Consequences of expatriate top manager replacement on foreign subsidiary performance

Integrating expatriate staffing and leadership succession literature, this study investigates the influence of expatriate top manager replacement on foreign subsidiary performance and the moderating effects of subsidiary context. Building on a refined understanding of agency theory and evidence from 2113 firm-year observations, including 260 expatriate successions, this study shows that when expatriates are replaced, regardless by whom (either host-country national or expatriate manager), the performance of the subsidiaries declines, suggesting that the departure of expatriate top managers often see subsidiaries being left in a less than favorable condition. If the subsidiary's prior performance has been unsatisfactory, the newly appointed expatriate might not be able to prevent further deterioration of its performance. Replacing expatriates with host-country national managers can help improve subsidiary performance, but this usually happens in older, more established subsidiaries. These findings framed in a refined agency theory provide us a more in-depth understanding of expatriate staffing failure.     

Subnational FDI Legitimacy and Foreign Subsidiary Survival

We examine how organizational ecology and the strategic choice perspective can be combined to provide more contextualized insights into how multinational corporations (MNCs) can better counter environmental pressures with evolving subnational FDI legitimacy and improve the survival likelihood of their subsidiaries. We consider three organizational identity-based strategic choices, i.e., country-of-origin (COO) agglomeration, expatriate staffing level and subsidiary ownership level. We hypothesize a U-shaped relationship between FDI legitimacy and subsidiary mortality, and that this relationship will be moderated by the level of COO agglomeration at a subnational level. We also hypothesize that with improving FDI legitimacy, the use of higher levels of expatriates and ownership will jeopardize the survival of larger subsidiaries. A longitudinal dataset (2001–2016) for 3025 subsidiaries formed by 1147 Japanese MNCs in China was used in hypothesis testing. Results largely supported our hypotheses. We discuss how an identity-centered approach can contribute to theory and practice.     

When Do Distance Effects Become Empirically Observable? An Investigation in the Context of Headquarters Value Creation for Subsidiaries

Integrating distance research with the behavioral strategy literature on MNC headquarters-subsidiary relations, this paper explores how the distance between headquarters and subsidiaries relates to value added by the headquarters. We show for 124 manufacturing subsidiaries in Europe that, on average, distance is unrelated to value added by headquarters but that this effect is contingent upon the extent to which the subsidiary is locally embedded. Only after a certain threshold level of subsidiary embeddedness, distance is negatively related to headquarters value added. This effect is more pronounced for cultural, economic, and administrative distances than for pure geographic distance, highlighting the critical role of contextual variation for MNCs.     

Maintaining product quality consistency when offshoring to emerging markets: The role of subsidiary control

Offshoring can increase firms' exposure to product quality risks, such that manufacturing firms need effective tactics to maintain product quality consistency across offshoring subsidiaries. With an agency theory approach, the present study seeks novel insights into three widely used subsidiary control mechanisms for achieving product quality consistency across offshoring subsidiaries in emerging markets and developed home countries. Through surveys of 150 subsidiaries of multinational corporations in heavy industries operating in China, the paper tests a proposed model using hierarchical linear regression, accounting for endogeneity concerns using the Gaussian copula method. The analysis yielded several findings: An inverted U-shaped relationship exists between decision autonomy and product quality consistency; expatriate staffing positively predicts product quality consistency and attenuates the negative effects of excessive autonomy on product quality consistency; and compared with greenfield entry, mergers and acquisitions negatively predict product quality consistency.     

Intra- and inter-regional diversification,subsidiary value chain activities and expatriate utilization

Although it is well established in the current staffing literature that why and how multinational enterprises (MNEs) allocate more or fewer expatriates in some subsidiaries than others, little is known about why and how some MNEs utilize more or fewer expatriates than other MNEs. This paper builds on regionalization theory to argue that intra- and inter-regional diversification has to do with the overall use of expatriates in MNEs. An empirical investigation of Korean MNEs demonstrates that the degree of intra- and inter-regional diversification has significant impacts on the level of expatriate utilization by MNEs. The results also reveal an interesting moderating influence of subsidiary value chain activities. MNEs tend to vigorously adjust their use of expatriates in downstream subsidiaries depending on the degree of intra- and inter-regional diversification. However, they do not adjust their use of expatriates in manufacturing subsidiaries upon the degree of international diversification. Overall, this study extends our understanding of how MNEs manage a geographically dispersed organization in a semi-globalized world.     

