An Exploratory Study on the Predictability of Export Behavior using Culture as a Guide

This paper discusses the cultural variable of international business through a comparison of the cul tural values of three Baltic countries, Lithuania, Estonia and Poland. Scores on Hofstede's cultural dimensions for these and other countries are utilized in measuring the ·cultural distance" between the Baltic countries and their main export partners. The intent of the paper is to test the appropriate ness of the concept for predicting export behavior. Although the study is exploratory, it is seen that cultural distance plays a slight role in country export behavior.


Introduction
The Baltic region is becoming one of the most attractive markets for foreign investment. Not only is its geographical position favorable, but improvements in infrastructure, lower costs and the highly skilled labor force have been drawing more and more investors to the region, and foreign direct investment (FDI) into this region has been steadily increasing. In Lithuania, for example, during the period 1997-2001, FDI increased from 700 mIn. USD to 2.3 bin. USD. The percentage of FDI from the European Union (EU) has been proportionally increasing as well, and comprised 64% of all FDI in Lithuania in 2001, compared to 58% in 1997. Trade statistics show a similar trend. In 2000, Lithuanian trade with the EU comprised 47% of all trade, gradually reducing the dependence of Lithuania on the Commonwealth of Independent States (CIS), with which trade comprised only 25% of all trade in 2000 1 . Similar trends are found in Estonia and Poland as welF. It can be expected that with the entry of these countries into the EU, the proportion of trade with the EU will only further increase. And as markets become more fluid, the amount of cross-border interactions will increase as well.
However, the Baltic region is often treated as homogeneous by foreign investors, especially large multinationals, which often serve the entire Baltic market from a regional office located in one country. It will be shown in this paper that the cultures of Lithuania, Estonia and Poland are very different from one another. This, coupled with the existence of yet another culture, that of the investing finn, has especially strong implications for international business, not only for international human resources management (Hofstede, 2001), but also for market selection, choice of entry (Kogut and Singh, 1998), international marketing efforts (Usunier, 2000) and a wide spectrum of other aspects. This paper has three objectives. First, Lithuanian scores on the four cultural dimensions of Hofstede (1980) will be presented, so that comparison may be made to the other Baltic countries of Estonia and Poland. Second, because of the increasing importance of Western Europe for the economies of these countries, the cultures of these countries will be compared to those of the main trading partners of each. This will be done using a method developed by Kogut and Singh (1988) to assess the "cultural distance" between countries. The third objective is to assess whether any relationship exists between cultural distance and foreign trade.

