The influence of institutional context on normative control structure in wholly-owned foreign affiliates: Patterns in the deployment of expatriate managers

Abstract

Decreasing trade and investment barriers around the globe have made it both easier and more important for multinational enterprises (MNEs) to establish productive facilities in foreign countries. The increasingly complex network of global interdependencies that characterizes MNEs raises substantial issues of coordination and control, as firms try to develop a sustainable competitive advantage by leveraging complementary assets, pooling critical resources, and achieving world-class economies of scale. This study addresses one aspect of the control issue in MNEs--the use of expatriate instead of local managers in wholly-owned foreign affiliates. An analytical framework is developed though the integration of the resource-based view, MNE control theory, and institutional theory, in which expatriates are viewed as a behavioral control mechanism which facilitates the transfer of valuable knowledge or know-how across organizational subunits. However, asymmetries between the institutional contexts of the home and host countries may constrain the utilization of expatriates because of legitimacy-related concerns. Expatriate utilization is viewed as a strategic response that balances the importance of replication and net institutional pressures for conformance. An integrative model predicting the effects of organizational and contextual factors on expatiate utilization is tested on a sample of 166 wholly-owned German, Japanese, and British affiliates in the United States. Regression analysis reveals that a strong corporate culture, acquisitions in the parent's core business, and greenfield sites are strong positive predictors of increased utilization of expatriates. Industry sector is not a significant predictor. The influence of institutional context is in the predicted direction, but is not significant. Surprisingly, client-following affiliates do not exhibit greater expatriate utilization, except those engaged in service businesses. Results of a structural equation analysis provide some support for the conflicting influence of the importance of replication and net institutional pressures. The results also suggest that the decision whether or not to utilize expatriates in a foreign site should be considered separately from the extent to which expatriates are used in those affiliates in which present. The results reinforce the usefulness of applying institutional theory to research on MNEs. Implications for both theory and practice are discussed, as are recommended directions for future research.