Language and foreign subsidiary control: An empirical test

Previous research suggests that language competence has an effect on foreign subsidiary control but its precise nature remains unclear. In a sample of 119 Western-owned subsidiaries in Finland and China, we empirically tested how foreign subsidiaries with varying degrees of language competence were controlled. We carried out structured interviews with the general managers of these subsidiaries in order to assess the effect of language at the level of specific control mechanisms. According to our findings, the subsidiaries with low language competence were controlled to a greater extent by centralization and formalization than units with high language competence. Output control and socialization mechanisms appeared unaffected by language competence of subsidiary staff.     

An empirical evaluation of the management resourcing strategy of a Western multinational within a post-socialist Polish subsidiary

The continued globalization process and internationalization of business is increasingly raising issues concerning human resource strategy and practice in those organizations operating across international boundaries. This paper presents an empirical evaluation of the management resourcing strategy of a Western multinational corporation (MNC) within a post-socialist Polish subsidiary. Findings suggest a high level of pragmatism in relation to management staffing decisions. Whilst normative resourcing models emphasize the importance of environment, organization and job analysis in selecting and preparing managers for expatriate appointments, these processes are contingency constrained. Difficulties of adaptation and integration of the Polish subsidiary serve to increase reliance on expatriate managers.     

The Performance of MNE Subsidiaries in China: Does It Matter to Be Close to the Political or Business Hub?

This study examines the impact of distance on financial performance of multinational enterprise (MNE) subsidiaries in China. We hypothesized and found that MNE subsidiaries performed better when located closer to the country's business hub, but performed less well when located closer to the political hub. We also hypothesized that distance effects are moderated by subsidiary size, subsidiary network, and state capital contribution to subsidiary. Our findings were based upon 45,248 MNE subsidiaries with location and geographic distance measured at the prefectural level in China.     

组织演化理论视角下的股权结构与子公司生存——环境突变、冗余资源的调节作用

本文运用组织演化理论、公司治理和资源基础观理论,以1932家非国有企业的子公司为样本,研究了股权结构、子公司冗余资源等因素对子公司应对环境变化能力的影响,对环境变化和子公司生存状况的动态演化进行了分析。研究发现,在环境较稳定时,合资子公司的失败危险高于独资子公司;而当环境发生突变时（如经济危机）,合资子公司的失败危险则低于独资子公司。冗余资源、资源使用效率和能力的不同是导致子公司在环境变化中生存状况差异的一个重要因素,子公司的股权结构在一定程度上会影响这种效率和能力。本研究证实了子公司的自治程度有助于培养其应对环境变化的能力,从而提高子公司的生存率。以往研究对股权结构与绩效关系多采用静态分析,本文将环境变化和冗余资源引入到分析框架中进行动态分析,丰富了该领域的研究成果。     

Regulatory Institutional Distance and MNCs' Subsidiary Performance: Climbing up Vs. Climbing Down the Institutional Ladder

We investigate the possibility of regulatory institutional distance exerting an asymmetric effect on multinational corporations' (MNCs') subsidiary performance depending on the direction of institutional distance. We use the term ‘institutional ladder’ to differentiate between upward distance, referred to as when the subsidiary is operating in a relatively stronger institutional environment than its parent-firm's home country, and downward distance for vice versa. Combining institutional theory with organisational imprinting and learning perspectives, we argue that the implications of regulatory institutional distance on subsidiary performance are relatively more positive (or less negative) when MNCs are climbing down the institutional ladder as compared to when MNCs are climbing up the institutional ladder. We also argue that subsidiary ownership strategy – i.e. the choice of a wholly owned subsidiary (WOS) versus joint venture (JV) – moderates the above-mentioned implications of institutional distance on subsidiary performance. We test these hypotheses based on a panel data-set of 1936 foreign subsidiaries representing 70 host countries and 66 home countries and spanning the 12-year period: 2002–2013.     

Top management teams within multinational corporations: Effects of cultural heterogeneity

This research examined the relationship of cultural heterogeneity with team and organizational performance, as mediated by selected aspects of group processes. The study was done with top management teams (TMTs) in international subsidiaries of multinational corporations (MNCs). It was found that cultural heterogeneity within the TMT is positively related to both the level of issue-based conflict the team experiences and to TMT performance. The TMT performance and the subsidiary's performance were positively related. Issue-based conflict affected negatively TMT performance but had a positive effect on subsidiary performance. The hypothesis that cultural heterogeneity would be negatively related to TMT cohesion was not supported. The results provide general support for the importance of cultural heterogeneity for the functioning of TMTs and their international subsidiaries.     

