Beyond ethnocentrism: why do MNCs send their nationals to subsdiaries?

Why do MNCs send parent country nationals (PCNs) to staff top-management teams in their foreign subsidiaries? This is a classic research topic in international business and human resource management.

Many studies have indicated that subsidiary’s top-management staffing practices differ by the MNCs’ country of origin (COO). The predominant explanation for such differences has been the “ethnocentric” culture of the MNC home country. Thus such practice is usually labelled as “ethnocentric” staffing.

A fresh look at an old problem

In our recent paper, we questioned whether an “ethnocentric” culture - the predominant explanation for PCN staffing policies in the cross-cultural management literature - is sufficient to explain this practice. We turned to the comparative institutionalism literature which investigates the differences across countries’ institutional arrangements that shape and regulate firms’ available resources for an alternative explanation.

  • Lee H-J, Yoshikawa K, Harzing A-W. Cultures and Institutions: Dispositional and contextual explanations for country-of-origin effects in MNC “ethnocentric” staffing practices. Organization Studies. in press. Available online... - Publisher's version (free access) - Related blog post 

Cultures and institutions are rarely studied together due to their distinct intellectual traditions. More importantly, they are empirically intertwined, thus making it challenging for researchers to disentangle the causality of and interrelations between them. Our view is that the cultural and institutional conditions are complementary in the explanation of country-of-origin effects, and specific conditions may manifest differently across countries.

Two mechanisms: dispositional and contextual

We therefore theorized a holistic framework that integrates the cultural and institutional mechanisms from a configurational perspective, and tested it with fuzzy set Qualitative Comparative Analysis (fsQCA).

Dispositional Mechanism: Ethnocentric Cultures that Favor Nationals over Non-nationals 

The first mechanism is the classic explanation for the COO effect, primarily drawn from cross-cultural management: MNCs send their nationals to foreign subsidiaries because their cultural dispositions favor nationals over non-nationals. We operationalize this mechanism by (strong) ingroup collectivism and a (large) trust gap between nationals and foreigners in the analysis.

Contextual Mechanism: Constraints in Translation across Borders due to Institutional Contexts

The second mechanism is drawn from the comparative institutionalism theory and focuses on context. We propose that COO’s institutional arrangements affect/constrain firms’ capabilities for cross-border translation: MNCs send their parent country nationals to subsidiaries when their translation capabilities are low, so that PCNs can function as a bridge between HQs and subsidiaries. We operationalize this mechanism by (low) English language proficiency and (low) interorganizational labour mobility.

Our findings: a plea for expanding our horizons

Overall, our analysis of multiple MNCs from ten large economies shows that 1) our integrated framework provides a good explanation; and 2) we need both mechanisms- cultural and institutional- to explain the country-of-origin effects of “ethnocentric” staffing.

We speculate that the prevalent usage of the term “ethnocentric” staffing, combined with the dominant cultural values framework, might have led to an over-emphasis of national cultural dispositions over institutional contexts in explaining country-of-origin effects in MNC global staffing practices. It therefore behooves us as scholars to expand our research horizons by re-examining the taken-for-granted intellectual styles and dominant paradigms.

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