Abstract
This paper investigates how cultural distance, the local experience of a foreign subsidiary, and the intensity of local competition jointly affect the staff localization of MNEs’ subsidiaries. While previous studies on the effects of cultural distance have mainly focused on the gap between home and host countries, we extend the existing “home-host” country perspective to the home-intermediary-host country relationship. This study regards Korea as an intermediary country and utilizes 520 observations from a unique survey conducted by the Export-Import Bank of Korea from 2006 to 2013. The results suggest that the impact of cultural distance on staff localization is a function of local experience and competitive environment in the home-intermediate-host relationship structure. This paper makes a theoretical contribution to our understanding of the behavior of multinational corporations by expanding the cultural distance perspective between the home and host countries explored in previous research to the home-subsidiary-subsidiary structure.
Highlights
The impact of distance between home and host countries on strategies adopted by multinational enterprises (MNEs) is well established in international business literature [1,2]
We suggest that the impact of cultural distance on staff localization depends on the MNE subsidiary’s local experience and the intensity of competition in the host country
Drawing on staff localization strategies identified in previous research [58], we hypothesized that cultural distance between home and intermediate countries would be positively related to employment for local managerial staff: Hypothesis 2 (H2)
Summary
The impact of distance between home and host countries on strategies adopted by multinational enterprises (MNEs) is well established in international business literature [1,2]. To address this research gap, we developed an integrated model that considers the effects of cultural distance between home and intermediate countries on the local responsiveness of MNEs. Our research question is to study the impact of cultural distance on staff localization and the contingent relationship of local experience and competitive environment in the home-intermediate-host relationship structure. We explore whether or not the impact of cultural distance on staff localization is contingent on subsidiary capabilities and the competitive environment. This study makes both theoretical and practical contributions. We suggest that the impact of cultural distance on staff localization depends on the MNE subsidiary’s local experience and the intensity of competition in the host country. Panel data of 520 MNE subsidiaries over five years provides general support for our hypotheses
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