The effect of localization on subsidiary performance in Japanese multinational corporations

Abstract

This study examines how the localization of a foreign subsidiary in terms of staffing affects the subsidiary's performance. Hypotheses are developed regarding the effect of localization on subsidiary performance, considering the moderating effect of the host country environment. Using a panel dataset consisting of 4662 foreign subsidiaries of Japanese firms, this study finds that localization is positively associated with subsidiary performance for the subsidiaries operating in developed economies. In contrast, for subsidiaries in emerging economies, localization does not improve subsidiary performance. In addition, this study shows that the positive effect of localization on subsidiary performance becomes weaker as the institutional distance becomes greater.

Keywords::

• expatriate
• HCN
• Japanese MNCs
• localization
• PCN
• subsidiary performance

Acknowledgements

The author would like to thank guest editors and anonymous reviewers for their insightful comments and suggestions. This research was supported by Grant-in-Aid for Scientific Research (24530487) provided by Japan Society for the Promotion of Science.