Determinants of the level of foreign subsidiaries’ localization of Korean MNCs and performance in China: Focused on multi-level factors and non-linear effects

Abstract

Purpose

The purpose of this paper is to empirically analyze what effects the headquarters’ (HQ) business strategy and corporate culture, the local network embeddedness of the foreign subsidiary, and HQ-subsidiary communication have on the staff localization of foreign subsidiaries. The authors carry out empirical analysis on how localization of foreign subsidiaries ultimately affects the performance of foreign subsidiaries.

Design/methodology/approach

This study is an empirical analysis on the determinants of staff localization and the relationship between staff localization and corporate performance. In this study, the five hypotheses were proposed and tested using survey data. The authors randomly selected a total of 800 companies as subjects and conducted a survey. The final 222 survey data including HQs and subsidiaries were used for empirical analysis. The statistical analyses such as reliability test, factor analysis and regression were used.

Findings

This study shows that there was a higher level of staff localization by the foreign subsidiary when the investment goal was market-oriented investment, the Korean foreign subsidiary had stronger local network embeddedness and there was better HQ-subsidiary communication. In addition, the relationship between localization and subsidiary performance shows an inverted U-shape. Such results will give various implications to companies.

Originality/value

The research that takes a multilayered consideration on factors of the HQ, subsidiaries, and the HQ-subsidiary relationship is rare. To overcome such limitations, this study carried out a survey in order to find more in-depth decision factors. Specifically, this study analyzed the effects of three large aspects of investment goals and corporate culture from the aspect of the HQ, local network embeddedness from the aspect of foreign subsidiaries, and the level of HQ-subsidiary communication from the aspect of HQ-subsidiary relations, and how they affect staff localization.

Citation

Kim, B.-G. and Kim, G.-B. (2017), "Determinants of the level of foreign subsidiaries’ localization of Korean MNCs and performance in China: Focused on multi-level factors and non-linear effects", Journal of Korea Trade, Vol. 21 No. 1, pp. 2-21. https://doi.org/10.1108/JKT-01-2017-0006