Expatriate staffing in foreign subsidiaries and host market contestability

Abstract

PurposeThis paper aims to study the decision of multinational enterprises (MNEs) whether to employ a host-country (HCN) or a parent-country national (PCN) manager in their subsidiaries, focusing on the role of host market contestability.Design/methodology/approachWe develop an empirical model for the probability of appointing a PCN manager in the population of all foreign-owned firms registered in Slovenia over a nine-year period. We combine four different micro databases: a matched employer–employee database, firm-level inward FDI data, firm-level outward FDI data and firm-level financial data, and apply a heteroskedastic probit model, a random effects probit estimator and a fixed effects panel data estimator. The final, fully merged database contains on average of about 28,000 firms per year.FindingsWe find that the propensity to appoint a PCN manager is higher in subsidiaries that compete with less-productive local rival firms in tacit knowledge-intensive industries with lower competition. The results also suggest that the likelihood of employing expatriates is higher in larger, younger and more export-oriented subsidiaries in less distant locations. In addition, cultural distance between the investing and host countries has been found to be more relevant than physical distance and to account for much of the differences between investors from different regions.Originality/valueAn important advantage of our paper is that we use comprehensive firm-level data on the entire population of firms operating in a host country, including both domestic and foreign-owned firms. This allows us to introduce a wide range of host-country market structure and local rival firm characteristics into our empirical model of the expatriation decision, which have not been previously tested. Additionally, we account for MNE heterogeneity in terms of investor origin, while controlling for investor country characteristics such as cultural, institutional and geographical distance from the host country.