Institutional environments, staffing strategies, and subsidiary performance: Lessons from Japanese MNCs

Abstract

We investigate the issue of overseas subsidiary staffing by parent country nationals (expatriates) in Japanese firms. We adopt institutional perspectives to advance understanding of how the host country environment influences subsidiary staffing strategy, moving beyond traditional cultural distance measures of host country complexity. We propose that firms rely less on parent company nationals in less developed institutional environments for reasons related to subsidiary legitimacy and adaptation to the host environment. Further, we expect the positive influence of expatriate staffing levels on subsidiary performance to be weaker, the more developed the institutional environment. Results based on an analysis of expatriate employment levels in more than 13,015 foreign subsidiaries of 2,952 Japanese firms in 48 countries substantially support our arguments. Our study support the view that institutional theory measures significantly explain subsidiary staffing decisions, and do so more consistently than cultural distance.