The Cultural Variable in International Business
Culture has been defined by numerous authors in different ways, depending on the goals of the research. In this paper, because the analysis revolves around the measurements of Hofstede, 76 his description of culture as "the collective programming of the mind, which distinguishes the members of one human group from another (1984:21)," will be applied. Human groups here are defined in tenns of national boundaries (national cultural groups).
Hofstede's Cultural Dimensions. Based on survey research conducted from 1968-1972 on IBM subsidiaries in 40 countries (later expanded to 53)3, Hofstede (1984) was able to distinguish four factors, or dimensions, on which countries more or less differ: power distance, uncertainty avoidance, individualism and masculinity. Power distance (PO I) is defined as "the extent to which the less powerful members of institutions and organizations within a country expect and accept that power is distributed unequally (Hofstede, 1991: 28)." Uncertainty avoidance (UAI) refers to "the extent to which the members of a culture feel threatened by uncertain or unknown situations (Hofstede, 1991: 113)" and their ways of coping with this uncertainty. Individualism (IOV) (with collectivism on its opposing pole) refers to the relationships between an individual and society, whether these ties are loose (high IDV) or whether individuals fonn tight-knit groups early on in their lives (low IOV). Masculinity (MAS) distinguishes between those societies in which gender roles are distinct and "masculine" values dominate (high MAS), and those in which gender roles overlap (Iow MAS).
Although Hofstede's work has been criticized for its use of one multinational corporation in drawing generalized conclusions about societies (Triandis, 1982) and that the corpo-rate culture may have had an affect on the results (Shackleton and Ali, 1990), the patterns of relationships found among countries have been shown to remain over time in replication studies (Hoppe, 1998), adding to their validity. And Hofstede (2001) has provided over 400 external valid at ions of his dimensions. To date this is the largest and most cited study on national cultural values.
Cultural Distance. The influence of these cultural dimensions on management attitudes and organizational forms and practices has been proven by nwnerous researchers (Suutari, 1996; Offermann and HeUmann, 1997). Less consistent are the results of studies, seeking to measure the influence of the combination of country dimension scores on internationalization. Kogut and Singh (1988) have developed a measure, based on Hofstede's dimensions, to explain the degree to which two countries differ in culture. This "cultural distance" has mostly been applied in the international business literature to explain the market choice and entry mode decisions of firms. It refers to the extent to which the culture of one country differs from that of another (Kogut and Singh, 1988). This concept has often been confused with "psychic distance," the uncertainty a firm faces (perceives) about another culture when deciding about foreign market entry (O'Grady and Lane, 1996), which has been used to explain the location of exports and FOI. However, as psychic distance includes measurements of various factors, such as level of economic development, level of education, business language differences, culture and channels of trade (O'Grady and Lane, 1996), cultural distance may be viewed as a cultural component of the former.
Various studies have revealed that the chances of foreign enterprise survival in a coun-try are greater when cultural distance between the host country and the foreign entrant is small (Barkema et aI., 1996(Barkema et aI., , 1997Li and Guisinger, 1991). However others (O'Grady and Lane, 1996) have found that finns enter culturally "close" countries, only to discover that unforeseen cultural differences prove more difficult to hurdle and end in the failure of the venture, due to the lack of cultural preparation in entering foreign markets. Thus, cultural "risk" may be viewed as just as important as political risk and other external factors when entering foreign markets.
In the export literature as well, it has been suggested that firms first begin to export to culturally close markets before venturing to more distant ones (Shoham and Albaum, 1995) and that finns will be less likely engage in business activities with very culturally dissimilar countries. Here, using national export data, this argument will be explored, by analyzing the export directions of Lithuania, Estonia and Poland and comparing the percentage of total exports to a given country with the cultural distance between them.

Comparing Cultures
In order to compare the cultural distances of the Baltic countries with their main trading partners, the cultural dimensions of the countries should first be compared. The cultural dimension scores for Poland were obtained by Nasierowski and Mikula (1998) using a matched sample of students from Poland and Canada. Estonian scores have also been obtained (Hofstede et ai, 1996) using a matched student sample (for the MAS dimension only). These results have recently been published by Hofstede (2001). However, as Lithuania was not included in the original Hofstede study, a replication study using the methodology of Hofstede was conducted by the author in 1999 also using a matched student samples strategy (see, e.g., Mockaitis, 2002).
The following tables depict the relative positions on the cultural dimensions of all the countries in Hofstede's database, including Lithuania and recent results for additional countries. Hofstede (2001) has published the results for 15 additional countries, obtained by various researchers in replication studies. These new countries are indicated with an asterisk (*), and the country rankings have been adjusted by the author. Table 1 depicts country rankings on the individualism dimension. We can see that Lithuania ranks about average for this dimension (rank 28 th ), while Estonia and Poland both rank equally medium-high (rank [19][20][21]. It is interesting that Estonia ranks just below its closest neighbor, Finland and slightly below Germany, while the Czech Republic and Slovakia score in between the Estonia Poland pair and Lithuania. The Baltic countries also score weU above Russia (ranked 35-38 th ).  Table 2. Lithuania has a medium power distance, ranking 51-52 out of 70 countries. Estonia scores just below Lithuania (rank 53-55). Both of these country scores are similar to the USA. Germany is not far behind these two countries as well (59-61). Also on the low end of the dimension we fmd the Anglo and Scandinavian countries. Poland, on the other hand, scores fairly high (rank 24-26) similar to France. Again Russia scored far from the Baltic countries and ranks 6 th • Uncertainty avoidance rankings are displayed in Table 3. We see that Lithuania scores medium high on this dimension (rank 38/39), similar to Germany. Again the Anglo and Scandinavian countries score low in this dimension, while the Latin cluster scores the opposite. The Germanspeaking countries fall in between, as do most of the Central and East European countries. The last table of rankings presents scores for the masculinity dimension. We find that all of the Scandinavian countries are on the very low end of this dimension, and the Anglo countries are on the higher side, as is Lithuania

