Conquerors or Saviors? Parent Country Nationals in Foreign Subsidiaries

Abstract

How multinational corporations (MNCs) control their subsidiaries—through either ownership (partial/whole equity; greenfield/acquisition) or operational (levels of parent country national staffing) controls—is theorized to impact ensuing subsidiary performance. Moreover, the impacts of these controls may be more or less effective when moderated by differences in cultural distance. Using an unbalanced panel sample of 2,692 Korean MNCs’ foreign subsidiaries (9,147 subsidiary-year observations across 47 countries from 2006 to 2013), we find that foreign subsidiaries perform better overall in low cultural distance countries. The impact of staffing levels, though, is highly dependent on ownership control level and cultural distance. In particular, high staffing levels are only effective at improving performance if the subsidiary is under shared equity ownership; it is not effective (low cultural distance) or even hurts performance (high cultural distance) when it is used in a wholly owned subsidiary. The establishment mode of greenfield versus acquisition status did not affect performance. In a period of increasing nationalism in investment priorities, understanding that high parent country national (PCN) levels can be welcomed or resisted offers valuable implications for knowledge management and international investment, and suggests further research on the mechanisms that affect the reception of PCNs.