaf.2011.11.001

Y. Kandogan / Research in International Business and Finance 26 (2012) 196203

197

Management scholars used this cultural distance measure to assess team performance (Gibson,
1999), effectiveness of training (Tung, 1982), and conict management in teams (Von Glinow et al.,
2004). The same construct was also used by researchers in the strategy eld to measure the efciency of
the global value chain (Govindarajan & Gupta, 2001), that of knowledge transfer and diffusion (Ghoshal
& Nohria, 1989), institutional strength (La Porta et al., 1998), corporate governance (Bushman et al.,
2004), as well as the impact of cultural differences on market entry (Brannen, 2004) and on subsidiary
relations (Gupta, 1987). In nance, it was used to determine the capital structure (Chui et al., 2002),
nancial systems (Kwok & Tadesse, 2006), as well as foreign portfolio investment (Aggarwal et al.,
2012). Last but not least, in accounting, national cultural differences have been shown to impinge on
accounting practices (Salter & Niswander, 1995).
In several occasions, the results have been inconsistent. For example, in determining the foreign
market investment location, while Davidson (1980) suggests that cultural similarity encourages more
investment, Dunning (1988) argues that larger cultural distance helps overcoming transaction and
market failures and thus promotes foreign direct investment. In another application of this construct
to predict the choice of entry mode into a foreign market, Kim & Hwang (1992) argue that multinational enterprises want less control over their operations in culturally distant foreign countries. In
contrast, some empirical evidence suggests a positive correlation between control and cultural distance (Boyacigiller, 1990). In one last example of its application, Gomez-Mejia and Palich (1997) and
others use this construct to assess the performance of multinational rms with inconsistent results.
The measurement and application of cultural distance to these variables in management and other
elds is clearly an important part of the process in understanding their effects. Given its widespread
use as illustrated above, it is no doubt very important to measure cultural distances between nations
correctly. Also to discover meaningful relationships that are useful for practitioners, accurate measurement of cultural difference is critical. However, partly driven by the above-mentioned inconsistency
in the results, Shenkar (2001) challenged the methodology used in measuring the cultural distance
construct, as well as its conceptual properties, pointing out to its hidden assumptions. He suggested
that these methodological properties, the assumptions of corporate homogeneity within a nation, lack
of intra-cultural variation, and reliance on single company data, result in measurement biases. This
article points out to another source of measurement bias and suggests a simple correction. Such corrections are especially important, especially after the seminal work of Tung & Verbeke (2010) on the
future of study of distance in international business. They studied various important issues that had
risen as a result of recent studies, and urged the international business scholars to develop an impeccable command of the full. . . arsenal of instruments for measuring distance dimensions and providing
distance scores. Several researchers are already working towards this goal (Brewer & Venaik, 2011).
The suggestions made in this article will hopefully contribute in this direction as well.
The rest of the article is organized as follows: after briey reviewing various measures of distance
from the mathematics realm, it is demonstrated that the Kogut and Singh (1988) method is a special
case of a more general method with the assumption of zero covariances between the different dimensions of culture. The validity of this assumption is questioned using the actual data on various cultural
dimensions of countries as measured by Hofstede (1980) and demonstrated not to be the case. In particular, statistically signicant positive covariance exists between individualism and power distance
dimensions, as well as between individualism and uncertainty avoidance dimensions. A signicant
negative correlation is also observed between power distance and uncertainty avoidance dimensions.
A simple modication to the method is suggested that corrects for this invalid assumption and takes
into account these signicant correlations. The paper concludes with comparison of cultural distances
as measured by the original and the modied version of the method. It is found that cultural distance
measured using the original Kogut and Singh method could under- or over-estimate the distance as
much as 60%.
2. Measures of distance
There are numerous methods of measuring distance, which is basically a numerical description
of the space between objects. Mathematics generalizes the concept of distance and the metrics of
describing the elements of some space to be close to or far from each other. The space can have

