S-Space College of Business Administration/Business School (경영대학/대학원) Dept. of Business Administration (경영학과) Theses (Ph.D. / Sc.D._경영학과)
The Determinants of Subsidiary CEO Staffing by American Multinationals in Korea -Effects of HQ TMT Nationality Diversity and Resource Dependency-
해외자회사의 CEO 현지화 결정요인에 대한 실증연구 -본사 최고경영진의 국적 다양성과 본사와 해외자회사 간의 자원의존성을 중심으로-
- 경영대학 경영학과
- Issue Date
- 서울대학교 대학원
- Localization of foreign subsidiary CEO; Nationality diversity of headquarters' top management team; Resource dependency between headquarters and foreign subsidiary
- 학위논문 (박사)-- 서울대학교 대학원 : 경영대학 경영학과, 2018. 2. 이동기.
The Determinants of Subsidiary CEO Staffing by American Multinationals in Korea
-Effects of HQ TMT Nationality Diversity and Resource Dependency-
College of Business Administration
The Graduate School
Seoul National University
This dissertation is empirical research on the determinants of foreign subsidiary CEO staffing. The study examines the question of whether a foreign subsidiary of MNCs should be managed by an expatriate from the home country (or parent country nationals, PCNs) or host country nationals(HCNs). Based on prior literatures, this dissertation consists of two essays on the determinants of foreign subsidiary CEO staffing. Especially, I focus on the determinants which explain the localization of foreign subsidiary CEO.
In the first essay, entitled "The Effect of HQ TMT Nationality Diversity on Localization of Subsidiary CEO" investigates how nationality diversity of top management team in MNCs' headquarters affects foreign subsidiary's CEO localization. This study considers the relationship between HQ TMT and subsidiary CEO as principal-agent relationship. According to prior researches, HCN CEO can be substituted with an expatriate to alleviate agent cost of foreign subsidiary. However, I argue that the nationality diversity of HQ TMT improves TMT's cognitive capacity for processing information and responding cultural uncertainty caused by cultural and institutional difference between home and host country. Thus, nationality diversity of HQ TMT reduces HQ TMT's monitoring cost and coordinating cost for HCN CEO. Furthermore, HQ TMT with diverse nationality takes advantage of HCN CEO to access host country specific knowledge and to adapt local market. I propose that diverse nationality of HQ TMT may be associated with localization of foreign subsidiary CEO. Meanwhile, the global integration of overseas subsidiaries is expected to weaken the influence of HQ top management's nationality diversity on the localization of overseas subsidiaries. The higher the level of global integration, the more interdependence between the headquarters and overseas subsidiaries and the complexity of the work, which increases the coordination cost and control needs for the subsidiary.
In addition to the variables identified as the determinants of subsidiary CEO staffing in the prior study, I conducted empirical analysis to the localization of CEOs of overseas subsidiaries by applying the nationality diversity of the headquarters top management, which is the main concern of this study. Using a sample of 77 Korean wholly owned subsidiaries of 59 S&P 500 American multinational corporations from 2000 to 2014, I found the impact of HQ TMT nationality diversity on subsidiary CEO localization. In terms of research methods, panel logistic regression analysis and survival analysis, which reflects the effect of time, have been conducted, and more robust empirical results have been derived. I found the nationality diversity of the top executives of the headquarters was confirmed to have a significant positive relationship with the localization of CEOs of foreign subsidiaries. In other words, as the nationality of top executives of MNC headquarters diversified, the tendency to appoint a local person as a CEO of overseas subsidiaries was increased. In addition, the level of global integration has been shown to have a negative moderating effect on the relationship between HQ TMT's nationality diversity and the localization of overseas subsidiaries' CEOs. The contribution of this is that it suggests a new determinant which has not been covered by previous studies in analyzing determinants of the localization of overseas subsidiaries’ CEOs. Also, this study suggests that the localization of CEOs of overseas subsidiaries can be explained in terms of the upper echelons perspective.
In the second essay, entitled "The Effect of Resource Dependence on Localization of Subsidiary CEO", I focused on the fact that the power relationship between headquarters and overseas subsidiaries of multinational corporations is affected by resource dependency, and tried to clarify the effect of resource dependency between HQ and foreign subsidiaries on the localization of subsidiary CEO. According to resource dependency theory, the recipient of the resource depends on the provider who provides the resource, and the power relation is formed by the resource dependence between the resource recipient and the provider. The inter-organizational relationship in a multinational corporation has the characteristics of power relations based on interdependencies as well as the characteristics of hierarchical relationships between the top and the bottom of the hierarchy. The power relations between the parent company and the foreign subsidiaries are influenced by the exchange of internal resources. This means that overseas subsidiaries are hierarchically belong to the parent company, but if the subsidiaries provide resources to the parent company in terms of resource dependency, the influence or bargaining power of the overseas subsidiaries may increase. The resource dependency between the headquarters and foreign subsidiaries can affect the personnel policies of overseas subsidiaries including localization of subsidiaries' CEOs. In other words, if foreign subsidiaries procure resources from multinational corporations, resource dependency of foreign subsidiaries on multinational corporations will be increased. It is expected that the control of the parent company will be strengthened and the dispatched personnel will be appointed as the manager of overseas subsidiaries. On the other hand, if overseas subsidiaries provide resources to multinational corporations, the subsidiary's autonomy in personnel affairs will be strengthened. It is expected that the possibility of appointing local manpower as foreign subsidiary manager will be increase to access the local resource.
In addition to the variables identified as determinants in the previous studies, I performed empirical analysis on the localization of foreign subsidiaries' CEO by applying the resource dependency between the headquarters and overseas subsidiaries, which is the main concern of this study, as an additional determining factor. In this study, the resource dependency between headquarters and overseas subsidiaries is divided into the relative size of foreign subsidiaries and the transfer of resources between headquarters and foreign subsidiaries. Then, I tried to identify impact of both type of resource dependence on the localization of subsidiaries' CEOs. Using a sample of 105 Korean wholly owned subsidiaries of 89 S&P 500 American multinational corporations from 2000 to 2015, I conducted empirical analysis by panel logistic regression and survival analysis to improve the robustness of the empirical results. As a result, I found the impact of the resource dependence between headquarters and foreign subsidiaries on subsidiary CEO localization. The relative size of overseas subsidiaries is positively related to the localization of subsidiaries' CEOs. In other words, the larger the relative size of overseas subsidiaries, the more likely it was to appoint a local CEO as a subsidiary CEO. Also I found that the transfer of resources between headquarters and foreign subsidiaries has a significant impact on the localization of subsidiaries. The higher the level of resources providing from overseas subsidiaries to their multinational corporations, the higher the tendency of subsidiary CEO localization. On the other hand, the higher the level of procurement of resources from their MNCs, the higher the tendency to dispatch expatriates as the subsidiary CEO. In addition, the higher the level of resources providing from foreign subsidiaries to the multinational corporations than the level of resource procurement from multinational corporations to the subsidiary, the higher the likelihood of subsidiary CEO localization. This suggests that the direction of resource transfer between headquarters and overseas subsidiaries has different impacts on the localization of subsidiary CEOs. In conclusion, this study has contribution in analyzing the impact of resource dependence between headquarters and foreign subsidiary on the localization of subsidiary CEO through empirical analysis of not only the relative size of subsidiary but also the resource transfer between headquarters and subsidiary. Also, this study distinguishes the direction of resource transfer by using internal transactions between headquarters and overseas subsidiary, and empirically identifies the effect of the direction of resource transfer on localization of subsidiary CEO.