Subsidiary staffing, cultural friction, and subsidiary performance: Evidence from Korean subsidiaries in 63 countries

Abstract

Drawing from the notion of cultural friction and based on the agency theory rationalization of multinational enterprise (MNE) headquarter–subsidiary relationship, we examine the impact of cultural friction in foreign subsidiaries on subsidiary performance. We argue that cultural friction, arising due to a high presence of parent country nationals (PCNs) in culturally distant locations, has a detrimental effect on subsidiary performance. This effect is the strongest when the cultural friction is at the top management team (TMT) level and the weakest when friction is at the regular employee level. However, this relationship is contingent on factors that work as drags or lubricants for cultural friction between PCNs and host country nationals (HCNs). We identify governance mode and language differences between home and host countries as drag parameters and host country experience and subsidiary interdependence as lubricants that condition the effect of cultural friction on subsidiary performance. Empirical findings based on a longitudinal sample of 7,495 foreign subsidiary observations of 467 Korean MNEs in 63 countries during 1990–2014 provide robust support for our theoretical predictions.

Challenges for foreign companies in China: implications for research and practice

“…Also, when investigating subnational cultures, scholars may expand their understanding by using other cultural frameworks such as the GLOBE study (House et al 2004), Ingelhart's World Value Survey (1997), the Schwartz Values Survey (1994) and the like. Finally, these within-country and cross-country cultural differences can affect subsidiary staffing and cultural friction in local subsidiaries of foreign companies in China; thus such research may have important applications and use (Singh et al 2019).…”

Workaholism and workplace incivility: the role of work–family enrichment

“…The notion of cultural friction is relatively new to the international management literature that evaluates culture as a key element of cross-national differences. The general idea in this stream of literature is that the cultural difference between the home and the host country is the main issue for foreign subsidiary management (Singh et al , 2019). Cultural distance is often used as a measure of environmental complexity to examine strategic issues such as how home and host country differences influence employment designs (Gaur et al , 2007).…”

“…Unlike cultural distance, cultural friction emphasizes the actual cultural contact between the interchanging entities in an environment where multilevel yet intertwined cultural differences arise simultaneously. It is to be noted that the interaction between individuals and organizations from culturally diverse countries has the potential for creating and developing a shared understanding and thus declining the possible conflicts between them (Singh et al , 2019).…”

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“…Employees who are able to maintain two different cultures are associated with high psychological adjustment ( Chen et al, 2008 ) and positive attitudes ( Wagstaff et al, 2020 ). On the other hand, some studies assert the presence of more than one culture in an organization has a detrimental effect ( Kadam et al, 2020 ) on employee behavior such as performance ( Singh et al, 2019 ). In a study conducted by Wagstaff et al (2020) on the bicultural identity and cultural intelligence of employees, they found an increase in the positive attitudes of individuals with two cultural identities.…”