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Y. Kandogan / Research in International Business and Finance 26 (2012) 196203

multiples of dimensions and mathematicians have developed various multi-dimensional measures of


distance. The most ordinary measure of distance is the Euclidean distance. This is what one would
measure with a ruler and can be proved by the Pythagorean Theorem between two elements with n
dimensions:


Eij =

n
d=1

(Iid Ijd )

(1)

The Euclidean distance is a special case of a much more general method of measuring distances,
introduced by Mahalanobis (1936). It is a useful method of determining the similarity between two
elements:


Mij =

(Ii Ij )T S 1 (Ii Ij )

(2)

Ix is the vector for element x with n dimensions as follows:

Ix1

Ix2

Ix =
..
.

(3)

Ixn
S is the covariance matrix for n dimensions of the space:

V1

CV 21

S=
..
.
CV n1

CV 12

...

CV 1n

..

..
.

V2

CV n2

...

CV 2n

(4)

Vn

where V are CV the variance and the covariance of the dimension(s) in the superscript, respectively.
Note that if the covariance matrix is an identity, the Mahalanobis distance is reduced to the
Euclidean distance. In other words, this special case would require that there is no covariance among
the dimensions of the space, and the unity variance for each dimension.
Kogut and Singh (1988) offer a simple standardized quantitative measure of cultural distance to be
used alongside other data from the cultural dimensions of Hofstede (1980):
n
d
d
1  (Ii Ij )
KSij =
n
Vd

(5)

d=1

where KSij is the cultural distance between countries i and j, ixd is the index of a country x in the
dimension d, Vd is the variance of the index for the dimension d, and n is the number of cultural
dimensions. Note that the above distance measure is a special case of the Mahalanobis distance. As

Y. Kandogan / Research in International Business and Finance 26 (2012) 196203

199

Table 1
Covariances across Hofstedes cultural dimensions.
Dimensions

Mean

Variance

1. Power distance (PDI)


2. Individualism (IDV)

61.2
41.1

422.0
505.6

3. Masculinity (MAS)

49.4

260.4

4. Uncertainty avoidance (UAI)

65.9

490.2

5. Long term orientation (LTO)

44.3

754.8

0.636**
(0.00)
0.039
(36.9)
0.210**
(3.67)
0.347**
(4.21)

0.073
(26.4)
0.172*
(7.01)
0.395**
(2.58)

0.013
(45.5)
0.180
(17.9)

0.024
(45.1)

90% and 95% signicance are denoted by * and **, respectively. P-values are given within parentheses.

illustrated below in the Kogut and Singh measure, the covariances across all dimensions are assumed
to be zero:

Mij






1 1 2 2
n
n
=
[ Ii Ij Ii Ij . . . Ii Ij ]

V1

...

V2

0
0

..
.

..

...

..
.

1 I 1 I 1
j
i
2 2

..

Vn


n d d2
 (Ii Ij )
=
=

d=1

Iin Ijn

(6)

Vd

n KSij

3. Suggested method
As Table 1 demonstrates, the assumption of zero covariances across dimensions does not hold.
The table shows the summary the mean, the variance for power distance, individualism masculinity, uncertainty avoidance and long term orientation cultural dimensions in Hofstede (1980) and the
covariances between these dimensions using all 77 countries or areas in his dataset. Accordingly,
power distance and individualism are negatively correlated with individualism and positively correlated with uncertainty avoidance and long term orientation, which are all statistically signicant at
95% level of condence. Furthermore, individualism is negatively corrected with uncertainty avoidance
and long term orientation.
Since the assumptions that reduce the Mahalanobis distance to the one used by Kogut and Singh
(1988) do not hold, this paper suggests using a modied version recognizing the non-zero covariances
among the dimensions. The modied version would basically square the original Mahalanobis distance
and divide it by the number of dimensions so that it is comparable to the Kogut and Singh measures
in magnitudes as follows:

T
I PDI I PDI
c11 c12 c13 c14
i
j
IiIDV IjIDV
1 IiIDV IjIDV
c21 c22 c23 c24

MMij = MAS
c
I MAS I MAS

4 I
IjMAS
31 c32 c33 c34
i
i
j
IiPDI IjPDI

IiUAI IjUAI

c41

c42

c43

c44

(7)

