Human capital, cultural distance and staffing localization

• Published in: Multinational business review Vol. 29; no. 3; pp. 420 - 439
• Main Author: Ando, Naoki
• Format: Journal Article
• Language: English
• Published: Bingley Emerald Publishing Limited 13.07.2021; Emerald Group Publishing Limited
• Subjects: Competition; Economic rent; Foreign subsidiaries; Host country; Human capital; Human resource management; Knowledge; Localization; Multinational corporations; Workforce planning; Expatriate; Human capital; Cultural distance; Localization; Subsidiary performance; Local manager
• ISSN: 1525-383X; 2054-1686
• DOI: 10.1108/MBR-02-2020-0036

Purpose This study aims to explore how a change in the staffing configuration of foreign subsidiaries affects subsidiary performance by focusing on staffing localization. Design/methodology/approach The relationship between localization and subsidiary performance is analyzed from the perspective of human capital. Hypotheses are tested using a panel data set of foreign direct investment by Japanese multinational enterprises. Findings The analysis demonstrates that localization has a positive effect on subsidiary performance when subsidiaries can access a pool of competent local managers in the host country. It also shows that when competent local managers are highly available, localization has a positive effect on subsidiary performance under high cultural distance. In comparison, when the availability of competent local managers is limited and cultural distance is high, localization has a negative effect on subsidiary performance. Originality/value Using human capital theory, this study theorizes how localization, which is a change in the configuration of human capital toward a reliance on local-specific human capital, enhances subsidiary-specific advantages. It introduces the effects of changes in the configuration of human capital over time, into studies on subsidiary staffing. In addition, from a different viewpoint than previous studies, this study proposes one possible path where human capital leads to organizational performance. Specifically, it shows that a change in the configuration of human capital affects subsidiary-specific advantages, which eventually impacts subsidiary performance.