Analysis
A brief look at the country rankings on each of the dimensions reveals that Lithuania shares many similarities with Germany, Poland with France, and Estonia scored very close to Finland on several dimensions. On most of the dimensions, the position of Russia was far from those of the Baltic countries. Cultural distances will be measured to gauge the extent of these similarities and differences on all of the cultural dimensions combined.
where CDa is the cultural distance from a given country, Cia is the scores for country a on Hofstede's four cultural dimensions and C ib is the scores for country b on Hofstede's dimensions. The cultural distances between Lithuania, Estonia and Poland and several countries are depicted in Table 5. The main trading partners of each of the three countries are highlighted in boldface. It may be seen from the table that of the Baltic countries in this study, Lithuania and Poland share the most similarities (CD = 36.14), while Estonia and Poland the most differences (CD = 55.04). Lithuania and Estonia are almost equidistant from Russia. In the case of Estonia, this distance of 66.90 is the largest of all the countries in the table, while in Lithuania it is surpassed only by Denmark and Sweden. The cultural distance between Russia and Poland, on the other hand, ranks fifth out of the eleven countries in the table.
The main trading partners for Lithuania in 2001 and the corresponding share of trade for exports were the United Kingdom (13.8%), Latvia (12.6%), Germany (12.6%), Russia (11 %) and Poland (6.3%). The five largest import partners in 2001 were Russia (25.3%), Germany (17.2%), Poland (4.9%), Italy (4.2%) and France (3.8%). Upon a glance at Table 8, it can be seen that all of the aforementioned countries, with the exception of Russia and the UK, are fairly culturally close to Lithuania, compared to the remaining countries in the table.
In 2000, the main export partners with Estonia and their share of total exports were Finland (38%), Sweden (11 %), Germany (10%), Russia (8%) and Latvia (4%). Main import partners were Finland (31 %), Sweden (20%), Germany (8%), Latvia (7%) and Russia (2%). Of the countries listed in the table, Finland, Estonia's neighbor, is also the least culturally distant country (and the least of all the distances depicted in the table), Germany ranks third, Sweden sixth, and the only culturally distant country is Russia.
Poland's main export partners in 2000 were Germany (34.9%), Italy (6.3%), France (5.2%) and the Netherlands (5.1 %). Its main import partners were Germany (23.9%), Russia (9.4%), Italy (8.3%), France (6.4%) and the 80 UK (4.5%). Here too we see that with the exception of the UK and the Netherlands, the remaining countries are among the most culturally "near" of those in the table.
It seems that in most cases both the major share of exports and imports come from culturally close countries. However, it makes sense only to analyze the relationship between cultural distance and export partners, as imports would require calculations based on the exporting country point of view. A small negative correlation (r = -0.38) is found between the choice of export partner and cultural distance.

Conclusion
Although most studies have applied the concept in explaining the market entry mode of firms of a given country, this exploratory study has applied the concept of cultural distance toward only one aspect of internationalization, in attempt to find a relationship between it and country export behavior. This has been done on a general level only, by comparing a country's largest export partners to the cultural distance of the country.
The results revealed a small negative correlation between the percentage of export share to a given country and its cultural distance. This may have been due to a number of factors. First, the unit of analysis was national export volume, as opposed to data from individual industries. According to Zukauskas (1999), the major Lithuanian export partner for the textiles and services sectors is Germany, while virtually no exports went to the UK (Lithuania's largest export partner on the nationallevel). It is quite possible that separate analyses by sector would reveal different results. It has also been argued (Barkema et ai, 1997; Barkema and Verrneulen, 1998) that the cultural dimension of uncertainty avoidance plays a greater role than the remaining dimensions in foreign market entry. Moreover, data for the cultural dimensions of Latvia, a major export partner of both Lithuania and Estonia are unavailable. It was also seen that Lithuania and Estonia conduct a major share of their export with Russia, even though the cultural distance between Russia and these countries is quite high (66.59 and 66.90, respectively). Here the concept of psychic distance may be more useful than cultural distance in explaining export behavior, with experience, familiar-ity, learning and language playing a stronger role than cultural values. Nevertheless, some support is given to the role of cultural distance in export behavior.
Future research may include further exploration into the concept of cultural distance, relating it to the internationalization of Baltic firms and their market entry mode choice. However, with regard to entry into Central and Eastern European countries, it may be more useful to treat measures of cultural distance as a component of the broader concept of psychic distance and include economic indicators and socio-cultural factors.