What are the cultural challenges faced by virtual teams?

Unless video conferencing (and even then) is an active part of communication, one misses the unique one-to-one/one-to-many/many-to-many relationships that are built on multiple levels when personal face-to-face interaction occurs.

Time zone differences

Levels of written correspondence loosing touch with the reader (i.e., you don't communicate well; they don't receive the communication).

BTW, I have had extremely successful results while working 100% virtually (even before video was affordable and easily accessible).

Remote Working Arrangements / Virtual Teams historically have two drawbacks–

Issue 1 – Employee Exclusion - “Employees in virtual environments may develop perceptions of exclusion or isolation due to their need to rely on technology to communicate with others; common forms of communication technology (e.g., email) do not provide a high level of information richness and can inhibit social exchange (Marshall, Michaels, & Mulki, 2007).” (Cornell University study Remote Work: An Examination of Current Trends and Emerging Issues Spring 2011)

Issue 2 – Remote Responsiveness - “Some remote employees struggle when attempting to coordinate their work with their managers and other employees or when attempting to receive timely feedback.” (Cornell University study Remote Work: An Examination of Current Trends and Emerging Issues Spring 2011)

Just consider these issues in your approach and you will be fine. The business approach works well with proper planning.

I would agree with the comments above and also add that you lose the management by walking around benefits. In the physical setting I was often pulled into conversations to help solve a problem because I was right down the hall and it made problem solving more effective and efficient.

However, I have worked in virtual environments and have had success with them as well (even before video conferencing) which resulted from constant communication.