Impact of nationality composition in foreign subsidiary on its performance: a case of Korean companies

Abstract

This study explores how the nationality compositions of management teams and employee groups in foreign subsidiaries can affect subsidiary performance. By analyzing firm-level data on 401 South Korean subsidiaries across 35 countries in the period between 2005 and 2007, we found that balanced compositions in both subsidiary management teams (SMTs) and subsidiary employee groups (SEGs) were positively associated with subsidiary performance. The results suggest that the benefits of balanced composition are higher for both innovative and coordinative tasks conducted by management teams and for simple computational tasks conducted by employee groups. The effect of the SMT and SEG compositions on subsidiary performance, however, may depend on the host country's institutional conditions. These findings have practical implications for multinational staffing strategies in order to ensure high performance in subsidiaries and for host country policies used to attract high quality foreign direct investments.

Keywords::

• expatriate
• nationality
• performance
• subsidiary human resource management
• workforce composition

Acknowledgements

We acknowledge the constructive comments from the guest editor, Elaine Farndale, and four anonymous reviewers. Mila Lazarova provided helpful comments on an earlier version of this paper. The authors are listed in alphabetical order.