From Rocking the Boat to Wagging the Dog: A Literature Review of Subsidiary Initiative Research and Integrative Framework

This literature review on the topic of subsidiary initiatives discloses a certain lack of conceptual clarity concerning the phenomenon. After providing an overview of the research field, the paper applies a conception of entrepreneurship inspired by Schumpeter (1912) as a basis for refining our understanding of just what a subsidiary initiative is and of the different kinds of subsidiary initiative. A framework is developed with a view to the current and anticipated growing importance of highly populated countries like China and India which are bound to raise the MNC-internal profile and weight of subsidiaries serving these national mega-markets. The framework distinguishes between organizational disequilibrium and market disequilibrium as a way to classify different types and different degrees of subsidiary initiative. It is argued that prior conceptions of subsidiary initiative in practice reveal a bias towards organizational disequilibrium and tend to overlook important MNC subsidiary initiatives involving market disequilibrium, generally neglecting the entrepreneurial dimension that Birkinshaw (1997) associated with the term when he initiated this research stream. Metaphorically speaking, although Birkinshaw was always clearly interested in MNC subsidiary initiatives that “wag the dog,” most follow-up research examines initiatives that merely “rock the boat.” Our framework helps capture the distinction and anticipates more dog-wagging by MNC subsidiaries in the future.     

Subsidiary power,cultural intelligence and interpersonal knowledge transfer between subsidiaries within the multinational enterprise

We propose that individual-level knowledge transfer between subsidiaries within a multinational enterprise depends on the perceived relative power of the subsidiary and the cultural intelligence of individuals. Using a sample of 333 research and development (R&D) subsidiary employees of foreign Multinational Enterprises (MNEs) in India, we find that the perceived subsidiary power has a direct positive significant effect on knowledge sharing, and an indirect significant effect, through organizational identification, on knowledge seeking. Further, cultural intelligence moderates the effect of organizational identification on knowledge seeking, and the indirect effect of the perceived subsidiary power on it. The findings highlight the role of organizational identification and cultural intelligence in explaining the impact of the perceived subsidiary power on interpersonal knowledge transfer within the MNE.     

Control mechanisms of their subsidiaries by multinational firms: A multidimensional perspective

Multinational companies use a wide range of mechanisms to keep control over a subsidiary abroad such as the share of capital in the case of international joint ventures, expatriation, active participation in the board of directors, staffing key management positions, training and socialization of employees, technology transfer, and so on. However, only a few empirical studies on the control of international subsidiaries embrace all these dimensions simultaneously and show how they interact. This paper presents the empirical results of a quantitative survey of 316 subsidiaries, international joint ventures and wholly foreign owned enterprises, set up in China by European and Japanese multinationals. The main objective of the survey is to bring out an inductive multidimensional model of control, and to allow a better understanding of complex interaction and balance between the instruments of control of a subsidiary abroad.     

Institutional antecedents of subsidiary external embeddedness: Coping with regulatory competitive constraints

We investigate institutional antecedents to subsidiary external embeddedness and relate regulation constraining competition in local service sectors to subsidiary embeddedness with local partners in complementary sectors. Combining research on business networks with arguments derived from transaction cost economics, we argue that subsidiary external embeddedness depends on the extent of transaction costs originating from small numbers bargaining, which regulatory competitive constraints in local service sectors are a source of. Based on this logic, we suggest that low and high levels of regulatory competitive constraints are associated with greater subsidiary external embeddedness. We also suggest that this U-shaped relationship is more pronounced for subsidiaries that are centers of excellence within the multinational enterprise because these subsidiaries heavily depend on the local context as a source of their competitive advantage over their sister subsidiaries.     