IiUAI IjUAI

The above distance measure has a similar functional form to the Kogut and Singh method, yet
recognizes the non-zero covariances among various dimensions. Only four primary dimensions are
taken into account and long term orientation dimension is omitted due to the lack of measurement

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Y. Kandogan / Research in International Business and Finance 26 (2012) 196203

Fig. 1. Distances according to modied Mahalanobis and Kogut and Singh.  Modied Mahalanobis,  Kogut and Singh.

of this dimension for many countries. The covariance matrices are given in Table 2 for the Kogut and
Singh and the suggested modied method for comparison purposes.
4. Comparisons
The next set of gures and tables provides a comparison of the cultural distances using the original
Kogut and Singh and the suggested modied Mahalanobis methods. Fig. 1 gives the frequency distribution of distances between all possible 2896 pairs of countries in Hoftstedes analysis. Accordingly,
the Kogut and Singh method tends to overestimate the distance between countries that are culturally
very similar and very distant, and underestimate the distance between countries with some but not
very big differences in culture. This can be seen with fewer pairs of countries with distances smaller
than 1 and larger than 4, and larger number of country pairs with distances between 1 and 4 using
the modied method. Table 3 provides descriptive statistics of cultural distances using both methods. While the means under each are the same, the smallest and largest distances are both smaller
under the modied method with a smaller standard deviation, which implies that the Kogut and Singh
method tends to overestimate the cultural distance with greater variability. In fact, computation of
the percentage difference in measurements under these two methods show that the Kogut and Singh
measurements are an average of 1.42% higher than the modied method. The largest overestimation
by the Kogut and Singh method is as big as 63% and the lowest underestimation is as big as 73%.

Table 2
Covariance matrices.
Kogut and Singh (103 )
2.369
0
0
0

0
1.978
0
0

Modied Mahalanobis (103 )


0
0
3.840
0

0
0
0
2.040

4.4049
2.287
0
0.388

2.287
3.330
0
0.137

0
0
3.840
0

0.388
0.137
0
2.139

Table 3
Descriptive statistics of distance measures.

