International Joint Ventures in the Digital Sector and Foreign Subsidiary Performance: Does Cultural Distance Matter?

ABSTRACT In the context of multinational enterprises, the rapid pace of digitalisation has created new forms of international joint ventures between foreign subsidiaries and local firms. This paper examines whether different types of such partnerships influence subsidiary performance. Using data on over 40,000 foreign subsidiaries, we introduce a novel classification in the digital sector, distinguishing four types: digital speedier, digital exploiter, digital explorer and non‐digital partnerships. We find that digital speedier partnerships—where both subsidiaries and their local partners use digital technology intensively—achieve the highest profitability. However, this digital speedier partnership type is also most negatively affected by cultural distance, highlighting its relative ineffectiveness in managing cross‐border cultural differences. By contrast, digital explorer partnerships—formed by non‐digital subsidiaries with local digital partners—are less sensitive to cultural distance. This resilience stems from their complementary relationship, which facilitates more effective management of cultural differences.