Conflict in foreign subsidiaries of Japanese and western multinational corporations: The impact of cultural distance and differences in home-host country combinations

This article investigates the degree of conflict between different groups of employees in MNC subsidiaries in relation to different home-host country combinations. More specifically, we compared the degree of conflict of Western subsidiaries in Japan and Japanese subsidiaries in the West. We based our comprehensive investigation on data from 617 US and German subsidiaries in Japan as well as Japanese subsidiaries in the USA and Germany (and, for comparative reasons, US subsidiaries in Germany and German subsidiaries in the US). Possibly rather surprisingly, our results indicate that different degrees of cultural distance between home and host country do not lead to different degrees of conflict in MNC subsidiaries. We suggest that expected conflicts, due to substantial cultural differences, induce employees to actively counteract such problems, leading ultimately to a reduction of real conflicts. Furthermore, while previous literature suggested that in particular Japanese subsidiaries in the West are prone to a high degree of conflicts, our findings suggest that Western subsidiaries in Japan are even more conflict-laden. This should caution Western companies against complacency when operating in Japan.     

Decades of research on market entry modes: What do we really know about external antecedents of entry mode choice?

The choice of a mode of market entry is a critical component of the internationalization strategy, and numerous empirical studies have focused on this topic. Prior research, however, has provided mixed empirical evidence and thus, is difficult to interpret and review.This study examines the external antecedents of the choice of entry mode by meta-analyzing data from 72 independent primary studies. We focus on the decision between wholly owned subsidiaries and cooperative entry modes. For each variable, hypotheses about the theoretically expected direction of effect are posited and tested.We find a strong positive relationship between power distance as a cultural trait of the firm's home country and the propensity to establish a wholly owned subsidiary. On the other hand, we find a negative association between country risk, legal restrictions, market growth, and market size and the preference for wholly owned subsidiaries. We extensively discuss the implications of the meta-analytical results and investigate moderating effects of industry type and the time of the study. The relationship between income level of the host country and entry mode depends, to some degree, on the industry type. Service companies exhibit a negative relationship between income level and wholly owned subsidiaries, while manufacturing companies show a positive relationship.     

Institutions and the Diversity and Prevalence of Multinationals’ Knowledge‐Augmenting Subsidiaries

Multinational corporations (MNCs) increasingly seek to gain access to, and exploit, locationally specific sources of advanced knowledge and technological capabilities, creating a need to explain (1) the diversity among these facilities and (2) how institutions influence MNCs’ abilities to invest in different subsidiary types. Extending debates on firms’ knowledge‐augmenting activities, the authors integrate institutions into their analytical framework to a greater extent than previous work has done. Moreover, existing contributions provide typologies of R&D subsidiaries. In contrast, the authors focus on a particular subset of subsidiaries, knowledge‐augmenting ones, and put forward a theory to explain their variety and their prevalence, enabling them to identify previously neglected subsidiary types that have important managerial and policy implications. By downplaying the diversity of these subsidiaries, existing work has not been able to capture the full range of managerial challenges as well as the costs and benefits of different subsidiary types to host countries. The authors, therefore, problematize firms’ abilities to gain access to foreign knowledge‐generating assets, highlight the importance of institutional environments, provide policy recommendations and identify areas for future research.     

Performance implications of MNE subsidiary federation: Evidence from India

Building on extant and emerging scholarship on the deepening of MNE operations in a foreign country, we develop the notion of subsidiary federation, viz., a constellation of legally independent majority-owned subsidiaries of a foreign MNE, in a single host country. We posit that subsidiary federation is a reservoir of host country experiences, resources, knowledge, and networks, and allows the parent MNE strategic flexibility in terms of where and how they choose to operate. The sharing of knowledge facilitated by interactions among the managers of affiliated subsidiaries bestows advantages that, we argue, are performance positive for the affiliates. We hypothesize that multiple subsidiaries in a foreign host country is positively associated with corporate level diversity, and that benefits to the affiliates in a subsidiary federation are associated with the size of the federation and with relative geographic location of the affiliates. We test our theory on a sample of foreign MNE subsidiaries in India during the 2000–2013 period and find strong empirical support for our hypotheses. We conclude with avenues for future research.     

Intra-firm Subsidiary Grouping and MNC Subsidiary Performance in China

Many multinational corporations (MNCs) operate multiple subsidiaries in a foreign country. Drawing upon literature of organizational network and business group, we hypothesize that the number of subsidiaries of an MNC has an impact on subsidiary financial performance in China. We further hypothesized two moderating effects, namely subsidiary's country of origin and subsidiary size. The results show that subsidiary grouping effect is more salient for subsidiaries from Japan and South Korea, and that larger subsidiaries are less affected by the subsidiary grouping effect. Our empirical results were based on a sample of 40,315 MNC subsidiaries in China. The findings underscore the importance of group-based competitive advantages of MNC subsidiaries in international business.