Minimum
Maximum
Average
Standard deviation

Modied Mahalanobis

Kogut and Singh

Deviation

0.0193
9.9087
2.0473
1.4148

0.0221
10.4233
2.0473
1.5621

73.02%
63.50%
1.42%
29.71%

Y. Kandogan / Research in International Business and Finance 26 (2012) 196203

201

Table 4
Over- and under-estimation by Kogut and Singh.
PDI

IND

MAS

UAI

estimate

1
0
0
0

0
1
0
0

0
0
1
0

0
0
0
1

41%
41%
0%
5%

1
1
1
0
0
0

1
0
0
1
1
0

0
1
0
1
0
1

0
0
1
0
1
1

64%
21%
19%
19%
30%
2%

1
1
1
0
0
0
1
1
1
0
1
1
1
1
1
1
1
1
1
0

1
0
0
1
1
0
1
1
0
1
1
1
1
1
1
1
0
0
0
1

0
1
0
1
0
1
1
0
1
1
1
1
1
0
0
0
1
1
1
1

0
0
1
0
1
1
0
1
1
1
0
0
0
1
1
1
1
1
1
1

55%
21%
37%
19%
23%
2%
48%
53%
11%
18%
23%
23%
48%
7%
64%
56%
24%
11%
24%
13%

0
0
1
1
1
1
1
1
1
1

1
1
1
1
1
1
1
1
1
1

1
1
1
1
1
1
1
1
1
1

1
1
1
1
1
1
1
1
1
1

18%
13%
41%
4%
32%
41%
45%
45%
4%
32%

Table 4 lists the deviations of Kogut and Singh method from the modied Mahalanobis method
when there are differences by 1 unit in only one, two, three and all four cultural dimensions between
two countries compared. The outcomes of only distinct situations are presented. In particular, per
the nature of the distance, the order of countries in nding distances does not matter. Hence, if all of
the differences in various dimensions between two countries are reversed, the amount of under- or
over-estimation remains the same. In the rst set of situations listed in the table, there are differences
in only one of the dimensions. Accordingly, when the difference is only in the masculinity dimension, the two measures of distance produce the same result. Similarly, when the difference is only in
uncertainty avoidance, the deviation in the measures is only 5%. However, when the difference is only
in power distance dimension or only in the individualism dimension, the Kogut and Singh method
understimates the distance by 41%.
The next set of situations illustrates the deviations between the two measures when there are
differences in two cultural dimensions. Differences in power distance and individualism cause the
largest deviation. When a country is higher (or lower) in both dimensions, the Kogut and Singh measure

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Y. Kandogan / Research in International Business and Finance 26 (2012) 196203

Table 5
Measures of cultural distances among select countries.
Country i

Country j

PDI

IDV

MAS

UAI

MM

KS

estimate

France
East Africa
Arab countries
France
Arab countries
Germany

Spain
India
Thailand
Thailand
East Africa
United States

11
13
16
4
16
5

20
21
18
51
11
24

1
15
18
9
11
4

0
12
4
22
16
19

0.71
1.16
1.17
2.81
0.78
0.84

0.27
0.61
0.63
1.62
0.46
0.50

62%
47%
46%
42%
41%
40%

Brazil
India
Russia
Mexico
Germany
Arab countries

Germany
United States
United States
United States
Mexico
United States

34
37
53
41
46
40

29
43
52
61
37
53

17
6
26
7
3
10

11
6
49
36
17
22

0.99
1.22
3.20
2.24
1.30
1.64

1.44
1.78
4.87
3.54
2.09
2.68

45%
46%
52%
58%
60%
64%

In computing, the distances in each dimension, country js index is subtracted from country is index.

seriously underestimate the distance by as much as 64%. When one country is higher in one of these
dimensions and lower in the other, it overestimates the distance by 55%. When there is a difference
in power distance and a difference in masculinity or uncertainty avoidance, the underestimation is
reduced from 41% down to 21% or 19%, respectively. A similar situation exists when the difference
in individualism is accompanied by a difference in these two dimensions. Differences in masculinity
and uncertainty avoidance dimensions continue to result in small deviations between the distance
measures compared. Similar observations can be made when there are differences in three of the four,
or in all four cultural dimensions. Same direction differences in power distance and individualism cause
largest underestimation by Kogut and Singh, and opposite direction differences in these cause largest
overestimation. These deviations get smaller when there are additional differences in masculinity and
uncertainty dimensions. For example, the size of the underestimation when the differences in power
distance and individualism are in the same direction (64%) is reduced rst to 48% when additional
difference exists in masculinity or to 53% when the additional difference is in uncertainty. Further,
when one more additional difference exists in both masculinity and uncertainty avoidance, the size
of the underestimation is further reduced to 41%. The same is true when the differences in power
distance and individualism are in opposite directions. In this case, the overestimation is reduced from
55%, down to 23% or 7%, when masculinity or uncertainty differences also exist, respectively, and then
further down to 5%, when differences in both also exist.
Lastly, Table 5 gives the absolute value of differences in four Hosftedes cultural dimensions and
measurement of cultural distances using both methods for select countries representing various
regions of the world. The table contains instances of the largest percentage underestimations and
largest percentage overestimations by the Kogut and Singh method for these countries. Consistent
with previous discussions in Table 4, it appears that differences in masculinity do not cause any major
differences in the measurements of these methods. However, large differences between countries in
the other three dimensions that are correlated with each other seem to cause underestimation or
overestimation of the cultural distance. When there are large differences between the countries in
the power distance coupled with large differences in either or both individualism and uncertainty
avoidance dimensions, the Kogut and Singh method overestimates the cultural distance. However,
when differences between countries in individualism are small, the Kogut and Singh method tends to
underestimate the cultural distance. These are consistent with the frequency distribution of distances
discussed earlier.
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