Host Country Threats, Global Integration, and Subsidiary Executive Staffing

This study examines how different types of threats within a host country such as the government corruption and economic volatility may affect MNEs’ subsidiary executive staffing in the host country when the MNEs are also under high pressures of global integration. Drawing on the intergroup threat theory in social psychology, we conceptualize government corruption as a symbolic threat that primarily causes intangible losses in terms of value and moral for MNEs, and economic volatility as a realist threat that mainly involves economic and material losses. The distinctive nature of the two threats drives MNEs react differently in changing the appointment of expatriates over local managers in response to the global integration pressure. We argue when facing a symbolic threat in a host country, MNEs subject to a high pressure of global integration, such as those competing in global industries, tend to act rigidly in appointing expatriates to be the executives in the local subsidiaries. Instead when perceiving a realistic threat in the host country, MNEs under a strong pressure of global integration become more adaptive by hiring local managers as the directors in the local subsidiaries. Our analysis on 683 foreign subsidiaries by 335 Japanese firms in China over the period between 1980 and 2000 largely supports the ideas.