Cultural distance, expatriate staffing and subsidiary performance: The case of US subsidiaries of multinational corporations

Abstract

This study examines the relationship between cultural distance and the use of parent country expatriates in the wholly-owned US subsidiaries of 52 multinational corporations. This study also investigates the link between the use of expatriates and subsidiary performance as a function of cultural distance. Testing hypotheses based on transaction costs theory, our results suggest that firms rely on a greater number of parent country expatriates when they are culturally distant from the subsidiary (i.e. the United States). This study further demonstrates the bounded rationality problem faced by multinational corporations: cultural distance moderates the relationship between expatriate staffing and subsidiary performance such that a higher ratio of parent country expatriates is related to lower subsidiary performance, particularly in cases when cultural distance is high.

Keywords:

• expatriates
• cultural distance
• subsidiary performance

Acknowledgements

We thank David Lepak and Jean-Luc Cerdin for helpful comments on previous versions of this manuscript.

Notes

1. This study exclusively focuses on parent-country national expatriates. The term ‘expatriate’ will be used in this paper to refer to the PCN expatriates.

2. We thank a reviewer for suggesting this point.