Cultural Distance and Staffing Policy : Operational Roles of Foreign Subsidiaries in Global Supply Chains

In this study, we resolve a dilemma in the staffing policies of foreign subsidiaries in culturally distant countries---whether to deploy more expatriates from the home country or hire more local employees from the host country's local labor market. To this end, we adopt a novel approach by considering the operational roles of foreign subsidiaries in global supply chains using a unique dataset of Korean-owned foreign manufacturing subsidiaries. Specifically, we explore the following two types of foreign subsidiaries: horizontal subsidiaries (i.e., those accessing the host country's local market by local production) and vertical subsidiaries (i.e., those performing a specific task in the multinational firm's production chain based on international differences in factor prices). We then explore how different types of foreign subsidiaries adjust their staffing policies relative to cultural distance in hierarchy and individualism. We find that cultural distance in both dimensions increases the proportion of expatriates in managerial positions for both types of foreign subsidiaries and the proportion of expatriates in non-managerial positions for vertical subsidiaries. However, for horizontal subsidiaries, cultural distance in individualism increases the proportion of local employees in non-managerial positions, whereas hierarchy does not affect the staffing policy in non-managerial positions. Thus, our study shows that foreign subsidiaries require a different composition of employees in non-managerial and managerial positions based on their role in the global supply chain and cultural distance dimensions. We also show that a proper staffing policy can improve the operational and financial performance of foreign subsidiaries. Therefore, by linking two streams of literature (i.e., operations management and human resource management), our findings suggest that operations and human resources executives should coordinate and cooperate in decision-making to achieve efficient and effective foreign subsidiary operations in multinational firms