Cultural diversification, human resource-based coordination, and downside risks of multinationality

Abstract

We take the multinational operational flexibility perspective to examine how human resource-based coordination allows multinational corporations to retain the flexibility value of multinationality in diverse cultures among host countries. We posit that home national expatriates, host country specialists, and cross-cultural training programs within the same company network promote cultural understanding, facilitate effective coordination, and consequently curb downside risks of multinationality. By employing the Tobit two-stage model on a large sample of Korean multinational corporations, we find that a broader existence of three human resource programs help curbing downside risks, and the downside risk reduction effect is stronger under high cultural diversification. These findings imply the positive roles of cross-cultural coordinative mechanisms in retaining the flexibility value of multinationality.